Have you ever thought about starting a business but didn't know where to start? Every December is National Business Plan Writing Month, an annual reminder for anyone thinking about launching a business to start by making a plan.
For more information on how to write a business plan, The Daily We spoke to Sayan Chatterjee, a professor in the School of Design and Innovation at the Weatherhead School of Management.
Learn Chatterjee's tips for writing a business plan and how well-known companies like Southwest Airlines are following these guidelines.
1. Accurately identify your customers and understand why they buy, not just what they buy.
Southwest Airlines has a profitable track record in an industry rife with bankruptcies, mergers, and constant turmoil. For a long time, Southwest didn't offer many of the perks airline passengers expect. But if you're a business commuter who wants to meet for breakfast in Houston, lunch in San Antonio, and fly home for dinner in Dallas every day, Southwest is the airline for you. That's because Southwest operates more daytime flights than any other airline and has an enviable on-time record. However, if you want first class, in-flight meals, or through tickets on other airlines, you're out of luck. Southwest doesn't cater to those airlines.
2. Understand what you have to offer so they want to buy your product or service.
Southwest Airlines was constantly asked by investors and analysts why it didn't raise fares when its competitors were charging four to five times as much. 60 minutes The then-CEO of Southwest Airlines responded in an interview.
For short-haul point-to-point airlines, the competition is not other airlines, but cars. Southwest Airlines sometimes made ticket prices cheaper than the cost of driving.
As an aside, Southwest Airlines abandoned many of these practices when it decided to compete for traditional business passengers, and as a result, since about 2010, there has been very little difference in fares between Southwest and other airlines.
3. Have a clear understanding of the logic of profit. If you don’t design your business to deliver and capture value, you may find yourself going bankrupt quickly despite satisfying your customers.
In the 1990s, many major airlines, including Continental, United, and Delta, sought to emulate Southwest's short-haul business model. They thought Southwest's secret to success was keeping prices low and planes full. This was a view often cited in the business press as a reason for Southwest's success. All copycat airlines have failed. They didn't understand the logic of Southwest's profits: “freeing up capacity.” How to fly more flights per day with fewer planes.
The real secret was that Southwest could turn its planes around in 15 minutes, because planes don't make money on the ground. This precision allowed them to fly more flights and offer cheaper fares, because they didn't need as many planes as other airlines.
Ryanair CEO Michael O'Leary made this clear when he recounted advice he received from Herb Kelleher (former CEO of Southwest Airlines): “Quick turns and secondary airports.” Ryanair is one of the rare airlines that successfully copied the Southwest model. And unlike Southwest, Ryanair has stayed true to the model to this day.
4. Your business plan is determined by your ability to execute. In most cases, it's about hiring the right people.
Under Herb Kelleher's leadership, Southwest Airlines had a unique culture where most of its employees were unionized. According to Herb Kelleher, the only thing that was emphasized in the hiring process was a good attitude. The rest can be taught. That's why the entire gate team was focused on turning the plane around in 15 minutes. If necessary, the pilots would check in passengers at the gate. Try doing the same thing with other airlines.
5. Every entry strategy needs an exit strategy. The conditions that make a business highly profitable can change suddenly. You need to be aware of this and exit wisely when you are making profits, not when you are losing money.
Many brick-and-mortar retailers have become famous for their profit logic of being “category killers.” Circuit City, Toys R Us, and more recently Bed Bath & Beyond are famous examples taught in business schools to illustrate this strategy.
However, this profit logic has been overturned by e-commerce, especially successful e-commerce such as Amazon. Smart companies recognize this and plan an exit strategy. This is why both Dish and DirecTV recognized the streaming threat in the mid-2000s and were looking for buyers.
DirecTV succeeded in acquiring AT&T (one of the worst mistakes AT&T ever made). Dish did not succeed and its stock price is well below where it once was, but unlike Bed Bath & Beyond, this was not for lack of recognition of the threat. Cable companies are now facing the same situation.
