Know Your Customers to Know Your Business
Aspiring entrepreneurs often ask me for my opinion on their creative ideas, and there have been a few instances where I have been very impressed with the ingenuity and originality behind them. Too often is the case, however, when asked the following five questions, aspiring entrepreneurs are not prepared to answer the real rubber-meets-the-road questions about their business model, strategies and their target audience: the customer.
1. Who will be the customers that will use and buy this service or product? It is imperative to know who your target market is, or that a market even exists for your proposed idea. This can be tested through talking initially with trusted friends, family and professional peers, and further tested through market research and focus groups.
2. Who are the competitors of similar services or products? You need to know your competition; otherwise, you will be blindly entering into a business with insufficient knowledge of competitive threats. Your competition will certainly know you, and will take advantage of your lack of in-depth knowledge.
3. Companies who market successfully have a strongly crafted and clearly communicated Unique Selling Proposition (USP). What differentiates your service or products from the competition? If you are unable to distinguish yourself with ease of use, pricing, quality, service or design, it is unlikely you will stand out in the marketplace and gain market share.
4. If your idea is a new concept, service or product, who would use it? Is there demonstrable demand for this unproven idea? Why hasn’t someone else already launched this business? Are there regulatory, licensing, environmental or other barriers to entry, or are you like Steve Jobs and just know what people want before they do? If you have that kind of money behind you, go for it, otherwise further market research and focus groups may be in order for proof of concept and viability.
5. What does the service or product cost to produce? What will profit margins look like and what volume will it take to produce a profit?
Many entrepreneurs launch their businesses without having solid answers to these questions, and believe the creativity behind their ideas will be enough to see them through. Keep asking yourself these questions from the inception of your idea, and then again, year-after-year, to ensure your business doesn’t become obsolete. Where would ATT be today if the leadership wasn’t willing to re-evaluate the business model and continued to offer only landline phone service? Blockbuster Video failed to ask these questions, relying entirely on past success all the way to bankruptcy. They ignored emerging innovators like NetFlix, RedBox and Apple TV, and are now a mere footnote in business history.
(Disclosure: I have long been an ATT stockholder.)
Richard “Gordy” Bunch is the EY Entrepreneur of the Year® for the Gulf Coast for Products and Services. He is also the founder, president and CEO of The Woodlands Financial Group based in The Woodlands. You may submit suggested topics for future business columns to him at gordy@twfg.com, or through the editor of this publication.
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