What does it really take to start a business?
Many people believe that you need a complex business plan, lots of funding and a marketing budget to get to market.
New thinking is focused on looking at the minimal critical set of conditions that will lead to a business being successful.
The idea of “lean” comes from a movement in the early 90’s that focused on saying that a business process should be totally customer focused and anything that does not add value to the customer must either be eliminated from the business process or re-engineered.
If we apply the same thinking to the entrepreneurial process we must realise that the only think that possibly adds value to the customer is the product and that a viable product is half the battle.
At a minimum, a product is a product when it is:
- A valuable item or service
- A mechanism by which this can be transferred both
- Physically – (i.e. the logistics of buying and selling the product)
- Financially – (i.e. the logistics of paying for the product)
- With a price
- That is available to be sold (i.e. it is promoted)
A product gets transferred when there is a match between the price and the value or utility that the buyer perceives.
The new thinking is to develop a basic product, to launch it using the legion of tools that are available out there and to – based on customer feedback – further develop the product rapidly, adding new value to customers as we go along. You can try launching another product to the same base – and if it works then run with that. Sometimes this may even mean the death of the first product depending on growth and development.
The same idea applies in manufacturing, retail or any other industry. Start a basic store and build out according to what customers need and want. Start making a basic product and develop from there.
The key to this methodology is two-fold – developing and launching a product quickly and being adaptive to what customers want – even it means totally changing the business. It also means that you need to retain customers and be close enough to them to learn from them. Learning may involve trending, statistics and other usage oriented data that gives you an idea of what excites, frustrates and generally addresses the needs of customers. It is also important to understand who those customers are. You may find that you are speaking to a customer segment that you never anticipated and that this dictates a new approach to the market segment, new features and new benefits.
A key element is to watch out for in customer feedback is that the customer feedback methodology cannot rely on the average. By the time a trend is average – it is too late to do something about it. Every new type of query or complaint has to be dealt with – in order to spread the average out. To only start responding when a trend is “average” is way too late.
To add a small benefit may require a whole new way of thinking about the business. You may find that people expect support for their product and you have to invest in call centres to make it work. You may find that in order to make a product more usable you have to abandon all the original designs and refocus. This investment is worthwhile and will keep propelling your product into new directions.
It is also much easier to raise additional funding, support and development when a product has some level of success and can be shown to appeal to a target market. Investors like investing in an idea or venture that has a potential and to see how their money can be used to take a development further.
This is where marketing meets entrepreneurship in the way that it is supposed to be.
So key success factors
- Get a product. Think about things that you want or that you know that others want.
- Get it to a stage where it is viable to launch and price it so that people pay for the value received (not necessarily the money that you invested in it)
- Launch it to some potential targets markets
- Get feedback on what is being used, how the product is being used and what its value points are to the customer
- Develop these further into the same product (remembering that it increases the value) or into separate products.
- As the business grows, invest into the growth areas – by adding people, processes, managers and capital into areas that will increase the value to customers.
- Once the product is perfect – find new ones and only develop in small increments (at small additions to pricing and value).
A lot of large corporations have failed on the last point – which is to keep innovating with new products into new markets – but to stop when it works.
When expanding there are a couple of choices including vertical expansion (same industry – up and down the value chain), horizontally (different products) or geographically. While it is naïve to think that you can do only one or the other – it is important to realise that you need to expand and be thinking about it. While a product is being perfected, you want to stay within one geography – as it becomes mature you want to expand into as many markets as you can. When it is present in all markets i.e. all your customers are happy with it – because you kept on adapting it – then you want to focus on introducing additional products, following the same growth path – noting that distribution should be easier as you have already developed these channels. The corporate focus is then on seeking to take over competitors and to stay ahead of the curve by looking at innovators in the sector that could challenge the market and bringing them into the scope of delivering future value to their customers.
Another key aspect that this highlights is that a business constantly needs to re-invent itself. Every day is an opportunity to re-create the business and to get it to a new level. Every customer interaction must add to an understanding of the business to build a mega business and for the business to keep on satisfying its customer. Every day a business gets to “bet the farm” on tomorrow. There is no recipe for success – it requires the constant re-invention and change to get to the next day.