Work-up, a completely comprehensive guide on how to teach yourself the fundamental business skills

By Education Nerds

Work-up chapters draw together information on the key areas of successful business – modeling, planning, funding, staying on the right side of the law, employing staff, accounting, bookkeeping, and tax, marketing, sales, project management, promotion, and planning for growth – all in one guide. with help from this book, you can transform a simple idea into your very own business epic.
 

You can use this book as a reference; you aren’t required to read it from front to back to understand what’s being said. Feel free to jump into whatever chapter you need the most on a given day. If there’s information in a different chapter that will aid your understanding of the subject at hand, we’ll be sure to let you know.

• Language: English
• Publisher: Education Nerds
• Release date: Jul 14, 2017
• ISBN: 9781386286905

Education Nerds

Nice Short Educational Courses/Books That Covers Almost Everything | education nerds, it's all about learning.

Book preview

work-up

a completely comprehensive guide on how to teach yourself the fundamental business skills.

You can use this book as a reference; you aren’t required to read it from front to back to understand what’s being said. Feel free to jump into whatever chapter you need the most on a given day. If there’s information in a different chapter that will aid your understanding of the subject at hand, we’ll be sure to let you know.

work-up chapters draw together information on the key areas of successful business – modeling, planning, funding, staying on the right side of the law, employing staff, accounting, bookkeeping, and tax, marketing, sales, project management, promotion, and planning for growth – all in one guide. with help from this book, you can transform a simple idea into your very own business epic.

work-up: a completely comprehensive guide on how to teach yourself the fundamental business skills, 1st edition.

published by

Educationnerds at Draft2digital, Inc.

copyright © 2017 by education nerds Publishing, Inc.

no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, without either the prior written permission of the publisher.

THIS PUBLICATION IS DESIGNED TO PROVIDE ACCURATE AND AUTHORITATIVE INFORMATION REGARDING THE SUBJECT MATTER COVERED. IT IS SOLD WITH THE UNDERSTANDING THAT THE PUBLISHER IS NOT ENGAGED IN RENDERING LEGAL, ACCOUNTING, OR OTHER PROFESSIONAL SERVICES. IF LEGAL ADVICE OR OTHER EXPERT ASSISTANCE IS REQUIRED, THE SERVICES OF A COMPETENT PROFESSIONAL PERSON SHOULD BE SOUGHT.

This eBook is licensed for your personal enjoyment only. This eBook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each recipient. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then please return to your favorite eBook retailer and purchase your own copy. Thank you for respecting the hard work of this author.

thank you.

acknowledgments

no book is the work only of its authors. we greatly appreciate the valuable contributions of several people who helped make this edition possible.

work-up has been influenced and improved by the inputs of more people than it is possible to list. we do, however, want to express our appreciation to those who have played the most significant roles, especially in this edition.

we are especially grateful to our many writers/editors who have reviewed, edited, and critiqued every word had written. indeed, in many ways, our writers/editors hard work, positive attitude, and dedication to quality throughout the whole process is without a match.

the book probably wouldn’t exist if it weren’t for them because without them help it would have been just too overwhelming and we’d have quit! we would like to recognize all the helpful contributions.

introduction

business activities focus on attracting customers, getting them to buy, and making sure they’re happy enough with their purchases that they come back for more. what could be more important?

with the purchase of this book, you’ve taken your first step on the road to success in business, and entrepreneurship. it’s not a step to be taken lightly, which is why buying this book may be one of the smartest things you’ll ever do for your business.

this book offers you the insight you need to build your foundational startup tools: your program, your strategy, your plan and much more.

preface

this book is aimed to give a complete overview of what business really means. it’s not a background/reference document it’s more a how-to guide to help stimulate some thinking and discussion about business, which is an essential part of any successful startup.

whatever you are a small business owner, entrepreneur or business student, this book will help you gain the insight, focus, and tools you need to be successful in business endeavors. startup success unfolds with an understanding of the environments in which you operate.

all commercial businesses have products and services to sell and these are both the result of, and the reason for, business activities. goods & services, collectively called products, are developed to meet customer needs and so those needs must be researched and understood. each product can then be targeted at a specific market segment and a marketing mix developed to support its desired positioning.

whether you’ve just entered the market with spanking new products and services, plan to stretch a growing brand across the new geographic terrain, or extend a successful brand into different product lines, this book brings several powerful business realities into sharp focus. it guides you in considering what aspects of your startup strategy must adapt to changes in our quickly transforming market sphere. and, it shows you how to do that—through information, strategies, tips, and tools.

where to go from here

if you read only one chapter in one business book this year, please make it chapter one of this book. we’ve made this chapter stand alone as a powerful way to audit your startup and upgrade or enhance the things that you do to make profitable activities. we’ve packed the rest of the book with extremely good tips and techniques, and it all deserves attention. but whatever else you do or don’t get around to, read the first chapter with a pencil and action-list at hand!

whatever you’re doing, we have a hunch that this book has a chapter or two to assist you. so, don’t let us slow you down. get going! it’s never too early (or too late) to do some business.

chapter one

work-up

people come to the entrepreneurial path from different directions, increasingly, some start fresh out of college or after a stint at home raising their kids or simply because the idea of retiring is abhorrent to them. most, though, come to entrepreneurship straight out of the workforce. quitting a full-time job to start a business isn’t something to be taken lightly. you should be sure now is the right time to get started.

first, you need to ask yourself some questions: Do I have enough money? if you have a family, are they ready for this? is there a need for a product or service like mine? the next chapters of this book will help you answer those questions and much more.

once you’ve made the decision to break away, there are several things you should do before taking the next step. conducting thorough market research is a must. make sure you have enough cash—not only for the business but to sustain your life—and discuss the decision with your family. (you’ll find out more about all these next chapters of this book.)

remember, the rewards of small-business owners are not instantaneous. you must be determined, patient, persistent, and willing to make sacrifices to ensure those rewards eventually do come.

you’ll need to prepare for the responsibilities that come with business success.

what is a business?

too often, business owners, managers, and decision-makers get fooled by the way they use language into thinking that their business is a thing. it is not. it is convenient and even necessary to use a noun to refer to your business when communicating with people, but when you visualize it for yourself, make sure you don’t ever do so. one of the lessons we have brought along to all the companies that we have worked at and consulted for is the following: your business is not a noun. it is a verb. it is a "happening and a doing." it is nothing less than the sum-total of the actions and thoughts of every employee and customer. it is the result-in-motion of all the things that the people who participate in your business do every day.

mentally framing your business in this way is an easy and useful step toward understanding it and how its complexity is organized between ideas, your staff, your customers, and the wider market. if you are visualizing the business as a noun (an object of some kind), your model of understanding is inherently missing much of its complexity. by promoting your visualization from a noun (static) to a verb, you automatically give yourself a much more complex modeling paradigm. you will immediately get closer to the reality of dance-like complexity found in all businesses as they grow and operate.

launch strategies

there are many different strategies for launching a business, and they depend primarily on a number of resources you have available.

the soft launch

what do you do when you have an idea and no cash? keep your day job, that’s what. being an entrepreneur is not an all-or-nothing proposition. by doing a soft launch of your business, you can scout out the territory with low risk by continuing whatever career you have, but start to put feelers out into the market in support of your idea.

build a website, and sell your product or services on a small scale. this allows you to gather information about the viability of your plan, satisfy your itch to build something, and experience a good bit of the adventure without putting yourself or your family in a dangerous financial position.

never underestimate the value of a steady paycheck and the benefits that come with a good job, such as health insurance. it takes a lot of progress on a startup to get to the point where it can provide comparable security (probably years).

jumping in

this kind of business launch is what we think most people think of when starting a business: putting all your chips on the table and playing your hand—win it all or lose it all. this is a risky proposition, and not to be taken lightly. the benefit of doing this is that you can give your full attention to the project, and you can move fast. this is appropriate when the window of opportunity for your business will only be open for a short time. the caveat here is that you cannot jump in without some pool of resources to draw upon, or a very manageable risk profile (such as no family to support).

clearly, jumping in is much easier when you have capital reserves to work from, whether from investors or your own bank account.

joining someone else’s party

you may end up with an opportunity to join a business venture that is entrepreneurial but already funded and in motion. in this scenario, you have the benefits of a paycheck and corporate niceties, but also the open environment of a startup where your entrepreneurial skills can be applied to define a business that is not yet well formed. the downside of this is that you will have to negotiate for even a piece of equity, as opposed to being the founder and deciding equity distributions for others. you are also likely to be compensated as an employee for the most part.

and depending on the business, not being the top guy probably means that you won’t get much credit for your ideas.

your strengths and weaknesses

it’s rare that one person possesses all the qualities needed to be successful in business. everyone has strong suits and weak points. what’s important is to understand your strengths and weaknesses. to do this, you need to evaluate the major achievements in your personal and professional life and the skills you used to accomplish them. the following steps can help.

create a personal resume

compose a resume that lists your professional and personal experiences as well as your expertise. for each job, describe the duties you were responsible for and the degree of your success. include professional skills, educational background, hobbies and accomplishments that required expertise or special knowledge.

when complete, this resume will give you a better idea of the kind of business that best suits your interests and experience.

analyze your personal attributes

are you friendly and self-motivated? are you a hard worker? do you have common sense? are you well-organized? evaluating your personal attributes reveals your likes and dislikes as well as strengths and weaknesses. if you don’t feel comfortable around other people, then a business that requires a lot of customer interaction might not be right for you. or you may want to hire a people person to handle customer service, while you concentrate on the tasks you do best.

analyze your professional attributes

small-business owners wear many different hats, but that doesn’t mean you should be all-in-one. just be aware of the areas where you’re competent and the areas where you need help, such as sales, marketing, advertising, and administration. next to each function, record your competency level—excellent, good, fair or poor.

go for the goal

in addition to evaluating your strengths and weaknesses, it’s important to define your business goals. for some people, the goal is the freedom to do what they want when they want, without anyone telling them otherwise. for others, the goal is financial security.

setting goals is an integral part of choosing the business that’s right for you. after all, if your business doesn’t meet your personal goals, you probably won’t be happy waking up each morning and trying to make the business a success. sooner or later, you’ll stop putting forth the effort needed to make the concept work.

discovering a real need

your business idea may be good, it may even be great, you might be a great potential entrepreneur but you still need to spell out exactly what it is you plan to do, who needs it, and how it will make money. a good starting point is to look around and see if anyone is dissatisfied with their present suppliers. unhappy customers are fertile ground for new businesses to work in.

one dissatisfied customer is not enough to start a business for. check out and make sure that unhappiness is reasonably widespread, as that will give you a feel for how many customers might be prepared to defect. once you have an idea of the size of the potential market you can quickly see if your business idea is a money-making proposition.

discovering needs triggers

cost reduction and economy: anything that saves customers money is always an attractive proposition.

fear and security: products that protect customers from any danger, however obscure, are enduringly appealing.

greed: anything that offers the prospect of making exceptional returns is always a winner.

niche markets: big markets are usually the habitat of big business – encroach on their territory at your peril. new businesses thrive in markets that are too small to even be an appetite wetter to established firms. these market niches are often easy prey to new entrants as they have usually been neglected, ignored or ill-served in the past.

differentiation: consumers can be a pretty fickle bunch. just dangle something, faster, brighter or just plain newer and you can usually grab their attention. your difference doesn’t have to be profound or even high-tech to capture a slice of the market.

checking viability

having a great business idea and having the attributes and skills needed to successfully start your own business are two of the three legs needed to make your business tool balance. without the third leg, though, your stool isn’t stable at all. you need to be sure that the business you plan to start is right for you.

before you go too far, make an inventory of the key things that you are looking for in a business. these may include working hours that suit your lifestyle; the opportunity to meet new people; minimal paperwork; a chance to travel. then match those up with the proposition you are considering.

an idea, however exciting, unique, revolutionary, and necessary is not a business. it’s a great starting point, and an essential one, but there is a good deal more work to be done before you can sidle up to your boss and tell him/her or him/her exactly what you think of them.

the following pages/chapters explore the main steps you need to take so that you won’t have to go back to your boss in six months and plead for your old job back (and possibly eat a large piece of humble pie at the same time).

step one: researching the market

however passionate you are about your business idea, it is unlikely that you already have the answers to all the important questions concerning your marketplace. before you can develop a successful business strategy, you should understand as much as possible about your market and the competitors you are likely to face.

the main way to get to understand new business areas, or areas that are new to you, at any rate, is to conduct market research. the purpose of that research is to ensure that you have sufficient information on customers, competitors, and markets so that your market entry strategy or expansion strategy is at least on the target, if not on the bull's eye itself. in other words, you need to explore whether enough people are attracted to buy what you want to sell at a price that will give you a viable business. if you miss the target altogether, which you could well do without research, you may not have the necessary resources for a second shot.

market research main factors

your customers: who will buy more of your existing goods and services and who will buy your new goods and services? how many such customers are there? what customer needs will you meet?

your competitors: who will you be competing within your product/market areas? what are those firms’ strengths and weaknesses?

your product or service: how should you tailor your product or service to meet customer needs and to give you an edge in the market?

the price: what would be giving value for money and so encourages both customer loyalty and referral?

the advertising and promotional material: what newspapers, journals, and so forth do your potential customers read and what websites/blogs/social media channels do they visit? unglamorous as it is, analyzing data on what messages influence people to buy, rather than just to click, holds the key to identifying where and how to promote your products and service.

channels of distribution: how will you get to your customers and who do you need to distribute your products or services? you may need to use retailers, wholesalers, mail order, or the internet. they all have different costs and if you use one or more they all want a slice of the margin.

your location: where do you need to be to reach your customers most easily at minimum cost? sometimes you don’t need to be anywhere near your market, particularly if you anticipate most of your sales will come from the internet. if this is the case you need to have a strategy to make sure potential customers can find your website and try to spend your advertising money wisely.

step two: doing the numbers

your big idea looks as though it has a market. you have evaluated your skills and inclinations and you believe that you can run this business. the next crucial question is – will it make you money?

it’s vital that you establish the financial viability of your idea before you invest money in it or approach outsiders for backing. you need to carry out a thorough appraisal of the business’s financial requirements. if the numbers come out as unworkable you can then rethink your business proposition without having lost anything. if the figures look good, then you can go ahead and prepare cash flow projections, a profit and loss account and a balance sheet, and put together the all-important business plan. you need to establish for your business:

day to day operating costs.

how long will it take to reach break-even?

how much is start-up capital needed the likely sales volume?

the profit level required for the business not just to survive, but also to thrive.

the retail price of your product or service.

many businesses have difficulty raising start-up capital. to compound this, one of the main reasons small businesses fail in the early stages is that too much start-up capital is used to buy fixed assets. while some equipment is clearly essential at the start, other purchases could be postponed. you may be better off borrowing or hiring ‘desirable’ and labor-saving devices for a specific period. this is obviously not as nice as having them to hand all the time but remember that you should maintain every material, and aspect you buy and they become part of your fixed costs. the higher your fixed costs, the longer it usually takes to reach break-even point and profitability. and time is not usually on the side of the small, new business: it should become profitable relatively quickly or it will simply run out of money and die.

step three: raising the money

two fundamentally different types of money that a business can tap into our debt and equity:

debt is money borrowed, usually from a bank, and which you should repay. while you are making use of borrowed money you also should pay interest on the loan.

equity is the money put in by shareholders, including the proprietor, and money left in the business by way of retained profit. you do not have to give the shareholders their money back, but they do expect the directors to increase the value of their shares, and if you go public they will probably expect a stream of dividends too.

if you do not meet the shareholders’ expectations, they will not be there when you need more money – or, if they are powerful enough, they will take steps to change the board.

alternative financing methods include raising money from family and friends, applying for grants and awards, and entering business competitions.

step four: writing up the business plan

a business plan is a selling document that conveys the excitement and promise of your business to potential backers and stakeholders. these potential backers could include bankers, venture capital firms, family, friends, and others who could help you get your business launched if they only knew what you want to do.

business planning best tips

hit them with the benefits: you need to spell out exactly what it is you do, for whom, and why that matters.

make your projections believable: sales projections always look like a hockey stick: a straight-line curving rapidly upwards towards the end. you should explain exactly what drives growth, how you capture sales, and what the link between activity and results is. the profit margins will be key numbers in your projections, alongside sales forecasts. these will be probed hard, so show the build-up in detail.

say how big the market is: financiers feel safer backing people in big markets. capturing a fraction of a percentage of a massive market may be hard to achieve – but if you get it at least it’s worth it. going for 10% of a market measured in millions rather than billions may come to the same number, but it won’t be as interesting.

introduce you and your team: you need to sound like winners with a track record of great accomplishments.

include non-executive directors: sometimes a heavyweight outsider can lend extra credibility to a business proposition. if you know or have access to someone with a successful track record in your area of business who has time on their hands, you could invite them to help. if you plan to trade as a limited company you could ask them to be a director, without specific executive responsibilities beyond being on hand to offer their advice. but they need to have relevant experience or can open doors and do deals.

provide financial forecasts: you need projected cash flows, profit and loss accounts, and balance sheets for at least three years out. no-one believes them after year one, but the thinking behind them is what’s important.

demonstrate the product or service: financiers need to see what the customer is going to get. a mock-up will door, failing that, a picture or diagram. for a service, show how customers will gain from using it. that can help with improved production scheduling and so reduce stock holding.

spell out the benefits to your potential investor: tell them that their money will be paid back within ‘x’ years, even on your most cautious projections. or if you are speaking with an equity investor, tell them what return they will get on their investment when you sell the business on in three or five years’ time.

going for growth

growth is as natural a feature of business life as it is of biological life. people, animals, and plants all grow to a set size range and then stop. a few very small and very large specimens come to fruition, but the clear majority fit within a narrow size band.

businesses follow a similar formula: most successful new businesses, those that survive that is, reach a plateau within five to seven years.

once a business starts to grow, the overhead costs are spread over a wider base. you can buy materials and services in larger quantities, which usually means better terms and lower costs. the combination of these factors generally leads to a higher profit margin, which in turn provides funds to improve the business, which, in turn, can lead to even lower costs. this virtuous circle, as it is known, can make a growing firm more cost competitive than one that is cautiously marking time.

securing a competitive advantage

a new business can steal a march on its competitors by doing something vital that established businesses cannot easily imitate.

retaining key staff

the surest way to ensure a business fails is to have a constant churn of employees coming and going. valuable time and money should be invested in every new employee before they become productive, so the more stuff you lose the more growth you sacrifice.

most employers believe that their staff work for money and their key staff work for more money. the facts don’t really support this hypothesis. all the evidence is that employees want to have an interesting job and be recognized and praised for their achievements.

by growing the business, you can let key managers realize their potential. in a bigger business, your staff can be trained and promoted, moving up the ladder into more challenging jobs, with higher salaries earned on merit, whilst staying with you, rather than leaving for pastures new. and if employees are good at their jobs, the longer they stay with you the more valuable they become. you save time and money on the recruitment merry-go-round and you don’t have to finance new managers’ mistakes whilst they learn how to work in your business.

gaining critical business mass

bigger isn’t always better, but a growing business will have a greater presence in its market, and that’s rarely a bad strategy. large businesses are also more stable, tending to survive better in turbulent times. bigger businesses can and do sometimes go bust, but smaller ‘doing nicely’ small businesses are far more likely to go bump.

a small company often relies on a handful of customers and just one or two products or services for most or all its profits. if its main product or service come under competitive pressure, or if a principal customer goes bust, changes supplier, or simply spreads orders around more thinly, then that company is in trouble.

how to get an idea for your business?

many people believe starting a business is a mysterious process. they know they want to start a business, but they don’t know the first steps to take. in the next pages/chapters, you’re going to find out how to get an idea for a business—how you figure out exactly what it is you want to do and then how to act on it.

but before we get started, let’s clear up one point: people always wonder if this is a good time to start their business idea. the fact is, there’s never a bad time to launch a business. it’s obvious why it’s smart to launch in strong economic times. people have money and are looking for ways to spend it. but launching in tough or uncertain economic times can be just as smart. if you do your homework, presumably there’s a need for the business you’re starting. because many people are reluctant to launch in tough times, your new business has a better chance of getting noticed. and, depending on your idea, in a down economy, there is often equipment (or even entire businesses!) for sale at bargain prices.

everyone has his or him/her own roadblock, something that prevents them from taking that crucial first step. most people are afraid to start; they may fear the unknown or failure, or even success. others find starting something overwhelming in the mistaken belief they should start from scratch. they think they should come up with something that no one has ever done before—an invention, a unique service. in other words, they think they should reinvent the wheel.

but for most successful people starting a business, the issue should not be coming up with something so unique that no one has ever heard of it but instead answering the questions: "how can we improve on this? or can we do this better or differently from the other guy doing it over there? or simply, is there market share not being served that makes room for another business in this category?"

how do you start the idea process?

first, take out a sheet of paper and across the top write things about you. list five to seven things about yourself—things you like to do or that you’re good at, personal things (we’ll get to your work life in a minute). your list might include: I’m really good with people, I love kids, I love to read, I love computers, I love numbers, I'm good at coming up with marketing concepts, I'm a problem solver. just write down whatever comes to your mind; it doesn’t need to make sense. once you have your list, number the items down one side of the paper.

on the other side of the paper, list things that you don’t think you’re good at or you don’t like to do. maybe you’re good at marketing concepts, but you don’t like to meet people or you’re not that fond of kids or you don’t like to do public speaking or you don’t want to travel. don’t overthink it; just write down your thoughts.

when you’re finished, ask yourself: If there were three to five products or services that would make my personal life better, what would they be? this is your personal life as a man, woman, father, husband, mother, wife, parent, grandparent—whatever your situation may be.

determine what products or services would make your life easier or happier, make you more productive or efficient, or simply give you more time.

next, ask yourself the same question about your business life. examine what you like and dislike about your work life as well as what traits people like and dislike about you. finally, ask yourself why you’re seeking to start a business in the first place. then, when you’re done, look for a pattern to emerge (i.e., whether there’s a need for a business doing one of the things you like or are good at).

thinking it through

before you start a business, you should examine the potential, what your product or service is, and whether the opportunity exists to make a good deal of money. it may be a hit and run product, where you’re going to get in, make a lot of money, and then get out. that’s not necessarily a bad thing; fads have made some entrepreneurs incredibly wealthy. but remember, once you’re in the fad business, it’s hard to know when it’s time to get out. and if you guess wrong or try to make a classic out of a fad, you’re going to lose all the money you have earned.

whether your idea will succeed in your community is to talk to people you know. if it’s a business idea, talk to co-workers and colleagues. run personal ideas by your family or neighbors. don’t be afraid of people stealing your idea. it’s just not likely. just discuss the general concept; you don’t need to spill all the details.

just do it!

hopefully, by now, the process of determining what business is right for you has at least been somewhat demystified. understand that business startup isn’t rocket science. no, it isn’t easy to begin a business, but it’s not as complicated or as scary as many people think, either. it’s a step-by- step, common-sense procedure. so, take it a step at a time.

figure out what you want to do. once you have the idea, talk to people to find out what they think. ask would you buy and/or use this, and how much would you pay?

understand that many people around you won’t encourage you (some will even discourage you) to pursue your entrepreneurial journey. some will tell you they have your best interests at heart; they just want you to see the reality of the situation. some will envy your courage; others will resent you for having the guts to do something. you can’t allow these naysayers to dissuade you, to stop your journey before it even begins.

in fact, once you get an idea for a business, what’s the most important trait you need as an entrepreneur? perseverance. when you set out to launch your business, you’ll be told no more times than you’ve ever been told before. you can’t take it personally; you’ve got to get beyond the no and move on to the next person—because eventually, you’re going to get to a yes.

one of the most common warnings you’ll hear is about the risk. everyone will tell you it’s risky to start your own business. sure, starting a business is risky, but what in life isn’t? plus, there’s a difference between foolish risks and calculated ones. if you carefully consider what you’re doing, get help when you need it, and never stop asking questions, keep learning, you can mitigate your risk.

should you launch your business part or full time?

should you start your business part time or full time? even if you ultimately plan to go full time, many entrepreneurs and experts say starting part time can be a good idea.

starting part time offers several advantages. it reduces your risk because you can rely on income and benefits from your full-time job. starting part time also allows your business to grow gradually.

yet the part-time path is not without its own dangers and disadvantages. starting part time leaves you with less time to market your business, strategize and build a clientele. since you won’t be available to answer calls or solve customers’ problems for most of the day, clients may become frustrated and feel you’re not offering adequate customer service or responding quickly enough to their needs.

perhaps the biggest problem for part-time entrepreneurs is the risk of burnout. holding down a full-time job while running a part-time business leaves you with little, if any, leisure time; as a result, your personal and family life may suffer.

market matters

as with any business, your plan of attack should start with a thorough assessment of your idea’s market potential. often, this step alone will be enough to tell you whether you should start part time or full time.

you can’t become so caught up in your love for what you’re doing that you overlook the business realities. if you find there is a huge unmet need for your product or service, no major competition and a ready supply of eager customers, then go ahead and start full time. if on the other hand, you find that the market won’t support a full-time business, but might someday with proper marketing and business development, then it is probably best to start part time at first.

investigate factors such as the competition in your industry, the economy in your area, the demographic breakdown of your client base, and the availability of potential customers.

once you have determined there is a need for your business, outline your goals and strategies in a comprehensive business plan. you should always conduct extensive research, make market projections for your business, and set goals for yourself based on these findings. it gives you a tremendous view of the long-range possibilities and keeps the business on the right track. don’t neglect writing a business plan even if you’re starting part-time: a well-written business plan will help you take your business full time later.

certain businesses lend themselves well to part-time operation: e-commerce, food products, direct marketing and service businesses as examples. doing your market research and business plan will give you a more realistic idea of whether your business can work part time. (for specifics on conducting market research and writing a business plan.

if you’ve got your heart set on a business that traditionally requires a full-time commitment, think creatively: there may be ways to make it work on a part-time basis.

chapter two

business models

find out what a business model is and why it’s important. understanding the business model concept and how it differs from a business plan gives you the best chance at success, discover how business models interrelate with other business concepts, such as business architecture and profit formula, look at examples of companies that use various business models, and ditch the traditional business plan in favor of a business model plan. a great business model is always a winner.

so, what is a business model anyway? is it the way you make money? yes, in part. is it's competitive advantage? yes, in part. is it your business plan? not really. simply put, a business model is your profit formula. it’s the method you use to acquire customers, service them, and make money doing so. we like to break down a business model into three primary areas: offering, monetization, and sustainability. what is your offering? how will you monetize the offering? how will you sustain it?

your business model creates not only the formula by which you make money but also the strategic context of the business.

simply put, a business model is the framework of rules and moral imperatives within which the business operates. it provides the strategic context for both the long and short term. it defines and articulates strategic intent, which then becomes the common focus and driver among all levels of strategic management (mission, objectives, strategy, and tactics). the combination of these four becomes the compass and laws by which the organization navigates and the glue that holds it all together.

business models defined

a business model is the framework of rules and moral imperatives within which the business operates. it provides the strategic context for both the long and short term. it defines and articulates strategic intent, which then becomes the common focus and driver among all levels of strategic management (mission, objectives, strategy, and tactics). the combination of these four becomes the compass and laws by which the business navigates and the glue that holds it all together.

the business model is what you’ll do, and strategies and tactics are how, but sometimes your discussion drifts across this blurry line between business model and into business strategy. we’ve chosen to do so without distinction because, without touching upon the necessary strategies and tactics, the discussion would be incomplete.

Successful business models

in its simplest form, a business model is your profit formula. it’s the method you use to acquire customers, service them, and make money doing so.

every business has a business model, even if nobody ever bothers to write it down. that’s because the business model is the basic structure of the business what service it provides or what product it creates or sells to make money.

generally, business models focus on the creation of profitable revenue and the delivery required to keep the revenue flowing. most operational, finance and human resource issues are peripheral to the creation of profitable revenue, and so they’re separate from the business model.

at its most basic level, your business model is the formula that allows you to make money. you can think of it as the combination of everything you do your secret sauce to provide your customers with value and make a profit doing so. the more differentiated and proprietary your combination is, the more profitable you’ll be.

creating a business model plan

a business model plan combines the components of a business plan with business model analysis. this document augments or substitutes for the traditional business plan and has the following basic layout:

background: follow the traditional structure of the business plan for this section.

breakdown of the business model into the crucial areas: market attractiveness, unique value proposition, profit model, sales performance, ongoing competitive advantage, innovation factor, avoidance of pitfalls and graceful exit from the business.

operational overview: follow the traditional structure of the business plan for this section.

financial analysis, including proformas: follow the same format as a traditional business plan with additional emphasis on justifying your sales projections rather than the we will sell this much because we said so method.

risk analysis: some risk analysis is covered in various sections of the business model analysis. risks related to marketing are covered in the marketability sections. competitive risks are covered in the competitive advantage section and so forth. eliminate the duplication and focus on presenting a brief overview of the general market risks — such as economic recession, government intervention, and so on — rather than the company specific risks. the company specific risks are addressed by the business model.

business model score: this section is optional. to add weight to your self-evaluation of the business model, you can have a certified business model analyst score your model on a scale of 0 to 100.

traditional business plans gloss over important aspects of the business model, the business model garners much greater attention in a business model plan. the graph shows the increased emphasis on the business model in the business plan.

the advantage of a business model plan over a business plan alone is the increased focus on how the business will create profitable revenue streams and the decreased focus on how the business will operate when it’s generating revenue. if you focus on what matters — profitable revenue — the rest tends to take care of itself.

considering your competitive advantage

competitive advantage allows a firm to perform at a higher level than others in the same industry or market or with anyone competing for the customer’s limited budget. competitive advantage can serve as a powerful catalyst for your business. competitive advantage allows you to outsell, out-profit, and outperform others in the same industry or market. when you’re analyzing the strength of a business, if you look only at a competitive advantage, your analysis will be incomplete.

people often mistakenly use the term competitive advantage as a synonym for the term business model. the reality is that competitive advantage is a portion of your business model, but not all of it. a business model is more encompassing than your competitive advantage.

obtaining your competitive advantage

competitive advantage is obtained through cost leadership, differentiation, and/or focus. cost leadership means your firm could deliver similar goods or services as your competitors for a lower cost. this doesn’t mean a lower sales price, but a lower cost of goods sold. if your cost advantage is the best in your industry, you have cost leadership. you can gain cost leadership in countless ways; here are just a few: access to natural resources, scale, vertical integration, technological leverage and proprietary processes.

differentiation means that the customer feels your product has superior and different attributes than the competition. customers pay much more for a cup of Starbucks coffee than for a cup of joe at the diner because they view Starbucks coffee as a differentiated product. many times, you can charge extra for the differentiated attributes of your offering, creating additional margin. businesses can create differentiation by using any of the following tactics: superior branding, unique supplier relationships, first mover advantage, location, scale and intellectual property.

enhancing your competitive advantage

to fully leverage a strong competitive advantage, you must shore up the other aspects of your business model as well. in the following sections, we detail several other factors that a strong business model must consider. as a savvy businessperson, you must go further than competitive advantage analysis and explore all aspects of the business model. by doing so, you can unleash the maximum potential of the business.

innovation

you need to consider your company’s ability to innovate to fully evaluate its business model. without innovation, your competitive advantage will weaken or disappear.

customer segments

what will customer segment the product attack? competitive advantage is somewhat generic regarding who the customer will be. it assumes that you’ll find the right one. however, chasing the wrong customers or market segment can destroy an otherwise solid business model.

pricing

what will you charge for the product? how high or low will the margin be? the answers to these questions are critical factors of the business model, but they aren’t addressed directly in competitive advantage.

ability to sell

without a proven and repeatable sales process, most business models fail. unfortunately, the world doesn’t care if you have a better mouse trap. all products and services must be sold.

to finalize the marketing process, someone must purchase your product. a solid sales and marketing system must be used to realize the full potential of your offering.

potential pitfalls

competitive advantage doesn’t take potential pitfalls into account.

continuity

a significant issue for mid-sized and small businesses is the ability to operate without the day-to-day input of the owner. if the business falls apart without the owner in the building, the business model is weak and the owner will never be able to sell the business.

business model’s aspects

whether your business model is cutting edge or based on 100-year-old principles, all business models answer the following questions:

what problem are you trying to solve? people don’t need a new widget; they need the new widget to solve a problem.

who needs this problem solved? the answer to this question is the customer you’ll be serving.

what does market segment the model pursuing? a market segment is a group of prospective buyers who have common needs and will respond similarly to your marketing.

how will you solve this problem better, cheaper, faster, or differently than other offerings? clever, unique offerings like these are superior to a better mousetrap.

what is the value proposition? what problem do you solve for the customer in relation to what you charge to fix it? your product solves a problem for the customer. hopefully, the customer values the solution and will pay you much more than it costs you to make the product. the larger this spread, the greater your value proposition.

where does your offer place you on the value chain? many creative business models have redefined the value chain by eliminating or shifting the partners that contribute to the final offering.

what is your revenue model? factors such as how you’ll charge for the product, how much you’ll charge, and which portions of your offerings will be the biggest money makers all determine your revenue model.

what is your competitive strategy? you don’t want to just jump into the shark tank. you need a plan to differentiate yourself from competition via marketing, sales, and operations that allow you to effectively outshine the competition.

how will you maintain your competitive edge? after you distance yourself from competitors, how will you hold off their attempts to copy your winning strategies? the best business models create barriers to maintaining their hard-earned competitive advantage.

what partners or other complementary products should be used? savvy relationships with partners can enhance your business model.

what can network effects be harnessed? if you owned the only fax machine, it wouldn’t be worth much because you couldn’t send or receive a fax. network effects enhance the value of everyone’s purchase when the network of users grows.

business models form

you have an overwhelming number of factors and concerns to consider when creating a business model. it can be daunting. don’t worry. by the end of this section, you’ll understand all the inner workings of a business model and their interrelationships. in the meantime, here’s a simple three-part method to break down a model:

what is the offering? are you selling roses on the side of the road or fractional use of private jets? why do customers need your offering? how is it different from customers’ other options to solve their problem? are you selling your product to the best market and in the best niche?

how will you monetize the offering? you must be able to charge a price that generates significant margin and be able to sell it. the sharper image was a company whose products were priced at a level that afforded high margins; however, not enough customers bought them. you must be able to execute your sales strategy to complete the monetization of the offering

how will you create sustainability? factors such as maintaining/growing competitive advantage, the ability to innovate, and avoiding pitfalls affect the sustainability of the business model.

creating a great business with a lousy business model isn’t possible. plain and simple: a great business begins with a great business model. if you want to reap the maximum reward from your hard work and talent, building an outstanding business model is a prerequisite.

plowing financial resources and energy into a business before creating an outstanding business model qualifies as putting the cart before the horse. in this section, you discover why great businesses are built upon great business models and why hard work can be your enemy instead of your friend.

business model wheel

the BMI framework starts with the premise that all great business models have: an outstanding offer, the ability to monetize the offer, and the ability to sustain it. each business model is then dissected into eight key areas. we use the BMI wheel framework as the basis of discussion throughout this section.

without going into detail here, the eight areas in decreasing order of importance in the business model Institute wheel framework are:

market attractiveness: selling your product to the right combination of market, niche, and the customer can have a big effect on your profitability

unique value proposition: does your product solve a compelling need that the customer can’t fill elsewhere? does the offering provide far more value to the customer than it costs? does the offering tap an unserved or underserved market? were you first to market with this proposition? are similar offerings available? these factors and more comprise your unique value proposition.

profit model: how much profit can you make selling the product? how does the interplay among different products sold affect profitability? do you have a cost advantage? will your revenue be recurring or a one-time hit? factors like these make up the profit model.

sales performance model: will you be able to sell the product for as much as you think? can you attract customers via marketing, or will you need a heavy sales effort to push the product to the market? can you create a proven and repeatable sales process? the sales performance model brings factors such as these into the overall business model.

ongoing competitive advantage: do you possess any of the classic competitive advantages, such as cost advantage, differentiation, or access to resources? will your model allow you to maintain and grow this advantage? are large competitors entering your market? is the bargaining power of buyers increasing or decreasing? these factors and more comprise your business model’s ongoing competitive advantage.

innovation factor: every business needs to innovate, but how much? a parking lot maintenance company needs to innovate to stay competitive, but not as much as Intel needs to innovate. your innovation factor is the proper balance between your need to innovate and your ability to innovate.

avoidance of pitfalls: Unfortunately, you can have a great product sold for high profits to a great customer niche and still have issues with your business model. governmental regulation (or the removal of it as was the case with airlines and telecom), severe location handicap, over-reliance on trends/fads, or legal issues can damage an otherwise good model.

graceful exit: most businesses are mid-sized and small businesses. these businesses don’t have public stock to make the owner’s stake liquid. smaller businesses need to allow the owner(s) to turn their years of hard work into cash or a stream of income also known as a graceful exit. a business model can be outstanding in all other regards but still not provide a graceful exit to the owners.

these areas cover every aspect of a business model. by addressing all eight areas of a business model and weighing them appropriately, you can perform a complete analysis of your model.

finding the most attractive markets to create a powerful offering

the most important step toward creating a great business model is creating a product that customers want and will buy. this is called a powerful offering. the first step in creating a powerful offering is selecting the right market. picking the combination of industry attractiveness, niche attractiveness, and customer attractiveness create the best market for your product.

by combining industry attractiveness, niche attractiveness, and customer attractiveness, you can understand the overall market potential. we refer to this combination as the market attractiveness from this point forward. market attractiveness is one of the most important aspects of your business model.

it’s difficult to imagine a strong business model that sells to lousy customers in a bad industry and small niche market.

gauging the target market

to create the best business model, you should find a profitable and sufficiently large market segment. however, to have a successful and durable business model, you need to find a large market that’s unserved or underserved. finding this underserved market is paramount.

if you want to go beyond any market, you need to find a viable market segment that’s unserved or underserved by similar companies. we break down the target market into four pieces to make things easier:

how attractive is the industry itself?

how attractive is the niche within the industry? you want to pick a niche that offers the best potential profitability.

how attractive is the customer segment? an attractive customer doesn’t have to be a wealthy customer. an attractive customer is the one who can make your business model work best.

is it big enough to provide a good opportunity for you to enter it and sell enough product or services, at a price point that will allow you to create a viable business?

determining industry attractiveness

an industry is the broadest category or definition of the business you’ll be in. examples of the industry include the following: automotive aftermarket manufacturing, business consulting, general contracting, home remodeling, lawn, and garden distribution, legal services, medical, pet care, residential landscaping, and software development

what’s the difference between a market and an industry?

many business people use the term market as a catch-all for the combination of industry, segment, niche, and customer (in other words, who will pay you for your product). although simply referring to the market is easier, we try to break things down into more discrete pieces so you can gain additional insight into your model. we use the term market when industry, segment, niche, or customer segment simply doesn’t fully cover all the bases. when we use the term industry, we’re referring to the industry and the industry segment.

you have a much greater chance of success if you pick an attractive industry. consider these factors:

is this industry growing or shrinking?

will this industry be strong in ten years?

how many incumbents are in this industry, and how strong are they?

do you see an opportunity for this industry to overlap into a different existing market (convergence)?

could the industry provide powerful synergies with an existing part of your business?

after you identify an attractive industry, identify the best subset of that market, or niche, and then identify the best customers to serve within that niche. working in an attractive industry is helpful, but it isn’t a prerequisite. many great business models have been created in bad industries by carving out attractive customer segments, niches, or both.

determining niche attractiveness

after you pick an attractive industry for your business model, it’s time to find an attractive niche. your niche market is a subset of the overall market you participate in.

find unserved or underserved markets

the best way to create a good niche is to find an unserved or underserved market. what does underserved mean? if the market was obviously underserved, an existing player in the market would fill the void. some guesswork is involved in predicting what underserved means. you must use your business judgment and then guess. only the market knows what’s needed, and the only way to find out is to take it to the market.

if you choose a niche in an easy-to-identify growth area, keep in mind that competitors can easily find this niche too. count on lots of competition.

instead of going for the obvious niche, be willing to take some chances and pick a less obvious niche, how can you find these elusive unserved or underserved markets?

personal experience: many great products and companies have been created by an entrepreneur’s discontent with the status quo.

friends and relatives: if you aren’t the cutting-edge type, look to friends who are. what products and services are they buying and why? what problems do they wish they could solve?

research trends: you don’t need to catch a trend to find a great niche; however, catching a trend can make your niche much better because the growth is built-in.

hired experts: professional business plan writers, business model consultants, futurists, or other gurus can help you find a niche.

luck.

determining customer attractiveness

you can create an attractive market niche, but have it destroyed by bad customers. attractive customers have a strong need for your offering, value the solution to their problem more than your product costs (that’s a strong value proposition), have the disposable income to spend on your offering, pay their bills on time, and exist in sufficient numbers to make your venture profitable.

most business models have customers that are neither exceptionally attractive nor exceptionally unattractive. most business models don’t need to focus on customer attractiveness for long because the old mantra all customers are good customers is true most the time. however, you do have to study customer attractiveness.

more affluent customers don’t make a market segment more attractive. typically, more affluent customers can afford to pay a higher price for goods and services. high margin typically follows these higher prices, but may well be set off by higher overheads and lower volumes owing to more exclusivity. simply chasing affluent customers isn’t always the best strategy. remember the adage, sell to the masses, live with the classes. sell to the classes, live with the masses.

if you meet ten business owners in the construction industry, you’ll probably meet someone whose business was destroyed by a low-paying or non-paying customer. a workable business model can be destroyed by the wrong customers, as a businessperson, you must eliminate or account for bad customers in your business model.

finding your place on the industry value chain

to create the best business model possible, find the best place on the industry value chain. every firm involved in getting a product from initial creation to purchase