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venture’s position in the market, income and expenses, financing, employees, and even exit strategy.
Position in the Market
• In the market space where competition exists, consider the following:
• Is there enough business to keep all parties busy and profitable?
• How will the new business differentiate itself from existing ones?
• What are the products/services that will be offered?
• What are the realistic number of products or clients that can be sold or serviced? At what price relative to competition?
Understanding your particular space and the opera- tions of the competition can guide decisions regarding positioning within the market. The clearer your under- standing, the better the decisions you will make.
Income and Expense Projections
I think this topic is self-explanatory. You have to make a realistic assumption of number of goods or services delivered and income and expenses associ- ated with that. It may be helpful to project at least three different scenarios for the steady-state function of the new business. You can project average success, but also look at less than average or better than average variants. You may even decide you want to look at the worst-case scenario to see if and how you may be able to mitigate and overcome unforeseen/ uncommon but possible challenges that the business may encounter (examples: COVID pandemic, business interruption due to a natural disaster, economic downturn, etc.).
One has to be brutally honest with the assumptions in order to generate a projection that is reflective of reality. All aspects of the business plan should be data-driven, but this part particularly relies on specific numbers (which can be easily obtained and verified).
Roll Out
Just as important as the steady-state function, the plan should address and project the anticipated roll out. Rarely, if ever, does a business become profitable on day one. It is crucial to demonstrate progression from launch to profitability, especially if you are looking to finance the project through banks or inves- tors. Even if you have the resources to fund the project yourself, this planning will illustrate when you can expect the return on your investment and the magni- tude of such a return.
Financing
Based on this information you may decide that the anticipated return may or may not justify the effort and the risk that you are about to undertake. You can be sure that any bank or investor will go through the same calculation before deciding if they will support your venture. Having this information ahead of negoti- ations with banks or investors will allow you to negoti- ate either better financing terms or reduce dilution of your ownership stake.
In my case, within two years of launching my prac- tice, I was ready to consider investing in an ambulatory surgery center (ASC) that, at least initially, would be driven by my practice alone. I understood the poten- tial for revenue, but at that time I personally had no expertise in planning and developing a fully accredited surgery center. Thus, I hired consultants to do an initial feasibility study. Based on a detailed evaluation of my practice, they provided me with reliable esti- mates of revenue that could be generated by the ASC based on my own procedure volume. They also gave
Demographics
Part of the consideration is understanding the demographics of the population that the new business will serve. Factors such as uniqueness of the product/ service and population density will have a significant impact on the business plan. Well-recognized national chains such as Target, Costco, Whole Foods, and Bed, Bath and Beyond have specific demographic thresh- olds that need to be met or exceeded before they enter a particular market.
Even the same chain stores will not carry identical products—what is found on the shelves is driven by population density and demographic data. For exam- ple, Macy’s flagship store in New York City has differ- ent merchandise, particularly high-end luxury items, than Macy’s in a smaller, less economically diverse city.
In the case of launching my practice, I understood that, at the time, I was the only fellowship-trained, board-certified pain management specialist providing service in my geographic area. Furthermore, even though other providers practiced in the area, I was the only one who offered a comprehensive, multi-modality approach to pain management. This was in sharp contrast to the interventional procedure-only oriented practices that formed my competition. In addition, understanding competing physicians and their opera- tions allowed me to draw a distinction based on availability and even the type and the breadth of the procedures that I could perform. Recognizing these differences and marketing them appropriately to referring doctors, attorneys and insurers guaranteed the success of my practice.
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