In this first assignment you should introduce your ‘business’ proposition to the future readers of your business plan. Explain something of how you arrived at your business idea, why you think people have a need for your product or service, and what your goals and aspirations for the business are. If your proposition needs financing, you could give some preliminary idea of how much you may need and what you intend to do with those funds. Remember, all these ideas are likely to be significantly modified later on – some more than others – but you need to have some idea at the outset of where you are going if you are to have any chance at all of getting there.
Every business starts with the germ of an idea around which to shape the business plan. The idea may be tentative and fragmentary, perhaps based on little more than a nagging feeling that some customers aren’t getting their needs met satisfactorily by their present suppliers. Here are the proven routes to establishing the proposition around which to base your business plan.
CASE STUDY Moonpig
When Cranfield MBA Nick Jenkins (44) launched Moonpig, his online personalized greetings card business in 1999, though quietly confident of success he had no idea just how big his idea would become. In July 2011, barely a dozen years after launching, he sold his business to Photobox – the French-owned company who offer online photo albums – for £120 million. Moonpig itself offers a range of over 10,000 customizable cards to which users can add photographs, names and their own personal message. Thanks in part to being responsible for one of the most annoyingly memorable jingles on TV the company now has annual turnover in excess of £32 million while netting £11 million in profits.
Before starting his business Nick had spent eight years in Moscow as a commodity trader for a sugar operation. A death threat nailed to his door after a troublesome deal combined with a declining enthusiasm for his line of work and a healthy lump sum gained from a buy-out of the trading firm, led Nick back to the United Kingdom. There he started an MBA at Cranfield and during the course developed a number of start-up ideas. The idea he honed and wrote a business plan for was Moonpig and within a week of graduating Nick had started to piece the business together. A decade after starting up Nick sold his 35 per cent stake for £120 million.
The classic way to identify an idea for a business is to see something that people would buy if only they knew about it. The demand is latent, lying beneath the surface, waiting to be recognized and met.
These are some of the ways to go about identifying a market gap:
CASE STUDY The Northern Dough Company
This Lancashire-based company is the brainchild of husband and wife team Chris and Amy Cheadle. The idea for the business came after they hosted ‘make your own’ pizza dinner parties. ‘We started the business as an alternative for dining out,’ says Chris. ‘Our friends were invited into the kitchen to create their own favourite recipes. They enjoyed it so much they often went home with a bagful of dough.’
Chris had something of a head start as he came from a family of three generations of bakers in Lancashire. But the business idea wasn’t born in an oven. It was only when he looked for an alternative at the supermarket that he saw a gap in the market for a convenient and authentic-tasting product, and the business was born. The idea was tested at a local food market where they sold out everything they had brought in 90 minutes. By 2017 their customers included 250 Waitrose stores as well as Booths Supermarkets, Ocado, Whole Foods and 130 individual farm shops.
A good starting point is to look for products or services that used to work really well but have stopped selling. By finding out why they seem to have died out you can establish whether, and how, that problem can be overcome. Or you can search overseas or in other markets for products and services that have worked well for years in their home markets but have so far failed to penetrate into your area.
Sometimes with little more than a slight adjustment you can give an old idea a whole new lease of life. For example, the Monopoly game, with its emphasis on the universal appeal of London street names, has been launched in France with Parisian rues and in Cornwall using towns rather than streets.
Sometimes existing suppliers just aren’t meeting customers’ needs. Big firms very often don’t have the time to pay attention to all their customers properly because doing so just isn’t economical. Recognizing that enough people exist with needs and expectations that aren’t being met can constitute an opportunity for a new small firm to start up.
Start by recalling the occasions when you’ve had reason to complain about a product or service. You can extend that by canvassing the experiences of friends, relatives and colleagues. If you spot a recurring complaint, that may be a valuable clue about a problem just waiting to be solved.
Next you can go back over the times when firms you’ve tried to deal with have put restrictions or barriers in the way of your purchase. If those restrictions seem easy to overcome, and others share your experience, then you may well be on the trail of a new business idea.
Inventions and innovations are all too often almost the opposite of either identifying a gap in the market or solving an unsolved problem. Inventors usually start by looking through the other end of the telescope. They find an interesting problem and solve it. There may or may not be a great need for whatever it is they invent.
The Post-it note is a good example of inventors going out on a limb to satisfy themselves rather than to meet a particular need or even solve a burning problem. The story goes that scientists at 3M, a giant American company, came across an adhesive that failed most of their tests. It had poor adhesion qualities because it could be separated from anything it was stuck to. No obvious market existed, but they persevered and pushed the product on their marketing department, saying that the new product had unique properties in that it stuck ‘permanently, but temporarily’. The rest, as they say, is history.
Be sure to check that someone else doesn’t already own your innovation, and that you can put a legal fence around it to keep competitors out. Copyrights, patents and the like are dealt with in Assignment 3.
Network marketing, multilevel marketing (MLM) and referral marketing are the names used to describe selling methods designed to replace the retail outlet as a route to market for certain products. Although referral marketing has been around since the early part of the last century, for many people it’s still unfamiliar territory. This is one way of starting a profitable, full-time business with little or no investment. It’s also a method of starting a second or part-time business to run alongside your existing business or career. Network marketing is one of the fastest-growing business sectors. Industry turnover has grown from £1 billion ten years ago to £2 billion today. This way into business provides a low-cost option for over 400,000 people in the UK to get into business, earn money and run a business with very little risk.
In most cases network marketing involves selling a product or service that a parent company produces and supplies. You take on the responsibilities of selling the products and introducing other people to the company. You get paid commission on the products/services you sell yourself and a smaller commission on the products/services that the people you’ve introduced to the company sell. In addition to this, you often get a percentage commission based on the sales of the people that the people you introduced to the company also introduce, and on and on.
Advocates of network marketing maintain that, when given identical products, the one sold face to face (without the cost of maintaining a shop and paying employees and insurance) is less expensive than the same product sold in a store. Additionally, network marketing fans believe that buying a product from someone you know and trust makes more sense than buying from a shop assistant behind a retail counter.
A wide variety of good-quality network marketing companies from all over the world exist for you to choose from. They offer products and services from a wide range of industries including health, telecommunications, household products, technology, e-commerce, adult products and so on. Household names include Amway, Avon, Betterware, Herbalife, Kleeneze and Mary Kay Cosmetics. Choose a product or service that you’re interested in because, when it comes to sales, nothing beats enthusiasm and confidence in the product. Check out the network company using trade associations such as the Direct Selling Association (www.dsa.org.uk).
Franchising can be a good first step into planning their own business for those with no actual experience of running a business. Franchising is a marketing technique used to improve and expand the distribution of a product or service. The franchiser supplies the product or teaches the service to you, the franchisee, who in turn sells it to the public. In return for this, you pay a fee and a continuing royalty, based usually on turnover. The franchiser may also require you to buy materials or ingredients from it, which gives it an additional income stream. The advantage to you is a relatively safe and quick way of getting into business for yourself, but with the support and advice of an experienced organization close at hand.
The franchising company can expand its distribution with minimum strain on its own capital and have the services of a highly motivated team of owner-managers. Franchising isn’t a path to great riches, nor is it for the truly independent spirit, because policy and profits still come from on high. The British Franchise Association Diary page (www.thebfa.org/diary.asp) gives details of dates and venues of events around the country where you can meet franchisors and find out more about their propositions.
CASE STUDY Concentric Lettings
Dawn Bennett wasn’t exactly new to the property world when in 2013 she took on a Concentric Lettings Franchise. A single mother with a very young child she embarked on her career in the sector when she was employed as an estate agent sales negotiator in 2003. By 2007 despite leaving school with no formal qualifications she had worked her way up through the ranks from lettings negotiator, to senior negotiator and finally as lettings manager. Arguably she had been in the business longer than Concentric which had launched out as a franchise chain only in 2010.
Concentric looked like it might provide Dawn with a suitable launch platform. Relatively new to franchising, Concentric had only started franchising in 2010. But already under the dynamic leadership of Sally Lawson, a seasoned professional in the lettings field, Concentric had a dozen franchisees on board. Sally has been running her own letting agency since 1990 and been through two major property recessions. In the meantime the industry has moved from paper communications, local advertising and incessant face-to-face meetings, to online, emails, Skype and CMS (Content Management Systems).
Dawn bought out Karen Bowe, a neighbouring franchise, and quickly recognized the gap in the market for compliant and expert HMO (Houses in Multiple Occupation) property management services. Her business has grown from strength to strength each year. By 2017 Dawn had carved out a niche offering the highest level of compliance and systemization to HMO Lettings and management available. You can see Dawn discussing her business at: www.youtube.com/watch?v=uGaNpFs2Mn4.
Buying out an existing business is particularly well suited to people who have extensive experience of general business management but lack detailed technical or product knowledge. When you buy an established business, you not only pay for the basic assets of the business, but also the accumulated time and effort that the previous owner spent growing the business to its present state. You can think of this extra asset as goodwill. The better the business, the more the ‘goodwill’ costs you.
Advantages of buying a business include:
Disadvantages of buying a business include:
Contact these organizations to find out more about buying a business and to see listings of businesses for sale: