Picking a Small Business Niche That Will Grow in 2013

Some business owners just started their enterprises since the 21st century “great recession.” Others have been in business considerably longer. Whether new or “seasoned,” most want to know what trends their businesses face. Knowing growth rates of a market sector can be very helpful–if for no other reason than benchmarking one’s own performance against the average of one’s peers. A company that compiles a lot of research data on small businesses in my own back yard of Raleigh, North Carolina is Sageworks. In an interview with Catherine Clifford of Entrepreneur.com, Libby Bierman of Sageworks said that a recent study by her company showed the average growth rate of small businesses across all industries was 8% in 2012.

While growth is a very good sign, there are winners and losers in every statistical average. Certain sectors, however, performed poorer than others. According to the research, the slowest growth industries for U.S. small businesses in 2012 were:

  1. Skilled nursing care facilities: -3.29 percent
  2. Printing and related support activities: 1.86 percent
  3. Automotive repair and maintenance: 2.81 percent
  4. Offices of physicians: 3.00 percent
  5. Highway, street, and bridge construction: 4.24 percent
  6. Insurance agencies, brokerages, and other insurance-related activities: 4.32 percent
  7. Lessors of real estate: 5.07 percent
  8. Other miscellaneous manufacturing including jewelry and silverware, sporting and athletic goods, dolls, toys, and games, office supplies other than paper, and signs: 5.55 percent
  9. Offices of health practitioners other than physicians and dentists, including chiropractors, optometrists, mental health practitioners, speech and occupational therapists: 5.98 percent
  10. Other amusement and recreation services including bowling centers, golf courses, and recreational centers: 6.03 percent

As I reviewed the list above earlier today, it occurs that personal services, low technology manufacturing and discretionary spending-based businesses have been it hard. Why would this be the case? In terms of  the personal services businesses, many of them are healthcare related. The Affordable Care Act may have a lot to do with this poorer performing sector, as many have shunned making decisions to invest capital in an arena that is in extreme flux. Many before me have written about the loss of manufacturing jobs to overseas competitors. In the United States, we have become less competitive in manufacturing that is not highly customized or based on a technology. Whether infrastructure projects or amusement, spending is down on items that don’t seem necessary. Take note if you have a business in any of the above sectors. While you may be able to outperform your sector, you may consider how your sector as a whole is not growing as quickly as others. How should you respond? This question should drive your strategic planning.

Professional officeHowever, the list of fastest growing sectors (below) identified by this research highlights some additional trends and opportunities. Many who have the flexibility to diversify or move their efforts to one of these sectors should seriously consider doing so.

Fastest-Growth Industries for U.S. Small Businesses in 2012

  1. Residential building construction: 14.77 percent

  2. Building custom software and servers for businesses: 14.29 percent

  3. Machinery, equipment, and supplies merchant wholesalers: 13.75 percent

  4. Management, scientific, and technical consulting services: 12.31 percent

  5. Architectural, engineering, and related services: 11.40 percent

  6. Foundation, structure, and building exterior contractors: 11.37 percent

  7. Building finishing contractors who make additions, alterations, maintenance and repairs: 11.32 percent

  8. General freight trucking: 10.41 percent

  9. Services to buildings and dwellings, including pest exterminators, janitorial services, and landscaping: 10.11 percent

  10. Other specialty trade contractors, including site preparation activities and other specialized trades: 10.04 percent

Most of these businesses, as Bierman mentions in her interview, require very little capital to get going. They do not require the purchase of expensive assets and can be successful based on the strength of human capital. As a result, business services firms are performing strongly and should continue to do well.

 

 

 

 

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You Can’t Handle A Business Plan!

In preparing for battle I have always found that plans are useless, but planning is indispensable.

-Dwight D. Eisenhower (Thirty-fourth President of the USA)

 

Eisenhower was a military leader of renown prior to becoming president.  His comment on the value of planning illustrates a key point that many who disdain planning would do well to heed: a plan is not the goal, but rather the exercise of thinking strategically through one’s options given a defined situation and set of resources at one’s disposal.

Serving entrepreneurs and existing business owners, I have seen the outcome of both lack of planning and belief that planning unto itself is a cure-all for potential challenges that may come the way of the enterprise. Tim Berry, author of Three Weeks to Startup, writes that, “If you’re serious about starting your business — even if you don’t have anything down in writing — you’ve already started to plan.” Yet, starting to plan is not the same as writing a business plan.

There are several planning steps that I would recommend prior to writing a business plan:

  1. Refine your idea. Think through how your business model would affect potential customers. Have a preliminary strategy in mind for each segment of your target audience.
  2. Conceptualize a winning strategy. Think through what is already available in terms of direct and indirect competition. Adjust your approach to the market based on what can win consistently.
  3. Create value before your first sale. Test your hypothetical product features and benefits, along with pricing model and go-to-market system. Secure feedback and revise your offering accordingly.

Once you have thought through these three main ideas, you are then ready to evaluate how best to launch a business. Evaluation is the point at which your first business plan should be written. Berry recommends “Your plan is for you first. Don’t make it for anybody else. Do it because it helps you divide and manage big goals into practical steps. Instead of looking at it as a document, think of your business plan as a place on your computer where you collect ideas, useful stories, lists and numbers. It’s a place where you keep track of the market, your milestones, goals and projections.”

Business planI could not agree more wholeheartedly! A plan is not a monument; it is a living, flexible document that needs to be modified on a recurring basis as long as you are in business. Early on, Berry recommends the following key components of planning:

  • Milestones: What’s supposed to happen, when, and who’s responsible.
  • Basic numbers: Simple spreadsheet projections for sales, costs and expenses.
  • Strategy: Strategy is about deciding how to focus a business offering on a key target market. It can start with just bullet points. I’ve seen it done well with pictures. It’s mostly a reminder for you and your team.
  • Cash flow: Because profits don’t guarantee enough cash to pay your bills, you need to manage cash from the beginning. Month by month, account for what you spend and what you deposit — not profit as it appears on the books, but money as it shows in the bank.
  • Review schedule: Set aside time for a plan verses actual review once a month to compare what you planned would happen in your business to what really happened. Be brief and practical.

Regardless of your market niche, whether you have attended a “hack-a-thon,” or who is on your start-up team, take the time to consider each of these components thoughtfully. Incorporating them into a plan that you are committed to revisiting and continuously improving will enhance your chances of launching a successful new business!

 

 

Do You Understand Which Customers You Want to Develop?

Whenever I have the opportunity to sit down with an entrepreneur to discuss how an idea is going to be commercialized, a hot topic is “who is your buyer, and how will you win them?” Amazingly, many who aspire to start businesses (even some who have been in business) have very little strategic insight into the answer to this question. By going after the universe, in a shotgun method, the business owner shortchanges the enterprise of the opportunity to develop authentic connections with targeted customers who become loyalists. We break the broad question down into tactical components such as how to listen to customer input and revise a product or service offering. Yesterday I read a LinkedIn article by Steve Blank, the author of The Startup Owner’s Manual. Blank wrote about an interaction with a former student who claimed that following Blank’s advice on customer development was causing his company to fail:

We Did Everything Customers Asked For
“We did every thing you said, we got out of the building and talked to potential customers. We surveyed a ton of them online, ran A/B tests, brought a segment of those who used the product in-house for face-to-face meetings. ” Yep, sounds good.

“Next, we built a minimum viable product.” OK, still sounds good.

“And then we built everything our prospective customers asked for.” That took me aback. Everything? I asked? “Yes, we added all their feature requests and we priced the product just like they requested. We had a ton of people come to our website and a healthy number actually activated. .  . everyone uses the product for awhile, but no one is upgrading to our paid product. We spent all this time building what customers asked for. And now most of the early users have stopped coming back.”

Customer developmentWhat’s your business model?
“Business model? I guess I was just trying to get as many people to my site as I could and make them happy. Then I thought I could charge them for something later and sell advertising based on the users I had.”

I pushed a bit harder and said, “Your strategy counted on a freemium-to-paid upgrade path. What experiments did you run that convinced you that this was the right pricing tactic? Your attrition numbers mean users weren’t engaged with the product. What did you do about it? Did you think you were trying to get large networks of engaged users that can disrupt big markets? Large is usually measured in millions of users. What experiments did you run that convinced you could get to that scale?”

I realized by the look in his eyes that none of this was making sense. “Well I got out of the building and listened to customers.”

The idea of the tests he ran wasn’t just to get data – it was to get insight. All of those activities – talking to customers, A/B testing, etc. needed to fit into his business model –how his company will find a repeatable and scalable business model and ultimately make money. And this is the step he had missed.

Customer Development = The pursuit of customer understanding
Part of Customer Development is understanding which customers make sense for your business. The goal of listening to customers is not please every one of them. It’s to figure out which customer segment served his needs – both short and long term. And giving your product away, as he was discovering, is often a going out of business strategy.

Blank then shared the lessons learned by his student:

  • Getting out of the building is a great first step
  • Listening to potential customers is even better
  • Getting users to visit your site and try your product feels great
  • Your job is not to make every possible customer happy
  • Pick the customer segments and pricing tactics that drive your business model

Gorillas Ask 7 Questions in Marketing: Do You?

Rediscovering a classic book is such a treat. Business books can, however, become outdated. New editions containing updates for changing market conditions can ensure a timeless and informative experience for the reader. In the field of marketing, Jay Conrad Levinson and his wife and business partner, Jeannie wrote a quintessential work on small business marketing, the Guerrilla Marketing Field Guide. They have released a new and updated version, serving the needs of a new generation of guerilla marketers.

Guerilla marketingToday, marketing seems very complicated. In a blog post last month for Entrepreneur.com, the Levinson’s argued that a marketing strategy, however,  doesn’t have to be complex. They believe that a comprehensive strategy can be articulated in seven brief sentences:

  • The first sentence tells the physical act your marketing should motivate.
  • The second sentence spells out the prime benefit you offer.
  • The third sentence states your target audience or audiences.
  • The fourth sentence states what marketing weapons you plan to use.
  • In your fifth sentence, you define your niche or what you stand for: economy, service, quality, price, uniqueness, anything.
  • The sixth sentence states the personality of your company.
  • The seventh sentence states your marketing budget, expressed as a percentage of your projected gross sales.

They describe in the book how such a strategy highlights the prospective buyers targeted by the marketing. They recommend starting with the people and then working backward to the offering. By organizing this way, results become more easy to attain, planning to obtain the results has meaning, and a specific call to action can be developed without much additional work. By doing this “blocking and tackling,” your team is able to anticipate market shifts over the long haul. The Levinson’s suggest the following:

The strategy must be expressed in writing, and it should not contain headlines, theme lines or copy. The strategy is devoid of specific marketing copy because it must be solid, yet flexible. Specific words and phrases pin you down. A strategy should be developed as your guide, not as your master.

After you’ve written all seven steps, read it a couple of times, then put it away for 24 hours. It’s just too important to be accepted — or rejected — hastily. Look at your strategy from a fresh perspective on a different day. See if you still love it and believe in it.

When is the best time to change that strategy? The first time you see it — before you’ve invested any money in it. After you’ve finalized it, don’t change it again for at least six months; then do a review and see if you need to tweak your strategy. If you have it right, you may not need to make any changes for several years.

Your approved strategy should be pinned up on bulletin boards and emblazoned in the minds of everyone who creates marketing for you. Keep the strategy handy in a drawer, on your desktop, or in an accessible file so you can reach for it the moment anyone presents even a tiny opportunity for marketing to you . . . or when you have a killer idea yourself.

Now that you know what we mean by marketing strategy, it’s time for you to create one for yourself.

Ask yourself these questions so you can create your seven-sentence marketing strategy:

  1. What physical act do I want people to take after being exposed to my marketing (click here, call a phone number, complete this coupon, or look for my product next time they’re at the store)?

  2. What prime benefit do I offer? What competitive advantage do I want to stress?

  3. Who is my target audience?

  4. What marketing weapons will I use?

  5. What will my market niche be?

  6. What identity do I want my business to have

  7. My marketing budget will be _______% of our projected gross sales.

Following this outline will help organize your small business around what’s really important. Good luck!

 

 

Does Your Company Have an Innovation Identity Crisis?

 

Intrapreneurship – some would argue it to be a subcomponent of innovation; others, an outgrowth of; still others, a precursor to. Regardless your perspective, the concept that some organizations lack the culture to innovate effectively begets the question of how to change said culture. Many wonder what makes the greatest difference in an organization’s ability to innovate. Matthew May is a blogger on innovation and consultant at EDIT Innovation. He wrote recently of the”things that prevent a company from cultivating a companywide culture of innovation:”Corporate culture

1. Innovation identity crisis. If you assume that the consultants at Booz & Co are correct, there are perhaps three distinct approaches to innovation: needs-based, market-driven, and tech-centered. The first is the “humanist” approach good designers take.  The second is the “capitalist” approach…the fast followers that optimize…like a Hyundai, or in many respects Toyota. They capitalize on Clayton Christensen’s “innovator’s dilemma,” quickly copying and even improving on game-changing innovations as they hit the market. The third is the “technologist” approach, like an Apple. Many big companies simply don’t know or can’t easily conceptualize which of these categories they fall into, or should fall into, given their bench strength. 

2. Unclear innovation strategy. Roger Martin, dean of the Rotman School and coauthor of Playing to Win, likes to ask “given your chosen approach, where will you play and how will you win?.” It’s a question of focus, which is something different (albeit a nuanced difference) than prioritization. It’s the ability to identify what you’re going to say NO to. Steve Jobs was great at this, and you’re now seeing the clear picture under his rule become blurry. 

3. Inaccessible definition of innovation. People hear innovation and think: gizmo. Or app. Or code. Or product. Or service. Or feature. JetBlue’s founder David Neeleman said,  “Innovation is figuring how to do something better than it’s ever been done before.” 

4. No common methodology. We’re not taught in school to innovate. We lose our natural born capacity to learn and create new knowledge. Unlearn the ways of business execution and (learn to) define a problem by observing or experiencing it, guessing how to solve it, creating a solution based on that guess, and quickly seeing if what you assumed might work actually does. 

5. Methodology doesn’t feature experimentation. The mindset has to be “I think this may work so let me try it out.” Scientists work on hypotheses, which is a fancy term for guesswork. If people aren’t getting their hands dirty out in the field with users and customers, testing early low-fidelity prototypes and adjusting a solution, they won’t be able to truly innovate. 

6. Mismatched talent-to-task fit. Innovation is about divergence, rapid prototyping, testing and failure. Big outfits might go to school on Lockheed’s Skunk Works. Kelly Johnson, Lockheed’s maverick Chief Engineer (broke) away from the main operation, (stole) away the hip thinkers many consider the lunatic fringe, and set up shop in secrecy to essentially get back to the garage, with the charge being to design a working prototype under a few intelligent constraints. 

May’s points are well-taken. Companies that haven’t worked through their internal language of innovation find it hard to have productive conversations about how to go about improving their ability to “do something better than it’s ever been done.” Being able to have clear definitions provides the basis for shared goals, methodology, and talent strategies.  The sharing of desired outcomes, coupled with high level commitment to venturing, is the starting point for cultural fitness.