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understanding business management, business planning, strategic planning key points

understanding business management, business planning, strategic planning key points


so you want start business well what
kind of business I’m not talking about what you might make sell or service
instead I’m talking about the ownership who will own and run your business let’s
go through some of the common forms of business ownership let’s start with a
sole proprietorship one owner with all of the management power one owner that
can claim all the profits they carry all the risk and get all the rewards but add
more owners then we have a partnership each owner is a partner each shares in
the profit do all partners run the firm not necessarily a partner that’s active
in managing the firm is a general partner a partner that invests money but
is otherwise not active in running the company there a limit partner perhaps a
partnership wants to grow but they need more cash to expand the present owners
can sell some of their shares in the company to investors the company is now
a corporation those investors their stockholders therefore they’re the
owners and they can easily sell their shares at any time corporations are
legal entities in effect they have legal rights just like a person which means
the corporation is responsible for anything that might go wrong the
investors at worst can only lose the value of their stock but who runs the
company for a corporation the owners that is the stock holders they can elect
a board of directors that board can choose the top executives in the company
but the board of directors cannot influence day-to-day activities in the
company what does this mean well to a certain degree in a corporation
stockholders own and managers manage there are many other nuances in trying
to choose the best ownership model for your organization but hopefully now you
know some of the basics associated with the most common ownership models and
hopefully you’ll be able to consider the important issues and asked the right
questions as you move forward in developing your organization in business pretty much everything
customers enjoy requires some materials a great meal required delicious
ingredients a movie experience required comfortable seats even your massage was
made better with fragrant nourishing oils companies must recognize that every
material purchase is an opportunity to improve the product or service provided
procurement and materials management are the segments of the company that fun
suppliers purchase the materials and then make sure that this inventory is
stored and used effectively if done right procurement and materials
management can improve customer satisfaction they can contribute to the
company’s profitability and by partnering with reliable suppliers they
can help the company develop a stable supply chain that can be counted on to
continuously deliver high quality products and services to the consumer to
illustrate these points let’s use a cell phone as our example product and
actually since we’re buying parts for this cell phone let’s consider just one
part of the cell phone the battery what does our company need to think about
let’s first consider the consumer what does the consumer expect they want value
a long-lasting battery at a reasonable price they probably also want a battery
that is safe a small lightweight battery that won’t overheat if this is what the
customer values and if those are the things that we advertised the battery in
some way needs to fulfill the customer’s expectations a great battery helps make
our phone better a better phone will sell more units and thus our revenues go
up now that we made the customers happy let’s remember that revenues alone won’t
bring us a profit we need to consider our company’s needs the company needs to
control costs while we’re buying great batteries for our customers we have to
know what the total cost of purchasing these batteries will be I’m not just
talking about the per unit cost you must consider the total cost of these
batteries the cost of storing batteries costs
associated with theft and damage the cost of negotiating and placing orders
from battery companies and don’t forget that someone needs to pay for the
delivery of those batteries so if keeping costs low is important to your
company you’ll need to remember inventory costs include the cost to buy
hold and order inventory that brings us to the final party involved in our
battery purchase the supplier the battery supplier will ultimately dictate
battery cost and the quality of the battery but they also impact our
cellphone company in other ways if they can fill orders quickly we can keep low
inventory levels even if we run out of stock it won’t take long to get a new
shipment for that kind of service though we’ll probably have to pay a higher
price on the other hand a slower supplier may have lower per unit prices
but will need to carry more inventory since we have to place orders early just
to be sure they’ll be able to fill them before we run out of batteries this
takes care of our battery needs today but how about the next generation of
cell phones we’ll need stronger batteries that fit
in our new phone design and we still need to control our costs in modern
business suppliers our business partners when we saw more phones they sell more
batteries on the other hand if they make batteries better
we may sell more phones because of this suppliers and innovative manufacturers
must work together to understand the customer develop new technologies and
also to develop manufacturing and logistics strategies whether your
company is buying cell phone batteries Tomatoes
theater seats or even massage oils it needs to consider the customer the
supplier and our company as you head back to work today ask yourself these
simple questions are the customers happy with the materials they buy or use do we
consider our supplier a partner our suppliers involved in helping us develop
better and services and do we consider the cost
of holding inventory or just the cost of purchasing if your answer to any of
those questions is no you are likely missing an opportunity to maximize your
company’s potential look around you look at your stuff how
was your stuff made which items were made well and which items were not which
companies do you always trust to make good stuff your favorite car clothing
and electronics companies they can only say your favorites if they can deliver
high-quality goods over a long period of time good manufacturing and quality
control are vital components of building a global brand that customers are loyal
to so let’s take a look at some of the primary issues manufacturing managers
think about every day and let’s use a car company as our example so once they
have a design for a car they need to know the demand
how many cars will be needed each month perhaps it’s a brand new model so we
might not sell too many the first year but forecast telesales will grow
significantly next year so just how big should our facility be remember a
facility that’s too big will be a waste of money but if it’s too small we worse
not having enough cars to sell in manufacturing cost is almost always a
key consideration so we have to know how much money will it cost from materials
labor transportation facilities and energy to make each vehicle how flexible
is our manufacturing process how many choices do we give customers do we let
them choose car color do we offer a navigation system can they get upgrades
on seats entertainment systems Sun roofs which brings us to quality what exactly
this quality mean to you aesthetics durability reliability speed
manufacturing must make a car that their market deems to be high quality and even
then what’s good today won’t be good enough next year manufacturing
facilities must be ready to continuously improve then there’s the question of
where the cars will be manufactured and by whom should we make them in the
country where they will be sold or should we make them in another country
should our company make them or should we hire
a contract manufacturer to make the cars for us what our issues manufacturers
consider when making these types of decisions cost of course materials
energy labor real estate taxes all so is it possible that the country has more
access to skilled labor or do they have easy access to material and energy
related resources perhaps the contract manufacturer has so much experience
making these types of high quality products that you know they can make
them better than you could ever make them yourself location can also impact
speed perhaps their location makes for easy movement of inbound and outbound
materials perhaps your end item is big and expensive manufacturing location may
impact your delivery times and perhaps you might be able to avoid import taxes
currency might also be a factor imagine that you are selling a product in Europe
investing euros and getting paid in Euros minimizes the chance that profits
might be wiped out by big swings and exchange rates and in some cases
choosing a manufacturing location might take into account the stability of the
country political stability crime rates inflation rates labor laws and culture
executives don’t have to worry about what might happen tomorrow at their
factory that might be five or even ten thousand miles away the companies that
make your favorite stuff Apple Lexus Nike Samsung Mercedes they have
transformed their corporate images into global brands but without a backbone of
high quality manufacturing those companies would not survive making their
customers happy means that every single product you buy from them meets or
exceeds expectations so as you use your favorite product today think about who
made it when it was made where it was made and what they are doing right now
to make the next product you buy from them even better in just the last few years the term
logistics has gotten very popular global companies like DHL UPS and FedEx are
known as logistics companies but what exactly is logistics I mean is it just
getting finished goods to a customer’s home or perhaps to a store where these
goods can be put on a shelf ready for purchase yeah that’s logistics but it’s
just a small part of what the world of logistics encompasses you see logistics
doesn’t just happen in the last mile before a product gets to the hands of
the user logistic happens before a product is even made even in the most
simple supply chains raw materials and components are shipped to manufacturers
finished goods are shipped to distribution centers and from their
products make their way to a retail store or an online retailers picking and
packing warehouse where finally they can be shipped to your home all along the
way there are important decisions to be made that will impact whether the
shipment was quickly delivered safely on time in the right amount and of course
at a reasonable cost plus we want to know that our logistics process is
flexible big orders small orders perishable products heavy products
dangerous goods orders destined for big cities and others heading towards a farm
domestic orders and foreign orders and nowadays customers want to be informed
customers want to have the ability to track their shipments marketing and
manufacturing are important but a great product that comes with a big shipping
cost and then arrives late damaged or to the wrong address
ruins the customer experience as a result logistics specialists are
constantly making decisions that must make customers happy and keep the
company profitable so how can a logistics manager keep the company
profitable keep inventories low move inventory as quickly as possible and at
the lowest possible cost empty trucks and containers waste fuel so keep trucks
and containers full by planning effectively and don’t get caught
unprepared stock-outs rush shipments and shipping
errors are extremely expensive and can mean the loss of a customer forever so
in the end logistics managers are tasked with making all sorts of decisions that
balance cost speed and customer satisfaction what types of decisions
well should we use a truck train ship or plane what type of packaging is needed
to keep the items safe they also consider storage issues like what’s
better having high levels of long term inventory sitting in a warehouse or low
levels of inventory moving quickly through distribution centers and if
you’re shipping globally you’ll need to consider issues like import and export
laws tariffs and documentation you see logistics is about a lot more
than delivery oh and don’t forget materials don’t just move in the
direction of the customer reverse logistics deals with returned items
items requiring repair that need to be sent to a repair center and reusable and
recyclable packaging as companies look to control cost reduce waste and
eliminate product loss while still getting the right good to the right
place at the right time companies need to consider all of the pieces of the
logistics puzzle Logistics is beneficial for everyone involved customer get what
they want how they want and when they want it and companies can make it all
happen with minimal cost and waste now that you have a better understanding of
some of the vital pieces of the logistics puzzle think about which
pieces your company may not be considering the last two elements of setting
direction for your organization articulating your guiding principles and
your goals guiding principles dictate how you want the organization to behave
especially when your leaders aren’t around you’re setting out a principle
that an associate can use when they’re confronted with a situation where they
don’t know what to do what lenses do you want them looking
through as they’re evaluating those decisions because if you have clear
guiding principles the actions they’re going to take will be consistent with
the direction of the organization which ultimately helps you achieve that vision
and mission in terms of your goals you’re going to set out those metrics
those things that after a year two years five years you’ll look back and say we
achieved those goals try to make them as measurable as possible it can be a
dollar how much revenue how much profit it can be a number of new customers that
you add those guiding principles and goals need to be clear enough that they
guide behavior help people behave in a manner that’s consistent with the
organization’s mission and those goals should be driving you to achieving your
vision over time they need to be aggressive and pragmatic so you get that
balance of I know I can achieve this but I’m not really quite sure how I can get
there so I need to innovate and push to be able to do so let me share some ideas
around what guiding principles can be some guiding principles I’ve heard that
are great are things like would I give this to my family the organization was
in the consumer packaged goods industry and when people were trying to figure
out whether they make an ingredient change to a product or a packaging
change to the product they asked their people to step back and say if you made
that change would you be comfortable giving that product to your family if
the answer was yes go ahead and make the change if the answer is no stop
immediately other guiding principles I’ve heard be net exporters of talent
this is how we want our managers in the organization
to behave being a net exporter of talent means bringing people in helping them
develop helping them grow challenging them and building their skills and then
once they’ve reached that next level push them off to the next team send them
to the next great opportunity in front of them and then bring in more people
behind them and the net effect of that is you’re generating more talent for the
organization then you’re bringing in now think of the behaviors that this can
lead managers to take they won’t hoard talent anymore
the notion that I’ve built somebody and they’re a high performer but you know
what I’m gonna discourage them from going to the great new role would run
counter to this guiding principle so by putting this principle in place that
organization is going to achieve that goal of having a more talented
organization so think about what you want your organization to look like in
the future how do you want your associates to behave and then be able to
put in place a principle that they can understand when they’re faced with a
decision now in terms of goals laying those out very clearly and then sharing
them across the organization but letting the organization figure out how to get
there so think about what the goals are of your organization what’s the vision
where are you trying to go and what set of goals will help you get there and by
articulating them clearly the organization is going to drive in the
right direction you whether your company has customers wants
customers or if you’re already successful company wants even more
customers knowing that customer is vital to securing sales so as the company
looks to start selling their products and services often one of the very key
questions they need to confront early in the process is who should my company
want as customers who is our target market well your target market should
probably include people that you’re capable of satisfying while still
earning a profit that way they’re happy and you’re happy so how do companies
describe their target markets well target markets can be described in a
number of different ways is your target market made up of men or women how old
are they where do they live what language do they speak what are their
hobbies what do they do for a living how much money do they make or better yet
how much money do they spend and is it possible your target market is not made
up of people perhaps your target market is made up of other companies and it
doesn’t matter where your company is today if you’re a brand new startup
company a large global firm with a rich history or maybe your future company is
only an idea in your head knowing your market is important to being successful
today and in the future why well a company and its marketing team and
Salesforce have only so much time and money they need to use their resources
wisely we’re not just making sales today we’re building a target market that is
loyal to our brand so whether you want to know your customers desires today or
tomorrow whether you want to use your company’s money and time wisely or if
you just want to find new customers for your products and services understanding
your target market is vital to the evolution of your company friends family business partners there
are so many people in our lives and so many others we have yet to meet
developing and maintaining relationships with all of them can be difficult but
these are the people we count on for support
stability and growth nowadays companies understand that their customers serve
the same purpose customers support the company a loyal customer base provides
stability and our present and future customers provide an opportunity for
growth so how can companies reach their customers how can they create an
emotional connection that will drive a person to buy your product or service
well there are three basic issues that need to be considered who’s the target
market you’d like to reach what does the company want to say and how will that
message be delivered let’s start by considering the target market a good
marketing department will isolate people that they would like to target as
potential customers sometimes the market is quite narrow so reaching most of them
might be rather simple on the other hand some target markets are large and
diverse they contain people with very different lifestyles this could pose
challenges in reaching all of them in a simple and cost effective manner so we
may need to dissect the target market into smaller slices reaching each slice
with a different message or using a different medium now that we know the
market what do we want to say to them are we trying to make them curious do we
want to stir emotions excitement inspiration fear perhaps the goal is to
build trust some companies want to invite customers to be part of a group
ultimately we hope the customer will be called to action make a purchase join
our club visit our website while a good product or service will satisfy a
customer customers need to be aware that the product exists they must trust they
will get value their purchase and they must be driven
to seek out the product or service and then purchase it developing a message
that can quickly inform inspire and move someone act that’s not easy it requires
creativity and a deep understanding of human behavior with our message in hand
it’s now time to deliver the message to our target market how can we make
contact with the customer digitally in their cars at an event in a trusted
atmosphere perhaps they hear about us through a
friend or maybe they learn about us at a store each of those mediums is different
so a marketing executive has to be able to send the same message using different
mediums is your message something that can be delivered using audio video
pictures digital messaging is your message simple enough that it can be
powerfully delivered by other people all the while we need to remember that our
budget is limited so as we consider identified a target market for our
message crafting a message for that market and then delivering that message
so it is heard or seen by our customer we have to ask ourselves are we
maximizing our investment if we spend a million dollars to communicate with
200,000 potential customers how many of those people will need to purchase our
goods and services such that we make a profit relationships are a two-way
street both parties need to feel enriched by
the relationship by knowing your target market crafting a meaningful message and
knowing how to deliver that message via multiple mediums companies can
communicate with customers new and old why do companies decide to bring on new
people perhaps they need to grow a department maybe they need to replace a
person that left it’s possible the company requires a new type of employee
to fill a modern need whatever the reason to make a good hiring decision
the company needs to be able to describe the position to be filled what type of
employee they want to fill that position and also how much it will cost to
effectively fill that position let’s say we want to hire someone to redevelop our
website and then to manage and grow the website in the future how would you
describe the positions so that it sounds interesting so that we can attract the
very best candidates motivated professionals but for a person with a
bit of experience and for someone motivated to develop a strong career
this particular web development job sounds exciting they’re interested they
like us that’s good but do we like them let’s tell them what
we expect hopefully the unqualified have now moved
on and the best candidates are now working on their resume look we can’t
interview everyone so we need to do our best to find great candidates and entice
them to apply for the job communicating a job description and job requirements
and then being sure that the best people know about the job is only the first
phase of finding a great person to join our company now that we have applicants
we need to figure out which candidate is the best fit for that job and our
company so how do companies figure out who to hire well let’s consider what we
might want from our web developer they need to talk to executives they need to
have the ability to develop creative content they need to have technical
skills they have to understand our culture and our ethics and they have to
be trustworthy how could you see if the candidates have everything it takes to
be successful in this job interviews sure but
how could you test their ability to develop creative content how about
asking to see some of their past work did they have a portfolio of work
how about technical skills perhaps we can have them take a test maybe we can
give them some homework that they could bring to the interview are they
trustworthy nowadays most companies will also do some sort of background check
with law enforcement and perhaps also with past employers and once the
interviews are over you’ll also need to consider some other
issues what happens if no one is fully qualified will you be willing to take
someone that is mostly qualified also are your hiring practices legal and
ethical is diversity for your company government mandated or part of a plan
for corporate excellence and who gets to make the final hiring decision their new
boss a top executive the person that interviewed them or perhaps someone in
human resources and even when you find the best candidate and decide to make
them an offer there is still the question of whether or not they will
accept the offer the best candidates often have lots of options to choose
from offers counteroffers negotiations and signing a contract may be all part
of the hiring process once they accept the position you will need to gather
their personal information for company records and sign them up for a benefits
package once we have them in the system the new employee might go through a
corporate orientation and then they might get trained on equipment or
business processes imagine going through all of that all that time all those
resources and then finding out you hired the wrong person great people are the
key to a great work environment and excellent customer satisfaction
recruiting evaluating hiring and training employees is extremely
expensive companies that do not take these processes seriously waste lots of
time and money and are then stuck with a subpar workforce you money it’s the lifeblood of the
organization it needs to flow money comes in from customers money must also
go out to employees and suppliers what happens if the flow stops no revenues
from customers the company dies if we stop paying people no supplies no
employees the company dies so whose responsibility is it to keep track of
the money flow finance no finance does deal with money but their job is not to
keep track of money flows their job is to obtain funds and also to invest them
keeping track of the money flow is the job of accounting they’re responsible
for tracking money coming in from customers money going out to employees
and suppliers and they’re also responsible for keeping track of money
flowing inside the organization from one department to another why is this
important and who benefits from this tracking of the money for that let’s
discuss the two types of accounting managerial accounting and financial
accounting managerial accounting keeps track of where all the money goes this
is important to people inside company this helps with budgeting it helps us
keep track of departments that are using money wisely and it also tells us where
there might be waste managerial accountants are the ones that tell us
how much it costs to make and deliver a two thousand dollar television to the
consumer so managerial accountants help managers inside the organization measure
costs of production marketing and everything else that goes
on inside the company they also assist in developing budgets for next year as
well as budgets for new projects after the fact they can then report if people
are staying within those budgets plus managerial accountants find ways to help
us minimize taxes so what do the folks in financial accounting do instead of
being responsible for reporting to folks inside the company
financial accounts are tasked with developing reports for people outside of
the organization why is this important it informs people about our company’s
financial status that’s important for anyone considering investing in the
company and for organizations that might consider lending money to us plus
government agencies special interest groups employee unions law enforcement
and sometimes even customers are interested in knowing about the
financial activities as well as the financial stability of the organization
while financial reports are generated by financial accountants throughout the
year they work hard to develop the all-important annual report the annual
report provides financial data a written recap of events from the past year
and a statement of concerns and opportunities for the company in the
future this information in the annual report will influence all sorts of
actions and behaviors inside and outside the company so financial accountants
must carefully consider every word and every number in developing an annual
report that abides by the laws of commerce and does not mislead parties
inside or outside of the organization as you can see having accountants both
managerial and financial accountants helps a company learn from its past
understand its present financial health and also plan for its future growth you
may not love accounting but hopefully now you understand just how important
they are for any organization that requires money to survive what is your financial worth how would
you figure that out well to start we’d add up all of your money and the stuff
you own cash savings retirement accounts your home your car and other property we
total it up those would be your assets now for most of you you’d also owe money
bills power water cell phone we’d also add in credit cards car loans student
loans your mortgage those are your liabilities now take your
assets and subtract your liabilities that is your net worth for some of you
the number may be positive you have more than you owe for many others though
liabilities exceed assets you have a negative net worth accounts do the same
thing with companies except for companies assets minus liabilities gives
us owner’s equity so what would be the assets for a company cash and
investments machines and furniture buildings and land and also vehicles for
the most part those are tangible assets but you’d also include intangible assets
like patents trademarks and copyrights how about corporate liabilities
companies have bills they pay off loans like you and I but they might also have
to make payments on bonds they issued to investors corporate assets minus
corporate liabilities that gives us owner’s equity and again just like with
our net worth sometimes companies have positive owner’s equity other times it
may be negative so why not take stock of your personal net worth today add up
your personal assets consider your personal liabilities and then calculate
your net worth so often we’re caught up in just making money and paying bills we
get lost in the day-to-day finances perhaps by calculating your net worth
you’ll see your finances in the big picture and perhaps it may change your
natial behaviors when companies examine their assets liabilities and owner’s
equity they’re doing the same thing they’re looking at the big picture
because while a company may have lots of sales and small bills to pay today they
may not be considering debts that may not come due for the next couple of
years so don’t judge a company by what you see because just like your neighbor
with the great house and luxury car it’s possible the luxurious hotel you love
may have lots of beautiful assets but they may be loaded with millions in
liabilities in order to measure and report that our
annual profit companies will develop an income statement an income statement
adds up all sales and then subtracts all sorts of costs and taxes one important
thing to remember is that an income statement is an annual statement so if
you do a Google search for Starbucks income statement it will likely generate
income statements for the last three to five years it’s also important to
remember the company set their own beginning and end of their financial or
fiscal year so why don’t you open up a browser window right now and find income
statements for your favorite companies see how they make their money and see
where their money goes perhaps you’ll begin to better understand the
challenges companies face in actually making an annual profit you your business plan needs to clearly
spell out the points of differentiation for your product or service compared to
your competitors and those points of differentiation need to be things that
your customer cares about now the differences need to be substantial
relative to competition by saying you’re one to two percent faster than your
competitors that won’t get a customer’s attention 20 percent faster now you have
their attention second they don’t just have to be substantive differences that
to be meaningful if your customer cares about cost but not at all about speed it
doesn’t matter if you’re twenty percent faster so make sure as you’re
articulating these points of differentiation you look at substantive
differences as well as meaningful ones now knowing how you’re differentiated is
going to help you know where to invest your time and money because this is a
planning exercise and you’re going to focus on those differentiating factors
and where to compete or not compete in the marketplace this is the part of your
business plan that’s going to keep your strategy focused and staying on strategy
is going to make you more effective and more competitive it’ll prevent you from
chasing work you shouldn’t pursue it’ll prevent you from investing in things
that are going to be diluted that your customers won’t care about so as you
articulate your business plan make sure you think through those points of
differentiation that your customers care about and that you have a meaningful
performance advantage on versus your competitors and by spelling those out
clearly you’re going to make sure that you focus on strategy and you have a
more competitive offering your business plan has to lay out your
product development roadmap that roadmap should spell out what the major phases
are in product development as well as the timelines that go along with it
describe what’s in your Minimum Viable Product the first product that you put
in the market what are the features you’re going to release then discuss
what the next level of prototypes are going to be as well as when that final
product is going to be available and released into the market the business
plan should also describe your approach to testing research and development and
what that future product roadmap will be explain the key risks in your product
development lifecycle and how are you going to mitigate or account for those
risks when you layout your product development roadmap lay out those
features and functions at each stage of development and articulate what the
gates are for you to build that next level of functionality pricing is one of the most critical
decisions you’re going to have to make and your business plan needs to spell
out your pricing model as clearly as possible
you need to understand even a 1% differential on pricing can have a
disproportionate impact on your total profitability let’s assume your business
has a 10% profit margin if you raise prices by just 1% on the top line for
revenue you’ve increased your profitability by 10% that 1% will go
from your revenue line all the way to the bottom and your pricing will drive
margin from 10% to 11 pricing is huge do not under invest in
thinking about it so how do you come up with your pricing benchmark some of your
competitors look at their pricing model as well as their price points and use
those price points as anchors for pricing your own service also determine
your pricing model and the rationale behind it are you going to sell on a
cost-plus basis are you going to sell on a value basis is it going to be a
one-time fee or ongoing fees or some combination thereof laying out this
model is critical because you’re going to have to message it to the market as
well as build the model into your ultimate financial model as part of your
business plan in the sales section of your business
plan you have to spell out how are you going to sell your product or service
will you use a sales force or will you just go direct consumer maybe from your
website if you’re using a sales force what’s the sales cycle going to look
like how long will it be what’s the conversion rate from prospect to
customer and make sure in the business plan if possible have supporting
evidence for that how are you going to compensate your sales force will it be a
base salary we pay them a commission is it going to be a combination of the two
because that’s going to drive your sales forces behavior and in the sales section
how are you going to conduct contracting will you have long-term contracts will
you have certain payment terms that you’re going to expect what type of
salespeople do you need and how are you going to compensate them and having that
clarity in your business plan is going to make it clearer how those people will
perform as well as how it will show up in the financial performance of your
business for your business as you write your
business plan think through what your major inputs are to making your product
and then who are the suppliers do you have backups for those suppliers do you
have a diversity of sources to mitigate supplier risk how are you going to
manage the costs of the things you buy from your suppliers do you intend to
have long term contracts will you conduct a scheduled bid will you have
any partners joint ventures alliances for key components supplier risk is a
huge risk for your business if a major supplier goes down or decides to
renegotiate rates what’s your backup plan what financial risks do you face
from supplier concentration and how are you going to mitigate those risks
what operational risks do you face by in sourcing things that you’re not great at
things that aren’t your core competency what reputation risks do you face in
your supplier strategy if you partner with someone or you buy a lot of product
from a supplier and they do something wrong what’s the risk to your business
think through some of the large companies who have partnered with famous
athletes or movie stars and that athlete or star does something that isn’t so
great and look at the risk that that company who sponsored them faces these
are all risks that you should be articulating in the supplier section of
your business plan so understand where you’re going to get your product what
the concentration risks are and how you’re going to mitigate it to have a
clear and compelling piece of this operating plan it takes money to run a business and
there are three critical numbers you’ll have to know how much capital do you
have on hand what’s your burn rate and how much
runway do you have capital on hand is how much cash do you have in the bank
your burn rate is how much money are you spending every month to pay your staff
to run your business and then runway is if you look at how much cash you have on
hand and assume no more money comes in how long do you have before you run out
of money obviously the longer the runway is the safer your businesses
you’ll also need to create a perspective on when you’ll hit cash flow breakeven
which is when is the business generating enough money enough profit to pay the
costs of running that business every month and your investors are going to
want to know at what point are you going to hit cash flow breakeven because
that’s when you don’t need any more money invested your business plan should
also spell out where you plan on getting your capital from will it be from the
owners loans friends and family will you seek outside investors or grants will
you work with partners who will give you money
also what are you going to use the capital for by the way the only good
uses of capital in the early years of running your business are things that
drive sales marketing sales force or product development if you’re spending
money on anything other than those items your investors are going to question it
so as you’re thinking about your business be very clear about how much
money you’re going to need to hit the point where the business is
self-sustaining every business faces financial risks and
you should lay out in your business plan what those risks are and what you’re
going to do if they come to pass some of the risks you might face what happens if
you lose funding what happens if you don’t get that loan or the investment
you are counting on what if you lose a big customer or the economy turns south
what if that marketing campaign you thought was going to be huge turns out
to not work what happens if you get sued for intellectual property or a major
competitor emerges all of these are bad things that could happen to your
business but if you think about them now and plan for them you can put
contingency plans in place you could do things like cut expenses or lay off
staff you might seek additional loans or additional investment or the founders
might put more money in you could drop prices market more offer retention
discounts for some of your customers you may even say we would sell out to a
competitor or partner with another firm having these contingency plans in place
enables you to react more quickly so think through what the risks your
organization faces are and put them in your business plan along with the
contingency plans to go along with it strategic planning is an inherently
simple process there are some major tools and steps that you’re going to
follow as you pull together your strategic plan first you need to set
direction and stay in a lane that begins with articulating the vision the mission
and the goals of the organization once you’ve set that destination it’s
important to define the organization’s core competencies what are you great at
and how are you going to compete in the market the next step of the process is
defining strategic filters this is the heart of the method these filters are
going to be the objective functions you’re trying to achieve there’ll be the
evaluation criteria you’ll use as you analyze the initiatives that you are or
are not going to pursue next you’re going to say no to distractions you’re
going to stay focused you’ll use tools like a 2×2 matrix to evaluate which
opportunities should we pursue and which one should we avoid you’ll take all the
initiatives on your list and run them through those strategic filters to
identify the ones that are high value and high potential and the ones that
should be avoided next you’re going to draw the line strategic planning is
about focus and you’ll have your list of initiatives you’re going to identify the
top ones the bottom ones and resource them appropriately and only work on
things above the line for which you have resources the third phase of the
strategic planning process is making sure you have a diversified portfolio of
initiatives and then executing the strategic plan you’ll look at your
initiatives in terms of are they long-term short-term do they balance
your core competencies are they balanced across products or markets or services
you’ll look at your portfolio and how it evolves over time and lastly for
execution making sure you’ve got the right
resources assigned to the right projects and then iterating as the market change
and as you complete initiatives along the way so as you go through the
strategic planning process there will be major tools and frameworks you’ll apply
at each step and you’re going to come up with a very clear plan with a
prioritized set of initiatives when you run your strategic planning
process it’s important to be aware that there will be times you’re working
together as a team and people are off on their own doing individual work
the typical cadence of a good strategic planning process will have people
working individually doing some pre-work then you’ll come together as a team and
work on things like your vision your mission guiding principles then the team
will go away and do individual work to evaluate some initiatives they’ll come
back together to go through a prioritization meeting they’ll go away
again as individuals and do deeper analysis on initiatives and come back
together to do final planning and resource allocation and the deliverables
that come out of this strategic planning process will be a strategic plan in the
form of a document you’ll have a defined set of core competencies for what your
organization is great at you’ll have a prioritized list of initiatives that
you’re going to pursue and an implementation and sequencing plan where
you’ve identified which initiatives when and what resources are we going to
allocate but just remember that your planning process is going to be a
balance between working together and working as individuals as you begin your strategic planning
process it’s important to assess the market you’re competing in a classic
tool for doing so is Porter’s five forces first look at competitive rivalry
how many competitors are in the marketplace how do they behave how are
they distributed by market share how do they go to market what are their core
competencies second look at the threats of new entry so there’s the existing set
of competitors are there new competitors who will enter the market evaluate how
much does it take to get into the market will i have to build huge factories or
can i just launch a website to compete against you so understanding those
threats of new entry next look at the threat of substitution you have your
products what other products can meet that need for your customers understand
what customers are buying not necessarily what you’re selling then you
have to evaluate buyer power so these are your customers buying from you are
you the big player in the market or are your customers next you need to look at
supplier power the people who are providing raw materials and inputs to
your business are they big are they small how much power do they have from a
pricing standpoint and by looking at all five of these dynamics you’ll be able to
identify where are the major threats where are the opportunities that we can
pursue and it can generate some interesting insights when you’re
rigorous about going through this process so by doing this assessment of
Porter’s five forces across your entire market and your organization you’ll be
able to identify where the major threats and opportunities are that your
organization faces another tool you can use to assess the
environment you’re competing in is called a SWOT analysis and SWOT stands
for strengths weaknesses opportunities and threats and typically it’s drawn on
a grid for strengths and weaknesses those are typically within your own
organization capabilities you have or don’t have as far as opportunities and
threats they can either be internal or external
market facing opportunities and threats as you build a SWOT analysis you’ll want
to have the team together and have people throw out their ideas and it’s
generally a brainstorming session so perhaps we start our SWOT analysis and
we look at our strengths and our strengths consist of the brand’s we have
how efficient our supply chain is the strength of our sales force and how well
they sell our products safety within our manufacturing plants are recruiting
information technology and maybe our financial position then I look at
weaknesses and ask people where are our gaps and we may have gaps in our expense
reporting process our information technology desktop support for our
laptops our digital marketing program our intern program and our acquisition
integration skills now we start looking outside the organization at our
opportunities and threats that we face opportunities might be the growth of
social media and how we can take advantage of it the bankruptcy of Acme
one of our main competitors our ability to sell third-party products through our
supply chain and an opportunity to do couponing of our products at retail and
then last we look at the threats that we face within the market as well as
internally we may have threats of our customers are going to push us on
pricing our competitors may be poaching our talent or thinking about it the
weather in Ohio where we have some of our operations may be a threat
Acme being bought by one of our competitors could be a threat and also
economic trends that we face cause our products are a consumable and they’re
discretionary by can Zoomers so if the economy worsens our
sales could go down and once I’ve looked at that total picture I’ll have a better
sense for the strategic environment that I’m going to be building my strategic
plan in when you go to set direction for your
organization you need to clearly articulate your mission your mission is
why the organization exists it should be a cultural reflection of your values
your beliefs and the philosophy of the organization try to make sure your
mission statement is clear brief and understandable to everyone employees and
people outside the company your mission should clearly specify what business
your organization is in and where you compete and you should word it in a
manner such that it can serve as a rallying point for the organization
people should be excited about living that mission let me share a few examples
that you may be familiar with the company’s but not necessarily their
mission statements eBay’s mission to provide a global trading platform where
practically anyone can trade practically anything Johnson & Johnson be the
world’s largest and most comprehensive manufacturer of health care products
serving the consumer pharmaceutical and professional markets Intel do a great
job for our customers employees and stockholders by being the preeminent
building block supplier to the computing industry all of these are simple
sentences they clearly articulate what business the organization is in and
where they compete it helps everyone in the organization and outside of it know
what this organization stands for and what its total purpose is another element of setting direction for
your organization is articulating a vision a vision should provide a clear
picture of where you want to be as an organization in three to five years why
three to five years anything less than three ends up being too tactical and
people don’t focus on generating big ideas anything further out than five
years there’s too much ambiguity in the market
it’s hard to see that far into the future because the world can change so
much so defining what your organization is going to look like three to five
years from now can provide a very clear target for people to shoot for when you
build your vision statement first articulate what value your organization
creates let people know here’s why we exist and here’s how our customers
benefit your vision should be ambitious but realistic ambitious because it’ll
push the organization to innovate and be aggressive and push hard however you
need to make sure it’s realistic so they don’t look at it from day one and just
give up that vision needs to be something worth doing to win people’s
commitment you want your team excited about delivering on that on getting to
that destination when you articulate the vision try to figure out how you’re
differentiated from your competitors and lastly make sure that vision statement
is concise a few critical words allow me to share a few great vision statements
mcDonald’s to become the world’s easiest quick-service restaurant choice for
customers Starbucks to be the premier purveyor of the finest coffee in the
world and Microsoft to create software that empowers the users of personal
computers all of these are big ideas but they clearly scope here’s what we do
here’s the market we do it in and here’s how we’re different from our competitors
and the entire organization knows what they’re working toward so when you
articulate your vision think three to five years out and put something
aggressive out there that people can be excited about the last two elements of setting
direction for your organization are articulating your guiding principles and
your goals guiding principles dictate how you want the organization to behave
especially when your leaders aren’t around you’re setting out a principle
that an associate can use when they’re confronted with a situation where they
don’t know what to do what lenses do you want them looking
through as they’re evaluating those decisions because if you have clear
guiding principles the actions they’re going to take will be consistent with
the direction of the organization which ultimately helps you achieve that vision
and mission in terms of your goals you’re going to set out those metrics
those things that after a year two years five years you’ll look back and say we
achieved those goals try to make them as measurable as possible it can be a
dollar how much revenue how much profit it can be a number of new customers that
you add those guiding principles and goals need to be clear enough that they
guide behavior help people behave in a manner that’s consistent with the
organization’s mission and those goals should be driving you to achieving your
vision over time they need to be aggressive and pragmatic so you get that
balance of I know I can achieve this but I’m not really quite sure how I can get
there so I need to innovate and push to be able to do so let me share some ideas
around what guiding principles can be some guiding principles I’ve heard that
are great are things like would I give this to my family the organization was
in the consumer packaged goods industry and when people were trying to figure
out whether they make an ingredient change to a product or a packaging
change to the product they asked their people to step back and say if you made
that change would you be comfortable giving that product to your family if
the answer was yes go ahead and make the change if the answer is no stop
immediately other guiding principles I’ve heard be net exporters of talent
this is how we want our managers in the organization
to behave being a net exporter of talent means bringing people in helping them
develop helping them grow challenging them and building their skills and then
once they’ve reached that next level push them off to the next team send them
to the next great opportunity in front of them and then bring in more people
behind them and the net effect of that is you’re generating more talent for the
organization then you’re bringing in now think of the behaviors that this can
lead managers to take they won’t hoard talent anymore
the notion that I’ve built somebody and they’re a high performer but you know
what I’m gonna discourage them from going to the great new role would run
counter to this guiding principle so by putting this principle in place that
organization is going to achieve that goal of having a more talented
organization so think about what you want your organization to look like in
the future how do you want your associates to behave and then be able to
put in place a principle that they can understand when they’re faced with a
decision now in terms of goals laying those out very clearly and then sharing
them across the organization but letting the organization figure out how to get
there so think about what the goals are of your organization what’s the vision
where are you trying to go and what set of goals will help you get there and by
articulating them clearly the organization is going to drive in the
right direction you

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