Plans for products or services

Hopefully, this is the area that has driven your idea for your new business.  Typically, an idea or better mousetrap have been involved.  If your reasoning is sound and the product is good this will go a long way toward contributing to your business success.  If you have something of a new product it will go a long way to follow some new product development guidelines.

 First and foremost, you must really know your products or services.  Your initial study of the industry (see Module 4 for the industry analysis) will go a long way in this area.  Especially the walk and talk research.  This is where you visit your competition and/or firms involved outside your service area and in similar businesses.  Wherever possible, talk to customers.  Find out what is their buying interest, frequency of purchase and other things that appeal to the customers.  What things would they like to see which would be an advantage?  Try testing your product.  See how potential customers react to the packaging, price, name, advertising, logo, etc.  It helps if you can test these variables one at a time to see how changes would affect sales.  This early research can be invaluable in developing a winning product.

Finding a market niche for your products or services can also be important.  A niche is where your product or service competes with other products in price, features, etc.  For instance, appliances come in budget, medium and high-priced ranges.  Often in rural areas you will have a difficult time selling the budget appliances.  Peoples perspectives often are that in the budget area they will get a better deal going to the big city anyway.  (This may be true, since volume dealers generally get bigger discounts on the base price items, which they pass along to customers in the form of lower prices.)  Try to relate your customer to the product.  What is the average income for your area?  Will your customers be able to afford the higher-priced appliances?  These considerations may have a big impact on your products or services.

Proprietary features

Does your product or service have any patents, trade names, or other features that are unique to your business?  Even if the product or service you sell cannot be legally protected, it may be enough to hit the market first with your new idea.  In recent years it has become more and more difficult protect your ideas, even with the legal protections.  Many foreign competitors have proven to be very adept at taking the products of others and turning out near duplicates at a fraction of their original cost in a very short time frame.  Having a good brand name can often be more important than the legal protections of the patent.   For example, the Birkenstock shoe is a unique, foot-shaped, uphill slanting sandle-like shoe that has become extremely popular and is high-priced.  Many firms have copied their style without their success.  Their name still dictates a premium price.  Levi Strauss jeans is another example.  Carrying quality brands, or developing one yourself, is still advantageous to small businesses.

Competing with the giants

Many small business people ask how do they compete with the corporate giants like Wal-Mart.  The best answer seems to be you don’t.  You can’t buy similar products as Wal-Mart and sell them as cheaply.  (Neither can K-Mart, apparently!)  You will need to look at carrying different products and more service than Wal-Mart to effectively retail in their market.  The higher price niches, with more selection and product information/service is helpful.  Wal-Mart may carry 50,000 items in one store, which is a lot.  But they carry such a broad line of merchandise that their product lines are usually only lower-priced, faster moving items.  The important point to remember is you can compete with larger firms in any area as long as you offer more and unique service. 

Future plans

Many new businesses already have ideas where they would like to see their products or services evolve.  This outlook can be important in your business plan as it shows you have knowledge of where your products or services are going, and hopefully will be able to respond to changes in positioning your company for the future.  Also, potential investors or lenders to your company are probably going to take a chance on you because they can see the potential for a continuing relationship and increasing business with you as your product lines progress.  This can also have a bearing on your five-year projections (which we deal with in Module 7).  You may have borrowing needs which will occur two to three years down the road, which will need to be considered today.

Physical facilities

In Module 1 we discussed the importance of a good location, especially for retail businesses.  You need to plan carefully for your physical facilities up front.  This can eliminate many problems later on from inadequate ability to grow.  Consider at least a five-year window of opportunity in selecting your initial location.  Does it have adequate infrastructure serving it, such as electric and natural gas, sewer or commercial waste disposal, rail service, and other considerations for future growth?  Is the region growing due to aggressive marketing for new business or is the local government known for discouraging development?   Are our rents lower than market today, which you can expect to see changing as you expand or the area develops?  Here is another area that using the advise of a professional can help.  Using a Realtor or other real estate professional can be helpful in this process.  Also, discussing your project with the local city or economic development professionals can be of value.  Many maintain inventories of available properties for commercial, retail and industrial buildings and can also assist with infrastructure and other service issues.  A listing of these local agencies is shown in the Resource section at the end of the book.

Leasing vs. owning

There are many apparent advantages to leasing in the beginning.  First, most start-ups have limited capital, and by leasing you can benefit this way.  This can free up limited cash to more valuable needs such as inventory or whatever.  Also, you can start smaller by leasing a smaller facility.  Then move to larger facilities after you have demonstrated your success.  While leasing does have its downsides, it is generally not the same considerations when compared to leasing vs. owning an automobile.  With a property lease you will have nearly the same deductibility as payments on a loan with a purchase.  (You still will not be building equity, however.)  Also, you can be limited in your uses, depending on the nature of the property.  Having an attorney review your lease can be helpful in this area.  For more information on this see Module 8 on Legal and Insurance.

Equipment, vehicles & other fixed assets

You also need to look at your requirements for this category of asset.  With fixed assets you have much more flexibility in acquisition.  Do you purchase new or used equipment?  In certain cases you can purchase equipment used at only a fraction of what you would pay new.  Time spent looking around and doing a search for used equipment is well spent.  This is called the fine art of scrounging.  For certain businesses it isn’t practical to start out with all new equipment.  The expense is just too high, and the economies of the industry will make payback difficult.  With the restaurant business there are normally abundant sources of used equipment.  And good used equipment can often be found at forced sale for pennies on the dollar.  Many small businesses need to consider whether they want to purchase vehicles for the business, or whether they can use their personal vehicles and take a mileage deduction.  If a vehicle is a passenger vehicle or unmodified pickup, most tax advisors today will tell you to take the deduction for use of a personal vehicle.  Recently increased to 31 cents per mile, you can normally recover more money for deductions, and you will not have to depreciate it, be subject to limits for vehicles, or allocate vehicle use of personal vs. business use.

Production process and capacity

You will need to outline the process for production of your product or service.  Take a look at the traditional process for your industry and see if you can find a better way.  Often, the layout of facilities can improve efficiencies in any business.  With computers becoming more important to almost all businesses, you should look at a layout for your operation.  Would a network now or in the future be helpful in making your business more efficient?  How does your product flow through the manufacturing process?  Is receiving and shipping laid out logically?  In many cases you will want to include a copy of a schematic in your business plan to show how you are utilizing your facilities.  How will you accommodate increases in capacity?  New production lines or running more shifts?  These are also considerations that should be thought out up front.

Subcontracting

Another consideration for any new business should be looking at whether you can outsource any functions.  While the tendency with small businesses is to try to do it all under one roof, there may be certain tasks that you can hire out.  For instance, for a small manufacturing company you might want to have all machining and special construction handled by an outside firm in the beginning.  The cost of setting up a full shop and hiring full time staff may be more than you can handle in the beginning.  This frees you up to concentrate on your production operations or other areas that are more important to your overall success.