Converting an Idea to Income Is a Process That Requires Planting and Fertilization, Not Hope and Dreaming

Under the category of inexperienced blind hope, a surprising number of people that approach my Consumer Product Development group with a new business idea want us to find someone who will buy the concept in its undeveloped form. This always amazes, even after so many years of hearing these vapid elevator pitches. A person has an idea, they have performed little or no due diligence, and they believe it has commercial value. Daffy!

Behind every existing product, service or successful business there was originally an idea. In order to achieve any level of viability and ultimately market success, the idea was planted and fertilized with work, research, investment (money and sweat), strategizing, and so many other necessary layers of work product that confirm the concepts usefulness or lack thereof.

A person that attempts to peddle an idea without conducting necessary due diligence is immediately obviated as a wastrel. Ideas are a dime a dozen, actually they are worth 10 cents less than a dime. The reasons so few people become successful entrepreneurs, even though most people dream of entrepreneurial conquests, is that they are dreamers not doers.

I recently took a call from a supposed entrepreneur who was looking for someone to buy his toy idea. In response to my qualifying probes he was entirely negative. He did not have patent filings. He did not have 3D CAD art. He did not have, or worse, want to build rough prototypes, so, of course, he was never going to have production quality prototypes. Without 3D CAD art and prototypes he was never going to discover manufacturing protocols and Cost of Goods.

In short, he was the ultimate dreamer. Many of these poseurs are serial stalkers of investment, partners and/or licensing relationships. They troll the internet endlessly looking for a home for their get-rich-schemes. The time and effort that could be devoted to productive due diligence is wasted on blind hopes and dreams.

I have counseled clients, students and prospective entrepreneurs for many years to avoid taking shortcuts at all costs. Resources are more easily found and utilized today than ever before. Many, many years ago, when I launched my first product there was no e-mail, internet, cell-phone, Software, Google or WikiPedia. Heck, there weren’t even fax machines or FedEx. Every step of the process was slower and more arduous than today.

The ease and availability of contemporary resource tools makes the launching of a new Consumer Product or Small Business a much simpler process. An idea which is not accompanied by at least a smattering of supporting design and data is a non-starter. Worse it brands the presenter as an amateur.

Let’s assume you are shopping for shoes. If you visited a shoe store, and the store only had pictures of shoes, but none to try on, how would you react? Of course, you can buy shoes on-line, but typically you know the brand, style and size you need and search for an on-line match at a price. When in a store, you want to touch and feel the products you seek. It is the same with venture capital and licensees.

The market is flush with opportunities for investment. Money always seeks the most market ready products. You have no chance to compete for seed monies or licensing unless your project is fully vetted. A successful entrepreneur always plants and fertilizes their work product to maximize chances of achieving a great result.

Adopt a Pre-Sell Strategy to Drive Interest in Your Project Before Seeking to Attract Investment Funding

Recently I met with a prospective client who presented my Consumer Product Marketing and Branding Consulting firm with an overview of his project, its development status and needs. The opportunity seemed to have legs until we reached the point in the discussion where funding took center stage. I listened as this entrepreneur, with great passion and skill, pitched his reasoning and support data for a funding round that he felt necessary to move ahead.

I took the “devil’s advocate” approach that any project faces when seeking investment from angels, investors, venture capital or partners. My questions were the standard fare that I have heard professional investment groups pose time and time again. As the cross examination continued the passionate, confident entrepreneur began to wither.

The simplest question that I asked, and one that is always of paramount interest to investors: “Do you have Purchase Orders”, drew a telling lack of response. This very smart presenter had never considered the question and the possibilities that a positive response would have for his proposed enterprise.

Purchase Orders from target customers, stores, distributors and wholesalers indicate what we call a “Proof of Product Life”. Entrepreneurs are always excited about their product or service. They have reams of documentation that they   include in their Business Plan to attempt to impress investors with the promise they offer. Focus Groups results are nice. Orders and successful test markets, no matter how small are much more valuable.

How can an inventor, entrepreneur or small business generate sales orders before receiving an adequate funding round? The prospective client I was meeting for the first time asked exactly this question. I then described several Bootstrapping and Pre-Sell strategies that he had never considered.

We often utilize a Bootstrapping Pre-Sell plan for clients. This is done without going to the expense of an inventory build out. We have a host of vendors that work with us to create Production Quality product prototypes, CAD Art, Release Packets, Point-of-Purchase display, Sales Collateral, Web-Sites, Attorney’s, Social Media, Video Production and much more that we use to generate Purchase Orders from Trade Shows, EXPO’s, showrooms and on-line sales. These vendors know that once sales traction is achieved they will have a long term relationship with a happy new client. They are more than willing to hand craft a display or sign unit carton or brochure for minimal cost.

Recently we attended a large Trade Show in Hong Kong with a client to launch a new Skin Care regimen. We attended with four dozen Production Quality prototype samples fully dressed with graphic packaging. Our display vendor hand cut three Point-of-Purchase displays. The booth display visuals, video loop, Sales Collateral, Product Folios and Distributor Contracts were one-off produced just for the show. The product performance demonstration was spectacular and the stand was swamped with interested Asian distributors. We have concluded deals for exclusive territory sales of the line with nine firms. Pre-Selling works!

With these agreements and the initial Purchase Orders they have generated we are organizing International Bank Letters of Credit to fund the initial full inventory build and provide working capital. Investors are now keen to review the opportunity and, with this type of “Product Proof of Life” successfully achieved, they have less leverage in negotiations.

A successful Pre-Sell campaign in the American market can lead to securing investment, but also Partnering, Licensing, Receivable Finance or Factoring options for funding operations and growth. We have utilized Factoring for many years for our own businesses and clients. Sales orders open doors.

Next month we will attend a Jewelry trade show and a Men’s Fashion trade show with client products that will be launched utilizing a Bootstrap Pre-Sell campaign. More prospective entrepreneurs should utilize this strategy. The process involved in successfully winning a funding round is beyond the pale for most startups. Meeting an investor with a plump order book creates an entirely different leveling of the playing field. Take advantage of this inexpensive, simpler strategy to launch your product.

5 Tips for Small Businesses and Start-ups to Use To Appear Bigger than They Really Are

For many years I have worked almost exclusively with entrepreneurs, inventors and small businesses seeking to start, or grow a business against daunting odds and competitive disadvantages. We specialize in Consumer Products, packaged goods that are marketed in every category and sales channel. Despite the deck seemingly being so stacked against these micro-enterprises it is amazing how many succeed.

One of the lessons we counsel and preach is the importance of acting and presenting the business to consumers and merchants as being more solid and substantial than it in reality is. No one wants to do business with a firm that appears to be struggling. People smell weakness. They are attracted to success.

One of our goals for clients is to be able to meet key decision makers in a specific category and open doors that seem closed to most fledgling start-ups. In order to achieve this we must have the client act like the puffer fish and blow themselves up to appear bigger and stronger than they are. How can this be accomplished?

The edifice that is presented as the core of the business can be inflated with creativity and a bit of illusion. It is essential that entrepreneur’s utilize every tool available to level the playing field as much as possible. Here are 5 ways to embellish the appearance of strength for of a start-up.

1.  Have a professional, original, customized Branding Strategy. Colors, icons, lyrical Branding Statements and graphics that work as one are crucial in differentiating the Company and its products and services from competitors, large and small.

2.  Your place of business and mailing address speak volumes about your firm and product. Most start-ups cannot afford an office in Beverly Hills, or London. They can rent a mail box service in a prestigious zip code. For meetings, there are impressive offices with secretarial services that can be secured by the hour or half-day.

3.  Put some effort and diligence into building and editing your web-site. The only thing worse than not having a web-site is having a mass market template that screams “unprofessional”. Currently, there are an endless number of do-it-yourself templates available to guide construction of a web-site. The construction is not as important as the content. Do not take shortcuts on content.

4.  Sales collateral stays with the prospective buyer, consumer or merchant long after you physically vacate the premises. Make your brochures, business cards and samples first class.

5.  Use production quality prototypes to pre-sell your product at trade shows, fairs and to investors. We typically pre-sell every project we are engaged to manage for our clients. We do not want them investing in building inventory until we have secured orders, letters of intent and confirmation from key industry decision makers that the product on offer is desirable and commercial. Production quality prototypes are the key to gaining this crucial proof of product life.

We have utilized this simple menu to enhance any number of start-up businesses that we have introduced as Managing Consultants. It works for every category of Consumer Product including Toys, Gourmet Foods, Cosmetics, Fragrance, Aromatherapy, Hardware, Pet Products, DIY, Jewelry and many more. These are tools that are invaluable when bootstrapping an under-funded business, product or service.

The Most Under-Utilized Resource Entrepreneurs Neglect to Take Advantage of Is Local Universities 

Inventors, Entrepreneurs, Artisans and Small Businesses are very often bereft of funds needed to secure professional help that would be beneficial in leveraging their projects to success. Lawyers, Engineers, Graphic Artists, Logistics Specialists, Packaging Designers, Web-site Masters, Marketing Consultants and many other qualified experts are much needed but difficult to afford for those starting a new enterprise. This is understandable but there are other sources for obtaining qualified help. 

We refer many under-funded prospective Entrepreneur’s to the nearest major University. Colleges are places of learning, often fully funded by taxpayers. There are many areas of study in each university’s core curriculum. Business schools, Design colleges, art programs, marketing majors, Engineering departments, etc. house a motivated, ambitious horde of students seeking to gain practical experience in their field of study. 

College Deans and Professors are often a wonderful source of inspiration when approached by small businesses and inventors seeking guidance. They will often assign a student, or team of students to assist on a project. Not only is this resume building experience invaluable for the undergraduate but it often leads to internships or post-graduate employment for those who successfully complete the assigned project. 

Many Universities have become very active in a commercialization process that they call “Technology Transfer”. When a school discovers a new technology, product or science that can be perfected in their facilities, they are being very aggressive in commercializing the process and attempting to create recurring income streams. We are currently involved with several major Universities in this type of product development and the concept is growing rapidly as colleges seek to leverage the invaluable resources that are housed in their intellectual property facilities. Technology Transfer can work for many more inventors. 

One of the fastest growing areas of study in Business Schools is Entrepreneurship. I have been a mentor, lecturer and Fellow at several colleges in this program. At some schools the course in Entrepreneurial Studies has become a capstone course, essential to complete before becoming eligible for receipt of a degree. These courses are often available as laboratories for inventors and small businesses wishing to perfect a Business Plan, create a Sales Model, customize a Marketing Strategy or design a Production Quality Prototype.   

These courses can be very useful. They are free for those willing to pursue the assets they can offer. Actually, most Professors love to match students with real world projects as opposed to an abstract fantasy project that the student designs on their own. 

On any number of occasions my Consumer Product Development and Marketing Consulting firm has mated entrepreneurial projects with students eager to obtain real world experience. We have done this with Gourmet Food (Nutrition Science), Footwear (Fashion Design), Skin Care and Aromatherapy (Marketing and Chemistry), DIY Product (Engineering), Packaging (Graphic Arts) and more. 

Obviously, it is preferable to utilize the most qualified, experienced talent available if it can be afforded. Students do not have an extensive body of work that can be tapped to quickly solve problems. However, what they lack in experience, they can make up for in energy and hunger. 

The job of a professional consultant or service provider is to save the client time, money and mistakes. If the client has limited monies available pursuit of assistance from a motivated student can provide a reasonable alternative. Many Small Business people often root for the local schools sports teams. It can be much more satisfying to use the college academic departments as part of your own team.

What Is 3-F Funding and Why Do Entrepreneurs Need to Understand the Vetting Process for Securing Funding? 

Many years ago, when I was a young, ambitious, aspiring entrepreneur I was imbued with the conceit that venture capitalists, investment banks or angel investors would fall over themselves to invest in my first project. I was passionate about my product. I quickly discovered that investors were decidedly not.  

Though disappointed at my lack of success in securing the sought after funding, I was able to learn a lesson that has been a truism in my entrepreneurial career, and one I share frequently with prospective clients in my Consumer Product Branding, Product Development, Marketing and Funding Consulting group. Simply stated the lesson is this: Start-up funding for almost all enterprises is 3-F funding. It comes from Friends, Family or Fools. 

I am approached almost daily by aspiring Inventors and Entrepreneurs seeking a funding round for their proposed new project. They ask and I respond that this type of funding, and in the relatively small amounts requested, comes from Friends, Family or Fools. This adage is to Venture Capital as “Going, Going, Gone” is to baseball or “Hooah” is the 82^nd Airborne Dvision. 

Most start-up business opportunities do not qualify for an initial investment round because they cannot stand the vetting process applied by sophisticated investors. There are many reasons for this barrier to entry. The amount that can be justified by the Business Plan is too small for consideration. The plan itself is not compelling. The inventor or entrepreneur is not compelling owing to their background or history. There is a lack of due diligence that is easily recognized in the strategy proposed. 

I regularly find myself counseling prospective small business owners that if failure to secure a funding round will kill their project, then the project probably should die. It is the successful entrepreneur’s responsibility to find a way to overcome every obstacle placed in their path, including raising seed money from unorthodox sources. If this roadblock proves fatal, then the owner is not driven, passionate, creative or clever enough to succeed in the endeavor. 

Are their funding alternatives? Yes. Many projects can be bootstrapped utilizing very limited funds and a great deal of leverage. Strategic alliances can be developed for many projects. Many projects are proposed on large scale launch and distribution strategies that can be downsized, localized and then regionalized as sales traction occurs. Money is always available for funding projects that demonstrate sales traction, and, most crucially, re-orders! Receivable funding and factoring are methods we utilize often to finance client growth.

Recently I consulted with a young man who was developing a juvenile Toy product line. He presented me with a plan that was built on a $750,000 funding requirement. As I vetted his Business Plan assumptions, I deduced, and he agreed, that he really needed about $100,000 to develop, Brand and Pre-Sell the line. I laid out a Gantt Chart for the project and detailed how this could happen and options for funding, after he had received orders from retailers. He had never considered Pre-Selling. We always consider a Pre-Sell strategy for new product launches. 

The $100,000 stumped my Toy entrepreneur. He did not want to ask Friends or Family for support. This is understandable. He did not want to take equity out of his home, also understandable. He wanted me to reach out to my investment sources. I replied, “Why would a stranger invest in the product if you are not willing to invest in yourself, and Family or Friends do not believe in the Toys and you”? I received no response.

 Starting a business or launching a new product or service has never been easy. It is not meant to be. The successful entrepreneur is a valued minority. Most prospective entrepreneurs do not have the ability to overcome obstacles that the markets place in the way of their progress. This culling of the herd, or “Survival of the Fittest”, is the reason that so many people want to operate a small business but so few actually accomplish the feat. Funding, or lack thereof, is the canard that most failed entrepreneurs posit as the reason they are held back. Sourcing seed money from Friends, Family or Fools must be considered as the “alpha” resource to go to first.

5 Questions That Must Be Answered Before Attempting to Fund or Launch Your Consumer Product

I am constantly amazed at the naivety of first time entrepreneurs and inventors when it comes to the due diligence they must conduct in order to get their idea, concept or prototype to market. Even with the amazing information tools at hand in the 21^st century, so many still try to fake out the marketplace by taking shortcuts. This is the equivalent of death by neglect. 

There are 5 questions that must be organized and perfected before a new product can be considered ready for preparation of a fully documented, well-crafted, customized Business Plan.

Question 1: Do you have a production quality prototype built, a unit that can demonstrate the full functionality, features and benefits of your product? 

This provides the base template of everything that must follow in pursuing accurate assumptions on which to base your strategy for investment, marketing strategies, sales model and financial projections.

Question 2: Have you assembled and distributed Release Packets to multiple manufacturing/production sources? 

The Release Packet is the blue print and content map that producers will utilize to conduct proper time, assembly protocols, manufacturing standards required, and estimate production costs for your products build out.

Question 3: After choosing the factory that provides best service, lead times and quality control, have you been given a dead-net Cost of Goods to produce your item in mass production volume? 

Dead-net Cost of Goods means cost to produce, package, handle, ship (by ship and container if off-shore production), freight-customs-duties, local freight from port of landing to your destination for product fulfillment, all inclusive. This is the real Cost of Goods that is the first and most crucial element necessary to create an exciting, well-documented Business Plan.

Question 4: Have you created a Sales Model that works for your enterprise, and for all up-channel re-sellers of your product? 

Different Consumer Product categories must utilize Sales Models that factor many variables into the pricing equation. Some product categories require heavier Sales promotion budgets (Cosmetics, Skin Care, Toys, Games, etc.). Others require strong levels of store support for display, co-op advertising and point of purchase signage (food, drinks, oral care). Limited distribution, exclusivity models are built on a low volume, high retail model. 

Question 5: Why is the Sales Model so important, and why do so few Entrepreneurs devote enough time, energy and research to perfecting this crucial building block of their Business Plan?

The second half of this question is easily answered: Some do not know how to detail their Sales Model, some do not want to put in the effort, and others do not understand the process required to achieve investment, licensing opportunities, partnerships or sales traction in a brutal marketplace.

The Sales Model (based on Question 3: Cost of Goods) is so very important because it is the “alpha” assumption that supports every declaration built into a Business Plan. If the cost to produce, and thus the selling basis for a product cannot be torturously defended every other element and assumption included in the plan will fall of its own weight. Investors will see this immediately and bail.

 I write this after a particularly busy month of reading and hearing elevator pitches for projects that have been almost uniformly under-vetted. Some of the concepts might have even been commercially viable. However, when I ask these 5 questions and hear crickets on the other end of the phone line, I know I am not dealing with a serious, committed, driven entrepreneur, and I am not alone. Every other investor, venture capitalist, licensee and buyer I know experiences the same disappointment when exposed to plans built on quicksand.

10 Items That Will Insure Your Business Plan Is “Not” Considered or Seriously Read by Investors 

I read business plans as a major part of my Consumer Product and Marketing Consulting business. I act as project consultant for several Venture capital firms. I am a Fellow and lecture at the Miami University, Farmer Business School Center for Entrepreneurial Studies. I teach students to write Business Plans. My consulting duties include preparing Business Plans for clients as they seek funding opportunities. 

There is no definitive, 100% detailed methodology to construct these crucial documents. The internet, book stores and home study courses are full of turnkey templates that claim to lead to successful outcomes for projects. They do not.

In its simplest form a Business Plan is a document that quantifies (numbers, costs, financials), qualifies (due diligence, research) and narrates (tells an exciting opportunity story) a series of assumptions about the project on offer. The plans submitted for my consideration invariably do not meet the level of professionalism required to be considered for funding. Even if the product or project possesses real utility and commercial value, if the document is faulty it will not be fully read or considered. 

There are many items that investors consider when reviewing a new Business Plan submission. Often the first read is handled by a junior partner whose only duty is to cull the herd, markup and forward only plans that meet firm standards. This means that about 98% of all newly presented Business Plans are never read or even touched by key decision makers. You do not want to be part of the culled herd. 

Here are 10 items that are among the most crucial elements to avoid in preparing a Business Plan that will merit a thorough read, markup and full consideration by your investing targets.

1. Do not prepare a plan by following a standard download template. When I am approached by an Entrepreneur with a Business Plan I always asked if they prepared the plan and if they have ever written a Business Plan before. If the answer is yes I prepared the document and no I have never done one before I can rest assured that a form template has been followed.

A quick scan of such a document always indicates a fill-in-the-blanks approach. This screams lack of due diligence, thus lack of commitment. If you want the proper consideration your work deserves customize the plan and present it in professional form.

2.  The Executive Summary MUST present a vivid, compelling, complete overview of the project. The first few pages of a John LaCarre or Vince Flynn novel grip the reader. The opening scenes in a Jerry Bruckheimer movie thriller absorb the viewer. Similarly, the Executive Summary is the window to the rest of the plan. If it excites the analyst it will prompt them to read on with relish.

3.  Do not guess at financial elements. For a Consumer Product plan, which is my area of expertise, the most important number to nail is the dead net Cost of Goods to produce and land a product. Every other income and expense line item in the Financial Statement, Balance Sheet and Cash Flow (3 year NOT 5year) projections will be false if the true cost basis is not fully vetted. 

4. If you cannot provide a management team, fully organized and committed, the project will go nowhere. We review too many plans that are presented by an entrepreneur who has no management experience in the space they are seeking to enter. No investor will commit funds to a project that is not staffed by experienced managers. People count as much as a product or concept.

5. What is the Unique Selling Proposition that your product or service will provide to retail stores, international distributors and consumers? In a cluttered, chaotic marketplace how will your offering cut through the maze and create demand? You must be able to detail and obvious point(s) of difference between your product and the raft of competitors you will face off against. You do not have to reinvent the wheel, but you must be able to improve or embellish the wheel.

6. Avoid bombastic pronouncements. This always results in a quick “deep 6”. Whenever we see outlandish claims we recoil. Whether in the financial projections, product performance claims or share of market detailed if the project is not supported with realistic due diligence it will go nowhere.

7. You are not fundable if your project does not provide a Return on Investment of a minimum of 30% per annum beginning between month 24 and 36 of full- operational activity.

8. You do not have a first mover advantage, but think you have a better mousetrap. Recently we reviewed a Skin Care and Cosmetic project. The owner claimed that his first mover advantage was a new ingredient story. He could not detail a product feature or benefit that was not already being addressed in the marketplace. The product will have to be the first to offer a niche application in its space.

9. Never confuse a large document with a thorough plan. A great Business Plan, unless there is a novel divergent technology or science involved, rarely exceeds 25 pages. Add as many supporting exhibits, competitive analysis, research documents, studies, etc. as possible. The main body of the document must be focused like a laser on providing answers to the many questions that investors always present. Keep it tight and moving.

10. If your Business Plan is built on false assumptions it will not withstand scrutiny. Remember you must be able to fully support every assumption you make about Cost of Goods, Marketing Strategy, Sales Models, Competition, Expenses, Financial projections, etc. This requires research and due diligence that will be apparent, or not, to the potential investor.

A great Executive Summary will contain referrals to almost all of the elements detailed in this article. It will be pithy, interesting, grounded and written with professional zeal, not bombast. If this two-page introduction is crafted properly your Business Plan will have a real opportunity to receive a serious read from your real target audience: Venture Capital, Investment Bankers, Strategic Alliance partners and Licensees.

The 5 Most Important Items to Fully Address  For Entrepreneurs When Writing Business Plans 

A good portion of my work is devoted to writing and reading Business Plans. My Consumer Product Development and Marketing Consulting firm works extensively with small businesses, foreign Companies seeking United States Sales and Distribution, Inventors and Entrepreneurs. The solid Business Plan is the keystone that is essential in successfully driving a new venture to success. 

Unfortunately, the vast majority of the Business Plan submissions that I review are discarded. There are many reasons for this. A great Business Plan is the “window to the soul” of your planned enterprise. It needs to stand out, be crisp, exciting and make the reader want to learn more about the project, and most importantly, you. 

In an effort to provide targeted guidance in preparing and presenting a Business Plan that will be given proper consideration by Investors, Venture Capital, Investment Banks, Partner and Strategic Alliance possibilities, the following Five Irrefutable Rules should be considered and included in your document. 

1. Know Your Cost of Goods-ABSOLUTELY! 

If you do not know what the dead net, landed final Cost of Goods is for the Consumer Product or Service that the Business Plan targets none of the Financial Assumptions will make sense or withstand scrutiny. I list the importance of this first, because the rest of the Business Plan shatters completely without this all-important number. 

I cannot tell you how often we see plans that guess, or worse do not know actual Cost of Goods. Marketing Strategies, Sales Models, Promotion Budgets, Gross Margins, Pricing and many other Financial Projections cannot be nailed unless Cost of Goods has been fully vetted and is supported with detail and Exhibits. Not knowing definitively what true Cost of Production is for your product is an immediate disqualifier. Do not shortcut this point. 

     2.    Write a Brisk, Exciting Executive Summary 

Have you ever read a Ken Follett or Robert Ludlum novel? Ever taken in a Jerry Bruckheimer-produced action movie? There is always one constant that these consummate entertainers provide: excitement in the first chapter or scenes. 

The Executive Summary must do the same for your target reader. Remember, they read dozens of Business Plans each week. Very few are professionally or properly written. Those are discarded immediately. You need, and deserve, to have your Business Plan read. Keep the Executive Summary short, no more than 2 pages, flowing, exciting (not gushing) and on point. It should summarize the key Features and Benefits of your Consumer Product/Project, the Management Structure, Marketing Plans and Sales Models, Financials and Harvest. At the end, I will want to explore the opportunity further if the Executive Summary has done its job. 

   3.    The Management Team is Crucial 

One of the most common deficiencies we see is the lack of consideration given to the Management of the New Company being proposed. If you have never managed a business, but have a marketable product or opportunity, you will need to assemble a group of core managers that can provide the skills required to run the business post-funding. Who are these Managers, name them? Who will handle Sales and Marketing, Logistics, Production, Finance? What are their bona-fides? Include their CV’s in Exhibits. 

Do not seek investment if you cannot provide a slate of experienced, talented people to manage the enterprise. You will be dismissed. 

    4.    Identify Clearly the Projects Unique Selling Proposition (USP) 

There are Convergent and Divergent Consumer Product opportunities. Convergent Products are improvements on existing products. These are often considered “Niche Products”. Reading Glasses with night lights built into the frame is an example of a Niche Product. 

Divergent products are rarer. These products create new product categories and alter existing Retail Sales Promotion and Distribution Models. The George Foreman Grille, Mr. Coffee or notebook computers are examples of divergent products. 

The most important element for your New Consumer Product to possess is an identifiable USP. You must be able to differentiate your project from existing competition and be able to detail unique Features and Benefits you will offer consumers. This is also a First Mover Advantage. 

     5.    Are Your Financials Compelling to Investors 

A properly vetted Business Plan will include three year (not five) Cash Flow, Balance Sheet and Income Statements. These projections, for start-up projects, are always based on best-Assumptions. This is the Achilles Heel in most plans. The Assumptions will not withstand investor scrutiny. 

Most Venture Capital (VC) investments do not return the capital invested. A 10% success rate is about the industry average. In order to be considered you will have to demonstrate that your opportunity offers at least a 35% Return on Investment (ROI), beginning between month 24 and 36 of operations post-investment. Failure to be able to support this ROI is a disqualifier. 

Remember, the definition of a great Business Plan is a word picture based on Assumptions that you Qualify, Quantify and Narrate. Do not confuse a large, unwieldy, wordy document with a strong plan. Keep the Business Plan short, no more that 20 to 25 pages, before adding Assumption supporting Exhibits, as many as necessary.

Prospective clients often present my marketing and product development consulting firm completed Business Plans as they attempt to elicit interest in their projects. Invariably the assumptions that their sales, income and profit projections describe are unrealistic. I am then asked how to best assemble believable, supportable numbers that will excite, not scare off investors, venture capital or partners.

A Business Plan is simply a document that describes a commercial opportunity and quantifies, qualifies and narrates details of the offering. The exercise of writing a Business Plan sounds fairly mundane and easily accomplished. It is not. I have rarely read a Business Plan submitted by a novice that was worth spending more than a minute or two contemplating.

The Harvard Business Review in a recent article mentioned use of the “4 P’s” for Potential when projecting budgets, sales and profits. This is a simple, easily understood template for aspiring entrepreneurs to consider utilizing. The “4 P’s” of Potential are Population, Penetration, Placement and Purchase Frequency. The “4 P’s of Marketing that are essential to customizing a brand and marketing strategy are; Product, Price, Placement, and Promotion.

The “4 P’s” of Potential, if accurately researched, detailed and confirmed are invaluable in supplying investors with assumptive numbers that will withstand intense scrutiny.

Consider:

Population

What is the real size of the actual population that would be interested in potentially buying your product? If you were marketing a snack cracker, it could be the whole population of a country. Most of us eat snack crackers at some time.
If you have a Pet Product, specifically a dog snack treat, the market is confined to the 77.5 million dog owners in the United States. If it is a cat snack food the market reach is a bit larger, approximately 94 Million licensed cat owners.

Placement

Now that you know the size of the consumer population base that can potentially purchase your product how do you surmise market Placement? Let’s assume that you want to introduce a cosmetic product and it will be moderately priced (Price = one of the “4 P’s” of Marketing). Your research indicates that there are approximately 75, 000 stores in the United States that carry competitive mid-priced brands such as Oil of Olay skin care, Maybelline and Cover Girl cosmetics or Revlon perfumes. As a small beauty product brand or start-up you will not achieve deep Placement in early stages of existence, certainly not big box distribution until the brand shows sales traction on a local or regional level. If you gain Placement in 1.5% of the discovered universe of 75,000 outlets in Year 1, you would achieve distribution in 1,125-doors. As the brand develops in year 2, Placement can be expected to easily grow to 2.5% or 1,875-doors, year 3, etc.

Penetration

How much of the Population will you penetrate with purchase of your product?
There are 17 million licensed hunters in the United States. If your exciting new camouflage, stealth hunting boot was able to gain 1% Penetration of this class in the first full year of sales, you would sell 170,000 units.

Purchase Frequency

A consumable product (food, drink, vitamin, cosmetic, household cleaner, etc.) has a much more frequent usage and repurchase rate than a dog leash, a hunting boot or other hard goods. Another term for Purchase Frequency that is often used is Sales Turnover. A Gourmet Meat Marinade might turn inventory levels three times in a year in a specialty store. A popular priced, higher volume marinade might turnover 10 times in a national supermarket outlet. Purchase Frequency is determined by utility of the product, daily or occasional use, price, packaging size and geography. A sun care product will turn over monthly in warm weather markets, only seasonally in colder weather climes.

Here is a simple formula that can be used to divine the Potential Size of a market for a product using the “4 P’s” during Year 1 of distribution:

Placement = 2% of 100,000 stores = 2000 placements

Population of Women Age 35 to 60 for an Anti-aging Skin Care Treatment
USA only = 55,000, 000

Penetration of potential buying Population
.001% of 55,000,000 = 55,000

Purchase Frequency = 3 Sales Turns per each full year of sales

Assuming a regimen (example only) of $40 X 55,000 consumers X 3 Repurchases and the above indicates that achievement of these 4 P’s of Potential would generate $6.6 million in sales.

This does not reflect new product extensions, international distribution or other variables. If the “4 P’s” of Potential are fully, deeply and diligently vetted, this number, while still an assumption is much more realistic and believable to the most difficult audience on earth: the cynical investor. This is the best to qualify, quantify and narrate the assumptions that are the cornerstone of any Business Plan.

Most of the entrepreneurs we interview in our consulting business have a very unrealistic conception of what excites and disappoints investors. The dream of many inexperienced inventors seeking to fund their opportunity is to build a substantial infrastructure. Their business plan identifies the need for factory space, equipment, staff, and many other fixed costs.

Investors want to see a plan that maximizes return on investment. High fixed costs are the enemy of a great profit margin. When business turns down, and it always does at some point, fixed cost assets become liabilities and must be continually fed, even as income declines.

Always present decision-makers with the most streamlined operations plan possible. Do not confuse grandiose staffing and equipment wants with actual needs. In today’s business climate, almost every possible service can be rented, leased, farmed out or performed by contract manufacture. A 25,000 square foot factory that is not running at 100% capacity is an under-performing fixed cost asset, especially if a private label manufacturer will provide the service at a competitive price. The cost to rent, power, insure maintain and staff the facility is ongoing and will be a drain on the bottom-line.

Investors want to see a lean operation with no fat or excess. They will always be open to adding costs as growth and sales traction begin to kick in. Initially, the entrepreneur needs to display that he or she will be a prudent shepherd of the investment required to startup the enterprise. Here are a few areas where fixed costs can be avoided and potential investors greatly impressed.

Facilities
An opportunity killer is a funding request that includes money to buy a facility, office or plant. No startup can accurately pinpoint the growth (or failure) rate of a brand new business. Investors will want to see a plan reflecting realistic goals and space requirements. This almost always means renting facilities until need demands a purchase of facilities.

Manufacturing
There are almost no good reasons for a startup to manufacture their own product. Possibly, if there is a very valuable trade secret involved, but not often even in that case. All contract manufacturing should include a Non-Disclosure Agreement (NDA) as part of negotiations. Contract manufacturing is available and utilized in almost every industry today. Estee Lauder manufactures almost none of the many cosmetic or fragrance products they market. Liz Claiborne and Calvin Klein make none of their apparel. Ikea sells only furniture made in third world facilities.

All of these companies, and many more, realized long ago that manufacturing was better left to factories located where labor, raw materials and government rules were not stifling. These companies concentrate their assets on research and development, design, sales and marketing. So should every entrepreneur seeking to succeed in obtaining investment.

Sale
Every entrepreneur should be able to aggressively market and sell their product. However, no single person, or small partnership, can be in front of every customer that will potentially be interested in purchasing the product on offer. The investor will want to know that there is a sales strategy that offers an excellent chance for success.

In the area of sales, there are industry specific sales representatives: manufacturer’s representatives and agencies available to sell an interesting, market ready product, on commission, within their industry. Commissions are typically standardized within each industry. The gift industry is 15%. Food products are 3% and up, depending on the volume a product can reasonably be projected to achieve. Industrial products are 2% to 5%. Historic profit margins dictate commission rates.

When using sales agents, the entrepreneur should manage the sales force as if they were salaried employees. Weekly calls to review goals, promotions and upcoming meetings. Write letters and e-mails pointing out other agent’s successful achievements. I have used commission sales agents for many years, and recommend them to most of my clients.

I make as many key- account sales calls as possible with my sales agents. If it is my product, I want to control big presentations, even though I will pay a commission on the sale I have principally generated. I attend as many sales meetings as possible. The more I can meet, learn and know about my sales teams activities the better I will be able to motivate, train and energize them.

When commission sales agents do not sell a product they are not paid. This obviously minimizes fixed costs. However, you will want to pay the largest amount of commission as possible. Healthy commission checks mean a very healthy sales base.

As a very young National Sales Manager for Vidal Sassoon Hair Care Products I was confronted with a problem. Our sales had exploded. Growth was so rapid and market acceptance of the Vidal Sassoon brand so overwhelming that our commission payments likewise accelerated to the point that my top management became upset when commissions exceeded their own salaries. “Don’t those guys work for us, why do they make more than the owners”, they asked?

I faced a difficult situation. I offered two options: cut commissions or fire the commission agents and hire a company employed sales force. I reckoned that if I could get sales coverage for 8% cost of sales (including salaries, benefits, travel, etc.), it would make sense to make the transition. Cutting the commission rate would displease the agents and I did not want to risk losing the excellent momentum we had developed.

Very surreptitiously and quietly I interviewed and hired a team of key regional sales managers and we quickly executed a plan of conversion that top management had signed off on. Vidal Sassoon was at the point in their business development that a company owned direct sales force was needed and justified. However, it was a concern as we were greatly increasing our fixed overhead.

Entrepreneurs should focus maniacally on sales growth. Sales are Job #1 in every company, especially a new venture! Be very careful in constructing sales coverage that will support the growth you project while not choking cash flow with a very high selling cost.

Marketing
Hopefully the entrepreneur, or a member of the management team, has marketing experience. If not, the answer is often to hire a consultant. An experienced consultant will save time, money and mistakes. Be sure that the consultant being considered has current industry specific experience, strong references and a transparent history of success.

Fulfillment
I never recommend for a new venture to handle their own logistics (warehousing, pick and pack, shipping, billing, etc.) Dealing with shipping, handling, conditions and the terms necessary to satisfy retailers is daunting. Big box stores such as Kroger, Lowes and Wal-Mart have exceedingly complicated inventory control systems. Special, very expensive software is needed to communicate and expedite receipt of goods.

On average, I can have my inventory warehoused, packed and shipped for about 4% of my selling price (depending on volume). If business is seasonal or slows down I do not have to pay high fixed costs, just a percent of the shipments total invoice amount. If business is booming, my contract fulfillment warehouse ramps up hiring. A good contract warehouse offers a complete menu of services that I can pick and choose from as needed. Their systems will be sophisticated enough to handle the most demanding purchaser of my product.

The first time reader of a business plan typically has a strong reaction, positive or negative, to the overall document. A negative result usually occurs when the Executive Summary contains references to high fixed costs. A positive verdict is more probable when the entrepreneur indicates in every way possible that they are solely interested in maximizing profit and return on investment, not building a colossal infrastructure that will bleed the enterprise dry if all does not proceed perfectly and assumptions are not realized.