Can A Business Plan Defeat The Fear Of The Unknown?
Last week, we were sitting with a client who is immensely successful in the apparel business. The firm wants to launch a new offering in an adjacent space and had engaged us for a retail entry strategy. At the start of our engagement, we felt the key decision maker was worried. This puzzled us as experience, funds and capability were freely available. It was then that we realized the number one issue was - the fear of the unknown.
In such a situation, we believe a fact driven business plan or a trade feedback based cost of market entry helps considerably. Few cheat codes, given here, will help create a tool that provides the business owner a feeling of control in the face of uncertainty.
1. Treat it as a living document: The plan is not etched in stone
In a todays VUCA world having precise information is impossible. The business plan will change as more information come to light and assumptions alter.
E.g. For a new staple food launch we worked out a sales plan based on a Class A Outlets/Key Accounts coverage strategy. During the engagement realized an on-line channel, which we had underestimated, could deliver more volumes than others combined. This was built into the next iteration of the plan.
- Don’t wait for the perfect information, start with estimates and refine as you go along.
2. Revenue estimation: Get inputs from the Trade or Potential Customers
Trade feedback related to sales estimates and acceptable price range is critical. A retail / wholesale trade dipstick with critical to launch collateral can provide sufficient fact based information to estimate sales and pricing options.
E.g. While working with an apparel client, we created a brand look book, trims and packaging design to help showcase the range. This ensured that decision makers across sales channels were able to share a reliable estimate of sales and acceptable price points. Often trade partners share feedback indicating the range is unacceptable or price is beyond current market requirements. This is critical input - as without incorporating their feedback the plan will be a simple ‘excel’ exercise.
A problem may rise in the case of Pioneer brands who are attempting to create a new category of product / service. However there are ways of estimating potential revenues using test market type research.
- We have conducted test markets for both B2B and B2C clients, which provide us with a fairly accurate estimate on which to plan business numbers.
3. Cost of Retail Entry: Placement comes at a Price
If a brand is attempting to launch a retail brand - it is essential to build a time bound geographical and channel expansion plan. This is because retail entry is expensive and has an uncertain gestation period.
E.g. For a personal product launch, we created a five year expansion plan with three channels - including own stores, department stores and the multi brand outlets. We estimated the non-discretionary costs including - sales teams, in-store promotions, retail design etc. This allowed the client to take a decision on how much money he was ready to invest in this new venture.
4. Internal Costs: Non Discretionary Expenses to Start Operations
This is normally the easier to determine as costs are in control of the firm. Our post on pricing strategy gives pointers on collecting all business costs and not only material costs.
At the end of the day, the CFO has to work with internal costs and sales estimates to determine the benefits of scaling up in different scenarios. The more accurate the sales and internal cost estimates the higher the chance of the right decision being taken.
E.g. Trade feedback for a Home Appliance client clearly indicated the MRP of a new offering was too high. After much discussion, we realized the primary cause of the high MRP was a - significantly high input cost. Moreover with the current specs being used, selling the product at an affordable MRP would lead to loss.
Working backwards, our client realized the original design cost is the key barrier to trial. Hence the firm went back to the drawing board and reverted with a lower priced - equally effective product. This was well received by both trade and consumer. Sales commenced and operations become profitable.
To conclude, the fear of the unknown is real. A detailed, fact driven business plan which helps in taking ‘go - no go’ decisions - because it helps dispel ambiguity. As always, the hard work that goes into creating this plan will have a direct impact on its ability to facilitate the right decision.
In our experience, customer insight, market feedback and a proper understanding of the Brand’s benefits are key pillars on which this living document is built.
[Disclaimer: The views expressed in this article are solely those of the authors and do not necessarily represent or reflect the views of Trivone Media Network's or that of CXOToday's.]
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