Monthly Archives: April 2013

From Idea to Commercialization in 4 Days

When not consulting with small businesses who have revenues, I often volunteer time with a start-up nonprofit named EntreDot. The entrepreneurs with whom I have the pleasure of interacting through this connection are amazing. Within the innovation centers that the organization operates, there are many second career entrepreneurs. However, a different demographic intrigues even more: high school students. This past week, I had the opportunity to advise students at Wake Forest Rolesville High School in how to launch a business. What a blast!

While adults often underestimate what a young entrepreneur can do, this group has been a very pleasant surprise. The students were allocated into teams to prepare a business pitch in five days. Coming into the week, they had not previously been working together. One of the student teams did not even begin their business until Tuesday and only then as a result of teachers requesting they form a separate team because their original team had grown to too many participants. Faced with a four day deadline, this group of young entrepreneurs launched Bands For Boston. Bands For Boston is a social cause enterprise that is selling wristbands to support the Boston community in the aftermath of this week’s tragic bombings at the Boston Marathon. 

Bands For Boston

The student team used the debit card of one of their own to order the first 250 bands on Tuesday. By Wednesday, they had enough pre-orders that they went ahead and ordered an additional 250 bands. Through networking, social media, and some joint promotions, the team looks to sell over 1,000 bands in their first 10 days in business at a price of $5 each. Initially, they plan to contribute 60% of the proceeds to the American Red Cross to support relief efforts. They are hoping that, as volume grows, they will be able to raise the percentage contributed to 80%.

A process was followed by these young entrepreneurs that is significant for new small business founders of any age.

  • Ideation – The team first thought about doing lanyards for key chains, but thought that they couldn’t get enough traction. Once they decided to do the wrist bands, their thoughts gelled and they were able to unite around an idea that evoked passion. Quick math showed the team that, if they would put forth the effort, there was enough demand for what the proposed to create sales substantive enough to reward their efforts.
  • Conceptualization – The next effort the team went through was to identify target buyers. The first concentric circle they considered were student peers, followed by neighbors and Twitter followers. At each level, they were able to verify demand. They they put together a business model to order from an online source and deliver the bands to those who purchased on a pre-sale basis.
  • Creation – The proof of concept for the idea came into focus as the first set of bands arrived, were distributed after school, and new customers were identified as those who saw others wearing the bands. They had established some name recognition and were on their way to a business.
  • Evaluation – At the three day mark, they began dealing with inventory, marketing, and finance issues relative to reorders, expanding their reach to other geographic markets, and planning how to scale the business.
  • Preparation – The team was now confronted with the challenge of how to launch on a broader basis and put into place the team responsibilities that would facilitate growth. They are pursuing relationships with sports teams in the Boston area to have promotions at games whereby the bands could be given away to early attendees and sold to subsequent ones.

Commercialization is now the challenge of the team. They are trying to figure out how long these bands will be popular and what they may do for an encore. In the meantime, they have tapped a latent demand while helping a community and earning some income. Kudos!

Wannabe Entrepreneur – Or Real Deal?

 

What’s the difference between an entrepreneur and a “wannabe?” In many settings, there are people who talk a good game, but don’t really have the follow through to launch a business. Erica Douglass, a 20s something entrepreneur who already sold a a business for over $1 million, has identified 5 traits that differentiate earnest entrepreneurs from what she terms “wantrepreneurs:” 

Wannabe

1. A willingness to learn anything.

You’re never going to be successful if you externalize what’s wrong (I can’t hire a developer because I don’t have any money/no one will give me money, and therefore I can’t start or build my product.) It’s a poor attitude.

Isn’t it better to hire someone who knows what they’re doing? In the future, yes. Right now, though, you don’t even know how to tell whether someone knows what they’re doing or not. Plus, without a spec or prototype, you’re going to spend a whole lot of extra money and time having someone else do it wrong over and over again (because again, even the best developer can’t read your mind.)

Once you understand how building a website works, you can dip your toes into code. Read up on the differences between Python, Ruby on Rails, and PHP. Pick one to learn. Spend a week learning the basics. Then spend the next couple of months hacking on weekends. This will help you figure out whether that developer you’re about to pay a fortune to actually knows what he or she is doing.

The point of this exercise is three-fold. One, it gets you familiar with how to articulate your vision to a developer. Two, since you have more time than money, it shows everyone (including prospective developers) that you’re serious and committed to this project. And finally, if you can get something up there, even if it’s just a sketch with buttons that don’t work, you can start showing it to prospective customers and asking them to commit to paying for it. (Note that I didn’t say “Asking them how much they would pay for it.” I said “Asking them to commit to paying for it.” There’s a huge difference. Only one path will show you whether your idea will actually be successful.)

2. Going above and beyond to build something that people want.

If you haven’t been in your market for years, and you have an idea for a product that requires the market–your potential customers–to think about things in a totally different way, that’s the most likely path to failure. So what’s the better option? Finding out what’s in the market and what people hate about what’s out there. Then, instead of trying to “shock” them with something totally new, just incrementally improve on what’s out there.

3. Not knowing where your next dollar is coming from, but going forward anyway.

Startup founders and entrepreneurs are inherently scrappy folks. The people I hear who “pooh-pooh” consulting and “trading dollars for hours” are the ones most likely to fail on a project. If money gets tight, scrape together as much consulting work as you can and live as frugally as you can. Yeah, it’s not ideal to do consulting and try to run your own business, but you do what you have to do.

Ask yourself this: Do you believe in your startup idea so much that you’d be willing to sell your car and drive a beater for the next year in order to fund yourself for another month? If the answer is no, you need to decide: How committed are you to running your own business?

4. Being willing to launch and ship even when it’s not perfect.

This has been the hardest one for me. There’s always one more feature to build, or something that customers expect that you don’t have. Customers (or potential customers!) can even get emotional and/or upset that you don’t offer something they expect. And if what they’re asking for is completely unrealistic and/or it would take your product in a direction you’re not interested in going, cut them loose. Part of the answer is about setting expectations. The other part of the answer is being willing to let go. 

5. Clearly articulating your vision of the future…and getting people to believe it.

The best entrepreneurs and business owners are evangelists. They are passionate about their market. If you have the presence to get other people excited, and sharing in your vision, you can do anything. Great employees will turn down other, more lucrative jobs to work with you. Customers will show up, because your passion will come through.

 

Overcoming Price Objections in Small Business

Many the small business entrepreneur complains about not being able to charge enough to make good profits. Yet, in the business world around us, we all see businesses who seem to be doing very well and who charge the proverbial “arm and a leg” for what they do. Why is it that some niches seem more capable of avoiding price sensitivity than others? For instance, goods that carry with them a great customer experience command a luxury price. Mark Stiving took note of how the healthcare industry is a conundrum when it comes to pricing. In an article for All Business, he made the following observations:

“It’s something we all need. It’s an industry where there is huge pressure from major insurance companies, the media, governmental agencies, and even consumer groups to cut costs and prices. However, even with these factors prices have never been driven down to commodity levels or even to parity.”

Pricing

This is in sharp contrast with the experience of many small business owners. I hear all the time about being beat up on price, having to price services in competitive bid situations near the bottom, and many other such war stories. As you can imagine, I often am advising clients to compete on value versus price. Just how does one go about this?

Stiving continues in his piece, noting the following consumer behavior in healthcare:

“How is this possible? Like almost everything in pricing, human psychology is at the root. For example, when was the last time you used price to decide where you were going to have a medical procedure done? When was the last time you even knew the price of the service before going in?

Most people don’t pay attention to prices because their insurance company pays. Yet virtually everyone has co-pays, and therefore knows the general cost and has an incentive to ‘price shop’. Think about it. Even a 10% co-pay on $1,000 is $100. Isn’t it worth $100 to find the best deal for a procedure? So most people have financial incentives to shop for price, but don’t.”
Let’s focus on several key words and phrases from the quote.
  1. Human psychology. If you are sharp enough to have built a target market strategy, you have surely thought through who you want to serve. What is often overlooked, however, is how and why people buy. As is pointed out, consumers have habits. Observe the habits and then customize your approach to what you see.
  2. Insurance company pays. This fact is significant because it illustrates that many buying decisions are facilitated by removing the consumer from having to make a painful (excuse the pun) choice. Think of software as a service as another type of business wherein the monthly $9.99 or whatever you allow to be charged to your card on file is “out of sight, out of mind.” How can you make purchasing easier and less “thinky” for your customers so that the decision is almost automatic? Do you have something that could be billed on a recurring basis at a lower price point?
  3. But don’t. In describing how healthcare consumers do not look around for alternatives, Stiving makes a keen observation. Even when alternatives exist, they are often not sought out. Those who study consumer behavior far more than me would point out that the trouble associated with switching to something new holds many buyers back from changing to what may even be a better value. How can you use this behavioral paradigm to your advantage? Can you make it easier for others to but from you instead of the competition? How can you make it harder for existing customers to stop buying from you?

Finding a way to address these three issues in your own business will pay off. As you are able to make inroads, you will find that your pricing becomes justified and that you won’t have to fight as hard to maintain price integrity.

 

Rethink What it Takes to Innovate

Innovation inside big businesses requires a culture in which people feel relaxed, fairly rewarded, and valued. The same applies to small businesses, right? Recently, Charles Day, the CEO of Lookinglass, wrote an article for Fastcocreate on this truism as it relates to creative talent. He observes that, “Many creative businesses limit their talent recruitment and retention strategies to money and flattery.”

Day recommends the following 8 means to attract and retain top creative talent. Consider how many of these practices may be good human resources concepts that would apply across the board!

upside down worker

1. BUILD AN EVANGELICAL BUSINESS

Creative people yearn to make one thing more than any other. A difference. They want to solve problems they believe are important. Ten years ago, Netflix and Blockbuster were in the same business. The difference lay in their respective visions of the future of movie rentals. Internet-supplied delivery at your convenience? Or rainy Thursday nights staring at an empty shelf in a store? Which set of problems would you rather solve? 

2. AVOID THE DEFLATIONARY VALUE OF MONEY

In Daniel Pink’s excellent book, Drive, he explains that many creative people are in fact demotivated by money. In some cases it makes them perform worse, because when a task becomes “work,” creative people tend to feel restricted. As a manager, focus whenever you can on highlighting the intrinsic value of solving a client’s problem. And when your company decides it must “do it for the money”–an economic reality in virtually every business–be mindful of the impact this has on your most creative people.

3. PAY FAIRLY

There is a time to spend money. Paying “below the market” shatters trust. Many companies ignore this truth, underpaying early on when the company can, then overpaying later in order to keep talent locked in place. This builds suspicion and destroys loyalty. Instead be relentlessly pro-active in maintaining market-parity compensation, with bonuses for extraordinary results.

4. MEASURE PROGRESS

At Rosetta, one of the industry’s fastest growing interactive agencies, the rigor of the employee review program stands in stark contrast to most creative businesses. Employees are measured on a set of four published benchmarks that encourage both personal initiative and collaboration. The system is transparent and consistent. At the end of the year, everyone is evaluated and rated against their own peer group at their own level. This ensures that every employee has a clear understanding of how much progress they have made. According to a recent Harvard Business Review study, nothing matters more to ambitious people.

5. ENGINEER ENGAGEMENT

Gallup Organization research has shown that most people become less engaged with an organization over time. Nothing dilutes loyalty more than a company’s willingness to support under-performers. Be relentless about improving or firing the weakest links and raising standards and expectations. It attracts and unlocks greatness. 

6. INVEST IN INDIVIDUALITY

Google famously attributes its growth to the investment it’s made in allowing 20 percent of engineers’ time to be used for anything they want, so long as it makes Google a better company. Creative companies that charge by the hour can’t match this level of investment. But when you decide to invest zero in the possibility that your talent can create value in unpredictable ways, it suggests you think they are not capable of doing so.

7. BE OPEN. BE HONEST

Transparency is essential to attracting and retaining great talent. We define transparency as this: telling what you can and explaining what you can’t. Sharing openly encourages your people to give you the benefit of the doubt. Critical to building loyalty.

8. SAY THANK YOU

The artist in all of us needs to be recognized. So does the human being. And yet most companies are slow to praise or even to thank. Which is strange since each of us makes a choice every day about where we work. It need not, after all, be here. Saying thank you at the end of every day has always seemed to me to be a small acknowledgement that you take neither their talent nor their choice for granted.

 

When and Why to Withdraw Money From a Start-up

Working with entrepreneurs all day every day produces a certain fixation with what is most important to their survival. Unfourtunately, what is best for the business may not (in the short run) be what is best for its founders. Constantly, with existing operating businesses, there is the challenge of how much to compensate the owners and be fair about it. With start-ups, the goal is to get to the place that one can get paid at all. 

Recently, I ran across the story of Vinyl Me, Please. This new business is seeking to capitalize on the revived appreciation of vinyl records. While the number of records sold nationally has increased each of the past five years andby over 17% in 2012, the co-founders are trying to realize the benefit of the trend in their own business and wallets. They still are not earning a living from their efforts, though the prospects of doing so are better than at any prior point.

Vinyl recordsJeff Cornwall at Belmont University writes that, “The niche that Vinyl Me, Please fills is to bring new and interesting music to a new generation of vinyl record enthusiasts.  Each month the subscribers to Vinyl Me, Please are sent a brand new, hand-wrapped vinyl album from a relatively undiscovered artist. In addition to the monthly vinyl record, subscribers are assigned a personal music consultant who gets to know their musical tastes and preferences.  Every month the consultant creates a personalized playlist specific to each subscriber. Vinyl Me, Please brings together in one service what today’s young music enthusiasts want.  Their customers love the sound of vinyl, they like to interact on social media with friends about new music to try, and they like the surprise factor they get from services like Pandora.”

As a daily user of Pandora (and demographic that grew up with LPs), I can truly appreciate this business concept. Interesting to every new venture is how to make the most of market trends to create customer experiences that are profitably delivered and fun to pursue. Cornwall observes of the Vinyl Me Please business model that, “although they have identified what their market wants, their model has proven to be a challenge to scale to a large enough size to pay the founders a consistent salary.  They need to grow to at least 700 subscribers to reach this important milestone.”

He goes on to provide an account of his interaction with one of the co-founders, Matt Fiedler, and what he feels needs to occur next in their business development:

“The biggest challenge we face is keeping the personal touch,” says Fiedler.  “We think this is what makes the experience unique to a lot of people and is something we’re going to have to fight through in order to achieve true scalability.  We need to find a way to maintain a personal touch but be able to bring a massive number of customers into the system without it straining the resources of the company.”

They have recognized that it will not be possible to continue to hand wrap the albums as the business grows.  They also are looking at ways to make the personal consulting more efficient.

“We have plans to set up an internal database that allows us to categorize and sort music to create a more efficient process around creating playlists,” explains Fiedler.  “We are also looking at rolling out a playlist-only offering that will help us capture more users and, at the same time, start paying our consultants without dipping into the revenue that comes in from standard, full-membership subscribers.”

This commentary demonstrates the need for business launches to be very iterative, flexible, and responsive. Finding some group who will purchase your product or services is not enough; sustainability comes with staying attuned to original and ensuing target market needs.