A traditional business plan is a guaranteed time waster unless you are looking for busy work to keep you from actually starting your brand or you are really considering outside investment. What is the alternative? A self directed plan to actually guide you month to month and season to season. This means cutting out the fluff and focusing on the strategy and nitty gritty. If you are looking to procrastinate, then keep writing away, or if you are writing one to get outside investment then read on to find out why you potentially should not be seeking investment in your early stage startup brand.
The 7 Most Important Questions to Ask Before Launching without an Investor:
- Financial Plan- Operating Costs Fixed & Variable: How much will this cost me over the next 18 months if I don’t sell anything?
- Production + Cost of Goods: How much will it cost for me to make and manufacture my product?
- Marketing Plan + Competitive Matrix: Who is my target customer and what markets do I want to fill? How will I get the word out about my product? What brands will I compete with?
- Sales Plan: What distribution channel will help me generate revenue, is it e-commerce or wholesale? When can I expect to start generating a profit?
- Brand Identity: Who are you?
- Merchandising: What is my assortment plan and pricing?
- Tie It All together: What are my 18-month Timeline and Goals?
All Excel spreadsheets you create for your company need to be dynamic. Meaning, these are not stagnant documents you are creating. You should be able to update, change, and use them on a monthly basis to compare where you are versus your plan. If you ever create something and don’t use it, it is a waste of time.
If you can go through all the aforementioned steps of flushing out your brand then you should end up with a tight game plan that allows you to execute with your eye on the prize on a monthly basis.
This step-by-step plan involves creating the foundation, building the strategy, and then executing approach. Often times entrepreneurs start executing without knowing where they’re heading or what their core goals are. When launching a brand, it’s important to think of yourself as a primary investor. Understand your brand’s ROI before deciding to launch and spend haphazardly.
Notice we didn’t mention the common Executive Summary, Mission, Exit Strategy, Management Team, Government Approvals, Technology, Facilities, and the additional points you would find in a template business plan. The goal for this exercise is to find out If you can actually afford to bring this brand to life and fully understand what it takes, not spend hours perfecting grammar and prose.
How to Choose the Right Investor:
If you want to raise capital, then you will need to add a few extra bells and whistles to your strategic plan. Your potential investor will want to see your management team, what your infrastructure is like and an exit strategy. No one will give money to just anyone, there needs to be proof- either in you or your team that you have what it takes to make this successful. You will want to look for patient capital, meaning an investor who does not need to see an ROI immediately as it will take any early stage brand a minimum of 18 months to see if they can make it.
I generally advise against outside investment when launching your brand. Primarily because of the potential investors who are just ‘interested’ in being in fashion and don’t understand the retail financial cycle.
Breakdown of The Retail Financial Cycle Your Potential Investor Should Understand:
Scenario: You’ve just raised $45k in funding for a small RTW line. Here’s approximately where that money will be allocated in a year:
- Marketing & Operational Costs: Samples, marketing, e-commerce and your first selling campaign amongst other things may average out to $12k.
- Production: Let’s say you’ve gotten an order from a boutique, (which is unlikely for most designers in their first season), you’ll need additional funding of $18k to go into production. P.S. Factoring (short term loans to produce are tough to get these days unless you have an order of $250k +)
- Order Fulfillment: Once the order is produced and delivered to the client, you have to wait for payment. Let’s say the boutique pays you 60 days after delivery because payments are slow for them. That’s $30k in sunken costs in just getting your product to the store, without any payment for 2 months.
- Next Season: While you’re producing for the current season, you’ll also need to allocate another $15k for next season’s sample production cost.
- Markdowns & Chargebacks: Most brands don’t realize that retailers build into their contracts fees if your product doesn’t sell, if you don’t ship properly and if the purchase order arrives a day or two late with p.o.’s in the wrong boxes.
If your investor does not understand how retail operates, you might have a very frustrated partner on your hands. I always suggest vetting potential investors thoroughly. Do they have experience or relationships in retail? Can they help you outside of just the investment? Unless you plan to work with an Angel investor who isn’t hedging on an immediate ROI, make sure you do your due diligence. Your investor should be a long-term partner willing to stick it out for 18 – 36 months at minimum.
It’s a lot of work to launch your brand and maintain it. Its emotionally tough and can be financially challenging. If you can get your head around the business part, then at least you will have a plan to guide you through the highs and lows.