I had lunch recently with one of those consummate entrepreneurs, Warren Barhorst. Warren is the author of “Game Plan-The Definitive Playbook for starting or Growing a Business.” He and Rusty Burson teamed up to get down on paper a “road map” for success in any start-up business venture. In the first sentence of the book, he wrote,…..,You’ve got what it takes to succeed.”
Warren, believes what he says and proves it by his success. Warren is the largest Agency Principle in the Nationwide Insurance system. As I read his book and I was reminded of the results of a recent survey of business owners, asking them why so many start-up businesses failed.
Those surveyed believed that “poor planning” was second only to “ineffective leadership” as a contributor to unsuccess (failure) of a business.
I am one of those “serial entrepreneurs,” having started 6 business and unsucceeded in 2, that are on the constant watch for ways to eliminate unsuccess. The reason is has become an obsession with me is that unsuccess is so painful.
Like those surveyed, Warren Barhorst and I are consistent in our belief of the essential value of planning, before you begin. You may be wrong in your assumptions or misguided in your objectives when you plan ahead of time but you do have a place to begin that seems right and you have some goals and milestones along the way to measure your progress toward your goal. Here are a few steps every entrepreneur should take before he/she starts any business:
1. Estimate the market for your product, are there 5 people who would likely buy from you or 500 million? Bigger is usually better.
2. What percent of your market can you capture, with relative ease, in the first year, third year and fifth year? “Relative ease” means without spending megabucks!
3. If you were successful in capturing your estimated market share, how much revenue would that mean for your business? Be realistic!
4. Given that amount of revenue, what would be the Gross Profit for your business given those revenues (sales)? Gross Profit = Sales – Cost of Goods Sold (GP=S-COGs). More Gross Profit is almost always better.
5. Estimate Expenses (what costs you incur to produce the product, sell it and service it i.e. rent, telephone bill, etc. but most importantly, the people you will need) Less is more, here. Think this part through carefully. Is it important for you to look successful or be successful?
6. Decide how your will drive sales. Develop a plan within a plan. Decide what you believe you will need to do and the kind of people you will need to do it. This may be the most critical piece to your plan because it likely determines both sales and expenses. I.e. good people cost money but poor people cost more money. Selecting you team to help reach your goal is pivotal to success or unsuccess. Hire people better than yourself!
7. Compute the Profits before Taxes, month-by-month and year-by-year because that is the most important part. Profit is what determines the money you will put in your pocket and whether your business will be successful. Profit Before Taxes = Sales – Cost of Goods – Expenses. Big is better!
8. Compute Profit After Taxes. Don’t forget the taxes which are dependent upon how our business is organized (Proprietorship, Partnership, Sub-Chapter S, LLC or Corporation) and where it is located (different states have different tax rates). This is what you can buy groceries with. A lot is good!
There you have what I call the “Essential Eight” steps to Entrepreneurial Success Planning. Following these eight steps will not guarantee success in your next business venture but they will bring you a lot closer to it. Reading the book by Warren Barhorst with Rusty Burson, titled “Game Plan.” will help a lot as well.