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Ep.5 – The Young Entrepreneur
The Young Entrepreneur
My grandparent’s weekly visits were not only eagerly awaited due to the prospect of an afternoon of extreme confectionery indulgence; there was much more at stake from a young entrepreneur’s perspective. In addition to the outstanding selection of what seemed like dinner plate sized cream buns on offer, my generous grandparents also awarded us with three or four tubes of sweets a week. Perhaps this could be considered a little excessive by today’s health conscious standards, but this was the 1970s, a time when it was still acceptable to play with lead soldiers, drink from hoses, put sunset yellow colouring in everything, ride bikes and skateboards without helmets and actually engage in regular physical activity. Anyway, back to the story. In the minds of my brother and sister they had a fistful of goodies to be scoffed and glutinously enjoyed at the first opportunity, but in the curious and active mind of the young entrepreneur something else was happening, an opportunity had emerged and a plan was taking shape.
Startup Pro Insight: Whilst most of those around you will be seeing things at face value, the entrepreneur’s mind will be avidly at work evaluating any number of scenarios and options for identifying opportunities to maximise the potential returns in any given situation. In a nutshell, the herd will opt for instant gratification vs. the entrepreneur’s view of longer-term opportunity, investment and potential return.
Unlike my siblings, who would enjoy the face value gratification of said confectionery windfall, my perspective was very different. In my quickly developing entrepreneurial mind I no longer had sweets to eat, I had something much more valuable. I had raw materials, no, it was far better than that, I had ASSETS that could be capitalised upon and turned into revenue and even better, PROFIT. The real question though was this. How could I create value with these assets, monetise that value and more importantly translate that value into hard cash? From a now eleven-year old’s simplistic perspective the answer was simple. I would open my own sweet shop of course. Perfect, but wait, I had a small issue right there. Who, bearing in mind that this blistering new enterprise would be based in my living room or maybe the hallway, would be my customers or as I call them my “interested audience”? By the way, after much deliberation I chose the hallway as the better option because it had more footfall. Then I had the Ah ha, epiphany light bulb moment. If I opened my shop late on Wednesday afternoons my unsuspecting grandparents could become my customers. I know, genius. Not only would my wonderful grandparents deliver the raw ingredients directly to me, which were of course FREE, all I would need to do to generate a whopping great profit would be to add some additional value and sell that value on. This stuff was simple. No, it was more than that; it was easy. Remember to keep thinking like a child.
Startup Pro Insight: The more value you can add at your stage of the value chain the more profit you can make. The value chain is simply the journey that your product or service takes from creation through to the final sale to the end customer. The most value and consequently profit that can be created happens at the beginning and the end of the value chain. So, if you are creating the product and service idea, producing it and selling it directly to your end customers you have two profitable stages of the value chain to profit from. The stages in the middle are less profitable. Those who distribute and deliver products and services as third parties for example are generally able to add less value and so derive less profit as a result (unless of course you can sell at huge scale). In an ideal world you should look to be the creator and the seller to maximise profits. In my little enterprise the ideal solution would have been to make and sell my sweets directly to my customers. This is a simple concept but one of the most vital because once you know what a product or service value chain looks like you can start to see where adding the most value can deliver the most profit.
So how was I going to create additional value with several tubes of sweets? I had to come up with an attractive proposition which was compelling enough for my customers to part with their money and buy my products. I did not need to reinvent the wheel here and the answer to me was easy. I just asked myself a few simple questions:
What was the problem I was trying to solve?
Did enough people have the problem?
Would those people be willing to pay me if I could solve that problem for them?
How much would they be willing to pay?
Ok, so at the age of eleven I did not know that these were the questions I needed to ask but with years of experience and hindsight I do now. The questions I really asked myself at that point were as follows (and they are still completely valid by the way):
How would I like to buy sweets
(The problem or desire for my customers)
What would make me want to buy them? (The value proposition)
How much could I charge? (The value of the problem to be solved)
Many “experts” may quite rightly tell you that you should not only sell what you like. I have come to call this “orange jumper syndrome”: you love orange jumpers and you’re a medium in size AND that’s exactly what you decide to sell to everyone on the planet regardless of your “interested audience’s” wants, needs and desires. That’s great of course if you have identified an insatiable mass audience who love medium sized orange jumpers. In reality that particular example might be a little too niche to turn into a robust business (though if you love a challenge I‘m more than happy to be proven wrong here). I would agree with this way of thinking to a certain degree, but that may be dependent upon how close you are to your target market.
Many small business owners share their ideal customers’ profile because they set out to solve a problem that they had in the first place and then discovered that others like them had the same problem. This is arguably the best starting point for any new fledgling startup enterprise.
Startup Pro Insight: If you find one person, group, tribe or business with a problem you’re likely to find hundreds if not thousands with exactly the same problem, bottleneck or pain point that needs resolving.
So, back to the story. My friends and I liked sweets but with limited funds we could only buy one or two varieties in packs or opt for a “pick n mix” selection, but that was much more expensive and you got less for your money (The Problem). My friends and I could have, of course, pooled our financial resources, but with limited interest and the inevitable squabbles that result from such arrangements at that age this was not a viable option. Later on though, I would discover that in the right circumstances this type of deal, known as a “joint venture”, could be a highly lucrative method of quickly accelerating traction, income and profits. My unique selling proposition then was simple. I would add value by splitting the packs of sweets down and repackaging them into smaller variety packs (Adding Value). That way I could sell them cheaper than a standard “pick n mix” selection or an entire tube whilst offering greater variety in smaller affordable quantities (The Solution). I would then sell them back to my customers (grandparents) for a whooping profit. What a great model, if only I could figure out how to do that on a massive scale today. Any suggestions drop me a line and we’ll do a joint venture and share the profits 50/50, sound fair?
I duly set up my new sweet shop one Wednesday afternoon and unsurprisingly sales were brisk. I say unsurprisingly because to the budding eleven-year-old entrepreneur everything and anything was possible. Negativity, doubts and lack of confidence did not feature in my life at that age. In my young and free adventurous mind all ideas worked like a charm with little or no risk of anything ever going wrong, and besides my wonderful grandparents were not about to spoil the party for me. More on why asking family and friends to validate your ideas is not ideal later.
At the end of the first day’s trading I had made a bit of money and still had some sweets leftover. A great result, yes, but more importantly I had quickly validated that my initial idea (hypothesis) had “legs”. I had also enquired with my grandparents and parents whether the sweet selection was good enough and whether I should be changing any aspects of my offerings to improve them in any way (I really did this by the way). My customers’ feedback (or as I now know it: The Voice Of The Customer) was glowing of course, and so it was time to get committed and start thinking about this enterprise a little more seriously.
The following Wednesday afternoon I once again rolled out my makeshift sweet shop and once again sales were brisk. I had indeed uncovered a winning formula. No, it was more than that, in my mind I had a runaway success on my hands, or so I thought. The first couple of weeks had gone down a storm but subsequent weeks saw sales take a significant dip. This unfortunate slip had left me with a surplus of stock, little money and, even more perturbingly, very little in the way of profit. What had gone so wrong? I had after all validated my idea and had even made an early profit. The questions I needed quick answers to were obvious:
What had caused such a rapid dip in demand? And more importantly, what could I do to turn it around?
Startup Pro Insight: It turns out I had made some classic rookie entrepreneur mistakes:
Mistake No 1: I was selling to a very limited number of customers.
Mistake No 2: My product range was also limited.
Mistake No 3: I had no system for leveraging customer engagements to make additional sales.
Mistake No 4: My customers were both “invested and biased”. In essence my “interested audience” were friends and family.
Mistake No 5: I thought I had a business when in fact what I had on my hands was the “novelty effect”. A fad, a flash in the pan that was simply not sustainable in the long-term. Basically, my extremely limited albeit friendly customers had got bored after the initial novelty had worn off.
It had dawned on me that my originally identified customer base was not my real interested audience after all. I not only needed a bigger market, I also needed to identify my real target market. Let me think. Where would an eleven-year-old boy find a sugar mad ravenous “interested audience” who had little money but a big appetite for their favourite sweets, packaged up in low-cost ready to go variety packs? That’s my avatar or ideal customer profile by the way. The wheels of the young entrepreneur’s mind were just starting to gather momentum.
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