Archive for category Plan
Maps – using them in your business
A picture is worth a 1000 words. What is a map worth?
Maps are much more valuable than simply telling you where you are and where you are going. They can be used as a decision tool; what is most economical path to get there? What destination should we choose? When you change this idea from a map to a graph, where position represents something other than longitude and latitude this can provide further meaning for you as a strategist directing your business.
The idea is called visualizing data. I got this idea from article by Manav Tanneeru on today’s CNN “A New way of looking at the world” . They also recommend a website by Ben Fry at benfry.com called Ben Fry (simple enough).
The approach is to take advantage of the information in data that you might never use and present it in a way that addresses a question and allows you to draw a conclusion. Evidently, there is a programming language called, “Processing” that allows you to explore and explain data. This can be researched in a book called, “Vizualizing Data” by Ben Fry.
The bottom line is that a map or smart graph can effectively communicate to people the direction they need to go … in business. You can use this in your decision making, presentations, and daily communication to not only get the idea across, but to get it done.
By getting it done (and done right) your business will be more successful.
Check out Ben’s web site. It is interesting.
Segmentation Helps Credibility and Focus
Who can use your product or service? Who can you sell to? Who is a potential buyer?
Most people like to answer, “Everyone!” In most cases, this is probably true, and we can lists hundreds of products that everyone uses. However, the reality is not everyone is going to stand in line to buy your offer at first. Nor can you target everyone right away.
The shotgun effect works in some cases, but for most people launching or expanding a product it works best when you start with a focus.
When you speak with a marketer, an investor, or anyone else who is in the business of growing a business it tells them that you really do not have a plan of how to direct your marketing and sales efforts.
There are two lists I recommend you make. First make a list of every type of customer that uses your product. Order it by who uses it the most. Then, make a list of every type of customer who could use your product but is not using it now. Order it by the size of the group. Consider the ease of reaching that group and the cost. Ideally, the first 20% of the people should be potentially using the bulk of your product (initially).
Then start planning on how you reach each group, the relevant messages (trigger points) and put together a plan.
When someone asks who can use your product, instead of saying everyone, you can say, “The biggest segments are these people. Of course, after that, we can expand into segment X and Y. We are working on other targets as well.” Leave it the listener to extend that thought to “everyone”. By using segmentation, you get them to buy into the potential success of your business.
Turning the Hobby into a Business
Posted by Steve in Miscellaneous, Plan on September 21, 2009
I was at a convention today and sat in on a panel regarding turning your hobby into a business. The question that came up was whether this was a good idea. On the outset you might think so: a person typically has passion and much knowledge about their hobby. This passion would carry them through the tough times and help them generate the necessary impetus to make the business work.
The problem is that typically it is that same passion that gets in the way of clear thinking. Rather than develop a product or service that people want, the hobbyist turned business manager develops something they think is cool.
Another mistake is that this passion typically focuses on the make function. Remember, businesses can be broken down into three aspects: make it, sell it, and manage it. Most hobbyists are involved with the “make it”. Selling and managing is often not in their interest. While it is possible to find someone good at two of those, it is rare to find someone good at all three.
The solution of course is to find someone to partner with that compliments the hobbyist. If the hobbyist is a good maker and seller, maybe they should find someone that can help manage the company? What if that someone can help with shipping the product? What if you find another company to sell the product and you just make it and ship it? There are many possibilities but the key idea is to focus your activities on your strengths (and likes) and find alternate solutions for your weaknesses (and dislikes).
A final consideration is that a hobby by its very nature is a form of relaxation. There are no pressures to perform or earn a living; which in turn increases the enjoyment of the activity. Once this changes, and deadlines, profit margins, and customer expectations set in, the hobby may no longer be a business.
The final verdict is that turning a hobby into a business is good if it done right. Identify the aspects that you like and find solutions or other people to address those aspects you do not like. Understand that you may need a new hobby to help relieve stress. Finally, put together goals, a business plan and even test market the product to see if this is truly something that would work or something that should stay as a hobby that may earn supplemental cash flow.
Business Case Example Rent a car vs. Taxi in New York City
It was suggested I provide a concrete example from yesterday’s idea of writing a one page business case. Here it is below.
This is a very simple version, but you can see that I lay out the summary in a concise format, and then leave the details to follow. Most people will only read the summary but those that need it can follow in the details. In the details, I first lay out any assumptions and then analyze each option in a concise manner. I finish with some qualitative analysis. There could be many variations to this scenario; and, with the assumptions, someone could work those out. Instead, I pick the actual scenario (which is what I did two weeks ago) and work out the numbers.
This took me less about 20 minutes to prepare and will settle most arguments. Try this simple form of analysis and credibility will build.
Example: Should I rent a car or use taxis?
Summary:
Two weeks ago I rented a car while in New York City for four days. It was suggested I could use a taxi and save a lot of money. However, while I stayed in Manhattan I traveled to New Jersey, Connecticut, east end of Long Island and few points around the NYC. Based on a pure cost analysis it is cheaper to rent a car by but only by 12%, saving $79. If I ask the taxi to wait eliminating any waiting time (and making it equivalent to having a car on call) then the savings renting a car are $367 or 37%.
The assumption that I would have saved money is wrong and on a pure cost basis, I recommend we continue to take taxis.
The pros vs. cons of renting vs. taxi are considered. However, since the clients are remote from NYC and not clustered in the center, the convenience of having the car outweighs the other considerations. I still recommend we rent a car.
Details:
Assumptions:
I visited 7 clients and drove 500 miles in four days. I stayed in the center of Manhattan. One of the clients is in the Hamptons.
Renting a car:
Car rental: $92/day.
Parking overnight: $40/day
Parking at clients: Free
Gasoline was $88.00
Taxi rates are: $2.50 for each pickup and drop-off plus $2.00/mile
There is a luxury bus from Manhattan to the Hamptons for $65 round trip. That trip is 200 miles.
Tolls are the same whether I rented or take a Taxi.
Option A: Rent a Car
Car rental: $92/day times 4 days = $368
Parking: $40/day times 4 days = $160
Gasoline: $88
Total cost: $616
Option B: Taxi
# Taxi trips: 12
# Taxi miles: 500-200 = 300
Base taxi rate = $2.50/pickup-dropff * 12 = $30
Taxi miles = 300 miles * $2/mile = $600 miles
1 Hampton round trip: $65
Total cost: $695
Option C: Asking the Taxi to Idle
Cost of Taxi: $695
Average time with client: 2 hours
Note that we are only using a taxi with 6 clients.
Cost of waiting time: 2 hours/client * 6 clients * $0.40/min * 60 min/hour = $288
Total Cost of Taxi if they idle: $983
The pros of renting a car means you have the car when you need it, but the cons are that the car can be more trouble due to tows and you cannot easily work while you are driving. On the other hand, a taxi allows you to not worry about the car and you can work. The taxi cons are that in several of the locations there was no way to find a cab and I would have had to either wait for a cab extra time, or ask them to idle. Asking the cab to idle would add an extra $288 to the cost bringing the total to $988.
Write the Business Case and Keep It Simple
Posted by Steve in Leadership, Plan on September 9, 2009
I was recently in a meeting where the client was planning on launching a new product using us as a supplier. Unfortunately, the price he expected to get from us did not match up with what we had to offer; but an older price. The new price was too high and he could not make his margin (he would actually be losing money); so he requested we do the old price.
I asked for the numbers so I could make a business case. The client was frustrated asking why do we have to waste time on a business case it should be simply a matter of a) we do it and make X dollars or b) we do not do it and make zero dollars.
Fairly simple? You would think so until you realize you have to convince one or two people who are not familiar with the situation. They may think the client can make money with the new price is and is just trying to negotiate, or they may worry that the old price makes us lose money.
The problem with the “business case” is that everyone thinks it needs to be highly complex, multiple pages, and very formalized. Instead, make it simple:
1. Identify a list of options. Example: A, B, or C
2. For each option identify the costs.
3. For each option identify the revenue and benefits.
4. For each option identify the risks of doing it.
5. For the dollar amounts subtract costs from revenue and look at a few items: net income (or EBIT), and margin.
Write it all on one sheet of paper. If the numbers run into many lines, then add an appendix. At the top of the paper, write a 5-10 line summary at most with your recommendation. Below that, put the word Details, and then write the details. Most people will only read the summary.
Your audience will appreciate brevity. More importantly, they will appreciate you taking the time to really look at the problem and giving them a solid answer they can trust.
It is not just obvious. It is also about effective communication and convincing people to your opinion. Taking the extra step of creating a business case goes a long way.
Why is this important? Entrepreneurs often see things as obvious while investors do not. Furthermore, the entrepreneurs not only need to convince investors that this decision is sound but that the entrepreneur can make sound and timely decisions. Winging it only works so far, and in the long run, taking the time to look at the numbers, and present a winning idea shows that thought is behind running the business. All this builds the investor’s confidence in the entrepreneur and gets the entrepreneur closer to getting the next round of funding.
For the example I mentioned it took me 15 minutes and I was done. One of my strengths is doing the analysis. However, I avoid the two classic pitfalls: over analysis, and over-communication. This post talks about avoiding that over-communication.
Keep it simple. Keep it in sound bites. If they have to scroll their email to just get the recommendation then it is probably too long a message (does not apply to Blackberry screens).
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On a fun note, this is the 100th post of my blog that I am posting on 09/09/09 at 09:09 am. Enjoy the uniqueness of this number 9 day.
Free Can Cost Too much
Entrepreneurs often look at doing it themselves, trade, or even getting it for free to save them cash. The only benefit is to preserve cash while the disadvantages can be large:
- Quality is often lower.
- Lower in priority for service (late delivery, missed deadlines, longer timelines, etc.)
- Harder to find someone to do it.
- More time spent on starting task and managing task where that time can be spent elsewhere.
The end result is less value, less productivity, and less sales. Whether you decide whether to do it yourself, get it for free, trade, or hire someone depends on the urgency, complexity, your ability, and availability of others.
Two solutions are either to master these issues or to hire someone. As Seth Godin puts in his blog yesterday, “Pay for Stuff“, sometimes it is best to avoid getting it for free and to pay for it. The value of more productivity, faster, better quality, leads to more sales and more profitability.
How appropriate to say this on Labor Day (the ironic day of doing no work celebrating those that do work): The objective is to develop the ability to determine to pay or not to pay. If you do not want to pay for things, the next challenge is to manage getting it for free, trade, or doing it yourself so you do not suffer the drawbacks.
Otherwise, it can only cost you quality, service, and your time. Ultimately, this leads to lower sales and profits. Sometimes its best to spend some money to make some money.
Developing your own FMEA
Posted by Steve in Leadership, Plan on September 2, 2009
Yesterday I wrote about developing a more comprehensive plan for risk and contingency using the FMEA program. The challenge is that FMEA was developed for the Ford Company. How would you apply this in your company when maybe the cost of life, and the other categories do not apply?
Come up with your own three categories, but apply the same logic.
One category addresses how often the problem may occur. Create a scale of 1 to 10, with 10 happening very frequently (every day), and 1 happening once in the lifetime of the project.
The second category addresses how easy it is to detect. Detectability is important to use because something that is very dangerous and impossible to detect (and occurs frequently) could destroy not only your product, but also your company (not to mention harm lives). Once again, create a scale from 1 to 10 that shows at each point what that detectability might mean. 1 might mean that it will be detected as soon as the problem occurs. 10 might mean that it would only be detected much later after the part breaks in the effect the breakage creates on other parts or other elements of the business.
The third category is typically the cost. If your part does not affect lives, then look at it as cost in replacement, or cost in lost sales, or cost in repairs. Once again, create your own scale to represent 1 being a very low cost and 10 having significant impact to your company (possible shutting the company or product line down permanently). Of course, if it does affect human life, 10 means death, and 9 means serious injury.
This approach is relatively simple and lends itself to directing the efforts and resources of the company. Furthermore, it creates a quantitative list that shows that you are thinking about how to manage your resources carefully. It shows a level of management skill that investors hope you have. Finally, this tool allows you to communicate that you are being proactive and are developing systems to manage the company through rough times (which WILL happen).
The advanced risk and contingency plan: FMEA
Yesterday, I briefly introduced the risk and contingency plan. Today I want to discuss the slightly more advanced and more proactive version.
Ford Co invested something called FMEA, which stands for Failure Mode Engineering Analysis. It is a way to manage the prevention and development of proactive containment of problems. After problems are listed and before solutions developed they are ranked in three areas from 1 to 10. The areas are frequency of occurrence (more likely the higher the number), detectability (harder to detect, the higher the number), and the cost. Cost could be in money or human life or both with the higher the likelihood the higher the number.
These three numbers are multiplied together and then all the problems ranked. The higher ones are addressed first in prevention or in developing containment systems. The exceptions to the ranking are that anything with a cost of life of 9 or 10 are automatically put to the top.
Risk and Contingency Plans made simple
What is a risk and contingency plan?
Simple answer:
It is a list of preventions and alternatives to expected and unexpected problems.
The simplest way to do this is to make a table with three columns. In the first column you list everything that could go wrong with your project. In the second column you show for each problem the steps you are taking to prevent that from happening. In the third column you show what you do when it happens.
This simple device is a great way to show people (customers, vendors, investors, all stakeholders, etc.) that you are on top of the situation, plan ahead, and ultimately, are the right person to make their product. Surprisingly, very few people do this. Instead, they react to problems. Reactions often waste time and money and go down the wrong path.
Be proactive and come up with your own risk and contingency plan.
Barriers to Entry for Competitors increases the value to investors
An easy business for anyone to get into is not a good choice for investment because anyone can get into that business. For example, someone who picks selling cellular service as their business is picking a good business for income as cell phones are prevalent in our society and they have the potential of getting a lot of customers. However, if their business is one that sells any service just like any other service it is questionable whether they will get a leg up on the competition and have the type of growth an investor likes to see.
What if the cellular sales company has the exclusive rights to sell in a particularly large territory? Or, they have the exclusive rights to sell a particular type of phone?
In the case of the territory that is a captured customer base that no other competitor can cut into for however long they have exclusivity. That is a barrier to entry for the competition. The customers in the territory may not be able to get an alternative solution elsewhere and they require that particular solution.
In the case of exclusive rights to a particular phone, such as a patent and licensing rights, is a great way to also create a barrier to competition. The only “competition” here is alternative solutions and “doing nothing”. Typically, the product fulfills a particular need very well (increasing value to the customers in a large way) and will sell well.
In both cases, investors can see that the target market is of a particular size, and based on buying patterns can predict the value of the company. This greatly reduces the risk of their investment by increasing the likelihood of a large win.
Barriers to entry exist in many forms and are one of the best ways to indicate to an investor that you have a highly profitable venture. Of course, this only exists if you have a demand for the product.