I thought I would use this shortened week's blog post to share a recent discussion I had with a client of mine. I felt compelled to share with my connections as there are some tidbits of great advice that can help anyone with their particular business model.
Don: Let me get this straight, you already built the factory in the North pole
Don: ...and you've already agreed to a contract that provides full lodging and meals to your workers....including unlimited dessert?
Santa: Of course. Happy workers make better toys!
Don: Ok...and to meet your year end goals you need to travel around the world within 24hours to each of your 108M customers residences so you can deliver all your inventory in the course of one evening...for free.
Santa: ....but I get 31 hours with the time zone changes....and yes...
As you can probably tell, Santa didn't really check with any business consultants as part of his go to market planning. You, on the other hand, are trying to make money with your solution and there is some advice that I am certain will help you deconstruct the problem and get you well on the way to enjoying a more profitable holiday season.
Follow the money
Now, I'm pretty sure we can all agree that Santa does not have a great business model and can only survive based on a really rich angel investor that is playing a very long term game. However, there are some lessons we can learn from this really bad business model and it starts with understanding your revenue, margins and expenses for your product line. A lot of small and even medium companies get very excited with orders for their products from real customers. It feels great to have someone not related to you buying into your idea and placing orders. Before you wear out your shoes dancing, it is important to take a step back BEFORE you take orders to really understand the Profit and Loss (P&L) for the product line or service. You have basics like cost of goods, shipping, and duty. Forget to add in line items for things like funding payment terms to your vendors while you wait to get paid by your customers, warranty accrual and ongoing support costs could result in some really good revenue and horrible profitability. Every business I talk to starts with a discussion about how they make money. Not all of us have a mysterious angel investor who is more interested in volume and not interested in profitability.
Go talk to your customers
We aren't all in the luxurious situation where we have our customers line up to visit and tell us exactly what they want from us....down to the UPC code in the case of my kids. This means we need to get out and talk to actual human's who are already getting the product from a competitor or we believe will be a target for our pain killing solution. Many of our ideas start off with a pain we are feeling and have not been able to find a solution on the market today. This is a great data point and can certainly validate the need for further investigation. However, it should not be the only data point used as part of a customer discovery plan. From watching customers purchasing behaviours in the wild to asking people if they could spare a moment to share their decision making process, you need to get data before you invest a lot of money developing a solution. Failing to do this increases your probability of ending up on the naughty list without a home for your inventory even if Santa is giving it away for free...
Create recurring business
Every year at the same time our jolly old friend comes like clockwork to deliver his unwanted inventory on the world's children. It's a great concept minus the profitability. As entrepreneurs, we need to be focused on not just the initial sale, but a recurring annuity type profit margin that continues to deliver month after month. This can be in the form of replacing after it has been used a number of times like printer ink or can be a level of service support that customers find recurring value in the use of your product. Either way, we want a sticky solution that builds brand loyalty and trust that we can continue to deliver month after month not just once a year. A lot of this comes down to how you've planned to build your business model, what you have done to understand your customer needs and how much homework you have done to understand your competition so you can disintermediate them in the market place. Don't use Santa as the example of how to create a loyal and rabid fan base unless you intend to give away the inventory every year and go for a new round of funding...
In summary, before you get too excited by the product or solution idea you have make sure you create a sustainable business. One where your bottom line is well understood, your potential customers are involved in the decision making process and is built for the long term. Happy Holidays and all the best for the New Year!
No matter what has been keeping you busy for the last year, I am pretty sure you have all heard that a new Star Wars movie is due out on Dec 18th. Based on this momentous event, I felt it would be a great opportunity to look at five quotes of wisdom from the series and how they can relate to our product ideas as we get them ready for the market.
“Never tell me the odds.” – Han Solo
The first statistic you'll hear as you begin to think about starting your own business is that 8 out of 10 entrepreneurs who start businesses fail within the first 18 months. A whopping 80% crash and burn. Not great odds for you to be successful, right? Well, through the series of blog postings, we have been sharing a steady stream of tips to make sure you do not end up on the wrong side of the statistics. From focusing on ensuring you have a pain killing solution as a new entry into the market to spending time speaking to actual humans during your product development, you have many opportunities to increase your product success when it launches. Don't become a statistic and make sure you have your customer in mind through all your critical decision points.
“In my experience there is no such thing as luck.” – Obi-Wan Kenobi
No truer words have been spoken. There are common misconceptions by some that believe the success of a product was based on luck and I would beg to differ. Certainly, there is an element of good timing required, but I wouldn't consider that the same as "luck". Anyone that has actually gone through the hard work, late nights and gut wrenching setbacks along the critical path from concept to launch ... knows "luck" had nothing to do with the success. Having personally gone through the process of launching many hundreds of new products to the market globally, the success or failure has been based on relatively consistent themes. You have to target the right customers with the right product and message at the right time. Easy, right? :)
“I find your lack of faith disturbing.” – Darth Vader
Ah yes, sometimes overwhelming confidence is necessary when you are faced with unbelievers. As an entrepreneur, you are constantly putting yourself out there whether with investors, business partners, mentors or friends. You pour your heart and soul into following your dream and feel you are being told why you shouldn't instead of how you can. There are plenty of times that you should absolutely stop putting good money after bad, and there are also many times that overwhelming confidence in yourself, your ideas and your vision is required. If you have done your homework related to your value proposition and have spent the needed time speaking with humans you will be well positioned to back up that confidence with real tangible results.
“Stay on target.” – Gold Five
So many opportunities, so little time? It is incredibly easy to get distracted by shiny things on the periphery of your product development. A new customer adds a different twist to how your product could be used or you see a new market opportunity open up from some new research. It is important that you consider these data points along the journey and take the opportunity to slow down to do some investigation. It is much more important that you leverage all that hard work you've done in the early days of your product definition related to the usage model, market and customer to keep you focused. Make sure you capture the new information as part of your roadmap and don't jump to add them as part of your minimal viable product. It is really easy to get distracted by shiny things and it is critical that you stay on target.
“Do. Or do not. There is no try.” – Yoda
Is there any better advice? The classic tough love statement that every one of us needs to hear, as it is inevitable roadblocks will be hit along the journey. No matter how much value proposition work you have done, or how many customers you have spoken too along the journey, you will absolutely hit roadblocks that will feel overwhelming. No matter how frustrated you are, or how impossible the situation feels, take a step back and lean on your network. Seek advice from trusted advisors and friends. There are few things you will embark upon in your life that will be as all consuming as being an entrepreneur.
So, as some of us dust off our Chewbacca outfits from the last movie launch hoping it still fits, I encourage you all to take the words of wisdom from episodes 4 thru 6 (the prequels don't count, right?) and continue developing your pain killing idea for the market.
...is to convince 5 experienced professionals in the next 15 minutes that your idea is ready for an $8,000 investment and acceptance into the University of Guelph College for Business and Economics (CBASE) Hub incubator program. Last week, I had the opportunity to be part of the panel of industry professionals for entry into the CBASE program. This program focuses on helping startups develop a strong business model that can be rigorously tested and intelligently scaled. It was my first time being part of a judging panel for new businesses and I was very impressed with the diversity of ideas, as well as the different business models being proposed by these entrepreneurial companies. There were three key takeaways that I had from the day which I believe can help others as they come up with their pain killing solutions for the market.
Know your financials If you are a "for profit" business, the reason you have an idea that you would like to mature is you believe there is a way to make money. There is no more awkward moment when you are presenting your product idea than to be asked fundamental questions such as customer sales price, product cost and channel margin and not being able to easily answer. One of your main roles as the entrepreneur CEO of your concept is to know your financials. In the early stages, you do not need to know the exact costs down to the penny. What you do need to know is roughly how much your idea will cost you when you launch, how much you believe you can charge your customer for your solution and how much you believe the sales channel will require in order to want to sell for you. Without knowing how the different pieces of the value chain come together to get your idea out to the market, you really just have a neat idea, not a business.
Know your customerRegardless of whether you are selling a physical product, providing a platform for service, or creating a new patentable technology for an entirely new industry, it is absolutely essential that you have a very clear picture of your customer. What do they look like? How old are they? Are they technical? Should they be? Will this product be in a physical store or will it be sold online only? Are you selling to other businesses or to consumers? At the most base level, you need to know the in's and out's of how your product is going to solve your customer's pain. If you cannot clearly articulate why this customer is going to buy what you are selling, you really need to take a step back and think deeper about your really cool idea. Remember, to develop a solution that your customers care about, you must be solving a pain that your customers care about. To get it right, you need to know as much as possible as early as possible about your customers.
Know your competitionSo, you have a great idea, know roughly how much it will cost and approximately what you can charge. You have a pretty clear picture of what your customer looks like, what they like and also dislike. The other leg of this stool, at this stage, is to get a clear idea of both primary and secondary competitors in the marketplace. Who is selling a similar product in the market today? What other choices could your customers explore? How much are they charging customers? How much margin are they providing to the channel? Where are they marketing their product and how much do you think they are spending to keep the product moving in the channel? What are the strengths and weaknesses of the solutions that exist both in the primary and secondary competition? Spend time early to go to school on the competition that exists today. They have spent time and money on the market already, so you might as well take their investment to study and learn as much as possible for free.
At the end of the day, it is really easy to get caught up in the excitement of your concept without having a clear enough understanding of the landscape. Take a step back before you go super deep into developing your pain killing idea and ensure you understand the rough financials, your customer and the competitive landscape. From this solid foundation, you will feel a lot better about the future investment required to bring your idea to the market