I get a lot of business plans that people send me for review. On one hand, it’s gratifying that they trust me enough to expose themselves. On the other hand, unless they’ve hired me to analyze their plan for deficiencies, I am reluctant to say anything because I usually don’t have many good things to say (and it takes a long time and I’m not getting paid to do it). In today’s post, I’ll analyze some facets of a recent plan I got. The things I’m covering are the kinds of things I see popping up in plans these days or are things I usually see in plans that need to be corrected. Also, if you’d like me to kick the tires on some elements of your plan, feel free to submit them. Of course, you won’t be identified anymore than anyone could identify the authors of today’s plan. All of your proprietary details will be kept strictly confidential.
Business Goals and Objectives Short-term goals:
- Deliver 4 unique collections per year
- Generate sales of $125K
- Increase exposure and market share to fashion-conscious customers in metropolitan areas.
- Establish 30 and 45 day credit terms with suppliers
While the plan’s author doesn’t define the span of what constitutes “short term”, these goals aren’t too bad -with the exception of the credit terms. If you’ve got all your ducks in a row, these goals are fine, excepting the credit terms. Now, I doubt the plan’s author will see that last goal as a stumbling block -and it shouldn’t be- but it’s typical that you’ll need to be a supplier’s customer for at least a year before they’ll extend 30 day terms. 45 day terms are so rare as to be unheard of. Now, if you’re going great guns and buying lots of fabrics from the same people repeatedly and you’re not a pain in the butt customer, it’s possible that they’ll extend 30 day terms within 6 months. There’s always exceptions but these are the general rules.
The sales figures of $125K are doable but the introduction of 4 collections a year will be a tight stretch. If you have a solid team -meaning one of the principals is an experienced designer/pattern maker- I might consider it. Still, producing 4 collections a year and only generating $125K from it doesn’t sound like a good ROI . Not by a long shot. The goal of “increasing exposure and market share among consumers” makes me a little nervous because this is usually something I read in the plans of people who really intend to become brands rather than manufacturers. I get nervous because these people usually want to spend disproportionate amounts on advertising and promotion rather than investing in their education and learning production well. You must have a solid product before you spend money pushing it. I realize a lot of big companies don’t do that but they’re just labels or brands -not manufacturers- and that’s not what I do. If you want to be a marketing company, that’s just marvy -really- but don’t send me your business plan. I don’t know anything about it so I can’t make it work for you.
- Reduce the cost of goods sold by 10%, while maintaining the high product quality
- Introduce 5 new products into the product mix
- Establish Annual Growth of 25%
- Open a flagship store within our primary metropolitan region
Okay, it’s in the introduction of the mid-term goals where things get sticky. First of all, I get nervous when I read blanket pronouncements regarding goal reductions in the cost of producing goods, particularly with goals as high as 10%. This usually means that the designer thinks their greatest ability for cost containment lies within the production phase. If you’ve read the book (the whole thing but mostly pgs 195-212) you know this is false. Your greatest ability to control costs is leveraged from the start up phase. Still, most people share the common misconception that they will have gained some leverage with their contractor for price reductions, if nothing due to greater economies of scale but this is rarely the case. Not to say you can’t reduce costs through economies of scale but it’s rarely this dramatic. Moreover, the savings end up getting eaten by something else that you hadn’t been spending money on but now need to.
Introducing 5 new products into the mix is doable, provided one means styles rather than profoundly distinct product types. In other words, you can add five dresses if you’re making dresses but you can’t add a bra, a pair of shoes, hats, sweaters and outerwear and expect to have a good result. That’s just not tenable (see pgs 48-49).
Now, actually realizing an annual growth rate of 25% is laudable -at the outset- but rare. If you’re going to make a go of this, it’s more typical that growth is higher than that. I know from polling amongst all of you that growth rates of 100% or more is closer to being typical. If that’s not right, correct me but I think it is. You don’t have to go hog wild and say your growth rate was closer to 300 or 400 percent because I know that but if I put that here, people will think I’m lying. The fact is, if you know what you’re doing and price it well, you can make a lot of money in this business. But again, therein lies the problem. The whole reason that most of you are on this website in the first place is because you’ve been taken by surprise by the growth in your businesses and are often strapped (time, money up front etc) to meet demand. It’s growth that is the undoing of most DE businesses, not lack of sales. So, while I agree that a 25% goal of increased sales is just dandy, you must be prepared for one of two eventualities. The first is, if you only want to grow that much, you must establish strict production goals that you won’t be tempted to exceed. Second, if you’re willing to grow beyond the 25%, you must manage it carefully.
The idea of opening a store -flagship or otherwise- should be stricken from every DE plan. I take a hard line on this. This goal doesn’t belong here much less belong under “mid-term goals” (an undefined period of time). First, you need to get manufacturing under your belt. Once you’ve become confident and competent at that -it’ll take more years than you think it will- then maybe you can think about retail. If you do later consider retail, that whole thing needs to be in it’s own plan, it deserves more respect than to be stuck in as the tail end of a bullet point list. Retail just isn’t that easy. On a personal level, I think that manufacturers insult retailers by thinking they can replace them so readily. Retailers are guilty of the same kind of thinking too. The point is, you can’t be at the mill and the store at the same time. Now everybody thinks they are the exception to the rule but it rarely works that way. The only exceptions I’ll support are retailers who already have established concerns and who want to add a few styles they’ve designed into their own outlets. That’s it .
Next in the series, I’ll analyze long term goals.
Entries in this series:
Analyzing business plans pt.1
Analyzing business plans pt.2
Analyzing business plans pt.3
Analyzing business plans pt.4
Analyzing business plans pt.5
Analyzing business plans pt.6