|
|||||||||
Small Business Planning Guide
BUSINESS SUCCESS AND EASTERN OREGON CONDITIONS
Before you actually answer the questions in the pre-planning section and go on to work out your formal plan, lets briefly look at two important questions:
· First, what in general leads to business success?
· Second, how does the Eastern Oregon situation affect the
chances of success?
The following discussion provides some insights into both question
areas.
A Simple Model of Business Success
In general, what has to be true for a business to have a high chance of success? Luck, of course, plays a role, but luck is a poor foundation on which to base a business plan.
Hard work is also important, but many failed businesses belonged to owners who worked very hard indeed!
The complete explanation for business success is probably very complex, and it's also unlikely that anyone really knows the full explanation. For our purposes here, we offer a simplified, three-part explanation to help you evaluate the probability of success. Simply put, a business has a good chance for success if:
A. There is a real opportunity to fill a significant customer
need or want, and the business is responsive to that need or want;
B. The numbers work out. The revenues are sufficient to cover
investment requirements and operating costs with a sufficient margin to
provide a decent profit at an acceptable level of risk. There has to be
enough difference between total cash inflow and cash outflow to insure
that bills and loans will be paid on time, and that the owners gets
both a decent salary from the business as well as an additional reward
for the risks he or she took;
C. The business opportunity matches the owner's personal
goals/values/attitudes, and the owner can mobilize the resources and
skills that the opportunity requires.
Therefore, the three most basic business idea screening questions are:
1. Is there really an opportunity to serve an important
customer need or want?
2. Do the numbers work out favorably?
3. Does the opportunity really match your personal goals and values,
and will you have the abilities and resources required to exploit the
opportunity?
The Eastern Oregon Business Situation
Eastern Oregonians are generally proud of their state and like to point out its unique characteristics. However, these same characteristics also often make it much more difficult to run a successful business in Eastern Oregon. Listed below are some of the factors that can make life difficult for business in Eastern Oregon and an indication of the general approach that businesses must take to overcome these difficulties.
Eastern Oregon may be the great place, but it is a small and fragmented market in terms of the number of people. The population of Oregon as a whole is just over 3,082,000 with only about 54,000 of that in Wallowa, Union, Baker, Grant, and Harney counties of Eastern Oregon. Compared to the rest of the U.S., these are not large markets. Furthermore, many communities have less than 10,000 people and are geographically isolated. Thus many Eastern Oregon markets may simply not have enough people to support some types of businesses.
Many Eastern Oregon businesses have to try to build volume by trying to possibly serve a larger geographic market and/or trying to sell more different goods or services to the same market.
Many traditional services important to business, such as banking and good communications, are hard to find or even nonexistent in some communities. Many bankers and other professionals who work with business may have a poor understanding of conditions in Eastern Oregon.
Thus rural-oriented businesses may have to search further to find a sympathetic and knowledgeable banker, accountant, or consultant. Furthermore, businesses may have to work hard to educate these people about the nature of the rural market and scope of the business opportunity.
Eastern Oregon is still tied too much to two industries -- agriculture and timber -- whose price is beyond our control. This influences business conditions and purchasing power throughout the state. Even where there is no direct business relationship to agriculture or timber, the powerful role the state budget plays as a pass-through of agriculture and timber income to the general state economy makes sure that almost everyone is directly or indirectly affected.
Thus, many Eastern Oregon businesses must plan for substantial fluctuations in buyer interest and capacity to purchase.
Oregon has characteristically had a boom-bust economy. Timber and agriculture being the key industries. Since the 1980's timber prices have been affected by imports and availability of raw materials, creating a shrinking economic base for the 1990's. Business opportunities appear during boom periods that may not last through the bust periods.
Timing of business entry, expansion, and exit decisions thus becomes critical.
Many Eastern Oregon businesses have not been very marketing oriented. Marketing is more than advertising and selling; it is a total approach to identifying a customer's real needs and developing product/service combination to meet these needs that can be delivered at a profit.
Marketing starts with the customer, not with the seller! But the Eastern Oregon tradition has been "production oriented." In the production orientation, you start with what the business has to sell and try to persuade the customer to buy -- even if that may not be what the customer really needs and wants.
Eastern Oregon businesses have to work harder than many of them have in the past to "get close to the customer," to listen to the customer and really develop an understanding of what customers need and want.
There is often an unfortunate tendency on the part of some in Eastern Oregon to believe that "outside" products, services, or potential employees are better than those available within Eastern Oregon. This bias against Eastern Oregon is often unreasonable, but it still complicates things for Eastern Oregon-based businesses.
Eastern Oregon businesses must work harder to build an image of competency and reliability.
Portland-based, and other outside firms, are active competitors in the Eastern Oregon market. Because of higher Eastern Oregon costs and small market sizes over which to spread these costs, these firms can often undercut Eastern Oregon-based firms' prices.
Cost control, competitive pricing efforts, and better service must be emphasized by Eastern Oregon firms if they want to compete.
Private sector capital for investment is often insufficient in Eastern Oregon -- particularly as banks struggle with non-performing loans due to economic downturns. In the recent past, state loan programs have helped to bridge this gap, but reduced state budgets also have hurt this financing option.
Eastern Oregon businesses have to search harder for loans, owners have to provide a substantially share of the capital (typically at least 25%, to be considered for a loan), and only the best business plans will get funded. Developing and maintaining a good relationship with a bank becomes particularly important.
There are, however, also some favorable factors.
The recent economic adjustment in Eastern Oregon has reduced some of the costs of doing business. Rents are substantially lower, good used business equipment is often available at bargain prices, and contractors and other suppliers of services to business are more willing to negotiate. And some of Eastern Oregon's traditional industries, such as tourism, are doing well. A lower priced dollar compared to foreign currencies, and increasing Eastern Oregon's understanding of how to do business internationally, are expanding the potential market for Eastern Oregon's goods and services.
There is no question about it: Eastern Oregon is in many ways a tough place to start and operate a business. Your business planning must recognize this! You, the business owner, have to be aware of the changes in Eastern Oregon business and build your responses to these changes into your business plan and into your business management practices.
EVALUATING THE BASIC BUSINESS CONCEPT