In 1985, I started a brick and mortar outdoor store called Wilderness Sports in Bellevue, Washington. I started with only $12,000 and knew I had to turn a profit within three months or we would be out of business. Our store was very successful. Within four years, we were grossing over $1 million per year in sales and had a staff of several highly trained employees.
During our first year, 1985, our sales grew faster than another small startup a few blocks away from our store called Microsoft – which also went public in 1985. Many Microsoft employees shopped at our store. Around 1990, a couple of them told me about something new called the Internet. They were working on a software program, which was later called Frontpage. Together, we set up one of the world’s first online stores. We were even before another local online store start up called Amazon.com.
One of the keys to our success was that I had worked in the outdoor industry for 10 years and managed other outdoor stores before starting my own store. But another key was writing a detailed business plan. A business plan is a summary explaining how a proposed business can be established and how the business will make a profit. The plan includes products and services offered, a budget estimating costs and expenses, a sales forecast showing how the business will grow over time and a marketing plan of steps that will be taken to promote the business products and services.
In this article, we will review some of the most important components of a detailed business plan. Prior to writing your business plan, there are a few important steps that will greatly increase your chances of writing an accurate business plan and starting a successful business.
Get Experience by working for a similar business
First, get as much experience as you can working for a similar successful business. This will help you understand the services and products needed by your future customers. It will also help you understand the costs and challenges of starting and running a business in this field.
There is a saying that “good judgment comes only from experience... but experience comes only from bad judgment.” The key to a successful business manager is to make your mistakes and gain good judgment while working for someone else. The fact that Wilderness Sports was a huge success was no fluke. It was due largely to the fact that in the ten years before I started Wilderness Sports, I spent seven years as a Staff member and department manager working for one of the nation’s largest outdoor stores. I then spent three years as the Assistant Manager of one of Washington State’s largest independent outdoor store. I knew every detail of how to run an outdoor store. I personally knew the company representatives of every major outdoor vendor. I had personal experience and feedback from customers with thousands of products. I knew how to set up a model stock system to control inventory. I knew how to create a marketing plan. I knew how to train staff. I knew how to work with customers. All of these skills were essential to the success of our new business.
Choose a growing and expanding field
Second, in choosing a business field, it is wise to consider the Law of Supply and Demand. The best way to insure a successful business is to pick a field with a big demand – in other words a lot of customers – but a limited supply. Put another way, choose a problem, product or service that is not currently being addressed by many other businesses and then develop a plan to meet that need.
Another important factor in creating a successful business is to choose a field that you are personally interested in and a field that you have already spent a lot of time researching. Starting your own successful business will require a lot of hours of your time. To follow it through, you will need to have a personal interest in the field you are entering.
Research existing businesses in that field
Next do an online or community search of other businesses like the one you want to start. A key question to answer as you research other businesses is: what could you offer to customers that would be better than what customers already get from other existing businesses? Why should customers choose your business? What will be unique about your business? Write down the benefits of your business. You may want to include these in the name of your business. And include these reasons in the first couple of paragraphs on the Home page of your business website. Also find out what the costs and expenses of other businesses might be. Are they successful? Could you use some ideas other businesses use to promote themselves as ideas you could use to promote your new business?
Identify an important need which is not currently being met
Most important, identify one or more needs which are not currently being met. Customers will not switch from their existing business to your new businesses unless you can offer them benefits that their current options are not offering them. Specifically include this unmet need and how you will meet it in your business plan mission statement.
Here are two examples of meeting an unmet need.
When I started Wilderness Sports, I felt that existing outdoor stores were focused too much on low prices and not enough on quality products. Our goal was to offer folks low prices on quality gear rather than selling them junk which did not work well in harsh weather conditions and was not durable over time.
With College in the Clouds, we are trying to meet another urgent need – which is folks interested in using open source programs to start their own online business. We are different from traditional instructional programs in two key respects. First, we teach folks how to start their online store without any knowledge of computer programming. Equally important, our goal is to provide better, clearer instructions than found in current books, courses and videos.
Benefits of Starting an Online Business
It is easier to start an online business than a brick and mortar store because the initial expenses are much lower. Instead of paying thousands of dollars per month to rent retail space, you only need to spend $20 a month for web hosting. Instead of selling tangible products which have to be ordered in bulk months in advance and require an initial investment of thousands of dollars in initial inventory, you can start off selling virtual products which cost nothing and can be created with just the click of a button.
While the initial investment in starting an online store is much less, it is still wise to write a complete business plan detailing what initial steps need to be taken and when and also outlining projected business income and expenses.
Find a Domain Name for your Business
One of the most important decisions in starting a new business is choosing a unique, simple and memorable business name. Begin with a list of options. See if friends and family have ideas too. After you have a few business names, you need to do an internet search on each of your business name ideas to see if the business names, also called Domain Names, have already been taken. You need to have a domain name to have a website.
Go online to see if your Domain Name is taken
If someone’s business is already actively using a Domain Name, such as Worlds Best Lemonade, then choose a different Domain Name such as Worlds Greatest Lemonade. It costs about $10 to $15 per year to own a Domain Name. For reasons we review elsewhere, we recommend that you register your domain name with a Canadian web host rather than a US web host. Go to Fullhost.com and click on Domain Names. Enter the domain name of the business you would like with dot com at the end:
Do a search for the term Wilderness Friends and you will see that there is no existing online business with the name wildernessfriends.com. But domain name hoarders take domain names like this hoping to sell it to you for thousands of dollars. This racket should not even be legal. The good news is you can still use this domain name simply by changing the ending extension.
There are several other domain name extensions that would also work.
Develop a logo and slogan to use at the beginning of your business plan
A picture is worth a thousand words. A logo with your business name and logo will help potential invest better visualize what your business is about. Here is an example logo for a pretend business called Wilderness Friends made using Libre Draw.
Components of a Business Plan
A written comprehensive business plan is often used to attract potential investors, secure credit from potential vendors or secure a small business loan from a local bank. Here are some important components of this business plan.
#1 Mission Statement & Goals
A short description of your company, what your business does and what benefits your business offers over the competition.
#2 Products and Services
There are many products you could create yourself. These include informational and instructional Ebooks, videos, images, programs and many other virtual products. Such virtual products have almost no overhead and as Microsoft, Google and Facebook have all shown, can generate trillions in revenue.
You should be aware that many vendors will not sell their products to retailers who do not have a physical store front. This is because they do not want to harm existing physical businesses which are the lifeblood of their product distribution chain. You may need to first start a brick and mortar store and later add online products to it. One way to avoid this vendor problem is to produce your own products. The problem here is that your business will not survive if your customer base is too narrow. So you will have to create a product for which there is a very large need.
#3 Market Analysis
The analysis should summarize your existing competitors what their current revenue, market share and annual growth have been - and why you could succeed against them. Alternately, if you are starting a new market without competitors, explain why your new product or services are needed.
#4 Customer Analysis
Who your potential customers are, where they are located and how you will reach them. For example, will you provide products and services directly to consumers or will you provide products and services to other companies?
#5 Marketing Plan
How will your business attract customers? Successful strategies include offering free products such as informational downloads, free events including video conference training sessions and a YouTube channel promoting your products and services. The marketing part of your business plan should identify who your customers are, where they are currently shopping and how and when you will reach out to them. Especially during your first year, you will need to use a variety of methods to recruit new customers. Understanding how your competitors get the word out about their products is a good place to start in developing your own marketing plan. If you are offering customers a much better product at a much lower price, your customers will eventually find you. But be aware that customers are not always looking for a lower price. Quite often, what they are really after is a higher quality product.
#6 Financial Plan
This section should convince potential investors and creditors that your business is capable of making a profit. Include projected income, expenses and cash flow statements for your first two years of operation. How much will it cost to start your business and where will you get the money? How much will you have to sell your products or services for to make a profit?
#7 Investor Benefits
If you are seeking investors, you should include a section with specific benefits the investors would receive.
#8 Business Ownership, Management and Organizational Structure
Including a summary of your business Federal Tax ID number, State registration number and Bank Account Number.
The most common organizational structure is a sole proprietorship. This is just you and your family running your own business as a dba or “doing business as.” For example, the official name of Wilderness Sports for State and federal tax purposes was David Spring dba Wilderness Sports. You should research your proposed business name to make sure it does not conflict with any current business. It is also wise to register your name and business with your State. However, you can simply set up a bank account, get a local commercial business license and start doing business.
A corporation is a group of people acting together to create a for profit business. A Non-profit is a type of corporation organized to promote a public good rather than to create a profit. There are two kinds of non-profits, 501 C3’s cannot engage in political activities and donations are tax deductible. 501C4’s can engage in limited political activities but donations are not tax deductible.
There is also a new business organization option in Washington state called a Social Purpose Corporation (SPC) which will allow you to start a simple corporation which can have a social benefit purpose rather than merely a for-profit purpose. An SPC has much easier starting and reporting requirements than a federal non-profit and is also much easier to start than an LLC. We review this option more in our next article which compares all of the organizational options.
An Example Business Plan
Below is an example business plan for a small outdoor online business called Wilderness Friends.
#1 Mission Statement & Goals
Wilderness Friends (WF) is a Social Purpose Corporation owned and operated by outdoor enthusiasts, for outdoor enthusiasts. WF offers the best gear and clothing available at the best prices for day hiking, backpacking, glacier climbing, rock climbing, snow shoeing, and back country skiing.
WF is needed because existing outdoor stores do not offer accurate information about boot fitting, pack fitting, crampon fitting and other safety-related gear purchases. The key difference between WF and other stores is a highly trained and knowledgeable staff. This will be achieved through an extensive staff training program. By staffing the company with highly skilled, trained, and knowledgeable employees, we are able to advise our customers in order to help them reach better and safer gear buying decisions. A second difference will be more careful selection of products offered. Safety and Function are our two primary goals in our gear selection. By avoiding sales of marginal products merely to generate profit, customers concerned about gear safety will recognize that they can trust us to provide them with the safest available products. WF will reach out to and focus in on the needs of students taking wilderness skills courses from local outdoor clubs and colleges by offering an extensive gear rental program and consumer clinics on a variety of safety-related topics. WF will achieve and maintain profitability for investors by keeping their overhead low and their inventory turn high rather than by selling marginal products at inflated prices.
The owners and employees of WF share a common vision of community and friendship in regards to outdoor activities, which they will also share with their customers. WF strives to promote outdoor activities in harmony with nature. WF works closely with manufacturers to obtain the latest and the best available gear on the market. WF constantly tests gear to insure we are offering the safest gear available, and makes gear recommendations to manufacturers in order to improve gear safety and function. WF balances tried and tested gear, with new and proven advances in technology.
#2 Products and Services
CUSTOMER SERVICE: We offer the best and safest products to our customers. Our knowledgeable staff will carefully listen to customer needs, and assist in selecting the correct clothing and gear. We offer superior products compared to other outdoor retailers, and offer superior customer service. Repeat customers and customer loyalty is the ultimate objective. The goal of a highly trained staff is to get it right in the first place. Provide the customer with the correct item for a specific activity, and properly sized.
1) Customer information and gear selection assistance. This includes the development of detailed and specific product information hand-outs to facilitate consumer education. This will also help to minimize the need for extra store staff and act as training aid for the novice staff members.
2) Educational seminars and classes, facilitate a gathering place for outing meetings
3) Maintenance of a customer database, sending out newsletters, and product reviews.
NINE CATEGORIES OF PRODUCTS:
4. CAMPING GEAR (bags/tents/stoves)
5. GLACIER CLIMBING (axes, harnesses, crampons)
6. ROCK CLIMBING GEAR
8. BACKCOUNTRY SKIING
9. SNOWSHOES AND WINTER CAMPING
Those who buy specialized outdoor gear are, in general, not impulse buyers. Here in Washington they all seem to be looking for the same product characteristics which are (in order of importance):
1 Function... i.e. will it work in Washington's severe weather conditions
2 Durability, i.e. will it last through tough use. All other characteristics including color, style, convenience features all are secondary to safety and comfort.
#3 Market Analysis
The current outdoor gear market is dominated by low quality big box stores and online retailers such as Big 5 Sporting Goods and REI. These stores do not offer a highly trained staff or accurate advice. Customers are therefore left to figure out the differences between products without essential safety information leading to bad experiences in the mountains with products that often do not work in adverse weather conditions.
#4 Customer Analysis
The customers we will primarily be appealing to are active wilderness sports (hiking, climbing and skiing) enthusiasts. For the most part, they are very affluent and oriented towards safe, durable, functional products. They are also highly educated and therefore very open to new ideas and technical product concepts. They are used to doing research and shopping around for the exact product that suits their particular needs.
Through discussion and customer education, the customer will learn that we are much different from a traditional “self-service” store. By further discussing features and benefits of certain products over others on the market, the customer will eventually realize we offer them much better gear and better prices than other outdoor stores.
#5 Marketing Plan
We will offer our online customers free virtual products such as informational downloads on how to select use and care for outdoor gear. We will also offer free events including video conference training sessions and a YouTube channel promoting your products and services. These videos and events will include safety topics such as Wilderness Navigation, Wilderness Survival and Avalanche Avoidance. We will also offer an online forum where customers can ask questions and an email newsletter to send out information about coming educational events and courses. We will also market directly to outdoor clubs and courses such as those offered by the Mountaineers, Sierra Club and Washington Alpine Club.
#6 Financial Plan
The primary initial cost will be for the initial inventory and for warehouse space to hold the inventory. Because vendors often require a physical store presence, we will seek out a low cost location in Ferndale, Washington which does not have an existing online store and where the physical store front can also be used to warehouse goods to be sold across the world via our online store. Also initially, we will not have employees. Instead, investors can get credit in the store by investing their time helping build the website, ship products and answer the phones. Our plan is to start out with $50,000 in inventory and $12,000 to pay for the first 12 months of store lease at $1,000 per month.
#7 Investor Benefits
We are seeking 3 to 5 investors willing to invest $10,000 to $20,000 each for a 10% to 20% share of the company stock. They will not receive any interest on their investment. But once the company is profitable, they will receive a percentage of the annual profit less 20% of profit retained to increase inventory and grow the company. They would also get the benefit of purchasing outdoor gear for themselves and their family at cost which is about 50% below retail.
#8 Business Ownership, Management and Organizational Structure
The business will be owned equally by investors and by the initial manager, David Spring and be formed as a Social Purpose Corporation.
Additional Steps to take while writing your business plan
Obtain State, Local and Federal Business Licenses and ID Numbers. It can take up to a year and cost thousands of dollars to jump through all of the State and federal regulations required to start a for-profit or non-profit corporation. This is why most new businesses start out as Sole Proprietorships. In you will have employees, you will likely need to get a Federal employer identification number (EIN). However, if you are a sole proprietorship, you will simply pay federal taxes using the IRS 1040 long form – declaring your business income and expenses just as a normal person. You will also need to pay a variety of State and local taxes such as Sales tax, Business taxes, and Social Security taxes. It is wise to have an accountant or book keeper help you make sure you are filing all of the proper forms.
Get your Business Bank Account
Once you have obtained your State and federal licenses, you can go to your local bank and set up a business account where you will deposit all of your business receipts and pay all of your business expenses. This account creates a record which is important for paying State and federal taxes. VirtueMart has tools where you can create an identical account of income and expenses inside of your website.
Establish Business Relationships with your most important Vendors
Vendors, or manufacturers, do not sell their products to just anyone. If they did, they would quickly go out of business. Instead, they typically use trade representatives to establish business accounts. These vendors and trade representatives have annual trade shows to introduce new products and meet potential retailers. You will likely need to complete an application form and order your initial products up to six months in advance. It is important to identify your ten most important vendors and develop a budget of how much you will spend with each on your initial order. It is likely that some major vendors will require an initial order of thousands of dollars just to set up an account. Thereafter, reorders can occur any time and be for a lower amount, but products may still take weeks for delivery.
Manage your business well
A good plan and hard work are not enough. Starting a new business is like taking care of a small infant. It is a moment by moment and day to day job. Your new online business will require constant feeding and attention. Starting a new business is extremely labor intensive. When I started Wilderness Sports, I typically worked 16 hours a day and 7 days a week. This is even more true of an online business because you are not only working with vendors, but you are actually building the virtual store which will house your online business. If you have thousands of products, every one of them will likely require its own web page. Starting a new business is not for everyone. You will need to be self-motivated and dedicated to your mission. You will have to wear many hats. But if you have patience, persistence and a positive mental attitude, you can build an online business that serves both your customers and your community.
Important Business Plan Terms –
Products – Things that can be bought and sold.
Services – Actions that one person can do to help another person.
Product Business – a business that sells products like cups of lemonade, food, computers, cars or phones.
Service Business – a business that produces and sells a service like cutting hair, repairing computers or washing cars.
Equipment – Items you only need to buy once and can use over and over.
Supplies – Items you need to buy again once they are used up.
Startup Costs – The initial costs incurred in starting a new business. A combination of equipment and supplies.
Break Even Point – The number of products that have to be sold in order to recover the startup costs.
Return on Investment ROI – The percentage of profit that can be paid to investors who supplied the money for the startup costs.
Profit – The amount of money left over from income after paying all expenses. In a family budget, this would be called Savings.
Operating Margin – Profit as a percent of total sales.
Sales Forecast - an educated guess of how many units of products you will sell and what your expenses and profits will be if you sell those products. (The unit of measure for a product business is different than the unit of measure for a service business.)
Revenue – All of the income that comes into your business typically through sales.
Accounting - A way to keep track of your financial information using income, expenses, assets (things that you already have) and liabilities, (things that you still owe). Usually done at the end of every day, every month and every quarter (every three months) to know if you are making money, like keeping score at a game.
Reflection – Periodically thinking back over your experience about what you learned, what you did right, and what you can do better next time.
In the next article, we will review the process for obtaining Federal, State and Local Business Licenses.