By W.W. Mayes
It is my hope for those of you currently in business or looking to start a business, that the information I provide will be of assistance to you. For those of you with no interest in starting a business, maybe reading this will give you a greater appreciation for those who do take the risk.
The real value of creating a business plan is not having the finished product; rather, the value lies in the process of researching and thinking about your business in a systematic way. The act of planning helps you to think things through thoroughly, study and research if you are not sure of the facts, and look at your ideas critically. It takes time now, but avoids costly, perhaps disastrous, mistakes later.
Last week we began the discussion of how to set company goals and objectives. I explained that goals are destinations—where you want your business to be. This is the big picture for the next 3 to 5 years. Objectives are progress markers along the way toward goal achievement. Objectives are your measuring sticks to see if you are staying on track.
Let’s say that your business needed to achieve a monthly revenue stream that would compute to 10 million in annual revenue within 36 months. To figure out how to achieve this goal you would need to break it down into bite-sized pieces called “objectives.” To determine what those objectives should be, you must pull together some facts such as your market size, the product or service price to your end user, competitive situation in the market, market need and value of your product or service, development cost, personnel cost, overall costs and expenses, and many more things.
To simplify this we will say that you have a product that is needed and desired by your market. Let’s say that your product brings in a monthly revenue from each customer site of $1,300 and that this is a fair and acceptable price in your market. We will estimate that your net revenue after payroll and expenses sits at 65 percent. (Net revenue is different from your net. We will cover business accounting at another time.) If I take 65 percent of $1,300 I have a net of $845 for each monthly customer payment. This tells me that the company will make net revenue of $10,140 per paying customer site. If you divide your objective of 10 million by $10,140 you now know that you will need to have 987 client sites under contract in order to achieve your goal.
Now you can go to work figuring out what your objectives need to be over the next 36 months. You know that you have 36 months to contract 987 clients. Let’s say that you have a possible customer base of 30,000. This tells you that you must have contracted 3.3 percent of your market place in 36 months. How do you do this? The answer is simple yet complex. There will always be variables depending on the market you are involved in, the economic stability at the current time, and many other conditions but there are certain things that run true no matter what business you are in.
I hope that you can now see that before you can start working on your goals and objectives it is imperative that you have done your homework. You should have, by this point, completed your primary and secondary market research, determined the economic facts about your industry such as:
What is the total size of your market?
• What percent share of the market will you have? (This is important only if you think you will be a major factor in the market.)
Current demand in target market.
• Trends in target market—growth trends, trends in consumer preferences, and trends in product development.
Growth potential and opportunity for a business of your size.
What barriers do you face in entering this market with your new company? (Some typical barriers are: high capital costs, high production costs, high marketing costs, consumer acceptance and brand recognition, training and skills, unique technology and patents, unions, shipping costs, tariff barriers and quotas.)
And of course, how will you overcome the barriers?
How could the following affect your company: change in technology, change in government regulations, change in the economy, and change in your industry?
Let’s assume that you have done your homework so that you can lay out your goals and objectives using the numbers stated previously in this article. How do you determine what your objectives need to be so that you can reach your goal in 36 months? The first thing you must understand is that our objectives will have several layers to them.
Let’s say that your objective by month three is to have ten contracted customers. You must now figure out what it will take to achieve this objective in your first three months of operation. How many sales people will you need to have on staff to achieve this? How many phone lines and what other support will you need?
So now this objective might be written as follows: “Within the first thirty days of being in business, we will have ten phone lines set up with a computerized voice-mail system, eight integrated work stations that are functioning effectively with our servers, hired and trained three sales persons, and hired a ready-to-go support technician. Having done this we, will have contracted at least ten customers to use our product and services.
Now you have some meat to bite into. You can focus on what must be done to achieve your objective that is a stepping stone to your goal.
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