A Startup Guy

One of the best pieces of advice I ever got before launching a business was, “Be sure you have something to sell.” Makes sense. And yet so many Internet entrepreneurs ignore this simple advice.

I think part of the problem is that our point-of-view has been distorted. We often see things through the lens of successful companies like Google or, worse yet, Twitter. Google made money from search – LOTS of it. Twitter still has no discernable business model. And yet they’re rolling in cash. So lots of startups take the stance that they’ll just launch and figure out a business model later. Or figure they’ll get rich from selling ads like Google.

Here’s the truth of the matter. Once you launch, you’re going to be insanely busy. If you can’t figure out a business model in the calm of business planning, you’re not likely going to have time to figure one out in the midst of startup chaos. You need to have a plan on how you’re going to separate your users from their cash. That plan may (probably will) change somewhat after you launch. But you need something to start with.

Even Google couldn’t survive on search. They had to institute selling ads to make money. They are now, essentially, an ad company that uses search and information organization to draw in attention for those ads.

For many startups, the “punt” answer is to sell advertising. Take it from someone who learned the hard way. There is lots of money in online advertising, and most of it already goes to just a handful of companies. You must have thousands, if not millions, of visitors to even begin to make this business model worthwhile. Google succeeded at this because they were first and got it right. A handful of others have picked up enough of the leftover scraps to make it worth their while. You’re too late! It’s already a mature business that is not growing much any more. If this is your business model, STOP NOW! Revise your model to actually have something to sell.

Invest the time now to create something people want to buy. It will make your crazy startup life a little easier later.

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Recently, I’ve had several people pitch me what they term their “million dollar idea.” Of course, what they mean is their idea is so good that implementing it will make a million bucks. And, of course, being a startup guy, they’re hoping I’ll take the ball and run, make a million, and cut them in on their rightful share. It was their “million dollar idea”, wasn’t it?

The truth of the matter is, there are no million dollar ideas. I can’t think of a single idea I’ve ever heard that was a million dollar idea. There are big ideas, but that’s differnt. Ideas are actually a dime a dozen. Heck, they’re more like a penny for 1,000. Need a business idea? There are tons of websites offering them free. There are even sites like Half Bakery that poke fun at how silly most of the ideas are. There are NO million dollar ideas. There are, however, million dollar (and BILLION dollar) execution of ideas!

It’s how well you execute an idea that pays off (as I recently proved). A well executed bad idea will likely not succeed, but a well-executed big idea can make you (and lots of other people) rich. So, the next time you have a great business idea, remember it’s not worth a hill of beans until you actually do something with it.

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Have you ever heard the term “Fair Weather Fan”? Those are the sports fans who love a team when they’re up and turn on them when they’re down. Funny thing! You often see the same thing in business. My grandmother was a loyal JC Penney customer for decades. Once she was on an extended trip to visit family (4 weeks) and during that time her Penney’s credit card bill came due. She didn’t get the bill because she was away. It was all of $3.50. Just before returning home she went shopping at Penney’s and learned they had cut off her account. She had spent thousands with them over the years and they cut off her card for a mere $3.50 that was just a couple of weeks overdue. I’ve even had a utility turned off because I mistakenly underpaid my bill by $2.00. I’ve heard of banks charging customers $35 NSF fees for $0.30 overdrafts.

I’m not suggesting that businesses should let customers run roughshod over them. And I’m not suggesting that customers should shirk their agreements. But sometimes, life happens and customers have a problem. And a little flexibility and loyalty on the part of a business could go a long way to earning long-term customer loyalty. And in this day and age, customer loyalty is getting harder and harder to find. In part, because it’s not returned by companies. I’ve heard the phrase “customer loyalty” used in business discussions for years. I can probably count on one hand the number of times I’ve heard businesses discuss loyalty to their customers.

So, how do you institute loyalty to customers? Here are a few ideas:
1. Love your customers: This one sounds a bit silly, but there are actually many businesses out there who don’t really love their customers. They realize they need customers, but they could care less if you walk through the door or if it’s someone else; just so long as a warm body comes in. I’d rather go somewhere they’re genuinely happy to see ME. In my town there is a great store just off the downtown square named The Country Gourmet. They LOVE their customers. They know us by name and they even save bubble wrap for my 4-year-old son who loves the stuff. I visit them often just to say hello… and I almost always spend money, no matter if I was planning to or not. I just love them!

2. Allow team members to use their judgement: If you can’t trust your team’s judgement, why did you hire them? Allow them to determine (at least in reasonable cases) if something should be handled a different way. “Uh, boss, are you sure we want to cut this long-time customer’s credit line off over $3.50?” Most of these issues arise due to strict corporate policies. “Company policy is….” If this statement comes up in your business frequently, you have a problem. Some company policies are necessary. Many are simply a crutch to give employees an excuse to not make a decision.

3. Figure out what your break even point is and don’t haggle about money below that: I used to work customer service for a major national book distributor. We had a standing rule there, if the customer is resquesting a credit under $5, just give it to them. The hassle factor, time needed to research issues and aggravation factor for customers cost way more than five bucks. It was cheaper for the company to just resolve the issue immediately, removed a workload that would bottleneck more serious issues and simply made the customer happier to just handle it. “You got a defective paperback in your shipment? Nah. Don’t waste money returning it. I’ll just send you a credit.” Problem solved. Compare that to my utility issue. I made a small error, and over $2 they cut off my utility, made me go through the aggrivation of aruging with them over it, made me wait to have it turned back on, then charged me a $40 reconnect fee. If utilities weren’t a monopoly, I’d have fired them that day.

How does your company practice loyalty to customers? Share your tips and ideas in the comments section.

Setting a price for your products or services can be a real challenge for entrepreneurs. What’s a good price that will attract customers, but still deliver an attractive profit for the business?

In past decades it wasn’t quite as much of a struggle. Businesses would frequently just use simple formulas. Cost plus x% for profit margin gives you a price. Want to be the cheapest? Just price your product x% lower than your competitors (without taking a loss). Formulas can still be extremely helpful, but we have a myriad of additional options, features, prices, sizes, colors, flavors and even peer pressures to consider that weren’t as much of a factor in the past.

This is the challenge I’m facing right now. I’ve got a product I designed a year ago and put on the shelf, ironically enough, because of pricing issues. My profit margins appeared to be just pennies if I was going to price my product competitively. However, it’s such a fun product that I’m revisitng the business model again. Has anything changed? Yes, me! I’ve come to realize that I’m offering something different, so I don’t necessarily have to reflect the pricing structure of the big, established brands. In fact, not doing so will help to differentiate my product even further.

Another option would be to find a way to bundle my new product with some other product(s) that are inexpensive for me to buy, but carry a higher perceived value. We used to do this all the time at another company I worked for. We could package our products with cassettes or CDs that we bought for less than $1, but carried a list price of $9.99 & $14.99. Suddenly, our $20 product was worth $40 or $50 as a package, but our cost was only a couple dollars more than the single product alone.

So, with a couple more hurdles to leap, it looks like I may be able to finally roll out this fun product. So, what’s my pricing strategy going to be? I’ll be using both of the above strategies – x% markup initially and find items to bundle to improve value and profitability. Wish me luck!

One more thought, I’d rather price a bit to high initially than too low. Why? It’s harder to increase your pricing without a good reason for your customers – especially if your product is fairly new (see iPhone). Permanent price reductions (not temporary discounts) are always welcome by customers.

Do you have a set pricing strategy? Feel free to add a comment and share it with us.

Dyson image via Wikipedia

I love great products. I don’t mean products you want to tell people about, but products you HAVE to tell people about. I felt that way about the iPod Touch when I first tried one. I felt that way about my TiVo when I got one. You don’t find many products like that, but every once in a while one comes along.

My wife and I recently purchased a Dyson vacuum. It was expensive and, truth be told, I didn’t really want to spend the money on it. (Thankfully, we’d just received payback on our interest-free loan to the government. Read: tax return.) I’d read lots of great reviews online, but couldn’t imagine a vacuum being worth $500. Then I used it. Wow!

It cleans better than any vacuum I’ve ever used. It’s cleaned our house, removed tons of dust we thought we couldn’t get rid of – ever, and the house even smells better. Now, I can’t imagine how we did without it. It’s so great, I think it’s worth three times what I paid for it. (I couldn’t afford it at that price, but it’s worth it.) If you don’t own one, save y our money and buy one. You won’t be sorry!!

Here’s the challenge for the rest of us. What can you (I) do to make your (my) product a Wow! product? Talk to your customers, listen to the marketplace, really look at your product and think about what would make it zing. Don’t let good be good enough. A Wow! product is the best marketing you can invest in. Give people something to talk about… something they HAVE to talk about.

Going Out of Business courtesy of reinvented via Flickr

I remember several years ago reading an article reporting on the results of a study showing that consumers will put up with poor customer service almost as much as they will good customer service. I was appalled at that assertion. Why in the world would people put up with bad service? Surely good service wins the day every time. Turns out – no, it doesn’t.

After years of watching people in retail settings, I’ve discovered that they actually will put up with bad customer service. We’ve all seen restaurants with terrible service, but doing a booming business because they’re trendy. What people won’t put up with is inconsistent service. Good one time and bad the next will quickly lose you customers. Customers might deal with it for a short while, but not long.

I used to be a manager at a fast food restaurant. I remember once deciding that I wanted to deliver service so good for customers that they would want to tip our workers (voluntarily), just as they do at a full-service restaurant. For weeks I busted my tail, delivering great service at the counters and even going to table offering to get refills and take trays. People were impressed with the service, but I didn’t see them coming back more than usual. Now, I’m older and wiser and realize that what I was doing was terrible. I was probably inadvertantly hurting the restaurant. Why? Customers weren’t getting consistent service. They were used to a certain level of service, and I was confusing them with something different. Worse yet, a customer could come get great service from me one evening, then come that for lunch the next day and get mediocre service. They couldn’t know what to expect.

I still believe that good service is better and than bad service. All things being equal, I think good service wins the day. However, inconsistent service will kill your business faster than either.

Sometimes, the cost of savings is too high.

Recessions are tough. They’re not fun to live through, and I’ve endured several. But what really stinks is business people frequently make things worse than they have to be. We panic and give in to fear and that causes smart business folks to make soem really dumb moves. We scale back on marketing, even if our business isn’t suffering, “just in case.” We make cuts that damage customer service and product quality. I saw some of these situations play out with someone I know just in the past couple of weeks.

I’ve got a friend who sells a product to local businesses. He’s great at what he does and his service is phenomenal and he treats his customers like gold. I’ve frequently seen him do incredibly fast product deliveries (much quicker than a customer should ever expect) and eat extra rush or production charges in order to over-deliver to his clients. So it was with shock that I saw a couple of his long-time customers ditch him in favor of an untried vendor in order to save rediculously small amounts of money. In one case, it was a penny. A PENNY! In another case it was to save a couple hundred dollars on an order that was tens of thousands of dollars. That means that customer went with a vendor they don’t know (whose quality they don’t know) in order to save half of a percent. What’s worse, both could have gotten a better deal from their trusted vendor had they just told him what price they needed to beat for him to keep the business.

Here are a couple of issues with this situation. First, the customers are almost certainly responding to fear and perhaps sheer panic. People making buying decisions at companies start to get worried in recessionary times that they may be seen as expendible and they start looking for ways to cut costs… at any cost. However, if you have a great relationship with a vendor you can trust, that’s business gold right there. Dependable vendors who love you are not easy to find. Ones willing to move heaven and earth to deliver to you are worth a fortune. Dumping them over pennies or fractions of a percent in savings is just plain stupid. This guy I know has already saved these companies thousands by not passing on extra fees he incurred trying to keep them happy. Now they’re going to dump him for a few cents without even a word. Sad.

I’ve seen on multiple occasions where a buyer, thinking they’re getting a better deal from an untried vendor, dumps their reliable vendor. Then they get let down by the new vendor. Suddenly, they’re in a panic for product. They’ve burned their bridges with their old reliable vendor and they can’t get the product they need, at the quality they need, quickly enough. Suddenly, this buyer is looking inept and expendable to his company. Trying to play games has landed them exactly where they didn’t want to be.

Find vendors you can trust. If  you have to pay a little more for them, they’re worth it. Be loyal to them and they can help you make it through tough economic times. Treat them as expendable and you may find yourself out in the cold.

Drew McLellan at The Marketing Minute blog made a great analogy about how the impact of his text (SMS) communications with his daughter is inverse to the amount of content he sends.:

If I really want an answer to a specific question or really want her to hear me about something, I use a single sentence.  Then, I get her full attention.Drew McLellan, The Marketing Minute, Dec 2008

Then he equated that impact to the impact businesses have on their customers when they keep their communications succinct.

You should check out his post.

Here’s a funny irony. I believe technology is forcing businesses to come full circle with regards to service and interaction with the customer. Way back when, the way to address prospects and customers was generally on a one-to-one basis. You had to interact with people individually to sell them your products and then again for any follow-up customer service. Technological revolutions began changing that system so that we could address more people at a time. Newspapers would let you tell groups of readers about your products through ads. Then radio let you address larger audiences, then TV came along and you could reach millions. Cable TV let you reach audiences internationally and e-mail and the Internet let you do for pennies what used to cost dollars. Automated phone systems let you receive and route the increasing number of incoming calls without having to hire a bank of receptionists. Fax blasts and e-mail newsletters let you address tons of people at the press of a few buttons. Amazing!

But something has happened. These same technological wonders have enabled massive fracturing of your audience. No longer can you run your TV ad during the CBS News and reach 10s of millions of viewers. TV networks are ecstatic to pull in 6-8 million viewers now. More than a third of US households with a TV have digital cable, meaning they have hundreds of channels to choose from. You’ve got to be selective about where your ad dollars go to gain the most effect.

Fax blasts? They just end up in the trash. E-mail newsletters? Gone are the days when you could just add filler materials around your ads. You have to invest in time (and people) to really put together good information or readers will simply delete or unsubscribe you. That takes more team members.

Automated phone systems have become so convoluted and frustrating that many companies are abandoning them and going back to good old human receptionists to answer the phones. The Internet may draw in lots of visitors to your website, but these days, they expect personal treatment when you respond to them. And online social media services like Twiiter are all the rage in reaching out to customers, but they also require a highly personalized interaction.

So, it seems we’ve gone from one-to-one interactions through one-to-many (broadcast) and now we’re heading back to more one-to-one interactions. Have you noticed the same thing?

Oh, yeah, one more quick question. Are you interacting personally with your customers or are you just pushing information to the masses in hopes of making a connection?

Bonus: Here’s a link to David Armano’s post which got me thinking about this. Thanks, David. If you don’t read his blog, start now.

Image by danielbroche via Flickr

It’s not uncommon for entrepreneurs to dream up a product, produce it, unleash it on an unsuspecting public and then pray like crazy that someone buys. Here are a couple of alternatives where you can test public interest in your product before you go to great expense of mass producing it.

Timothy Ferris, in his book 4 Hour Work Week, suggests listing your product on an auction on eBay. See if you can generate some interest in buying your product. Then cancel the auction just before it ends. The benefit of this method is people are actually laying their money on the table for your product. They vote for it with their wallet. Personally, I have a moral problem with this method. Offering something for sale when you don’t intend on completing the sale just seems wrong to me. It’s too reminiscent of Lucy pulling the football when Charlie Brown tries to kick it. I do admit that I tried this method once, just as an experiment. However, I actually had a product in hand that I could send people if they were truly interested in it. It was an e-book, so the cost to produce was minimal.

Another option is to use ad systems like Google AdWords to advertise your product and see if anyone shows an interest in buying by following the link. Once you’ve directed them to your site, you can take them to a page that notes that your product is not yet ready to ship and you’ll be happy to notify them once it is. The benefit to this method is that people who go to the trouble of following the link to your site are more likely genuinely interested in buying than your college room mate or your mom, which is many entrepreneurs’ focus group.

That brings us to the most common form of product testing, asking family and friends. “Hey, I’ve got this idea for a….” “Oh, yeah. I’d buy that.” “Thanks, mom.” This method is easy and cheap, therefore its the default for many startup. It’s also the least effective.

Basically, the effectiveness of judging if someone will be willing to shell out their hard earned money for your new product is inverse to the time, money and effort you have to put into testing your product’s desirability.

Do you have any other good ways to test product ideas? Add a comment below and share.