TNG Blog

Working primarily with entrepreneurs at the genesis of their new ventures, we (TNG) come across individuals and teams displaying diverse levels of sophistication. On one extreme, we find serial entrepreneurs with prior success starting new businesses and years of business experience; on the other, we have individuals attempting to turn their first idea into a success. Either way, most of our clients (or potential clients) are usually familiar with the concept of a ‘business plan’ – that document that is so critical to charting their way from idea, through venture, into successful business. In today’s world, it is easy to Google an ‘expert’ that can build an inexpensive business plan; worse yet, many people seem to think that they are the ‘expert’ and that no particular skill or expertise is needed to do so; and, unfortunately, we often run across individuals that are inappropriately confident regarding the professionalism or completeness of their ‘business plan’. And, there seem to be trends. We often find the same elements that are missing, incomplete, or simply of poor quality – these include:

1. a concise, yet informative one to two page executive summary,
2. a sales and marketing strategy that discusses advanced concepts such as channel strategy, marketing mix, and brand strategy,
3. details about the management, including roles and responsibilities within the proposed venture, prior relevant experience, successes, and other concurrent responsibilities, and
4. business analytics, which includes marketing analytics / competitive intelligence, forecasting and financial analysis, and decision analysis.

I may discuss some of the other items at a latter time, but this month I’d like to dedicate the TNG Blog to #4 – business analytics. Why this particular one? Well, two reasons. First, most entrepreneurs approach us looking for a marketing strategy that will generate loads of revenue, without really thinking about how that is going to happen, without doing any solid analytics. Second, it’s the one area where if you do a fantastic job, you will shine before potential investors and partners, more so than with any other aspect of the business plan. With the right data, advanced analytics, professional graphs and diagrams, you can wow anyone exposed to your plan or investor presentation. So, what are some critical aspects of great business analytics?

First and foremost, before you can do anything else, you need to implement marketing analytics – you need to have a solid understanding of your market, both customers and competition. Primary market research (going straight to the source of information) can yield such insights in several ways: you can directly reach out to your customers, competitor’s customers, competitors, or even other industry experts or consultants; there’s also a variety of methods to do so: face to face interviews, telephone interviews, surveys, or even focus groups. You can even conduct some tests or trials. Heck, in today’s world, you can read online posts and comments to hear it straight from the customer. Be creative!

You can also leverage secondary data (getting the information indirectly): purchase customer lists or syndicated research reports, research competitive websites or journals, use financial sites to search competitive 10K forms and other financial reports, and so on (we’ve got a few more up our sleeve, if anyone is interested). Often we review business plans that describe a single target customer type without really segmenting customers, quantifying the opportunity by segment, or looking at market share by key competitor. These are just some examples of the usual gaps we see, but there are many more potential benefits for implementing marketing analytics. Once you’ve finally built a solid quantitative and qualitative understanding of the market, you can begin evaluating the potential of your product(s) in that competitive environment. This analysis is broadly referred to as forecasting. I’m often amazed at how loosely people utilize this term…

Who can tell me what is missing from the anonymous ‘forecast’ shown below?

A thorough forecast should be more than just one simple graph. Period. A forecast should contain the factors and assumptions that impact it, the reason for any observed growth or decline, the theoretical / feasible outcomes (scenarios) and their probability, the financial results / NPV under these various scenarios, the key uncertainties and how they may affect the forecast, and where there might be important decisions that will positively or negatively affect the forecast. Wow, who would have thought there was so much involved? Well, even us ‘experts’ sometimes forget, so it’s always good to get a refresher. I was recently sorting through my books and came across a copy of ‘Decision Making with Insight’ by Sam Savage from Stanford University. This is a pretty advanced book but a real good reference on some of these concepts.

To start, you should consider at least 3 basic scenarios (that’s right, basic / minimum should be 3) – base case, more optimistic (aggressive), and more pessimistic (conservative). You can always expand but 3 is a good starting point. Next, you should assess the factors that may affect these 3 outcomes. For example, you may have different levels of investment, various response rates from a PPC campaign, different levels of pricing, and so on. You can have as many factors as you like and their outcomes should vary across the scenarios. If you really want to get fancy, you can sort these factors from top to bottom in decreasing order of those that elicit the greatest impact to the forecast (or those that might vary the most) – this is also known as a ‘tornado analysis’. From this little step alone, you should be able to knock the socks off of potential investors or partners. But, you want more? You want to get real fancy? Feel free to read Sam Savage’s book on advanced decision / probability analysis or reach out to us for more advice.

Preventing small business heartburn caused by a New Years Resolution!

February is in full swing and while some bloggers wrote about their small business’ New Year Resolutions (NYR) during December and January, I decided to skip the topic. In my case, writing about my NYR would have been like an attempt to aim and shoot blindly. You see, I have already felt all of the effects of today’s turbulent economy on my own skin, and didn’t want to betray and test myself and my business, but rather give us a full freedom to do whatever is needed to ‘survive’ 2010. However the fact that I did not publish my own NYR did not preclude me from reading and enjoying those issued by others. To be honest, sometimes I felt as though I was reading fiction or perhaps a public relations article aimed at potential clients. At other times, it felt more like statements from do-gooders like Mother Teresa about changing the world and depreciating one’s own existence, money, and profit. Interestingly, when you really take a good look, all you really see is a list of clichéd NYR that, when googled, could be seen repeating for years and years back.

So, if we consider those NYR, it doesn’t take a lot to realize that most small business owners will not be able to digest everything that they put on their plate. When setting their NYR, most people really excel at overestimating their own abilities, as well as the capabilities of their business, while at the same time misinterpreting the economy in which they are living and doing business. The reassuring part about this tragedy is that it doesn’t take a long time for most people to a) realize that their resolutions are not going the way they planned and b) begin simplifying and compromising their original decisions. After finalizing some research on the internet, I have made a list of 5 typical NYR (in no particular order) that small business owners chose to put on their ‘plate’…as well as some ‘probiotic’ to help you digest them.

Typical NYR #1…Develop a Business / Marketing Plan

Everyone is talking about it and you are aware of its importance, so that is exactly why this is your NYR. Fact #1: every small business has to have a long-term business plan, with special emphasis on financial projections and the marketing strategy. Fact #2: plans need to be flexible and regularly updated to showcase the most realistic situation and to achieve maximal responsiveness of the market and clients. This is where reality starts to set in…and panic starts to take over. You’ve spent all of your free time in December and January to write that ‘Business Plan’ and, while according to your plans should have not only completed most of the plan for 2010 but also financial projections and a marketing strategy for the next few years, you’re not even halfway through. Your tasks are piling up and you see that this NYR is slipping away from your control.

The best way to digest this huge meal is to make a very simple plan without too many details: a) chart your activities for one year, b) determine how much money should flow in and out of your business to stay profitable, and c) tackle one quarter at a time to determine what is feasible to ‘swallow’ that particular quarter. You already know one important fact for 2010 – it is not a good time to splurge – so, cut down your costs and switch your mindset to a more cost-effective gear. Whatever you promised yourself, keep in mind that you are the one who fills the plate, both what goes on the plate and how much. It is important to keep your business healthy and capable of digesting your choices.

Typical NYR #2…Be Active in Social Media

Lots of small business owners announced yet another popular NYR – become an active user of social media sites like Facebook and Twitter. You spent your entire January making friends on Facebook and Twitter, trying to establish a fan club/group (while acknowledging that no one beyond your friends and family is a fan of your business!), and updating your status several times a day. But all of that time consuming effort doesn’t seem to make any difference in your business, yet. The advice that you read online about tweeting often enough to ensure that your name stays top of mind with your audience (which in your dictionary meant tweeting every 30-60 minutes) just postponed other tasks or even put some clients on hold or waiting. You are asking yourself if this was a smart NYR. Yes, it was a good choice…you just have to be smart about how to digest it.

For starters, every small business owner needs to take advice from my ‘one at the time, starter kit’ (don’t start with being active on 5 social platforms rather one), understand that he or she has to build trust among an audience (it is only a social media, so make it your ‘friend media’ – you want them to believe you, don’t you), and redefine ‘active’ for their own situation.

There are two key items that you need to address – a) how often do you actually have time to manage social media marketing efforts and b) how do you author the most effective messages via this channel. Start with a once daily portion and build from there. This is one of those business related items that I truly support and that I know (and you will see) will not overload your company’s digestive system, if you eat intelligently.

Typical NYR #3…Join new Professional Organization / Networking Group

So you ended up joining another professional organization or networking group. I particularly have issues with this NYR, which is confusing and at odds with another common resolution… that is ‘More Family Time’ or ‘Improved Work-Life Balance’. For those of you that are willing to sacrifice your ‘free time’ networking or volunteering in a professional organization, then you should first ask yourself if you are a) exchanging your free time for a definitive increase in your revenue or are you b) giving up you free time to activities which, although suggest that you are still working, for you are actually entertaining? I guess every small business owner needs to answer that question for him/herself and to figure out whether a life outside of work or more business opportunities are more important. And if you do decide to sacrifice your personal life to an organization or networking group, don’t forget to ask yourself two key questions – a) what are the benefits to my business if I am a member of this group and b) is it worth my time to come to these meetings /events?

I guess some of us will say that the bottom line is – what kind of people are you going to meet and do they have a similar interest as you, because maybe your next best friend is somewhere there. Remember, whatever you decide to do regarding this NYR, you will still have to digest it whether it is to your benefit or demise.

Typical NYR #4…Invest in Yourself, Learn More, Read More

You spent January looking for training opportunities, seminars, and classes in your neighborhood and you still didn’t bring your decision because evenings are so valuable for your family and you are still not sure which opportunity would be the most valuable for you. You also searched for books, but weren’t sure which would be the best since the market is overfilled with so many books targeting small business owners. Sometimes googling and receiving too much information could be overwhelming and make finding great choices difficult.

While some people are skeptics about the value of online courses, they are a great option for home-based and flexible education (a great starting point is the Small Business Administration). You can learn something new, join a forum that the course offers and probably even see what would be recommended literature for certain fields of interest. Alternatively, if you decided against an online course and are more of a self study person, simply talk to some of your friends, vendors, or other resources in your community (e.g., business incubator) – they might recommend some great reading material. Be open to finding your own path to knowledge and you will be able to finish your ‘serving’ without dangerous consequences.

Typical NYR #5…Improve your Business’ Cash Flow

The last one of small business owners’ favorite NYR (#5) is ‘Improving your Cash Flow’. Yes, you promised this to yourself and to your business. However, you didn’t know that improving your cash flow would be so hard to implement with your current clients and vendors in place. Each of them has their own business methodology, so throughout January you were rethinking how to ask each of them to change.

Don’t panic if you don’t change them immediately. There is a lot that you can first change on your own to have a positive impact on your cash flow. Rethink your own salary and make a sacrifice to decrease your expenses this year, all with the goal of driving better cash flow for future periods. Do you really need that latest generation laptop that you intended to buy for your business? Do you really have to pay somebody to clean your business space for you or could you do it yourself? What I want to say is don’t spend money unwisely and don’t splurge. One more thing that you can do is to think about doing business the Japanese way – try implementing a ‘just in time inventory’ approach and don’t lock up all your money on your shelves or in the warehouse. Part of being able to do this lies in your management of supply chain, but another very important part is forecasting and being able to estimate needs.

Now that you have changed your own processes, you can begin to change the methodologies of people around you. Spend some time and create a standard reminder email that you will send out to your clients on a regular basis to avoid becoming their creditor. Perhaps offer a discount for up-front or timely payments.

On the flip-side, feel free to negotiate longer-term repayment plans with your vendors. It is a tough economy so a vendor should not be discouraged if you are still providing him or her with steady monthly payments. Alternatively, there has been a recent upsurge in ‘barter’ or exchange of goods and services, so think about ways that you can partner with your vendors. All of these actions, implemented one by one should help you improve your business’ cash flow and fulfill you NYR.