Category Archives: Feasibility Studies

Owning A Business – Part Six

Business owners often struggle with financial issues. Examples are finding additional sources of revenue to keep cash flowing, and controlling cost factors that can prove crippling. In some cases with owning a business, the vicious cycle is unending.

Consider soft drink companies that discover revenue streams with certain products or market areas. They carve niches in those areas and pursue market share against their competitors. At some point, market saturation occurs and while the revenue stream doesn’t dry up, it doesn’t produce at the same level consistently. In fact, it may slowly ebb.

The solution is to look for alternatives. This is where professional consulting advice can prove valuable in assessing market acceptance. Adding new consumers in different markets is one option. Adding different products is another option that involves the risk of diluting the existing market. Instead of owning 40 percent of market share, the company has divided that percentage into – perhaps – 30 percent for one product and 10 percent for the other.

The company has also incurred the cost of developing an additional brand, adding production capacity to get the product into the consumer’s hands, labor, and the marketing expense of advertising. Those costs may be justified if market research verifies the need to diversify and identifies consumer demand sufficient to warrant the effort. The hard decisions come when market research shows the demand doesn’t exist or diversification is not a viable option.

If a business owner has commissioned sales people, cutting back on those costs is often one of the first considerations, when it should be the last. Remember how revenue is generated: Sales! Look instead at more efficient production or distribution methods. Consider changing processes or procedures to trim waste and enhance margins. People should come before profits, and most business owners realize that – but without profits it’s hard to stay afloat.

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Business Viability

If we’ve heard one story about someone wanting to start a restaurant, we’ve heard a dozen. The idea of opening and operating a restaurant most likely stems from a bad experience where someone feels they can do a better job than what they encountered. It could be that there is a belief they’re a good cook, or they have children who suggested mom and dad open a restaurant. In any case, the horror stories are more common than tales of success.

Here’s why, and the reasons apply to more than restaurants.

More than once we’ve heard about the person who wants to take over an existing restaurant that failed and closed. We even heard of one restaurant owner who closed a franchise operation and claimed they would reopen at the same location as a “different” restaurant. Could location have been a factor? Or could hiring a majority of the same employees drive a stake into the new operation?

There have been fast food franchises that have torn down one building and relocated to the other side of the street, simply because the old location was not accessible to customers who wanted to avoid turning left into the restaurant. Location is key.

When it comes to any business, it pays to do some diligence and investigate issues such as traffic flow, residential population, ease of access, and other establishments nearby that are capable of or already bringing potential customers to the location. If you can do that yourself, great; if not, consider a professionally conducted competitive market analysis or feasibility study. Realize that the cost of acquiring that information could help you avoid moving forward on a project that is destined to fail … and spending much more money in the process.

Besides location, you have to consider your management team, target market segments, value proposition, revenue streams, various cost factors, and key resources, among others. All of these are part of developing a business model.

To go back to restaurants, for example, far too often the owner chooses to employ managers to run the operation in their stead. Unless those managers have a vested interest in the endeavor, they could ruin the business by the way they manage the employees, treat the consumers, and handle inventory and other financial matters. Ever hear stories of managers embezzling funds?

Have you identified the various market segments likely to patronize your business or use your products? What are their buying habits? Do you have a value proposition that resonates with them and is relevant to their needs and wants? Do you know how to reach them with effective advertising that provides a return on your marketing investment? What makes your business different from the other ones that provide the same product or service? It’s one of the first question certain consumers will ask.

Now ask yourself: How much money can I realistically expect to make from this business? On this step, it is critical that you are brutally honest with yourself. Leave your emotional attachment to the idea or suggestion out of the decision making process!

As part of this evaluation, ask yourself the long range question: Why am I doing this?

We are here to help you take the time to think through that question.

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Get the Facts!

One of the most critical elements in making a business decision is having the facts. Put aside the emotional aspect of starting, buying, expanding, or selling a business. Consider the logical information that’s available; the business side of the deal.

A recent project involved a competitive market analysis for a client that wanted to expand a high margin portion of its business to a different market segment. The investment involved millions of dollars, so it made sense to spend a couple thousand to learn if it was a feasible project and whether there was a significant enough volume to warrant the expansion.

Yes, this type of research takes time. If it’s an emotional decision, the time factor can put undue pressure on getting the facts. As we have discovered in conducting numerous market research studies, the path to a decisive outcome often takes many diverse turns. One bit of information may indicate the choice is quite clear, while the next piece of data spins the decision in the opposite direction. It requires all the facts to provide a clear picture, and that takes time.

In the recent effort, what looked like relevant information turned out to be at least two years old. While it may still be pertinent, further research is required from additional sources to verify the validity of the information. Some sources are more reliable than others, so as professionals, we are required to double check and, at times, triple check the resource to determine the accuracy of the data.

As you should assume, the world of business can change quite rapidly. For instance, we determined that a major international company had a subsidiary that looked promising for the client’s expansion project. Digging deeper, we learned the subsidiary had been sold to a group of private investors and re-branded under a totally separate corporate umbrella. Despite the potential for change, the time eventually arrives when a decision needs to be made.

Get the facts, and you have a higher percentage chance at success. Then, when you’re ready to market your new strategy, you can bring the emotion back into the equation and move forward.

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How to Build Brand Loyalty – 5 Basic Steps

Building brand loyalty involves being able to attract customers, keep them coming back, and have them sing your praises to other consumers. Their loyalty depends on how well you take care of them and lasts through the reputation you build for your brand.

Step One: Produce and provide a quality product or exceptional service. Quality is a major determining factor when it comes to the price equation. Consumers will purchase an inexpensive product and remain loyal if it’s useful and offered in a consistent fashion. French fries come to mind as an example. Fries are relatively cheap to produce, yet customers develop a fondness for how and where they get their favorite fries.

Step Two: Meet or exceed the customer’s needs. Beyond food, shelter, and clothing, you should know what your customers need. Do they want the prestige of owning your product or using your service? Do they seek certain performance standards? Do they need to fill a basic need or pick up a bit of luxury? The deeper knowledge you have of your client’s needs, the easier it becomes to meet and satisfy those demands.

Step Three: Deliver what you promise. Failure to deliver what’s promised opens the door to lots of business headaches. How does your delivery person deal with an irate customer when your order taker says the pizza will be there in 30 minutes and it takes longer than 90 minutes to get it there? Does “Oops, I’m sorry!” help build brand loyalty? The other side of this brand building step is to avoid promising what you can’t deliver.

Step Four: Take care of your customers. Customers will remain loyal to your company and its brands if everything about it provides them with more pleasure than pain. If a customer likes how well your vehicle handles, how easy it is to get in and out of, how much storage space it provides, and how good it looks sitting in their driveway, the odds are fairly good you will cultivate a loyal customer who brags to others about your vehicle.

Step Five: Ride for the brand. Once you’ve settled on a brand identity and begun to implement the strategy that goes with it, stick to it! Understand that it make take time to become ingrained in the consumer’s mind, so allow your advertising and other marketing efforts to work before pulling the plug and shifting gear. When customers know you make the difference they’re looking for and remain consistent, their loyalty is easier to maintain.

These are five basic steps on the path to building brand loyalty. There are others, of course, and we’ll share more in coming posts. Keep in mind that what may seem simple can be rather complicated. Your task, as a business owner, is to remain focused on doing what you’re good at. Engaging a business and/or marketing consultant can be an effective way of growing your business and achieving your dreams.

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Business Plans & Branding

Developing your corporate brand begins with your business plan.

Some professional advisers insist that business owners should complete their own business plan. We agree – to a certain extent. The business owner must provide the input to a business plan. Without the owner’s commitment to completing and implementing a plan, however, the process is a waste of time.

A business owner knows what they want to do but may need the skills of a more experienced planner to compile the plan more effectively and obtain financing. Many people in business also don’t know what they don’t know, which means having someone with the expertise in many different areas to assist can save time and money. Expertise in leading a sales team may not translate well to budgeting and financial projections. Being proficient in production techniques may leave something to be desired when it comes to choosing advertising channels or defining consumer markets. Professional consultants earn their fees by having the knowledge that proves beneficial in a variety of areas.

The first step in starting a business involves some soul searching and market research. When Brand Irons meets with a prospective client, it is essential to be open and honest in the discussion. We look for commitment to the process of planning as well as to the long-term success of the business concept. We also recommend a feasibility study to assess the economic and market conditions, potential profitability, and other financial considerations before deciding to proceed.

Spending a little money up front to know the idea has merit is a wise investment.

While the cost of a feasibility study may be daunting, if the results indicate a better-than-average potential for return on investment (ROI) and the owner decides to go forward, the foundation of the business plan has been put in place. Assembling the rest of the plan and crafting a strategic model to implement is relatively simple once the decision is made to proceed.

What few people who want to start a business realize is that only one out of every 50 business ideas is commercially viable. That’s a 2% success ratio!

With the proper guidance from business and marketing consultants such as Brand Irons, you can craft a brand identity for your business based on the foundation provided by your business plan and strategic model. Your business is unique, which is one of the reasons you need professional assistance in compiling a brand strategy that is consistent with the unique nature of your business and capitalizes on your assets. The result is a more focused approach to marketing your business and reaching your desired audience.

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Viable Options

Which direction to go may not be obvious.

In our last blog, we wrote about the importance of feasibility studies. They can be critical in deciding whether your business idea is viable or not.

One aspect of a feasibility study that comes up is the various options it often exposes if the original subject loses luster. When a study is commissioned and a consulting firm such as Brand Irons is engaged, the business owner or entrepreneur has a fairly clear concept of what they want to accomplish. They may have a business location and other variables in mind for establishing their operations. While those may represent the ideal, the business owner needs to be receptive to what the study’s findings reveal, however.

The study may, and often does, uncover that while the concept may be a good one, the short- and long-term economic viability is less than desirable.

In the course of a study, however, new and often better options arise from the research. More economical and durable equipment options may be discovered, for example. A more reasonably priced piece of property a block away on the other side of the street may actually be more advantageous for consumer accessibility, and be more affordable. An entirely different, yet potentially more profitable, market segment may be identified. The study may also reveal that an entirely different product line may be the better way to proceed. These are completely unforeseen developments that are revealed in the course of a feasibility study.

That’s why we encourage business owners to keep an open mind and embrace the potential that another option may crop up and be better in the long run. They should avoid locking in on one, and only one, option. Different vendors and investors or financial partners may also be discovered when the entrepreneur is amenable to suggestions.

The purpose of the feasibility study is not to tell the person with the idea whether to go forward with their business concept or not. It is intended to provide the decision maker with reliable information on which to base their choice. That information, when thoroughly digested and evaluated, forms the knowledge base that gives justification for whatever decision is made.

The beauty of this process is that it reduces the risk of throwing boatloads of money at a project that fizzles before it turns a profit. Yes, there is a cost to conducting the study, but if you can save hundreds of thousands of dollars by sending a few thousand instead, it is worth the effort. And, if the decision is made to move forward, it’s money well spent.

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Business Viability

Is your business concept feasible?

Will it make money at some point?

More often than not, we find business owners starting their endeavor without a clue as to its success potential. Success potential is a realistic consideration of whether the idea has a chance of earning a profit, and at what point in its existence.

Far too often, the person with an idea for a product or service has little experience operating a business. They’ve got what they believe is a great concept, and they become emotionally invested in moving forward. They probably invest some financial capital as well, but are unsure of how much more they may have to invest to make the project viable. They need to take the time to think things through.

Conducting a feasibility study involves taking a step back to evaluate the idea from several points of view, removing the emotional element (there’s a place to bring that back in), and assessing the business from a rational perspective. Among the considerations are financial projections – obviously – along with management, market demand, production, distribution, licensing and legal concerns, product definition, and a host of other business elements.

Financial projections need to be as realistic as possible. It’s easy to project an optimistic forecast for sales, but the pie-in-the-sky numbers can convey a false sense of short- and long-term profitability. The cost of goods sold (COGS), expenses, labor costs, and cash flow are among the down-to-earth considerations that can provide realistic numbers.

Realistic projections are also critical if the business owner needs financing. We’ve seen potential loans turned down because the borrower, when asked, told the banker the numbers were just “plug ins” and was unable to explain why they were in the projections.

An independent third party like Brand Irons can review the financial projections in a business plan and do the research to verify their accuracy. They can also look at the other elements, such as the strength of the management team, to provide a prospective lender with the information it needs to make a decision. Lenders often want to know if the management team is capable of making tough decisions when necessary, and the business owner completing a plan for financing is rarely objective on that issue.

One of the most difficult parts of conducting a feasibility study is removing the owner’s emotional attachment to the concept. Although it may be the best idea since the invention of the bread slicing machine, we advise business owners that they must be able to walk away from a project if all indications are that profitability is fleeting. Where emotion comes back into play is once the idea looks viable and the owner elects to move forward, their emotion becomes the foundation of the marketing strategy that convinces prospective customers to purchase.

Keep in mind that some people may have great ideas but lack the skills necessary to carry them through. Yes, a feasibility study can cost thousands of dollars and months to complete, depending on the concept and its variables.

It is well worth the investment if, in the long run, it saves the heartache of risking one’s personal wealth to realize they’ve lost it all. And, if it proves feasible, the study becomes the foundation of the business plan and marketing strategy. More next time.

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Business Challenge: Managing Life Cycles

Every business goes through cycles, whether the owner cares to admit it or not. Business owners must first understand these cycles exist and realize when their company is entering a new one. The challenge is knowing how to manage the changes required to survive and thrive.

It begins with the start-up phase, where plans are made, products are defined, and strategies are formulated and implemented. This can be a difficult period for the business owner because hopes and dreams are attached to the success of their venture. Failure is a real possibility, but motivation is fueled by emotions rather than clear-headed thinking. From an outside point-of-view, an entrepreneur or potential business owner should stop and think about what they’re doing before getting in too deep.

Have someone look at the financial projections objectively, or consider hiring a firm such as Brand Irons to conduct a feasibility study to clarify the route to profitability. Base your business decisions on cold, hard facts instead of wishful thinking. Emotions can be brought back in with your marketing strategies.

Once the tough stage is behind, the next business phase is either a growth spurt, the transition to a different attack plan when there’s no growth, or closure. Growth is often the easiest phase for owners to manage. It requires adding production capacity, employees, sales people, and other elements that are indications the business is doing well.

The caution in growth stages is to continuously keep on eye on the numbers. Growing your business means adding more revenue, and it also means adding problems tied to that growth. Outside advice can prove valuable in matching projections to actual results and avoiding sugar-coating what may appear to be a rosy picture. Stay real.

As the company grows, business expands to fulfill the demands of the marketplace. There are many lessons where companies tried to expand too quickly and lacked the marketing or infrastructure or management to handle the expansion. Krispy Kreme doughnuts tried an expansion program and had to re-trench, as did Sonic with drive-in restaurants in northern climates. Controlled expansion is far more manageable, despite how strong a management team you may believe is in place to handle it.

One of the most difficult phases in the life cycle of a business for the owner to grasp is when the business has entered a maturity stage. Maturity can be caused by product or service obsolescence, changing market conditions, an inability to adapt to changes, the aging of owners and management, as well as time itself.

When it becomes obvious that a business has reached maturity, the critical decision is determining what to do about it. The major factor to look at is whether the products and/or services are still relevant to the consumer. Changes are needed when you can determine that what you’re doing is no longer relevant.

The logical choice for handling maturity is the next phase in the diagram, which is transition. Transition might involve selling the business, turning it over to a different management team, or implementing changes to adapt to the market’s demand. Keep in mind that maturity is a good phase for a business and may last for quite some time. Successful businesses start out with an end result in mind, making the transition a planned event. Mature businesses should also be considering transition options.

At every stage in the life cycle of your business, you can benefit from the advice of professional business consultants, such as your accountant, attorney, insurance agent, financial planner, and yes, a business and marketing advisor. Their role is to help you make more money and reduce your risks.

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Starting With The End In Mind

In many aspects of business today, it is good advice to plan with the end in mind. That also applies to starting your business, and why a professional feasibility study can identify if the end you have in mind is realistic … and viable.

A basic example: Let’s say you have an idea for a product that fills a niche currently under-served or non-existent in the consumer world. Your goal is to start the business, establish the product in the market, grow sales volume, and eventually sell the business off to a major company at a $500 million dollar or higher price point.

Seems like a great idea until you’ve invested thousands of your own money, borrowed as much as you can, and guaranteed thousands more, only to discover that some other company beat you to market, sold “your” invention to the corporation you were thinking might buy yours, and already has the lion’s share of the consumer market locked up.

You’re forced to find alternative markets, retool a different product (if you can), changing your “end result” objective, or filing for bankruptcy. You may have wasted your life’s savings and possibly those of other family members as well.

A feasibility study can provide you with the research and the perspective, along with the financial data to avoid such disasters. When you engage a professional firm such as Brand Irons to conduct a feasibility study, it is important to share your end result up front.

Knowing that your objective is to serve a need is critical to establishing a viable business model. However, knowing what you want as the end result is the element that provides you with the driving motivation to build your business.

One of the most vital, and often discouraging, revelations identified in a feasibility study is the learning that the business concept has only a marginal commercial viability. This is discouraging because it often crushes the dream of someone’s idea. It is also vital in that it dissects and reveals the inherent flaws in the concept.

An example: A client wanted to create and build an elite level indoor skateboard park in a large city’s suburbs. The rent for the space requirements, the cost to build the custom-designed facility, and the operational expenses were all upper end. What the feasibility study revealed was the inherent flaw: Skateboarding enthusiasts prefer to be outdoors when they can and they don’t like to spend money to skate!

More on this later, but consider a feasibility study for your business idea. Whether it’s for starting up a new venture or expanding an existing one, take the time to think things through. If it’s a good, viable idea today, it should still be feasible in a month or two.

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Stop: Think About It!

This thought might seem like a bizarre topic but, when you do stop and think about it, there are far too many decisions you make as a business owner that you probably don’t take the time to think through completely.

Okay, the first question you raise: Can you ever think through an issue completely? No … unless you have identified all the concerns related to that issue and have all the answers clearly defined.

Here’s a scenario: Someone who knows someone in your company comes in to ask for a donation to the youth baseball league in your community. Odds are you make that contribution at a level you’re comfortable with, unless you’re not a baseball fan or a supporter of youth activities. It’s kind of a guilt trip when you’re asked. How can you be against baseball? Or young people who want to play sports?

If you think about the request logically instead of emotionally, you weigh the variables, such as whether you have the budget allocated for that level of donation. Can you lessen your tax burden through the contribution? Will you gain any market visibility or brand awareness with the donation? Is it a cause you want to be identified with as a company?

That’s one example of the importance of taking a few minutes to weigh your options when asked for a charitable contribution, rather than just handing over the cash. Whether it’s financial or an in-kind gift through employees donating their time and expertise to the cause, take some time to think about it.

A suggestion that might prove helpful: Develop a decision making check list to stimulate the thought process when it comes to making critical choices for your company.

#1 might be – Will the choice help us make more money? Sub-factors for this check point might be: How soon? How much? At what cost?

#2 could be – Will this decision increase our brand awareness? Build customer loyalty? Or possibly detract from our brand identity?

#3 – Will this enable us to increase market share in the community or other markets?

#4 – Do we have the budget for this expenditure/donation/expansion?

#5 – What is required of our company to fulfill this obligation or complete this project? How much time will be required of our employees?

When we’ve conducted fund raising projects for clients, there is often a desire to conduct a volunteer project such as a bake sale or car wash. These are good events for getting people involved in a cause, but when one stops and thinks about it, these relatively simple events require loads of time for a small return. If your company or organization had to pay for the volunteer’s time, odds are the event would lose money!

A decision matrix such as roughly outlined above can reduce the risk of making bad decisions, and save money that might be invested in the wrong venture. And there are times when having an independent third party to provide counsel on the concept is well worth the investment.

Take the time to think it through!

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