offering. Although true innovations do exist—just think of phones, cars, radio, or television—generally even those can be compared to existing products or services to help the market understand their value. Radio, for example, although truly innovative at the time, was originally described to the public as just like listening to a stage play or concert, only in the privacy of their homes. Television, likewise, was advertised as “radio with pictures.” People need something they can relate to, or you will have trouble selling your product or service.
■ Differences. Think about what will make your business different from others attempting to solve a similar problem/need. Why would anyone care that yet another clothes designer or rapid-copy print shop, or painting contractor has entered the market? This is where your “key differentiators” come in.
Do you pride yourself on your sense of workmanship or customer service? Does your product or service provide unique features that competing products or services don’t? Are you serving a different market? Are you simply cheaper than competitors? Anything that sets you apart needs to be identified and emphasized as you establish and grow your business.
What Is Your Business Model?
Now that you’ve articulated a vision for your business, you need to consider a number of other factors as you begin to ground your vision in reality. These real, practical nuts-and-bolts aspects of running a business will ultimately determine how successful you are. No matter how brilliant the idea, execution in business is everything!
One of the first things you will do is create a business model. This is the business term for describing how you’re going to make money. Are you going to sell directly to consumers or use intermediaries? For example, if you’re manufacturing a product, will you use distributors or retailers to reach the actual users, or will you open your own brick-and-mortar storefront or e-commerce website? If you’re selling a service, will it be for a flat fee, via a subscription, or on a time-and-materials basis? In other words, what structure are you putting in place to make your money?
Your business model is important because even the best concept will have a hard time succeeding if it’s not supported by the right business model. For example, AOL—which created an Internet empire based on charging people a fee (based on hourly usage) to provide Internet access and email—found itself floundering in the early 2000s as a plethora of low-cost Internet service providers (ISPs) flooded the market, and industry giants like Microsoft, Yahoo, and Google offered email for free. Losing subscribers at a rapid place, AOL changed its business model to a monthly flat fee and began giving away email services to the public. By doing this, it was able to slow the drain of people from its popular portal and thus stabilize the revenue inflow from advertisers—from whom AOL derived the bulk of its profits, since advertising is a major component of its business model.
worksheet: Similarities and Key Differentiators
Use this worksheet to write down all of the key things you plan to deliver to your customers. For example, if you’re an accountant, you would put down “preparing tax returns” and “financial planning services” as key features of your business. Then, you would explain how the products or services mentioned are both similar to and different from your competitors.
| Key Feature of Your Business | How Do You Resemble Other Businesses in Your Market? | How Do You Differentiate Yourself from Competitors? |
How Will You Make Your Product or Perform Your Service?
Next, you have to begin to think about how you will make your product or perform your service. If your business is based on a product, will you manufacture it yourself or provide design specs to a contract manufacturer and let them handle that aspect of the business? Where will you get your raw supplies? Where will you store your supplies and your finished products? There’s a range of issues you need to start thinking about now—even before you spend the first penny on establishing your business.
If you will be providing people with a service, what supplies will you need? If you are baking organic breads, where will you get your ingredients? Will you need a secondary backup supplier in case your primary supplier can’t deliver for any reason on a given day? Will you be performing the service on your own or will you need partners or employees? Will you perform the service at the customer site, at your location, or somewhere else? Will you require a special permit or license? Insurance? These are all important questions you need to consider. It’s never too early to start sketching out a plan that addresses all of these, and other, issues. Not having the answers can prevent even the best business concept from ever becoming a thriving operation.
How Will You Get Your Product or Services to Customers?
You will also have to decide how you will be distributing your product or service to customers. Will you do this directly, or will you hire intermediaries to do it for you? One term related to distribution is sales channel, or the specifics of how you will sell your product or service to the end user.
It’s actually much easier to come up with a new product or service than to change the ways that customers currently buy that product or service. For example, two darlings of the dot-com bubble were Pets.com (a pet supply company) and HomeGrocer (a grocery delivery service). Each spent millions (if not billions) of dollars trying to get customers to purchase products in a new way: over the Internet. Yet both bombed because people had not yet become comfortable buying things online. Today, such businesses might succeed. But it takes time for people to change their buying habits.
How Will You Price Your Products or Services?
Your pricing strategy is critical: in fact, it will determine whether you will have a sustainable business. Price your product or service too low, and you won’t generate enough money to pay your bills, much less make a profit. Price it too high, and you may have trouble getting people to buy it. Formulating the right pricing strategy will involve researching prevailing market rates and conditions as well as accurately identifying all of the costs you will incur in making your product or providing your service. (See Chapter 20 for more on pricing.)
Pricing is about more than just covering your costs, however. It’s also a competitive tool that shapes how your products and services are perceived by the market. For example, do you want to be considered the “low-price leader?” Or do you want to build a reputation for selling the premier product or service in your market? Low prices aren’t necessarily always the best way to go when attempting to build a business and capture customers.
Who Is Your Customer?
Your business concept must also take into account whether you will be selling to other businesses, to consumers, or to both. For example, you may be selling office supplies, but only in the kind of large quantities that businesses would be interested in, and therefore might not even have a storefront, but only a warehouse from which you make deliveries to client locations. Alternatively, if you wanted to sell into the consumer market, you could open a retail stationery store that catered to individual buyers. B2B is the business term that stands for business to business; B2C, in contrast, represents business to consumer. Generally B2B and B2C companies sell through different channels and at different price points, and use different