The Potato Chips Business Plan

If you were given an opportunity to make and sell a bag of Potato Chips, where, how and why would you sell in a particular market place?

Here is what you need to know:

Manufacturing cost:

Consider all costs associated to manufacturing a product that can be readily shipped to a target client. Namely a convenience store or a grocer who will stock and make it available for sale to the end consumer who will buy it.

Learn about local regulations and costs and time taken to comply with these regulations.

Supply chain cost:

Consider all visit associated to supply and distribution. This includes how it is packed, how many packs per box, how many boxes per shipment, how many shipments per store and how many stores per week will you deliver your product.

Place/MARKET:

Absolutely and clearly define your target market. What is the population of your target market that your production cap icy can serve?. If 1% of Indias’ market is your target market then your target market is 14 million. Or 10% of Englands market is 5.6 million, 5% of USA is 16.6 million. Pay attention to your numbers. These are just a percentage of the general population. Not the exact number of target consumers who will buy your product. Can you efficiently manufacture and sell to this market size?

Market research:

Learn, research and directly approach a considerable Amount of your target consumers and learn about their buying behaviour of your particular Product, their affordability, buying frequency, buying influencers, product preferences, where do they buy the product from etc. You need to intimately understand how and why will your target consumer buy your bag of potato chip over your competitors.

The biggest mistakes business founders do is to assume that if their product fulfills a “need” the consumer will buy it.

Competition:

Conduct extensive research on your top competitors. Their product, their marketing techniques, product positioning, how and where do they sell, who are their distributors, which stores do they sell, what is their marketing strategy, how are they priced, what are their sales figures, and most importantly, what is their competitive strategy. You need to know how will they directly compete with your product when they see your bag of potato chips beside their on the store shelf?.

Most business plans do not have this addressed in sufficient detail.

Product:

If you have conducted a detailed research and are deeply entrenched in the world of potato chips, you will now have a very clear understanding of your target consumer and product range available to your target market.

Then you can begin to design and develop your product. Pay attention to its quality, differentiator, looks, competitive advantage, packaging, consumer appeal, texture, etc.

Many businesses do the mistake of selling the packaging instead of the product and fail eventually. Yes the packaging is an integral part of the product, but consumers pay for the product and not necessarily for the packaging.

Marketing costs:

This could be a major expense depending on your target market and competition. But this could be one of the most exciting part of your business as well. You have an opportunity to be put your creative best forward and build a plan to influence your target consumer directly to pick and purchase your product from the shelf over your competition.

Design an efficient and highly impactful marketing strategy within a reasonable budget that includes, packaging, distribution, advertisement, retailer incentives, promotion costs when you enter your market etc.

Pricing:

This is a very critical part of your business plan. For you to win the market, your pricing strategy should be near perfect. Most importantly it should be well within your target consumers buying criteria. After all costs considered, even a $0.25 cents profit is an excellent margin. You have to remember that the money is not in your margins, it is in the number of bag you sell. You can always hammer your costs down once you are able to scale up to increase your margins.

Your pricing strategy should focus on sales and a sustainable and scalable business that will NOT get stuck half way through with no cash flow. Pay attention to Cash Flow!

Sales plan:

A very high number of businesses fail because they overestimate their numbers! The biggest mistakes they do are to assume:

1) My product and packaging is so great that everyone will fight over each other to grab it from the store shelf.

2) If I get it on the stairs shelf of a major retailer, the product will sell on its own.

3) Although my target market is 10% I have taken just 2% of my target market into consideration for my sales plan. So there is a great chance I will succeed.

Anyone can build a sales plan with costs and revenue to show profits over time. That is basic. A real sales plan needs to show how, why and when you will break even, grow, scale up and sustain your margins over time. In other words, you need to very clearly and almost accurately demonstrate how, when and when will you hit your 1 million numbers. 1 million numbers are your first 1 million in bags moved to the market, your first 1 million in sales/revenue, your first 1 million in profits.

Purpose:

Once you have all of the above. Ask yourself why are you selling a bag of potato chips? If you honestly can’t find a compelling reason. Don’t do it.

Take away:

Do not do the mistake of assuming that you are the only one out there with the greatest idea of that particular product or business.

Trust me, there is always a handful out there with the same or better idea.

The difference and competition is in your ability, experience and skills to execute it into a scalable business.

If you have not done the work needed to build a strong business plan, you will look very poor in comparison to those who have taken the trouble to do so and present it to an investor.

You are competing at every level always. Only the best of the best wins. Just being best is not enough in todays world!
 

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The Problem with Business Plans

 

There are several reasons as to why well vetted business plan fails as a business. Some of the common reasons which are often hard to accept but are very true are as follows:

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• The people who conceive the idea or business are not the best people to manage the business, sell the product or have direct core experience.

• The trusted advisors provide poor quality advice and do not really understand how to analyse and evaluate core business concepts.

• Brilliance of the concept and idea blinds the several potential pitfalls and problems in executing the plan.

• Business plan is not aligned with the investors “investment strategy” or meets the lender criteria. They fail to understand that every lender or investor is very different.

•  Failing to answer the important questions: why? Why will you succeed where others have failed? Why will your target customer buy your solution over others? What is your intrinsic and explicit value?

 

Once these reasons for failures are considered and accommodations made, it is very important to have them very clearly and simplistically explained in detail within your business plan in a manner that it is not missed by a reader. Thus several modern business plans are supported with a short high level PowerPoint presentation or a video.

 

Understanding Investors

 

Investors are your co-dreamers. They share and support your enthusiasm. They ride on your success. But they need a confirmed ticket on the first boat off a Titanic. There are several types of investor sand investment firms and each one comes across over a dozen quality investment proposals a month. Yet, they probably will invest in one or two of them. In today’s market there are a new breed of investors called the “Shark tank” groups. Inspired by the popular TV show, a handful of moneyed individuals form a group and put on their own version of the TV show. Here, you often find a line up where the group goes through 3-5 proposals a day and probably not invest in any for months.

 

This situation makes it very difficult to find the necessary capital or funds to carry out the business objectives. Hence, it is very important to invest time, resources and learn about Capital Sourcing Strategy along with your business plan.

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A Capital Sourcing Strategy involves intensely educating yourself on types of investors, investor risk tolerance, investment strategy, investor alliance, investment criteria, investment track record etc.  There are several Capital and Investment firms with many good and highly qualified investment brokers who often would not be able to answer these questions either.

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In order to begin seeking investment, one needs to study the investor characteristics and tailor each business investment proposal to the specific type of investor. And in this process they also have to be extremely attentive and competitive. Why should the investor invest their money with you?

How do you compare in terms of risk, Returns and potential Upsides?