Starting a small business can be a daunting and intimidating task, full of risks with twists and turns that the most experienced business manager could not predict.
In articles over the next few months I will share with Fiji SunDay readers my experiences and views on starting a small business.
There is a school of thought that to start a small business one should pick a business area that one is passionate about and/or a business area in which one has a lot of experience.
This particular school of thought has a lot to commend it. Undoubtedly, passion is a key ingredient in a successful small business. Without the fire in the belly it is unlikely that the small business owner will spend the “do what it takes” time required to get a small business going and continuing to be successful.
Business start ups are mostly one or two people. Opportunities arise which force the small business owner to spend a lot of their day earning money. In a retail environment, that is likely to be all day. The only time left to develop the business is at night or on weekends. Without passion, lack of sleep and quality time with the family becomes a show stopper.
Passion for the business, to make it a success is vital. But passion on its own is not enough. Not nearly enough.
Some feel that experience in a market is what is needed. I believe, however, that comprehending the market one is about to enter is the best advantage any new small business can have and an escalating weakness the more it does not comprehend its market.
To comprehend a market, one must be aware of the size, in dollars preferably, of segments in the market. A segment is characterised by a customer group, characterised in some distinguishing way, the products and services that they buy and the channels through which they prefer to buy the product or service.
A customer characterisation is more useful the more the characterisation is unique. One could start with geographic location and then further characteristics such as income (or budget), the decision making process the customer goes through to buy one’s product or service and most importantly, the need the customer has or preferably, the problem your product or service solves for them.
Experience in one’s chosen line of small business and recording of customer habits and characterisations will help build over time a more sophisticated view of the market.
The preferred channels from which customers buy is important to comprehend as one may need to grease the wheels of purchasing by working with the channels rather than the final user of one’s product or service.
Finally and definitely last is the need to understand what product or service will actually solve the customer’s problem and or satisfy their need.
So, if one wants to start a small business and comprehension of the market is necessary to lower the risk of starting a new business, how does one go about dissecting the market into segments with different characteristics?
Unfortunately, for many new businesses they rely on market research of one person, themselves.
Relying on the good points of passion and experience and trusting that one’s own experience is enough to comprehend the market is a bad mistake.
The sensible thing to do before starting a new business is to write down what you know. Not what you think, but what you know to be true about the market. You will be surprised at how little you do know.
Next write down who you know that may have some information or may know someone with some information that can help piece together this puzzle of comprehending the market. Include statutory sources of data such as the bureau of statistics and any industry association which acts for customers, the channels through which they buy or other vendors of the customers you are seeking to supply. You may be surprised at how many sources of information you have.
Build a picture; draw it by hand, of the flow of purchase of products and services from customers to suppliers. The first picture will be all customers, all channels and all suppliers considered as a total. Then it is time to make as many visits over coffee or a beer at the end of the day to people on your list of people who may know something to ask as many questions as you are allowed without boring your companion silly.
Redraw the original picture successively until you feel you comprehend the market enough to at least know what the risks are and to plan contingencies for them.
This process takes a few weeks and is a much better foundation than an opinion of one, especially when that opinion is your own.