VISTA, Calif. – A successful business can bring many financial and emotional rewards to its owner. The 2002 U.S. Census Bureau’s Survey of Business Owners revealed there were more than 46,000 Alaska Native, Native Hawaiian and American Indian-owned businesses.
The stakes are high. The U.S. Chamber of Commerce reports that only two new businesses out of 10 remained open after five years.
Successful operators are thorough in their planning process. They think through five critical areas of the venture before it begins.
-- Feasible products or services. Successful companies offer products or services that people need. State and federal government contracts often provide “pricing preference” to Alaska Native/American Indian-owned businesses. If the pricing preference is 5 percent and the Native firm bid $100,000 for a job, the preference treats the Native firm’s bid at a 5 percent discount of $95,000. When the contract is won, the Native-owned company will be paid the full $100,000 price.
Behind any startup’s success are due diligence into the current marketplace and expanding upon opportunities within it. In time, consumers will begin to prefer the successful company’s product over others.
Apple’s iPod is one such example. Portable cassette and compact disc players have been around for generations; however, mp3 technology revolutionized this industry. By combining people’s familiarity with Web downloads and their passion for music, consumers can now affordably customize their own mix of music.
-- Business plan, including time and budget projections. As the blueprint for the business, it covers the “what, why, where, how and when” related to the venture.
“What” is the type of product or service. If someone is opening a bookkeeping service, is it for doctors’ and dentists’ private practice only, or is it general bookkeeping for retailers?
“Where” addresses the geographical service area of the business. Many businesses are limited in their ability to deliver over long distance. Fresh-made crusty pizzas may not travel well past a 30 minutes’ drive, but books can easily be ordered over the Internet and mailed to the consumer.
“How” refers to the way the business will be delivered, from getting customers, hiring employees and producing the goods and services, to collecting payment. This is the functional portion of the business plan. There should have projections of expenses and income, according to a timeline.
“When” refers to the time the business can start. There may be a lag due to setup time. A retail store may need time for renovation and inventory. But a consulting business may require none of this. Some businesses (like gaming) depend on regulations. Others are subject to quotas. For example, many federal contracts set aside a certain percentage of business for certified disabled veteran-owned businesses.
“Why” explains what the investor should see as a distinct money-making opportunity. Are the benefits offered by the business compelling enough to attract new customers? Is there an untapped market?
A timeline and budget should also be developed along side with the different phases of action described in the business plan. It provides the investor and operator with a schedule to work against and compare with.
-- Adequate capital. It is the money needed to get a business going until it reaches profitability or death. Business expenses include inventory in a store, equipment and tools to provide the service, as well as money to pay the business owner’s rent and living expenses during the startup stage of the business.
Capital is needed every step of the way. Owners of new restaurants know this well. The new owners have to secure a location, get licenses and permits, design a theme for the menu and the interior, lay out the kitchen operations area, create an inventory of supplies, manage the construction or modification, hire a staff, promote the business and pay rents – and manage this process on a daily basis.
-- Contingency plan. Things do not always proceed as planned. Sometimes weather holds up construction or supplies. Other times it could be the losing employees from illness, death, accident or resignation.
In April 2006, Fox News reported a lawsuit filed against singer Jessica Simpson for $100 million. Brought by the apparel company Tarrant Apparel Group, the lawsuit alleged that the singer breached her contract by failing to “publicly wear/display or use the products, particularly at events, shows and appearances.” The group also alleged that the singer has even named another brand of blue jeans as her favorites.
This is a situation where four brands of clothing were created in the singer’s name. The intent was to capitalize on her popularity. According to the lawsuit, the business opportunity would have been worth $100 million. When the singer allegedly named another brand as her favorite, it could have had a devastating effect on her own brand.
-- Management. A business is only as good as the people who run it. Professional investors usually look for successful track records from top management. In the case of a small business, it is time to objectively look at the principals’ strengths and weaknesses.
Prior to launching the venture, identify key members for the team. If this is a restaurant, find the master chef and the manager. If this is an e-commerce venture, find the marketer and Web designer.
In computer-ese, some mistakes are recoverable while others are fatal errors. With business planning, bad surprises can be minimized, which then improves the odds to a business’ survival and success.