When a new client comes to SCORE NYC, my main priority is to empower them to better understand their business model. Often I find myself asking new clients the same four very basic questions. What I’m looking for is clear, crisp answers to these questions.
Who is your intended customer?
Many start-ups struggle with a definition of who their customer is. “Everybody” is not a practical answer for someone starting out with limited resources. A good way to determine the answer to this question is to narrow down the market by zip code or location. Then, it might be further focused by gender or age range, or by the demographics or the interests of the potential clients. You want to start by hitting a home run with that first target group. It can always be expanded afterwards, once the business is up and running.
I strongly believe in testing your ideas among your potential customers from day one. You might be surprised to find out that the group you had in mind is not interested, but another group, unexpectedly, is. You might have to pivot and tweak your idea and your business model, or take your business in a different direction. Some clients have to go through several rounds of such testing before they get from their potential customers that bite that really shows they’re on the right track.
What are you selling?
You want to work up a price list, to know your costs, your margins for every item on your list. You’ve got to make sure you’ve got enoughprofit margin in there to make your business model worth your while.
Equally important is clarity about your features and benefits. The features come from your product or service, they are your value proposition. The key benefits of your product or service often come from your clients. They may not be what you think. That is another reason to talk to your prospects and get their feedback.
Why are you better?
One of the common mistakes is thinking you don’t have direct competition. It’s rarely true, and, in fact, it’s better to have direct competition and study what they are doing so you can build a “better mousetrap,”as it were. There is direct and secondary competition. E.g., if you have an Italian restaurant, the Greek restaurant next door is your secondary competition, and another Italian restaurant across the street is your direct competition. Undercutting your competitor’s price is rarely a good business model, because it triggers a race to the bottom.
If it’s a manufactured product, it may be a better bottle-opener. How does it compare to other bottle-openers? How is it better? Yet again, we go back to talking to the potential customers and finding out what features they see as benefits important to them.
How are you going to reach your customer?
Reaching your customer is your marketing, particularly your marketing communications plan. Now that you’ve answered the first three questions clearly and succinctly, you should know (1) a great deal about your potential customer, (2) a lot about the features and benefits of the product or service you’re selling and have a budget based on your projected costs, prices, and margins, and (3) how to compete against your competition.
Ideally, now that you’re bringing together all this knowledge of your business model, the fourth question is now substantially answered. In a business-to-consumer case, there’s a good chance that social media will play a role in reaching your prospective customer. Facebook knows a huge amount about everybody out there and will let you do a targeted marketing to a very tightly defined group of potential customers. You can use word of mouth, Yelp and Trip Advisor reviews—depending on the type of business—testimonials. Take a good quote from a testimonial and put it up high on your website, so the visitors see it right away.
In consulting business, it may be beneficial to go to a local business library, such as New York City’s SIBL, and download a list of companies in the field. All sorts of information unavailable online is available at a business library for free. You can do a targeted mailing. One trick to get your mail opened is to send it by FedEx or UPS. I’m also a strong believer in the power of networking, from professional conferences to meet-ups. You can find out about those, once again, while testing your ideas with potential customers.
These four questions are the building blocks of a business model and a business plan that normally will include financial projections, a statement of the background of the founders and management of the company, the location of the company, the legal structure of the company, and other details.
Here, at SCORE NYC, we have over 70 volunteer mentors, experienced in every area of business, who are eager to share their knowledge and are happy to advise an entrepreneur on overcoming any business-related obstacle and making their start-up a success.