In November, I (Rich) wrote a blog about what I feel is the most ignored – and most critical – advice in starting a small business: work backwards from the market, not forward from your crazy idea. Which naturally led to several people asking me HOW to do this.
Enter Sarah Thompson, one of Michael Port’s Book Yourself Solid coaches and a crack business consultant in her own right. She contacted me and offered to break this problem down into a formula that anyone envisioning a new business can put to work. Here are her four principles:
What have they paid for? Sarah calls this “shooting the lock off their wallet” – what have people actually spent money for? I make no bones about how my own business started, for example – I asked myself what every company I’ve ever worked for hired freelancers for, and the answer was writing, training and janitorial services. I picked the first two of these and have done great ever since. On a larger scale, how did Amazon.com get to be Amazon.com? Jeff Bezos noticed that everyone already paid for books and other goods, saw the nascent growth of the Internet, and put two and two together.
What can you improve on? Sarah points out that Apple did not invent the cell phone, any more than Al Gore invented the Internet – but they certainly refined that idea enough to dominate the market with the iPhone 6. And does anyone remember searching the Internet with Altavista? Google was far from the first search engine, but its PageRank algorithm broke open an existing market for them.
What works? Why do so many nascent businesses fail? Because they have stupid ideas? More often, it is because they didn’t test the market first with their product or service. Take your own local restaurants: how many of them serve uninspiring dishes you would never serve in your own home? And why did they invest in all the infrastructure and labor you need to start a restaurant without making sure the food was awesome? There are multiple ways to test the market in this example, one easy way is to invite people to taste test your dishes before finalizing the menu. Test your market by trying out your product or service on potential customers before you “go all in.”
What problem can I solve? This is perhaps the most subtle – and most dangerous – question a prospective business can ask. Why? Because every business, no matter how nutty the idea, somehow convinces itself it is solving a problem for customers.
Sarah suggests imagining that you are your prospect sitting in front of a computer and “Googling” (“Altavistaing” just doesn’t sound right) looking for a solution to a problem. And if you can’t figure this out, you need to start asking your prospects (or current customers) more questions. Start with something simple like “how did you find me and why were you looking.” They are looking for your product or service to fill an urgent need, and your job is to figure out what that urgent need is, the driver that causes them to seek you out. When you fill a real, defined need – whether it is business process optimization or mowing someone’s lawn – you are several steps ahead of the game.
You will ultimately live or die on your ability to think like a customer instead of a business owner.
Let’s say, for example, that you want to work one-on-one with people and counsel them. Hang out a shingle as “success consultant” and you may successfully starve. Become a financial consultant for small businesses or a psychotherapist, however, and you are much more likely to have customers seek you out. Become really good at these things, and your success is practically guaranteed.
The common denominator between all of these points? Who is talking to whom. Most crazy business ideas try to tell people what they need. Markets, on the other hand, tell you what they need. Ask questions, listen to what they are telling you, and you have a much better chance of success.
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Sarah Thompson has over 15 glorious years of experience in all sorts of intimidating, corporatey-sounding things such as financial modeling, corporate finance and insurance, operations and human resource management of small and medium sized businesses. Ultimately, all of that together has made her quite an expert in the field of “what-the-heck-you-should-be-doing-to-grow-your-business.” You can find Sarah at www.moremoneymentoring.com.