:: action! ::
Part 5 - Action! And what this reminds me of is, can you do it? You can talk about it, you can get enthused about it, you can get everyone else exciting about it, but can you do it? And what you probably found in the business planning section - number 4 - is that you might need some other resources, and the most difficult resource to get, manage and focus are people (because we are a peculiar species!).
What I'd think about is, can you do it? What does 'doing it' mean? Can you sell? Can you communicate? Can you make it? Can you make more than you spend?
The formal part of section 5 is about evaluation, adjustment and control. What happens if the market shifts as you embark upon your journey? What happens if the tastes, colour, styles, pricing, competitors change as you embark upon your journey to success? You have to adjust. Can you do it? What happens if everyone wants pink and you've made yellow? Can you do it?
The Action plan will also talk about how you achieve profitability. The Action plan will talk about what happens if it all goes wrong. And believe me, if we look at that horrible statistic of in their first year of all new businesses, 72% don't last that 12 months. Why is it? Because they can't do it.
Are you ready? Let's go!
Let's go!
The things to consider in this section are:
- How to create an advantage in your chosen market
- Protecting your business so it will be able to grow
- Which strategy should you choose?
- How to increase the comfort of the investor
- How to exit or harvest your business
How to create an advantage in your chosen market
To enter, survive and thrive in your chosen market, we have to think about what we're good at (our strengths) and how we can maintain this strength in a turbulent market. The steps that we have to consider start with Key Success Factors.
Key Success Factors
Key Success Factors (KSF's) are not strengths and are often confused with Critical Success Factors (CSF's) (refer to 'Part 3 - Toolkit'). Often KSF's are compulsory for a business to commence. For example, a license to commence; health and safety requirements; or being Government approved.
There are several ways to create strategy. The way to do this depends on many variables. These include competition, size of market, complexity of product, etc.
This table will help you decide about which strategy to select.
Strategy |
Explanation |
| 1. Differentiation Strategy | Differentiation strategy (that is, to be different!) simply means we don't compete on price. We could compete on performance, quality, service backup, reliability, convenience, prestige, features. |
| 2. Low Cost Strategy | Low cost strategy relies on your ability to have a cost advantage over your competition. This can be either internal (you're very efficient) or external (a strategic alliance or exclusive arrangement with a supplier). Both will lead to a low cost advantage when compared to your competitors. |
| 3. Focus Strategy | A focus strategy concentrates on a narrow group (niche) of customers, providing them with superior service/products and thus building loyalty to the company (brand). |
| 4. First Mover Strategy | By being a first mover, you will create in the market's mind thought leadership. For example, if I mention softdrink, who do you think of first? First movers are often considered pioneers and quickly create strategic alliances which often block out new entrants into the market. |
| 5. Cooperative Strategy | Cooperative strategy is when organisations work together to share costs, to give them an advantage, either protecting existing markets or entering new markets. |
Important! It might be time to recharge those Marketing Strategy memory chips! |
Protecting your business so it will be able to grow
In Australia for example, these are some of the laws and regulations that will protect your creativity, ideas, products and services.
- Intellectual Property
- Patents
- Design Act 1906
- Trade Mark
- Copyright
Important! Most countries have different regulations in regard to protecting and growing a business. Use the links to find out more information about protecting your business in the following countries.
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Which strategy should you choose?
One way to select a strategy includes asking the following three questions:
- Where are you now?
- Where do you want to be?
- How do you get there?
Click here to view a visual representation of the three questions above.
How to increase the comfort of the investor
How much was that again? You said what?
An equity investor is simply looking for the following:
- Growth market and identified customers
- ROI compounded of at least 20%+
- A clear exit 3 to 5 years away
To increase their 'comfort' and reduce their 'risk' they would like to know:
- Does the product work or can the service be delivered (can it be done?)
- Is anyone interested in the product or service (is there a market)?
- Will we make more money than we spend?
So how do you communicate with the investor? (What was the language of business again?)
Because cash flow is so important, the investor will be looking at your breakeven point. The breakeven point is really a measure of risk. The longer to breakeven, the greater the risk. Consider carefully fixed costs and variable costs and using an average case sales scenario, calculate your breakeven.
The organisation must consider the following costs:
- Fixed costs - costs which don't vary and cannot be avoided.
- Variable costs - costs that vary with production (salaries, materials, utilities).
Don't forget apart from calculating your breakeven, use the tools of innovation and the enterprising mindset to move the breakeven to the left - reduce the risk.
Positive Cash Flow
Cash is King! No cash? Then you're normally out of business very quickly. Many high profit companies go out of business because they grow too quickly, and run out of cash.
When customers delay payment, it can take a long time to get paid. An organisation must provide some incentives to the customer to obtain payment, and collect early.
How to Exit or Harvest your Deal
Why Exit?
There are three main reasons why it is important to consider exit options. These are:
- Investors need to see an exit path. A venture capitalist will not do a deal without a clear exit within 3 - 5 years.
- You need to get a return on your risk beyond a salary.
- Recruitment of star staff may be difficult/impossible without the upside of an exit.
Sometimes it is difficult to exit a deal because:
- You are highly dependant on key people
- You are tied to key customer groups
- Existing contracts are too strong or too expensive to break
- Of geographic dependency (hard to move the business)
Ways to exit
There are five common ways to exit the deal. They are shown in the table below.
Option |
Strategy |
| 1. Internal Sale | Sell to employees or existing investors/owners. This is also known as a management buyout. |
| 2. Sell To A Customer | Often a customer can see opportunities that you can't. They may want to control the supply of the products and services. |
| 3. Sell To A Supplier | Often a supplier can see opportunities that you can't and may want to control the supply of the products and services. |
| 4. Sell to a Competitor | A competitor may want to take you out of the market or gain access to your customers, technologies or services. |
| 5. List on the stock exchange | This strategy is very difficult, very expensive, and requires extensive management experience and a paid up capital of approximately $20 million in Australia. |