A Good Business Value Proposition Will Help You Obtain Business Funding
By Eugene E. Valdez AKA The Loan Doctor™
Obtaining business funding to expand your privately owned small business is a function of impressing the lenders that you negotiate with. While there are many variables, (profitability, good management team to name a few) that impress lenders one of the most important is your business value proposition, or “BVP”. The BVP is the foundation of your business model.
Bankers and other lenders want to loan money to companies who have the ability to create sales, control expenses and generate profit year after year. The reason lenders want this is quite simple… they want to make sure you can repay your monthly loan payment like clockwork which could be problematic if you have an inexplicable downturn in sales.
The first part of generating long term stability is creating sustained demand for your products and services. Sustained demand translates into sales and is a byproduct of your BVP. If lenders believe your BPV is weak or not viable you will not get past first base with them and certainly not obtain a competitive business loan.
Your BVP is a logical concept. Here is a straight forward definition. “What is unique about your company that motivates your customers to buy from you on a consistent basis? What do you do better than your competitors that is compelling? Why do your customers choose you?
When your BVP erodes over time or you lose it all together the sales parade stops and its lights out baby (Blockbuster Co. many years ago: video movie rental business once had a strong BVP). Where are they now?… The business cemetery.
Here are four tips to create or update your BVP:
Step 1- Identify your top 3-4 key competitors: Be honest with yourself, every company has competition, be they direct or indirect.
Step 2- Establish a list of purchase criteria that you believe your customers use to determine who they decide to buy from. Here are a few examples:
Price; return policy; selling terms; quality; name or brand recognition; service, ( pre & post sale), number of locations; turnaround time; proprietary advantage,( patent, trademark, etc.), breadth of product or service offerings, reliability, customer testimonials, quality of sales reps., years in business and headquarter location, etc.
Step 3- For each of the above criteria rank your business and each of your competitors on a scale of 1 to 5 with 1 being the lowest and 5 the highest
Step 4- Prioritize the purchase criteria. Determine the relative importance of each criterion. Assign a 1 to the top criteria, a 2 to the second and so on until all criteria have been ranked. Place all of this info on a grid and then analyze. Analyze this grid to come up with your BVP versus your competitors. Your grid might look like something like this:
Purchase Criteria Your Co. Compt. 1 Compt. 2 Comp. 3
- Quality 4 5 3 2
- Turn around time 2 1 4 3
- Price 3 4 4 2
- Service 4 3 1 3
Based on this info it appears your BVP could be described something like, “Our company provides products/services at very affordable prices without sacrificing the quality our customers demand. Additionally our offerings are backed up by service levels that are the best in our industry.”
Once you have created a BVP with clarity now the onus is on you to execute your BVP every day to create customer loyalty, reorders and repeat business. Without the precise execution your sales will be inconsistent and your attractiveness to potential banks and lenders will be mediocre at best. The goal is to create new customers every year and retain a high percentage of them. Lenders love this as it creates predictability of the revenue stream.
Final comments: Be cognizant of the fact your BVP is not cast in concrete but fluid. You may have to tweak your BVP based on changes with regards to your competitors, customer needs/spending habits, the economy, technology, government, and legislation. This is what makes entrepreneurship fun and challenging and seeking business funding even more challenging.
Eugene Valdez is a 40-year veteran of business/financial management and owner of The Loan Doctor, a full service business loan consulting firm based in Upland. He can be reached at email@example.com.