Strategic Planning For Contractors and Developers in Difficult Times

The sky is not falling. Yet, declining business conditions in cyclical industries like homebuilders, contractors, sub-contractors, land developers, and construction suppliers caused by the ongoing recession are going to be difficult for a while. Business owners in construction industries who strategically plan and prepare will avoid work-out situations with their banks and obtain better results throughout the downturn. They will be in a position to soar when opportunities return with the strengthening economy.

My advice to owners in construction and development businesses is to prepare a version of your strategic business plan showing a 30% or more decrease in revenue. Preparing this version will force you to conserve cash by cutting all the fat and some of the bone from your operations.

o Many goals that would normally be highly ranked will need to be deferred in this version unless they result in rapid and deep cost savings.

o With a 30% reduction of revenues most of your marketing budget will disappear. I agree with the marketing experts who say this should be the last line item you cut but at some point new prospects are not looking. Ask homebuilders about their numbers of genuine customer prospects right now.

o Do you have key people you could try to place with other firms? I worked with a general contractor who placed several key employees with property management firms during downturns and took them back when the market resumed.

o Are there new relationships you need to establish to outsource work that has previously been done in-house. Outsourcing saves you money as you typically only pay for time and materials as needed.

There are many alternatives to cut costs when it has to be done. You will find ways to get the work completed efficiently and products delivered or services provided. By planning in advance you will make better choices and you will strengthen the long term position of your firm should your market contract.

Once you get your cash flow stabilized factoring a 30% revenue reduction start looking at where new opportunities may come from.

o Can you transfer some of the ideas for cost savings to the more optimistic versions of your strategic plan and increase profitability?

o Perhaps you could invest the potential cost savings in an acquisition. Over the next several years there will be great opportunities to purchase underperforming companies. If you see an interesting opportunity make sure you understand what the other company has that could propel you forward. A great storage yard or other hard assets, key relationships, valuable licenses, etc.?

o Is there a product line that will expand in your industry even during the downturn? An example is that historically expanded maintenance services on older cars have provided income for auto dealers in downturns.

At this time, strategic plans for businesses in cyclical industries should include a version that tackles uncontrollable revenue reduction head on. In the current market this is not pessimism, it is preparation. Good times will return and those who have prepared and conserved cash will be able to capitalize on the new opportunities to grow rapidly.

Look Like a Winner – Developing Business Savvy

Many inventors that fall by the wayside have great ideas but they fail to gain the trust of the people they need to help them. One major factor in why they lose that trust is that they don’t show they have enough business savvy for others to trust them to deliver.

This is not because the inventor’s intentions are bad, but because they don’t show they have the experience to understand the task in front of them or to execute the tasks once they understand what to do. But that doesn’t mean inventors are doomed, it just means that they need to take a little bit of time to bring themselves up to speed on the market and the process of introducing a product so they look like a winner. You will make a much better presentation if you follow these steps before going out to talk to people in the market.

Important Tip : Don’t ever say that you have a “can’t miss” idea, a “blockbuster” idea, or that you have a product that is sure to be taken by Wal-Mart. Instead just say that you have an interesting idea that you believe has market potential. Telling people you have a “can’t miss” idea will only convince new product experts that you are a rookie with no idea of what you’re doing. All ideas can miss and most new product experts talk to five to 20 people a month with a “can’t miss” concept, 99 percent of which do miss.

Step 1: Do a professional information sheet on your product.

Include these items and a picture of your prototype or a drawing if possible.

Brief product description. Why you developed the idea. Target customer: be specific about the target customer, don’t say everyone. For example if you have a kitchen item, you might be tempted to say everyone, but that is not nearly as effective as stating people who buy three to five new kitchen utensils per year, and buy new pots every five years. People want to know that you have narrowed your market.

Main product benefits. The products people are buying now to achieve the same purpose your product fills. (It is extremely helpful to have brochures, or print outs from web pages.) Be sure to check out an industry directory for products and not just rely on your local stores. You can typically find the directory at trade magazine web sites. You can find the trade magazines by checking Gale Research’s Directory of Magazines and Broadcast Media which is available at larger libraries.

Target price. Sales outlets, where the products will be sold. Distribution outlets, what type of distributors or manufacturers representatives can be used to sell the product. If you don’t know this information you can get help with your specific product from SCORE, which are retired business executives who offer free help. Another good source is your local Small Business Development Center. Both of these organizations can help you define your distribution channel and also the sales outlets where you will sell your product.

You should put all this information on no more than two pages of paper. Then whenever you talk about your interesting idea you can show someone that you have in fact done your homework. The brochures about other products can be attachments.

Step 2: Show why you are knowledgeable about your product idea.

People always will take more interest in your idea if there is a reason that you have specialized knowledge about the product area that will convince people you might have a unique innovative product. People will take notice if an operating room nurse creates an idea for removing the fluids that are used to cleanse body cavities during surgery. That’s because the person really understands the needs of the users. They will also take notice if the inventor is an avowed hobbyist, with tremendous passion for his or her hobby. Another are where people take notice is if you are in the distribution channel for the product. People will listen to a mom who is also a baby products manufacturing representative who has a new baby product.

You can still adjust if you don’t have a background that suggests you really understand your product. You just need to get the support of someone who does have the background. For example a mom with a baby product just needs to find a baby store owner or a baby product’s manufactures’ representative to support the product. You can even give the person a 5 percent stake in the product so you can call them a partner. How do you find people who can support your product? First, you can network with the people you know. Ask your family and friends if they know anyone who works for a baby stores, a baby products manufacturer, or is a baby products representative. Networking works much more often than you might think because your family and friends together often have contacts with a relatively large group of people.

If networking doesn’t work attend local trade shows appropriate to your product and visit stores to see if you can meet a contact. A last method is to subscribe to the industry trade magazine look for new product announcements. Typically you can request literature from the companies and often literature comes with the name of the local sales person. Then all you have to do is call people up and tell them you are looking for an advisor on your new product. Tell them you are willing to give an advisor 5 percent ownership in your idea and ask them if you can take them to lunch to discuss your idea.

Step 3: Pick a distribution channel you can penetrate and have a plan.

You just can’t tell people you are going to sell your product at Wal-Mart. Wal-Mart rarely buys from a small one product company, especially one without commercial success. You need to instead focus on a distribution channel you can penetrate and have a specific plan to do that. You almost always are better off starting with a specialized distribution outlet. If you have a baby item, start at specialized baby stores. With a kitchen item, start selling at small kitchen stores to build up success that will help you get into bigger stores. If you have a faux painting sponge that does specialized prints, you might start selling first to painters, then to paint stores, and then finally to Home Depot.

You need a plan on how you are going to sell to the distribution outlets, through distributors or manufacturers representatives, or direct sales to some small regional chains. To learn more about your distribution outlets read industry trade magazines that will talk often about distribution, or use the contacts you’ve met networking or by attending small shows trade in your areas. You can also get help from the SCORE or SBDC organizations mentioned earlier in the article. The One Stop Invention Shop also provides a service that creates a marketing plan for new product introductions.

Step 4: Create a Target Customer Profile Chart.

One of the final steps that shows you’ve done your homework is to create a customer profile chart that details the market opportunity that is available for your product.

Target Market Profile — Faux Painting Supplies

Market Segment: High end wallpaper and paint contractors

Needs: Patterned Look

How Needs Are Met: Use sea sponges and then make their own designs

Products Purchased: Sea sponges

Market Segment: Midrange paint contractors

Needs: Patterned and standard look

How Needs Are Met: Use sea sponges for standard looks, unable to do complex patterns.

Products Purchased: Sea sponges

Market Segment: New users wanting a sponge look

Needs: Standard sponge look with simple pattern

How Needs Are Met: Sea sponges

Products Purchased: Sea sponges

Market Segment: New users wanting pattern wallpaper-type look

Needs: Advanced patterns

How Needs Are Met: Products not available

Products Purchased: None available

This chart shows there is a market opening of advanced pattern sponges that can be used for new users wanting complex patterns. You can also make a case that an advanced pattern sponge would sell to the mid to small-size painting contractors who are unable to create their own advanced patterns.

Step 5: Have a great name, slogan and packaging concept.

People in the new product business consider a great name, slogan and packaging just as important as having a great product. Sometimes it is more important. But be sure to do a trademark search for the name you want to use. Many times inventors use names that are already associated with products in the industry and this turns out to be a major negative. IP associate, Eric Hanscom, can help you search and apply for a trademark.

Slogans and a drawing of what your package will look like also show two important facts to the people you talk to. First, it shows that you have worked hard on your invention and are preparing realistically to bring your product to market. This is a big advance over many inventors who quickly sketch up a drawing and then expect to make millions. Second, it shows you are concerned about selling your product and that you know that sales is the toughest part of introducing any new product. Again this shows you are aware of the work that lies before you, and that you have enough business savvy to possibly launch your product. For help with packaging, contact Josh Wallace, our graphic design associate.

Many inventors fail with great ideas because they don’t do their homework, which makes them look unprofessional. If you look unprofessional, people won’t even give your idea a serious look. Do your homework so your idea has a chance to succeed. If you believe in your idea, don’t just expect instant wealth, but instead make a commitment to do the work to turn yourself and your product into a winner.

Sales Forecasting Is The Achilles Heel Of Business Planning

Forecasting future sales is one of the most difficult areas for many companies. The challenge is to produce consistent and accurate advance information which can be used by production, stock and service managers to plan for future demands.

In practise, much of the forecasting work currently undertaken is very random, if not haphazard guess work. It is based on highly subjective reports of the sales people, often under short term pressure to predict acceptable levels of achievement in order to meet targets.

As a result much of the medium-to-long-term sales order forecasts are often made up of business projections based on nothing more scientific than optimistic guess work rather than on disciplined and realistic assessment of likely conversion of sales from individual customers.

Companies spend thousands of pounds and hundreds of man hours on their annual, quarterly and monthly budgeting and forecasting activities.

Financial management techniques and systems have developed apace in recent years but these have little input into the forecasting process, especially predicting short and long term sales.

The pressure for accuracy is growing. Jobs, investment and expenditure depend on making the right assumptions and predictions. Too often companies fail to spot in advance negative trends or competitive activity which impinge on their ability to win new orders.

Most forecasting, in the widest sense, is based on historic information with some allowance for highly subjective judgements such as the economic climate, trends in the industry etc.

The Achilles heel of even the most significant business planning methodology is an almost uncritical acceptance of what the sales team predict as imminent or long term business opportunities and their value.

Companies put complex and time consuming reporting procedures in place to capture data but can be extremely uncritical of the quality of the information itself which is provided.

Frequently the sales predictions – short, medium and long term – are highly suspect. They depend on the sales team’s personal, often highly subjective views, and often reflect the pressure for ‘certain sales levels to be achieved’

Predicting the real chance of winning a particular order will change the closer the customer gets to placing the order. Two or three months ahead the sales men will report the order as ‘in the bag’, closer to, the odds will often be reduced or even discounted. There is no discipline or consistency in the process. Orders ‘lost’ now will be replaced by ‘new’ opportunities conveniently two or three months down the line. These new ‘orders’ will be lost as the time for their confirmation gets closer. Thus, the organisation never has a realistic assessment of its potential sales.

What is missing is a management awareness of what is really happening to ‘vapour sales opportunities’ and a complete lack of system and discipline in predicting the real possibility of winning specific orders consistently. These ‘vapour sales opportunities’ represent unsubstantiated sales opportunities which can amount to anything up to half of the ‘pipeline’ business being reported to management from month to month.

Sales teams are relying on a base level of business coming in to cover up poor predictions and to replace lost orders previously anticipated. This is one reason that organisations frequently fail to spot downturns or changes in their business environment.

The solution is a proper structuring of reporting procedures. Apart from eliminating unqualified business this process can help the organisation be more responsive to real business and focus on genuine problems and opportunities which the process identifies.