Sunday
Jul051998

Finding Your Pushcart

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Start small. Most businesses start small out of necessity. The entrepreneur doesn’t have the personal finances or the backers to start big. Of course, the entrepreneur would like to start big. Many entrepreneurs think they need the scale of a large business to succeed. But starting big has many serious drawbacks. One of the most significant is that starting big lacks flexibility. Flexibility is always vital in business but it is of particular importance when getting a new business off the ground. Everything at that point is untested. No matter how much research you’ve done, no matter how sure you are of your concept, until customers reach into their pockets to pay for your product or service, every aspect of your business is still a question mark. Starting small allows you to make changes quickly and at low cost.

Here’s a great example. After Scott Painter first got the idea for selling cars on-line, he wanted to test if people really would buy automobiles via the Internet. After all, selling books and CDs is one thing, but $30,000 cars, is a whole other story.

There are many ways Scott could have “tested” his idea. However, he sensed that he should use a low cost, very flexible, information rich business model. Here’s what he did. He created a prototype Web site and provided a means for customers to communicate their interest. However, it’s what was going on behind the scene that is of interest to us. And it’s not what you might think. Instead of an expensive, sophisticated database program providing his customers with the information they wanted, Scott and his team simply consulted Kelley’s Bluebook and then got on the phone with dealers and tried to find the cars their customers wanted at the best price. When they found the right car, they emailed the information back to the customer. After a short time, Scott shut down the prototype site, having learned what he needed to know. People would buy cars on-line.

When we heard Scott’s story, we were reminded of a very similar experience Michael, a friend of ours, had several years earlier. Back then; Michael was involved in an “information provider” startup business that helped customers identify the best software program to use for their particular business application. For example, a lawyer might want to know what software package would help her run her law practice. However, since Michael wasn’t really sure whether people would pay to get that type of information, he didn’t want to spend a lot of time and money developing the automated call center he eventually would need. Instead, he decided when customers called in they would speak to a person. As with Scott Painter, it was the quickest, simplest, least expensive way to test whether customers really had that need. Although Michael knew it was not a practical long term solution, he felt one or two software gurus could handle the initial bunch of calls.

To see how many calls came in, what type of people were calling, what categories of information they were seeking, etc., Michael ran some ads in the Wall Street Journal and waited to see what would happen. The first day the ad ran he had about 30 responses by noon. BUT based on just those responses the decision was made to kill the other ads and completely change the business model. He felt the response to the ad was not strong enough to start that type of business.

So, what’s the point of these two stories? It’s really pretty simple. When you begin a business or when you have an established business that’s launching a new product or service, what we always say is “find your pushcart.” Find the lowest cost, most flexible way to go to your market, and begin selling to your customers. Use a business model that is easy to start, requires little or no inventory and offers a good representation of your intended product or service. What you are really trying to do is to simply get better information upon which to make better assumptions about your customers real set of needs and wants and then how best to configure your business (i.e., your business model and its core processes) so that you can satisfy your customers better than anyone else in the world.

And, as the stories point out, it doesn’t matter what type of business you’re starting; your approach to building a profitable business is exactly the same. The challenge facing all entrepreneurs is not just starting a business but putting in place a flexible business building process. A process that enables you to quickly try, quickly learn and quickly change. One idea may work; another may not. The key is finding out fast and finding out cheap, so that the next day you’ll still be in business.

Friday
Mar271998

You Can't Get it Right the First Time

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Entrepreneurship has never been more popular or more important. By most estimates millions of businesses are started every year in the United States and around the world. But there’s a dark side to these statistics. Two out of three of these businesses, several million in total, do not survive to their fifth birthday.

Why? Is it because the entrepreneurs were unlucky or lacked some other quality such as determination or tolerance for risk?

We don’t think so. It is our belief that the number one reason businesses fail is because entrepreneurs are focused on starting a business – a very specific type of business, no matter what. The businesses that survive, we believe, succeed because the entrepreneurs who run these businesses don’t start a business. They start a process.

Let us explain what we mean. The number one reason so many startups fail is because the entrepreneurs follow the “conventional wisdom” and make a very simple assumption. They think they can get “it” right the first time. That is, they are willing to “bet the ranch” that the business they are starting is THE RIGHT business. One that will satisfy their customers’ needs and wants better than any other business in the world. And they are wrong. You simply can’t get it right the first time!

Peter Drucker, the famed business guru, once said, “When a new venture does succeed more often than not it is in a market other than the one it was originally intended to serve, with products or services not quite those with which it had set out, bought in large part by customers it did not even think of when started, and used for a host of purposes besides the ones for which the products were first designed.”

In other words, change is intrinsic to business. And change means rhythm – the rhythm of business. In order for you to be successful in business, you’ve got to listen to that rhythm or you are soon going to end up out of business.

Here are a couple of examples. Virtual Knowledge, Inc., a company that developed and marketed the Sylvan Children’s Skill Test, a CD-ROM-based exam which allows parents to measure their children’s academic skills at home. When first introduced the product was marketed as a quasi-IQ test and sold poorly because as David Blohm, the owner and CEO found out, parents were less interested in knowing their children’s IQ and more interested in measuring and improving their children’s skills. After analyzing his customer feedback and quickly repositioning and relaunching his product, Virtual Knowledge sold hundreds of thousands of copies.

And then there’s Top of the Tree Baking Company, originally of Londonderry, New Hampshire. When Gordon Weinberger started the company, he insisted that all pies be made in his own baking facility. But two days before an investor was supposed to give him the money for a new, more efficient facility, the investor backed out. It was a devastating blow. The vision Weinberger had spent nights and days building was gone in one short phone call. He couldn’t make enough money to survive in his old facilities. Depressed, he piled his wife, kids and dog in the family car and went away for a long weekend, convinced he was going out of business. However, by Monday, he had a new plan. He’d outsource the baking. His fresh apples wouldn’t come from New Hampshire any more, but from New York. The baking would no longer be done in Londonderry, but in plants in Quebec and in U.S. locations outside New England. And in just a few short months he went from losing money on sales of $500,000 to a profit on annual sales over $3 million. And from there sales increased steadily reaching $15 million in 2001 when Gordon sold the business to Mrs. Smith’s. So, what’s the message? It’s not persistence or luck. The message is: In business, no one gets it right the first time! Virtual Knowledge had the wrong understanding of its customers and Top of the Tree had the wrong understanding of how to produce its pies. Both of these examples clearly illustrate the simple but critical point—most companies do not succeed with the idea with which they began.

So, how do you get it right, eventually? The answer is pretty straightforward. You must understand that every business goes through a natural development process; a natural development process which requires change. This is the rhythm of business.

How do you follow this rhythm? The short answer is you have to listen to your customers, listen to your employees, listen to your vendors, listen to your investors and, eventually, you will succeed most likely in a different market than the one you started, with different products and services sold to different customers than those with which you originally set out but most importantly with a profit!

As David Blohm of Virtual Knowledge remarked, “If you have the mind set of listening to customers and keeping yourself nimble enough to make the changes, you can succeed.”


© 2004 The Rhythm of Business, Inc.

A version of this article was published in the Boston Business Journal, March 27 – April 2, 1998

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