The early success of any enterprise assures its ability to move forward, to thrive and to eventually prosper. Unfortunately there are two fundamental barriers to quick success that are based on choices made by the company at its founding and not on how well-run the organization may be. Counter-strategies to these barriers have to be developed and implemented.
Barrier 1: The Value Proposition
The Value Proposition is the message of value that your products convey to your clients.
For example, if you sell bananas most people will understand the value that purchasing a banana proposes to them: convenience, good taste, vitamins, the ability to fill a recipe for a fruit salad, etc.
On the other hand, if you sell consulting services, it is not so clear to the prospective purchaser if you will provide value because it immediate begs that some questions be answered for the purchaser: What is it that you actually do? How do I know that you can help me with my problems? How do I know if I actually want to share my problems with you? How do I know if I want you to tinker with my company? How do I know that money spent with you will give me more value than money spent on other company needs? How do I even know if I am getting value? How do I know that you have been successful with other companies? How do I know if you will still exist two years from now?
So, if you imagine a pair of store booths beside one another, one with fresh bananas on display and other with signage extolling the virtues of XYZ consulting, you can also imagine which one will have more immediate response from passers-by – which one will have cash flow on day one.
Any enterprise has four basic challenges: developing the product, selling the product, managing finances and managing the people. (This newsletter deals with two challenges – selling and development.)
(For those of you who wonder how the value proposition connects to the Hedgehog concept of the July 2003 Newsletter, remember that the three-prongs of that approach are about how you perceive your business, namely: (1) determine what you can be best at; (2) establish the economic driver for it; (3) ensure you are passionate about it. None of these necessarily connect to the value proposition which is about how the client perceives your product.)
First and foremost, your ability to generate cash quickly, the key to survival in your business will depend on your ability to sell your products or services. And your ability to sell those products and services will depend on the simplicity of your value proposition. Look at these businesses:
- food retailing
- law office
- accounting office
- dental clinic
In all cases the value proposition is simple. The clients know what these businesses do and if they, the consumers, have a need, they will make an immediate decision to purchase. For the most part – although not always – location is the determining factor. In the case of food, people will go to the supermarket or corner confectionary closest to them (if it satisfies their basic needs of product, price and convenience). Likewise people know if they have the need of a dentist, lawyer or an accountant; no selling is needed by traditional law office, the accounting practice or the dental clinic. The prospect’s choice will be influenced by personal recommendation for the professional firm or by consulting the listings in the Yellow Pages – many people choosing the professionals in their part of town. The taxi selected will be the one careening down the street as it passes by the person in need of transportation or by a phone call to the dispatcher used previously with suitable results. On the other hand, consider the higher time demands and costs associated with conveying the value propositions of:
- management consulting
- microcircuit design
- high fidelity loudspeakers
- internet web design
Any new enterprise has to face the marketing challenge before it. Will that challenge be minimal or will it require an enormous time and financial commitment? This in turn depends on the simplicity of the value proposition that the business offers potential purchasers. And don’t kid yourself. Just because you are intimately familiar with the product you handle, does not mean that the ‘great unwashed’ will share your enthusiasm for, or knowledge of, its benefits.
In my own business startups, the simplicity of the value proposition has been, more or less, in the ascending order that follows. And it happened that the financial successes were in direct proportion to that order – the simpler the value proposition the larger the resulting business. Hopefully these conclusions send a message to us all.
- Contracting software people
- Computer manufacturing
- Printed circuit board manufacturing
- Technical writing
- Contracting engineers
- Packaged financial software
- Management consulting
- Density instrumentation
Carefully assess the value proposition of your new enterprise, as it stands now, without your having to create some clever marketing strategy. What we are saying is not that you should avoid complex value propositions but that the more complex the inherent value proposition, then the more time and hence capital you will need in order to convey the message of what you do. Thus, the larger the barrier to sales and early success you have to overcome.
Barrier 2: The Product Development Cycle
The second challenge to early success depends on what it takes to design, develop and build your product or service.
The easiest product development is no development at all; take what already exists and create a business to sell it – bananas for example.
The next easiest is to take your training and apply it to a business that sells that – law, dentistry, accounting, carpentry, architecture etc. This is a straight job only from the point of the effort towards selling and marketing. But it is never easy to accumulate the expertise. You are well-advised to get a few years of real experience under your belt before you open your doors as an expert.
Third on our list of relative ease of ‘product development’ is to engage in a relationship with an expert in the field, and assume their expertise by mutual agreement, opening a branch at a unique location. For example, such an arrangement might be to acquire a traditional franchise. Or, it could be the opening of a law office in San Francisco for a New York firm that is presently unrepresented on the west coast. On the other hand it could involve obtaining a license in some unique methodology or product developed in Australia and gaining exclusive rights to promote it in Canada.
Most complex is the challenge of undertaking the development yourself for a new widget, process or methodology.
The point is, the product development scenario that is progressively more sophisticated will need progressively more capital and time to succeed. It not only costs more to develop an original product, it usually takes longer to convince people in the world that it is good for them – that is, to sell it. If it takes a long time to develop and sell, it will take a long time for the inflow of cash that actually pays the bills – a further barrier to early success.
Leaders have to follow their passion. Does the passion that you are going to sell and deliver have a not-easily-understood-by-your-clients value proposition? Does your love affair with technology demand a long development cycle? Or does your business involve both?
If so, consider balancing your business with a complementary product that has a simpler value proposition or a simpler development cycle. Art galleries sell paintings that are purchased according to the buyers’ individual tastes, requiring several visits by a person before a purchase. That complex value proposition is balanced by the shop selling picture framing and artistic greeting cards, which not only complement the business but also have easily-perceived value propositions. And they require virtually no development time.Therefore examine some considerations for creating a secondary business.
a) Criteria for the Secondary Business
Make sure the secondary business meets these criteria:
- It complements your main business
- It has a value proposition that is recognized by clients immediately
- It requires no development time, no excessive marketing or stocking costs
- It can generate a reasonable volume of business quickly
b) Defining a Complementary Product
Finding a complementary product is not as easy a task as it may seem. Sometimes you can wrack your brain without finding a solution. On the other hand, the complementary product could be under your nose. In any event, most of the time, determining the new line requires a methodical, blue-sky, out-of-the-box, free-thinking session to dream it up and to ensure it meets those criteria.
The process recommended is, first, to get everyone in the company together. For every individual included a magnification of the number of ideas will occur. Then throw out ideas, no matter how silly or how far away they may seem from the main product offering, recording these on flip charts so everyone can see them. Don’t trivialize any suggestions. Be prepared to even log ideas that are opposite to the main theme. As the number of thoughts accumulates, people’s thinking will be stimulated to add more items to the listings. Keep going till everyone runs out of ideas.
Then organize the ideas into logical groupings that will fall out of the accumulation above. It is impossible to say what those grouping will be. But they might be by hardware, by software, by geography, by type of materials – it really doesn’t matter, as long as some grouping takes place. If possible, summarize each grouping into one heading, thereby eliminating some repetition.
Test the ideas against the criteria above, deleting those that do not qualify.
Then debate the remaining list against merit, practicality and closeness of fit to the criteria.
Next, establish a priority for the items in three groupings: really great, good ideas and acceptable items. The final step is to choose, among these, the winner or winners.
c) Closing it down
Once the product or products are decided, determine the criteria for shutting them down. That is, the complementary business should be viewed as temporary because it might not fit in with the company’s grand mission or vision. This is the time to define the limit, so the new creation does not generate a life of its own that extends well beyond the term of usefulness.
Understanding the realistic business challenge before you is done by establishing the nature of your chosen product. Specifically the challenge is defined by the barriers to early financial viability imposed by the value proposition and by the development cycle. Develop a counter-strategy to bridge the time gap to market with a complementary product ensuring that it fits basic criteria and that its own sunset clause has been pre-determined.