Lesson 2: What Are You Selling?
In this section, you will describe your company's products and/or services in detail. Determining your future products, projected development, and how you will produce and deliver to your customers are key aspects of your product strategy.
Current Product/Service
The current product description in your business plan should highlight the unique, distinct, or improved features and benefits of your product. Many companies begin with a unique idea for a product or service that grows in scope over time. These product insights, and subsequent methods of exploiting them, often provide a compelling story. This section is of special interest to bankers and investors because they want to know what sets YOUR product or service apart from the competition, how well you produce your product or service, and what new trails your company may be blazing.
Proprietary Technology Proprietary techonology is a new or unique product, application or intellectual property in the market which may be protected under patents, copyrights, trademarks, etc. Your company gains this legal protection when registering with the U.S. Department of Commerce's Patent or Trademark Offices. The registration of your product provides you with legal protection and recourse in a court of law if a competitor tries to copy your idea.
Return on Investment Return on Investment (ROI), when related to your products and services, should be viewed not only from the perspective of your customer, but also from the perspective of your company.
Most customers purchasing your product want a return on their investment in terms of cost savings, improved efficiency, or improved convenience. To ensure customer satisfaction, it is important to identify HOW your product delivers value for the money.
One way some companies look at the situation is that their own revenues and profits should in some way be related to the benefits and savings that are generated for their customers by their product or service. This is quite subjective and difficult to track accurately. A more straightforward approach to ROI is to take the net profit (after taxes) generated by the products and services you sell and divide it by the total amount invested in development and marketing. In shotr, ROI = Profit/Investment. It is generally presented as a percentage of change over time.
Useful Features/Benefits Customer satisfaction is increased when the customer understands the features and benefits of your product or service. Make sure you are addressing the needs and wants of your target customer, and distinguish your offer from the competition.
It is important to keep this in mind as you design and build your product and service line. Just because your technology or development staff can create it does not mean that customers will want it. If it will not sell, it will not generate a return on investment. Without the promise of a return, a product will not get funded, and your business will not get off the ground.
Your product and service should be designed with the customer's needs in mind,.
Product Life Cycle The product life cycle can be broken into four stages: introduction, growth, maturity and decline. Each stage of the prodcut cycle poses both opportunity and risk:
Introduction: Here, a product or service is first introced to the customer. This can be either a whole new industry or a new product within an existing industry. You will be trying to gain recognition for a new product or service. The risk you face is that no one will want your product or service and that your business will fail.
Growth: In the growth stage, your sales are expanding and you are trying to establish brand loyalty. This is the most risky stage in the product cycle. You will gain greater customer acceptance, but you will also encounter new competition from other businesses who may want to jump on a good thing.
Maturity: If you start a business in an existing industry, you will be entering the market in the growth, maturity or declining stage of the product cycle. In the maturity stage, there are usually only a few strong companies that dominate the market and entry in to the market is often difficult because customers have already developed brand loyalty. To be successful in this cycle, a business would require some type of unique twist or difference in their product or service to gain market share.
Decline: The final stage of the product life cycle is characterized by decreasing sales and companies exiting the market. Typically a company in this stage is liquidating inventory or other assets in an attempt to raise additional cash. Eventually the company will either go out of business or the product will be withdrawn from the market. We see car manufacturers stop producing certain models, or software companies come out with newer versions of their software applications.
Shortening Life Cycles In recent years the time taken by many products to go through their entire life cycle, from introduction to maturity and decline, has decreased considerably. While the typical life cycle for a kitchen appliance used to be five or more years, it may now be three years or less. This is true in a growing number of industries. For example, in the electronics and software industries, product life cycles that may have been three years in the 80's have now decreased to 18-24 months. Rapidly developing technology, improving processes and more informed consumers all shorten product life cycles.
The companies that can identify market needs precisely and act rapidly to fill these needs with a high-caliber product will be the ones that survive and prosper. A company fully committed to meeting customer needs and maintaining its own prosperity should have a product or service portfolio that includes items in their various life cycle stages. In this way, it will always have new items ready for introduction as some of its other items are entering their declining stage.
Your business plan needs to reflect your company's awareness of these issues and its preparedness to act on them.
