Most business owners obsess over the wrong things at the wrong time, costing time, money and even the business itself. What should you obsess over? When?
At startup we obsess over three things we shouldn’t:
1) The beauty and design of our product.
2) The beauty and design of our marketing (logo, business card, complex website, wrapping our van, etc.).
3) Focus groups, or other outside opinions that don’t involve someone’s wallet.
These are not things to obsess over at startup. They come later (in a future post we’ll discuss when these things become more important).
What should we obsess over at startup?
1) Sales – Are people buying right now, without fancy marketing, fancy packaging, or a fancy logo? Sales is NOT a focus group of people SAYING they would buy it, but cash actually exchanging hands. If this isn’t happening, don’t bother with a logo, website, focus groups or making the product prettier.
Nothing matters if people aren’t willing to buy the product long before it’s perfect. If the basic product isn’t enough to draw people in, then all you’ll be selling once you make it pretty is – “it’s pretty”. Google, Facebook, Basecamp, the automobile, cell phones, printers, TVs, radios, movies, cosmetics, you name it – none of them were very good when they came out, but sold anyway because the basic idea was really good. They got pretty later.
Focus first and foremost on selling a first generation product or service. If it doesn’t sell without the bells and whistles, the bells and whistles are very unlikely to make it sell more.
2) Close Ratios – How many Connections become Buying Conversations become Customers? Do I know the “close ratios” of Connections to Conversations to Customers? If I don’t know these numbers early on, I have no clue how to grow my business. After “Does it sell?”, nothing matters more than your close ratios. Knowing these defines all of your most important activity about how you will find customers in the early stages.
Example: I need 10 new Customers a month, which means I need 30 Buying Conversations (33% closing ratio), which means I need 90 Connections (33% ratio). If you don’t know how many people you need to reach to make a sale, you’re employing the Random Hope strategy of business. Good luck, because luck is all you’ve got.
3) Profitability – not “Am I profitable right now?”, but “Will this product/service be a profitable business?”
I worked with one client who I encouraged to make a few prototypes quickly, and take them out and see if they would sell. Instead they did focus groups, spent tens of thousands on product design, focused on product name, logos and branding, and put together a highly complex integrated marketing program with a great website, email campaigns, social media, etc. The product did not sell.
Marketing is what you do AFTER you have a viable product that sells on it’s own merits. Marketing will not make it sell, or will only make it sell nominally enough to fool you into staying in business.
When I started Crankset Group, for almost the first year I had no business card and a simple billboard website (1/2 page-no scrolling, almost no info, one email address), just to prove that most businesses don’t need marketing at first. They need to sell something.
Marketing is not the key to selling your product. Producing something that people want to buy before it’s beautiful is the key. If they will buy it when it’s slightly rough, they’ll love it when it’s refined.
At Startup, Profit Potential is Good
And don’t be fooled if your product or service sells like hotcakes right out of the gate without good marketing. Check your pricing and make sure this business will be profitable.
A few years ago in the TV series “The Office”, Michael Scott started his own paper company. He was able to pick up a lot of clients very quickly, seemingly proving he had a great business. Then his accountant told him that his pricing was too low and the more clients he landed, the more money he would lose.
Top line revenue is not profit. Profit is the number at the bottom after you pay for everything else. Because you may have startup expenses, you won’t actually see profit right away, but the profit potential must be very clear from the outset. Get outside eyes on this (i.e., accountant). Like Michael Scott, you almost certainly will be clouded, believing you see profit potential where there is none.
Sales, Close Ratios & Profitability Potential
People buy great marketing only once. If your product isn’t sellable without great marketing, it will die quickly. Word of mouth is the most powerful marketing you have. Make something people want, and serve them as they buy it. If it sells and it will make you profitable, then you can employ marketing to expand the reach of a product that is already viable.
Next week we discuss what to obsess over after you begin to grow.