Wisconsin Public Television University Place Entrepreneurialism in Society  Neil Lerner, "Developing A Small Business: The Fundamentals"  October 13, 2010 UP498  cc >> Jeanan Yasiri: Entrepreneurialism in Society, a course offered through the University of Wisconsin School of Human Ecology. I'm Jeanan Yasiri. As we begin today, I'd like to extend thanks to our partners in supporting this course: The UW Office of Corporate Relations, the UW College of Engineering for their technical support, and financial support which is provided by the Ewing Marion Kauffman Foundation which is committed to advancing academic education in entrepreneurship. Additionally, we'd like to thank our media partners, Wisconsin Public Television and their University Place crew for taping today's lecture. I'm quite pleased to introduce our very special guest today, Neil Lerner, director of the Small Business Development Center. Neil joined SBDC in 1993 as a business counselor, and he became director there two years later. Neil leads a team which provides business management education services for small business entrepreneurs and managers in Dane, Columbia and Sauk counties here in Wisconsin. The center delivers over 100 management seminars annually and provides free in-person business counseling, some of which I understand some of you have taken advantage of, as well as managing a business hotline called the Wisconsin Business Answer Line that answers about 3600 calls a year. Neil currently teaches business planning to entrepreneurs at the SBDC, and he has 18 years experience mentoring owners and managers to start and successfully grow their businesses. Neil earned his bachelor's degree from Temple University and his MBA from the University of Wisconsin. 

Today Neil is going to ground us in the principles of developing a small business, the fundamentals. Please join me in welcoming Neil Lerner. [APPLAUSE]  >> Neil Lerner: Hi. So is this working? Great. Well welcome everybody. I'm glad that you were able to make it today and be here. I'm going to talk about developing a small business. We have some slides we're going to talk about business planning and other issues to think about if you're thinking about owning a business. And then we're also going to do an exercise. We're going to have some discussion around a sample business plan, only just a few parts of it. 

I think it's a really interesting business plan, and I know I only sent it out yesterday so some of you have had a chance to look at it, if not, we should have a little bit of time for you to do that in class to have some discussion. So we're here on campus at the School of Business. The Small Business Development Center has been around for 30 years, and we're part of a national system. And there's 13 centers. Every state has small business development centers. There are 13 in Wisconsin. And you can find me if you'd like to contact me for any reason, you're more than welcome to email me or call me on the phone. I happy to correspond with you. If I'm not available, I'll get back to you in a day or two. I try to be as prompt as possible. 

And our website at UW, just to give you a quick overview of what we do. So this is our website. We're here, as I mentioned, at the School of Business, and we do a lot of short courses. So a lot of this material is from the short course that we give at the Small Business Development Center. Short courses meaning they're not for credit, you can't get a degree but adults in the community that come back to learn about starting a business plan and other classes. You can see we have a class on guerilla marketing and financial management and project management. So there's a whole variety of things that we do. I didn't want this open... So what is a small business? I used to get this question a lot. And Andy Banks is an entrepreneur that I know from Maine, and Andy started a company called Upstart Publishing in the '80s. 

And he created a whole set of what we call how-to books. How to do a marketing plan. How to write a business plan. How to start a business. How to grow a business. How-to books are a little different than textbooks, you don't study them just for an exam. They walk you through a process, have you do exercises to complete something. And Andy was successful with his business. He sold it to Kaplan, and I bet many of you know the company Kaplan. They do a lot of educational testing for entrance exams and studying for entrance exams. 

And so he was successfully able to sell his business. And what do you think Andy meant by this: A small business is a place you can bring your dog to work. Well, it means to me, freedom. That's one of the reasons why a lot of people get into small business is to have some freedom, not have someone else tell them what to do every day. Of course, there comes with that the responsibility of having a lot of passion, a lot of drive, knowing what you're trying to accomplish because while many of us would rather be self-motivating and not have someone else tell us what to do, if we're going to run a business we have to be self-motivated every single day. So a question out to all of you here today, and I'm not saying this is a passion you have to have to start a business, but what's your passion? What drives you to innovate? Things that you do that you feel creative. What drives you to be creative? Anybody have some suggestions? Comments? What's your passion? >> Just playing the game in general. >> Playing the game of? >> The game of entrepreneur, of the market. Just studying margins. >> Okay, the game of business. 

Trying to figure out how to produce a product or service and deliver it to customers and make some money at it. The game of business. Who else has a passion? It could be social, entrepreneurship, could be a business, could be a hobby. Skylar, do you have a passion? >> No, not really. >> Not really, okay. Yeah? >> I love baking. >> Okay, great. Baking is a passion. It doesn't mean you have to go into business. For some people they lose the passion if they have to make money at it. 

They keep it as a hobby. Anybody else? Yeah? >> Filmmaking. >> Filmmaking, okay great. Very creative endeavor. What else? Anybody have a passion that you really think you might go into business, you're thinking about maybe I should go into business doing this? Yeah? All the way over there. >> Private military. >> Private military, interesting. If we had more time I would ask you what that's all about. That's great. So that's something you think you might, in the future, actively try to do? >> Yeah. 

>> Okay, super. Anything else? Yeah. >> Hand sanitizers. >> Hand sanitizers. Some new process or new way for people... >> I try to manufacture and sell internationally where it hasn't been sold before. >> Okay, to produce hand sanitizers and sell them where they're not currently available. So finding a market opportunity. That's what business is all about, finding market opportunities. Okay, so when it comes to the development of stages of business this could be helpful. 

Especially if you do some reading about starting a business, you do some reading about entrepreneurship, you might see some of these terms. Nascent means you haven't started yet. It means you have an idea, you're thinking about, you're exploring it. It's nascent. It hasn't been birthed yet. So you're just really working on whether you might want to do that idea. Start up would be you've actually started the business, you're engaged in trying to get customers, you're making money, you get some financing. Early stages is usually what people call survival. You're trying to get enough customers to say yes, our door will be open tomorrow. You have finances, you have money in your checking account to pay the bills and you may not be sure how stable that is. 

And the goal is, of course, in the early stage is to continue to what they say ramp up your business, ramp up your customer base to the point where the business starts to feel pretty stable. Where you don't have to worry about next week, will we still be here. And then comes growth and expansion. Growth and expansion can be very exciting. It can be difficult, too. Does anybody know why growth and expansion can be difficult? Yeah? >> Me? >> Yeah. >> Because people are investing in your idea which is a risk. >> Okay, so it's risky. Growth and expansion can be risky. You might need additional financing. 

Because when you grow, usually that means money's coming in, but a lot of times it's going out faster. You may be hiring more people, if you have more customers and you have to serve them, you might have to hire some more people. If you sell something that has inventory, if your business is growing, you have to produce and keep more inventory. That costs more money. Or what if you outgrow your office space and you need to expand your office space. And also when you hire people they're going to get a desk, a computer or if they're working on some other kind of process in the company there might be some machinery. So growth and expansion costs money, but it can be very exciting. It also means that customers are accepting of your product and you're growing. Maturity is kind of more cash stability. So you're a more mature business, your customer base is pretty stable. 

In the beginning it's really easy to grow. You could double your business because if you start out the first year with a $1,000 in sales you could grow 10 times, 15 times, 20 times the next year. Eventually that starts to level out and you don't grow as fast. So you get to maturity. But a lot of times there's a lot of cash stability. You have a good base of customers on a regular basis. And then you could decline. What would happen if your business declined? Let's say your business was 10 years old, 15 years old. Why would a business decline? Anybody? Think of one that you know, that you shop at or that someone in your family or friend owns. >> Due to technology. 

>> You don't keep up with technology. So think of all the things that you use. Interesting battle going on now in the cell phone market. That technology is changing rapidly. Not only how to use the actual phone technology itself, but how to use it like the iTunes store and the apps and now Google with the Droid system is involved. So some of the early stage phones, people are still buying those but eventually if those companies that were producing plain vanilla-type cell phones, if they can't compete with the Droid and Apple phones, they may eventually decline or go out of business. So that would be a great example. Thank you. One way to avoid that is to reinvent yourself. So that's a constant, these days in the business world, constantly reinventing yourself looking for different ways to serve customers to have top-notch products and services. 

And eventually you might exit the business, meaning you might try to cash out of the business. You might sell it to somebody. You might sell it to employees, to another company. So a way to get your money out of the business as in retirement or maybe you just want to sell it and move on to something else. So what are the causes of business failure? We don't like to bring up the negative, but businesses sometimes do fail, what causes that? Mostly it's inexperience. So for those of you who are thinking that you might start a business in the future with your passion, and I certainly encourage you to do it with something that you're passionate about, get as much experience as you can. Because one of the reasons that businesses have trouble is when you have inexperience, is you make more mistakes. And in business when you make mistakes they can be costly. So the fewer mistakes you make, the more opportunity you have to be successful. Poor management in a vital business function like finances. 

Not managing your finances well. Or production. Not managing your production well. Or people that work with you in your company or even contract people like your accountant, bookkeeper, not working well with other people in terms of managing as a team to be successful in the business. So a functional area of business where you're just not paying attention, you're not doing the right things. So do you think that you need an MBA to start a business? Just a general question out there. Do you need an MBA to start a business? No, you don't. But will you necessarily be an expert at everything in management if you decide to start a business? Well, no you won't be and we don't say that you need to be because if that were the case nobody would ever start a business. So what you really need to do is think of yourself as the owner/manager. You start a business or you start a business with a partner or with a friend. 

You're the owner/manager or owner/managers of the business and what you need to do is say I'm responsible for making the important things happen and to getting the important things done. So if you're not good with accounting and finance, since it's such an important part of the business, it's your job as the owner/manager to say, how will I get that done? Will I hire a bookkeeper? Will I farm it out to another person who has a small business that's a bookkeeper? Will I hire an accounting firm? And then it's your responsibility to be able to understand the information they give you. So you don't need to be an expert at everything but you really need to understand what needs to get done and how am I going to make that happen. Not having any business plan, which is what we're going to talk about mostly, not having enough capital, not having enough money to get the business going and to get past that stage where you're trying to get customers. And that comes from not having a business plan, typically, and not having a business plan that you thought about. So a business plan helps you figure out how much money will I need. Making really big mistakes. Putting all of your promotional money into one idea, and if it works, you're like a hero, and if it doesn't work, you're out of promotional money. That would be an example of a big mistake. So don't put all your eggs in one basket in an early stage in the business in some respects. 

And then lack of focus. Many people that come to our center have two or three ideas. Sometimes they don't realize how hard it is to write a business plan. And they come to class and they say I'm going to write two business plans. And of course we try to tell them that that's really a difficult thing to do. You really need to focus, put your best foot forward on an idea that you think merits going forward with. So what is an owner/manager in terms of the decisions you need to make? As an owner/manager you're making decisions about marketing, management and money. Those are the three areas, they call it the three Ms, marketing, management and money. What is it you're going to do for people and what kind of customers do you want to have? How much money do you need and where are you going to get it and how are you going to manage the finances? And as I mentioned, people and operations earlier, how are you going to manage the business? So one place to look for advice as in kind of a virtual mentor, unfortunately he's passed away, is Dave Thomas who is the founder of Wendy's. He wrote a great little book called "Dave's Way." And there's been some PBS specials on Dave Thomas. 

I think they were PBS. And he's a very interesting person. He was a millionaire in his 20s because he was one of the first Kentucky Fried Chicken franchise owners. And he owned two or three of them and he did really well. Then he did some other endeavors, didn't do so well and then he opened Wendy's. He was also an inventor. He had passion for the business, as you can tell if you remember seeing him in commercials a while back. And he invented something that if you go to a fast food place I guarantee you've used. Anybody know what that might be? Who could take a guess? He invented the drive-thru window for Wendy's. So he was an innovator and an inventor as a way to improve his business. 

And pretty innovative idea at the time. So as we start to get into business planning, this is an area where with our customers many of them don't think about it, and if we offered a program to talk about this, probably people wouldn't come. But we talk about it in business planning class and I want to bring it up here and that is you really need to think about who you are and your family situation and your personal circumstances. That's part of the business plan. Why do I want to do this? What do I have to bring forward to the business? So what is it you want to do? What are your personal and family goals? Your immediate family, whoever that encompasses, it's important to have support from immediate family and friends. Not only moral support but potentially financial support for your business. What kind of money do you bring to the table? Because people, nobody's going to finance your business without you putting some money into it. What other kind of risks are you taking, what kind of financial risks are you willing to take. And you're in a great position when you're younger, even though sometimes it might not seem that way, to say yeah I can take risks because really I don't have a whole lot to lose here. Whereas if you have children and you have a house and you start a business and it doesn't work well, then you might have more to risk. 

And what kind of experience do you have? And what kind of experience do you need to get in order to move business forward? So some business questions you need to ask. What do you need to get started for your business? And a business plan will help you figure that out. How much do you need to sell? Who are your target markets? What kind of employees, management or other help do you need to actually run the business? Financing questions. How much total money will you need to get started? How much money will you need to earn on a regular basis? How much money, I mentioned earlier, do you have to invest? Where will the other money come from, and how will you pay it back? A business plan will help you figure out how are you going to pay that back in the budget section. So these are, actually this the core of business planning right here. You're trying to answer these three questions. And I try to liken it to the fact that when you think of it as a creative endeavor, you're really thinking about that you're painting, think of yourself as an artist. You're painting a picture to tell us or you're writing a story. You're trying to paint a picture, what will my business look like if I move forward with it? What will it look like? What's the picture? Or if you're a writer, what's the story about my business? What am I going to do? How am I going to get there? Who is it for? How much money might I make? And if you're a social entrepreneur, how much money will we bring in to keep, you still want to keep the operations running. It doesn't matter if you're a nonprofit or a for-profit. 

It's all about having the financial support so you can continue the passion for whatever you're doing. So there needs to be financial viability whether you're a profit or a nonprofit. So these are the three most important questions that you're going to answer. What do you offer? Who do you offer it to? And why will they buy it from you? And as another author once says in a book that she wrote, why will anybody care? Why will they care? So a business plan is for your internal use. It's also for operations and management. It's for a score card so you can say well this is what we plan to do, how close did we get? A year later how close did we get to what we were thinking of doing? It's also great to take to a bank. Obviously, if you're going to get financing from a lender, you need some kind of business plan with a budget. Sometimes if you want to rent space in a very popular area of retail, as an example, they would ask for a business plan because they want to rent to the person that they think will be most successful. They don't want to have people fail and have to keep renting that space out again. Sometimes suppliers, if you think of the idea somebody, I forget his name, wanted to start hand sanitizing business, well if you were buying products from other people in order to make something, that's a supplier and they could give you credit. 

They could give you 30 days to pay or 45 days to pay. That is a way for you to cash flow the business. Be able to get your product, sell it to somebody else potentially fast enough to then pay the supplier. So that's a way of financing. So these are the things that go into a business plan. There's an executive summary, there's a basic description, what is the business, what are you going do? What are you going to offer? Products and services. Market research and analysis is really about the industry and about the market opportunity. And there's some slides on that. We'll talk about it in a minute. How are you going to promote the business? How are you going to run the business? What kind of risks there are and what's the budget? Think of, financial projection sounds scary, it's basically a budget. 

So here are 10 steps. And we'll walk through this and then we get to some exercises. So first thing is you want to list your personal goals. Why are you doing this business? Why are you doing this nonprofit? What is it you hope to accomplish? What's really the passion, the high level goals? And then, of course, eventually you get down to what are the financial goals so you can keep it running. You want to talk to friends and family. You want to get feedback about your idea. You want to get support for your idea. You want to do a personal budget. How are you going live while you're trying to do this? And there's all kinds of ways to figure that out. You could live on your own. 

You could have a part-time job. You could live with other people. You could live back with family members. So there's a variety of opportunities for you to try to figure out your living arrangements, your finances, but it helps to really figure out exactly how is that going to work. You want to positively solicit support from family and friends. When we talk to adults, think about people that have a significant other, or are married. What if your spouse or significant other is not interested in the fact that you want to start, what if it scares them that you want to start a business? What do you do about that? I don't know, actually, what you do about that. But the best thing to do is at least talk to them about it. Because you need to, if there's somebody that's really important in your life and makes a difference to you every single day, starting a business is a big deal so you want to talk to them about it. If they're scared, if they're not really, you want to find out. 

You because you want to be able to have that relationship. Sometimes people start businesses with friends or family. That's a really important consideration, it can cause all kinds of positive and negative issues. So it's something to investigate really carefully and really, really work through with those people that are close to you if they're going to work in the business. And how much risk are you willing to take? If you have $5,000 saved or $10,000 or $20,000, are you willing to risk all of that, and if you end up losing it then what will happen? Most likely you just go get a job. But just thinking through how much risk are you willing to take with the money that you have saved and your effort that you're going to put into the business. So step three, just start the business planning process. Which is describe your business. Describe your products and services. Describe your target customers as specifically as possible. 

The example that we have will be I think a really good example in regards to target customers. Step four would be to do market research. How many people here have done anything related to market research in the library? Show of hands. Okay, great. What kinds of things were you researching, Rachel? >> I was in Marketing 300, a class on campus, and we researched the jewelry industry. >> Okay, great. So Rachel researched the jewelry history in a marketing class. And what kinds of things were you looking for? >> Specifically our project was about diamonds and comparing different companies that offered diamonds and how their marketing strategies differed. >> Okay, great. So she was looking at the diamond industry and people that were competing in the diamond industry companies and how they promoted their business to get customers and how they competed in the marketplace. 

So that's a lot of what you do in market research. You're looking for who's there. That's a great example. How they compete, what they offer. You're looking for the industry trends. Things like, well think of technology as a really easy example. What are the trends in technology? What are the trends in customers' buying habits? When you think of things that we buy every day, especially if they're technology driven, what are the trends that people are looking for? Another thing you're really looking for is customer profiles. So can anybody give me an example of a customer profile? As in, how you would describe a customer by their demographics, by their behaviors, by their values. Anybody have an example of some research you've done? So what you'd want to be looking for is I want a target, I want to try to understand if I sell jewelry, using Rachel's example, what kinds of customers am I going to look for? And therefore, how am I going to target my advertising and promotion and my messages and my pricing. How am I going to think about the quality and the pricing of the products and what kinds of jewelry products, there's infinite variety of jewelry products. 

So what kinds of products I'm going to target to customers. So one of the ways to learn that is to actually have a job in a jewelry store or jewelry company and learn it from experience. Another way is to look at information in reports, marketing reports, from trade associations, from one of them that you can find and I put up here, IBISWorld is at the business school library that you could access. Find out how the industry itself describes its customers. As an example, who buys the most jewelry? Is it women or men? In terms of what ages, is there more jewelry purchased at certain times in people's lives and less? So what ages do people spend most of their dollars on jewelry? Or is it pretty uniform? That could be pretty uniform. Another example would be inexpensive jewelry to really expensive jewelry. How are the expenditures for jewelry over that continuum of inexpensive to expensive. And what kinds of people are purchasing more expensive jewelry. What kinds of people purchase less expensive jewelry. So that's all customer profiles that you can find that the industry understands already. 

Jewelry is a mature industry, it's been around a long time, there's a lot of data. They understand the customers and the trends. So you can get a lot of really great information in a market research report. You can also find out who the major competitors are. In a research report they may be talking about national or international competitors. If you're competing locally, you can go to the Internet, you can go to the Yellow Pages. Not as much, maybe, but still, Yellow Pages is still frequently used by lots of businesses. So you could go there. You could look in local directories. So you could find local competition fairly easily. 

And then sometimes there's financial information about how does a typical, we'll stick with the example of a jewelry store, a typical retail jewelry store, what do the financials look like of a profitable jewelry store? So if you were starting out at a jewelry store, you would have financial benchmarks and say if I can get to this average, I'll be profitable, and this is showing me how to do that. Trade associations are great for information. Anybody here know what a trade association is? Belong to a trade association? Yeah, tell us what that is. >> My mom works for one and what she does is she sets up shows where the buyers come and buy the products and stuff. >> Okay, what association? >> American Apparel and Footwear Association. >> Okay, her mom works in an apparel association so they have trade shows. They also collect data from their members which would be people that produce or if it's a retail association, people that retail, if it's producers, people that produce. And then they make that information available to their members. And so potentially you could access that information if you contact them, and they can tell you about trends, about customers, about competition and that can be very good information too. >> Oh, my God, Lois Lane's in trouble! >> Uh-oh. 

[LAUGHTER] >> Let her go! Let her go! >> I didn't hire him, honest I didn't. [LAUGHTER] But I don't know, maybe Lois Lane will be in shortly. We'll see. [LAUGHTER] >> Are you sure you didn't know about that? >> No, I didn't know about that. I have no idea who that is. [LAUGHTER] It's a good idea though. I should try it in one of my night classes. So one of the most important things you can do is talk to other business owners. And we encourage everybody to do that. Visit people that you know that you just think are savvy people, they've been in business, they've been successful. 

Doesn't have to be in the type of business or the type of organization that you want to run. They can have a lot of knowledge and street smarts and experience and really help you out. Another type of business owner to talk to is somebody that would be a competitor but they're not because they're somewhere else. So we live in the middle of the Midwest here, you could find a similar business in Chicago, you could find one in Minneapolis, you could find one in Milwaukee, you could find one in Eau Claire, you could find one in Stevens Point. So try to find successful similar business owners if you can in an area where they wouldn't feel competitive with you, and think about all the questions you'd want to know about running a successful business like theirs, because that's what you want to do, and interview them and see what kinds of information they'd be willing to share with you about why they think they're successful, what's worked for them, what they've done in their business that did not work so they can help you prevent mistakes. Maybe they could end up being a mentor of yours. So we really encourage people to talk to other business owners. And most people, some people will turn you down but most people will not only talk to you, they'll tell you a lot because people generally like to talk about themselves. They're proud of what they've accomplished. So it's a great opportunity to learn and it's definitely part of market research. 

So step five, you want to look for where are the opportunities. So if you're looking in that jewelry market, where are the opportunities? Where are the opportunities if you have a local store or if you have a regional store? Where are the opportunities to compete? Is it by price, a low end of the market, high end of the market, type of jewelry, type of target market? Where is your niche that you can make money at and serve customers? What value are you selling? Nobody sells products, nobody sells services, everybody sells value. The value if you go to an electronic store and buy a brand new flat screen TV, it's great, it's big, it looks nice, what's the value? What's the value? Why are you buying a TV set? >> Entertainment. >> Entertainment. That's the value. So what kind of entertainment value are you providing for the price? And it's always based on price versus value. Usually the more value you get the more it's going to cost. So what value are you buying? People buy value. Another way they talk about it is people buy benefits. Why is it benefiting them? Why are they doing it? So that's a great example. 

What's your competitive advantage? That's kind of fitting into that niche. They could go to other places. And some people will. You're not going to capture every customer so why are the customers that are coming to you, what's your competitive advantage? What are some really simple competitive advantages? Doesn't have to be complicated. If you have a retail store, what's one of your major competitive advantages? >> Price. >> Price could be a competitive advantage. >> Location. >> Location, right. That's the three most important things in retail. >> Location, location, location. 

>> Location, location, location. So you could have a similar store that's around plenty of places but maybe a new growing neighborhood doesn't have a store like that. Could be a dry cleaner, could be a hardware store. And so that could be a major competitive advantage that there really isn't anybody in a growing neighborhood that could use that type of retail store. So it could be what's probably the most important competitive advantage in owning a business? Goes back to one of the first concepts we talked about which was passion. Your competitive advantage is how bad to you want to do this. And we have people that come to our classes in the evening, adults that are thinking of starting businesses, and sometimes there really isn't something that is absolutely so unique about what they want to do that they will absolutely stand out amongst everybody else. There just isn't. But that doesn't mean they can't be successful, and really the biggest competitive advantage that anybody has in running a business is the passion that you want to make it work and you want to get customers and that you want to deliver value to those customers. So that's probably the most important one up there. 

Certainly, if you're interested in, through research and development, developing a new technology. As you know on our campus there's lots of research and development in life sciences. As well as an engineering and medical school and there's research all over campus. And competitive advantage could be intellectual property. It could be a patent for a new process or a new drug. So there could be a new medical device. So intellectual property can be a competitive advantage. But for all the traditional businesses that we know that are out there today, as well as nonprofits and other organizations, I think one of the things that you have to think about is that I have to really want this and the people that I work with, we have to really want this. That's our competitive advantage. What's your brand and reputation that you want to build? Positioning is a concept in marketing where you're positioning your business in the mind of the customer. 

Basically, do they understand the value that you offer. And if they said, if you gave a quiz to people, what are your three favorite jewelry stores, you would want the name of your store to come up on that list, the top three. Whatever organization it might be. And so the idea is that with all of your messages you want people to think positive things about your business and you want them to think about your business in that product category, it's called positioning. And that's really the brand and reputation you want to build. So you don't do that overnight but from the very beginning you want to be thinking about what reputation do you want to build with your business and just work on it every single day. The target market is the most important thing. Of all the things we're going to talk about today, priority number one is, the assumption is you have a product and a service and a passion you want to deliver. After that the most important thing is who do you want to deliver it to and is there a good match. Because if you don't have a good match it won't matter how good your business plan is. 

You have to have a good match for what your passion is, what you want to do and the people that you think can use that product or service. And so the target market is the key in a business plan. How are you going to make it available to people? Are you going to sell in stores? Are you going to sell it over the Internet? Are you going to sell it out of your trunk and go around neighborhood to neighborhood? How are you going to make this product or service available to people? What price are you going to sell it at? And what quality do you want to have for that price? Because you can't have the highest quality and the lowest price. Economically it doesn't work. And how are you going to promote it? And an important part of your plan that we see people fail, I won't say fail, they fall short on, is that they guess at well, I guess I need some money for promotion and when they look at their budget for their business they just pick a number. You really need to think about what activities will I do that will reach this important group of target customers and when will I do them? What month will those activities happen? What will those activities cost me? Could be advertising, could be trade shows, it could be other events, it could be sales activities if you have direct selling, it could be if you have a nonprofit it could be certain months that you really promote the services your nonprofit offers to the community. Which months is that going to take place and what are you going to do to promote it and what is it going to cost you. So it's really important to have a very strong promotion plan that has activities by the month and what they're going to cost if you're going to write a serious business plan. Because if you don't have that then you're just kind of wishing on a hope and a prayer that you've got some money put away for promotion and some ideas will come to you as you start and run your business. So step six, how we operate on a daily basis. 

You need to think about whenever you go to work in the morning, whether it be Monday or your business may run on the weekends, what are you going to do when you get there at 7:30 or 8:00 o'clock in the morning? What are the priorities for the business, and how is it going to operate? Even if you have a service business. You get customers, you deliver the service, you check the quality, you follow up, and then you have bill them, you have to get paid. So there's a process in every business, and that's what operations is about. How are you going to operate on a daily basis? Who's going to do the work? What kind of professional services do you need? In terms of who's going to do the work, what kind of education and training do you need, people to have, and skills, and what you might pay them. Another key after the target, having a product or service and a target market, the third key before you get to the financials is the management team. If you go to a lender, a bank or a nonprofit lender in our community, if you go to a lender and look for financing, after your idea and how you've described your idea in the business plan and the target audience, the customers that you want to reach, the most important thing is the management team. What is your experience knowing that type of business, running that type of business, that's key. People that provide, some investors that provide money to technology companies, they say they'd rather have, when you think of things like A, B, C, A being the highest, obviously, they'd rather have a B idea with an A management team than an A idea with a B management team. The idea doesn't have to be the best idea they've ever seen in the world but they want the management team to be really  good. They're willing to take a really, really good management team with maybe a slightly less great idea than they are to take a great idea and have a really inexperienced management team. 

So it is really important to success, and it's been proven over and over again. Aside from yourself, your management team can be the people that you hire even on a part-time basis to help you like your accountant, your attorney, the bank you work with, those kinds of people. Step seven, so here's where you get into the budget. And we weren't actually going to do that in the business plan that we're going to talk about in a little bit but the budget's important and there is a budget, there are financial projections and that if you want to look at those. So you start out real basic. What do I need to get started? If you're going to have a service business and you're going to run it out of your home, you need a desk, you need a chair, you need a computer, you need a printer, you need Internet connection, you need a website, you need a smart phone. What does that cost to get started? You might obviously need some promotional resources, promotional budget. How much do I need to get started? Then you look at what does it cost to run the business on a daily or monthly basis? Then you can figure out how much in sales do I need to actually pay for those costs? And then you set some profit goals and then you'd figure out how much as a baseline, when we talking very early on you have a nascent idea then you start up and then you kind of ramp up, you're kind of in their survival stage, you want to get enough customers to survive. Well, that's where break even comes in. At that point you're saying I want to know at what point will I not make money but I won't lose any money, I'll be breaking even. 

Because that's a major point in ramping up your business to get past the survival stage. I'm breaking even and the next step, obviously, is I'm going to make a profit. So that's really important. And then these are traditional business tools in terms of financial projections: profit loss, cash flow, balance sheet. We don't really have time to go over them today. There were samples in your plan that was sent to you. Step eight, you have to figure out how you're going to fund it. And a lot of businesses don't get a started with a lot of money. So you don't have to think that your idea needs $10,000, $20,000, $50,000, $100,000 or more. It might, but a lot of businesses get started with not a lot of money and it's scraped together with some savings, with a little family help and it's called bootstrapping. 

That means you take what little money you can get and you hope that you can figure out how to turn a profit a little bit at a time as quickly as possible so you can keep the cash going. So that's called bootstrapping, a lot of businesses do that. You can go to banks and credit unions. We all know that situation has changed but it'll get better again. For probably about 20 years it wasn't hard to get, if you had a good idea and you did good planning, it wasn't hard to get financing for a business. Now it's a lot harder. But it'll get better again, it might be a few years. There are local micro loan funds. Here in Madison, micro loans are $50,000 or less. So that means nonprofit organizations that are even willing to lend you just $5,000. 

A bank is usually not interested in doing a business loan for $5,000, as an example, they would consider that a personal loan. So Wisconsin Women's Business Organization, excuse me, Wisconsin Women's Business Corporation, they have micro loans. They're a nonprofit lender. In Madison, we have Madison Development Corporation and Dane County Development Corporation. They're a nonprofit lender. Many counties have nonprofit lending entities like Columbia County Development Corporation has a loan fund. So they're a nonprofit lender. So many communities across the country have nonprofit loan opportunities. Step nine, you want to get other resources. Classes, books, magazines, the Internet, other business owners I stressed earlier, I always repeat that because it's really important, trade associations, you could come to the Small Business Development Center. 

There's an organization called SCORE, used to stand for Service Corps of Retired Executives, now they just call themselves SCORE, and they're in the phone book and on the Internet and there are local chapters. Reference librarians are great people to help you with your research. You need to know the questions you want answered. You don't need to know where to find it. That's their job. So use the reference librarians and you're at a great university with lots of great library resources so if you're investigating a business, make sure you use those. This is a great website if you want to go to a website that kind of walks you through the business planning process through a web-based planner. The Small Business Administration, and I just checked that linked, they haven't changed it so it still works. And that's a great link. The Wisconsin Department of Commerce has a link where they list local business resources. 

So that's an opportunity for you. And then finally, before we get to the business plan example, when you put together a business plan it's your first pass, the first time you do it, it's your first pass, you could call it a draft, at trying to put together this story. Trying to put together this picture, this painting of what your passion is going to be. And the first time you go through it, especially when you get to the financial part, you might go, boy this doesn't look too good. It says I'm not going to make money. Well, that's your first try at trying to put this picture together and it's not always easy. So what we recommend people do is you could just say, okay I've lived through putting this picture or this story together, I've got a 15-page business plan, I've worked really hard at it and I'm no longer excited. I'm not excited about doing this, I'm not going to do it. Okay, fine so it's no-go. You're not going to do it. 

You could say this looks great. I'm really excited. It looks like I'm going to do really well. If it says you're going to be wildly profitable like in six months, get another business owner to look at it because it could be that maybe you were too optimistic. So you want to make sure you get some realistic advice from somebody. But still you're enthusiastic, you really feel like you want to do this and that's great. A lot of people are going to fall in between, and you're going to say this doesn't look so great. I'm not sure, maybe I should do this, maybe I shouldn't do it, but I'm not overly enthusiastic. Well one of the things you need to rethink it. Go back and say, why doesn't it look great? Why is it not making as much money as I hoped or it looks like it's going to be tougher to make money? Is there something that I need to rethink? Can I share this with other business owners and get their advice? Can I share this with someone at the Small Business Development Center or somewhere else? And then sometimes you need to rescale it. 

Rescale meaning its a way to rethink it. Maybe you've thought about starting this business too big to get started and you need to scale it back. As an example, not saying that people need to think about opening restaurants but it's a great example, in my neighborhood where I grew up there are a lot of independent restaurant owners and they always started out really small and then they were really crowded with lines out the door. And that was great because that builds your reputation, people want to go there, there's not enough room, and then if the storefront next door became vacant, then they expanded or they moved to a bigger place. And so that's an example of scale. You don't want to start out with like the biggest restaurant you can think of because it just is going to be great, it's going to look great. It's expensive. The more expensive it is, the more risk there is. So you'd say why don't I scale it back. I can have anything from a lunch truck to a small takeout restaurant to a small sit-down restaurant. 

If I make that work and I make money I can always make it bigger. So any business idea could be started out too big, and if your idea looks like maybe that's the problem in your plan, you can rescale it. Say how can I do that idea and just scale it back. Make it less risky. And that's the end of that slide. Any questions about any of this information? About what you're trying to accomplish in the plan? Okay, great. Well why don't we take a look at the business plan. How many people had a chance, I know I just sent it yesterday, so how many people had a chance to at least glance at the business plan and some of the things I asked you to look at? Not that many. How many people have it on their computer or printed out a copy? A fair number of people. Okay, well let's take a minute. 

I don't want to read the whole thing in class. I can put it up on the screen but it will be really hard to read so that probably won't be helpful. Let me just describe this plan to you a little bit. It's interesting and I want to talk a little bit about it so I do encourage you to go home and look at it if you haven't yet because I think it has some really great examples. It's kind of an odd plan. It's a real business. It was started in Wisconsin. It's disguised. And it's two families, two husbands and wives, started this business where they framed fishing flies. How many people know what fly fishing is about? You're a fly fishing person? Okay, great. 

So in fly fishing you go fishing with artificial bait, artificial lures, bait. And they're hand-tied with threads and different colors. And it's the kind of thing that most people, either they love or they try it and they say never mind this was interesting but I'm not going to do it again. Or they're really into it. So the interesting example about this business is that it's what I would call, it's marketed to enthusiasts. What would be other examples of people that are enthusiasts? Anybody think of an example of an enthusiast type of business situation? Harley would be one. So think about Harley-Davidson. When you see people that ride Harleys, what else do you see besides their bikes typically? >> Their jackets. >> Harley shirts, Harley jackets, Harley hats, Harley key chains and purses and wallets and Harley everything. So basically Harley is tapping into not just people that want to ride motorcycles, they're tapping into people that are enthusiasts. 

What I would say, informally, they're into it, they're really into it. Well, this is an enthusiast business. Fly fishing is kind of complicated. It takes a lot of patience. It's really interesting. So people that really do it a lot, usually people either really do it a lot or they don't do it at all once they try it. And so they're framing these hand-tied flies and putting them in frames that people would put on their wall. Who would do that? Would you think of like you have a new office in your home or you've got an office here at the university or you're moving into a new apartment that you'd want to decorate your walls with like frames of fishing flies. How many people would want to do that? So only people that are really into it. So what's nice about it is it's a really strong target market. 

Many people that come to our center and many of you, you'll think about who's the target market for our business and you'd say anybody could, not to pick on your idea, sure anybody could use hand sanitizers but you've already tried to narrow down that idea. You want to try to sell it in places where it's not available and see where that opportunity might be. That's a way to target. And that's really important to think about, and the way to think about target marketing, who might be my best customers? So everybody could be your customer but what category of people would be or could be my best customers? So this is a great example of a very highly-targeted market, and it's also people that if they buy they hopefully will buy a lot. Enthusiast buy a lot like that Harley example. They like to buy Harley everything. So that's what I like about this idea. I think it's interesting. Why don't we just take like two minutes, for those of you that have it, just read the executive summary. If you can share with somebody. 

And I want to be able to, for those of us that can read this, point out in the executive summary, which is on page 132, exactly what is in there that if you were starting a business you'd say, boy that's really good information to know. I would love to know that information about my business. Just like really quick, just like two minutes, we'll look at and we'll talk about a couple things in there.