Where’s my discussion of the secret sauce? Chelle Parmele from the BIG (business in general) blog asked me that a couple days ago, expecting it to be in this book. I was embarrassed. I talk about the secret sauce a lot, in my seminars and in my class, at the office. It’s definitively another view of the same reality I’m calling the heart of the plan. So that’s one thing to add for the next edition.

The secret sauce is the magic, also called (boring) differentiators, and sometimes competitive edge; Guy Kawasaki calls it “underlying magic” and recommends that it be one of the 10 (or so) slides is a pitch presentation. You can google it and see how people are writing about it, using it to define what’s new or different about some businesses. (You’ll also see some items on McDonalds’ secret sauce for the big mac, and some cooking stuff, but you’ll see what I mean).

This idea of the secret sauce is a good way to explain how you’re different from your competitors. What sets you apart?

Examples? Apple Computer’s secret sauce is design, for example. Michelin tires’ branding tries (in my opinion) to emulate Volve, the safety angle. My favorite restaurant in Eugene, Poppi’s Anatolia, has an extremely spicy version of vindaloo chicken. Whole Foods’ secret sauce is its having established the brand for healthy and organic foods. In cars, just look at the mini-cooper or the Honda Element or the Toyota Prius and you see secret sauce immediately.

I understand. Enough of the explanations and positioning, let’s get working on a plan. So go ahead, just jump in and do it.

• Most people like to start with the heart of the plan. Jump there now, you’ll see what I mean. It’s about what really drives your business. Your target market, your business offering, your strategic focus. And don’t worry about format; write it, speak it, use bullet points, slides, or whatever.
• My personal favorite is the plan review schedule. This makes it very clear that you’re after planning, and better management, not just a plan.
• Another very good starting point is the sales forecast. Some people like to get to the numbers first, and many people do the conceptual thinking while they work the numbers. Your target market, your business offering, your strategic focus are all in your head as you make your sales forecast. That’s not a bad way to proceed.
• Maybe you want to start with an expense budget instead. Estimate your payroll on an average month. Calculate your burn rate, a very important number, meaning how much money you have to spend per month.
• If you’re planning to start a business, startup costs is a good place to get going. Make lists of what you need, in money, goods, locations, and so forth.
• Particularly when you have a team, SWOT (strengths, weaknessess, opportunities, and threats) analysis is a great way to start. You can jump to the SWOT analysis now and do that.
• Some people like to set the scene better, with the mission statement, vision, mantra, objectives, or keys to success. That gives your plan a framework to live in. If you like.

However, there are some things in business planning, even plan-as-you-go planning, that have to happen in a certain order. For example, you can’t really just start with the cash flow statement without having done your sales forecast, burn rate, and some asset and liabilities assumptions.

Still, you can get started fast. I don’t blame you. Maybe you’ll jump back here (use your Back button) to continue the explanations after you’ve made some progress.

You can also do the big plan all at once! I understand. This new approach is great but never mind, you need the formal plan. You’ve been asked for it by somebody who might invest, or a bank loan manager, or a boss. Maybe you’re doing it for a business school class. I call these business plan events. When you need the old-fashioned full document, so be it; there’s a business need, so let’s get it done.

We’ll get there, in this book. You can jump there right now, and start writing things down, section by section. I’d rather have you develop your core plan first, then get the essentials including the who-what-when-how-much, the sales forecast, and the spending budgets (a.k.a. the burn rate: the amount of money that flows out of the business each month) but that’s up to you. “Get started and get going” means you can also do it the old-fashioned way if you want.

Business ideas are interesting, exciting stuff to build a business by, but they are worth nothing (in general) until somebody builds a company around them.

Opportunities are the best of the ideas. An idea is just that. An opportunity is an idea you can implement. You have the resources, and know-how to do it. There is a market. You can make money on it, and the investment will be worth it.

Good business planning filters the opportunities from the ideas. Apply the planning process to the idea to make it an opportunity. Determine the market strength, what exactly is needed, how long it will take, how much money it will take, what people are required. Lay it out into steps.

Not all ideas can survive the rigor of planning. Some fall by the wayside, ending up as interesting ideas that aren’t really opportunities.

Some of the factors that count:

• Risk vs. return. Is what it takes to pursue this idea worth the likely return? This is not scientific. It depends a lot on your business’ attitude about risk, and what other opportunities are available.
• Realism. How realistic are the forecasts? Give them a good look. Are you pushing the forecast to make things work.
• Resources. What will really be required? Think of people, know-how, skills, compensation, implied risk (paying people to build this company up). What are the start-up costs, including expenses required and assets required?
• Market potential. The heart of your sales forecast is the market potential. How much do people want or need the business offering?
• Business potential. How much money can the business make? How will this impact the business? How big is this opportunity, overall?

Recently I had one of those light bulbs go off in my head. I’m referring to those times when you’re reminded of something you already knew, but had forgotten. In my case today it was this: planning your new business, the one you’re thinking of starting, ought to be fun. Planning isn’t about writing some ponderous homework assignment or dull business memo, it’s about that business that you want to create. It should be fascinating to you. What do people want, how are you going to get it to them, how are you different, and what do you do better than anybody else?

Honestly, isn’t that related to the dreaming that makes some of us want to build our own businesses? It was for me, every time, including those ventures I worked on that made it and those that failed. Dreaming about the next thing I wanted to do was always part of it. Dreaming is related to looking forward, anticipating, and (in this case) business planning.

This came up this morning during my second day of video sessions for SBTV, which has been filming me on starting and managing a business and business planning. I was answering Beth Haselhorst’s question relating starting a business to getting out of the cubicle, when I realized that I was in danger of forgetting that business planning is part of the dreaming and part of the fun.

I think what’s important is that none of us should be intimidated by business planning. That’s why were doing the plan-as-you-go plan. The business plan is a way to lay out your thoughts and think them through — it shouldn’t be some dull ponderous task you have to fear or dread or put off.

If thinking through the core elements of your business, or for that matter the details of your business, isn’t interesting, then get a clue. If you’re not really looking forward to it, maybe you don’t want to start that business after all.

If you dread the planning of your next vacation, stay home. If you dread the planning of your new startup, don’t start it.

(originally posted in Up and Running.)

Validating the idea and understanding the business model are pretty important steps that should come before writing a business plan. That’s hardly a novel idea.

Still, novel idea or not, successful entrepreneur Vivek Wadhwa spells out the early stages very well in a BusinessWeek special report published in early 2008, “Before You Write a Business Plan.”

He starts with a short list for validating the idea:

1. 1. Write down your thoughts on the product you want to build and the needs you want to solve. You’ll be detailing your hypotheses.
   2. Validate these hypotheses with as many potential customers as you can. Ask them if they will buy your product or service if you build it. Learn about what features they need and what they will pay for, ask them for more ideas, and be sure that there is a large enough market.
   3. Build a prototype of your product or offer a test run of your service and again ask potential customers what they think about it. You’ll find that customers usually provide much better input when they can actually try out a product.

Then he also suggests a slightly longer list for developing the business model, as the answers to a series of questions:

1. 1. How are you going to find customers or have them find you? Are you going to advertise, cold-call or rely on word of mouth?
   2. How will you differentiate your product or service? There is always competition, so how are you going to set yourself apart?
   3. What can you charge for your product or service that’s profitable for you and provides value to the customer?
   4. How are you going to persuade potential customers to buy from you? Even great products or services don’t sell themselves; you have to develop a process for closing deals (BusinessWeek, 7/12/05).
   5. How will you deliver your products or services to your customers? Are you going to have a direct sales force, sell through distributors or over the Internet? Can you do this cost-effectively?
   6. How are you going to support your customers if your product breaks? Are you going to provide a telephone hotline, on-site support or answer e-mails?
   7. How are you going to ensure customer satisfaction and turn customers into loyal fans? Your success will ultimately depend on how happy your customers are.

These are good lists to go over as you consider your plan.

The fundamental shortcoming of most mission statements is that everyone expects them to be highfalutin and all-encompassing. The result is a long, boring, commonplace, and pointless joke.

In The Mission Statement Book, Jeffrey Abrams provides 301 examples of mission statements that demonstrate that companies are all writing the same mediocre stuff. To wit, this is a partial list of the frequency with which mission statements in Abrams’s sample contained the same words:

Fortune (or Forbes, in my case) favors the bold, so I’ll give you some advice that will make life easy for you: Postpone writing your mission statement. You can come up with it later when you’re successful and have lots of time and money to waste. (If you’re not successful, it won’t matter that you didn’t develop one.)

Make Meaning : The Art of the Start

You fall in love with your plan, and love is blind. You don’t see the fatal flaw.

I know a man who jumped headfirst into a new venture based on building a chain of used CD stores. The punch line? It was 2000. Napster was already there. Do you see the fatal flaw? He didn’t. And this was a man who’d had a string of successes.

Love is blind.

So here’s a trick that might, sometimes, if you’re lucky, help you see the fatal flaw.

1. It takes imagination. So close your eyes, relax your shoulders, take a deep breath and let it out slowly.
2. Jump in your imagination to the future. Go to three years from now.
3. Now pretend that, there in the future, you know that the business you are starting now, your baby, your dream, is over. It failed. I know, that’s hard, but it’s a game; it’s only in your imagination, so make that leap.
4. You’re sitting at a table, maybe in a coffee shop, maybe at lunch, and somebody asks you: “What happened? Why did it fail?”
5. Now, using your imagination, your intelligence and what you know about your business, answer that question. This is fiction now, so you have to tell a story. Make it believable. What happened?

This helps you think about flaws. Was it competition? Did the management lose interest? Was there not enough money? Did some new technology come in?

I don’t know for sure, but I believe that if my friend with the used CD stores had done this exercise, he would have come up with the possibility of a change in the way we deal with music, meaning Napster, downloading, iTunes and so on.

And, for the record, I haven’t done the research, either, but what do you think? Would you like to own a used CD store? What do you think has happened to the sale of used CDs?

(from Up and Running)

Nobody talked much about business models until suddenly a lot of businesses, valued for a lot of money, didn’t have them.

For almost any traditional business, the business model is so obvious that you don’t have to talk about it. Stores sell goods. Restaurants sell meals. Hotels sell lodging. Airlines and taxis sell transportation.

Think of the business model as how you make money. How you get money out of your customer’s pocket and into your bank account.

The new businesses, mainly web businesses, need to explain how they make money. Some of the most highly valued businesses in the world — Facebook, for example — don’t have an obvious way to make money.

Some businesses still get away with generating traffic, so-called eyeballs, but not money. The underlying assumption in these cases is that the traffic means a likelihood of being able to generate money somehow, some day.

And if you want to be really trendy, use the phrase “business model” to mean type of business. This can get really interesting. Take a look at Alexander Osterwald’s Business Model Design and Innovation, for example, a blog focusing on new ways to do business. Here’s how he defines the business model:

A business model is a conceptual tool that contains a set of elements and their relationships and allows expressing the business logic of a specific firm. It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams.

Along with that he adds nine points:

1. The value proposition of what is offered to the market;
2. The target customer segments addressed by the value proposition;
3. The communication and distribution channels to reach customers and offer the value proposition;
4. The relationships established with customers;
5. The core capabilities needed to make the business model possible;
6. The configuration of activities to implement the business model;
7. The partners and their motivations of coming together to make a business model happen;
8. The revenue streams generated by the business model constituting the revenue model;
9. The cost structure resulting of the business model.

This is perhaps a bit think in language, but still, a nice summary of a business. You could use this as the heart of a plan too, no? His value proposition is our business offering, his target customer segment is obvious; but our strategy adds more attention to your business identity and your narrowed strategic focus. This is descriptive. Regardless, it’s a good list.

by Jake Weatherly, Vice President of Customer Experience, Palo Alto Software

Performance Metrics - In the corporate world there is tremendous effort applied by management surrounding metrics, and this philosophy has trickled down to small business rapidly with affordable yet robust systems focused on metrics like CRM, IP phones, web analytics, search engine optimization, help desk ticketing and good old accounting. Why with all of this experience, infrastructure, and applied science is customer service generally terrible?

Key performance indicators in call centers surround call resolution time, call volume, number of open issues, and escalation data. Statistical analysis is done by another group of managers who are tasked with minimizing expenses and maximizing volume.

Even the smallest businesses are moving to outsourced call centers or building in-house teams based on these principals, and suddenly their unique competitive advantages - quality customer relationships, understanding goals and objectives, and domain expertise - are lost to real-time measurements that theoretically translate to higher levels of success. What is missing from these equations? If running successful call centers is such a science, why can’t my small regional credit union implement my change of address after one request?

What are the vital few in customer satisfaction?

It all boils down to the human factor. Empathy, patience, and the true desire to help people are the foundation. Building skills surrounding these key factors to provide excellent service can be accomplished through training, experience and quality infrastructure.

The vital few of customer service are things like repeat business, size of initial purchase compared to subsequent purchases, and feedback feedback feedback!

Believe it or not feedback about how our software would be better if it did X, Y, or Z is a huge indication of customer satisfaction. This means that the customer is really using the program, and they believe in the company behind the software enough to warrant taking time to share details about their experience.

When was the last time you sent the tech support person you spoke with a pizza for lunch? True story - we’ve received pizzas, unannounced visits, and even customers’ plans to publish as thank you.

It does not get more measurable than than a thank you pizza from a customer!

That’s in my vital few - I check on the number thank you pizzas we have received everyday around noon.

By Jake Weatherly, Director of Customer Experience, Palo Alto Software.

(reprinted from Business in General with permission. All rights reserved.)