Next Step by Startup Company

NEXT STEP INSPIRATIONAL ARTICLES FOR START-UPs

TABLE OF CONTENTS INTRODUCTION!

BUSINESS DEVELOPMENT BUSINESS DESIGN: ! Goodbye, Business Plan! !

GROWTH PLANNING: ! Seven different ways to grow and develop your business!

BUSINESS CONCEPT BUSINESS IDEA:! The meaning of life - in the business!

PRODUCT PORTFOLIO: ! Focus on the product portfolio - how to get more products and services on the shelves!

BUSINESS MODEL:! 22 sources of income - make money on good ideas!

CUSTOMER PORTFOLIO: The best customers - how to build a valuable customer portfolio!

MARKET POSITION:! Start-up in the Blue Ocean - set yourself apart from the competition!

ORGANIZATION OWNERSHIP & BOARD:! Advisory board or red wine club? - our main network!

EMPLOYEES: ! Create meaningful jobs - and get efficient and happy employees in return!

Getting things done - by delegating!

BUSINESS PROCESSES: ! Professional business processes - getting everyday processes to run smoothly !

SIDE 3 | 74

CUSTOMER RELATIONS: NETWORK: ! Selling through our networks - when new customers turn up on their own!

MARKETING: ! Understand your customers - and they will understand you!

SALES:! The art of selling - when you始re not a salesperson!

BRANDING: ! From nice logo to strong brand - becoming known for who you are!

OPERATIONS MANAGEMENT ACCOUNTING: ! Good salesmanship - how to raise prices!

Useful budgets - streamlining finances in the new fiscal year!

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Introduction As a start-up you have a lot of tasks to be undertaken when establising your company and lifting it to the next level. NEXT STEP is a collection of articles that addresses these tasks and revolves around the concept of the StartupWheel®. The StartupWheel® is a tool that is made to help entrepreneurs develop their companies by giving a systematically 360 degree perspective on the development areas of the company. The StartupWheel® provides an overview by dividing the development areas of the company into four segments that you’re continuously working on for the entire lifespan of the company: The Business Concept, the Organization, the Client Relations and Operations. In each of these segments there are five development areas that form a structure for finding the decisions that that need to be made and the action that needs to be taken in order to develop the company. The philosophy behind the StartupWheel® is that there are four personal core discplines that are crucial for the development of the company: You need to have an overview to maintain a holisitic perspective and understanding of the development. You need to make progress by keep focusing on the actions that make a difference for the development of the company. You need to maintain the passion which is one of the most important resources of an entrepreneur and the reason for high productivity. Finally, you need to build a community around the company and find areas where other people can help you by means of their specifik competencies that you do not yet have yourself. I hope that this collection of articles will help you get exactly that. Overview, progress, passion and community.

David Madié October 2009

BUSINESS DEVELOPMENT The articles in the following section have the headline “Business Development” and focus on how to develop our business across the yellow, red, green and blue segments of the StartupWheel®. Here, we concentrate on all the things that have to do with the processes of developing your business from idea to the very first invoice and later on from start-up company to growth company. The development areas in this segment has to do with tasks that involve business planning, growth planning and development of competencies.

BUSINESS DESIGN: Goodbye, Business Plan! GROWTH PLANNING: Seven different ways to grow and develop your business

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Reprint of article in the Danish entrepreneurship magazine The Entrepreneur (Iværksætteren) Article #9 Topic: Business Design

Goodbye, Business Plan! As entrepreneurs, we are constantly expected to write business plans. However, if the most successful entrepreneurs have never written one, why should we? Is there a viable alternative to the conventional business plan?

There are several reasons why many successful entrepreneurs never get around to writing a business plan. First of all, they lack the time, because they are too busy starting up and actually running businesses. Secondly, they lack the motivation, because business plan writing is not creative or stimulating and seems more like a hurdle than something that could strengthen the business. Thirdly, a business plan is often not necessary to obtain financing, because business owners are able to persuade their banks or investors in other ways. The conventional business plan is not really the best way to develop a business, as traditionally believed. There are three major problems with the conventional business plan: Area of Focus, Time waste and Perceived need. Area of Focus The first problem is that conventional business plans do not focus on the immediate and actual challenges facing a new business. The traditional business plan is based on long-term projections of 3-5 years. Start-ups need to focus on short-term projections of 3-5 months or possibly even 3-5 weeks. The business plan focuses on the growth stage

of a business, whereas the focus of the start-up lies in the initial stage of development. The second part of this problem is that inherent in conventional business plans is the assumption that a plan automatically generates results, which is often not the case.

“The business plan simply does not provide a realistic picture of whether the proposed business will be successful.” Many business plans lay dormant in desk drawers and are intermittently replaced by updated plans as the entrepreneur in action experiences the gap between theory and reality. The third part of this problem is that business plans are more strategically, rather than operationally, oriented. Many plans describe business strategies in great detail, but grossly lack information on the specific actions and tasks necessary to implement these strategies.

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BUSINESS DEVELOPMENT

The StartupWheel: 360° view on the development areas of the start-up company

Waste of time Business plan advocates may object, stating “It never hurts to have a good plan.” However, in this case, it actually can. The greatest problem with the business plan is perhaps the amount of time spent on conceptualizing and writing it. This can take up to a hundred hours or more, which is the equivalent of several weeks of work; Time that could be better spent actually doing business, rather than thinking about it. Creating a traditional business plan easily becomes a time consuming task due to entrepreneurs’ propensity for continually and endlessly analyzing, editing, refining or adding documents. This paralyzes the start-up, as the entrepreneur’s focus and energy are wasted on weeks and months of planning, rather than spent on doing actual business. The worst part is not the time and energy that is spent on writing useless plans, but the time and energy that is not spent on developing and growing the business, acquiring financing, and increasing the overall chance for the business’s survival. Perceived need to write a business plan The belief that the development of a business plan was necessary to start a business became especially popular during the dot-com era, where thousands of online/ internet start-ups attempted to raise funds through venture capital. Excluding the dot-com era, investors have traditionally financed the growth and internationalization phase of an existing business rather than the startup phase. This is also the case today. However, many entrepreneurs still believe that they can raise capital for their new and untested ideas by writing business plans. An additional reason for the prevalence of the business plan is the introduction of entrepreneurship into school

curricula. Business schools, in particular, have traditionally focused on the business plan as a central element of entrepreneurial courses, because they allow for academic expertise, including in-depth analyses of a company’s market position, business processes, value chains and other aspects of strategic planning. This is, however, more relevant to larger established companies than it is to the start-up. Entrepreneurial consultants consider the business plan a central tool and encourage entrepreneurs to write one. This allows consultants to provide advice with ease and to be in extensive contact with their clients, since there are endless opportunities to further examine, elaborate on or discuss the business plan. The financial sector often puts additional pressure on businesses to write a conventional business plan. Although banks have fortunately gained more of an interest in entrepreneurs, they unfortunately and misguidedly assume that the conventional business plan is the best means of evaluating an entrepreneurial venture. Therefore, the business plan is often a requirement for being considered for loan approval. Despite the prevalence of this practice, the business plan can at best provide the bank with a sense of false security. The conventional business plan is not an indicator of whether a start-up will become successful or not, and even less a determinant of whether you are the person to make the business succeed or fail. Furthermore, banks are not designed to take big risks. They exist to finance operations, which include acquiring loans to purchase assets and finance warehouses or outstanding debts. Therefore, a comprehensive evaluation of a start-up’s cash flow over the next several months is more relevant to the banks than an in-depth written document, citing all the long term plans for the business. A bank representative is interested in being convinced by the results one can show in a meeting. If entrepreneurs write business plans as a means of acquiring financing or achieving a successful

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BUSINESS DEVELOPMENT

business, then they will be distracted from doing what actually needs to be done to achieve success.

The StartupWheel® as a map

The alternative The alternative to the business plan is to start a business, rather than write about it. It is really about focusing on what will actually make a difference to the business – and thereby also to banks and investors. For example, this could include a good sales presentation, a website, media coverage, a good overview of finances, or commissioned client sales and a good team of owners and employees in the company. When these elements are in place, it becomes completely unnecessary to document what your ideas are. It is done. For every heading that goes into a conventional business plan, it is possible to find an action that will take the business further much more effectively. For example, rather than formulate a product strategy, one could prepare the product series that will eventually be given to a client. Rather than communication plans, you could formulate sales letters to different clients. These would still encompass the essence of your key messages. The point is that by producing material that can be used in daily situations, real results are being produced as well as effective documentation for those, who require something in writing. The bank would prefer a finished website over plans for a website. The table on the next page provides examples of actions that an entrepreneur can take instead of writing a business plan.

HEADLINES IN THE CONVENTIONAL BUSINESS PLAN

If you have ever tried to write one or more business plans, it was probably in an attempt to achieve an overview of all the tasks facing the business, regardless of whether you were in the start-up or growth stage. An overview is certainly a necessity. The StartupWheel® (see illustration) is a map of all the development areas that we must cover as entrepreneurs, divided into four, color-coded main categories. Two areas focus on the market; the business concept area (yellow) and client relations (green). Two areas focus on organization; organization (red) and operations (blue). Another way in which the startup wheel divides tasks is by distinguishing between tasks relating to how we design (left side) and tasks relating to how we further develop (right side). The philosophy behind the startup wheel is that we, as entrepreneurs, are not able to manage all business areas at once. This is also why it is hopeless to try to plan everything beforehand. It is better to take one step at a time, making the startup wheel a compass for finding the next step necessary to move the business forward. The philosophy behind the startup wheel is, also, that we do not have all the skills necessary to develop the business. That is why we must try to find others to help us in certain areas, whether business partners, employees or suppliers.

ACTIONABLE ALTERNATIVES

WHAT MUST BE DONE

Make a “top 10” list of the clients you want to approach within different client categories.

Market Segmentation

>>>

Client Lists

Market Analysis

>>>

Client Contact

Contact 10 clients regardless of how far you are along with your business idea and ask them 10 questions.

Product Strategy

>>>

Product Sheet

Make a product sheet or website for each of your products and services that explain your product and its benefits.

Value Chain Analysis

>>>

Process Descriptions

Board of Directors

>>>

Coffee/Wine Club

Invite 4 to 8 people from your professional network to a lunch or wine evening and discuss important matters.

Organizational Plan

>>>

Job Descriptions

Prepare task descriptions with sub-tasks for the companyʼs future employees or for your own current roles.

Marketing Mix

>>>

Material Production

Prepare drafts for website, brochures, merchandise, and other materials to be used for marketing.

Sales Strategy

>>>

Sales Plan

Prepare a plan for the number of letters, calls, client visits and interviews, etc. to be carried out every month to achieve the turnover you want.

Public Relations Plan

>>>

Media Contact

Call a journalist and ask whether the story about your business could be of interest to the media and public.

OPERATIONS / ADMINISTRATION

3-Year Budget Prognosis

>>>

Rolling Quarterly Budgets

(blue development area)

Cash Flow Budget

>>>

Payment Overview

BUSINESS CONCEPT (yellow development area)

ORGANIZATION (red development area)

CLIENT RELATIONS (green development area)

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Prepare a description, for yourself and your colleagues, of the daily critical work procedures in the company to ensure quality and create value.

Prepare quarterly updated overviews of the expenses for different entries and the income expected from different clients or products. Prepare an overview to the bank of all the current and future debtors and creditors of the next 6 months.

BUSINESS DEVELOPMENT

Start-ups require action Starting a business is like playing the violin. We cannot learn to play only through reading and writing. We have to play and through continuous practice and trial and error become better and ultimately proficient. Entrepreneurs have always started businesses without a business plan. However, they have never done so without thinking and without acting. What characterizes successful entrepreneurs is that they do not just have a good idea and a good plan, but get things done.

Next Step • Get an overview of all the business development areas and all the tasks requiring your time. • Assess in which areas to act to achieve the greatest possible change. • Plan your next step for each of the development areas. © 2009 Startup Company NYC Inc. and David Madié

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Reprint of article in the Danish entrepreneurship magazine The Entrepreneur (Iværksætteren) Article #5 Topic: Growth

Seven Different Ways to Grow and Develop Your Business -alternatives to merely “getting bigger” As entrepreneurs, we are not necessarily hoping for our companies to grow big, but we are always hoping that they will develop. So what are our alternatives if our intention is not to create a big company?

It is rarely the prospect of earning loads of money that persuades most entrepreneurs to start a business. Many very successful entrepreneurs continue to develop their businesses--or start up others--after having earned enough money to live comfortably. Actually, going solely after the money might even be a deterrent on the road to success. It is usually the most enthusiastic and passionate entrepreneurs, who end up successful with the added bonus of making a good profit. Perhaps what drives most of us, to a higher degree than money, is the prospect of seeing our ideas and dreams become reality. It is perhaps also a more attractive scenario than envisioning ourselves sitting in a big office with a large group of board members and having the responsibility of leading a hundred employees. Society wants us big In most developed countries, there is an ongoing social debate about current entrepreneurial conditions, which is focused on how to create more “growth oriented entrepreneurs” This makes sense since it is the apart of the Danish politician’s job to ensure a foundation for maximum job creation and maximum income for society.

An interesting question to consider, however, is whether growth necessarily happens where we expect it or whether it lies as hidden potential within those businesses that could become, but are not yet growth businesses. The social debate prompts us to ask ourselves what we actually mean by the term “growth oriented entrepreneur.” See more about how this can be defined in the figure below. Competitors pressure us to grow Growth-pressure on entrepreneurs and small business owners could also come from our competitors. If we do not continuously grow and raise our income, we may not be able to afford the investments necessary to keep us competitive. In the end, this could mean that our competitors overtake our entire market or as Ken Morse, an entrepreneurship professor from MIT in USA, recently expressed during a visit to Denmark, “If you don’t get big, you are toast!” Our business, therefore, cannot afford to stand still. In many respects lack of development also feels unnatural. Much like plants and other organisms, businesses have their own life of sorts and without development there is no life. The question then becomes what kind of life do we

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GROWTH

GROWTH SCENARIO

WHAT THE GROWTH SCENARIO INVOLVES

#1 VOLUME GROWTH

When a business focuses on profit growth through short-term turnover such as greater variety and larger amounts of deliverables, more customers and increased staff.

- Organizing and leading the sales process - Developing production capacity - Recruiting new employees

#2 MARKET GROWTH

When the business focuses on turnover growth by establishing new markets and internationalizing.

- Acquiring new knowledge of new markets - Identifying international partners - Financing internationalization

#3 FINANCIAL GROWTH

When the business focuses on non-organic growth in turnover and market share through purchase, fusion or capital injection.

- Outlining finance options - Preparing business plan - Positioning for purchase or adding capital

#4 IDEA AND PRODUCT GROWTH

When the business focuses on turnover growth through frequent new product launches, services and concepts.

- Establishing processes for innovation and new product development - Acquiring market insight - Establishing new departments or business units

When the business focuses on investing in long term quality development that can establish a strong market position and income growth.

- Acquiring skills and knowledge through recruitment and education - Financing research and development - Establishing processes for product innovation and continuous improvements

When the business focuses on turnover growth by raising its supply capacity through partnerships or by reducing expenses through outsourcing.

- Identifying the right collaborative partners - Establishing alliances and consortiums - Ensuring loyalty in the network

When the business focuses on income turnover growth through productivity improvements, price increases or expense reductions.

- Carrying out price increases without losing orders - Carrying out expense reductions - Phasing out less profitable clients

#5 QUALITY GROWTH

#6 NETWORK GROWTH

#7 INCOME GROWTH

size, “volume growth” (#1), involves other challenges. These include organizing and leading an effective sales organization and having the skills and knowledge to recruit required new employees. Our daily challenges are, of course, also related to factors other than our growth, which include the branch we are in, our startup life stage and many others. On another level, our growth challenges are also determined by our specific mind set. Besides being limited by organizational and market related factors, we may also be limited by our individual emotional barriers that make us hesitant about growing our businesses to its full potential. Emotional barriers to growth Naturally, there could be many reasons why we, as entrepreneurs, do not feel ready to throw ourselves into a growth scenario. One, is that it feels somewhat unrealistic to think or talk about expanding internationally. For example, we may not feel ready if our business is still in a start-up stage. Perhaps, we feel that we still have to earn the money needed to cover the expense of our first employee, before we even consider expanding. In other words, our business may not be mature enough for us to begin thinking about growth, because we have not yet reached the stage where our business idea has shown itself to be sustainable. This alone can be reason enough to feel that any plans for growth are like building castles in the air.

GREATEST CHALLENGES OF THE GROWTH SCENARIO

Another emotional barrier to thinking about growth is that we feel that setting a goal for growth interferes with the creative freedom that we so highly value as entrepreneurs. Ambitions to grow are usually followed by a series of plans of all the things that need to be done. Suddenly, what is supposed to be fun turns into an obligation; a pressure to perform with the risk of failure. A final barrier to creating growth could be that we, as founders of the business, are more or less unconsciously insecure about our ability to keep up the pace should our business actual end up growing. Perhaps, we have heard examples of other entrepreneurs who, after several years of growth, felt alienated from their own business. Or we are deterred by stories of entrepreneurs that felt they built a “monster” that they could not handle or no longer wished to take responsibility for. In cases such as these it is better to employ a professional director and move on. While many of these emotional barriers are not always reasonable or justified, they are still present. So what does it take for us and our start-up to get ready for growth? Strengthening growth ambitions The first condition for strengthening our ambitions for growth, is a few successful experiences. Success breeds success and we have to show ourselves and our surroundings that we are doing something valuable first. Another important factor that can strengthen our growth ambitions is to look at other entrepreneurs, who have undergone the kind of development we want for ourselves. If they can do it, so can we. We can benefit from the

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BUSINESS CONCEPT The yellow segment of the StartupWheel® is about how we

Facilities

can create a business concept that is viable and has growth potential. Here, we concentrate on all the things that have to do with the design of our company’s products and services in relation to certain customers and compared to the competitors in the market. The yellow segment has to do with tasks involving definition and development of the business idea, of our product portfolio, the business model, our client portfolio and our market position.

BUSINESS IDEA:! The meaning of life - in the business PRODUCT PORTFOLIO: ! Focus on the product portfolio - how to get more products and services on the shelves BUSINESS MODEL:! 22 sources of income - make money on good ideas CUSTOMER PORTFOLIO:! The best customers - how to build a valuable customer portfolio Export for start-ups - når eventyret begynder forfra MARKET POSITION:! Start-up in the Blue Ocean - set yourself apart from the competion

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Reprint of article in the Danish entrepreneurship magazine The Entrepreneur (Ivaerksaetteren) Article# 13 Development Area: Business Idea Topic: Mission Statements

The Meaning of Life -in the Business

Entrepreneurs are busy people. Sometimes we are so busy that we may almost forget why we actually started our businesses in the first place. That is a real shame as the passion we have for our start-up is one of our greatest assets. So how do you rediscover the meaning of life in your start-up?

One of the reasons you may never have written down your What are you passionate about? start-up’s mission could be that you do not have a clear What makes a mission statement forceful is if it expresses sense of what it actually is. Another reason might be that a passionate intention to do something, which is perceived you have read other mission statements and find them to be important. Important to the person, whose mission it superficial rather than useful to formulate your own. It is is, and to those, who will benefit from it. One way of certainly true that many start-ups have mission statements arriving at your mission statement is to ask yourself what that appear pointless, because they are so general that they in principle could be applied to any business what so ever. “There is simply not enough passion and attraction in "Our mission is to deliver products of high quality and to offer the best running a business for profit alone.” customer service”—a type of mission statement most entrepreneurs would you are truly passionate about. This question may prove probably be able to sign off on. difficult to answer, unless your business is saving lives, It’s not that having a mission is useless, but rather that selling organic products or developing new technologies the mission has lost its force, perhaps because the founder that reduce CO2 emission. That said, a mission statement no longer fully believes in it. If a mission statement is to be does not necessarily need to be about how the business is useful, it has to be articulated so that it feels powerful and useful to society. Less will certainly do. meaningful, not least to you the founder. How can this be The The Mission Pyramid framework illustrates that done? entrepreneurs and start-ups can have missions on different levels: On one level you can write a mission statement

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PRODUCT PORTFOLIO

The Product Tube: More customers by means of product portfolio expansion

FLAGSHIP PRODUCTS ADD-ONS CORE PRODUCTS INTRODUCTORY PRODUCTS

PACKAGE SOLUTIONS

first sale and establish the relation with the customer. Introductory products can be smaller or cheaper versions of our company’s core products, which work as a demo or an appetizer for what our company can deliver. Examples of such products could include product samples, a free trial period, software with limited functionality, or a consultant review. Another option could be to give away introductory promotion products and services at events. However, by asking a price for our products or services, we signal to our customers, that we offer something of real value. The advantage of selling the introductory products for a price instead of offering a free service is that we establish relationships with customers that might otherwise not be interested in buying our key products or services. Once the relationship has been established it is easier to extend it and to sell more products down the line. More customers through a wider product range

materials or quality and more. Services can be created that vary on duration, time investment, or knowledge level, etc. The possibilities are many, determined only by the company’s focus and the relevance and appropriateness for the market. An increased product range also allows us to offer products at different prices. This can help us attract customers with varying purchasing power, budgets, and interest in our product. A broad product range alone may be what attracts customers to our businesses. Instead of thinking about whether the customer wants our product, we need to focus on which of our products the customer wants. Add-on products A third opportunity for expanding our product portfolio is through developing add-on products for customers with special additional needs or costumers, who are so satisfied with our products that they would like to have more of the same. Add-on products are called so, because they are not products in their own right, but rather an added functionality to a basic product or a follow-up to a service. It is good salesmanship to always have a least one extra

Another opportunity we have for expanding our product portfolio is by further developing our core products. The question is if we have a one-size-fits-all product or if we have created a variety of products aimed at specific target groups. For example, if we sell Tshirts, have we limited ourselves “Instead of thinking about whether the customer wants to one size, a stock of small, our product, we need to focus on which of our products medium or large, or do we have a more expansive range including the customer wants.” extra small and extra large? How about offering our customers a product on the shelf, to offer a satisfied customer, in order range of color options too? to create additional revenue. One way of doing this can be Businesses, other than the T-shirt industry, have the to remove a part or portion of an existing core product, same opportunities to offer variations of products and which then becomes cheaper, and instead combine it with services, hereby increasing their product range or an add-on for customers, who want the entire product with selection. Products can be created that vary in color, size, all the extras. Another way is simply to develop new,

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Reprint of article in the Danish entrepreneurship magazine The Entrepreneur (Iværksætteren) Article #18 Topic: Business Model

22 sources of income - make money on good ideas As entrepreneurs it is not enough just to get lots of ideas. We also have to be able to make money on them and find the business model that is right for us. So how can we make money on a good idea?

There is a big difference between having a good idea and business models are often a combination of several having a good business idea. The difference is whether or different ways to invoice the customers. not you have found a good business model for your For most entrepreneurs, it is natural to use at least five company. The business model identifies where the money different models at the same time, and for some it might is going to come from and how to make money on the idea. even make sense to use 10 or even up to 20 business The term “business model” is not an everyday word and models at the same time. it is often used in many different ways. The most simple The model “Sources of income” on the next page shows way to understand a business model is to look at the way a company makes invoices. It is on “The best business models are a combination of the lines of the invoices that it says several different ways to invoice the customers.” what the customers are actually paying for - and therefore what the company actually makes its money 22 examples of business models, and there are probably from. The company might sell products with price per unit even more. and/or sell services that are invoiced according to the hours spent. Maybe the invoice will show that the customer Business models for T-shirt sales has a subscription or that there are fixed prices on certain A way to show how one business can use completely services. But what kind of business model is the right one different business models to make money on the same for making money in your business? product is to use a concrete example. In this case, the example is the T-shirt industry. In this At least 22 types of business models industry, you can choose widely different business models, Choosing a business model is not about finding just one depending on whether you want to be a manufacturing model. It is more a case of finding several. The best company, a trading company that buys and sells items, a

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CUSTOMER PORTFOLIO

CATEGORIES

ALTERNATIVE SEGMENTS Market sector

Consumers (B2C) • Businesses (B2B) – Public institutions Organizations

Market region

World region (Scandinavia, Europe, North America etc.) • Countries (U.S.,Canada, Sweden etc.)

Location

Metropolis/provinces/rural areas • Urban/suburban

Industry

Trade • Service • Production • Professional services industry • Experience industry • Knowledge Industry • etc.

Age/Life stage

Children/Teenagers/Adults/Senior citizens • New/well established/mature businesses

Income/turnover

1.000 • 10.000 • 100.000 • 1.000.000 • 10.000.000 • etc.

Size

Number of people • number of locations

Sex

Female • Male

GEOGRAPHY

DEMOGRAPHICS

EXAMPLES OF VARIOUS CUSTOMER SEGMENTS

Criteria for buying Different product characteristics (Quality, functionality, brand, etc.) Time of purchase

Seasonal Timing • Event • Timing of annual budgetting

BUYING BEHAVIOR Purchase quantity Purchasing frequency consumption rate • Big/small customer

PSYCHOLOGY

Price sensitivity

High price sensitivity • average price sensitivity • Low price sensitivity

Personality/ character

For example: High/low willingness to take risks • Determined/indecisive • Analytical/intuitive , etc.

Competences/ skills

High/low technical skills • High/low consumer experience

Life style

Example: traditional/modern

Values

Example: pragmatic/idealistic

Using these criteria we can try to evaluate different customer segments–both current and future ones–and decide which to focus our sales resources on. It is not always a matter of completely deselecting some customer segments; rather it is about deciding, which customers you approach proactively. You have to decide, in other words, which customers to call, and which ones to wait for them to call you. Catering to your customers The greatest advantage of customer segmentation is that it helps us to consider how we can treat various segments differently. There are numerous ways of customizing our product offering, ways of communicating and methods of selling. It is simply a question of imagination. Consider, for example, if it would make sense to create a certain product or service variations that are customized almost directly to your favorite customers. The service you provide can always be tweaked and adjusted to serve a specific costumer’s needs. It may also be the business’s way of communicating that needs to be customized for the different segments. Do you choose, for example, to communicate with the client by email, mail or phone? One example is to create different brochures or product sheets that specifically address particular segments, rather than all, and focus on the company’s key message for this particular group. Customization can also be done by offering different prices to various groups of customers. Prices can be

differentiated also by changing the configuration or quality of the supplied product. For business customers you can even price your product or service delivery, based on the value you actually create for different customers, so those customers, for whom your services are most valuable, also pay the most. Finally, another example of such customization can be to decide, which of your employees are best suited to handle communication with certain costumer segments in regard to sales and delivery. Certain employees will be a better match for certain customers –on a personal and/or professional level. By also accommodating the customer in this respect you can strengthen the costumer’s interest in doing business with you. Segmentation reduces expenses It is not hard to imagine how a customer adapted product assortment and marketing can increase sales. However, an added bonus to customer segmentation is that you can save a lot of resources, when you know exactly which kind of marketing is right. Instead of sending out mail to hundreds of potential customers, you might make ten targeted phone calls. Instead of building a website that reaches the whole world, you might send out an email to the top-ten preferred customers. One way of increasing your chance of getting it completely right and reducing costs is to collect more information about the customers. Gathering data can even be a prerequisite for making the segmentation, in the first

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MARKET POSITION

The Position Map:

of your market position. Let’s have a closer look at the five competition factors: First and foremost we can beat the competition by having a superior product design (or service design). Our product might be of higher quality, better functionality, technologically superior, better shaped or something else. Another way might be that you as a company create a Price ??? ??? better buying experience level for the customer. This COMPETITION can be done at several FACTORS points throughout the buying process; from the decision to buy, delivery, use of the product and through to the follow-up service or maintenance, disposal or re-purchase. You can do so by making it, simple, easy and comfortable to deal with company. As a third factor, some companies gain ground by being better at creating good and long-lasting customer relationships. This is done by having a continuous dialogue with the customers, by listening to their requests or by gaining their trust to such an extent that they might not even consider changing to other products, even if they are both better and cheaper. A fourth way is to create a brand

Ways to influence your market position compared to the competition

MARKET POSITION Very good Our company Good Average

Poor A competitor Very poor

Product design

Buyer’s experience

Customer relations

Brand value

- is Google. The internet has revolutionized many aspects of having a business, and the way that you as an entrepreneur can gather information on competitors. Formerly, it took greater effort to identify the other players in your field, or simply to get a sales brochure from a competitor. Today, this information is available to us the minute we look for it. With Google Alerts, for example, we do not even have to look for the information, but will receive an email when there is news about a product or a competitor. However, the internet is not the only place for us to get more knowledge about the market. Other places “There is an alternative to constantly trying to be better may include magazines and cheaper than the competitors: being different.” and professional papers where the ads that is so attractive that it might secure the customers for themselves hold a lot of information. Additionally, it is life, because it has the right aesthetics or represents values possible to get information on the market from your that the customer can identify with. Finally, one last way to clients. To get an insight into the prices in the market, you set yourself apart from the competition is to offer a better might ask your clients what they usually pay for orders price. Many businesses are focused on keeping costs down such as yours. and being more efficient than others in the market. By continually striving to keep costs down, you can make Better than the competition more money by being the cheapest one in the market. Once you have acquired some knowledge about the market In the checklist on the next page, there are more and the customers, you can take the next step towards examples of how you can be more competitive within these becoming better than the competitors. This entails making five areas. It is not necessarily about being better in all the a systematic comparison of your own company and the areas but about choosing where to put your efforts into competitors, where you look at all the various being better. That is why some of the five competition characteristics of your product and your company. factors should be given greater priority while others should For this comparison you can use the Position Map (see be given less or completely ignored if they are not relevant. the illustration) that shows five examples of areas where you might do better or worse than the competitors. These five areas are: 1) Product design, 2) Buyer’s experience, 3) Setting yourself apart from the competition Customer relations, 4) Brand value and 5) Price level. In all All the ideas on how to beat the competition presented these areas you can give yourself and your competitors a above appear to be good but there is a certain danger to score and the lines between the dots will provide an image this whole way of thinking. It takes a lot of resources to be PAGE 32 | 74

Facilities

ORGANIZATION The red segment is about how to create the organizational foundation for the development of our company. Here, we concentrate on all the things that have to do with the design of our company, the organization of the management of the company and its employees as well as how to enter agreements with suppliers and other partners. The red segment is about how to design the internal part of our company and focuses on development areas such as ownergroup and board, employees, business processes, partnerships and legal issues.

OWNERSHIP & BOARD Advisory board or red wine club? - our main network EMPLOYEES: ! Create meaningful jobs - and get efficient and happy employees in return! Getting things done - by delegating! BUSINESS PROCESSES: ! Professional business processes - getting everyday processes to run smoothly!

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ADVISORY BOARD

The Boardroom Table: 17 professions for our board of five

Lawyer

Client

Economist

Entrepreneur

Industry person

Technical specialist

Accountant

Financier

Journalist

Personal capacity

You

Designer

What kind of board?

Scientist

Politician

Organisation rep.

Employee

Pensioner

or someone famous or reputable whose authority will help enhance the business’s credibility. Finally, the selection criteria might be to get people of a specific sex or from diverse backgrounds to ensure a high degree of diversity in perspectives among the board members. But are these people even interested in sitting on the board of our business?

As an alternative to establishing a board with a fixed group of members, you can gather a group of people for an informal, one-time gathering with just a single agenda or point of discussion. Another option, is to repeat the meeting but with different people so as to get a variety of inputs on your business. If the first meeting is successful it may be an idea to Board without honorariums organize reoccurring meetings with the same group of people, in which different topics are discussed each time. You do not have to pay board members an honorarium The meetings can take place over a cup of coffee, a glass of (fee) if there are several other incentives for competent wine or dinner and can be rather informal, yet still yield people to be on the board of your business. For some the similar feedback and input as that of a board. A more formalized “As an alternative to establishing a board with a fixed approach is to create an group of members, you can gather a group of people for an advisory board. This allows informal, one-time gathering with just a single agenda or for official meetings with point of discussion.” specific agendas that go on record. The main difference between an advisory board important thing is simply to help others along. Others will and a regular board is that the former has an advisory donate their time in exchange for the inspiration or function, rather than a control function, and no legal experience they get from being on the board. Others will responsibility. consider it prestigious to be invited to join a board or An alternative to an advisory board is a professional perhaps welcome the possibility of networking with other board. Generally, a professional board means additional interesting board members. It is also an option to make an focus, on among other things, the business’s budget, books, agreement with the board members that they get paid in risks and growth opportunities. the future when the company is sufficiently profitable. It is important to keep in mind, however, that a board always Who is on the board? needs to be worth it and help make the money for its Regardless of what kind of network group or advisor board honorariums through the work it performs. you establish in your business, it is obviously crucial that the members of the board are the right fit. So how do you Do it your way find the right people? Before you begin to look for names, There are many ways of acquiring the personal and it is a good idea to consider what type of people your professional expertise and skills of competent people business needs. It may be a person with a specific needed in your business. A board or an advisory board are academic or personal competence or field knowledge. It two possibilities. The same skills can, however, also be could also be a person with a network of clients or vendors, PAGE 37 | 74

Reprint of article in the Danish entrepreneurship magazine The Entrepreneur (Iværksætteren) Article #24 Topic: Employees

Create Meaningful Jobs -and get efficient and happy employees in return As entrepreneur we will need to hire employees when our business grows. It can be an enormous relief, when we are busy, but employees, who spend their time on the wrong things can also become a taxing expense. So how do you formulate a job description that makes sense both to the business and to the employee?

Most entrepreneurs feel that their job is very meaningful, collaborate with coworkers. Employees need to know too and may not even view the hours spent at the office as that their boss appreciates their work, also because it lays “work,” but rather as a lifestyle or as the part of life they the foundation for salary negotiations down the road. find most inspiring and creative. This is also why they Successful employment demands that a series of take on many different tasks in the business short term decisions are made regarding the job and that these are without complaint and work longer hours than most communicated very clearly to the new employee. How is other people. You are not “building a wall,” but rather this done? “constructing a cathedral,” and with that goal in mind it does not matter if the given assignment is to produce, sell, “If you have not made it clear to yourself what the employee book-keep, or archive. All should be focusing on, chances are it is not clear to your roads lead to Rome, which employee either.” makes all the work rewarding. When the day comes, when Emotional barriers you have to hire employees, the situation changes. It is far from a given that the employee is driven by the same joy of seeing a dream become reality in the same way as the entrepreneur is. For the employee it is often more important that the job offers challenges, which will provide success experiences, or perhaps opportunities to

Even though it is necessary for entrepreneurs to delegate and hire more employees in order for the business to grow, many are hesitant to do so and often do it too late. The main apprehension is of course that the employee

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DELEGATING

The delegation steps: 9 tasks for delegation

Supervision Describing task Deciding tasks

Describe responsibility

Selecting employee

Briefing employee

Educating employee

Follow-up

Debriefing

CONTROL

DELEGATION

PLANNING

the activity level rises and an increasing number of employees are solving more tasks daily than you can manage to oversee. There are many very good reasons to be a “control freak” in a startup. In the fragile startup phase, minor details can become crucial to a businesses survival and success. A very different reason for not delegating may be that you feel it is not fair to delegate a specific task to an employee. Perhaps you feel the task is too boring or you are worried you will be perceived as trying to avoid work-an image most entrepreneurs are not comfortable with. This attitude may sometimes lead to an “office democracy” in which the entrepreneur and the employees share the many clerical tasks in the office. In reality, the employees would perhaps take on more of the administrative tasks if they had a boss, who focused on the task of leadership. The last barrier might be that the you think that it is more fun to do the job yourself. You probably started your business because you were good at producing a product, or at delivering knowledge or a service, and it is not initially satisfying just to leave this work to others. Meanwhile there are often many even more satisfying tasks that would await you if you had the time, for example, courting potential costumers, developing new products, or training employees to be able to take on more tasks. These would all create more value for the company. Mastering the art of delegating It is no easy task to overcome your emotional barriers, but being conscious of what is holding you back is a good first step, along with the awareness that delegating is necessary if you want to go from being a good entrepreneur to becoming a good business leader. Another step in the right direction is to gain an overview of how well you delegate – one of the most important leadership skills, which you, as an entrepreneur, may never actually really have been trained in. In order to become really good at delegating you need to master the nine steps, shown in the illustration The Delegation Ladder. Of course it is totally fine if you start delegating right away. However, it usually takes very thorough preparation and a systematic approach to delegate some of the most difficult tasks. The Delegation Steps illustrates three main phases in the delegating process. Planing, Delegation, and Control

that each have three smaller steps, which are further described in the framework on the next page. Delegate to the right person The first phase is the planning phase, which involves deciding which tasks to delegate, a decision that demands an overview of both your own tasks and those in the company at large. Additionally, a list needs to be made of how to solve the tasks in relation to different processes, procedures or methods. This can be done in a number of ways, for example by making checklists with commentaries, guidelines, standard templates, or project descriptions, which can support the employee when solving a task. It is important to include the right amount of detail so that the employees are motivated to think creatively about the solution to the given task.The final step is to determine which of your employees is the right person for the task, considering both the individuals skills and interests. Delegate with all the available information When you have clarified, which areas of responsibility need to be delegated and to whom, then the foundation for the next phase in the delegating process has been laid. This phase involves describing the assignment or task, briefing, and possibly training the employee if the task at hand requires it. The description of the assignment to be solved needs to be done in a way that allows the employee to complete the task satisfyingly. In order to express your expectations adequately, it is particularly important to explain the intention behind the assignment. Usually the intention and the expected result will be obvious to you, but not necessarily to the employee. If you clarify both, the employee will be able to determine, which method needs to be used to solve the assignment. If, on the other hand, the task requires a specific method, or perhaps that particular people be involved, this too should be clarified in the work description, just as the employee needs to know the priority and deadline of the task. The next step is briefing the employee about the assignment. This can be done by email, in a phone call or meeting. Each of these methods has its advantage. For example, it can be really great to have a written description of a more complex assignment, while a briefing in person can be useful to highlight various details.

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Reprint of article in the Danish entrepreneurship magazine The Entrepreneur (Ivaerksaetteren) Article #25 Topic: Business Processes

Professional Business Processes - getting everyday processes to run smoothly As entrepreneurs we build businesses from the ground up. This means that we have to do many things for the first time and simultaneously decide what kind of processes to implement in the future. How then do we establish the right processes so that we become better at running our businesses on a daily basis?

It is difficult to point to one thing that makes one Which processes and activities pertain to your business entrepreneur more successful than another. The best depends on your type of industry. If you are a production entrepreneurs, who create the strongest businesses are business, some of the important processes will be “Product characterized by being good at everything. This means that design,” “Purchases,” or “Logistics.” In a knowledge you, besides having a great business concept also need to business,“Project development,” “Project leadership” and have a good organization, business operations customer “Result monitoring/evaluation” are part of the value chain. relations, and that you make money. So how can “The great entrepreneurs that create the strongest we become incrementally better at solving the tasks, businesses are characterized by being good at everything.” which we, along with our There are also business processes that are common to most employees, are presented with daily? types of industries, for example, “Sales,” “Marketing,” and “Customer Service.” Finally the value chain also contains a What do you need to become better at? series of processes, referred to as support processes, When wanting to “become better at everything,” the first because they relate to other processes. Here you will find step is to gain an overview of the work that actually takes headings such as “Financial Management,” “Personnel place in the business, or rather: which business processes Management” and “Quality Management.” do the employees spend time on and which ones generate For start-ups it is not unusual that a closer look at an income for the business? Collectively, all of these are business processes reveal that the important processes still processes that in the end create value for the customers need to be defined and planned. This is completely natural and therefore we refer to them as the value chain of the because the entrepreneur has been preoccupied with the business, illustrated on the following page. most critical processes during the business start-up phase.

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CUSTOMER RELATIONS The green segment is about how to strengthen our customer relations and increase our revenue. Here, we concentrate on all the things that have to do with managing and developing

Facilities

our sales tasks on a daily basis and how to communicate with the company’s present and future customers. The green segment is about how to develop the company’s communication with the market and focuses on development ares such as marketing, sales, communication, branding and networking.

NETWORK: ! Selling through our networks - when new customers turn up on their own MARKETING: ! Understand your customers - and they will understand you SALES:! The art of selling - when youʼre not a salesperson BRANDING: ! From nice logo to strong brand - becoming known for who you are

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NETWORK

Network Ripples: Access to new clients in the second link of the network

Trade organizations

Conferences

Events

The company and its employees

NETWORK OPPORTUNITIES

Networking groups

THE NETWORK OF THE NETWORK

Existing clients Online network

The easiest sale The best aspects of selling through our networks is that it is the easiest, cheapest and most genuine way of selling. Network sales take a clear first place for ease, closely followed by repeat sales to existing customers. Both are easy compared to the efforts involved in trying to sell to first timers, those customers who have never heard of us before. The best thing, of course, is to be known for something good that brings positive focus to you and your company and inspires people to spread the word. This method also improves our credibility in a way we could never do through our own branding and marketing efforts. Networking should, in other words, be an integral element in our sales tasks. The time used deciding how and when to cultivate networks is time well spent. Out of the office and online Networks are everywhere and you cannot really pinpoint any specific place to find and develop your network. Both private and professional networks can be the source of your next customer. One place, however, that you will not find a network is behind the doors of your own office. Networks are about being present in various situations. If you are interested in professionally developing your network then it is important to consider different possibilities. One way is to get involved in different networks as a means of expanding and impacting your professional network. Some of these network opportunities are presented in the model on this page, titled Network Ripples. It contains memberships of branch unions, conference participation or social/academic/professional

network groups, event participation (i.e. receptions) or perhaps, even your own individual network initiatives. Existing customers can also be the source of new networks by introducing us to new customers that we may initially have overlooked. Future customers are not only found in our existing network, but more likely in “the second link” (our extended network) which is what makes online networking so interesting. Sites such as LinkedIn.com give us the opportunity to connect with our network’s networks and to ask for introductions to the contacts and companies that we seek in growing our individual network. Even more useful are the online portals for finding networks of which we were previously unaware. This can be done by doing a specific search to find out, who in your extended network is in a specific field or geographic market. A search for “Canada” will quickly uncover anyone presently in our extended network, who is based in or connected to Canada. This search, for example, could present several contacts in Toronto that may be of assistance as we try to gather marketing or research information for the area. If good contacts are willing to write a letter of introduction, we can more easily make a call to unfamiliar future contacts. Who knows, maybe that new Canadian contact even happens to know a potential customer or two. Emotional barriers Although there is clearly great advantage to creating new network relations; many entrepreneurs still have reservations about networking. One reason is that we do

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Reprint of article in the Danish entrepreneurship magazine The Entrepreneur (Ivaerksaetteren) Article #20 Development Area: Marketing Topic: Customer Surveys

Understand Your Customers and They Will Understand You As entrepreneurs we often do not know enough about our customers. In many cases, we simply have not known them long enough to know their preferences or how best to approach them. How then do we become better at understanding our customers so we can increase our sales?

For many entrepreneurs initiating contact with a new Surveys are a great way to begin the sales process, customer is often difficult. In the crucial first encounter because the focus is on asking questions and when the dialogue is initiated and it is important that you say the right things from the get go and peak â&#x20AC;&#x153;Luckily, there is a way to make it easier to open the the customerâ&#x20AC;&#x2122;s interest. A bad first impression might ruin your dialogue with the customer and to simultaneously chances of getting another shot. become better at selling.â&#x20AC;? For the same reason some entrepreneurs are hesitant to understanding the customer instead of on selling contact potential new customers. This is a shame since something without knowing if the customer actually needs these new contacts may well increase business, generate profit and take the business to the next level. Luckily, there it. So how do we make a good survey that both provides us with information about the customer and helps open the is a way to make it easier to open the dialogue with the dialogue in a good way? customer and to simultaneously become better at selling. The best way is to make a survey by which we can open a dialogue with the customer without having to try to sell something right away.

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SALES

Reprint of article in the Danish entrepreneurship magazine The Entrepreneur (Iværksætteren) Article #7 Topic: Sales

The Art of Selling -when you are not a salesperson

As entrepreneurs, we do not always feel that we are good at selling, or perhaps we are more interested in developing, presenting or delivering products than in actually selling them. How do we get better at assuming the role of the salesperson and getting more orders?

Sometimes, as entrepreneurs, we are lucky enough to have it is not uncommon to hear such comments as, “I am not a such a brilliant business idea, that it sells on its own. salesperson,” “I am not ready to sell yet,” or “I don’t feel Clients call without us having to put any effort into selling. like selling.” This is, however, the rare case scenario and even if we When entrepreneurs say that they “are not experience several such cases in periods, they are hardly a salespeople,” the attitude rarely corresponds to reality. In reliable source of long-term income. actuality, entrepreneurs are typically the best salespeople For most of us, the situation is such that continuous for their products and services because they are naturally sales efforts and strong client relations are what determine enthusiastic about them. Our enthusiasm and ability to the turnovers that our new ventures need to survive. Sales inspire interest in our company are perhaps the most bring us enough business and sufficient income, allowing us to continually invest in “When developing our business, we need to look our business development. Despite the within ourselves to find out why we are unable to importance of focusing on selling, many bring the business to the next level.” entrepreneurs would rather postpone this task or give it a lower priority in comparison to important sales techniques we possess. While we may be in other tasks. Why so? the initial phases of offering a product or service, which does limit our ability to deliver, this still does not mean Emotional barriers that we cannot begin the sales process. When developing our business, we need to look within Costumer dialogue is especially valuable in the early ourselves to find out why we are unable to bring our stages of product development, when we can plant the businesses to the next level. This is also true when focusing seeds for long term customer relations in general. It is on improving sales efforts. Our own mindset is often the often our own personal limitations that prevent us from greatest barrier we face in selling. When it comes to selling, establishing contact with costumers in the earliest stages of PAGE 58 | 74

SALES

The Sales Chain: 12 tasks when selling MAINTENANCE OF THE SALE

#10 After Sales

#11 Client Care

#12 Repeat Sales

CLOSING OF THE SALE

#7 Presentation and O!er

#8 Negotiation

#9 Order/ Invoice/ Contract

OPENING OF THE SALE

#4 Networking

#5 Client Dialogue

#6 Client Meetings

PREPARATION OF THE SALE

#1 Sales Preparation

#2 Identifying Prospects

#3 Sales Materials

our business. We might tell ourselves that we “don’t feel like selling.” Underlying this statement may be an overall attitude of dislike for the stereotypical salesperson and a desire to dissociate ourselves from this label. Perhaps, we prefer to see ourselves as creative product developers rather than as those sales types that push bad products on clueless people. It is, however, important to remember that good salespeople are people, who possess a strong interest in people and relations. A quality that is just as noble as being interested in gadgets or service concepts and one that is, in fact, critical when building long-lasting client relationships. One way to change your mindset concerning sales could be to look at it from a new perspective. All sales tasks consist of four very different phases. Surely, we are both competent and interested in the content of at least one of them. These four phases in the sales chain (see model) illustrate the processes one is continuously involved in when selling. The sales chain also shows the different sales tasks connected with each phase and gives us the opportunity to examine, which of the tasks we find most appealing and for which we might need to get outside assistance. Selling is a trade that can be learned. To become good at selling, we just have to gain an overview of the tasks so that we can complete them one at a time.

generating lists of potential costumers, and preparing sales material to be used for meetings, etc. The preparation for sales is characterized by a high degree of desk work and is therefore one of the sales related tasks some entrepreneurs feel is easier to take on than actual sales. Perhaps, with proper preparation, we can even gain some of the energy and self-confidence that encourages us to seek clients more actively.

The right preparation

Getting the order

The first phase of selling is sales preparation. What characterizes this phase is that we do not yet have contact with the costumer, but are focusing on the important prep work that prepares us for selling. The sales tasks involved here include: choosing the right client segments,

The third phase involves tasks that are related to concluding or closing a sale. It is here that people, less comfortable with initiating a sale, feel most at home. The sales task in this phase involves preparing oral or written

The initial contact with clients The second phase of selling is the opening sale, characterized by being an outgoing and investigative process. The sales task here is to engage yourself in various networking activities and to forge relations that open doors and provide the introduction to potential clients. Other sales tasks in this phase, include client dialogues through sales letters and personal calls with the intention of ultimately scheduling a meeting in which further discussion about working together can take place. Some entrepreneurs consider the opening sale the easiest part of the selling process, because the job of convincing the client has not yet begun. For others, it is precisely this initial contact that is difficult. Some find it easier to establish a dialogue later and allow someone else to make the initial customer contact.

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Reprint of article in the Danish entrepreneurship magazine The Entrepreneur (Iværksætteren) Article #17 Topic: Branding

From Nice Logo to Strong Brand -becoming known for who you are As entrepreneurs we might find ourselves up against competitors who are better known than we are. They have a better brand that is able to attract more customers and gives them the possibility of setting higher sales prices. But how do we create an authentic and credible brand for ourselves?

When you start your company, branding is always one of the first things that you work with, even when not doing so consciously. The first branding of the company happens the moment you decide on a company name, get your first logo made or decide what typography to use for the company name. The branding of the company continues all by itself, even if you are not actively trying to brand your business. You will yourself always be the brand that the customers perceive, no matter if you have tried to influence their perception or not. But how can you change your brand, as a new and entrepreneurial startup company, to that of a professional and attractive supplier in the market?

The word branding really stems from the branding of cattle. It refers to what to ‘brand’ the company with and how to make everybody know where the company ‘belongs’. Compared to marketing, branding is more about defining what the company stands for and how it - so to speak - can be recognized among all the other cows on the prairie. Emotional barriers

As always when developing your business, it is not just professional barriers you might encounter, such as learning how to work systematically and professionally with branding. You are also up against some emotional barriers. When it comes to “You are always a brand, no Branding or marketing? branding, some Branding is not the same as marketing although matter if you work actively on entrepreneurs there are some overlaps. A way to define the might feel that their creating one or not.” difference is that marketing is about how to company is “too spread the knowledge of the company and its small to work with brand, while branding is about defining what to spread. branding” and that they “can’t afford that type of thing.” You can create a lot of marketing activities without But branding is not about big budgets and television creating a strong brand. commercials. Rather, it is about the small details that the

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Facilities

OPERATIONS The blue segment is about how to develop an effective administration and management of our company. Here, we concentrate on all the things that have to do with increasing our productivity and creating healthy financials. The blue segment is about how to develop the companyâ&#x20AC;&#x2122;s management accounting, financing, production management, IT systems and facilities.

MANAGEMENT ACCOUNTING: ! Good salesmanship - how to raise prices Useful budgets - streamlining finances in the new fiscal year

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Reprint of article in the Danish entrepreneurship magazine The Entrepreneur (Iværksætteren) Article #3 Topic: Salesmanship

Good Salesmanship - how to raise prices Entrepreneurs often set their prices too low, and it can take years to get them to the right level. So how do we raise our prices without losing customers?

When we as entrepreneurs are not making quite enough money, it may be because we are not setting the right prices. Generally, we are good at producing and delivering products. However, it is equally important to be good at running a business and getting properly paid for our work. In order for our businesses to develop and grow into their full potential, we need to learn how to become a good salesman or saleswoman. How do we go about this? “Once Why our prices are too low

Emotional barriers Prices set too low may also be the result of some emotional barriers. Typically we are so passionate about our businesses that we will work for free! Another barrier could be that we, as owners of a start-up, do not feel entitled to raise our prices. Perhaps we fear that we are not

customers have gotten used to a specific price range, it may take years for us to raise our prices to the right level.”

There are various reasons why we set our prices too low. A frequent “beginners error” is that we think we make enough. We often forget to calculate all the less predictable expenses in the budget or we underestimate how much time we spend on each task. Perhaps we are forgetting that it is not enough that we get a decent salary, and that the business needs to make its “own” money, which can be used to invest in, for example, product development and marketing. Distinguishing between the business’s and our own personal income may actually be the first step towards learning to set better prices.

good enough or not worth that extra money. A third barrier might be that we are afraid of losing an order. For start-ups every order is of importance, and worrying about losing an order may be one reason that we allow our prices to remain low.

What should it cost? The decision of how to price our products or services needs to be made the moment we give a customer an offer or make our price lists. There are two approaches to

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MANAGEMENT ACCOUNTING

Budget Ladder: Five steps from preparation to determining the budget

#1 LIST CHART OF ACCOUNTS Decide revenue groups Decide types of cost

#2 MAKE BUDGET MODEL Decide budget period Decide degree of specification Adjust Excel template

#3 BUDGET ITEMS

1. DRAFT Estimate sales volume Calculations Cost estimates Calculate totals

2. DRAFT

#4 QUALIFY THE BUDGET

#5 EXTERNAL REVIEW AND ADVISE Review by accountant Review by advisory board

Make decisions Decide budget targets Make budget simulations (scenarios) Reality Check Make cash flow budget Write budget comments

Revenue break-down Retrieve cost information Budget cost break-down

creative entrepreneur can make the budget more exciting, also visually, using color charts and graphs to map out historic and future financial developments. This does not help you, however, if you feel that making a budget is a pointless task and a waste of time. However, it is not, here is why: Even though a budget is always just an estimate, a qualified guess really, there are several advantages to making a budget once or twice a year. A budget might be expected or required by for example a board or the bank, and it is a worthwhile process to report and get feedback in this way. However, the most important gain from making a budget is the decisions you by default make regarding your business. Really, budgeting is not about numbers, but about decisions. For that very reason, the budget is far too important to be left to an accountant, who would need to know the future plans for your business intimately in order to predict the right numbers.

projected yearly profit throughout the year. It may be an advantage to invest in branding, product development or better IT-systems, as soon as you have made a profit. Five steps to a complete budget When decisions such as the above-mentioned have been made, a complete budget is within reach. Taking one step at the time may be an incentive to get started. There are five steps, illustrated in the model the budget ladder on this page. The first step in the process, before you even begin to consider numbers, is to make a list of the different types of income and expenses in the business. This list corresponds to the list used by accountants. Therefore the first step is to print the chart of accounts from the accounting system, or to get it from your accountant, and to check if it is up-to-date and itemized as needed. When your account plan is updated, the next step is to make a budget model in a spreadsheet. A budget model contains, first and foremost, a list of the accounts (or expense types) you would like to create budgets for. It can be the complete account plan or consolidated accounts, sales,

Decisions are key The table on the following page presents an overview of some of the decisions that need to be made in order for the budget to be meaningful. These decisions relate both to income and “Most entrepreneurs use their intuition when expenses, and some are made only later in the year. One example is the making decisions regarding periodic expenses or decision of whether the business is to investments.” make changes in its product portfolio, its prices, or perhaps its distribution personnel, administration, and capacity costs etc. The channels to maintain or increase revenue and meet creation of the budget model also involves deciding if you projections for the year. The revenue may also be related to need monthly or quarterly divisions and which budget how much is invested in sales and marketing. You have to period you would like to cover (6 months, 1 year, or 3 make decisions about everything from advertising to the years). If you do not have a good template, it may initially amount of costumer visits and printed matter produced. take some time to create a spreadsheet, but once you have Similarly, the planned activity level determines all other made a budget model it can be reused every year with only categories in the budget, not least the personnel budget; minor revisions necessary. When you have made the the decision to hire new employees is crucial to both price spreadsheet, it is easy to plug in the numbers and get an level, and the amount of deliverable inventory. Finally, overview. another example of a key decision is how to use the

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