CHAPTER 2
THE FIRST QUESTION YOU MUST BE ABLE TO ANSWER
Most would-be entrepreneurs are motivated by an idea—an idea for some great new product. But they almost never ask themselves the big question: Is this the kind of product I can actually sell?
Take John Ellis. He has an idea for a food product. He calls it “Esther’s Health Soup” after his beloved late mother. She concocted a chicken-based vegetable soup for John’s father, a man who hated vegetables.
John doesn’t know what to do next. He talked to someone at SCORE (an organization that offers free advice to entrepreneurs). But he was told that it would take years (and lots of money) to gain FDA approval for his soup. So he has come up with some ideas about how to market the soup himself. And he wrote to me, wanting to know if they are good avenues to pursue.
“I’m a musician,” said John in his letter. “I play at restaurants, catering halls, and country clubs. I am especially friendly with one caterer in my neighborhood. Would that be a good outlet? Or should I approach a major company and sell my formula to them?” John also wondered if he should try to contact the original owner of Whole Foods Market, a family friend.
What can I say? John seems like a nice man. He makes his living as a member of a band. And he dreams of selling soup.
He loved his parents and wants to immortalize them by turning a soup his mother made into a commercial product. After reading a few books, he took the initiative to speak to a retired executive at SCORE. And he got a lecture on how difficult it would be to execute his idea.
I have always had mixed feelings about SCORE. I am sure many volunteers are formerly successful businesspeople (with a smattering of blowhards and ne’er-do-wells in the mix). But there is a fundamental problem with getting advice from people who have been out of their industry for two or three years: They lose touch with the market. Add to that hardening arteries and aching joints, and you have a non-profit organization filled with grouchy old naysayers.
John deserves better than he got at SCORE. But his ignorance of business is so profound, I’m not sure they could have helped him. Right now, his goals are purely sentimental. And a sweet dream to honor your parents just isn’t the same as having a workable business idea.
John’s greatest resource is the connection with the original owner of Whole Foods Market. Unfortunately, the guy is likely to be long retired. (And maybe working part-time as a counselor at SCORE, discouraging young people from doing what he did.)
But before John even considers contacting him, he needs to find out if his product is really as good as he thinks. By “good,” I mean sellable. And he won’t find that out by serving it to his friends. What are they going to say? (“John, I never wanted to say this when she was living, but your mom was a lousy cook.”)
John’s best bet is to start selling the soup at a local flea market or giving it away on street corners. No doubt he would be violating public health laws in doing so, but he probably won’t get hauled off to prison. He could also look into getting a booth at a weekend greenmarket. Or he could approach a takeout place that features soup on their menu and see if they’ll take his “on spec.”
If Esther’s Health Soup starts selling like hotcakes, John should write back to me … and then I’ll tell him the steps to take next.
“In the modern world of business, it is useless to be a creative, original thinker unless you can also sell what you create.”
—David Ogilvy
Don’t even think about quitting your job until your business idea is proven and profitable.
There is only one way to find out if your product is good, and that is to start selling it. The sooner you start selling it, the faster you will know. (Most products, it turns out, are not as good as the inventor—or her son—thinks they are.)
That’s a very important part of the reluctant entrepreneurship strategy. The strategy also includes:
Once you have a pretty solid understanding of how your future business works—how to source or create products, price them, and market them—you can get started in a small way.
Every business has a unique potential for success that is realized when all the key elements are put together in just the right way. Once you understand this formula, profits come to you reliably and regularly.
Initially, your challenge will be to generate as much positive cash flow as possible.
Let’s say your business idea is to sell reading lamps through ads in the back of magazines. Your plan is to break even on the initial ad, and then sell additional products to the people who buy your lamps. You will do that by sending them a small catalog.
For such a plan to work, you would need to test various ads in various magazines. Then you would have to continue placing ads in those magazines while you fill your orders. In the meantime, you would be sending out your catalog to bring in more sales. The money from those sales would give you the cash flow to keep going while you fully and completely test your business model.
We’ll talk a lot more about marketing in Chapter Seven. The point I want to make right now is that in the beginning, you should focus on your highest-margin efforts. That is to say, you should continue placing ads only in those magazines that produce above-needed response rates for you. In this case, that would be the ones that generated more than enough cash to pay for the ads. Maybe enough to cover your order fulfillment costs and leave something to pay for the catalog mailing.
Later, after you have established a reliable source of cash flow, you can begin testing lower-margin (but potentially more profitable) marketing schemes.
The difference between successful entrepreneurs and those who fail is usually a question of which ones figure out the way the business works before the money runs out.
You can minimize the problems if you begin with the maximum amount of knowledge. The best way to do that is to start a side business that is a knock-off of one you’ve worked in.
In addition to that, you have to become smart about business in general. Here are some ways to do that:
If you pay attention to the marketing—your first and most necessary job—and continually improve your product and service, your side business will grow. In two or three years, it should be big enough to hire you as the CEO. Then, and only then, can you quit your day job.
Once you become CEO, things should really skyrocket. You’ll be able to devote all your time and energy to this one single enterprise. And the benefits of all that concentration will pay off in terms of a big payout when you’re ready to retire.