November 23, 2010

Brilliant Ideas Are Nothing Without a Plan

Mary MahoneyBY Mary Mahoney

J. Robinson Group Blog

Many of the entrepreneurs I know are energetic, wildly enthusiastic and – in their best moments – even brilliant.  But organized and disciplined?  Not so much.  As dazzling as their ideas may be, it takes a well-reasoned, comprehensive (okay, perhaps somewhat boring) business plan to impress potential partners and financiers.

Your great idea is the door opener, but your strategic business plan is the deal-closer.  Given that years of work and your potential payoff are riding in the balance, it pays to invest however much time and effort it may take to write a formal business plan that presents a compelling and convincing story.

First things first: Get your facts together, including supporting market research, legal matters (trademarks, patents, permits, approvals and the like), profit-and-loss projections, marketing ideas, SWOT, mission and vision statements, staffing requirements, company structure and investment needs– just for starters.

Next, decide whether your team has the internal expertise and experience to prepare a plan.  If not, look for outside help.  Even if you believe your team can do the job, you may wish to engage an independent consultant who can afford to be brutally honest bring a fresh perspective to your business.

Now brew a strong pot of coffee and get to work.  Inc. magazine recommends that a basic business plan be structured into seven sections: 1) an executive summary, 2) company overview, 3) business offering, 4) marketing plan and analysis, 5) strategy and implementation, 6) financial projections and 7) management team.

Writing a succinct, focused executive summary is crucial because it will either hook your readers or lose them.  “This section is key if you are seeking outside funding as it introduces possible investors to your business,” Inc. says, adding that experts suggest writing this section last, so that it incorporates thinking from the rest of the plan.

The company overview states your company’s mission, vision and objectives.  The business offering describes your product or service. The marketing plan and analysis discusses how you will tell prospective customers about your product or service while overcoming obstacles to success, including existing competitors.

The strategy and implementation section essentially is a timetable that details how you intend to take your product or service to market.  It shows what your company intends to accomplish by the day, week and month. Financial projections include projected profit and loss statements, balance sheet and cash flow.

The management team section features biographies of the senior leadership team.  “For investors, it’s an important element to include who these people are and what their experience is,” said planning guru Tim Berry. “Investors need to evaluate risk, and the general assumption is that management team experience greatly affects risk.”

While the seven-part plan described above may work for many companies, it’s important to be flexible and be prepared to take a different approach based on the expectations of your company’s prospective investors and business partners.  Other elements of a business plan can include:

  • Values and guiding principles: What does your company stand for?
  • Assumptions upon which the plan is based
  • Anticipated operating budget
  • Your company’s competitive advantage
  • Target markets
  • Tactics for implementing the strategy
  • Implementation accountability by key executives
  • Key staff job descriptions and reporting relationships
  • Performance metrics and measurement tools

J. Robinson Group helps clients develop custom plans by listening and engaging with all key players.  We advocate practical, easy-to-understand plans designed to resonate with our clients’ key audiences.  We ensure that no important elements are omitted.  Our clients say the experience clarifies their thinking and sharpens their resolve.

The approach of the new year signals an opportunity for company leaders to look in the mirror, assess their accomplishments and review and adjust their plans for the future.  I’ll share my thoughts about this in an upcoming post.

November 15, 2010

Oh No, Not More Homework!

Mary MahoneyBY Mary Mahoney

J. Robinson Group Blog

Market research is the homework of strategic business planning: There’s no escaping it, and there’s a penalty to be paid if the assignment isn’t completed.

Overly optimistic entrepreneurs ignore research, totally convinced that their business ideas are the right things at the right time.  They forge ahead without bothering to test their assumptions, subjecting their limited start-up funds to a veritable throw of the dice. 

Only when sales fail to materialize and operating costs gobble up their cash does the harsh reality emerge.

Perhaps there never was a market for their products or services; research could have raised a red flag.  Perhaps a slight nuance in positioning would have captured the buyers’ attention and made the business a runaway success; research could have pointed the way.

In his book Entrepreneurship: Theory, Process and Practice, Donald Kuratko notes that the same “ceaseless optimism” that helps entrepreneurs drive toward success can, when taken to its extreme, lead to a “fantasy approach” to business. 

“A self-deceptive state may arise in which entrepreneurs ignore trends, facts and reports and delude themselves into thinking everything will work out fine,” he said.  “This type of behavior can lead to an inability to handle the reality of the business world.”

David Ogilvy, the famous advertising man, once commented that “advertising people who ignore research are as dangerous as generals who ignore decodes of enemy signals.”

The fact is, market research is an essential part of business.  It should be a priority at the beginning, in the middle and throughout the lifespan of any product or service.  Research keeps business grounded in reality and in touch with new ideas that could lead to money-making opportunities.

Bob Kaden, author of Guerilla Marketing Research, says “research can determine which of 10 new products stands the best chance of success. It can determine areas where improving service will make customers happier. It can optimize advertising messages so that prospects would be more likely to buy.”

At the heart of market research is the “keen belief that listening to the opinions of the consumers is important,” he said.  “When asked the right questions, consumers will tell you what to do to make your business more profitable.”  Failure to listen by conducting market research can have disastrous results.

Kaden cites Coca-Cola’s failed attempt to launch “New Coke” — a sweeter reformulation of the company’s traditional carmel-colored carbonated beverage.  He quotes Sergio Zyman, Coke’s chief marketing officer at the time, as blaming a failure of market research.

“We did not know enough about our consumers,” Zyman said. “We did not even know what motivated them to buy Coke in the first place.  We fell into the trap of imagining that innovation – abandoning our existing product for a new one – would cure our ills.”

A more recent – if less “classic” – gaffe was committed by Gap Inc. just last month when it announced that its iconic blue box logo would be replaced with plain logotype that one critic said “looks like any sixth grader could design on a PC.”  The introduction incensed Gap fans, who unleashed their displeasure all over the Web.

In a response reminiscent of the Coke debacle, Gap Brand North American President Marka Hansen did a mea culpa, promising to reinstate its 20-year-old logo and apologizing for “not going about this in the right way.”

“We’ve learned a lot in this process,” she said.  “We recognize that we missed the opportunity to engage with the online community.  There may be a time to evolve our logo, but if and when that time comes, we’ll handle it in a different way.”

At J. Robinson Group, we address two different types of research when helping our clients develop their strategic business plans: Primary and secondary research.  I like to think of them instead as “direct” and “third-party” research, respectively.

Primary research explores issues directly related to our clients using a variety of techniques including polls, telephone calls, “mystery shopping,” surveys, focus groups, interviews and observation, among others.

Secondary research involves looking at reports, studies and investigations conducted by universities, government agencies, journalists, industry associations and other companies, among others. This kind of research is conducted in the library, online and in private and public archives.

We analyze market research data to help our clients make decisions about whether to enter a market and decide whether to launch a product or service.  We also use research to compare our clients’ performance to their competitors and gauge their customers’ satisfaction with their products and services.

Market research plays a direct role in helping our clients develop their products and services, evaluate their effectiveness after they are launched and then suggest modifications that can improve their performance and desirability.

The advent of e-mail, the Internet and social media has spawned all sorts of new market research tools that can help companies learn more while spending less.  There even are online companies that employ people across the spectrum of demographics who will evaluate specific products and report back via video!

We believe market research can be conducted more honestly when it is one step removed from the subject company.  J. Robinson Group brings objectivity, impartiality and expertise to the research projects we manage for our clients. 

Research is just one of several critically important elements that go into the strategic planning process.  I’ll pursue others in my next blog.

November 3, 2010

Is Nothing Sacred in Business Theory?

Mary MahoneyBY Mary Mahoney

J. Robinson Group Blog

It’s been nearly 50 years since Albert S. Humphrey of Stanford University introduced the SWOT analysis, a widely embraced – some would say beloved – methodology that evaluates an organization’s strengths, weaknesses, opportunities and threats as a precursor to developing a strategic business plan.

After five decades of serving the global titans of industry and commerce, you might expect that the SWOT analysis had won a deserved place in someone’s Business Hall of Fame.  But, like everything else in life, the SWOT analysis has its naysayers, some of whom say it actually can do more harm than good.

Before we explore the controversy, allow me to provide some background for those who never worked for a corporation and never sat through the hours of meetings involved in creating or tweaking a SWOT.  A good place to start is defining terms.

The “s” in SWOT stands for “strengths,” defined as characteristics that give an organization an advantage over their competitors. “W” is for “weaknesses,” or characteristics that create a competitive disadvantage.  “O” is for “opportunities,” or those external circumstances that suggest a profit-making situation.  Finally, “t” is for “threats,” meaning external issues that might undermine profitability.

 The purpose of a SWOT may seem self-evident: Organizations can use the analysis to maximize the potential of strengths and opportunities while minimizing the impact of weaknesses and threats.  And, in fact, that is one of the goals.  The other is not so obvious: To convert weaknesses and threats into strengths and opportunities.

The first approach is called a “matching strategy” and the latter a “conversion strategy.”  A corollary of the latter might be called the “avoidance strategy” (although you won’t see my characterization in any business books): Minimizing or avoiding threats and weaknesses that cannot be converted.

In an article entitled Improving Your Sales and Marketing SWOT written for Hospitality Net earlier this year, Frank Coan of The Hotel Solutions Partnership Ltd. noted that a good SWOT analysis should be the starting point for initiating product development, directing marketing priorities and focusing a communications strategy.

Coan believes, as do other advocates, that a cogent SWOT analysis is an essential building block of any strategic business plan, just as important as the vision and mission statements that it is designed to support.  So where’s the controversy?

J. Scott Armstrong, professor of marketing at The Wharton School of the University of Pennsylvania, is an outspoken detractor despite the fact that his colleagues teach SWOT and that “some students have said that it is the most important thing they learned at The Wharton School.”

The problem with SWOT, Armstrong says, is that “because it mixes idea generation with evaluation, it is likely to reduce the range of strategies that are considered.  In addition, people who use SWOT might conclude that they have done an adequate job of planning and ignore such sensible things as defining the firm’s objectives or calculating ROI for alternative strategies.”

Not unexpectedly, Armstrong advocates his own methodology. A better option for planners, he says, is to follow a formal written process to 1) set objectives, 2) generate alternative strategies, 3) evaluate those alternative strategies, 4) monitor results and 5) gain commitment among the stakeholders during each step of this process.

At J. Robinson Group, we believe both methodologies have their merits. The point is, they both force organizations to take an objective look at themselves and address their objectives in a deliberate, analytical manner.  Either approach would be flawed if executed improperly.  Hence, expert assistance can make the difference between a useful analysis and a failed attempt.

Adam J. Koch, a prolific professor at the Swinburne University School of Business, endorses our view. In a 2000 article entitled SWOT Does Not Need to be Recalled; It Needs to be Enhanced, he said: “Certain misconceptions held about the nature of SWOT” along with “poor quality of input and inadequate skills of those who use SWOT” are responsible for its “less-than-successful implementation.”

Specifically, he blames 1) wrong classification of factors, 2) too broad description of factors, 3) a vague description of factors and 4) “failure to clearly define the relevant strategic planning horizon, i.e. period of time for which to examine the likely influences by any proposed future strength, weakness, opportunity and threat on the perception of company’s strategic options, their selection and outcomes of strategies.”

Koch proceeds to set forth the elements of a comprehensive, well-defined, properly verified and reliable SWOT inventory.

The moral of this controversy is that every organization, certainly every business, must conduct a thorough self-examination, whether it be a SWOT analysis or an Armstrong-type review.  This process must be disciplined, objective and conducted by experienced strategists with a track record for success.  If this expertise cannot be identified internally, then it must be found outside.  We believe an impartial, third-party approach yields the best results.

I’ll continue this discussion about the strategic planning process in my next blog.

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