You have an excellent idea for a product or service, and you’re sure it will be a big hit. You are eager to go, so you plunge in, doing what the blogs, YouTube videos, checklists, and webinars said you need to do. You came up with a name for your company, designed a logo, and ordered business cards. You registered an LLC, have your Federal Tax ID, and you’ve spoken to several banks. You even built a website and social media pages. What could go wrong?
This month, I’ve met with several business owners who have taken all these steps and more but don’t understand why they can’t attract clients. They also don’t know why banks won’t give them the time of day. When I asked them, they could not tell me what made their product or service unique or how they knew there was a need for their product. They didn’t know their marketplace, and they didn’t know how much money they needed to start and operate their business until break even.
Had these business owners been ready with a well-thought-out strategy and plan, they could have saved a lot of time, effort, and money. Instead, they missed sales, suffered losses, and squandered funding opportunities. They were so eager to get going that they never built a solid foundation. Now they will have to backtrack and start again.
It’s easy to be so wrapped up in details that we forget to answer the fundamental questions about our business. So before you go running off to take care of all the fine points, first walk through these five questions to determine why anyone would want to buy your product or finance your company.
1. What problem will you solve?
Think like a customer, not a salesperson. You are not here to push your idea on your customers, whether they want it or not. Instead, you are here to solve a problem for them. What problem does your product or service solve for your customers? And what is your solution to those problems? What benefits do your customers receive from buying and using your product? If you don’t solve a problem, no one will buy your product, and without sales revenue, you will not have a business. So, instead of pushing your product on customers, you want them to demand your solution. To think like a customer is challenging for many businesspeople. But if you do, you will reap great dividends not just when you start your business but for as long as you stay in business.
2. Who are your target customers?
Not everyone in the world has the problems you specified, and you don’t have the time or the money to chase everyone. So who does have these problems? Identify those people, then seek them out to tell them your story. Without first knowing your target audience, any marketing you do, including your company’s name, logo, and website, will be less effective and more expensive.
3. Do your customers care?
Just because you think wasabi pudding is a great dessert idea doesn’t mean anyone else will. Leave your ego behind. You have to be willing to get out of your comfort zone and share your concept with potential customers. Test prices, styles, and options for your products. Put together some samples and try selling them on Etsy, eBay, flea markets, pop-up stores, and the like. Get feedback and reviews. Then ask yourself what you learned from this validation process and how you’ll adjust your product. Don’t make the mistake of assuming that you know what your customers want. Your customers are the ones who need to tell you what they want.
4. Who is your competition?
A key reason for business failure is not understanding your market. You need to identify where your customers currently go to solve their problems. In other words, who is your competition? Identify everywhere your customers spend money that they could instead spend with you. Investigate and research these competitors. Visit them, call them, Google them, read their reviews, check out their website and Social Media thoroughly, sign up for their emails. What are their Strengths and Weaknesses, and what Opportunities and Threats do they present to you? Use this “SWOT” analysis to evaluate how your solution stacks up.
5. Why should customers choose your solution?
Compare your solution to the solutions offered by your competitors. Then, do a SWOT analysis for your product and business. How will your product compare against the other solutions out there? What are your competitive advantages? Think hard. You need to stand out against the competition. Also, you must maintain and defend this advantage. It isn’t an advantage if it’s easy for competitors to copy or buy it. If you don’t have an advantage, you won’t stand out. And while you’re at it, if you have any competitive disadvantages, now is the time to erase them.
Once you’ve answered these five questions, you will have defined your fundamental business proposition. But that is not enough yet. You now need to use these answers as the basis for a business plan. A business plan is a written document that tells your business’s story by outlining its goals and how you will achieve them. It is the most critical planning tool you will have before and after starting your business.
Your business plan will include your Marketing Plan. With the strategy you defined so far, you can now evaluate the best ways to reach your target customers. For example, should you use a website, social media, postcards, emails? Now you can connect with your target audience more effectively and efficiently.
A Cash Flow Projection will also be a critical part of your business plan. With those financial estimates, you will have a good understanding of how much money you need, how and when you will use the funds, and how you will repay your backers. This is what lenders and investors want to know.
A business plan need not be complicated, lengthy, or professionally drafted, at least not to get you started. Good one-page tools are available to help you organize and spell out the most critical aspects of a business plan. For example, the “Lean Canvas” offered by SCORE Pinellas and The Greenhouse is an excellent one-page planning tool.
With your business plan in hand, you can now determine if you have a viable business or just a glorified hobby. If you see that you have a glorified hobby, you don’t want to waste your time further. You don’t need an LLC or a website or anything else. However, if you now feel you have a genuine business opportunity, you can proceed more confidently. Keep in mind that, as in real life, there are no guarantees in the business world. But at least now, with your plan, you enter that world better prepared. So now you can go ahead and incorporate, open a business bank account, and get your tax ID. And while you’re at it, develop your website, talk to banks, and do everything else you heard you need to do.
Remember that the best way to improve your odds of having a successful business is to take it one step at a time. Walk before you run.