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September 23, 2011

The $6 million PowerPoint presentation

By tpryor September 23, 2011

21st Century entrepreneurs and business owners are writing smaller business plans but doing more business planning. Verbs are becoming more important than nouns.

The founder of a new company recently received $6 million venture capital without providing investors the traditional 40-page business plan document. She instead used a 12-slide PowerPoint to communicate the case for her venture followed by a Q&A where she very capably answered all of the investor’s questions to their satisfaction. PowerPoint Presentation

She had no plan (noun), but she had done the planning (verb).

Rhonda Abrams, who shared this story with me, has sold more than a million books on business planning. On September 7, 2011, she shared what has and has not changed in business planning.

What has changed?

Rhonda said, “Writing is no longer as important as the planning process and activities.” Very few people take time to read a 35-page business plan. Instead, they read the 1-page executive summary.

What has stayed the same?

  1. Investors expect in-depth preparation by the business leader, e.g., what is your niche, who is your customer, how big is the market, what is the make-up of the management team? Leaders must know their stuff, inside and out.
  2. Business leaders must have financial acumen. They must be able to explain Financial projections for their P&L, Balance Sheet and Cash Flow report. Numbers are how we keep score.
  3. SWOT analysis … strengths, weaknesses, opportunities and threats is still neede
    d. Plans must include inside and outside perspectives about the organization.

What’s new?

  1. Feasibility analysis is something new in Rhonda’s books. Do a feasibility analysis BEFORE developing a business plan. TMAC calls this step “Fail Fast, Fail Cheap, Get Smart”.
  2. Think globally. The internet now makes it much easier for a manufacturer to sell product internationally. TMAC and Small  Business Development Centers have specialist who help American companies import and export product.
  3. Do more marketing and less sales. Peter Drucker said “Salesmen are a crutch for a poor marketing plan.” Every company should be using social media to market their products and services.
  4. Be socially responsible. B Corporations are replacing LLC’s and C-corps. B-Corps focus on the Triple-Bottom Line of People, Profit and Planet. For info go to www.BCorporation.net .
  5. Faster business plan presentations are best practice. No more than 12 critical slides and expectations of 5-year or less ROI’s for projects and investments.

What improvements have you implemented to your organization’s business planning process?

June 21, 2011

The Three Landscapers – A Study in Quoting

By tpryor June 21, 2011

Does your company create daily price quotes for customers to make a sale? If yes, which one of these landscapers most closely resembles your quote process?

Image of a Sales Quote

Sales Quote Form

Assume you want to contract landscaping for your home. You’ve found three companies that can do the work. You ask each to quote your job.

  1. The first landscaper returns a price of $1,000.
  2. The second returns a price of $1,200.
  3. The third returns a price of $950.

Instead of accepting the low bid, a wise move is to ask each how they arrived at their pricing.

  1. The first explains he uses the same method Michael Dell used when he was starting his computer business; he doubles his material cost. His material cost him $500 so his price is $1,000.
  2. The second landscaper explains that his material cost is $500 and he needs 5 people for the day and he anticipates it will be one day’s worth of work for 5 laborers, at a cost of $350 and there is also an overhead cost for his trucks, loader, gasoline, maintenance and other equipment that he has assessed at $150 and the remaining $200 is used towards his profit and sales and marketing efforts.
  3. The moment the third is asked how he arrived at his pricing, he throws his hands up and screams at you. He explains that he doesn’t do business with people who are so nosey and what he has in his cost is none of your business. He further retorts that if he is the lowest bid he should be awarded the business and its irrelevant how his bid is created.

Which one do you give your business and why?

Here’s what I would do? I’d tell each vendor that I might not be able to do the entire project and ask each one to rebid my job on a line-by-line basis.

  1. Based on his methodology, I know Landscaper #1, the “material-doubler”, is going to overcharge me for most things that are easy to install (or plant); like $3 bags of mulch or stones where it plans to charge me $3 to simply rip open and dump each bag. On the other hand, the same methodology will result in it giving me a bargain for most things that are more difficult to install; like a $50 tree whose planting will not only require a lot of labor, but will require special capital equipment as well.
  2. Because Landscaper #2’s methodology more closely links actual costs with the work being performed, the landscaper with a more rational quoting method will undoubtedly come up with a higher price for items like the tree and a lower price for items like the mulch and stones.
  3. The third landscaper will come up with whatever its quoting method generates.

I would then ‘cherry pick’ and see if by doing so I can come up with a total cost of less than the third landscaper’s original $950 bid. If I can come up with a lower total price, the “material-doubler” landscaper will undoubtedly lose money on what he sells me, the more rational one will at least turn a profit on the items he does sell me, and the third may or may not turn a profit on its portion of the sale.

If you don’t have a system similar to landscaper #2, customers will cherry pick you. They’ll buy things from you that are under-priced, e.g. you are losing money on them but you don’t know it. And you won’t sell the things you’ve overpriced that would be profitable at a lower, more competitive price.

I’ve seen scores of manufacturers with invalid cost models win major contracts on which it was impossible to earn a profit this way – some of which won enough of these contracts to put the company out of business.

Which landscaper pricing method does your company most closely resemble?

March 24, 2011

Riches in Niches

By tpryor March 24, 2011

Great things are NOT often achieved by the well-rounded.

A new or existing business that attempts to be everything to everyone will not be successful. A machine shop that advertises itself as a provider of close tolerance milling is no longer unique. A restaurant with a sign out front saying “Good Food” is not unique. As a result, they have to be “cheap”.

niche photo

Image via Flickr By focsipara

The most successful businesses in the 21st century define and implement a niche strategy. A niche is a need or want not currently provided in the marketplace. Southwest Airlines started as a geographical niche. Bag-less leaf removal is a green lifestyle niche. Wine for Lawyers is an example of an Age/Stage niche.

Good niches have seven characteristics:

  1. Products that sell anytime.
  2. Independent of the economy.
  3. High profit margin.
  4. Location independent.
  5. Flexible hours.
  6. Founder owns intellectual property.
  7. Unique. Dramatic difference.

Master inventor Doug Hall says “If you’re not unique, you’d better be cheap.” Cheap is not a niche.

Does your business have a niche?

February 17, 2011

3 Lessons Learned from Evergreen Solar’s Mistakes

By tpryor February 17, 2011
Solar panel

Image via Wikipedia

Evergreen Solar recently announced they are firing 800 workers at their Massachusetts factory and moving all solar panel production to China. The February 6, 2011 issue of Bloomberg Business Week interview of Evergreen’s CEO exposes how they could have prevented the firings.                               

1. Management built too big of a factory. 75% too big! If the company had used Lean principles, they would not have overbuilt. 

2. Management took on too much debt to start the company. See #1 for a reason for the big debt. 

3. Management ran out of cash. Cash is the lifeblood of any company, even profitable ones. China offered management cash in exchange for moving the jobs to China.

Everyone makes mistakes. Learning from mistakes is a key trait of successful leaders. What mistake provided you or your organization its greatest lesson?

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November 12, 2010

Band-Aid Lean ≠ Financial Success

By tpryor November 12, 2010

I’ve learned that most people are skeptical when they’re told to expect significant financial benefits from implementing Lean.

In teams of 3, I used TMAC’s Financial Fundamentals business simulation game to teach finance to non-financial people. During the 6-hour workshop, each team manufactures and sells a common product to a single customer … me. The winner of the workshop is the team with the most income in Retained Earnings.

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