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Sunday, March 29th, 2015


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Starting a Business: Making the Sale

Making the sale is the single most important activity of any business. 

This concept does not appeal to the entrepreneur who comes from a product-oriented background.  An engineer, for example, who has designed a wonderful “widget” will have a tendency to spend time and resources on developing and perfecting the product while almost thinking of selling as a dirty word.  Without the sale there is no money for continuing development of the product so unless an infinite amount of money is available at the start (in which case this is not a business, but a hobby) the business is doomed to failure. 

When should the first sales effort begin?  On day one. This point goes back to the need for cash-flow.  The need for cash to improve a product should never interfere with selling.  If it is believed that product enhancement will improve sales then find out by selling the enhanced product.  If this sales effort pays off then development should be undertaken, full speed ahead.  Many companies “think” that product enhancement will improve sales.  More often than not they are wrong and have gone blithely along believing that if the product is better (in the eyes of the creator) then it will automatically bring in higher profits.  Untold fortunes have been thrown away on those who rely on hope over the practical application of sales and marketing basics.

The back-of-the-envelope calculation made at the earliest stages of a new business idea should include some consideration of the market to be served.   The best marketable ideas are those that satisfy something that is already in existence and that the marketplace wants. 

Believe it or not…the Wright Brothers had a tough sell to the Army for their new airplane!  The Army had to be sold on the viability of an airplane as a machine of war before they would even consider the Wright’s offer.  From a purely marketing standpoint, the Wrights would have probably been better off improving on the bicycle rather than building a product (the airplane) that almost no one could think of a practical use for. 

So the easiest way to judge the prospective market is to look around and see what others are selling and, most importantly, whether or not they are making money.

It is pretty obvious that simply being in the right business is not, in and of itself, sufficient to generate profit.  Examples of poorly managed businesses abound so it is not difficult to find a starving business in the same neighborhood with a highly successful operation in the same field.  Look at the restaurants that operate side-by-side.  One may be prosperous while the other struggles to stay afloat.  There are many ways these businesses can be differentiated but the lesson here is that just because people eat does not mean that a restaurant will be successful.  In fact, restaurants have the highest failure rate of any enterprise in the US. 

It will behoove the budding entrepreneurial enterprise to understand the dynamics of the chosen field and learn the promises and pitfalls from existing companies before launching off on a wing and a prayer.

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A business novice should probably work in the industry, and for an industry leader, to better understand the business he contemplates entering and to make the big mistakes of a neophyte (these can be life threatening to a small company) on someone else’s nickel.

So the easiest way to make money is to see where others are making their money and COPY what they are doing.  Not in a way that infringes on their trademark or proprietary systems but does what these existing, profitable companies are doing, just doing it better and with better marketing. 

In my opinion, Microsoft had an inferior operating system to Apple’s when the industry was in its infancy but Microsoft made its operating system open to developers while Apple did not.  The upshot of this was to have thousands of software developers creating products that could only be run on Microsoft’s system.  Who bought Apples?  Almost no one, because nearly all of the newly-developed  software was unusable on an Apple.  So Microsoft now has a slower, hacker friendly, user unfriendly, expensive operating system that cannot communicate with older versions of Microsoft’s own products but still owns 95% of market share for operating systems. 

I would never advocate doing to the industry what Bill Gates did to destroy faith in the PC, but the open-source marketing idea allowed him to out-sell his primary competitor by 20 to 1 using a far inferior product at an outrageously high price, a position that is enjoyed only by companies with an almost total lock on the availability of the product. 

Sometimes you don’t have to be the best, or, in Microsoft’s case, even good to win with the right marketing idea.  The inferior VCR videotaping system won the endorsement of the entertainment industry allowing them to beat out a superior product (Beta), showing once again that a superior product does not necessarily sell itself but relies on management to make the product’s superior benefits to the way anyone can truly know whether or not a product or service is saleable is to…sell it!
 
While hundreds of millions of dollars are spent each year on market research by companies large and small it is generally easier to have a successful first start by simply looking at the most profitable companies and let someone else do the marketing research.  The ads that work the best, regardless of the medium, are run over and over again.  Some ads on children’s shows are aired multiple times on the same half-hour program!!  This is done because the process makes money. 

Beware, however, of the ads that result in no measurable response.  Large corporation ads are often guilty of running good-will spots, ego ads, we have plenty of money so lets try everything promotions and so on that are fun for the uninformed but lack a measurement of success.  They are not affordable to the start-up or to any organization, even those with more money than…you know.

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