We review business plans continually. Some
plans are for startups, and others reflect expansion plans for established
businesses.
This week, we share five common planning mistakes that even experienced management teams in larger businesses make. And we'll continue the series next week
with a look at "to vs through", invisible
businesses, and more.
Scrub these missteps out of your business plan and
sleep with confidence!
1) Expecting day-to-day
operations to fund a big expansion
We routinely talk with wellness businesses who have
built successful smaller businesses and want advice
about how to get to the next level. One of the
first questions to ask yourself about expansion is
how you're going to make the necessary investments -
things like new facilities and additional staff that
have to be in place before new revenues (and
customers) appear.
If your answer is that the routine operations of
your normal business will fund these investments,
check your math. In our experience, you may be
able to self-fund some of those costs from your
current business. But you'll probably need to
find investors and consider borrowing money as well.
If you get this wrong, you'll starve your expansion
of the cash it needs to grow.
2) Assuming that you can cookie-cutter your next
location
Watch for these two stumbles:
- Severely underestimating the sales and marketing
costs of a new location. The cost and
difficulty of acquiring new customers at a
well-established location is generally much lower
than the cost to acquire customers at a new
location. Keep in mind that free advertising
like word of mouth is less and less relevant as you
move farther away from your "home base."
- Thinking that your expansion will simply be a carbon
copy of the existing business. While the
specifics vary from business to business, you can be
certain that what works for a single location will
have to be different as you add new locations.
The labor pool may affect how you staff your
business (and what it costs you). Tax and
local legal considerations may require changes to
your historical model. And your sales and
marketing tactics may require adaptation for the
local market.
3) Failing to explicitly decide on a single
business model
We're the first to say that what you plan for
usually differs wildly from what actually happens.
Nonetheless, you need to pick a specific business
model and stick with it.
Think of your "business model" as the handful of
critical success factors that make your business
actually work.
For example, McDonald's business
model relies on providing highly structured training
to cheap labor and automating the work that this
relatively untrained labor force actually performs
whenever possible. They've had to get really good
at churning out new restaurants as efficiently as
possible. And their products are consciously
designed to provide options for the whole family - a
big burger for Dad and the teenaged son, salad for
Mom, and a smaller meal + toy for the little one.
On the other hand, they're not known for menu
innovation or incredibly good customer service -
those elements simply aren't part of their business
model, and they don't need to be.
We spoke last year with folks interested in investing in a
healthcare-related business. They were planning to
simultaneously acquire and convert existing
businesses, build new locations from scratch, and
pursue a franchise model. You could probably
make any of those business models work - as long as
you pick one and direct all of your plans and
resources towards that goal.
The reason you need to pick is because you'll need
to take different actions depending on your business
model. You'll need one set of operational
capabilities if you plan to acquire and convert
existing businesses. You'll need a completely
different set of capabilities if you're going to buy
land and build from scratch. You can't afford to
build BOTH sets of capabilities, just in case! And
even if you could afford it, it's unlikely that
you'd do it well.
If a great opportunity actually comes along, you can
always check it out. Until then, pick one business
model and stick to your knitting.
4) It's big, it's really big!
Yeah, we know about the millions of obese kids and
adults, the millions of people with Type 2, millions
of aging boomers, etc., etc. None of that really
matters when it comes to making your specific
business successful.
Your business plan needs to zero in on how enough
people from your target market segment - in your
specific community, at your specific location - will
find your specific business.
Forget about theoretical competition and abstract market segments.
That stuff just doesn't matter for most startups in
health and wellness. Instead, identify specific likely competitors in your community.
What actions will differentiate your business?
How will prospective customers even know you exist?
And why exactly will they choose you, and not a
competitor?
Lay out your sales and marketing ideas on a timeline
- along with their cost AND projected results: how
many customers, how much revenue. This
exercise will help you evaluate whether your planned
sales activities really make sense when you look at
their likely outcomes.
5) Naïve
understanding of how employers and insurers think
Someone told us recently that insurers
would provide reimbursement for their wellness programs because
"they'll save money if they get people
healthy." They didn't seem to realize that
navigating managed care is considerably more
complicated than that.
We've also seen wellness professionals who focused
their sales pitch to employers on the societal price
of obesity and diseases of inactivity and stress.
Right or wrong, that's not what employers care
about. They want to know how wellness programs
will reduce their healthcare costs and improve
workforce productivity. Lectures about the sad
state of health in the U.S. just don't belong in
your sales pitch.
6) Confused about
selling TO vs selling THROUGH
Life is relatively straightforward when you sell
directly to consumers. It's more complex when
you sell THROUGH someone else.
For example, you may have to build physician
relationships if your business depends on physician
referrals. For example, some states require a
physician referral to registered dietitians and
physical therapists. If you provide dietetic or PT
services, you'll have to plan for building and
maintaining those MD relationships. Similarly,
you'll
need a plan for building and maintaining employer
relationships if you want to provide wellness
services for employees.
In addition, you'll need all the processes and
capabilities necessary to support your actual
customers and end-users. Yet the way you build
and maintain customer relationships is quite
different from the way you'll build and maintain
relationships with employers or physicians, for
example.
7) Thinking your current team can easily step up
Rapid expansion over several years takes more than a
couple of go-to people. You'll need a team of
people who love to operate independently, yet play
well with others - and are totally bought into
your vision for the business.
If you've been in a "business as usual" mode for
several years - and now you want to change gears -
get ready for team changes. People who love to
grow a business are often not people who enjoy a
more predictable "same as yesterday" routine, and
vice-versa.
8)
No plan for getting repeat business
This issue faces many wellness businesses focused on programs to help clients reach specific health
and wellness goals.
If you're going to sell $500 worth of healthy living
programs to a customer - and three months later they
"graduate", never to be heard from again - your
sales costs will probably be unsustainably high as a
percentage of your revenue.
It's extremely important that you have a plan for
continuing to sell appropriate products and services
to those happy customers. And you also need to
develop strategies for encouraging them to spread
the good word about your business and send your
referrals.
9) Hope springs eternal: optimistic Year 1 growth
assumptions
Nonexistent customers are a brutal fact of life for
many wellness businesses. First-time businesses
often expect instant customer interest. In
truth, their businesses are invisible to potential
customers.
When you plan your Year 1
revenues, run a worst-case scenario where you lose
money due to insufficient revenues for six months to
a year. Can your business survive that?
Minimize this ramp-up period with a smart marketing
plan that starts well before you open your doors.
Avoid expensive marketing events that often fail to
produce actual customers. For example, a big grand opening party may
attract lots of "looky-lous" who scarf up your
giveaways and
enjoy the free entertainment. Unfortunately,
they probably won't generate a single referral.
On the other hand, cooperative marketing efforts
with businesses who also serve the kinds of
customers you'd like can be very effective.
10) Not knowing what you don't know
What gaps in expertise does your business have? As you put together your plan - whether it's for a new business or an existing one - step back and think hard about the capabilities your team has and the ones you need.
For example, many wellness businesses really
struggle because they don't have access to people
with appropriate technical skills who can develop
and maintain a website, install and support a
computer network, or appropriately configure more
complex software applications. You may not
have anyone who's really got strong financial
skills.
Maybe your HR team hasn't supported a larger
organization spread out over multiple states. Or
maybe you've never actually created a business plan
specifically targeted towards private investors.
You can buy this expertise by the hour if you don't need full-time
help. Consultants and
independent contractors are both good ways to get
expertise and experience at much less than the cost
of a full-time employee. You may even be able
to barter for some of these services.
What's
important is that you get the capabilities your
business needs to thrive.
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