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Business Plan Should Tell the World Why It Needs What You're Selling

March 11, 1998

A basic element of any business plan, regardless of the industry, is an explanation of how a product or service is unique, fulfills a special need and occupies a niche in the market.

Before you start your business, you should make sure that your product or service is, in fact, different from the competition.

What makes it stand out? Why do people need your product or service? What problem does your product or service solve or what need does it fill?

Even a seemingly nonessential retail store or mundane service company must meet a need. If it doesn't, it won't stay in business, says Debra Esparza, director of USC's Business Expansion Network, a nonprofit project that has counseled more than 5,000 small businesses.

For example, personalized dog dishes that match the color scheme of a pet owner's kitchen answer more than the simple need for a food container.

In reality, any bowl will do. By offering the custom-made dishes, a shop owner answers a pet owner's desire to recognize the animal as a family member.

Even if you're a service provider rather than a seller of products, you must find a way to set yourself apart. For example, a tax preparer might specialize in home or site visits, or do electronic filing for customers without computers.

Thus, your business plan should explain how your company not only meets a need, but has unique features that will attract customers. Thinking this way helps you define the audience you're targeting and makes you focus on how to stand out from the competition, Esparza said.

In explaining your product or service, you should also consider how much time, effort and equipment are needed to produce it. How you will produce your product or service and where you are going to get supplies and materials can help make your company unique.

This means you need to know whether you are a "vertically" or "horizontally" organized firm. A vertical company takes care of all steps in production, whereas a horizontal one relies on other companies.

For example, a bakery offering organic goods would be a vertical firm if its products were made from herbs it grew and eggs it got from its own chickens. This would be a claim that a horizontally organized organic bakery, one that buys its supplies from others, could not make.

The plan should also note the seasonal aspects of your business that will influence demand and affect your production cycle and delivery. For example, Christmas retail gift items are ordered in summer and delivered in fall. If you're thinking of introducing a new product in November, chances are you're too late. A tax preparer would have a different cycle linked to key tax dates in April and October.

Are there proprietary claims, such as a trademarks, copyrights, secret recipes, formulas or patents protecting your product or service? These don't have to be described fully in the business plan, but if you mention them, you must make sure you have secured the necessary documents or claims, if they belong to you, or permission from others, if they don't. (See chart at http://www.latimes.com/smallbiz)

But don't become preoccupied with protecting your own ideas. Most small businesses usually plunge into business without these protections, especially trademarks and patents, because obtaining them can be costly and time-consuming.

The delay can actually cause a business owner to miss a market opportunity. And if the process being protected is not that innovative, someone can copy it by making a slight adjustment and capture your idea, Esparza said.

You should also obtain whatever government approvals are needed in advance and list them in the business plan. For example, a drug manufacturer may need approval from the Food and Drug Administration; a food processor might need county health department permits; a metals finisher may need Environmental Protection Agency review. Owners of specialized businesses, such as attorneys and contractors, may need professional licenses, permits or certificates.

The business plan should also take into account how the business owner will deal with problems that might arise. For example, a food processor who faces potential health risks from a food source should devise procedures for checking the food. A tool manufacturer should include safety features that protect users who purchase the product.

Finally, business owners need to consider related services or products that will enable them to expand into new markets. How quickly can the product or service change to meet new market demands or trends?

For example, a maker of computer games might want to consider adding new versions with different levels of play. A computer distributor might want to develop contacts with a variety of manufacturers to ensure that if demand changes he can stay in business. Awareness of how markets might change and how to cope with those changes should be included in the plan.

Once an owner has thought through these issues, writing the plan will be easier.

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