Category Archives: Finance

The Business Plan Is Your Roadmap

This article is a blatant copy and paste job from The Business of Fashion but upon reading it I thought it was such golden information I had to drop it here for future reference.

Written by Áslaug Magnúsdóttir, co-founder and CEO of Moda Operandi.

NEW YORK, United States — Early stage entrepreneurs often ask: is a business plan really that important or can you get away without one?

The quick answer is: yes, it’s really that important, and, no, you cannot get away without one. If you’re looking to third parties to raise capital, they’re understandably going to want to see a plan for what you want to do and how their money is going to be spent, with some very specific topics addressed along the way.

Certainly, there are exceptions to the rule. Friends and family sometimes just want to fund your business no matter what, or maybe you’ve found an angel with such an understanding of your concept that a plan isn’t necessary to get the checkbook out. My partners and I at TSM Capital sometimes invested in fashion brands that did not have business plans, but did have management teams with very clear ideas about growing the business. But even in those situations, our first order of business was always to sit down together and map out a plan. A business plan, at its core, forces the entrepreneur to clearly articulate the business in writing so that the entrepreneur, key team members and investors all stay on the same page in terms of product, strategy and financial expectations.

In short, you’re most likely going to need a business plan to get funded. And if you’re lucky enough to get funded without one, you’re still better off having one as it will serve as a roadmap for your early months.

So beyond wanting exceptional management to be pioneering a high margin, scalable business that takes advantage of an exploding industry trend, what else are investors looking for in a business plan? Here are a few general rules to keep in mind in terms of the presentation of the plan itself:

Be brief. Professional investors like short business plans, generally no more than 10 pages and certainly no more than 20. Remember that you are catering to a short attention span, since these people see lots of plans. Get in, make your points and get out. Yes, there can be exceptions: The investor deck for Moda Operandi’s last round of financing crept up to nearly 70 pages, since we had multiple investors with numerous requests, and, thankfully, we ended-up being oversubscribed. But honestly, what do you accomplish with 70 pages that you can’t with 20?

Be visual. If a picture is worth a thousand words, in a business plan, a picture might be worth a million dollars. Your goal is to make sure your potential investor understands and is focused on the beauty of your concept and good graphics help convey good ideas. I learned this the hard way: an ex-lawyer and a McKinsey alum, I drowned M’O’s first business plan in a sea of microscopic data, lists and charts with very few pretty pictures. One investor, gasping for air, (who, fortunately, did come in on our Series A) asked whether I came from McKinsey’s German office! Your business plan needs to let investors breathe so they can digest what is going on. I now always balance key data with gorgeous visuals, and I have a brilliant art director who helps create this precise aesthetic.

Be numerical. As you might imagine, financial investors are particularly focused on — you guessed it — the finances. Not only do they want to see financial projections, they want to see these same financial projections twisted and contorted into a baffling array of numerical analyses: P&L projections, cash flows, unit economic analysis, customer acquisition costs, customer lifetime value analysis, conversion funnels, etc. At the risk of jeopardizing the brevity point: the more numbers, the better.

If you want to stick to the 10 page rule, below is a framework that works for most businesses:

Page 1 – The Team. Either start with “The team” or “The summary of the concept” (see Page 2 below). I like to start with The Team because when you’re presenting to investors in person, it makes sense to introduce everyone at the beginning of the meeting. The goal is to give investors a quick summary of the experience you and your team bring to the table. Don’t spend more than a minute on this when presenting.

Page 2 – Summary of the concept. Here you want to give the big picture about your concept before diving into details. For example, at M’O, this was a description of an “online trunkshow service that sells luxury clothes and accessories to consumers immediately following their presentation during fashion week,” plus a couple of other points.

Page 3 – The problem you are trying to solve. This is critical. Why is there a need for your business? What real problems does it solve? What voids does it fill? Investors are going to love to debate this one with you so make sure you really drill down to the specific value add your business provides. M’O example: “Customers can only purchase a small percentage of a designer’s overall collection at traditional retail and often only in a limited number of sizes.”

Page 4 – Your solution to the problem. What is your solution to the specific problem? How does it benefit the various stakeholders (customers, businesses etc.) M’O example: “M’O consumers can order any item from our designers’ runway collections in any size the designer offers, from the privacy and comfort of home.”

Page 5 – The size of the opportunity. This one is also critical. You want the bread baking in the oven and wafting over to the dinner table. While some investors are willing to invest in strategic but financially “small potatoes” opportunities, most VCs are looking to invest in businesses that have the potential to generate hundreds of millions of dollars in revenue. So you need to research and quantify the opportunity and then paint a picture that tells it clearly (and aggressively), i.e. a top down analysis of how big the market is to how big a share your company will take.

Page 6 – Your competitors. Who else has tried to solve the specific problem, or a similar problem, and how have they done it? What makes you unique versus them? How do you position yourself versus them?

Page 7 – Why will your concept succeed. Time to peacock. Why are you good? What is your competitive advantage? What assets — IP, expertise, contractual rights, relationships, technology etc — do you possess that will allow you to demonstrate success? You want to show off here anything that is unique or superior. Don’t be bashful.

Page 8 – Your marketing and customer acquisition plan. Assume in the beginning that you are unlikely to have a significant marketing budget. How are you going to get the word out there about your business without breaking the bank? Think PR, partnerships, customer relationships, social media, etc.

Page 9 – Five year financial projections. Full disclosure: no one has a crystal ball and it is unrealistic to create a perfect (or even near perfect) five year plan for a completely new business. Investors know this, too, but they want to see how YOU think about growing the business; whether you’re really in it to win it. There is no right answer to how you shape these financial projections. Different entrepreneurs have different approaches, ranging from being aggressive (fearing investors will deflate the numbers anyway) to under promising and over delivering (hoping investors will appreciate a conservative tact). Bottom line, the numbers need to look attractive but achievable. You need to show them the money. And if you can’t, then why are you launching this business?

Page 10 – Next steps. Take a deep breath, you’re almost done. Let them know quickly where you are in terms of the product, the team and your timing. “Next steps” is less about what’s on the page and more about how you talk around it: that this is a huge opportunity for investors, that other investors are interested, etc. Remember that fundraising is like dating: honesty is important but go slow. Don’t reveal all of your quirks and flaws on the first date, it is up to the other party to discover those attributes over time. By that point, hopefully both parties will be in love.

 

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Eye to Eye with Paul Smith

I stumbled upon a great interview with Paul Smith, courtesy of Bloomberg TV’s Eye to Eye program. In the interview he describes growing his business slowly, how he has remained independent through the clever management of his cash flow, and setting the old fashioned expectation of going into business to “just have a nice day.”

It might sound silly but with a growing empire and employees who have been with the brand in excess of 15 years he must be doing something right…

http://www.bloomberg.com/video/78248062/

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Money Tower of Needs

We’ve all heard of Maslow and his tower of needs. Something I penned down today after a conversation with a business owner was my interpretation of the financial needs of a business and it’s owners & stakeholders.

It’s not perfect, but thought it was worth sharing all the same.

Enjoy. EF

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The Mystery of Invoicing

Ah invoicing… the mysterious art of sending a piece of paper to a typically faceless email to be processed increasingly off shore and hoping that payment arrives before your cash flow plummets and you receive a nasty call from your banker. Fun times… not why we’re in the Fashion game.

What we wanted to share today was a funky , very subtle strategy an Amsterdam based creative agency employed to spice up their invoices and speed up payment from their customers.

Strategy: it’s in the tagline

At the bottom of every invoice the agency would place a tiny line above where to send money. They frequently changed it to keep it interesting and included;

You pay now. We love you long time.

To prevent the hounds being released please pay in 14 days.

We don’t like baseball bats, but Hells Angels do. Please pay in 14 days.

Mr T says “don’t be a sucker. Pay the bill Fool.”

Now obviously the use of Bikies (or Mr T for that matter) is not condoned to collect your accounts. However the agency found this subtle strategy made their invoices funny, interesting, and therefore at the top of the to be paid que. One supplier even collected the statements from 20 invoices and posted them onto their Twitter feed. Now that is love!

Fashion is a creative industry. Seek to turn the mundane into the extraordinary.

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Built to Sell

Here at EF we’re not really about flogging others peoples products, but this one time we felt like this one needs to be out there. Over the weekend we came across a unique business book titled “Built to Sell.”

The book written by John Warrillow is ranked one of the top 10 business books ever written by Inc.com. It explores why a business should be built forever but also always ready for sale, and profiles the story of an advertising agency transforming itself into a sellable business.

This writer personally found it a paradigm shifting read and one that would resonate with almost any boutique or young designer toiling away at building their our  cog in the fashion business machine.

To really understand the implications, reasoning, and steps of making your business sellable you need to read the full story (you can read the book cover to cover in a single day), but below are the core tips of the story.

Follow these to make sure your blood, sweat, tears, passion, and excitement for your design and entrepreneurial zeal are one-day duly rewarded.

 

TIP 1) Don’t generalise, speciliase. If you focus on doing one thing well and hire specialists in that area, the quality of your work will improve and you will stand out among your competitors.

TIP 2) Relying too heavily on one client is risky and will turn off potential buyers. Make sure that no one client makes up more than 15% of your revenue.

TIP 3) Owing a process makes it easier to pitch and puts you in control. Be clear about what you’re selling, and potential customers will be more likely to buy your product.

TIP 4) Don’t become synonymous with your company. IF buyers aren’t confident that your business can run without you in charge, they won’t make their best offer.

TIP 5) Avoid the cash suck. Once you’ve specialised your service, charge up front or use progress billing to create a positive cash flow cycle.

TIP 6) Don’t be afraid to say no to projects. Prove that you’re serious about specialisation by turning down work that falls outside your area of expertise. The more people you say no to, the more referrals you’ll get to people who need your product or service.

TIP 7) Take some time to figure out how many pipeline prospects will likely lead to sales. This number will become essential when you go to sell because it allows the buyer to estimate the size of the market opportunity.

TIP 8) Two sales reps are always better than one. Usually naturally competitive types, sales reps will try to outdo each other. And having two on staff will prove to a buyer that you have a scalable sales model, not just one good sales rep.

TIP 9) Hire people who are good at selling products, not services. These people will be better able to figure out how your product can meet a client’s needs rather than agreeing to customise your offering to fit what the client wants.

TIP 10) Ignore your P&L in the year you make the switch to a standardised offering even if it means you and your employees will have to forgo a bonus that year. As long as your cash-flow remains consistent and strong, you’ll be back in the black in no time.

TIP 11) You’ll need at least two years of financial statements reflecting your use of the standardised offering model before you sell your company.

TIP 12) Build a management team and offer then a long-term incentive plan that rewards their personal performance and loyalty

TIP 13) Find an adviser for whom you will be neither their largest nor their smallest client. Make sure they know your industry.

TIP 14) Avoid an adviser who offers to broker a discussion with a single client. you want to ensure there is competition for your business and avoid being used as a pawn for your adviser to curry favour with his or her best client.

TIP 15) think big. Write a 3-year business plan that paints a picture of what is possible for your business. Remember, the company that acquires you will have more resources for you to accelerate your growth.

TIP 16) If you want to be a sellable, product orientated business, you need to use the language of one. change words like ‘clients’ to ‘cusotmers’ and ‘firm’ to ‘business’. Rid your website and customer-facing communications of any references that reveal you used to be a generic service business.

TIP 17) Don’t issue stock options to retain key employees after an acquisition. Instead use a simple stay bonus that offers the members of your management team a cash reward if you sell your company. Pay the reward in tow or more instalments only to those who stay so that you ensure your key staff stays on through the transition.

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Starting Out

I recently caught up with a young model looking to develop his personal brand with a line of mens underwear in Australia. with the product, packaging, distribution, and first shoots all done and everything ready to roll out, what was left was the finances, and the management thereof, for the business.
Thinking about our conversation I thought that it would be worth sharing some points discussed for anyone out there looking to add some entrepreneurial zeal to design talents. The points below are simply my thoughts on where to start. The very foundation of your finances and business operations / admin. They are by no means exclusive and may vary depending on the legal requirements of certain geographies.
So here they are:
1) What functionality you need from your finances?
Don’t need to know 100%, but have a think. Will you have employees, do you need iphone syncing from your records, cloud based etc… What do you want from them? From there you can look at the type of system that matches your requirements – i.e. Xero vs. MYOB vs. another bookkeeping system.
2) Test.
Play with the software. Both MYOB and Xero will have demo versions you can trial. Check out the look and feel. You need something that makes sense to you. Your Accountant will understand whatever you give them. Importantly you need to know whats going on. Like driving a car you need instruments and dials that talk to you about whats happening at the high level so you can make decisions.
3) Your Account List. 
Your Accounts List is the list of assets, liabilities, income, expenses, and equity within the business. This is the foundation of your finances and like any foundation if you get this solid from the start you’ll be kicking goals. Your Bookkeeper, Accountant, and of course yourself will be able to inform this. Your chosen bookkeeping software should be able to build this account list for you during the setup process. You can then send it to your Bookkeeper/Accountant for feedback and build something tight.
4) Filling in the details. 
This will be everything from your business details, supplier details, customer details, inventory items, setting up the details in the books etc… to your requirements. I would think most of this you could sort out yourself. It’s fairly simple, but of course White Sky or I could help here. This will be a pure data entry exercise. Takes a bit, but if done right it will make your books and business admin simple, efficient and effective.
5) Business Planning
Looking at the income and expenses in the business and analysing cash flow over a period (say the first 12 months) to see what happens if X, Y, and/or Z occurs. What you’re looking for here is choke points. We’re worried about the downsides. See what they could be ahead of time. Know what they are, then monitor via your books to see how your tracking. This way you can see ahead of time whats going on. This can be as simple or as in depth as you like. If you’re starting out it may just be a high level analysis saying ‘OK I’ll need to sell X units to break even in Y months’ etc…
6) Processing, Reporting, and Admin
How will you monitor, process, and report on your business activity going forward. At the very least you’ll need to cover all your legal, tax, and other compliance obligations. You may not need to know how you’re tracking in ‘real time’, but at the very least having tight control over a) who owes you money, b) who you owe money, c) your cash flow, and d) your profitability.
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Classic niche opportunity

Who said Yoga is a poor man’s game… Listed on the NASDAQ in August 2007, Lululemon Athletica inc (NASDAQ:LULU lululemon.com) has experienced  growth of ~300%, compared to -19% for the Dow Jones and -5% for the NADAQ over the same period.

For those not aware, Lululemon athletica inc. is a designer and retailer of technical athletic apparel operating primarily in North America and Australia. The Company’s yoga-inspired apparel is marketed under the lululemon athletica brand name. The Company offers a range of performance apparel and accessories for women, men and female youth. Its apparel assortment, including items, such as fitness pants, shorts, tops and jackets, is designed for healthy lifestyle activities, such as yoga, running and general fitness. The Company’s fitness-related accessories include an array of items, such as bags, socks, underwear, yoga mats, instructional yoga digital versatile discs (DVDs) and water bottles. As of January 30, 2011, its branded apparel was principally sold through 137 stores that are located in Canada, the United States and Australia.

In my mind this is such a perfect example of knowing exactly where to play, at what price point, and with the right product distribution and marketing to bring it all together. Of course all this was made easier by the substantial investment made by private investors to grow the company, but all the same, the opportunity was there. Throughout the GFC, recession, and looming debt crisis in the euro-zone one can achieve triple digit returns on investment.

Retail worse in Australia, UK

Stuff.co.nz reports that although retail in New Zealand is taking a hit, the grass is still greener there than in Australia and espically the UK. The full article is available here, excerpt below.

Announcing a $1.8 million loss for the July year, outgoing Pumpkin Patch boss Maurice Prendergast said if you think New Zealand retail looks awful, check out how bad it is in Britain and Australia.

Prendergast states that Australasia was holding its own despite the company pushing prices up significantly to cover cotton costs. Cotton prices had been around US50c per pound and hit as high as US$2.10c per pound before settling around $1.20-$1.30 per pound currently.

While the Australian economy was being shored up by the mining sector, the UK was a different story.

”I spent some time with the (maternity goods retailer) Mothercare CEO  Ben Gordon a couple of weeks ago and his view of the world  was one fifth of all retail is empty in the UK, one fifth is in distress, leaving only three fifths actually working,” Prendergast said.

”It’s a good indication of the challenge we have in that UK market. He was closing 150 stores – some of the best brands in the UK are closing significant numbers of stores.”

What is your view on the domestic economy? Are you preparing for any contingencies?

Foreplay with your business

I recently finished reading Financial Foreplay by Sydney based financial and business consultant Rhondalynn Korolak. I’ll say now that Enterprising Fashion does not receive a single cent for recommending any product, service, or company in our posts.

With that disclaimer out of the way…

Rhondalynn’s style of writing around sometimes scary and complicated issues such as cash flow, inventory, and accounting babble is both refreshing, calming yet exciting, and ultimately quite educational.

For those interested in sampling her work check out her blog. A particular favourite of mine is her Dec 2010 post ‘Is inventory killing your business?’.

Do you have any inventory management strategies to share?

Turning a ‘like’ into a ‘buy’

Management consultants Booz&Co (the guys who invented the supply chain) have released a report exploring social media and the implications of its various closed networks as a separate commerce channel to traditional e-commerce.

Full report Turning “Like” to “Buy” Social Media Emerges as a Commerce Channel

According to this report social commerce (separate to e-commerce) is forecast to expand by 56% year on year through to 2015.

The report also explores the ability to utilise social media throughout the marketing funnel.

Whatever the case, social media is here to stay. Several new innvoations in the world of fashion are emerging as a result.

  • Social media can now inform stock and collection planning. Check out Editd
  • Online showrooms capable of challenging brick and mortar boutiques are emerging. Check out TribaSpace