Up and Running Blog

May 2011

Sephora

Whether you are in a professional or personal relationship, setting authentic expectations up front can really create a foundation for the relationship’s longevity.

If you do something when you first interact with a prospective customer (or partner), they will expect that to be the norm. If you decide you no longer can or want to do that something, then you look like a jerk.

For example, I buy a lot online from prestige cosmetics retailer Sephora. Even though their products are pricey, they won me over originally with a number of sexy offers, from free shipping and free samples to a points program and free gift packaging.

SephoraAt some point in the last 12 months or so, they took away the free gift packaging online- it now ranges from $2-4 per order. This does not break the bank in any way and theoretically shouldn’t matter as I buy more for myself than I do as gifts there, but I still feel cheated. Why? They set the expectation that free gift packaging was part of their offer. The worst part is that they didn’t need for it to come to this; the other offers were enough to win me over as a customer, but they went too far, offering something that they couldn’t fulfill long term and now it is a deficiency in my customer relationship with them.

There are plenty of other businesses that are affected by their expectations. The spa that I frequent always has a coupon, so I won’t go if I can’t get the discount. Many of my friends won’t buy premium makeup if it is not “bonus time” because it is almost always bonus time somewhere. If you make something the norm, your customers will expect it.

People do this all of the time in personal relationships too. A woman may show off her domestic skills early in a relationship by cooking and doing housework and a man may try to woo a woman by bringing her flowers weekly. That becomes the expectation. However, if you can’t authentically keep that up over time, when you stop, it becomes a loss.

When I met my husband, I was very clear that I don’t cook, I don’t clean and I really don’t do much of anything that would be considered “domestic”. Now, I had to bring something of value to the relationship, so I was clear about all of the things that he would find valuable, such as the fact that I love sports, that I am independent (financially and otherwise), that I am fairly low maintenance (personally, not professionally) and also a few other things that my husband would not be pleased if I wrote about, but let’s just say they add lots of value to a marriage. These are all things authentic to who I am and not something that I struggle with fulfilling.

Now, if I ever do anything domestic (which is very rare, but does happen once in a great while), I become a hero because it is out of the ordinary- it is not expected. This creates a very different situation than if I had pretended up front that I love to iron and then couldn’t keep up that charade.

Your business needs to do this as well. You need to have an outstanding value proposition to the customer, but it has to be something that you can keep up long term. Sephora never needed to offer the free gift packaging as an “always” perk. They could have done a special offer with orders over a certain size or if you reach a certain level in their loyalty program. Then it would have been a benefit, not an eventual deficiency.

Think hard about the expectations you set with your customers (and everyone else too). Nothing good ever comes from someone saying, “You don’t bring me flowers anymore…”

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Business Plan

Your business plan is the foundation of your business. It defines your vision and mission, and serves as a road map as you move forward. It’s one of the most important documents you’ll ever create. It’s also an invaluable tool when it comes time to apply for a business loan. What lenders look for in a business plan may surprise you, but knowing what they want (and how to give it to them) will dramatically improve your chances of getting the money you need to continue to drive your business forward.
Business Plan

When lenders ask for a business plan, they are looking specifically for the following items:

History of the business
Where did your business start and how has it grown? Be sure to note any unique challenges you faced and how you addressed them, as this will demonstrate your business acumen and your ability to adjust to changing market needs.

How revenues are generated
Lenders want to get their money back, so they are especially interested in knowing how you make yours. Explain exactly how customers are served, how the product or service is delivered, and how money is collected.

Management
Let lenders know who is at the helm and what relevant skills, knowledge, and experience they bring to the table. I emphasize the word “relevant” here because lenders want to see how adept your management team is at leading and growing your specific business.

Market
Lenders want to know who you serve, how large the population is, and how viable the market is (e.g. affluence, room for growth, etc.). Lenders also want to know who you are competing with in this space and how you are setting yourself apart. Note all marketing and publicity you are doing (regular social media, strategic partnerships, presentations, broadcast advertising, etc.) so you can demonstrate activity toward continual revenue creation and growth.

Historical financials with debt coverage ratios
Detailed financials showing all revenue, assets, liabilities, and repayment structures are necessary to give lenders a clear snapshot of the financial health of the business. This is one area where many business loans are killed either because of poor or inaccurate accounting by the business or due to insufficient cash flow and debt service coverage ratios – in other words, not having enough cash on hand to make your loan payments.

Projections
Lenders also want to see what you expect to happen financially, looking forward. Discuss both what will occur without funding as well as what projected growth you expect should you receive financing. Be sure to include projections regarding job creation, market growth (e.g. if you receive financing, you will be better able to serve your market or serve additional markets), product development, and anything else impacted. It is also important to consider seasonal changes or cyclical changes to the business and what financial impacts those changes might have.

Collateral
What assets does the company currently own? Include any patents, real property, or other collateral that can be leveraged against your debt. Personal property that is available like rental properties, ranch land, etc. can also provide additional collateral for underwriting consideration.

Purpose of the project
Last but not least, you need to state why you are asking for this loan. What need does it serve? Is it to expand, to open a new location, to move to a better location, to install new equipment, or some other business goal? Be as detailed as possible, especially if you are looking to get an SBA loan or other economic incentive that is tied to specific policy directives. They want to know exactly where their money is going.

Of course lenders look for items beyond the business plan, including things such as secondary repayment sources (for certain loans), residency, criminal record, and more. Be responsive to all lender requests, no matter how daunting or seemingly unnecessary the request, as this will help keep the process moving. The key is to be as prepared as possible with as much information as possible so you can demonstrate to the lender that your company is “good for it.” With lending the way it is today, you need to do everything you can to improve your chances. Don’t let your business plan be the thing that keeps you down.

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