There are two main categories of describing your customer base. One is looking at your customer base from a demographic prospective, and the second is looking at the benefit variables. So what does this mean in plain English?

Demographic variables lump your customers together, often by physical and statistical characteristics. This is sometimes called “population segmentation” because it looks at statistical information based upon a population and then divides people into groups. For example, what is the age range of your customer base? Are they mostly male or female? Are people of a particular ethnicity and/or religion particularly attracted to your business? What kind of household income do they have? In what zip code do they live? Do they own or rent their apartments? Do they live by themselves, have roommates and/or families? Are they married, single or divorced? Do they have kids? What kind of jobs do they have? Do they own cars? What is their educational level? A great free source of demographic information is the US Census, conducted every 4 years: http://www.census.gov/. The “American Factfinder” section presents the information in an accessible manner.

Demographic data can become particularly helpful if you have a location-oriented business. For example, you want to open a restaurant, bookstore or clothing store in a specific neighborhood. By checking out the neighborhood demographics you should have a better sense of who is actually living in the neighborhood. For example, if you want to open up a daycare facility in a particular neighborhood, it would be helpful to find out what percentage of the local residents has children. If it’s only 2% of the population, perhaps there is not enough demand for your business to be profitable. Or if you want to open an upscale clothing boutique where a dress retails for a minimum of $200, you want to make sure the population has enough money to afford the clothing.

Demographic information only tells part of the picture. As you know from experience, not everyone who has a household income of $250,000 feels the need to purchase a $200 dress. This is where describing your target market according to benefit variables becomes useful.

Describing your customer according to benefit variables looks at what are the needs or benefits that your customer seeks.

There is a music educational program for babies and toddlers in my community. The business has been operating for about a year and the owner is in the process of developing a marketing plan. She researched the demographic information, but found that it was a bit broad for her needs. She wanted to start analyzing her current customer base. So we discussed benefit variables for the types of customers. To develop a list of benefit variables, we asked, “why are people purchasing my services?” or “why does a parent enroll his/her child in my class?” Here are some of the reasons:

* Parent thinks music education is important
* Have a fun time doing the classes
* Want a place where the young child can socialize with other children
* Classes are at a reasonable price
* Location is convenient
* Class times are convenient
* Like the instructors
* Want something to do
* Doing it because a friend is also enrolled

So you can see that even though 95% of the participants might share the same zipcode and other demographic information, what compels the individual to make a business purchase can significantly vary.

A third way to describe your target market combines demographic information along with consumer spending patterns and behaviors is “psychodemographics”. Basically select market research companies have analyzed not only a population’s demographic information, but also looked at what they have spent their money on as well as their socio-economic status. They’ve developed a series of categories that describe different types of people, such as “Bohemian Mix”, “Urban Achievers” and “Landed Gentry”. To get a free taste of what this is, visit MyBestSegments.com. You usually need to purchase psychodemographic information.

Ultimately, when developing your business plan, your goal is for the reader to have a clear picture of who exactly is your customer. So in reality, most customers are described by using benefit, demographic and psychodemographic variables.

Developing a customer analysis is often a lot of work and requires a combination of market research, intuition, common sense and risk! I’ve found many business owners, especially of new businesses, find the process intimidating. To get started, I suggest just brainstorming 5 different types of customers. Use whatever variables come to mind, whether they are demographic or benefit. Try to add as much detail to your description as possible and don’t worry about it being correct – you’ll make sure it is later on. The main thing is to get this process going.

After you have this list, then start using some of the above sources to start checking out whether your gut and intuition matches reality.

More tips and techniques on marketing next issue!

If you are opening an environmentally friendly dry cleaning service you need to show that there is enough interest in the local neighborhood to run a solid small business with steady conservative growth. However, if you are planning on developing a nation-wide chain of these environmentally friendly dry cleaning services, then you obviously need to demonstrate that there will be substantial and rapid growth. Therefore, you will look at both the local as well as the national markets.

It’s important to define the scope of your market according to what makes sense for your business. This serves three particularly important purposes:

It demonstrates that you know your market. You’d be surprised by the number of people with whom I’ve worked that opened a business without really thinking who would buy their product and/or use their service. Investors want to feel comfortable that you, the business owner, already know your market and how to reach and entice them. They don’t want to give you money and then have you figure this out. That’s a waste of their money, plus, it’s risky. So it’s important to effectively communicate this in your business plan.

I recently read a business plan for a men’s retail clothing store in Chelsea , Manhattan that would sell cutting edge designers. Designer jeans would retail for $150 and higher. Up to the marketing section, it was a very solid business plan. The business owners seemed to be very familiar with retail and expressed a clear vision of their business concept. Yet the marketing section didn’t show the same level of clarity. If you have been through Chelsea , it is easy to picture this business – I could see it doing well in this particular neighborhood: the residential population is well to-do and there are already a number of high fashion-oriented stores and restaurants.

When describing their target market and its size, the authors said that their target market was all men in New York City between the ages of 25 and 59. They proceeded to show statistics on the number of men in NYC that fit this category.

It is tempting to show that there are millions of people who are interested in buying from your business. At times, however, this looks unrealistic and silly. I know plenty of men between the ages of 25 and 59 who reside in New York City who A) are not interested in fitted, cutting-edge style; and/or B) would NEVER, EVER spend $150 on a pair of jeans! I’m sure you do too! I do know some men who do fit this description, but certainly not every man that I know in NYC.

The business plan writers did not seem to have a realistic sense of their market and the size of their potential marker and this undermined what was otherwise a really good plan.

It helps you focus your attention. You’ve usually made a good guesstimate as to who is your customer base and therefore, it can help set the tone of your activities. For example, if you think the bulk of the customers for your environmentally friendly dry cleaning service will be environmentally-concerned baby boomers, then you might use one set of graphics and messaging on your marketing materials versus if your main customers are white-collar business professionals. For the business professionals you might stress pickup and delivery services as well as extended hours. Perhaps you might let them make online payments. However, if you are focusing on the environmentally-concerned baby boomers, you might include a lot of educational materials on the processes and detergents you use and how they are better for the environment.

It helps you make realistic plans for growth. I’ve read business plans that call for aggressive expansion in their first three years of operations. The financials tend to look pretty good at first glance. However, when you start to dig into the details behind these numbers, it becomes unclear as to whether or not the entrepreneur really thought through all of the activities that are necessary to execute this ambitious plan.

Sometimes the financials look fantastic, because the entrepreneur forgot to add the expense of hiring additional employees! Having a number of different groups of customers is great for the potential growth of your company, but it also means that you will need to do more. You might develop different marketing campaigns and product/service offerings.

If you plan to physically expand, it also means that you need to have the physical capability of scouting out new locations, signing leases, dealing with contractors, etc. You need to think through as to whether or not you can physically handle this growth and this market size.

So, my usual answer to “managing it all – or not?” is NOT. We’ve all heard about businesses that expanded too rapidly. I think that most businesses are best served focusing on a few target markets. Try to develop a good solid foundation with these core customers and then look to get “Big”.

More on the specifics of defining your target market in upcoming issues.

* Why You Should Write the Business Plan Yourself: Issue I
* Motivation to Start Writing Today: Issue II
* Knowing Your Plan’s Purpose: Issue III
* Your Business Description: Issue IV
* Your Products & Services: Issue V

Let’s jump in!

After detailing the products and services you will provide, it’s now time to starting the Marketing Section of your business plan. “Market” is one of those tricky nouns that actually have a number of different meanings. The Compact Oxford English Dictionary outlines four definitions: “1. a regular gathering for the purchase and sale of food, livestock, or other commodities. 2. an outdoor space or large hall where vendors sell their goods. 3. a particular area of commercial or competitive activity. 4. demand for a particular commodity or service”.

You can see already that the Marketing Section of your business plan is going to have to cover a lot of ground!

I think the section should include information about the following “markets” for your business:

1. The group of consumers to whom you want to sell your product or service (“target market”), in other words, who are the people and/or businesses who will buy from you? Since there are now so many ways that a customer can learn about your business and purchase from you (online, telephone, fax, etc.), most of the time when someone asks “Who is your target market?” she is asking you to identify your customer base.

2. Your geographical environment (what is it like where your business is located/operates?) Traditionally, it refers to the geographical environment in which you operate your business. For example, if I have a clothing store on 80th Street and 3rd Avenue in New York City , I could say that my market is the “Upper East Side” neighborhood of Manhattan.

3. What is the state of your industry? Is there a flurry of business activity and growth, such as in nanotechnology or the healthcare sector? Has there been a decline or stagnation in growth, such as for many video rental businesses?

4. What is going on with your competition? Is there fierce competition or very little? Who is your competition?

In upcoming issues we will go into each of these subsections of the marketing plan in detail. In the interim, keep jotting down your observations and notes. Remember, writing a business plan is an organic process. You think of an idea, check out to see if your idea matches reality, and then tweak your plan accordingly.

First, the reader wants to know what it is that your company does. Does it produce a product and/or provide a service?

Businesses tend to be divided into those that focus on delivering a service and those that are focused on a product. Understanding in which camp your business falls can assist you with figuring out how to orient your business.

An example of a product-oriented business is Sharon’s company that has developed a delicious new organic chocolate chip cookie.

On the other hand, Rhonda has a company that helps small businesses tackle their computer problems. Her company provides a service and is not focused on selling or developing a product.

So take a moment to think about your business idea and jot down whether you are more of a “product” or a “service” business.

Now it’s time for you to start describing your product or service. What is it? What does it look like? Why might a customer want to buy it? What purpose or need does it fill?

Going back to Sharon’s company, she might determine that her delicious new organic chocolate chip cookie will be sold in snack packs that contain 2 cookies and easily fits into lunches. After baking cookies in varying sizes, she determines that they will be 6” in diameter as they are less likely to break or crumble at that size. She also thinks that psychologically, the size will be big and small enough to be a “small indulgence”. She thinks her product will fill the needs of a customer who seeks products that are more environmentally sound and potentially more healthy, with fewer additives.

Sharon might want to describe any cookie varieties (with or without nuts, for example), the sizes, and packaging options.

Many entrepreneurs become entranced with either their product or their service. Remember, that just because your business is more product oriented, doesn’t mean you shouldn’t address the service side of things… It’s important to have a strong sense of each and how they complement and interact with each other.

Perhaps Sharon will offer a toll-free line for retailers that sell her cookies. Or maybe she thinks that it’s important to offer a money-back guarantee for purchasers, to encourage them to try the cookie.

Why is this a good idea? Because many companies find themselves strengthened when they offer superior products as well as service.

To investigate this issue, let’s look at the restaurant industry… I think looking at the Soup Nazi episode from the TV show Seinfeld is particularly helpful. The “Soup Nazi” ran a small storefront and made soup that apparently was so delicious, that adults were willing to wait on a long line and get yelled at when buying the soup. Definitely a more product focused business. In this case, the Soup Nazi was able to build up his business due to a superior product. By the end of the episode, one of the characters, Elaine, discovered a stash of the Soup Nazi’s recipes in an antique cabinet.

With the Soup Nazi’s recipes, Elaine had the tools to open up her own store that will sell food that is as equally as delicious as the Soup Nazi. What might set her apart? The service… What if her product was just as good but she was nice to customers? The Soup Nazi might lose many customers.

Remember one of your favorite dining experiences… It probably was the right combination of excellent food, good ambiance and great service. In fact, it was so good, that you recall it now with pleasure. Within your own business, you should aim for the right balance of product and service as well.
So, in an effort to strike the right balance for your business, if you have already described your main “product”, take some time to describe the “service” of your business. Or, if you described your company’s “service”, now describe its “product”. For example, Rhonda might only use premium computer parts in her computer service company.

To help you do this, analyze companies that you enjoy to consistently work with and purchase from. List three companies that you think are good. Underneath each name, list 5 reasons why they make you a satisfied customer. Try to get specific. For example, I really like it when I go to Jay’s Fruits and the cashier says “good morning”. Or, I really like it that when I’m purchasing a MP3 player from Andrea’s Audio, the saleswoman took 10 minutes to explain to me my choices.”

After looking at these other businesses, think about how you might incorporate the same spirit into your own business.

The next section of your business plan is the time to delve into the core of who is your business, and what your business does. The business description covers a lot of information, so you might wind up with several sub-headings…

The Where
The first task is to cover the basics of where is your business. The first question you must answer, is where is the business based? Depending upon your business location, the business will be subject to different regulations and laws. These can range from the company’s tax rate to the strictness of local zoning ordinances.

To learn about the local business climate, you can check out your department of state, local development corporations or business improvement districts as well as Small Business Development Centers. For example, if you want to operate a store in New York City, you should learn about New York State’s requirements as well as New York City’s. To do this, you can check out the following websites: http://www.dos.state.ny.us/ and http://www.nyc.gov.
These organizations often have answers to frequently asked questions and can point you to the resources you might need, saving the entrepreneur much valuable time and energy.

So the first task is for you to decide where to locate your business on a few levels. The first level is where will your business be legally formed. Second, where will your business operation be based? Thirdly, where will the bulk of your business transactions take place?

In some cases, a business will be legally formed in one state, but actually perform the bulk of its business and have a physical location in another state. For example, I had one client who formed a corporation in the state of Delaware and opened a retail store located in the East Village of Manhattan, New York State. However, as her business evolved, the bulk of the purchases for her product took place on-line. In a sense, she had three business “locations”.

The What
Along with identifying the location(s) of your business, you need to state the legal formation of your business. There are three basic types of legal forms: a sole proprietor, partnership and corporation. Many people ask me, “Which is the best one?” The right answer varies according to your individual situation.

Legal forms of organization differ according to the amount of personal liability an owner might have, the tax rate, cost of formation, the ease of transferring ownership and the level of control. The legal form can also impact the ability of the business to raise funds.

For example, Joanne is a sole proprietorship. In a sole proprietorship, the owner is the business. Therefore, any money Joanne makes from the business is reported on her personal taxes. Therefore, the tax rate is lower. Since the Joanne is the business, she can make any and all decisions and does not need to check in with anyone. The drawback is that should the business face a lawsuit, Joanne’s personal assets are on the line.

On the other hand, Joanne might form a corporation in which she is 100% owner. The corporation files its own, separate tax returns and is taxed at another rate. In order to make major decisions, technically Joanne must get the majority of the vote from her corporate board. A major benefit of forming a corporation is that should the business face a lawsuit, in most cases, the business would be responsible for the settlement, not Joanne.

To learn more about the specifics of each legal form, first steps can include checking out information posted at www.sba.gov and www.irs.gov. When deciding which form to choose, it is a good idea to consult a lawyer and a CPA, as the tax laws and liabilities can vary according to your industry.

The Who
Thirdly, you should identify the ownership of the company: who owns what. The reader wants to know upfront, who has control and is responsible for this business!

The Result
Ultimately, you are doing substantial research for a fairly short and very important paragraph. Your final result might look something like, “XYZ Clothiers is a New York State based corporation, which is owned 80% by Allison Lehr and 20% by Ms. Smith.”

In this sentence you’ve demonstrated to the reader that you have chosen the legal form and tax structure of your business as well as who are the owners. The reader already understands the level of liability, who are the key players in the business, and what laws pertain to it. This is very helpful information!

Next issue, we’ll focus on the bigger “what” of your business, the description of your product and services.

* Executive Summary (you write this last)
* Statement of Purpose
* Business Description
* Products/Services Description
* Marketing Plan
* Operating Plan
* Management Team/Personnel
* Financial Plan
* Supporting Documents

Through the combination of these sections it should be clear why this business is a real opportunity worth pursuing. The reader should get a clear understanding of what the business is, from how it makes money and operates, to the ways it will get customers to make purchases, and the costs of operating the business.

Why you are writing it
Business plans can be written for a number of reasons, from making sure that the business partners have a clear and mutual vision of the business, to a tool for developing a new strategy. Therefore, in the statement of purpose, you declare the purpose of the plan. Perhaps it is “to seek $150,000 in funding from a Small Business Administration bank loan” or “to create a strategic plan to expand into a larger store location”. Some of the common reasons why people write business plans are:

* To obtain sources of funding, whether it’s a business loan or equity investment
* To help the entrepreneur and management team focus or explore a new idea
* To communicate the entrepreneur’s vision of the company to the entire company
* To sell your company to customers, suppliers and investors

The statement of purpose reminds you why you are writing the plan, which helps you determine what information to keep and exclude in the business plan.

For example, Adriana was interested in opening a hair salon after working several years as a hair stylist. She was in the fortuitous position of having friends and family who wanted to give her money to realize her dreams to start the salon. Although her investors did not require a business plan, she wanted to create one. Adriana felt that writing a business plan would help make sure that everyone investing in the business clearly understood how she would operate the business and decrease the likelihood of the investors having false expectations.

Adriana also wanted to have a clear sense of how much sales she would need to sustain and then grow the business. Having spent most of her time focusing on creating good customer service and staying current in the latest styling trends, she knew that she didn’t feel really strong with figuring out the money side of the business.

The resulting business plan reflected Adriana’s reasons for writing the plan. She viewed writing the business plan as an opportunity to flush out her concept as well as improve her business skills. Once the business was up and running, she knew that she would find it hard to find the time to learn basic accounting. Therefore, she really took the time to learn how to do a detailed sales projection and financial assumptions.

When it came to the management section of the business plan, Adriana chose not to go into much detail regarding her background and only briefly mentioned her previous experience. She did not need to demonstrate her expertise as a hair stylist: the investors had already observed her work. Adriana did, however, want to draw attention to her skills at growing and maintaining a steady clientele. Included in the appendix was a client chart that listed all of Adriana’s current clients, the average price tag of each customer’s visit and the frequency in which they used her service. She thought that when she had moments of self-doubt, she would find it comforting and confidence boosting to have a list of her business accomplishments thus far.

Adriana also used most of the section to describe her responsibilities in the new business. This allowed her to think through what her job description would be. Given her situation and purpose of the plan, writing a management section with extensive information on Adriana’s experience might not have been the best use of her time and energy.

Keep in Mind Your Audience
Knowing the purpose of the plan is important because then you also have a better idea of who might be the reader. In Adriana’s case, she knew exactly who would be reading the plan and tailored the document accordingly.

A reader who is a bank officer or venture capitalist will need to have certain information in order to decide whether or not to provide funding. For example, if you are writing a business plan for a bank loan, you are writing for a lender who wants to make sure that your business is strong enough to pay back a loan on time in each month. When in doubt about your plan, always ask yourself, “If I put myself in my reader’s shoes, is this answering the question that I have. Is it easy to understand and find in the business plan?”

How can you find out the information that the reader is seeking? If you’re going to a bank, most banks have helpful information on the small business sections on their websites. Another source of information is the Small Business Administration’s website (www.sba.gov). You can also look at books on business plans at your local library. Another thing is to do it the old fashioned way and just ask!

So what do I write?
The statement of purpose itself should be brief, often ranging from one to four sentences. It can be as simple as “MY COMPANY seeks a $150,000 Small Business Administration bank loan in order to grow the business into a profitable enterprise. The owners have invested $100,000 of equity to start the consulting business.”

In this case, you are laying on the table what you want as well as what you are bringing to the deal. After giving some thought and time to the purpose of the business plan, you will move on the business description section of the plan. More on this will soon follow. Happy writing!

I propose the same philosophy with writing a business plan. The first draft you write certainly won’t be perfect or your final. The business plan is a work in progress, an organized way to research and organize your ideas. Writing the business plan is as much about the process as the product. So get yourself comfortable to ease into it!

Do It!
Choose an environment that will help you to concentrate. It can be a home office or a Starbucks. Start off with blocking off some time to begin. If all you have is 15 minutes, then block off 15 minutes. Sometimes by waiting for an hour of free time we are really spending several months procrastinating…. During that time you might have had four 15 minutes sessions!

Bring writing materials. If you prefer computers, use one. However, if you are someone who likes to handwrite ideas, then get your favorite pad and pen. Without editing and judging yourself, start write about your business. If you know the name of your business, jot it down. Describe the type of business you are exploring. Are you a design consultant or a Portuguese restaurant? Start to flush out your idea…. Is it a home-based business or at a particular location?

Other business basics that you should address at some point are legal status (are you a corporation or sole proprietor), hours of operation, and the names of owners.

Then move on to talk about the services and/or products your business will offer. Feel free to embellish and dream!

I have a client who said that she was interested in making chocolates. In New York City we have many chocolatiers, and I was unsure if she saw her chocolates as the kind that would be sold alongside a Hershey’s or in an exclusive store on Madison Avenue. Either vision would lead to her researching different types of markets and require a distinct set of business activities.

After speaking with her for some time, I learned that she is actually interested in adding exotic spices to the candies and envisions them being sold at stores like Bloomingdales. These are incredibly important details, so include them.

Flush your description out so that the reader can get a mental picture of your concept. No detail is too small. Write as though you are describing your idea to an intelligent 6 year old. The child won’t have too many preconceptions about the business, and needs to understand simply what you plan to do.

Don’t Get Stuck
If you don’t know the answer to something, that is fine. You don’t need to drop everything to find out the answer immediately. Work on questions that come easily to you. Stop writing when you’ve exhausted answering the easy questions. If you realize you need to obtain an answer to some question or conduct some research, simply acknowledge it and move on.

Expect the draft to be messily organized. Eventually you will organize it to follow the format of a traditional business, but at this point, it’s more important to put down the thoughts that are in your head on the paper.

Be Kind To Yourself
When you’ve finished writing a section, no matter how little or undeveloped, congratulate yourself for actually sitting down to write it! You’ve started the first important step- making it happen. Put it to the aside, and then re-read it. Add additional thoughts or questions you might have. You might want to start researching to find information for any of the questions that you had a hard time answering…. The main idea is to keep visiting it. Soon it will be time for you to turn you attention to the next section of the business plan, which we will cover in later issues.

Developing a Business Plan is important to the business owner on multiple levels.

You HAVE to do it.
If you’re going to seek funding either through investors or bank loans, one of the first items requested will be a business plan. Basically, this is where you get to describe what your business is, what funds are needed and how they will be used. You describe the business with words and numbers (the financial statements).

An interior designer came to me, looking for financing. We started working on the business plan and as we worked together on the financial assumptions section, she described how she bills her clients. It became clear that if she slightly upped the deposit amount she asked of her clients, and billed her clients on a more systematic basis, the strain on her business’s cash flow would be significantly less. Turns out, through the process of describing the details of how her business operates, she was able to come up with an alternative solution to obtaining a large loan.

Generating New Ideas

Even if you are not actively seeking financing, the business plan is a structured way for you to hash out your business idea. It disciplines you to think about your business from multiple perspectives, and to set down in writing the assumptions you are using in starting and operating your business.

The best business plans I’ve seen are those which are very clear, so that even an intelligent 8-year can understand what the business is about. I recommend to my clients that they always pretend that they are explaining their business to this young child. Don’t feel the need to use jargon and fancy terms— a business plan is meant to communicate clearly and not confuse.

I’ve often found that the more concisely and simply someone can describe one’s business, the easier it is for her to communicate with customers, investors and consultants. It becomes easier to incorporate lessons learned from other industries and sectors, when you know how to articulate your business from different points of view.

The business plan becomes a point from which to launch discussions and develop new strategies.

It’s good for YOU.

One business owner makes the most scrumptious scones and can write amazing press releases but breaks into a sweat at the thought of doing a sales projection…. Another feels comfortable crunching the numbers but isn’t convinced she knows how she will find out the market research numbers themselves. Writing a business plan will prompt you to work through these questions, especially if you have someone to provide you feedback. As you encounter the sections of the business plan that you find more challenging, you have an opportunity to gain and strengthen your business skills. This process gives you a broader skill set from which to manage your business.

Writing It

So what about the business plan itself? Over upcoming issues we’ll go into more depth on the various sections that comprise a business plan. In the meantime, there are a number of plans and guidelines online. For example, many commercial banks have sections on their websites oriented to small business. They often offer business plan templates and guidelines. Also check out the organizations listed under “Resources.” These are organizations that will help you through the process and cheer you on.

The most important thing is to just write it! Happy writing!