Demographics and Your Business Plan

The term for some of you may conjure up images of university classrooms and painful modelling excercises. For others, the term might imply some kind if research to do with population, but most certainly nothing to do with your business plan.

What if I told you that demographics should form the basis of your ENTIRE business plan. That if you have not addressed the demographics of your plan that you are doomed to fail?

Before you think I’ve lost my marbles, or worse, before you start to freak out and start “Googling) the term Demographics, sit back and read the following. Demographics are no more than your customers. Most would call this market research, but I prefer the term Demographics because in my experience most people DO NOT do their market research properly (if they did-half of the businesses we see fail would never have been launched in the first place).

Demographics, to cite Wikipedia, “Demographics are current statistical characteristics of a population” and Demographic Trends ” Demographic trends describe the historical changes in demographics in a population over time (for example, the average age of a population may increase or decrease over time). Both distributions and trends of values within a demographic variable are of interest. Demographics are about the population of a region and the culture of the people there.”

So if we are to understand the WIKIPEDIA definition, Demographics provides us with information about a population and the culture of the people who live there.

This is a very powerful statement. Demographic trends not only give us insight into whether populations are increasing or decreasing, but they also tell you about the area.

Let’s go through an example. Years ago, I moved into a new subdivision. New subdivisions tend to draw young, newly married or co-habituating couples if housing prices are close to their actual market value. A couple of years later in the middle of the night, I could not find my infant son’s soother and so had to run to walmart to find a 0-6 month soother. When I got there, not only were there no soothers in that age range, but also no size 1 diapers. Talking to the sales associate, and she said, “we just can’t keep this stuff in stock” I have no idea what it is”. Fast forward a few years, and he was preparing to enter school, the local school was talking about the “boom” in enrollment and chalked it up to the excellent reputation of the school.

You probably get where I am going wiht this. The new couples who moved in had babies, those kids grew up and went to school. So why might this info be useful if you are opening a business? Well let’s say you want to open a neighbourhood daycare. It would be wise to know the age of your subdivision. Why? Because in starter neighbourhoods, couples tend to stay an average of 3-7 years in their first home. After that they may disperse. Newly married people will have their first child within 1-5 years (generally) so if you open in a neighbourhood where there are a lot of children or young married couples, you are assured constant business (as was the case with a neighbor). However, if you open your daycare in a more established neighbourhood, you will have to search further for clients and have a marketing strategy that makes up for the lack of proximate customers.

So how does one begin to navigate this minefield of information? Before we begin, I think it is important that we begin to understand the very nature of entrepreneurship and I will tell you about some entrepreneurs that I know and what entrepreneurship means to them.

who needs a business plan?

Part III: So Who Needs a Business Plan?

So Who needs a business plan?

These days, if you are seeking financing of any form, you probably require one. Do you need a business plan to ensure the success of your business? I would say no. Don’t get me wrong, business planning can be a very valuable exercise. For some personality types (you know who you are!), a business plan is a requirement to ensure that they have thought through their business idea. These entrepreneurs are generally rash, and have likely entered into risky arrangements in the past. If this sounds like you, and you are considering investing personal funds into industries which have high capital costs, you would do well to stop and prepare a business plan.

For others, I would say that a business plan is no more than a checklist item to get your business launched. This is not to say that all business planning is bad. Rather, like reading literary classics in school, this is a checklist item that you need to get through the system. Some will take pleasure in preparing these, for others the term “business plan” evokes visions of weeks, or even months of pain.

Entrepreneurs like this may choose an app to build their business plan. After all, putting together a 25+ page document from scratch can be daunting. My own experiences with software and as a consultant led me to create SME Gurus and BizMula – two solutions that really simplify the process without losing sight of the value behind the thought process of writing a business plan.

What it really boils down to is this: why did you start thinking about a business plan: Was it a requirement from a lender or an entrepreneurship program? Did a friend or mentor recommend one? Did you just hear about it and think it was a good idea? Or are you just unsure of launching your business idea, and want to do your homework? Then you need to ask yourself, what kind of entrepreneur are you? Do you need a plan to help keep you on track, or can you plan on the go?

Regardless of your choice, don’t brush over this question, as it could be the difference between success and failure.

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Part 2: Why Businesses Fail

Since 1980 onward, business plans have become standard staple in lending and investing. They provide, or so their supporters will argue, a standardized way to look at a business. Business plans require entrepreneurs to actually “plan” and they are the road map an entrepreneur uses from start-up through to a full -scale operation.

So why is it then, that businesses with business plans still fail?

There are several reasons. Oftentimes, the challenge is not in the business plan itself but in the strategy of the entrepreneur and in the broader business model.

The first main reason that businesses fail, is that they are just generally bad business ideas. One of my favorite shows is the Canadian version of Dragon’s Den. Just watch one episode (the are available at www.cbc.ca) and see the sheer number of bad business ideas that exist. Bad ideas are bad for several reasons. The market for the product may be small or ill defined. The marketing or distribution strategy may be abysmal or non-existant and the entrepreneur themselves may be the biggest obstacle the business has.

The second reason that the businesses fail, is cashflow. Entrepreneurs are great at predicting prospective revenue, but poor at understanding cash flow. They are so eager to get orders, that they will take any payment terms from their customers, even if it is at their own expense. I have seen entrepreneurs come to me and they offer 90 day payment terms for their customers, but have all payments due in 30 days or less from their suppliers. It does not take a rocket scientist to figure out that there is going to be a cashflow problem here. Unless the entrepreneur has a good line of credit, or a large degree of personal savings, this issue can mean the death of the business.

There are many other reasons. Poor management. Inexperienced. Lack of contacts in the industry–take your pick. My favorite reason cited for the death of a business is poor planning. Poor planning by the entrepreneur.

Planning in itself is not the answer. What these critics mean, but rarely get around to saying is risk mitigation strategies. Identifying what the Risks are to a business and confonting ways to change/challenge those risks is really where the crux of all business success starts.

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