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Carefully Watch Your Business Model Tests To Validate Assumptions And Learn About The Unexpected

Why stay with a less than ideal business model, when you could have a better one? This takes identifying an idea you want to try. Next, you need to validate that idea. You are now ready to test your best ideas. By running more than one test at a time, you speed the chance that you will verify a good idea.

You want to get into the market fast with your improved business model. Freeing up resources from tests that are failing can help you do that. How can you speed up the process of making those resources available again?

Some of the tests will start to flop as soon as you begin them. That lack of results may come from finding out that a key assumption was wrong (for example, that it is easy to put together a prototype process to provide the new benefit), or from total disinterest by those who are supposed to be excited.

Many of these tests should be immediately and permanently stopped. Some should be re-framed and re-focused to reflect what has been learned, especially where there is an execution problem. In either case, little purpose is served by continuing with the planned test.

At each review ask why the test should continue any further and what will be gained. Often, the answer will be that the test should not continue and that nothing will be gained because as much useful information has already been gathered as one can hope for.

On the other hand, the unexpected may provide clues to breakthroughs. Especially pay attention to situations where a customer buys a great deal more than you would have ever thought possible, and where customers ignore something that looks like a great deal.

In the former instance, you may simply be seeing leakage. A local unit of a national organization may be buying into your new offering for their whole company. That means that your test is working, but not as well as you thought.

Of even greater significance is the possibility that they have found an additional way to use your offering. Ray Kroc's first introduction to McDonald's came from his curiosity about why one hamburger stand in San Bernardino, California was ordering so many more milk shake mixers than any of his other customers.

When customers ignore something you think will expand their usage, you also have the opportunity to learn something valuable. What were you missing when you decided to run the test?

Copyright 2008 Donald W. Mitchell

Competition Considered

No matter what type of business you operate, there will be competition of some sort. If there is not already competition, the potential for competition is most likely present. There are billions of people on this planet, to say the least. We share the same recycled oxygen, elements, and so on. We usually share the same thoughts. When we don't have the same thoughts, we can be found wanting thoughts and things of others. Competition is inevitable any way you look at it. You may think of doing something that no one else could have possibly thought of in your opinion, but realize even your opinion may be shared. There are definitely others on this planet with thoughts and experiences similar. Rest assured there will be potential competition if there isn't competition in your area already. You may invent something and soon find that someone made the same thing after yours. Their invention may differ enough so that your patent can't protect what you have. I'm not merely a pessimist. Research reveals these examples to be fact. You must consider someone taking what ever you have from you in this world. That has been the stark reality of our culture for the past 6,000 years or so.

Preventative solutions are the best. Address the problem before it happens. If you're a business owner, inception of the business is the time to think about what you're going to do. Think about things like if someone opens up a store next to yours. What if someone out sells you? Maybe you have an online business that is doing great and more competition comes on the scene, causing you to lose money. Take time to consider competition before it's too late in the game. If you all ready have competition, make reasonable effort to combat it. Now is the time for analysis.

Where do you start at analyzing your competition? A list of potential or current competitors will not be needed in the beginning. The first thing you should think about is your customer or your ideal customer. Once you understand what your customer buys and when they do business with you, a better understanding of your competition will be evident. Take for an example if you owned a fish tackle store on a corner of Time Square in New York City. Who would by fish bate in the middle of time square? What time of day would they buy and how often? Imagine the store next door to yours sells New York souvenirs and pharmaceutical products. Who do you think would make more money, you or the guy next door? Who is your customer? When would they buy? Obviously fishermen/fisherwomen or eccentrics are your customers. The answer to when they would buy from you can vary depending on a few conditions. A tourist may buy from you as a joke. An eccentric fisherman may pass buy once a year and buy from you. This is a ludicrous example for the sake of demonstrating what competition can be like. I'm by no means suggesting that you to open a fish store however, I want to demonstration practical business logic. The guy next door would probably make more money than you. Your competitor would give you reason to make a formal plan on paper. This would probably involve your change in product or location. Before changing anything, the process of change should consider your customers.

Here is what I find to be two core elements in considering a plan against competition :

1. identify your customer or ideal customer


2. identify your ability to supply your customer.

It's that simple. When you can satisfy your customer or potential customer better, you naturally beat your competition. When you can do the two core things better and consistently, you will beat whatever competition.

Think of your efficiency, performance, or capacity to offer products/services per hour, day, week, or other time period.

You will now know who your competition is if you can identify the two above elements.

Common sense should reveal to you if you have or will have competition

When Is It Time For A Feasibility Study?

One of the most frequently underestimated aspects of new venture development is the feasibility study. This part is a detailed look at whether an underlying business concept is sound, and can be effectively executed.

Feasibility studies are not just important for structuring a business, but also for establishing realistic financial needs and expectations. One that is poorly- conducted can fill an entrepreneur and their team with false hope that could eventually lead to financial ruin. A well-constructed feasibility report, however, can break down the doors, cementing a ventures' chances for prosperity in the eyes of potential investors.

After initial research validates the viability of an idea, it is time to begin the process. One of the more complex components of this will be determining the market viability of the venture. While the first step is to examine the breadth of those who serve as potential customers/users/clients, other factors must be taken into account as well.

Once you've completed an initial investigation, it's time to go forward with the formal report. A major caveat, though, is that these studies, much like haircuts, are best left to professionals. Executing the report on your own sacrifices the true objectivity of an impartial party, and your own intuition can cloud accurate analysis.

Some of the best guides to help you along the way will include the following topics:

* The importance of a proper study for any new venture

* Key mistakes to avoid while creating the document

* How to seek assistance from trained professionals with the process, and which factors to look for when selecting consultants

These are all important things for anyone trying to start a business. If you are serious about getting into the entrepreneur game, you need to do a feasibility study and take the results seriously. It is one of the greatest secrets of success around!

Business Brokerages - What Services Do Business Brokers And M

Every business broker and M&A intermediary works towards the same goal, to help you successfully sell your business for maximum value.

A good business intermediary will provide you with valuable services essential in selling your business:

• Evaluation: The most important step in any transaction is evaluating your business before it goes to market. A business broker should carefully examine your company's financials and your personal needs to guide you towards a price that would best accomplish your goals while remaining realistic.
• Buyer search: A business should be marketed confidentially through several channels to create a competitive arena with multiple buyers. Besides business-for-sale Web sites, the business intermediary should have an existing buyer database of local and national prospects. A successful business intermediary often has other marketing strategies to generate competition for your business, which will lead to a higher selling price.
• Negotiate a Letter of intent: Once a potential buyer expresses interest in the business, a business broker will help review the buyer's Letter of Intent, which is a tentative agreement outlining the primary economic considerations of the transaction and other issues. If your broker is able to negotiate with many potential buyers simultaneously, he or she can usually achieve the best results.
• Due diligence: Once the Letter of Intent is signed, the buyer brings his or her attorney, accountant and other professional advisers to conduct a thorough investigation of your company. During this time, your business broker must use his skills and diplomacy to defend your business.
• Definitive purchase agreement and closing: When due diligence is complete, the business broker helps you and your attorney review the final Purchase Agreement and closing documents.

When looking for a business broker, it is important to interview several and ensure that they have the experience in handling transactions similar to yours in size.

Factors Influencing The Value Of Your Company

Recast Earnings

With rare exception, a company's recast pre-tax earnings influence valuation more than any other factor. Viewed in the simplest manner, buyers are looking to purchase a stream of income that will provide a desired return on investment and justify the purchase price. Consequently, most commonly accepted valuation methods primarily rely on multiples of earnings. It follows that the stronger the earnings the greater the value, all other factors remaining equal. Given this reality, it is critical that a seller present the financial statements in a format that will maximize the earnings in the eyes of the acquirer.

Hard Assets

Tangible assets have a positive influence on value. Generally the greater the asset value included as part of a transaction, the greater the overall company value. However, since earnings typically have a greater impact on valuation than assets, increases and decreases in asset values rarely have a dollar-for-dollar impact on company valuations. For example: assuming there is equipment valued at $300,000 included in a transaction, increasing the amount of equipment to $400,000 may slightly elevate the company's value but considerably less than the $100,000 difference. Large sums of required capital assets may actually be viewed as a "liability" to certain buyers as they generally require larger future investment to replace or maintain these assets, diminishing future available cash flow.

Risk Factors

To clearly determine a company's value, buyers must weigh the future opportunities against the perceived business and economic risk. Elements of the business that increase risk decrease the value of the business. Conversely, elements that decrease risk increase value. Examples of risk factors that influence valuation include: industry life cycle; industry stability; customer base concentrations or dependencies; supplier dependencies; product or service differentiation; strength and size of market; management quality and depth; employee dependencies; impending regulation; new technology and many others. Although each of these risks is unique, they all have one common trait - an ability to either reassure or cast doubt on the predictability of future cash flow. As a result, the better a business can control, offset or properly present these potential risks, the more positive the impact on valuation.

Acquirer Identity

A company can have a significantly greater value to one acquirer than another. Much of the perceived value derives from the company's strategic fit with a potential buyer. Strategic value can be achieved through cost synergies (i.e. elimination of duplicate expenses and reduction in cost of goods) or sales and marketing of complimentary products and services that afford new markets and customers to each company. The key is to identify potential acquirers that should have the most to gain from a business combination.

Terms

Price and terms tend to have a negative correlation. For example, an all cash transaction will generally yield a lower price when compared to a transaction that includes owner financing. The better the terms offered to a buyer, the higher the price that can be paid to the seller. This primarily relates to cash flow, the cost and availability of outside debt capital and the risk associated with completely "cashing out" the business owner at closing. The key is to identify the right combination of price and terms that creates a "win-win" for both buyer and seller.

Transaction Structure

Many deal structure factors in addition to price influence the total financial yield to a seller. Will the transaction be an asset sale or a stock sale? Will the seller receive continuing perks and fringe benefits? Will the seller retain certain assets ( i.e. receivables, cash, deposits, etc. ) rather than include them as part of the transaction? Will the seller be willing to structure an earn-out for a portion of the transaction? These and many other alternative transaction allocations and structures will have a direct impact on tax implications and total yield to the seller.

Presentation and Packaging

When buyers evaluate a business opportunity, they expect the records and facts to be properly organized and documented. A professionally packaged business will greatly increase a buyer's confidence and comfort level, thereby increasing the likelihood of a successful sale. Most buyers enlist their CPA, lawyer or business partners to provide feedback. These educational presentation packages keep everyone on the "same page." You have spent years establishing name recognition, market niche, vendor relationships, operation and production systems, management, personnel, distribution channels, customer loyalty, expansion opportunities, synergies and numerous other intangible business assets. This is a story that needs to be properly presented to potential buyers. A professional intermediary can present the best possible picture of the entire business, thus maximizing the attractiveness and perceived value of the firm in the eyes of potential acquirers.

Business Plans - How To Anticipate What The Banks Want

If you're looking for information on business plans, then the chances are you have spoken to a bank or financial institute about a business idea and they have asked you to go away and write a business plan for them. I'm also sure they will have given you no advice as to what key facts they will be looking for in your plan. For most people writing a business plan will be a daunting task. Unfortunately, this can, and does, put many people off starting up their own business and commits them to a life of working for someone else. I intend to show you why you shouldn't be running away from writing your own business plan and even better, how to get around writing one at all.

Like most things in life, experience is key to success. I can't over emphasise how important it is to get your business plan right first time, as banks are not impressed by return visits with second attempts. Although I said you shouldn't run away from the plan, I didn't actually say it has to be all your own work. Some banks will give you packs which set out a basic business plan for you and all you do is fill in the blanks. This can work for a lot of people, as their business plan may be quite simple and low risk for the banks. If you want to be more certain of gaining the funding you require to start your business, then you will need a business plan that goes into greater detail.

Writing your own business plan from scratch can be hard work, so you need to go about this in the correct manner. Do not try to write the plan from first page to last page, as many areas are likely to change over the weeks leaving some of your early information outdated before it's complete.

Start by writing down exactly what the business is about, what you are trying to achieve and over what time period. What your business is going to be about is completely down to you, but it will be advantage if it's in an industry or service that you personally have experience within. You can always pay for that experience, but this always puts great pressure on your finances from day one.

Next you need to look at the basic finances of the business to get a rough idea of whether it can be profitable. This information is made up of 5 main areas:

• Start-up cost for the business (manufacturing equipment, computer equipment etc)
• Annual indirect costs (rent, rates, electricity, wages etc)
• Individual survival budget (your personal income needed to live)
• Annual direct costs (cost of sales)
• Income (from sales)

If you have an accurate plan which includes all of the 5 point above, then you will be able to find out how profitable the business plan really is. This will also give you an idea of how much (if at all) you will need to borrow from the bank to realise your new business. Research is imperative to a successful plan, otherwise your business will have unforeseen problems once you start trading. Remember that putting false data into a business plan might fool an unsuspecting bank manager, but the outcome is likely to backfire on you in the future.

Once you have your basic finances and structure in place, you need to set about writing the plan in a format which any finance company will find easy to understand. The layout of the plan can be as important as the contents. It's no good having well researched and detailed information, if the investors or bank managers are unable to understand what you have written. Make sure you have a clear contents page and that all your referrals to appendixes are correctly labelled and are relevant.

Finally, present your new business plan in a professional folder or wallet and make several copies for the different financial institutes you're going to see. Make sure you know your plan well and can go to a particular page quickly should you be asked a question about an area of the business.