Not "Knowing"Your Customer
Customers are the heart of your business model. Without them, your business will die. So, who are your customers? Do you know exactly who you’re serving in the modern era of tech-communication and social media? With an understanding of who you’re serving comes an effective ability to build a business around their wants, needs, and pain-points!
Let's say you're opening a gym.
Example: Hardcore Bodybuilders
Targeting the hardcore ‘gym rats’ that live and breathe bodybuilding and spend upwards of $2000 a month on their bodies (food, supplements, and training)? If so, you’ll need a mix of free weights (dumbbells, barbells, kettlebells, ropes, sacks, tires, etc.), racks, various stationary and functional machines, and everything else that goes along with that kind of workout style.
Maybe they'll also want tanning beds, or a steam room to warm up in before they exercise. For a great example, check out the Metroflex Gym website. You’ll see how they position themselves to attract VERY specific breeds of fitness fanatics in the ULTRA-competitive market of southern California.
Example: The Feminine Touch
Another good example that targets a specific niche within the monstrous fitness industry is Curves. They have a particular atmosphere that caters to the goals and needs of their clients. This might be a middle-aged woman who really hates to exercise alone, or is put off by a more male-dominated workout setting.
Her goals may include postpartum weight loss, getting in shape to fit into a wedding dress, or improving her overall health. You’ll notice the facility itself is different from example #1-- it’s less focused on heavy weights, big machines, and crazy-intense training.
Example: Private Gym Setting
Private gyms are typically where people want to work one-on-one or in small groups with a trainer. This is an intimate setting where clients can train with a professional’s guidance. These customers’ goals/pains are completely different than those in the above two examples. These kinds of fitness centers are typically a bit more expensive, and the customers may need individualized attention, coaching and accountability to stay motivated.
Some customers may also have special health or physical issues for which they need an especially skilled trainer. They likely also have some disposable income and are willing to pay for individualized services. For a real world example, the Jackie’s Gym website is a great resource to check out.
Think about these questions:
- In your area, who would be more likely to train at your gym?
- Who are your customers and what are their pain points?
- What are their hopes, dreams and goals?
- Would they prefer a one-on-one atmosphere, or a general health club where they can do their own thing?
If you don’t understand who will exercise in your gym – or why - you won’t be able to build a facility and atmosphere that attracts them. Understand your customer and give them exactly what they want/need. Only then will you be able to build something they’re interested in paying for.
Don't Chase Too Many Rabbits
It's hard not to cast a wide net, but as the Russian proverb goes, “If you chase two rabbits, you'll catch neither.” When you try to cater to everyone, you end up pleasing no one. Nancy Seibel from Keys To Change has a good approach to finding one good rabbit in any niche:
Invite 10 people over for coffee and snacks. Ask them 5-10 questions that would help you identify your target market’s needs, what would help them, make them happy etc. Just make sure they are 10 people who represent the market you want to target.
Your Value Proposition Sucks
Even though you know/believe your business is awesome, your customers won’t unless they understand the true value of what you’re offering. A unique value proposition (UVP) – a description of the value your product or service has to offer your customer – is one of the main reasons they'll choose you over your competitors.
Explaining your UVP means translating exactly what you offer into simple, clear, compelling sentences to show your customers that your business has the goods.
3 Simple Questions for a Solid UVP
- What value do you actually deliver to the customer?
- What problems/pain points are you solving?
- What's the one thing that sets you apart from your competitors?
You might have to do a little experimenting to figure out the answers, but often coming up with a reasonable budget for trying out some ideas is a good cost-effective marketing strategy.
- Customization: Does your product or service cater to each specific customer?
- Convenience: Does your product or service make something easier for your customer? Ex: The Keurig made the process of brewing a cup of coffee as simple as popping in a ‘pod’ and pressing a button.
- Cost: Is your product or service more affordable than your competitors'? Ex: Skype was built around being the free way to talk to your loved ones but also offers a paid version with additional features.
- Brand: Does your brand message portray something your target market would notice? Ex: A hardcore gym featuring the greatest bodybuilders in history on their walls.
- Performance: Is your product or service premium compared to your competition? Ex: Tom Bihn products are made using high-quality materials and production methods so they can charge more than their competitors.
Once you’re able to portray a unique value proposition, you’ll be able to differentiate yourself from your competitors and attract the right customers.
Focusing On Wrong Channels
How do your customers actually want to be reached?
Don't waste a ridiculous amount of time/resources on the wrong channels and crush your new venture. If you’re not able to reach your customers on proper channels, how are they going to understand your UVP?
Let’s get down to it. Here are your basic options:
- Through your own channels.
- Through partner channels.
- Through a mix of both.
When you use your own channels, they can be direct like a website or in-house sales team, or indirect like a privately owned retail store. You’ll likely make more money per sale by using your own channels, but they can be expensive and time consuming to establish and maintain. Partner channels typically include wholesale and partner-owned websites. They lead to lower margins, but allow you to leverage partner-strengths.
Example: Setting up an affiliate program for your product or service allows you to take a step back from acquiring customers and spend more time on building your product/service to new levels of awesome. Here is a great guide for getting started.
The book Business Model Generation explains that the key is finding the right combo of both channels to generate more revenue for your business and create a better customer experience. Think about:
- In-house sales.
- Website sales.
- Email marketing.
- Social media marketing.
- Google & Facebook advertising.
- Promotions at local events.
- Partner stores.
- Creating an affiliate program.
- Selling an app on iTunes.
Do some testing. Try combinations of both channels and see what works...then scale it. The key to all of this is keeping track of interaction, sales, and cash flow to figure out what makes the most sense for your business. This step isn't easy by any means, but it sure as heck is the smartest way to build an efficient business.
Not grasping Potential Revenue Streams
If customers are the heart of a business, cash is the blood that flows through it. And before we chat about charging your customers, it’s important to realize there are more options than you might have initially thought.
For example, did you know it’s possible to license (or rent) the rights for your new product to a larger company and receive a percentage of every sale? You’d still see your product on the market, but the path you’d take and revenue streams you' generate would be completely different. Stephen Key built his entire business by using this method and has made a killing. Cool, right? So lets jump in to some options.
Asset Sale: When your customer buys your product/service, they have every right to do whatever the heck they want with it. Take a butcher shop for example: once a customer buys the meat, they can do with it whatever their heart desires.
Usage Fee: Based on how much your customer uses your product– the more they use it, the more they pay. Pay As You Go Phones are a great example. The more minutes a customer uses, the more often they have to purchase minutes.
Subscription Fees: Generated by continuously selling to your customer every month, quarter, or year. The monthly subscription fee we pay to keep track of our books through Xero is a great example.
Renting/Leasing: Generated by granting someone exclusive right to a particular asset or piece of property in return for a fee. A real estate company that rents apartments out to tenants is a common example.
Licensing: Involves allowing customers permission to use your intellectual property in exchange for licensing fees. An example of this would be an independent product developer, like Stephen Key, developing and renting products out to larger companies.
Advertising: Generated by advertising another company’s product or service. For example, Entrepreneur.com generates revenue by placing ads around each of their articles.
Think outside the box with this one. The most effective ways of doing things may not be conventional.
- As an entrepreneur, you'll be more likely to succeed if you’re able to pivot and adapt to new environments.
- What if you owned a coffee shop and offered unlimited cups of Joe for $35 a month? What if you had 250 loyal customers paying $35 a month when it only costs you $10 in product and supplies to keep up with each person’s consumption?
- What if you had a consulting business that offered a monthly membership for which customers could get x hours of services per month at no additional cost and a 20% discount on services beyond that amount?
These examples generate revenue on a monthly basis without having to scrounge around every month looking for new clients. This way clients also get the attention they deserve!
For one last example, Nancy chimed in to add another way this kind of structure could be used in your business.
This is what our heating contractor does. We joined their Comfort Club, for an annual $99. That makes us a priority customer, plus gives us something like 10% off! Basically we earned back a good piece our $99 with our first (expensive) repair. And yes, now we’re not likely to switch to another heating contractor so this model works so well for everyone involved!
Do some testing. Find your secret sauce. Then scale it.
Pro Tip: Any time you can focus on recurring or passive revenue streams, do it. It’s a fast and effective way to scale a profitable business.
No Clue about Key Resources
Your key resources are what make your business ‘tick’. They'll differ depending on your industry, and might be physical, financial, or intellectual.
One way to pinpoint which key resources are most important to your business is to ask yourself one simple question:
"What resources are most important for generating revenue, reaching our customers, and running our business on a day-to-day basis?"
Let’s talk about the key resources that are most important to maintaining revenue streams and a strong value proposition. Since there are so many, we'll focus on some of our own basic assets for Startup Savant.
The website & brand itself
Your brand story itself is an incredibly important asset. For instance, maybe your mission (like ours) is to give back and support children’s education. This will open a great number of doors by introducing content creators, establishing a brand, and building a respectful relationship with your readers who also care about the same initiative.
Startup Savant is built on WordPress, and in order to keep the site live, we need a hosting account that doesn’t crash or randomly glitch out when our visitors are trying to read an article like this one. Our infrastructure was initially built on Bluehost.
Lead generation tool
We need to be able to access visitor email addresses so we can get connected and build relationships. That's why we use OptinMonster to elegantly collect the emails of our visitors and turn them into dedicated readers. Just don’t over-connect. If you email folks too often you'll probably lose them.
Without other awesome entrepreneurs sharing their wisdom on Startup Savant in the form of articles, interviews, etc., we wouldn’t exist. That’s why it’s very important for our team to do whatever we can to make our audience happy and create great content on a regular basis. For you, this could include sharing content from people's personal blogs or building a 'featured professionals' page to get them more exposure.
We use analytics tools like Google Analytics and Google Webmaster to and see what content is popular and improve our readers' learning experience. This is really important because without it, we wouldn’t have a clue what content interests them in the first place.
Those are the 5 most important resources/assets we need to sustain a strong business. Your key resources will vary depending on your industry, but you get the idea. Here are some other things that might be key resources for you:
- Retail shop or place of business.
- Investors or lines of credit.
- Manufacturing center.
- Social media accounts.
- Sales team.
- Company vehicles.
- Patents or other intellectual property.
Remember to answer the question at the beginning of this section in order to pinpoint your business' most important resources. Please don’t skip this. Do the work and reap the results!
Spending Time On The Wrong Activities
As business owners we’ve only got so much time in the day. A lot of us have families that depend on us, a current job that we’re trying to maintain while we’re getting our business off the ground, and the list goes on. Point being, if you’re not focused on the right activities for your business, you’ll waste a ton of time and money.
If you’re opening a restaurant, your key activities may be getting feedback from customers, making sure your employees are doing what they’re supposed to, and promoting your restaurant at local events. When deciding whether or not to keep an activity in your to-do list, ask yourself these 3 questions:
1) Does this activity build relationships with customers/readers/important people in your industry?
2) Does this activity actually move you in the right direction for long term gains?
3) Does this activity generate revenue today or open up potential revenue streams in the future?
If it doesn’t meet any of these criteria, either delegate the activity or get rid of it all together. Time is money and you’ve got a business to build!
Building The Wrong/no Partnerships
Fighting the entrepreneurial fight can be tough. It can be a lonely path that's hard to stay on sometimes. If there’s one thing we can truly attest to, it’s the importance of partnering up and working with other people or companies.
We like to call it the Crowbar Effect, which has a lot of levels to it but is based on one core concept.
Leveraging individuals and outside resources by creating a mutually beneficial relationship and working toward common success.
To get a peek at the Crowbar Effect in action, let’s take one more look at Startup Savant. As an online resource for startups, we needed writers to create content on a regular basis in order to generate revenue and grow our user-base. With this in mind, we set out to find people that were most likely to help by translating our core beliefs and goals into a convincing proposal.
We made sure prospective writers understood why it was worth their time to create free content on a regular basis.
After pinpointing our target, we reached out to them based on the following criteria:
1) They were already creating and publishing relevant content on a personal blog or magazine.
2) They shared or demonstrated their commitment to our core belief about being in business to make a profit and give back.
3) They seemed like a kind and helpful person on their social media profiles or About page.
4) They were knowledgeable in their area of expertise.
After everything was said and done, Startup Savant gained the perfect combination of professionals to create content on a regular basis. We're also pleased to say that we're all friends.
We work hard to help one another promote our individual brands through awesome content that serves awesome entrepreneurs like you/us (and gives back to charity).
If you form partnerships and work toward common goals, you can build a more profitable business.
- What if your coffee shop used a single coffee supplier at a discount? You could save money and they could gain a consistent revenue stream.
- What if your wellness-coaching business formed a team with other wellness coaches that you refer to when you can’t serve a new client yourself? You'd get a referral fee (passive revenue stream) and your colleagues would be able to build their brand/client base.
Reciprocity brings returns. Don’t sit in your own little corner. Actively build relationships with potential key partners. You never know what kind of awesome returns this might have.