Writing a good business plan step by step

the secrets to writing a successful business plan - hal shelton and writing a successful business plan an overview
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Writing a Successful Business Plan Stephen Lawrence and Frank Moyes Deming Center for Entrepreneurship Leeds School of Business University of Colorado at Boulder       Copyright © 2009 by the Regents of the University of Colorado Purpose of a Business Plan A business plan describes the venture that you will create to exploit a concept. You are telling a story about your creation that will convince readers of the viability of your venture. Who Should Write? Anyone who wants to start an entrepreneurial venture. It doesn’t matter if the venture is high or low tech, high or low growth, nonprofit or social, lifestyle or an entity within a large corporation or government agency. The key is to thoroughly understand the venture and plan accordingly Why Write? Perhaps the most important reason to write a business plan is that it requires you to engage in a rigorous, thoughtful and often painful process that is essential before you start the venture. You must answer hard questions about your venture. Why is there a need for your product or service? Who is you target customer? How is your product or service different than your competitor’s? What is your competitive advantage? How profitable is the business and what are the cash flows? How should you fund the business? Nonprofit Is a business plan appropriate for people who are trying to start a nonprofit. How does this differ from a for-profit business? Is a business plan appropriate? In fact there is not a difference between a nonprofit and a for-profit business as far as planning is concerned. The issues are the same for both and need to be addressed.. There is a difference in one important way - a nonprofit is usually in continuous money raising mode with donors and sponsors. Unless there is an endowment, management spends a lot of their time grant writing and trying to raise funding. A business plan is an essential element in communicating with funders. Added Benefit An added benefit is that by virtue of going through this process you will have established a sound basis for verbally communicating the attractiveness of your venture. To be able to describe your business in a compelling manner and then to succinctly answer questions from funders is a critical skill. You can do this well only when you have made the venture a part of your soul. Writing a Successful Business Plan will help you do this. 3 Writing a Successful Business Plan Copyright © 2009 by The Regents of the University of Colorado What Are the Uses of a Plan? Action Plan A business plan may help to move you to action. You may have been thinking for years about starting a business or engaging in some venture, but the process may seem too daunting, too large and too complicated. A business plan will help you to pull apart the pieces of starting a business and examine each piece by itself. So instead of one large problem, you have a sequence of smaller problems. And by solving the small problems, the large problem is automatically solved. So writing a business plan may help to move you to action by breaking down a seemingly insurmountable task (starting a business) into many smaller, less intimidating tasks. Road Map Once you have started your business, a business plan is an invaluable tool to help keep you on track and moving in the direction you want to go. In the hurley-burley of daily business, it is very easy to lose sight of your objectives and goals a business plan may help to keep you focused. A business plan may also serve to help others to understand your vision, including suppliers, customers, employees, friends, and family. Fund Raising You may need outside financing to start your business. Funding sources are investors, banks, grants, government agencies, and friends and family. All of these sources will expect a well written business plan on which to base their decisions. Sales Tool A business plan may be used to convince people to become involved with your business. You may want and need concessions from suppliers or customers a business plan may help you get them. It also may be used to recruit key employees, directors and advisors. Finally, you may need to convince family members, or even yourself, that your ideas will bear fruit. Acknowledgements The authors would like to thank Liz Snowden, George Deriso and Ray Wilson, all entrepreneurship teachers at the University of Colorado for their comments and suggestions. We also want to recognize the contributions of Jeff Mullins to this document, particularly the Market and Industry Analysis section. We recommend that you read The New Business Road Test, 2008, Mullins, FT Prentice Hall. . 4 Writing a Successful Business Plan Copyright © 2009 by The Regents of the University of Colorado Executive Summary The Executive Summary of a business plan is a distillation of your entire plan, and often is the last section to be written. Despite the title, it is not written for executives, nor is it a summary of the plan. Its objective is to capture the reader’s interest, so that they want to read the entire plan; even better to call you to arrange a meeting. It should be considered a chance to “sell” the reader on the business opportunity. A first-time reader should be able to read the Summary by itself and know what your plan is all about. The Summary should stand-alone and should not refer to other parts of your plan. Remember, most readers will never get any further than your Executive Summary, so make it count The Executive Summary should be a maximum of two pages. Ideally you should try to get it all on one page. This is very difficult to do, but being succinct has great benefits when trying to capture the attention of investors. The summary should address at least some the following elements of the plan. • Concept Description: Summarize the essence of your venture. • Opportunity: Why is this a good opportunity? What is the compelling need, i.e. what problems are you solving? What is the size of your market? What are the critical trends? • Product/Service: Describe the product or service. How will you differentiate it from the competition? How is the product or service to be produced and delivered? • Value Proposition: What are benefits to the target customer? • Marketing Strategy: What are the key elements of your marketing strategy? • Competitive Advantage Who is the competition? What is your competitive advantage? • Management: Who is the management team and why will they make a success of the venture? • Financial: How large will the company become, i.e. what revenues will be achieved? What is the expected profitability? When will the company breakeven? • Funding: How much funding is required? What will it be used for? What is the exit strategy? This section should be written after you have completed the rest of the business plan. 5 Writing a Successful Business Plan Copyright © 2009 by The Regents of the University of Colorado Company Overview The Company Overview is a one page description of the company you have founded or want to found. Upon reading this section, the reader should have a good idea of where you are now and where you are going with your company. In addition this section will describe three essential elements of the venture: the business model, value proposition and competitive advantage. Describing them here will address upfront questions that are always in the reader’s mind. This section should be written after you have completed the rest of the business plan. Introduction Write a paragraph that briefly outlines the history and current status of your company. What is the legal entity? Who owns the company now? Vision What is your big vision? What problems are you solving and for whom? Where do you want to be in the future? What are your guiding principles? Mission Statement Your mission statement is a short (one sentence to one short paragraph) inspirational statement of the purpose of your venture. Too many mission statements are vacuous exercises in ambiguity, e.g. "employees are our most valuable asset". Be sure that your mission statement is succinct and content rich, and excites your readers. Business Model The business model determines the economic viability of the venture. There are five elements to consider. All of these will apply to varying degrees, but most new ventures tend to innovate in one or two. Write a short description of your business model that considers the following: 1. How you will create value: provide products, transactions or service, or a mix; nature of the product/service mix and the depth and breadth of this mix; standard or customization; produce internally or outsource; sell direct or through a channel. 6 Writing a Successful Business Plan Copyright © 2009 by The Regents of the University of Colorado 2. Who will you create it for: B-to-C or B-to-B; entry and future customer segments; local, national or international. 3. How you will generate revenue: how soon; how often, how many, and where will they buy; direct sales or through a channel; on what basis will they pay - cash or credit. 4. How you will make money: high or low gross profit margin; why and how prices and cost of revenue are increasing or decreasing; operating leverage. 5. How capital intensive you are: hard assets; working capital; required level of sales, marketing or development expenses. Value Proposition Write a brief statement of how your target customer will benefit from your product/service. Why should they care? Competitive Advantage Write a brief description of your sustainable competitive advantage. Consider the following: • Internal capabilities – What are your skills, experience, resources, and tangible and intangible assets? • Differentiation – How are you unique in the marketplace? 7 Writing a Successful Business Plan Copyright © 2009 by The Regents of the University of Colorado Product or Service Plan Guidelines for Preparing This Section Your business could be a product or service or both. In this section provide a detailed description of what you are providing. You should not assume that the reader is familiar with your product or service, so be sure to explain it carefully. The use of photos, schematics, drawings and renderings is an effective way to convey your offering. Begin to sell your idea here by generating some excitement about your product/service. Be factual, but be enthusiastic. When readers have finished learning about your product/service, they should be primed for the marketing, operations and financial strategies of your venture. Sources of Information • Technical specification and drawings • Prototype • Competitor product/service matrix • Interviews - talk to experts in the marketplace, including buyers, suppliers, sales representatives, wholesalers, distributors, and retailers. • Customer surveys • SWOT analysis Features Describe how your product or service has been designed and tailored to meet the needs of your target customer. Provide evidence that your customers need your product or service. Address the following: Key Attributes: • Product ventures: function (speed, taste, cost reduction) durability, installation, ease of use, packaging, etc. • Service ventures: function, environment, reliability, responsiveness, availability, usability, etc. • Retail ventures: the product offering, ambiance, décor and layout, location, etc. Write a one-paragraph description that evocatively describes the experience of customers using your service. • Internet ventures: service offering, e.g. e-tailing, communication and information, data interchange, B2B buying and selling, social networking, ASP’s, networking, etc. 8 Writing a Successful Business Plan Copyright © 2009 by The Regents of the University of Colorado Enhancements • Can you enhance the product/service with a unique process, delivery methods, resources, employee skills, systems, location, strategic partnerships, etc.? • Can you use packaging to provide functionality and facilitate the buying decision? • How can you use sustainability to appeal to the target customer? • Will you provide customer and tech support? Training? Delivery? Installation? Repair service? Warranty? Payment terms? Product or Service Strategy • What is the depth and breadth of your product/service mix? What will be introduced initially? Over the next three years? To which target customers? • What is unique about your product/service? How will it be differentiated from your competition? • What evidence do you have to support the demand for these features? • What are the strengths of your product/service? Weaknesses? • How is the product/service going to be used? • For technology products, what are the major technical milestones that must be achieved? What is the basis for believing that they are achievable? • Successful companies rarely have only one product or service. Describe how your offering will evolve. Benefits If features are about the product/service, then benefits are about the customer and should address their needs, desires and dreams. Your new bicycle may be fast and red, but these are not benefits. The benefits are that with this bike your customer can win competitions and look cool. Think about the impact on the target customer’s emotions and/or pocketbook. Key benefits: • How do the benefits address the needs of the target customer? Think beyond a generic description of benefits, e.g. o Best quality: do you mean appearance, durability, reliability, etc.? o Good service: do you mean on-time delivery, maintenance, tech support, etc.? o Efficiency: do you mean less time, easier to use, greater output, fewer resources, etc.? o Save time: to do what? It may not always be important to save time. o Convenience, for what? o Cost savings: versus what? Does the money pile up in the basement? 9 Writing a Successful Business Plan Copyright © 2009 by The Regents of the University of Colorado • Are the benefits well understood by the target customer? What evidence do you have to support this? • Prepare a features and benefits table. For each of the important features, describe the corresponding benefit. Proprietary Rights What proprietary rights do you have to the product/service? For many ventures, there are no proprietary rights and this subsection may be omitted. • Patents, copyrights, trade secrets, non-compete agreements? • Other proprietary knowhow or skills? Patents There two types of patents: first, is a design patent which protects the appearance or ornamental design of an invention. To receive a design patent your invention must have a new, original and ornamental design, and be non- obvious. Second, is a utility patent which protects the function or method of the invention. To receive a utility patent your invention must be a process, machine, manufacture or composition; useful; novel; and unobvious to someone who has ordinary skill in the area of the invention. In this section write a brief description of the status of your patent. • Have you filed for a patent? What type (utility or design)? Where filed - US, EU, worldwide? Has it been issued? • If you have not filed, but plan to do so, what evidence do you have of its patentability? Have you done a patent search? • This area is fraught with regulatory, legal, disclosure, and financial issues? This is particularly the case with start-up ventures. You should talk to an attorney. Trade Secrets An alternative to the disclosure requirement, time, complexity and cost of getting a patent is to just keep the proprietary information secret. If you have unique knowledge or skills, then the strongest competitive advantage may be not to disclose it. As you would expect, this approach has its own issues, but many ventures have competed successfully this way. Copyrights Copyright is a legal protection of the way someone expresses their idea. Writers, composers, artists and software programmers may receive this protection. Write a brief description of the status of your copyright. 10 Writing a Successful Business Plan Copyright © 2009 by The Regents of the University of Colorado Stage of Development Briefly describe the current status of your product or service. Where is the product in its lifecycle: conceptual, design, prototype, growing, mature, or declining? Is it ready for the market? Do you have a head start that could give you first-mover advantage? If in development, how far along is it? What obstacles remain? When will it be ready for introduction? 11 Writing a Successful Business Plan Copyright © 2009 by The Regents of the University of Colorado Market and Industry Analysis Guidelines for Preparing This Section The objective of this section is to prove that there is a good opportunity. Here you dispassionately describe the market you will enter and the industry in which you will compete. You may not even mention your business here, unless it is already a part of the industry. When finished with this section, you and your readers should understand the dynamics, problems, and opportunities driving your marketplace. Most important you should be able to validate the need for your product/service. Sources of information • Primary research o Interviews - talk to experts in the marketplace, including buyers, suppliers, sales representatives, wholesalers, distributors, and retailers. o Customer surveys • Secondary research - internet, library, trade associations and journals. • Supply chain analysis. Value chain. • Samples of competitor products • Competitor brochures, catalogs, specifications, literature, websites, advertising and promotion materials. Visit their premises. Market Analysis Overall Market In this section you will define the market in which you operate, analyze the total market size and growth, and set the stage for defining the entry point. Most of the information for this section will be based on secondary research. Address the following: • How large is the market (numbers of customers, units sold or transactions, dollar value of purchases)? • What are the historic and future growth rates? • What are the trends that are driving the market? How is the market changing? Consider: o Economic, socio-cultural, political/legal, global, environmental, demographic and technological. For example, what is the impact of aging baby boomers, single parent families, e-commerce, etc? o Both positive and negative developments. Even negative trends may represent opportunities, e.g. in mature markets a consolidation plan could be viable. 12 Writing a Successful Business Plan Copyright © 2009 by The Regents of the University of Colorado Addressable Market The overall market does not necessarily represent your opportunity. Let’s say you have designed a new road bicycle that is light weight and sells for 2,000. The market opportunity for this is not the entire bicycle market. You will never be able to capture a share of the market for kid’s bicycles, cruisers, or mountain bikes. Therefore, the addressable market is considerably less than the overall market and is where you will focus your attention. Segmentation Next, identify different groups of customers who may be willing to buy your product/service to satisfy a need. A market segment is a subgroup of people or organizations sharing one or more characteristics that cause them to have similar product/service needs. Segmenting the market is the basis for deciding on your initial and future markets, product or service offering and marketing strategy. In this section you should address all of the potential markets, not just the one you plan to enter first. The following are different ways to segment the market: • Groups of customers: demographics, psychographics, e.g. baby boomers, grandparents, environmentalists, conservatives, etc. • Sectors: industrial (petroleum, construction, etc.), financial (retail banks, mortgage lenders, insurance, etc.), government (state, military, homeland security, etc.) • Geography: local regional, national, international • Product/service features: speed, performance, fragrance, etc. • Benefits: enhance image, trend setter, improve sex life, save money, etc. • Prices: premium, lowest cost, standard mark-up, etc. • Distribution channel: retail, internet, door-to-door, etc. Continuing with the bicycle example, potential segments would include athletic baby boomers with incomes greater than 150,000; first time cyclists who want to enter competitions; and courier services in large cities; and bicycle tour companies. As with the total market, for each segment determine the market size (numbers of customers, units sold or transactions and dollar value of purchases), growth (historic and future) and trends. Entry Point Based on the segmentation that you did above, now describe the specific market segment that represents your best point of entry. Provide evidence that explains why this segment is attractive. • One of the most difficult questions that you must answer is what problem are you solving for your target market, i.e. why is there a need for your product/service? 13 Writing a Successful Business Plan Copyright © 2009 by The Regents of the University of Colorado • Are there customer groups or regions that are not adequately being served? Is there a segment where customers are dissatisfied? • Do the customers in this segment understand the benefits and are they willing to purchase? • What future segments could you enter? Why? Industry Analysis In this section you will describe your competitors and how they compete. Here you must show that you understand the nature of the competition and that you can successfully enter the market. Industry Organization Describe how the industry is organized. • How are goods and services produced and delivered to customers? Where are they produced? What is the level of integration? • How do distributors, dealers, VAR’s and systems integrators fit in? • A good way to understand the industry is to analyze the value chain from beginning to end. This should give you a good understanding of the competitive forces and where you fit in. • How do your competitors perceive themselves? Look at the websites; obtain brochures, literature, and advertisements. Competitive Environment Describe the competitive environment in your industry: • How do the companies in the marketplace compete: service, quality, price, new product/service introductions, customer support, etc.? • What is the degree of rivalry among competitors? A highly competitive industry means price competition. Most new firms can’t compete on price. • What are the gross profit margins? Net profit margins? • What is the response of competition to new entries into the market? • What problems and concerns do customers have with these competitors? • Is your market place fragmented or dominated by a few companies that control a large share of the market? What is the size of the competitors? Unless these companies are SOT’s (slow, old and traditional), you should not consider competing directly with them. Barriers to Entry Describe the barriers to entry that a new venture faces: • Economies of scale: manufacturing, marketing, technological • Customer loyalty: well established brands, long established relationships • Agreements with customers, suppliers, strategic partners • Control of the distribution channel • Switching costs 14 Writing a Successful Business Plan Copyright © 2009 by The Regents of the University of Colorado • Capital requirements: high investment • Access to distribution channels: exclusive distribution agreements, dominant position of competitors • Intellectual property: patents, trade secrets, copyrights, trademarks, know- how • Industry hostility to new entrants. Will competitors use all means to drive out new companies: pricing, legal, threats, spreading rumors. • Government regulations: defense contracts, import restrictions • Social conventions Control How much control do you have over: • Setting prices? How are prices established in your marketplace (major competitor, industry practice, value added, etc.)? What is the bargaining strength of customers? • Determining your costs? Can you gain an advantage through technology, process design, resource ownership or access to raw materials, low cost labor, economies of scale (difficult for a start-up), and capacity utilization. What is the bargaining strength of suppliers? • Entering channels of distribution? What channels of distribution exist? What access do you have to existing channels of distribution? Can you create new ones? What is the bargaining strength of channel companies? Do you have to buy your way in (e.g. slotting allowances in large retail stores)? Competition Write a brief paragraph on each of the important competitors that describes what the company does; its position in the industry; strengths and weaknesses. Make sure that you consider all of the following sources of competition: • Direct: companies that produce same product/service; but, they may have different strategies to compete - price, quality, selection, performance, design, tech support. • Indirect: companies that satisfy same need with different product/services. • Future: companies that have the capability to enter your market; they may have the same customers, but use different technology or channels. To help you write this section, prepare a competition matrix analysis that compares your venture with the major competitors. This should be a standalone document and should be included in the appendix. Consider the following factors for each competitor. Do not be restricted to these, as each industry will have its own. • Product/Services o Product/Service offering – breadth and depth 15 Writing a Successful Business Plan Copyright © 2009 by The Regents of the University of Colorado o Quality (define the type quality) o Detailed analysis of the key features and benefits. Obtain samples of the competitor’s products, or at the very least, specifications or drawings. For retail businesses visit the competitor’s locations, observe the environment and how customers interact with the business. For internet businesses evaluate the websites. o Location o Strengths and weaknesses of the product/service • Marketing o Price range and policy o Target market o Channels of distribution o Marketing/advertising strategy o Sales strategy o Noteworthy marketing techniques (pricing, packaging, promotions, advertising, website, distribution, etc.) o Market perception of the company (branding strategy) o Market Share • Management o Key management (backgrounds and experience) o Strategic alliances • Operations o Manufacturing and location o Level of integration o Outsourcing of production, customer/tech support • Financial o Company size (revenues, number of customers, number of employees, etc.) o Financial history (profitability, cash flow, financial soundness) o Financial resources (ownership, funding, investors, etc.) • Strengths and Weaknesses of the company When you have completed your matrix, step back and look at it. As a standalone document, the matrix should clearly tell a story about how your offering is different from the competition. Opportunity Here is where you need to draw conclusions based on the Market and Industry Analysis that you have just done. Describe succinctly what the opportunity is and make a compelling case that it is attractive. • Why have you chosen the particular entry point to start your venture? • What is a compelling need for your product/service? Is a real problem being solved? • Why will you will be able to compete successfully in the industry? 16 Writing a Successful Business Plan Copyright © 2009 by The Regents of the University of Colorado Marketing Plan Guidelines for Preparing This Section The Marketing Plan will make or break the prospects for your venture. A great idea is meaningless if you cannot find customers. Carefully drafted and logical financial projections are irrelevant if nobody buys your product. In the Marketing Plan you must explain to the reader how you will find your customers ann then convince them to buy your product/service. Sources of information • Market and Industry Analysis • Customer surveys • Interviews with experts Customer Research It is imperative that you do sufficient research to convince readers that customers will indeed come flocking to buy your product/service. The primary source for this information is to talk to your customers. There are many ways to achieve this: showing your product to potential customers to get reactions and suggestion; conducting focus groups; undertaking walk-up, mailed or email surveys; putting on a mock demonstration of your concept and soliciting customer feedback, and so on. Be creative in finding ways to get honest customer input about your product/service. A well designed and conducted customer survey provides a firm foundation for the marketing plan. This may be the most credible information that you can develop to support the viability of the venture. Your research must provide evidence that answers the following questions: • Do customers recognize that they have a need for your product or service? • How do potential customers perceive the product/services currently in the marketplace. What is the level of satisfaction? How willing are they to change? • Do they really understand the benefits of your product/service compared to all of the competitors in the market? • How do customers make buying decisions? • Why would they not buy your product/service? • Are the product/service features of compelling interest to customers? • How much would they pay? 17 Writing a Successful Business Plan Copyright © 2009 by The Regents of the University of Colorado Don't inadvertently cook the books here. You are undoubtedly enthused about your concept. Customers will pick up on your enthusiasm and often reflect it back to you, leading to erroneous conclusions about customer acceptance. So be neutral and factual as you collect data. In this section describe the conclusions of customer surveys. Give a brief summary of how the research was conducted. A complete description of the results and methodology should be included in the appendix. If the survey is conducted properly you should be able to estimate what percent of the potential customers would buy your product/service? This is very useful when constructing the revenue model described below. Target Customer Strategy The objective here is to prove that you really understand how the target customer behaves and that you understand them well enough to know how to reach them. This section should follow from the work you did under the Market Analysis and should also tie to your Communications Strategy. Customer Profile Provide a profile of the customer that you are targeting to launch the product/service. Describe the characteristics that define your target customer: • Consumers o Demographics (gender, sex, age, race, education, occupation or profession, income, location, etc) o Psychographics or life style (attitudes, beliefs, opinions, interests, values, etc.) o Social status (infers certain behavior: middle class values education, family activities, etc.) • Businesses or Organizations: characterize the organizations that purchase the product/service. What industry or sector are they in: automotive, e- commerce, state governments, nonprofit, etc.? What is the size, e.g. revenues less than 100 million, 50 to 100 employees, Fortune 100 company, etc.? Where located? Buying Decisions • Describe how buying decisions are made. o Who makes the decision? o Who/what influences the decision? • Identify the criteria that are used to make buying decisions: price, service response, quality (define what the customer means), customer/tech support, delivery time, distance to travel to make purchase, etc. • In the case of business customers there are additional considerations. Are there different approval levels? Are decisions made centrally or decentralized? What is the budgeting cycle? At what level is the ultimate 18 Writing a Successful Business Plan Copyright © 2009 by The Regents of the University of Colorado responsibility for approving expenditures? How important are: global reach, ISO 9000, design capability, range of products, just-in-time, inventory levels, etc.? • What is the sales cycle? • Where does the customer purchase the product or service? Are purchases typically made from retailers, internet, directly from the supplier, through wholesalers, distributors, or other? • When are purchases made? Daily, weekly, annually? Is there repeat business? • How do customers pay? Do customers pay cash or by credit card? Make a down payment? Require credit? • For business customers what are the standard payment terms? If credit terms are required, are discounts for early payment expected, e.g. 2/10, net 30 days? What is the actual payment practice? Customer Understanding • Where does the target customer look for information and advice, e.g. WebMD, Oprah, sales person, etc.? Describe how the target customers perceive the product/services currently in the marketplace. What is the level of satisfaction? How willing are they to change? • What attributes and benefits of your product/service are most persuasive in getting the target customer to act? • What does the target customer need to believe about your offering? • Does the customer really understand what you are selling? How it will be used? Do they have a real need and can see how your product/service addresses it? • Does your customer immediately understand the benefits that your product/service provides? If they don’t, then how will you motivate them to actually spend money to buy it? Are the benefits sufficient to overcome brand loyalty and associated switching costs? • Write a Value Proposition based on your understanding of the customer and their needs. When profiling your target customer it is important to keep in mind that the consumer of the product/service may be different than the buyer, e.g. disposable diapers are “consumed” by babies, but are purchased by mom; cad-cam software is “used” by design engineers, but may bought by the purchasing department. Finally, remember that the customer is always the person or entity who pays you money, but may not be the only one involved in the decision to buy. This also applies when selling through a distribution channel which is addressed next. 19 Writing a Successful Business Plan Copyright © 2009 by The Regents of the University of Colorado Channel Strategy Describe how your product/service will reach your customers. Unless you plan to sell directly to consumers there are many different channels that you could use, depending on the industry in which you compete. • Retailers • Distributors, wholesalers • Original equipment manufacturers (OEM's), system integrators and value added retailers (VAR’s) • TV infomercial • Auctions • Out of your trunk • E-commerce Should you use a multi-channel strategy? E-commerce may complement other forms of distribution. When deciding on a distribution strategy you must consider the same buying behaviors as described above in the Target Customer Strategy and address it separately in this section of Marketing Plan. Distributors have their own criteria when deciding on whether to carry a product/service and it often has nothing to do with the actual product itself. Positioning Prepare a statement that positions your product/service in the minds of the target customer relative to your competitors. One way to do this is to prepare a perceptual or attribute map that uses the buying criteria decisions described above. For example, if product range and level of tech support are important criteria, then prepare an quadrant analysis that show how you compare with the competition. Explain why you have chosen to position your company in this way. This is a great basis for showing how you will differentiate yourself. Branding Strategy A brand is the essence of your product/service or venture that resides in the mind of the customer. It is a key factor in differentiating your product/service. Prepare a brief description that considers the following: • Brand identity – how do you want the customer to perceive the company and its products or services? What is the look and feel of your company as expressed in your name, logo, website, marketing materials? 20 Writing a Successful Business Plan Copyright © 2009 by The Regents of the University of Colorado • Brand experience – what should be your customer’s experience when interacting with the company? What should they expect? This includes the venture’s environment, ambience, employees, communication, and quality of the product/service. etc.. • Brand personality – what are the values of the company that you want to be in the mind of the consumer? How does this reflect your culture? Pricing Strategy Explain your pricing strategy and why it will be effective with your target customer. This information is critical to preparing the Revenue Model projections of the Financial Plan. • Consider the following strategies for determining prices: o Commodity pricing o Set by the market o Supply and demand o Based on competitor(s) price o Value pricing - how much the consumer/user is willing to pay for value received o Payback period – depends on impact on customer profit o Industry rule of thumb – keystone pricing is common in retail businesses and equals purchase cost + 100% markup o Introductory low price to get customers to use – must be done with care as it may be difficult to raise prices later o Cost plus + markup – this assumes that you know your costs accurately, often not the case with new ventures o Razor & razor blade o Internet – transaction fee, advertising, intermediary commission, affiliate commission fee, subscription fee, click-throughs o A la carte • List the prices for each of the products/services that you offer. How will prices change in the next five years? Why? • What is the channel pricing, i.e. what discount does each element of the channel receive at each stage. For example, the consumer of salmon pays to the retailer 20.00 per pound; the retailer pays the wholesaler 15.00 per pound; the wholesaler pays the salmon company 10.00 per pound. • How does your pricing strategy compare with your competitors? • What evidence is there that the target customer will pay your price? Note: A low price strategy for most startups is usually not a good idea. It is almost impossible for a startup to have the lowest costs in the industry. A new venture is inefficient at the beginning and cannot achieve the volume in the early years to have economies of scale. Only when a company has a unique design for 21 Writing a Successful Business Plan Copyright © 2009 by The Regents of the University of Colorado