Wednesday, July 20, 2011

Lemonade 101: A Business Case for the Business Plan

Back in the days of the lemonade stand, we knew intuitively that we needed to make more money than we spent to have money left over.  But embedded in this equation are important strategic questions such as what`s alluring about your lemonade, the customer service attitude that you need to win customers, the cleanliness of your stand, and keeping the lemonade cold during the slow periods.

Many businesses get off the ground with good old fashioned entrepreneurial zeal and zest.  They are lucky or very well connected. Or both.  But there are inputs. And inputs can either save you money, cost you money, or make you money depending on how well you know them.

Profile of Firms and Owners 

A report entitled The State of Entrepreneurship in Canada , produced by Industry Canada, provides a profile of the characteristics of firms and their owners. A first basic question to ask is how business ownership is changing among Canadians. 

The Report shows that: 
  • In 2003 over one in 20 working Canadians (5.5 percent) was self-employed and had an incorporated business. 
  • By 2008, 6.3 percent of working Canadians were self-employed with an incorporated business, which is an increase of 15 percent. 
  • While there are a lower number of women business owners compared with men, there has been a larger increase in the number of women business owners over this five-year period: an increase of 17.2 percent for women compared with an increase of 12.8 percent for men.
Here are some interesting facts: 
  • Roughly one in 15 working Canadians owns an incorporated business.
  • Just over one-third of Canadian SMEs are owned by women.
  • Canadian SME owners are acquiring higher education levels.
  • Canadian SME owners are becoming older and need to start planning for succession. We will soon see a greater transfer of businesses to next-generation family members or to outside buyers.
  • Canadian SME owners have become more diverse, reflecting a greater diversity in the Canadian population.
  • Owners of larger businesses are wealthier.
  • Most SME owners started their business from scratch.


    Reasons for Failure 

    Industry Canada`s report on Small Business Research and Statistics reveals the following reasons for failure

    • Recent Statistics Canada data show that over two-thirds of micro-sized firms (less than 5 employees) and almost half of small sized firms (5-99) fail within five years of start-up. Nearly 80% of all new SMEs are gone within 10 years.
    • Almost half of the firms in Canada that go bankrupt do so primarily because of their own deficiencies rather than externally generated problems. They do not develop the basic internal strengths to survive. Overall weakness in management, combined with a lack of market for their product, cause these firms to fail
    • The main reason for failure is inexperienced management. Managers of bankrupt firms do not have experience, knowledge, or vision to run their businesses. Even as the firms age and management experience increases, knowledge and vision remain critical deficiencies that contribute to failure. 
    • In the early stages of life, internal deficiencies are so prevalent that most bankruptcies occur for these reasons. Management must master the basic internal skills – general and financial knowledge, control, communications, supervision of staff, and market development – or it will fail solely or primarily from the weight of these problems. As a surviving business grows, a new set of problems arise that are associated with the increased complexity of running an older and often larger firm.
    • Managerial issues such as the poor use of outside advisors, lack of emphasis on quality, and unwillingness to delegate responsibilities, departure of key personnel, and personal problems associated with the owner/manager become relatively more important factors contributing to failure as a firm ages. (From Baldwin et al.: Failing Concerns, 1997)


    How to Succeed 

    Business Planning is identified as the top skill needed for small business owners, operators and entrepreneurs, followed by marketing, sales and service, fiscal planning and human resource management. 

    Box 1: Framework For Management Skills and Competency Standards and Guidelines
    For Small Business Owner/Operator/Entrepreneur
    Prepared for Sector Councils Steering Committee by Robert Dénommé and Associates, 1995
    Competency Blocks
    1. Business Planning
    2. Marketing/Sales/Service
    3. Fiscal Planning
    4. Human Resource Management
    5. Business Operations
    6. Professionalism
    7. Automation (Technology)
    8. Industry Awareness
    9. The Business Cycle
    10. Entrepreneurial Values

    Box 2: Small Business Owner/Operator Competency Guide
    Sector Councils' Steering Committee and HRDC 1997
    A. Professionalism
    1. Exhibit Professional Skills
    2. Communicate Effectively
    B. Business Planning
    1. Define Business Planning Terms
    2. Evaluate Status of Business
    3. Implement Business Plan
    4. Describe Strategic Alliances
    C. Finance
    1. Prepare Budget
    2. Manage Accounting and Cash Control
    D. Marketing
    1. Prepare Marketing Plan
    2. Use Promotional Activities
    E. Human Resource Management
    1. Evaluate Human Resource Plan
    2. Hire Employees
    3. Train Employees
    4. Manage Employee Performance
    5. Dismiss/Lay off Employees
    F. Operations
    1. Manage Office Operations
    2. Manage Products and Services
    3. Manage Projects
    G. Sales and Service
    1. Maintain Positive Business Image
    2. Manage Products and Services

    Box 3: Core Management Competencies (Gasse 1997)
    Positioning/Adapting, Strategic Planning/ Implementations
    Leadership/Involvement/Communications, Learning/Training
    Organizing, Managing/Decision-Making
    Cognitive Ability/Information, Financing Capabilities
    Technical Capabilities, Entrepreneurship/Innovativeness, Shares of Markets and Export Rates

    The Opportunity 

    The bottom line on success is that it takes a toolbox of skills and competencies to create success.  Small business owners can access the tools and services needed by contracting and partnering with professionals in the community.  


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    Anonymous said...

    Wow,Lynn what a great blog!!!You have put a thought into it and obviously you are very experienced.Keep up the great work.