A lot of people get an idea for a business and they slap a name on it without considering a business plan. Some people dream up an awesome name and continue dreaming that the business behind that name will make them successful. If some of those people are like me, they spend three days brainstorming name ideas to attach to their business concept, getting increasingly frustrated with their lack of creativity, even though they just invented a couple hundred clever names. Creativity isn’t the problem; starting with the name is where the rub is.
What’s in a Name?
Really though, what’s in a name? All you really want to do is give your customer a glimpse at what your business is all about, right? Your name is what makes them curious enough to come inside and look around, so why should a business plan come before something that seems so important?
There is a myriad of reasons why every business needs a plan. Any Entrepreneur knows that this document helps guide the long-term success of their new venture. If you simply Google “Business Plan” you will quickly find dozens of articles that give you a list of reasons why it’s important to create one. But why should creating a business plan be the first thing you do, even before coming up with a brand name?
I got the opportunity to sit down with the folks at the TN Small Business Development Center (TSBDC) in Murfreesboro and ask them some questions about this. Chris Swoner, born and raised around entrepreneurs in Tennessee, and now Director at the TSBDC, told me, “Lack of planning in the very beginning is a primary cause of business failure,” noting the rather poignant platitude, “People don’t plan to fail, they fail to plan.”
Why Do Small Businesses Fail?
Depending on the year you look at and who you ask, you will get a different percentage of small businesses that fail, from 60% to 90%. The unfortunate idea is that most small businesses fail, especially in the first year or two. The business analyst websites will list several reasons for this. For example:
- Competition is too fierce
- Poor Leadership
- Bad team
- No systems in place
- Inefficient marketing/low ROI on marketing expense
- Business ran out of cash or cash flow problems
- No market need for products/services
- Failure to connect with customers
- Many others…
A Plan for Success
According to Swoner, the risk associated with every one of these “reasons for failure” can be mitigated or avoided altogether with a proper business plan. “It [a business plan] forces people to systematically and thoroughly go through their organization.” Explains Swoner, “the process takes a high minded, broad, idea, however good it may be in theory, and starts to break it down into its component pieces and makes those pieces quantifiable.”
A well-organized, thorough business plan addresses each of the reasons for failure listed above, as well as many other business critical needs like staffing, funding and an honest evaluation of whether you are even cut out to be an entrepreneur. A business plan acts as a road map for your business. It gives you direction with finances, marketing, leadership, you name it. This is important in every business, but especially so for owners in the food industry.
No Business Like Food Business
“The time and money consumed by regulations can be cumbersome.” Notes Swoner, regarding food business and the additional planning required for success in that industry, “Inventory management, dealing with spoilage and waste; these can be a problem. Also, projecting what is a reasonable amount to cook, how to price items on your menu and what to sell.”
The food industry is different from other commodity-based business because you’re dealing with perishable products. Swoner explained, “In food business, you need to have your product sold before you make it. Time is not your friend after the food comes out of the oven.” That adds a few layers of logistics that other businesses don’t require, making a business plan even more vital for food business owners.
An example of the logistics that a food business may have to plan for is supply chain management. Using marketing data, a business owner has to forecast sales to know how much perishable goods to order. It also suggests the supplier that best matches pricing, quality and delivery needs for the business. Order too much, and you lose money to spoilage. Order too little and you lose money to lost sales, and potentially, future customers. Sacrifice quality for price and you may lose customer satisfaction. Go for the lower price and give up known supplier reliability and you could lose all around. There is a balancing act here, that a food business owner simply can not perform without a plan.
Planning for the Red Tape
To solidify the importance of planning ahead in order to understand the business, Swoner went on to discuss some of the “red tape” issues that food businesses face. These include inspections, permits, and requirements for facility like hoods, grease traps, and fire suppression systems. “Maintaining a facility can be both time-consuming and costly.” Swoner continues in his comparison of business types, “Food service operations, unlike many other industries, can be shut down for noncompliance very easily.”
Detailing how operational downtime is costly to any company, Swoner points out how this can have a greater impact on companies with a high cost structure and low margin. “Low margins,” Swoner said, “primarily resulting from food costs, are normal within the food industry.” Food business owners who don’t understand this from the start are likely to take detrimental financial hits due to the unique issues listed here.
The Best Time to Plan
Discussing when the business plan should be considered, Swoner admonished, “Do the homework first. Don’t sign a lease or commit to contracts. Don’t go out and buy the food truck before you have a plan.” He continues, speaking from the experience of helping a great many entrepreneurs, “Knowing what you would have paid for something is very different than actually having to write the check for it.”
In other words, if you have built your business plan, and looked along that road map; if you had a well-thought idea about what your costs would be, your return on investment, your marketing, staffing, and funding; if you knew, within reason, all the other needs you would have as a business owner, you could write that check in confidence, knowing that you have done everything possible to mitigate risk and give yourself the best chance possible for success.
A Business Plan Won’t Make You Bullet Proof
Finally, as we wrapped up our discussion, Swoner gave a couple closing thoughts. “The business plan will dramatically enhance the probability of success; it will not guarantee success.” He explained that every venture is a gamble in some capacity. “Underestimate bad luck at your own peril.” There is only so much you can do to mitigate risk. Swoner concludes that thought by noting, “There is no bullet proof vest.” As a business owner, you owe it to yourself and those who count on you to do all you can to negate risk and minimize its effects on your venture. While a business won’t make you bullet proof, it is your best bet for success.
Since a business plan describes and helps you better understand your customers, your products/services and operations, that’s where you should start. The only real purpose of your business name is to give your customers a small glimpse at what your business is about. Therefore, it’s best not to start with a name before you know whether you even have a viable business idea. In fact, knowing what your business will be about and understanding your target audience first will help you come up with a creative name that your customers will love.
Series: Nuts and Bolts of a Business Plan for Small Food Business
This post is the first installment of a series that will be dedicated to business plans aimed at small food business. In future posts, we will discuss how to create a business plan, list some resources that will further assist you in developing your plan, and talk about the component parts of a business plan.
Chris Swoner – Director at the TN Small Business Development Center. I met Chris when I attended a class at the TSBDC that he taught on the subject of Business Plans. I was so impressed by the class and the information he presented, I reached out to him for an interview. He has such a helpful nature, he was happy to provide me additional information that may be able to help people who read this blog. He inspired this series, so if you come back, look for more quotes from Chris. Such a quotable guy, he gave me a lot of great nuggets of wisdom to share with you! By the way, he worked at Blizzard Entertainment for a while. Being the gamer that I am, I tried not to geek out too hard in front of him, but that’s pretty darn cool. He left that job to come back to TN and help small business owners. How awesome is that?
Kendra Fox – Secretary and Social Media Maven at the TN Small Business Development Center. She’s always been heavily into volunteer work, so she was a great fit at the TSBDC after she moved to TN from Buffalo, NY with her husband and children. She sat in on the interview with Chris and me, offering her thoughts and considerable experience with small business. She gave me some great insights that I’m excited to share in this series.
Tennessee Small Business Development Center – The TSBDC is a network of certified professional business counselors with offices located in 15 service centers around the state. The organization has been helping small businesses in TN for over 30 years. There will be a post dedicated to this organization coming soon, and a listing for them in the Small Business Resources section of getNOMSblog.