Before the profits comes 'the plan'
By TOM W. GLASER
© St. Petersburg Times, published April 26, 2001
As with many young boys, he liked to take things apart, but was not always as successful in putting them back together. Other times he succeeded, such as when he took a friend's watch apart and put it back together in working order. He recalled in later years, "Every clock in the house shuddered when it saw me coming."
This preoccupation with things mechanical prompted him to leave home at 16 and get a job in a machine shop. He noted that no two machines there were the same, and he wondered at that inefficiency. He took apart a $3 watch he had saved up to buy and examined the parts. He figured out such a watch could be made for 37 cents if it was mass-produced by the thousands. Then everyone could afford a watch. From this event came the philosophy that guided his development of automobiles: "Anything that isn't good for everybody is no good at all."
The Model T was built as a car his workers could afford. He was encouraged by the advice of his hero, Thomas Edison, who told him, "Young man, that's the thing! You have it -- the self-contained unit carrying its own fuel. Keep at it!" Inexpensive, rugged, simple and mass-produced, the price of the Model T dropped every year it was made.
This was the core of Ford's business plan. And regardless of the rest of the business plan, the crucial thing for the entrepreneur is the clarity of vision, of the goal. One of America's great Broadway producers once said, "If you can't put your idea on the back of my business card, you haven't thought it out."
Just as a thesis statement helps you focus an essay, the mission statement helps the entrepreneur focus on long-term goals. For example, authors Thomas Peters and Robert Waterman, in researching In Search of Excellence, were amazed to find out that Minnesota Mining and Manufacturing (3M) regularly received proposals for new products that were five pages or less. The company's attitude was, "We consider a coherent sentence to be an acceptable first draft for a new-product plan."
Lenders, however, are another matter, as are investors. They want to see what you plan to do, how you plan to do it, and how it will make money. To do this, you must prepare a business plan, the map of how you intend to get from here to there.
There is no set form for the business plan, nor a magic formula. In its simplest form there are four major parts -- a description of the business, a marketing plan, a financial management plan and a management plan.
In the description of the business, you want to tell your potential investors exactly what you will be making and why. The why will include the market research you have done to identify your target market, potential sales and potential profits. In most cases you will also need to describe where the business will be along with the why and the how. You will need to have a description of the business environment -- including the competition, the history of that industry and any applicable government regulations.
The second section, the marketing plan, we have already talked about. It is crucial because it is the function on which the business turns. If there are no sales or if sales are too low, the company will go out of business and the investors will lose their money. This plan will include your advertising strategy and your pricing strategy. Obviously, the research you've already done will make this part much easier.
The financial management plan may be the most complex for some people, but if properly done it will go far to convince your investors of the probability of your venture's success. You will need to work up two budgets, a start-up budget and an operating budget. The start-up is what you'll need to have to open the doors, and the operating budget is what you need to keep the doors open. These will include such things as personnel (salaries and wages), legal/professional fees, insurance, rent, licenses and permits, equipment, supplies, advertising, utilities, taxes, repairs/maintenance, depreciation and office expenses, including accounting costs.
With this you will also need to specify exactly what sort of accounting methods will be used to keep track of business spending and income. This is important so that everyone will know exactly how everything is counted and there is no misunderstanding of the reports. The evidence that you intend to deal with your expenses and income in a responsible manner will help convince your investors to trust you with their money.
The last part, the management plan, is at the same time the easiest and the hardest part, because it deals with the people who will administer the business' policies and future. Your investors will want to know who the custodians of their money will be. They will want to know their backgrounds, their strengths and their weaknesses.
Choosing these people is equally important to you, and equally difficult. While you want people who share your vision, you can't hire clones of yourself. You need to know your own strengths and weaknesses and hire people who will complement your weaknesses and not chafe against your strengths. You want people who will work as a team, and yet you don't want "yes people," who will always agree with you. You need healthy discussions to arrive at good decisions, but you also don't need someone who disagrees just to disagree.
If someone comes to you with lots of experience, you have to ask why they are no longer at the places they used to be. Most important, you have to ask yourself if you have the people skills to manage this team. If you do not, you must consider hiring someone who can and put your ego in your pocket. This is never an easy thing to do.
If your class is continuing with the good/service project, have each student or team of students research and write up a business plan. Then let the class decide which business plan they like the best and adopt it for the class' project. (Or, more realistically, let them adapt it so all concerned are satisfied with it.)
If your class is not continuing with the long-term project, have the students list their strengths and weaknesses. They will most likely not want to share these with the class, so keep them strictly confidential. A classwide critique session of each student's strengths and weaknesses is not a good idea unless your class is EXTREMELY mature -- more mature than most adults, in fact.
Useful Web sites
www.sba.gov/starting/indexbusplans.html -- Small Business Administration Business Plan Tutorial.
www.americanexpress.com/smallbusiness -- American Express information resources.
bplans.com -- Business Planning Resource.
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Money Stuff was developed by the Florida Council on Economic Education and project director Fonda Anderson. The council is a statewide non-profit organization founded in 1975 to educate K-12 teachers and students about the free enterprise system and to instill in them an appreciation for a market economy. For more information on the council's programs for teachers and students, please call (813) 289-8489.
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