Start-up: August 2010 Archives

With a growing number of people seeking entrepreneurship as an alternative path in this rough economy, there is increasing competition for the key resources that can make or break the startup venture.

New entrepreneurs are competing for essential resources, such as the funding, the customers and the staff they need to build a successful business. Attracting these resources often relies on how well the entrepreneur can deliver "the pitch" for his new business.

An effective pitch starts with a hook -- something that grabs the attention of the person one is talking to about a business. The most effective hook lays the groundwork to show the underlying need in the market for what the new business aims to offer.

A common mistake we see in pitches is that the entrepreneur waits much too long to tell what the business does. I had my students watch some examples of pitches the other night in class. You can find lots of good ones and bad ones on YouTube.

We were amazed that some of the people making a pitch waited more than halfway through their pitch to tell what their product or service is and what it does.
Answer key questions

Remember this: Early in a pitch the entrepreneur should present a clear mission statement. Who are you? What do you offer? Who is it for? What makes you unique?

The pitch must also show that there is "pain in the market" -- that there are people who are in need of what you are offering and are willing to give you their hard-earned money to pay for it.

Who needs your product? Why do they need it? How many of them need it? What are you doing differently from your competitors?

The pitch needs to be presented clearly. It should be an unambiguous answer to some key questions that a skeptical listener is likely to have about the business. How will you make money?

The presentation of the pitch needs to be compelling. The entrepreneur should show his enthusiasm. Make it a personal message to those listening, and make eye contact. Never use note cards -- this tells the world that you are not confident and that you don't know what you are talking about.

While it is important to be enthusiastic, you still must be authentic. Putting on an act rarely gets an entrepreneur very far. Be yourself in how you talk, in how you dress and in how you interact with others.

Finally, a strong pitch always ends with a clear message. What is the one thing that you want them to remember? What do you need from them? What do you want your target audience to do for you?

In this economy, entrepreneurs face competition on every front as they launch a new business. An effective pitch can help distinguish you from all the others trying to grab the attention of investors and customers.

Even the optimists are saying that we have at least two more years of economic stagnation. Other experts are warning of a possible double-dip recession.

There is even growing talk in some circles of America experiencing a "lost decade" in its economy. That refers to the 10-plus dismal years of economic doldrums suffered by Japan in the 1990s.

Recent employment and bank lending rate data seem to support a prolonged recession for small businesses.

So what does this "new normal" in our economy mean for entrepreneurs?

For startup entrepreneurs it means you need to be lean. There will still be new businesses forming, even if the economy takes a turn for the worse. Some of these new businesses will be opportunistic entrepreneurs who see ways to meet the needs created out of the dramatic changes taking place in our economy and society.

Others will be among the growing army of accidental entrepreneurs who are finding that starting something on their own has become the only viable way to make a living during these challenging times.

Whichever path leads you to start a new business, a successful launch will require bootstrapping.

There is very little money being invested in or lent to new small businesses right now, so be prepared to find creative ways to get your business off the ground without a lot of funding.

If you are already a business owner and have survived the past two years of economic turmoil, let me be the first to offer congratulations. Clearly you have found a way to continue to offer value to the market. You must have also been an effective manager.

Some businesses that have survived are hanging on by a thread. If that is the case for your business, continue to pay attention to the basics. Keep cutting overhead, pay down debts and take good care of the customers you have so you don't lose any more of them to stronger competitors.

Every small-business owner should continue to run his or her business cautiously and prudently. There will be more tough times ahead.
Look for growth opportunity

Over the coming months, more of your competitors will probably fail, and that presents an opportunity to attract new customers to your shop.

This can be an excellent time to expand and take advantage of a larger market share. If you do expand, continue to bootstrap and try to keep your use of debt to a minimum.

This is no time for excessive leverage because of the uncertainty of the economic outlook.

Whether you are a new entrepreneur or a seasoned business owner, more than ever before remember, cash is king. Given the uncertainty of the economy, entrepreneurs should try to keep enough cash on hand to cover at least 30 days of monthly expenses -- and up to 90 days of cash on hand is not a bad idea, either.

It's also important to keep one eye on the future. Eventually things will improve. And those who survive the Great Recession have a good chance of emerging in a stronger position. The survivors of today will become the market leaders during the recovery.

(This post was my column in today's Tennessean).

Is the fact that there is competition a reason not to start a new business?  Not if you build a realistic competitive strategy into your business model from the beginning.

One of the fatal flaws we see in business plans is when the entrepreneur is in denial about the fact that they will face competition.  Every new business faces some form of competition. 

I always chuckle whenever I read a business plan that, while admitting there are competitors out there, will dismiss them as incompetent or irrelevant.  Remember - they are already up and running and have customers, so they have must have something going for them!

Keep in mind that competition can be beneficial to your start-up business.  The competition has already built awareness about your product or service with customers.  That means you won't have to spend marketing money educating your customers about the benefits of what you are offering them.

The competition has already spent money learning what customers really want.  You can learn from their successes and their shortcomings as you craft your business model.  

A competitive strategy should always start with the customers.  Learn how your customers make the decision on where to buy the product.  Determine the key decision making criteria they will use to choose your product over your competitors'.  It does not matter what you think they should consider in the decision - all that matters is what the customer thinks and how they actually make their choice. 

How do you gather information about what your potential customers prefer? You need to get out and talk to them, observe them, or do whatever it takes to learn how to think like they do. 

Also gather information about how well your competitors are satisfying these customers.  You can gather this information by talking to customers, visiting your competitors' businesses, interviewing suppliers, and by meeting with others in the industry.  All of this information should shape your business model and define how you will attract customers.

Understanding the relationship that already exists between your potential customers and the existing competition helps to determine how you should enter the market. 

If your competition is strongly entrenched it may not be wise to try to compete with them directly, no matter how good you think your product is.  Think of your own buying habits.  We all get in patterns of where we like to buy things.  Changing those patterns can become quite difficult, especially if the competition has a good relationship with the customer.

Instead, it is usually better to find a niche of customers in the market.  Find a group of customers whose needs are not being met by the competition and tailor your business model to satisfy them.  They will be the easiest and least expensive to attract.

This strategy gives you the best chance of building your initial sales, while avoiding a head-on confrontation with well-established competitors that may have a much healthier bank account than your start-up business.