Define (and Achieve) Your Company’s Three-Year Vision

Most entrepreneurs are driven by an overriding purpose when starting their business. Successful entrepreneurs take it one step further and develop a vision for future growth.

This vision helps guide the day-to-day operations and strategic decision-making necessary to achieve success, and also ensures that you maintain focus on an ultimate destination.

Before deciding what steps are necessary to move toward your business goals, you must be clear about your desires for yourself and your business. Identifying a three-year vision can provide this clarity.

CREATE YOUR THREE-YEAR VISION

What do you dream your business could be? Your vision can help you imagine your business beyond the details of its current day-to-day activities.

Don’t mistake the three-year vision for those formal vision statements with lofty aspirations that are framed and prominently displayed for all to read. A common problem with that kind of vision is that it often expresses nebulous and unattainable ideals.

Instead, the three-year vision is intended to be one that will help you visualize specific goals you want to attain within a three-year time frame.

To identify your three-year vision, focus on the future. Don’t forget to consider changes in the global marketplace, the internet and technology. And remember, a vision doesn’t have to be grounded in today’s reality. It is a goal to strive for, not a reflection of a business’s current position.

That said, it’s important to understand the current landscape of your business (and the larger market) as you craft your vision. You want to think big, but not set yourself up for failure with unrealistic expectations.

While your mission statement summarizes the business’s purpose, a vision paints a picture of what the future could look like — in other words, where you want your company to go. Answer these questions to help define your three-year vision:

• How big is your company?
• What is your company known for?
• What is your company’s competitive advantage?
• What does your company look like (locations, number of employees, etc.)?
• What do you want your company to accomplish?
• What do you, as the founder, want to achieve?

Examining the future is something you should enjoy. Creating a three-year vision is a chance to dream big and lay the groundwork so that you can chart a course to success. Embrace the brainstorming!

PRESENT VS. FUTURE: CLOSING THE GAP

Moving a business from the present to its vision requires a gap analysis. This process will help you identify the difference between the two and determine what changes in your business will close the gap and help you achieve your vision.

For example, if a business has recently seen its sales stagnate and its vision is to increase its profits, the entrepreneur could use a gap analysis to examine why the sales are flat, determine the best way to improve sales and pay attention to ways to increase profitability, even if sales do not grow.

Another entrepreneur’s vision may include increased production for her manufacturing business. Since her current space and equipment are already at full capacity, she could bridge the gap by identifying the steps needed to increase production, including new space, additional equipment, employees and the funds to accomplish these goals.

And that leads us to the next step: establishing goals.

SETTING SMART GOALS

With an eye toward their vision, entrepreneurs set goals for the organization, themselves and their employees. Then they measure the results and hold people accountable, including themselves.

It’s not enough to simply set goals. Instead, you must diligently work toward them and follow up by measuring your results and making improvements. One of the most important things you can do is to define your business’s most critical goals, then develop measurable targets, determine the gaps between desired and actual performance and implement a strategy to close the gaps.

Goals for your business should be SMART:

• Specific: Clearly defined by those who have the knowledge about their impact
• Measurable: Quantifiably defined in such a way as to
  gauge progress
• Achievable: Challenging and rewarding, but still within reach
• Relevant: Tied to current critical tasks and abilities of the team
• Time-based: Linked to an agreed-upon timeline

You’ll increase your odds of accomplishing your goals if you write them down and repeatedly re-visit them to help benchmark your progress, not only against the goals you created, but also against your larger three-year vision.

Consider the following example of an original three-year vision statement that evolved to include SMART goals:

ORIGINAL

Become a leader in the computer headphone/microphone industry, excelling in meeting customer requirements and providing the highest quality products.

NEW

Within two years, achieve 40 percent market share in the computer headphone/microphone industry, receive the J.D. Power highest quality rating in the industry and receive 95 percent or above good or excellent ratings on our customer-service surveys.

READY TO BUILD YOUR OWN THREE-YEAR VISION AND GOALS? REGISTER FOR KAUFFMAN FASTTRAC, A SERIES OF COURSES DESIGNED FOR ENTREPRENEURS IN ALL STAGES OF THEIR JOURNEY.

What is Six Sigma & How Can It Help My Business?

Can the Six Sigma methodology, so long known to be an invaluable resource for large manufacturers, also be used successfully by a small, entrepreneurial manufacturing business? Will it achieve goals and improve the bottom line?

The answer, of course, is “Yes!” But that’s only the beginning.

Six Sigma is not the flavor-of-the-month solution for all business problems. Instead, it’s a proven method for improving operations. As you prepare to start a business or look for ways to strengthen an already-existing company, it’s worth exploring and considering the advantages this quality improvement concept.

Companies that recognize the differences among feasibility analysis, pure business decision-making and Six Sigma can optimize their business performance. Six Sigma has become a key enabling skill of knowledge-based businesses, guiding companies to achieve specific goals and objectives.

WHAT IS SIX SIGMA?

Six Sigma is the careful, analytical thought process of solving problems using data. It is perceived as a breakthrough methodology, similar to the high-level skill a martial arts expert employs. Many of the world’s top corporations have used Six Sigma to increase profits by more than $100 billion in the past few years. Well-known leaders are GE, DuPont, Dell, Sun Microsystems, Bank of America, NEC, Hitachi and EDS.

The Six Sigma problem-solving methodology was originally conceptualized by Bill Smith at Motorola and later pioneered by Mikel Harry in the early 1980s. This groundbreaking work helped develop the Six Sigma recipe for success using known statistical tools and methods.

Six Sigma’s power lies in consistently using the methodology to improve confidence in predicting the expected output of processes, such as cost, quality, and delivery. Six Sigma “deployment” is the rollout plan of the Six Sigma methodology across an organization.

Statistically, Six Sigma performance defines a process that produces fewer than 3.4 defects per million opportunities for an error or defect. That’s a 99.999 percent on-target capability. Operationally, Six Sigma defines the continuous effort to reduce variation, improve the predictability of process outputs, and sustain improvements.

What is the statistical significance of the “six” and the “sigma?” A common measurement of variation, the Greek sigma symbol is used to represent “standard deviation” in a group. The practical notion is that “if a process can contain six standard deviations between the mean (average) and the nearest specification limit,” then the process has little chance of creating out-of-specification results. Most processes cannot sustain a Six Sigma state. Over time, 4.5 sigma above or below the mean has been considered a reasonable, sustainable goal.

THE TWO SIX SIGMA METHODOLOGIES

There are two basic methodologies employed in Six Sigma: DMAIC and DMADV.

DMAIC stands for Define, Measure, Analyze, Improve and Control. It focuses on improving existing processes that have not reached process “entitlement,” or an optimal state.

DMADV stands for Define, Measure, Analyze, Design and Verify. It focuses on ensuring that new proposed processes or those that have reached entitlement are implemented with minimal defects.

The following actions are important to the success of Six Sigma:

• Clear top-management support of Six Sigma as the organization’s process-improvement methodology.
• Commitment to using experienced Six Sigma professionals, including the development of internal resources and sponsors.
• Linking company business goals and objectives to performance goals and metrics that can be measured wherever needed.
• Using Six Sigma consistently to meet the goals that optimize shareholder values and lead to delighted customers.

Now that we’ve established some foundational Six Sigma knowledge, let’s take a closer look at how you can apply Six Sigma to your business.

SIX SIGMA AND YOUR COMPANY

How can you use Six Sigma methodology?

First, determine whether your business processes need to improve. Do they all perform optimally in cost, quality and delivery? If the answer is yes, you may need to complete a “measurement system analysis” to determine if the metrics your company uses are accurate. Almost every business process can be improved using Six Sigma methods.

Once you’ve established a need, you develop a “deployment strategy,” most often with the help of trained Six Sigma professionals on staff, as consultants, or both. Deployment follows these general steps:

• Perform a self-assessment to determine whether your business infrastructure enables the use of the standard consistent metrics and key process indicators needed to establish a baseline of current performance.
• Define gaps between current performance and the performance your customers expect. Modify or create new metrics, targets and specifications as required.
• Build a strategy map using tools such as the Balanced Scorecard, which link business processes to strategic direction.
• Use a Six Sigma consulting team to assist in deployment. Poor deployments usually result in poor performance.
• Develop internal resources using Six Sigma training and ensure the methodology becomes your company’s standard business process to “sustain the gains.”

Depending on the company, savings can range from $150,000 to $250,000 per green-belt (intermediate) project to more than $1 million per black-belt (complex) project. Under Six Sigma, cost is a leading indicator of improvement. But the numerous qualitative business benefits also impact customer satisfaction.

What is your business risk without Six Sigma? Small and medium entrepreneurial businesses are especially sensitive to defective parts or services. Although a larger company might weather a few defects, they can destroy a small company’s reputation and customer base. Small companies are also more sensitive to idle inventory and capital equipment, rework, absenteeism and machine breakdowns.

As an entrepreneur, your first step is to make sure your senior management team members understand that the company needs better performance and to gain their support. You can then begin your Six Sigma journey, basing its destinations on profit and growth objectives.

Identify a team of Six Sigma consultants to help with the process. Keep in mind that your strategic focus should not be on improving your bottom line and growth, but on enabling Six Sigma methodology to become your company’s route to “overachieving” your goals and exceeding customer expectations.

If deployed well, Six Sigma will become part of your company’s DNA. Improved profits and growth will follow.

REGISTER FOR KAUFFMAN FASTTRAC FOR MORE BUSINESS INSIGHT, TIPS AND RESOURCES.

As you start and grow a business it is important to spend time thinking about your business strategy. Think of the business strategy as your map — with it, you’ll determine the direction of your business and what you want it to look like in the future.

By clearly defining the strategy, you’ll have the guidelines and structure to develop your business or growth plan and achieve your business goals.

Remember, you cannot be all things to all customers. You do not have to be the market leader to compete successfully, but you do need to focus on your company’s strengths to find a way to differentiate from other competitors.

DEFINING YOUR BUSINESS STRATEGY

Once defined, your business strategy sets priorities for the company and management team and helps you attract and retain the talented workers you need.

Although individuals in your company may focus on different priorities to accomplish specific tasks, these priorities should not conflict with the overall strategic direction of the company.

Your business strategy can be defined in either several paragraphs or be written as a set of strategic statements. It is a summary of how the company will achieve its goals, meet the expectations of its customers and sustain a competitive advantage in the marketplace.

Your business strategy should answer these questions:

• Why is the company in business?
• What is our core strength?
• Which customers should we continue to serve or start serving?
• Which products/services should we stop offering, continue to offer or start offering?
• Why have we decided on these strategic directions?

Answering these questions will help you establish your strategic priorities. After all, you can’t be all things to all customers — nor should you be!

You don’t have to be the market leader to successfully compete, but you do need to focus on your company’s strengths to differentiate your business from the competition and help customers understand the value you offer, including features and benefits.

Let’s dig into two examples that not only showcase a business strategy in action, but also highlight the difference between a business strategy and business goals. In continuing with the “business strategy as a map” analogy, goals are the journey — in other words, how you’ll follow the map to reach a destination. If you want to prioritize these two elements, it’s often easier to develop your strategy first, then outline the goals that will help you achieve that strategy.

EXAMPLE 1: PINNACLE PERFORMANCE GROUP

Pinnacle Performance Group is a consulting company that provides performance improvement strategies, assessments and training programs to mid-sized businesses.

Pinnacle has successfully worked with a variety of service businesses on an innovative client retention process. Some of the most positive feedback has come from accounting firms and financial planners who have used these services.

Like many consulting companies, Pinnacle’s current revenues are tied to the number of hours the consultants can work, and the majority of its clients are located in a four-state area.

The Pinnacle team wants to grow the business. After conducting a SWOT analysis and brainstorming their three-year vision, they developed the following strategy and goals to accomplish them.

STRATEGY

Pinnacle Performance Group will offer performance improvement strategies, assessments, training programs and tools to help mid-sized businesses build sustainable futures, increase productivity, and develop staff and customer loyalty.

In addition to continuing its regional consulting services, Pinnacle will:

• Develop a software program based on Pinnacle’s successful client retention process.
• Create a turnkey training program that can be used to help potential customers achieve the greatest benefits from the client retention software.
• Broaden Pinnacle’s distribution activities to market the new client retention software and training program to mid-sized accounting firms and financial planners nationwide.
• Implement a marketing plan to position Pinnacle as the expert in client retention for accountants and financial planners.

GOALS

• Enhance the value of the Pinnacle Performance Group brand.
• Develop a revenue stream independent of consulting time that will provide 50 percent of Pinnacle’s sales revenue within three years.
• Increase the assets of the business so that in the next five years, Pinnacle could be sold to another company or individual.

EXAMPLE 2: O-FOODS

O-Foods offers a line of organic foods that range from cereal and soups to cheese and chicken. These products are currently sold at three company stores, and those products that can be easily shipped are also sold through the O-Foods website. In addition to the O-Foods branded products, they also carry other organic products.

Each of the company stores is located in a town with a major university; both students and working adults interested in a healthy lifestyle are their target customers. O-Foods attracts and retains a talented staff that provides product information along with a high level of service to its customers — creating a strong competitive advantage.

The following strategy and goals were developed based on their SWOT analysis and three-year vision.

STRATEGY

O-Foods will provide its customers with the freshest and finest organic food available. O-Foods’ team ensures each customer has an outstanding shopping experience by providing a high level of service and product information. O-Foods will:

• Implement an employee stock ownership program for those employees who have worked for the business for a minimum of one year.
• Develop an employee training program to further enhance all employees’ product knowledge and customer service skills.
• Create a unified look for the stores, the website and the product packaging.
• Design a marketing plan to increase purchases by current customers and attract new customers within the existing target markets.
• Increase operational efficiencies.
• Improve shipping capability so that perishable products can be ordered from the website and shipped anywhere in the United States.

GOALS

• Develop incentives to maintain high employee retention with a turnover rate of less than 20 percent annually for those at or above the assistant manager level and less than 30 percent for all other employees.
• Build the O-Foods brand.
• Increase profits by 15 percent each year for the next three years.

READY TO BUILD YOUR OWN BUSINESS STRATEGY BUT NEED MORE HELP GETTING STARTED? REGISTER FOR KAUFFMAN FASTTRAC AND GET THE INSIGHT AND RESOURCES YOU NEED TO START OR GROW YOUR COMPANY.

Writing A Business Plan? Read These Tips & Answer These Questions First

Effective business planning is critical to your company’s long-term success, including its ability to raise capital and grow. As a result, bankers, accountants, consultants, academics and other stakeholders have written volumes about business plans — the do’s, the don’ts and everything in between.

Here’s the thing: there’s no one right answer.

There are, however, some best practices and guidelines that you can use to create an informative and comprehensive business plan that provides the foundation on which to go to market or grow an existing company.

A properly prepared business plan should tell a story, make an argument and conservatively predict the future. All companies have different stories to tell, different arguments to make and different futures to predict, so the key is to showcase that information about your company.

In addition to telling a story, a business plan also includes setting goals, explaining your company’s objectives and outlining the steps you’ll take to achieve those goals and objectives. A well-written business plan lays out the best and most strategic path to growth, as well as the rationale for that strategy and the steps taken to achieve the strategy-driven goals.

In essence, a business plan articulates and explains

1. why the chosen plan to build the company and achieve the company’s vision is the best one;
2. what resources it will need to implement the vision;
3. what team members, skills and leadership is necessary to execute the vision; and
4. what path the team will follow to get there.

The most successful business plans also include insight on anticipated challenges, risks and contingencies. The more thorough the analysis, the better the chances that most of the goals set forth in the business plan will be achieved. You can’t predict the future, but you can plan for and anticipate possible outcomes. And the best place to do that is in your business plan.

YOUR BUSINESS MODEL

One of the most critical elements in your business plan is your business model — in other words, how will your company function and be profitable? Consider the following questions to help articulate your ideas:

• Who are we?
• What are we trying to do?
• What problem do we solve?
• How are we going to get it done?
• How do we reach our customers?
• Who else is doing this?
• How do we obtain our initial customers?
• Which are the easiest to reach?
• What is the target customer’s decision-making process?
• What market research have we done to be sure that anyone wants to buy this product or service at this price — or at all?
• Do we truly modify the way business is being done in our industry, or is this more of a fad or a trend?
• Are these targeted customer relationships profitable? How do we make money?
• What do we need to accomplish our goals?
• When are we profitable?

SENSITIVITY ANALYSIS AND CONTINGENCY PLANNING

Part of your business plan isn’t just who you are, what you offer, how you’re going to be profitable and what success looks like — it’s also a time to be proactive and plan for risks, challenges and contingencies.

Of course, these elements will vary widely depending on your industry and product or service. Now, however, is the time to examine those elements. What could have an impact on your business? Changing capital markets, customer demand patterns, new competitors or general market conditions? Weather? Something else?

Use your business plan to address these “what if” scenarios and how your business will approach each one. This sort of proactive approach not only demonstrates the depth of your knowledge, but can also give you the foresight you need to make quick pivots when challenges arise. Too many companies — including startups — get trapped in a reactive mode after a challenge or crisis occurs. While you can’t be prepared for every scenario, you can take time to understand some of the biggest risks to your company, and then outline contingencies to keep your company on a path to success.

You may also want to include sensitivity analysis in your business plan — in other words, a way to predict an outcome based on certain variables. Through sensitivity analysis, you can answer questions like:

• Will our business plan still be viable if 20 percent of our target customers don’t adopt our new product? 30 percent? 40 percent?
• What is the impact on our business plan if two key potential competitors become actual competitors?
• What is the impact on our business plan if we can’t attract new employees or strategic partners that we’ve identified as critical to implementation?
• What if we can’t raise the funds needed to implement the business plan?
• What if we have to give up more ownership and control than we had anticipated to raise the capital?
• What if we need to raise more debt capital?
• If we planned to borrow money to implement the business plan, what impact would higher interest rates have on the economics of that model?
• If our customers need to borrow to buy our products and services, what impact will higher rates have on these buying decisions?
• What if the market rejects the pricing structure that underlies the introduction of the new product or service?
• What if deeper discounts need to be offered to encourage customers to make the switch?
• What impact will this have on our margins?

The bottom line is that overly optimistic or weakly researched assumptions in a business plan can (and will) come back to haunt you. Even with conservative assumptions and adequate research, there are still many variables that can and will have an impact on the company. Sensitivity analysis seeks to anticipate the changes in these variables so that owners are not caught by surprise and, instead, better prepared to respond to those fast-moving changes.

TIPS FOR WRITING A SUCCESSFUL BUSINESS PLAN

Whether you’ve created zero business plans or 20, there’s no doubt they can be daunting to write. As you prepare to write or refine your own plan, keep the following tips in mind:

THINK LONG-TERM BUT ACT SHORT-TERM.

Be ready to modify the plan based on changes in market conditions but without taking your eye off the long-term goals.

EFFECTIVE BUSINESS PLANNING IS A CONTINUING PROCESS, NOT A STAND-ALONE TASK.

Don’t buy into the mantra that planning is a thing of the past. There are some who believe that market conditions are too dynamic and uncertain to make long-term business growth-oriented strategic planning possible. Yet in fact, fast-moving business conditions make the need for strategic planning that much more critical, provided that the plan does not sit on a shelf but rather is monitored and modified as conditions may warrant.

INVEST IN SYSTEMS THAT WILL GATHER COMPETITIVE INTELLIGENCE.

Information rules! If your company doesn’t have reliable data on the trends affecting its competitors and customers, then it’s dead in the water. Data is a key component of the business plan, as well as the insight-driven catalyst for changes to the plan or strategy.

CONNECT THE DOTS.

A well-drafted business plan understands and anticipates how all of the market forces and players fit together, taking into account social, environmental, political and economic influences and figuring out how these factors come together to afford your growth plans.

One common mistake is when the strategic assumptions underlying financial projections do not fit squarely with the written text of the plan. The ability to view things at 40,000 feet, 20,000 feet and at ground level — as well as the ability to see the dynamics of your markets at all of these levels — is key to effective growth planning.

And because these market conditions are never static and the relationships that connect the dots constantly change, you need to keep climbing the mountain to look down on the valley.

BUILD AN ORGANIZATION THAT’S COMMITTED TO GROWTH.

The commitment must begin with the leader or founder of the company, whose mission and passion become contagious, and everyone in the company focuses their efforts on meeting business growth objectives.

To achieve this, the company’s leadership must clearly communicate and reinforce the growth plans, objectives and strategies, reward those who contribute to the achievement of these goals and monitor the company’s progress, changing its course and direction as may be necessary.

If the course does need to change, these shifts in direction must be regularly shared with the company’s employees, together with an explanation for the need for the change. Employees at all levels will resent a change in direction without knowing it or understanding it and if they are not told how or why their positions and tasks must change to meet these new challenges.

DON’T BE AFRAID TO MEASURE AND MONITOR PERFORMANCE.

It’s critical to develop an objective set of metrics for each key area of the business plan. What does success look like to your company? It’s important to not only have a destination, but to also identify metrics against which your company can be continuously monitored and periodically measured against key goals.

The metrics may include sales, profitability, the number of new customer relationships added, growth market partners, the number of new employees, customer satisfaction, the level of employee turnover, inventory cycles, the number of new offices opened, warranty returns or even the number of new rounds of capital raised at favorable valuation rates.

Regardless of specific metrics, the growing company must build systems to track and measure these performance indicators and have the expertise in place to understand, analyze and properly react to this data once it has been reported.

DEVELOP HIGH-QUALITY PRODUCTS AND SERVICES.

As veteran entrepreneurs and professional advisors always say, a business plan is ineffective if the “dogs will not eat the dog food.” All business plans must revolve around a set of high-quality products and services that customers genuinely want and need.

Understanding what your company brings to the table — and how it helps your prospective customers — not only provides integral information to your business plan, but also guides your approach to the market and how you’ll bring your business from a plan to a profit.

READY TO BRING YOUR IDEA TO MARKET? REGISTER FOR KAUFFMAN FASTTRAC AND GET THE INFORMATION YOU NEED TO COMPLETE YOUR BUSINESS PLAN AND START YOUR BUSINESS!

What is a SWOT Analysis & How Can It Help Your Business?

A SWOT analysis is a useful tool to help you better understand your business’s current prospects for success.

Typically viewed as a strategic planning tool, a SWOT analysis can be equally helpful in the early stages of a business and can help established companies stay on track for continued growth.

In a SWOT analysis, factors that are internal to your business, such as key management personnel, are evaluated as strengths or weaknesses.

External factors, such as the economic environment, are described as opportunities or threats.

Your SWOT analysis will create a snapshot of your business’s situation, giving you the information to identify growth areas as well as possible challenges.

ELEMENTS OF A SWOT ANALYSIS

Strengths can be used to gain a competitive advantage. You will want to nurture your strengths.

Examples: recognized as market leader, adequate financial resources, strong management team, proprietary technology

Weaknesses are important because they need to be corrected in order to meet your goals.

Examples: cost disadvantage with competitors, weak market image, no clear strategic direction, lack managerial depth, outdated facilities

Opportunities could allow you to improve your position in the market or grow your business.

Examples: expand product line, add related service, form strategic alliance, target new market

Threats represent potential problems that you should consider and address.

Examples: entry of strong competitor, increased regulation, change in customer buying preferences

Take a look at items in one category and you may see how, from a different perspective, they can fit into the opposite category. For example, if you ignore an opportunity, it can become a threat if a competitor decides to use it.

DETERMINE YOUR COMPANY’S CORE COMPETENCIES

You can use the SWOT analysis to help determine your company’s core competencies. Competencies are those skills and tasks at which you excel and are valued by your customer.

A core competence is a capability that could help your business achieve a competitive advantage, such as an expert sales team, strong branding, efficient processes, proprietary technology or another asset that is critical to your success.

Your business may have many competencies, but your core competencies are those that help differentiate it from the rest of the market.

Examining your business’s strengths is a starting point to identifying its core competencies. Once core competencies are identified, they can form the cornerstone of your business strategy.

Think of your core competencies as your invisible assets. Though they do not show up on your balance sheet, they are resources that you can use to beat the competition.

Your core competencies will change over time, which is why it’s a great idea to periodically conduct a SWOT analysis.

REGISTER FOR KAUFFMAN FASTTRAC TO GET MORE IN-DEPTH BUSINESS AND ENTREPRENEURSHIP INSIGHTS AND RESOURCES.

< Back to Must Reads

4 Stages of the Product Life Cycle & How It Affects Your Marketing Strategy

Just as businesses go through stages, so do products and services. The product or service life cycle is determined by how long it’s marketable. Tracking the life cycle of your product or service is key to determining performance and profits.

Product life cycle also plays a critical role in marketing strategy. Depending on the stage your product or service is in, you’ll refine your marketing accordingly to help ensure optimal performance and results in each stage.

Let’s take a closer look at each of the four product life cycle stages, then examine how the product life cycle will affect your company’s marketing strategy.

THE 4 STAGES OF THE PRODUCT LIFE CYCLE

INTRODUCTION

Profits are low in this stage because things such as research and development, production and marketing costs are high. Prices are set high on the product or service to recoup some of the development and introduction costs (but may also be low as a way to more quickly build market share).

For example, microwave ovens that can now be purchased for $50 were priced between $2,000 and $3,000 when they were first introduced. In this stage, you’ll want to keep a close watch on the market’s reaction to your products and services and be ready to make changes. It sometimes helps to experiment with several different product and service configurations to see what resonates most strongly with customers, especially in the early stage.

GROWTH

Sales generally increase with the demand for the product. Cash flow improves and profits are at their peak.

Although competition may be minimal in this stage, it’s important to continually make refinements and stay ahead of the competitive curve. Build product and service development capabilities with the cash you get from increasing sales.

MATURITY

Sales may continue to increase or level off. Profits decrease since prices are continually lowered to compete. Still, a great amount of cash flow is generated through sales.

Conduct market research to determine trends. Adapt your product or service to meet the coming trends — this is the stage in which differentiation is more important than ever.

If you don’t look for new opportunities in new markets and new products, the coming decline stage will leave you with products and services that no longer sell.

DECLINE

Sales drop even though prices continue to fall. Profits are extremely low at this stage, but the product or service has generated sufficient cash flow during its life.

When a product or service hits this stage, many entrepreneurs reintroduce it with a new feature or create a new benefit. Simply increasing the size of a candy bar by 33 percent can re-start its life cycle.

Consider making changes to your product or service and/or the way you market it. You may decide to discontinue your product or service before losses eat into the cash flow generated by sales.

HOW YOUR PRODUCT’S LIFECYCLE AFFECTS YOUR MARKETING STRATEGY

Just as each stage of the product life cycle demands a different approach to the product itself, the stages also have specific effects on your overall marketing strategy.

In the introduction stage, for example, your marketing efforts will likely be focused on building brand and product awareness, as well as establishing and connecting with a target market.

Yet in the maturity stage, you’ll be fighting to maintain market share. Here, your marketing strategy could include incentives or promotions to further encourage adoption of your product or service over that of your competition.

In the decline phase, your marketing will depend on what’s happening with your product or service. If you opt to reintroduce it with a new feature or benefit, you’ll want to refresh your marketing strategy accordingly to share that information with current and prospective customers.

Opting to discontinue or liquidate the product, on the other hand, requires a different marketing message than a re-introduction, so you’ll want to plan and refine that message accordingly.

FLUID LIFE CYCLE, FLUID MARKETING STRATEGY

The product life cycle is fluid, and your marketing strategy should be, too. Knowing where your products or services are in their life cycle will help you determine refinements or adjustments you may need to make to align those products and services with the vision and strategy you’ve already developed.

This is where flexibility and agility are key attributes. It’s important to keep an eye on core business elements like your business plan and strategy, but you should be ready to adjust and refine elements like your marketing strategy depending on key factors like product life cycle, customer feedback and general market conditions.

TAKE A DEEPER DIVE INTO TOPICS LIKE PRODUCT LIFE CYCLE WITH KAUFFMAN FASTTRAC, A SERIES OF COURSES IN SEVERAL TRACKS DESIGNED FOR ASPIRING AND ESTABLISHED ENTREPRENEURS. LEARN MORE ABOUT AVAILABLE COURSES AND REGISTER TO BEGIN (OR CONTINUE) YOUR ENTREPRENEURIAL JOURNEY.

How to Identify Your Customer

You’ve created an idea for a product or service that you’re sure will be a hit. Now, here’s the next important question: who’s your customer?

By identifying and understanding your customers, you can assess their needs and determine whether your product or service will meet those needs (and, if applicable, how your product or service is better than the competition).

Research will help you determine the customer group most likely to purchase your product or service. This is your target market. Your target market may be businesses or consumers. By identifying your target market, its demographics and its buying and spending habits, you can more effectively focus your marketing and advertising efforts and ensure you’re reaching the right people.

In the preliminary stages of your market research, you may have many potential markets for your product or service. Use a variety of methods like market and competitive analysis, focus groups and other research to pinpoint the markets most likely to positively receive your business concept.

Creating a customer profile is one method of describing the individuals who comprise your target market. A customer profile can provide a clear picture of the type of person or business you are planning to serve. This information helps to drive your marketing strategy, promotional design, and sales process.

As you develop your customer profile (also called a persona), consider these additional factors:

THE CHOOSER VS. THE USER

Sometimes the customer who chooses your product or service is not the end-user. For example, you might create a great board game for children, yet children aren’t the ones who buy your game. The child is the user, but the decision maker is probably the child’s parent or guardian. The buyer is the adult who buys the game. The influencer is anyone who provides the decision maker and buyer with information. In this example, the influencer may be the child’s teacher, another parent, a neighbor, family friend or even the child.

When you describe your customer, consider whom you’ll be marketing the product or service to and who will buy it.

B2B VS. B2C MARKETS

Businesses can target other businesses or consumers. Entrepreneurs often refer to this distinction as B2B (business-to-business) or B2C (business-to-consumer) markets.

While some products or services are only marketable to other businesses or to individuals, some fit both categories. In that case, careful analysis can help determine which market has the greatest potential.

Whether your business is B2B or B2C, compile and consider both demographic and psychographic information.

DEMOGRAPHICS

Customers may be grouped by similar variables, such as age, gender, occupation, education, income levels, geographic location, industry, number of employees, number of years in business, products or services offered or other defined criteria. Generally, the Census Bureau, government or industry sources provide demographic information. Studies and trends are usually reported using predetermined variables from these sources.

PSYCHOGRAPHICS

Customers may also be grouped by similar psychographic variables such as values, beliefs, buying patterns, perceptions and lifestyle choices such as recycling, fitness, travel and hobbies. Psychographic variables provide insights into how and why customers buy. Although this information is valuable, it’s harder to collect because customers’ preferences change over time and this type of information often must be collected directly.

As part of your marketing plan, you’ll create an expanded profile of the potential customers who comprise your target market. For example, a golf ball manufacturer trying to identify the type of golfer most likely to purchase its product will consider the characteristics of customers in the golf market. The golf ball manufacturer needs to know demographics on customers: where customers purchase golf balls, how often they buy them, how much they pay, and their psychographic factors for buying golf balls, such as perceived value, desire for prestige, and price range.

You can collect demographic information about your intended customer from the Census Bureau and other secondary research sources that track consumer information. Psychographic information may require using surveys, interviews and other forms of primary research to collect information specific to your intended customer.

When businesses are your customers (B2B), you’ll collect general market information about them. This type of demographic information can usually be obtained from the Department of Commerce, Small Business Administration (SBA) or industry experts.

Psychographic information for businesses may be harder to locate as secondary research. B2B data may be collected from conducting informational interviews or reading about businesses you are interested in, contacting trade associations, industry experts, and others who are familiar with the industry or business group. You may find yourself doing industry profiles not only on your industry but also on your customer’s industry if the two are not the same.

Marketing a product or service to a business has some major differences from marketing to individuals. In sales to businesses, you may have fewer, larger customers, which can increase your efficiency and profits, as well as your risk.

INTERESTED IN MORE BUSINESS INSIGHT AND TIPS TO HELP BRING YOUR PRODUCT OR SERVICE TO MARKET? REGISTER FOR KAUFFMAN FASTTRAC TO LEARN MORE.

How to Prepare for the Risks of Entrepreneurship

Whether you’re just starting an entrepreneurial journey or you’re a seasoned, established entrepreneur, you’ve likely heard and read stories warning you of the downsides of entrepreneurship — namely, the risks.

And there are undoubtedly plenty. The risk of walking away from security and an established career path to create something new. The risk of taking yourself and your family into an unfamiliar storm of stress and uncertainty. The risk that you’ve miscalculated an opportunity, or your own internal resources, as you plunge into a new venture.

To seriously consider taking the entrepreneurial leap already sets a person apart from the vast majority of men and women who will never come close to actually leaving the world of wages.

But even for the uncommon, the reality of risk that comes with that leap — when the last paycheck is left behind and life is reduced to a single do-or-die mission — hits like ice water.

It is the most naked moment in a working life. It can be a powerful energizer. It can also be overwhelming if you are not, at some level, prepared.

RIDE THE ENTREPRENEURIAL ROLLERCOASTER

Tom Ashbrook, founder of HomePortfolio, Inc., knows firsthand the risks of entrepreneurship. He left The Boston Globe to launch HomePortfolio.com with a college friend. The web service helps consumers make choices about home design and helps manufacturers and retailers market to focused buyers.

“On plastic and prayer, we built the first deep online database of home design products: windows, doors, lighting, flooring, cabinetry, appliances, furniture,” Ashbrook said. “After almost losing our shirts getting started, we raised $72 million and made the site the national leader in its sector.”

Yet, Ashbrook added that the “story of the company we founded is still unfolding,” and it hasn’t always been an easy road.

“Here’s what it finally came down to in my case: about forty bucks left in the bank, a home leaning alarmingly toward repossession, enough credit card debt to keep a wage-earner underwater for years, and a marriage hanging by a frazzled thread,” he said.

Although there is a new management now in place, Tom was able to take the organization to great success.

Not all entrepreneurial journeys have such significant highs and lows. Yet there will most likely be obstacles, challenges and, of course, risks.

Just as you identify, consider and plan for risks in your business plan, it’s equally important to consider possible risks to your personal and professional life and do what you can to plan accordingly.

3 WAYS TO PREPARE YOURSELF FOR THE RISKS OF ENTREPRENEURSHIP

Based on his experience, Ashbrook offers three ways to prepare to “face the storm of risk that accompanies launching a new venture.”

ASSESS YOUR TOLERANCE FOR RISK BEFORE YOU DIVE IN.

Serious entrepreneurship is not blind adventuring. But even when you’ve done everything you can to minimize risk, it will still show up, alarmingly, at some point in your effort. Imagine how you are likely to respond. You may misjudge, but a tough exercise in self-awareness is good preparation.

BRACE YOUR HOME LIFE.

The pressures of a new venture are nearly impossible to compartmentalize. Despite your best efforts, they are almost certain to roll into your home, your family and your love life. Loved ones deserve a big heads-up and your acknowledgement that to no small degree they are being drafted into your dream. Their support will be critical. Their alienation could cost you more than a new business.

DON’T TAKE THE ENTREPRENEURIAL LEAP SIMPLY FOR MONEY.

Of course, you want to be successful. But follow a real passion in your venture, whatever it may be. That passion will carry you through the days when risks and obstacles seem insurmountable. When the chips are down, your passion can be a great stabilizer, a powerful antidote to the inevitable emotional challenges of risk.

AND A BONUS TIP?

“Finally, I tell my friends, only half-jokingly, try skydiving first,” Ashbrook says. “If it’s just adventure you want, that might get it out of your system. And it always comes with a parachute.”

LEARN MORE FROM FELLOW ENTREPRENEURS IN KAUFFMAN FASTTRAC, A SERIES OF ONLINE COURSES CREATED TO HELP YOU LAUNCH YOUR BUSINESS.