Finding Solutions Series

Finding Solutions: Strategy and Operations Edition

By Bev Latter, Business Advisor

You have established your business and now you’re wondering where to go next. Do you export into new markets or expand your reach? Maybe you’re considering introducing a new product line. For many business owners, starting and sustaining a business does not come naturally. There are skills individuals need to run a successful business. These skill sets range from financial literacy and financial management to employment standard requirements. Regardless of what you’re struggling with, we’d like to help answer some of your questions. This blog is an addition to our Learning Day Finding Solutions series where we summarize some of the solutions that were brainstormed by other business owners regarding issues they are facing. In this edition, we are focusing on the strategy and operations side of business.

Challenge: How do I plan and maintain ideal inventory levels that provide healthy cash flow for overhead, payroll, accounts payable, loans and capital growth? Externally viewed by the customers, inventory must be trendy, fresh and seasonal.

It can be difficult to plan your inventory months in advance, particularly when trends are changing so rapidly. However, there are ways to make sure that you can achieve a healthy balance between inventory and demand. One initiative you can take on throughout your fiscal year is always doing research. Get feedback from your customers to see what their thoughts are on your product/service and think of ways that you can improve it to increase demand. Measure your marketing and sales activities so that you have an idea of when you are in a busy or off-season phase. By gathering this data, you can plan ahead and ensure you have more on-hand inventory when you experience high sales activity.

In some cases, it can actually be good for your business to keep a limited supply as this can increase the demand for your product and encourage pre-orders. If you sell out, you can order more and provide discounts or other incentives to your customers for their patience. This is also beneficial to your cash flow because keeping an excess of inventory can tie up valuable cash that could be spent elsewhere. While this is different for all businesses, it is important to find a balance that works for your company.

Challenge: How do I scale a service to export into new markets?

For fast-growing businesses, exporting into new markets is often the next step. This can be intimidating and difficult, but there are ways to help ease the stress associated with scaling. A great way to make connections both in your home country and abroad is to attend a trade mission. Many trade missions will also give you the opportunity to attend special sessions and receive personalized support for your businesses. An upcoming trade mission that you can take part in is “Go for the Greens Business Development Conference for Women Entrepreneurs” which is happening in September 2019 in Orlando, Florida.

There are also a variety of resources available to small business owners that help with scaling, such as the Trade Accelerator Program offered by Enterprise Edmonton. Financing can be difficult, but there are institutions that can lend you enough to meet your needs. AWE offers repayable loans up to $150,000, and in the case that you need more, we can work with our partners to try to get you what you need.

Internally, a few steps you can take to prepare your business for expansion are increasing your operational capacity, learning about the culture in your new market, and networking. Expanding your business requires more staff and resources; make sure that you are able to grow your business to accommodate for this change. Furthermore, different markets will have their own cultural values and you may need to shift your marketing strategy to address these. Finally, build your network. The more connections you have the easier your transition will be.

In general, seeking our entrepreneurial training workshops is always a good idea. Studies have shown that those women who have participated in workshops or support meetings reported greater improvement and access to financing (October 2016 Report for WeSK by PwC).  The learnings/workshops, via technology, can be easily accessed by webinars which help to accommodate travel, time and busy schedules.

Aside from those, there are also a number of free or affordable resources provided for women in rural and urban settings. For example, I’d recommend reaching out to the following organizations that offer programs or networking opportunities at no cost or a small fee to help women entrepreneurs with skills training:

Regardless of what stage of business you’re in, you are not alone in the challenges you face! Owning and operating a business is no easy feat and if you find that you’re struggling with a certain aspect of it, don’t worry because there are a variety of support systems out there to help you reach your goals. With a little bit of a boost and guidance, you’ll be on the right track!

Finding Solutions: Pricing Edition

By: Jenifer Horvath, AWE Business Advisor

Determining the price point for your products or services can seem challenging. You get caught between needing to cover your expenses, make a profit, while also trying to make the price appealing to sell in high volumes.

At AWE's Learning Day, Sparking Solutions event, we held a series of business challenges. Pricing, not surprisingly, came up as a common problem and attendees provided solutions and insights based on their own experience. Here are two that we examined.

Challenge: How do I set prices in an industry that has big variances in price points?

In many industries, such as consulting, automobile, and cosmetics, there is a considerable variation in prices between companies. For example, when you go to purchase a car, you could get a used vehicle for $3,000 or step into a dealership and buy a brand new vehicle for upwards of $150,000. As an entrepreneur, this poses the challenge of how to set a good price for your product when there seems to be little consistency between vendors.

Step One: Examine Value-Based Pricing

Value-based price is a pricing strategy which sets prices primarily, but not exclusively, according to the perceived or estimated value of a product or service to the customer rather than according to the cost of the product or historical prices. - Wikipedia


The first step in value-based pricing is to look at your ideal customer. Knowing your customer deeply means understanding their demographics, psychographics, situation, and needs. For example, we mistakenly think that people who buy luxury items are high-income earners, but that’s not necessarily true. A lower income earner will buy for aspirational reasons, or because the product/ service fills a deep need.

Apple, for example, sells premium products to individuals with a wide array of demographics. Buying Apple products is all about the customer feeling like they’re a better person and fulfills the need to fit in, or to reflect their values through the Apple brand. On the other hand, a low price, high volume shampoo may also have a wide range of buyers due to convenience, habits, or a person’s mindset on money. Put yourself in your customer shoes and see the whole experience as they would. Get curious and ask your customers lots of questions.

The next step in value-based pricing is to look at what differentiates you from other companies offering a similar product/service. By looking at what sets you apart, you can also determine what you can reasonably charge. What added value do you bring? Why would a customer buy yours, over another?

Step Two: Run Cost-Based Pricing

Another critical step is to look at all your overhead costs and expenses and how much of a profit margin you are willing to accept. Ensure that you don’t sell your product for less than what it costs to make. When building cost-based pricing, make sure to include all your time and administration work. Think of all the back-end work you have to do for your bookkeeping, marketing, sales, packaging and other tasks and make sure to add that into the price. Do both a high end and low-end price to get a rough estimate of where you can price your offering.

A good rule of thumb to follow is to price your product higher initially and then lower it in the future if needed. It’s much harder to convince people to buy for a higher price once they’ve been paying for the lower one.

Finally, test and learn. Sometimes we don’t know what we don’t know until you try it. Research and collect data regularly to determine what those in your industry are charging and how your sales are doing from one period to the next.

Challenge: How do I set pricing when my competitors are cutting their rates? How do I survive when I have a building, staff and other operating costs?

 When you are trying to set your prices in an industry where you have multiple competitors who are cutting their rates, it’s crucial that you take a step back and analyze the situation.

What is causing them to drop their rates? Is there increased competition, is the customer demanding it, or is it merely a race to the bottom out of fear? Is it sustainable over the long term? What’s happening in the industry?

Then, look at the value you can provide your customers. Get clear on your “why” and ensure your brand articulates who you are and the value you offer. Is it consistent, reliable, and trustworthy? Do you have a compelling brand story?

Before cutting your price, look at ways to offer more value instead. For example, in the highly-competitive coffee world, Starbucks differentiates itself with personalization. They offer 100’s of ways to personalize your drink. Their app makes it more personalized in your hand by tracking orders, saving favourites and earning the “gold card’. They use your first name and make an effort to connect with you individually.

As Tim Hortons and McDonald's fight for share-of-coffee (amongst other things), Starbucks continues to offer value and a brand that creates loyal customers who will continue to pay $5+ for a beverage. Loyal customers are less likely to be influenced by price because they get value beyond the practical use of the product/ service.

What can you do to add value to create loyal customers?  

If you feel you need to lower prices to attract people, make sure to look at your costs and figure out how to reduce them, to maintain your profit margin. For example, keeping less inventory on hand or cutting back on material costs.

Businesses can use incentives to temporarily reduce their prices and drive purchases. Incentives could be a discount, coupon for a future purchase, or a free trial. However, remember, by offering ongoing coupons or discounts, your training your customers to expect this and to wait until the next offer.  Do this sparingly, unless it’s your primary marketing strategy like how Old Navy uses sales continuously to drive sales.

In some businesses, you may be able to introduce tiered pricing. This approach incentivizes customers to buy more and get a lower price per unit. Package pricing, where you combine multiple products/ services, is another way to differentiate your offer. Also, if possible, subscription or membership models are an excellent way to increase recurring revenue and lower your sales costs because you have higher customer retention.

When you see competitors changing their rates, don’t have a knee-jerk reaction and change yours. Take a look at the situation, industry, and your value. See if you can offer something else or new, or look at changing your pricing models. Find ways to reduce costs before you lower your prices or offer discounts. Remember, you need to run a profitable business, and if it isn’t, then you can’t be operational for long.

Finding Solutions: Financing Edition

By: Kiran Sagoo, AWE Financing Specialist

Have you ever had difficulty financing your business properly? Do you struggle between finding investors and also maintaining the vision you have for your business? You’re not alone. This is a common challenge faced by a number of entrepreneurs who are looking for more capital for their business. At our recent Learning Day: Sparking Solutions event, this topic was discussed during our Finding Solutions Session. For those of you who were unable to attend, we’ve compiled some of the solutions that were brainstormed and we’d like to share them with you!

Challenge: How do I decide whether or not to accept potential investment if investors have a different vision of what the organization could look like in the future? Do I take the money and build the company they envision? Or keep going on my slow and steady growth path?

It can be difficult to balance the needs of potential investors and your own aspirations, however, there are some techniques to making this process less challenging. The first question you need to ask yourself is “how far off are their values from mine?” Take a look at what they believe in and what their opinions are on aspects such as accountability, honesty, communication, work-life balance, and stability vs. high growth. By comparing your views to theirs on such matters you can see if there is some common ground or opportunity for compromise where both parties are happy with the outcome.

However, if you find that the investors have a very different idea of the path the business should take, you could take a cash loan to create a working relationship rather than providing them with equity in your business. This will give you access to capital while also maintaining your vision. If you stray too far away from it, you might fail not only in your business, but also emotionally and spiritually.

Once you have made the decision as to whether or not the potential investor is the right fit for your firm, make sure you spell everything out in your contract or agreement to prevent any discord in the future. This will also ensure that both you and the investors are aware of the other’s expectations and values. Finally, create a strategic plan for the next few months and years to hold yourself and the investors accountable. It will allow for smoother operations within your organization and help you follow your vision!

Challenge: How do I know when to bring in outside money and how much capital (investment, financing) is needed to grow from the current stage to the next?

Although this question was not answered at Learning Day, it is one that we felt was worth exploring.

Many entrepreneurs tend to seek financing when they are already maxed out with the capacity they have in their business. Whether it’s with their own time spent trying to keep up with the demands of their business or their financial resources are just not enough to keep up with the business needs, these entrepreneurs sometimes find themselves scrambling to find the help they need. This can be problematic as it can lead to rushed decisions about investors or other financing.

My advice to entrepreneurs is to pay attention to their time and budget constraints when they begin to stretch outside their capacity and take time to revisit their business plan.

As you explore financing, ask yourself: What equipment do I need to be more efficient with my business output and is it worth the investment? Do I need to hire employees to help with the increasing demand? Will spending more money on my marketing expenses lead to growth in clientele and revenues? Does this fit into my business planning? What resources do I need and how much will it cost?

Discuss your business planning needs with a trusted advisor, business mentor and even your own team. Planning for the building and growth of your business in as far in advance as you possibly can will lead to more time for you to explore your financing options which might include seeking outside investors who align with your company’s vision or getting a business loan.

We reached out to the AWE community for more advice. Here’s what they have to say about financing challenges business owners may be facing and some remedies to their concerns:

 “It depends on what type of outside money is being considered. If it is some simple operating capital for a company that is in a slow growth phase, then simple debt is likely the right instrument, providing that the bank will help. This would be considered non-dilutive capital and sit as a liability on your balance sheet. If you are a tech company with a market opportunity to scale quickly once commercialization starts then considering angel capital could be a good option. This will likely be dilutive capital and you need to make sure the investor/company match makes sense as not all investors are a good fit for your business. The business will need to ensure they have a shareholder agreement, a subscription agreement and available issued shares for assignment.”

-          Kristina Milke, President of K-GAR Consulting Inc.

“It’s always a fine balance between personal money, outside share capital and debt. That specific balance is dependent on your business plan.  I prefer to have a balance where I can bring in shareholders who have skill sets that I may need in my business in the future.  As you grow, individuals with “skin in the game” bring value beyond their share capital.  They bring networks, expertise, and an easily accessible “adhoc” advisory board.  I am a proponent of bringing in external share capital to dilute risk, get access to expertise and not to be reliant solely on debt, which has the fixed interest costs. I will say that not all shareholders are equal, so it’s important to interview prospective shareholders and ensure they are a fit with the philosophy and strategy of your company. To seek the right balance for your company, always consult with your advisors to determine the appropriate strategy for your business plan.”

-          Phoebe Fung, Proprietor of Vin Room & VR Wine

Managing cash flow is an important activity for any business. Building at minimum, a 12 week cash flow forecast that takes into account the exact week in which cash comes in or goes out.  This helps provide insight to cash needs over the next quarter and helps make smart decisions about how to manage your working capital or when to make active decisions to stretch it out. Short-term financing such as a line of credit can also be used to bridge the gap between payables and receivables.”

-          Melissa Richards, Managing Director, Entrepreneurship Strategy, ATB Business

 

Financing challenges can be difficult to deal with and they often create a great deal of stress for business owners. That being said, remember that you are not alone and there are ways around even the most difficult obstacles.

Have questions about financing for your business? Reach out to AWE