“The way to get started is to quit talking and begin doing.” – Walt Disney, co-founder of the Walt Disney Company.
You might be thinking – easier said than done. I have had different business ideas and concepts that I have nurtured in my mind; sometimes I already visualised how the business will grow, how the brand will be loved and how it will become a household name. This is part of the process: the dream of success is a motivator – but you must not get stuck in dreamland for too long.
How do you start?
Get a sheet of paper, open a blank word document; whatever method you choose to use, start to put your concept down. Many aspiring entrepreneurs are familiar with the term ‘business plan’. You may have looked up a few templates online or asked a friend to give you a guide to draft one. It can seem daunting even when you have a template to work with; you need to make your business plan work for you.
First, let’s establish that the plan is not an exam – so no pressure. Your plan is there to paint a picture of what your business is:
1. What market need is it set up to meet?
2. Where is your market?
3. Who are the other players in that market?
4. How much will it cost you to meet that need?
5. How much will the market be happy to pay for your product?
6. What makes your product special and what will keep it in demand?
Write the answers to these questions down, if you need to do some research and come back to it a few times – that is fine. These answers are the building blocks to your plan.
Let’s use this illustration:
You want to start a business that sells indigenous gourmet ice cream such as Agbalumo gelato. Let’s take this concept through the questions above.
What Market Need Is It Set Up To Meet?
The market this will operate in is the one for ice cream. Don’t make the mistake of taking too narrow a view when establishing this. Yes, it is Agbalumo gelato, but this is a product differentiation. You will compete with standard ice cream providers as well as specialty ice cream providers. Is there a need in this market for your product – an additional ice cream provider? You need to survey the field; you need to get out there and find out what ice cream providers there are and then establish if what you are offering has a unique selling point that will meet a market need. Note that your market need doesn’t need to be one that is established and already being catered for. For instance in 2007, Sweet Sensation started offering local Nigerian meals. This wasn’t a need that was catered for by a vast majority of quick service restaurants in Nigeria, but today the top 5 QSRs in Nigeria now offer local Nigerian meal options.
Where Is Your Market?
Let’s begin with the literal where – PLACE: Where will you be located, where will you supply? There might be 100 ice cream providers in Ikeja Lagos. With research, you might find that there is a market need for a neighbourhood ice cream provider in Opebi.
PRICE: this will come up a few times in your business plan. When you are giving consideration to where your market is, you must consider price. For instance, Opebi might have a few ice cream vendors who sell ice cream from bicycles, carts and trucks at a price point of 50 Naira to 100 Naira per scoop. Your ice cream is gourmet and may come in at 250 Naira per scoop and above; this caters to a different customer, hence a different market need. Your pricing helps you establish the segment of the market you are targeting. The next question to ask yourself is: considering the segment you are targeting, is Opebi the best location for you? You might find that there is a larger concentration of your target audience in another part of Lagos. Your research continues; don’t be rigid, consider all your options and be ready to take your business to where your market is. You might choose to start in Opebi, but your knowledge of where there are significant concentrations of your target audience will inform your plan. Remember you are not planning for the start alone but for a sustainable growing business.
Who Are the Other Players?
Business ideas are often inspired by the absence of a service or product that the entrepreneur desires. It could be that the current providers do not meet the standard you expect or know you can deliver – be it quality, variety or complexity. It could also be that there is clear gap in the market for your conceptual product. If it is the case of the latter you need to spend time researching why? Here we address the former and going back to our illustration, we established that there were other ice cream providers. It isn’t enough to know their names and locations; you need to dig deeper: What is their unique selling point? How do they communicate this to their target audience? What do consumers think of their product? What is their product? Understanding these will arm you with knowledge you will apply when developing your product.
The unique selling point of a product isn’t always obvious; one might say – it is just ice cream with a variety of toppings and flavours. It could be and it just might not be, with careful observation you will find that unique selling points for some competitors may go beyond the product. It could be, convenience, store ambience, or after-sales-service.
How Much Will It Cost To Meet Your Market Need?
This isn’t the first question that comes to the minds of many new entrepreneurs, its importance can however not be over emphasized. The numbers are so important for your plan and for the sustainability of your business. I will keep the focus of this discussion on two key areas: Capital expenditure for start up and Operational costs. Knowing your cost elements and projecting them as accurately as possible is essential to evaluating the viability of your business concept. What will it cost to start? For our Agbalumo Gelato business, we will require a pasteuriser, as well as other equipment for production, storage and distribution.
That’s what we require to start. There are other cost elements for running the business going forward. These include: utilities, wages, logistics, running costs, taxes, duties, etc. These will vary from business to business, and will change as your business grows. Many of us don’t like to deal with the numbers, but as an entrepreneur you have to be close to the numbers – even when you have a financial adviser. For a good start to your start up you need to know the answer to the question above. The key is to identify what the costs are and make informed projections taking into consideration external factors such as inflation and currency devaluation if applicable.
How Much Will The Market Be Happy To Pay For Your Product?
Pricing isn’t simply a function of what amount you hope to sell your product for, or how much money you want to make from the sale of each unit. Pricing strategy encompasses all we have discussed above. Knowledge of the cost of delivering your product to the market is essential for this process. With cost of sales in one hand, you need to revisit your research on the market players, the market for your product and your target segment of the market. Establish where your product is positioned in relation to other players in the market; review their pricing alongside what their products deliver including the unique selling points you have observed from your research.
Consider the price sensitivity of the consumers you are targeting. Price sensitivity refers to the level of importance consumers place on the price of a product or service relative to other motivations to buy. There are many considerations for setting price but let’s narrow it down to two key areas for starters:
1. Market research: know what is available, know your consumer and establish their price sensitivity.
2. Cost of sales: establish what it costs you to deliver that product to the market. Note, price is seldom fixed; cost can change, so can competition and consumer behavior.
Remember to take into account sales commissions or discounts for wholesalers if these apply to your business model.
What Makes Your Product Special And What Will Keep It In Demand?
When you are developing your concept, the driving force must be what consumer needs your product meets. You must also establish what your competitive advantage is; this is the unique value your product offers to the consumer. To do this, you have to really understand the consumers and what motivates them. Think beyond price and think big. Involve non-marketing people, you can create a focus group and test the concept/product. When you arrive at the answer of what makes your offering special, create a plan to consistently communicate this to your target audience on platforms that will reach them and convert them to paying customers. This strategic direction should be included in your business plan.
You must also plan for competition and innovation – what will keep your product in demand? With our Agbalumo gelato business, the unique value is providing indigenous flavors of ice cream. Our plan should highlight other flavours e.g. zobo (an indigenous flavor from fresh hibiscus flower) that will be developed in the future to keep our unique value alive.
Note that every aspect of a business plan is dynamic; as the business grows and expands you will find that you will need to revisit the different areas we have discussed above.