The term "business plan" is casually bandied about like a hot potato in the studios of emerging fashion designers. Everyone knows you need one, but still, so few emerging design businesses take the time upfront to properly plan for their success. I use these words intentionally. Success is very rarely accidental. Sure, we all benefit from some good luck from time to time, but real success can only come through hard work and good planning. For this, a business plan is critical.
So, what is a business plan for? Many people think that the primary purpose is to secure funding - i.e. loans from banks or cash from investors. And while this is certainly one important objective, it is not the most important one.
The truth is, the business plan is, above all else, for you: the person or people who will drive the business forward. It is the document that lays out your vision and objectives. It is your roadmap for how you think it should evolve and grow to achieve this vision. It contains the budget and projections for how your business will manage is finances and fund growth. It is the document that helps you decide what to do, and just as importantly, what not to do. It is a living, breathing document that you should use to measure your progress, while still being willing to adapt it to reflect new insights, unexpected competitive threats, and changes in your business environment. In short it is like your company bible - except that this is a bible you can adapt as you go along.
You can also think about the business plan as a tool for communication. Anyone who has set up a new business knows that when you are looking for investors, employees, suppliers, office space, banking services, professional advisors and everything else that you need, you have to tell people about your business and its aims. When you have spent the necessary time in crafting a business plan, you will be able to more clearly articulate what your business is all about. This makes you seem more professional and organised and will enable you to attract the people, support and money that your business needs to succeed. Going through the business planning process will enable you to distill your business down into a short "elevator pitch" of concise points that together provide a good understanding of your business aims in a short period of time. When people understand your business, they will know better if it is something in which they would like to be involved.
Now, if that all makes sense, what then do you need to include in a business plan? Essentially, it should address all of the constituent parts of your business starting from the broadest vision of the business right down to the most minute operational issues of job descriptions and work plans. The first thing to do is create an outline for all of the topics that need to be covered, and then for each of those topics jot down all the ideas and thoughts you already have. If you don't have a written plan already, then it's likely that much of your business plan is in your head and so you need to start getting your current thoughts out on paper in a structured way so that you can then go and revisit each of the topics in more detail.
A sample outline for a business plan for a fashion business might look as follows:
1. Executive Summary - This is something you do at the end, once the rest of your plan is fleshed out, It will quickly become the so-called “elevator pitch” for your company, when you need to describe it in a short interaction. It only needs to be a few paragraphs long.
2. Vision and objectives - This section describes the vision of your business -- essentially, why you set it up. What specific market need are you trying to fill? Which customer are you targeting and why?
The more specific you can be about these issues, the more compelling your business plan will be. If the reader (or listener) can really understand the market need you have identified, then they will be much more likely to buy into your overall business plan.
The importance of knowing your target market cannot be overstated. Therefore, one of the first questions I always ask when meeting emerging designers is about their target market. When they provide a fluffy answer like “I design for people like me and my friends” or “A young woman with lots of money,” it usually indicates that they haven’t spent much time thinking about this critical question. And if they haven’t done so, it makes me wonder exactly who are thinking of when they are designing. If they don’t have a specific person in mind, then how do they know exactly what that person needs, and what occasions they are shopping for?
Understanding everything about your customer’s lifestyle and preferences will make your job as designer and manager all the easier. You will not only know who you are designing for, but also where they shop, what magazines they read and what influences their buying behaviour. All of this will feed into important decisions you make everyday about how you design your collections, manage your business, and promote your brand.
3. Market and competitive landscape - This section describes the market you plan to operate in. What is the size of the market and how quickly is it growing? Who are the other players in this space?
To be clear, market size you need to describe is not the size of the global market for clothing, but your estimate of the size of the specific market you have identified, in the geographies you are focusing on. Yes, this information can be hard to find, but you can take larger market size figures and estimate what share of the overall market your business is going after.
As for your competitors, the better you can describe and understand their products, their style and aesthetic, and their positioning and strategies, the better you will be able to shape your business to stand out from the pack.
In general, quickly growing markets of a good size with few competitors (or few strong competitors) are usually quite attractive. However, if you have identified a clear niche market that is currently unfilled, then that can also be very compelling.
4. Implementation plan – This section clearly describes all of the resources you will need to make your business successful. How many staff will you need in which roles? What type and size of space will you need to design and sell your collection? What outside expertise may you require to operate successfully?
An implementation plan therefore contains a detailed description of all of the operating requirements in your business including Design, Production, Sales, Marketing/PR, and Retail. You should have a detailed plan for each of these core steps including human resources, expertise, space and timing. Thinking very clearly about the various roles and responsibilities that need to be filled will ensure that you find the right people to make things happen for you. In turn, attracting the right team will also make it easier to attract funding. Most investors invest in people and teams, not just ideas.
Without an implementation plan, your business plan can lack the concreteness and specificity required to convince people you can take your vision and make it a reality.
5. Financials – This section is absolutely critical to your plan as it will identify your projections for how the business will grow, in terms of both profits and revenues, and what financing you will need to make it happen.
An income statement uses carefully thought-out projections of how your business will grow at the top-line (i.e. sales and other revenues) and will also project the costs of delivering that growth, including the team and other resources you have identified in the implementation plan. This statement will then project profit, by taking projected revenues and subtracting projected costs.
However, the income statement does not tell you how much money you will need to raise as it does not reflect the timing of cash inflows and outflows. This is where the cash flow statement comes in.
The cash flow statement is one of the most important parts of your plan as it shows the peaks and troughs of your cash situation on a monthly basis and identifies what funding you will need to make it through the troughs. You can think of the cash flow statement as a monthly account of cash coming in and cash going out. The difference between these two figures is your funding need for that month – and you are better off knowing your funding needs in advance as opposed to finding out later when your bank account is empty and suppliers are asking for payment before they release your goods. This is particularly important in the fashion business where you incur many costs up front (designing, sampling, sales efforts) before any of your revenues even come in.
If you can, you should have a trained financial or accounting professional (a friend, family member or other contact) to help you with this section. They will have the expertise to sense check your assumptions to ensure that they are sound and believable. It’s better to have their input before you take your plan out to investors who will inevitably ask you the same probing questions and who will be looking for concrete answers.
Next time: Finding the right investors and partners
Once you have a plan in place, you will then be ready to start soliciting financing. In the next installment we will give you concrete advice on where to find the best investors and partners for your business.
This is the second in a series of articles on the Business of Fashion: Basics
• Basics 1 - Setting up your own fashion business - what do I need to know first?
• Basics 2 - What is a business plan for and how do I go about writing it?
• Basics 3 - How do I find the right investors and partners?
• Basics 4 - How do I decide where to allocate my capital?
• Basics 5 - Design and development
• Basics 6 - Sales
• Basics 7 - Production
• Basics 8 - Marketing
• Basics 9 - E-Commerce