Business plans for funding are over-rated

Posted by Kathleen Fasanella on May 27, 2011 at 3:07 pm / Newbies, Operations, Small Business / Trackback

Continuing from yesterday (Guessing the market: targeting for your business plan), now is when people are going to get mad at me. The size and spending of your market doesn’t matter unless it is highly specialized. Here are some examples that require targeted data:

  • Product: Flight suits for female pilots. The number of women holding private pilot’s licenses is important.
  • Product: Clothes for girls aged 7-14 who have Downs Syndrome (ditto special populations such as little people etc).

I know at least half of you think I’m wrong but projections mean nothing. Being able to define the size of a market doesn’t mean you’re going to get any of that pie. Clothes aren’t cars, TVs or houses. Sure, it’s possible to calculate a range of possible sales of technology items or durable goods but it’s impossible to know how many high school girls will buy a short red knit skirt. Companies who can forecast this sort of thing are those who have a track record -which is where their projections come from plus or minus whatever other trend is going on in the market that they happen to know about because they have experience and established relationships. If you don’t have these things, you’re flying blind. Welcome to my world.

That doesn’t mean you shouldn’t do this, not at all. My worry is that too many focus on meaningless numbers over which they have no control versus that which they do. Most of the time, market size doesn’t matter. What they spend doesn’t matter either. You may as well crib data from anyone else putting together a business plan because you don’t know how much of that market you’re going to get until people see what you have and have to have it.

[I wrote a whole series analyzing the typical business plan that crosses my screen on any given day (links at close, be sure to read comments). You can crib numbers from that.]

One element of business plans given short thrift in business plans is competitive analysis. DEs typically list flagship brands as their “competitors” (one can only wish) and write of them in less than flattering terms. Those brands got there by doing something right. You need to figure out what that was. You need to analyze where their product offerings level off; that is an opportunity. If all you can say is that you will suck less or your competitive advantage is that you’re not them, nothing more need be said. The market is sufficiently large enough for anyone who has a firm grip on core competencies.

This is the core of your operation (more):

  • Only produce what you sell.
  • Only buy what you really need.
  • Collect the money when you ship
  • Ship on time.

But really, let’s return to the whole premise of a business plan which is to solicit funding. Funding raises the issue of what you’re going to spend it on. Any colleague I’ve ever spoken to says the same thing I do; most DEs spend money on the wrong things, their priorities are out of whack. Says Deborah Goodwin, GIDC Director:

Too many of my designers focus on their “branding” efforts rather than their product, and also seem to overlook a key to success – SALES. You need sales to drive your business. You need cash flow to finance your operations. Try to decide how and where you are going to sell your product before you spend a cent on samples, press packs, labels, shows, etc. Focus on your product development. I can’t tell you how many come to me with something they want to make, but they haven’t even sourced the fabric. Who do you expect to do that for you? You don’t need to worry about spending on trade shows before you’ve made a sample.

If the issue is funding, then talk about funding. How do you get money? That really isn’t as difficult to get if you have demonstrables, namely prototypes. If you’re doing things right, you don’t need to borrow money to start a clothing line. If you need money to pay for a product run of orders you got (most DEs go broke by push manufacturing), funding is accessible either through factoring or purchase order financing from the traditional bank. In my experience though, you’re just as likely to get money from someone you know (2/3rds do). Of course they won’t offer right away, they have money to lend because they haven’t loaned willy-nilly to anyone with a hankering to start a business. They’ll hang back for awhile to observe you in action. You’d be surprised how many people you know will come through if you have a fistful of orders. That is a huge difference from lending you a wad of cash based on your “branding” objectives.

Below is a long list of posts to read. If you’re serious about your venture and think that financing is the only way to make this happen for you, these will help tremendously. I recommend reading the comments; lenders, investors and other consultants have left worthwhile remarks.

Related:
Overwhelmed? What to do when you don’t know what to do
Why you should start your own sewing factory
Value Circularity: cotton, colanders & the specialty store market
Don’t borrow money to start a clothing line
How to find investors for a clothing line pt.1
Investing in a clothing line
Investing in a clothing line 2
Financing fashion: 10 mistakes designers make
Partnerships
Why contractors won’t partner with you
Factoring invoices: Financing a fashion line
ADHD dump: factoring
ADHD dump: factoring 2
Designer’s guide to a business plan
Analyzing business plans pt.1
Analyzing business plans pt.2
Analyzing business plans pt.3
Analyzing business plans pt.4
Analyzing business plans pt.5
Analyzing business plans pt.6

5 Responses to “Business plans for funding are over-rated”

Comments RSS feed

Melody
May 27th, 2011
5:52 PM

Kathleen, thank you so much for all the wonderful information you make available here. I think I won’t find anything new and then you go and put up a wealth of information that is super important. Thanks again.

Don Pezzano
May 28th, 2011
2:58 AM

Another great article- thank you so much.

kenna benitez
May 29th, 2011
7:29 AM

Brilliant article. Thanks for opening my eyes to this.

Wednesday 1 April 2011 | Fold & Cut
May 31st, 2011
7:22 AM

[...] Fashion Incubator gives some hard truths about business plans for funding [...]

Oyumaa
May 31st, 2011
11:25 AM

Great acticle, couldn’t agree more.

Leave a Reply

Current ye@r *

Archives

Categories

The Entrepreneur's Guide to Sewn Product Manufacturing

Often described as the garment industry “blue book”, the most highly rated book in the business is guaranteed to get you off to a solid start or your money back. Many service providers require you read this before they’ll work with you. Learn more »

Subscription Options

RSS Feed Google Reader My Yahoo My MSN Technorati

Subscribe by email: