Golden Rule I: Know
Thy Customer!
Many entrepreneurs think they have a wonderful product,
and friends/family often agree. Unfortunately, they often avoid the critical
question: What does the customer really think? This question is vital to the
success of small, niche marketers.
There are at least three follow up questions to be concerned with.
There are at least three follow up questions to be concerned with.
- Does
the product/service meet a customer's needs or wants?
- How
can the new business attract customers to its product(s)/service(s)?
- How
can the new business keep those customers coming back for repeat
purchases?
These questions must be answered before effort and
money is expended on product development or other tasks to which people
naturally gravitate in this process.
The answers are found through market research, a
task with which Extension specialists often help. The primary objective of
market research at this early stage is to help the company determine whether or
not a sufficient sized market exists for their product. The second objective is
to help drive decisions on what form a product needs to take, where that
product will be sold, what price the ultimate consumer will pay for the
product, how to minimize competition while maximizing market potential, and how
to promote the product. All are critical aspects in building a successful
consumer products business.
Market research, whether conducted by the
individual or contracted, will help the entrepreneur identify a specific niche
to pursue. The niche must be associated with a specific want/need by a consumer
group, a geographic location, and/or a characteristic (either of the product or
of its packaging/labeling) that has some value to a target market. The reader
is directed to Kotler (2002) for more on product positioning.
Knowing the customer/market will provide greater
focus and more efficiency in the rest of the business development process. One
client knew her general target market, but because she failed to understand how
they would receive her product, she didn't have clarity and focus in the
product development stage. As a result, after two different product types and
two years, she still has no business--and this is one of the more promising
ideas one center has dealt with.
Golden Rule II: Know
Thy Self!
While knowing the customer is necessary, it is not
sufficient to ensure success. Entrepreneurs often pay little attention to their
management skills. This certainly supports the findings of Bernhagen and Mott
(1986): the failure of many small businesses is attributed to the lack of
management skills and poor management practices.
A good place to start is with the business. Firms
must know the key factors and critical skills needed for their
profitability/success (production choice, quality/image, marketing, costs,
etc.). The critical skills needed to launch a new business vary by the type of
product being introduced. For example, where several near-homogeneous products
are competing for customers in a slow-growth market (e.g., jams/jellies),
marketing skills are crucial, and production skills are secondary. Conversely,
for some functional foods and those products tailor-made to meet specific dietary
needs (e.g., high-antioxidant processed foods), production knowledge may be the
most critical need.
An entrepreneur must be able to determine if his or
her strengths lie in the areas of production, marketing, or business management
and how those strengths match up with the needs of the business. Strengths of
an entrepreneur are often developed over time from experience. Previous
experiences related to the industry of choice or the addition of personnel with
those experiences, benefit a company during the development and launch phases.
Experiences in a given industry segment, management experience in a variety of
areas (production, personnel, marketing, financial), and previous
entrepreneurial efforts extend the probability of a business having a successful
launch.
Marketing and management experiences are generally
much more important for a new product launch than production experience.
Contrary to the beliefs of most entrepreneurs, there are manufacturers with
excess capacity who can make their product as well as they do at a contracted
price. However, several publications and studies (e.g., Gaskill, Van Auken,
& Manning, 1993; Jenkins & Jenkins, 1997; Muske & Stanforth, 2000)
have identified marketing and financial management skills as primary deficiencies
of small businesses.
Many entrepreneurs with previous start-up
experiences understand that it may take 3 to 5 years for a new business to
generate a significant annual profit, if it is going to be profitable at all.
Unfortunately, entrepreneurs without previous start-up experiences are often
over-confident: they think their businesses will become profitable and cash
flow within the first year. They fail to consider Murphy's Law and make
contingency plans for possible adverse events. They also underestimate the
time, money, and effort necessary to get the business started.
Value-added centers, Extension specialists, Small
Business Development Centers (SBDC), Senior Corps of Retired Executives
(SCORE), and of course accountants can help entrepreneurs develop financial
management skills. Value-added centers and Extension specialists, as well as
state-sponsored programs, may also be able to help entrepreneurs hone their
marketing skills and establish personnel management policies. However,
marketing skills are often difficult to develop and may require specialized
training or even outsourcing these responsibilities to professional marketers.
Determining the value/importance of one's critical
skills and relevant experiences is not difficult; determining how to combat
one's weaknesses may be much more of a challenge. The bottom line is: If an
entrepreneur doesn't have experiences in general management (i.e. developing
and executing a business model), they would be well served by surrounding
themselves with those who do. Sometimes, it is advisable to hold off on the
development of one's business idea until the necessary skills and experience
set are acquired.
Conclusions
Developing and launching a new business requires
considerable research and meticulous planning to improve the odds of success.
It is hoped that new entrants into value-added efforts, and the Extension
specialists who assist them, will carefully consider the rules of "know
thy customer" and "know thy self" before starting their
ventures. Both will help the would-be entrepreneur develop a more desired
product, and a more successful business.
References
Bernhagen, W. R., & Mott, W. T. (1986). Small
business: An opportunity for Extension. Journal of Extension[On-line],
24(3). Available at: http://www.joe.org/joe/1986fall/sa2.html
Burney, A. (2001). Food entrepreneur assistance
program. Journal of Extension [On-line], 39(4).
Available at:http://www.joe.org/joe/2001august/iw5.html
Gaskill, L. R., Van Auken, H. E., & Manning, R.
A. (1993). A factor analysis of the perceived causes of small business
failure. Journal of Small Business Management, 31(4), 18-31.
Jenkins, M., & Jenkins, G. (1997). Entrepreneurial
intentions and outcomes: A comparative causal mapping study. Journal of
Management Studies, 34(6), 895-920.
Kotler, P. (2002). Marketing management. Upper
Saddle River, New Jersey: Prentice Hall, Inc.
