Business StartupBusiness startup
Ep.6 – A Cunning Plan
A Cunning plan
Once again “happy” Wednesday (delivery day) had rolled around and the usual free sweetie stocks were duly delivered. Like a hustling drug dealer, I would separate all of the sweets from the tubes and then make up a number of variety packs all containing about eight sweets each, which I duly wrapped into cling film baggies (I told you I was like a hustling drug dealer). My immediate problem was that I really did not have enough stock to make the financial impact I needed. My solution was OPR or Other People’s Resources.
Other peoples Resources
In my case that meant my brother and sister’s resources. I made a deal to take their sweets and pay them an ongoing share of the profits in return for their initial investment. Now I had investors, which for reference is both a curse and a blessing, but more on that later.
Startup Pro Insight: Whilst many businesses leverage OPM (Other People’s Money) to finance their new enterprises (a topic I discuss in detail later) OPR or Other People’s Resources should not be underestimated or undervalued as a valuable area of alternative capital you can leverage. Cash investment for a new startup in the early days can appear high-risk and therefore a much harder sell than negotiating the use, loan or access to resources that others already have. Think about this from your own perspective. Would you be more open to lending a hand, providing some expertise, time and effort on a project or stumping up a cold hard cash investment? I use OPR regularly and in some cases it’s actually a far more valuable asset than just money. Money is a commodity that’s available everywhere. Specialist knowledge, experience, expertise, time and effort however are far scarcer.
A Simple plan
My cunning plan was simple. I would take my little variety sweet packs directly to my hot target audience (school friends) and sell them. I figured that I had a hot product and an “interested audience” that I could satisfy, and at scale. This met my requirements on a number of levels.
firstly I knew that I could sell my product at an attractive price and still make a risk-free profit, albeit because I had not actually paid for the stock in the first place as my grandparents had unknowingly become my stealth investors. Investors may be the wrong word here as they never saw a penny profit, but hey. Tick.
Secondly, A mixed variety bag would be appealing to my customers (school friends) as they got a little bit of everything rather than buying one single product, and at a “perceived” cheaper price. Tick.
And thirdly I had identified a clear gap in the market with little competition for my value offering. Tick.
My initial rollout was, in essence, an experiment to test my original ideas and assumptions about my audience and my perception of their problem. I needed to validate that my solution would solve that problem and was valuable enough from my customers’ perspective for them to buy.
Once the first day of trading at school was over I took the money home and counted it out. I then counted it out again and again and again. Why the numerous recounts you may ask? Well simply because, and this sounds silly all these years later, I thought I had miscounted. As an eleven-year-old with extremely limited fiscal resources I really could not believe how much profit I had made in one day from my simple little idea. I was now sold hook, line and sinker on this entrepreneurial lark.
I saved my first entrepreneurial winnings, paid my brother and sister their profit share and waited with baited breath for the following week’s delivery of raw materials to be delivered by my stealth investors (grandparents). By the way my brother and sister were now also sold on the prospect of continued profits. Well, they were once I pointed out that they could go and buy their own sweets with some of the profit and still have cash leftover, or they could choose to reinvest into my little expansion program.
In the meantime, a portion of the profits I was making each week were being reinvested back into my little enterprise whilst some were funding my electronics project as per the original requirement for fund raising. I had now gained a position of sufficiency where I was making regular revenue, producing a profit and tentatively investing in future projects.
Startup Pro Insight: You may remember that I mentioned my electronic robot building project at the beginning of the book and how I needed to raise funds for the electrical components needed to build it. Based upon my early “sweet shop” successes I used the knowledge gained to also turn this little side project into another little entrepreneurial money-spinner.
After due consideration I thought that I could build the robots on mass and sell them for a decent profit. I could even get some of my geekier electronics friends to help me build them in a production line setup at weekends. Once again, I tested my ideas early and in doing so immediately exposed a critical flaw in my plan. The trouble with my initial approach was that robots built by hand from component parts took time to build and, as I had discovered as part of my dummy run, lots of it. I had to come up with a financially viable alternative. My profitable alternative was to pivot slightly on my original idea.
I had already highlighted that the lengthiest and subsequently most expensive stage in the “value chain” was the actual build stage. Unfortunately, I had absolutely no way of outsourcing or automating this process nearly enough to make it economically viable, so I came up with the idea of removing the build process altogether.
Innovation At Work
Why not farm out the most lengthy and costly elements of the robots’ production (the assembly and build) to my customers? My target market after all had a huge hobbyist interest in electronics, gizmos and putting together projects. I did some simple calculations and quickly discovered that it was much more profitable to draw up some basic assembly plans which could be easily photocopied and supplied with the electronic component parts needed to produce a simple DIY robot kit for avid techie fans.
I later discovered that I had additional markets I hadn’t even thought of including radio control model fans and general modellers. I had unknowingly stumbled across a great business model where I could develop the product once, easily source and package low-cost parts and charge a premium for adding and delivering perceived high value. What’s more I only had to do the development once and in doing so would largely extract myself from heavy ongoing commitment.
All I needed to do was to make up the DIY kit boxes and mail them out. This left me with ample time to focus on other opportunities and products and even extend the range of robot model offerings. I ran a couple of small, cheap classified ads (I used some sweet shop profit for this) in electronics hobbyist magazines (remember this was in the days before the Internet).
I went on to make a decent profit on this little enterprise for about eighteen months before a large commercial retailer went and did exactly the same thing. (I also learned a lot about knowing when an opportunity has run its course and when it’s time to move on, but more on that little gem of a topic later).
Can you start seeing how simple ideas start to grow and present a myriad of opportunities that would have been missed if you had not got started in the first place? (Hint – that happens a lot in the world of the entrepreneur)
Anyway, back to my little sweet shop enterprise. By this time, I had a little routine of acquiring stock, splitting packs and re packing them (adding value) and selling. I repeated this routine over and over, in fact it was now much more than a routine, I had developed the entire process into a simple standardised process that continued to produce a healthy return on investment every single week (more on the value of developing standardised processes and systems later).
To be honest, my profits were never going to be anything less than healthy considering that I had absolutely zero overheads and free raw materials at this point. If I could not make a profit with this setup I might as well pack up my entrepreneurial bags and call it a day.
Startup Pro Insight: – By this time the penny had finally dropped. I had developed a simple little business by identifying an opportunity and fulfilling a need. Most importantly though, I had acted upon it. I would later discover that the “acting upon it” part was a common Achilles’ heel that stops many wannabe entrepreneurs in their tracks.
Startup Pro Insight: Here is a QSS (Quick, Small & Simple) micro startup framework model for building high income products and services. Note: this method will not apply to all opportunities but the more of these guiding principles you can apply to your own products and services the more income and profits you will generate whilst minimising the amount of effort and time investment required.
Simple, easy and quick to produce.
Adds tangible value.
Has high demand.
Is highly consumable.
Has repeat business potential (repeat sales, upselling, cross selling, down selling).
Can be easily scaled.
Premium prices can be charged.
Can be automated as much as possible via processes and systems (removing your time and effort involvement and in doing so leverages passivity).
Ingredients For Success
If you have a cost-effective consumable product that your customers will purchase on an ongoing basis (think repeatable models like subscriptions here) with a way of adding value to enhance the offer, at a price that customers are willing to pay you a premium for you will have a great business model. Integrate that with a captive market (more on the advantages of a captive market later, as well as the downsides which my enterprise ultimately became a victim of) and you will be onto a sure-fire winning formula.
One of my primary unique selling points was that my customers had easy access to me and did not have to queue at the school’s “tuck shop” or pay their expensive prices for limited choice. By this point though I had a growing problem. It was a great problem to have, but a problem nonetheless. I had a situation where I now had more customers and demand than products to sell, which in turn led to two things happening. One good and one bad.
The good – Due to growing demand and the fact I had a somewhat captive audience I was able to raise my prices slightly. I had more demand than supply (scarcity) which allowed me to maximise my prices and subsequently my profits.
The bad – Whilst scarcity can drive prices up, there is a tipping point where this becomes unsustainable and given that my target market had limited funds I could only maximise my returns so far before my customers would top out and be forced back into the arms of the competition, in this case the school tuck shop. In my situation with my model, scarcity was not the way to go. I needed to leverage my position and service that captive audience at scale. My main challenge at that point was that I really had to solve the limited stock problem, and yes, for those of you already ahead of the game, I might actually have to start paying for stock. Good job I did not have any shareholders other than my brother and sister to keep happy.
Something Had To Change
I was in no doubt that my growing business operation could not be sustained in the long-term based upon my grandparents’ weekly “investment”, even though they were now supporting my little enterprise by providing me with a ton of extra sweets a week. It was no good, I would have to start buying my own stock. I started to make purchases from a local sweet shop and almost immediately exposed several additional benefits and potential opportunities.
Startup Pro Insight: Opportunities have a habit of starting to gather momentum when you start doing stuff. I quickly discovered that opportunities are actually the outcomes and consequences of action and effort. You will notice that few opportunities present themselves of their own fruition. History proves that the most innovative products, groundbreaking discoveries and game changing inventions only happened as a direct result of someone somewhere doing something, and often doing it wrongly and getting very different outcomes and results from those expected.
As I mentioned, changing my supply chain and going to a shop to purchase my stock presented me with several previously unseen advantages. I now had the benefit of larger product ranges to choose from which increased my capacity to expand my variety packs and produce a different range of offerings. The change also gave me the capability to provide a number of options based upon different customer types and buying propensities. I would learn much later that this was called customer segmentation. The most important discovery however was that the additional product choice meant I could also introduce a customised “to order” service that would attract a premium price and generate more profit for no additional effort or cost on my part.
These small but effective evolutions did however introduce yet another challenge for my budding business. Due to the growing popularity of my little venture the queue at break times was getting bigger and bigger, but service was getting slower and slower. This problem had developed not because my prices were cheaper, in fact by this time I was charging a slight premium for my offerings.
The growing demand was because my product was not available at the tuck shop (uniqueness). I was selling exactly what my customers wanted and were requesting. I had unknowingly discovered a simple way of accelerating my sales and profit (The Voice Of The Customer).
Startup Pro Insight: Taking the simple step of gaining feedback from my customers gave me the unique insights I needed to provide them with exactly what they wanted whilst maximising my own revenue and profits. The perfect win-win combination.
Startup Pro Insight: My growing success in the field of confectionery fulfilment was now having the detrimental effect of diluting one of my most valuable Unique Selling Points (USPs): my speed of service. I had to resolve this challenge and quickly. The most obvious way to do this was to get some of my friends to take my sweets and start selling them at different locations around the school on my behalf. I did not have the budget, experience or margin to take them on and pay them utilising a traditional employment salary model, but I could and would willingly pay them a commission on all products sold. I even included a volume sales commission structure. Again, another opportunity presented itself here that would have the net result of minimising the cost of my sales team. On many occasions my hungry “sales team” would take “commission” payments in sweet packs or sometimes a mix of sweets and money, but more often than not in sweets alone. This was a win-win situation and I will tell you why. Firstly, I would give them a generous discount price so they would get more sweets than they could buy with their money. Secondly, and more importantly, this was a great deal for me as the cost price of the discounted sweets “paid” to them was much less than the real monetary value of paying them hard cash.
Startup Pro Insight: When you break it down, becoming a successful entrepreneur appeared to be based upon becoming proficient in just four key areas:
Identifying opportunities and acting on them (The Problem).
Developing solutions to resolve problems, remove bottlenecks, relieve pain points and fulfil emotional desires.
Delivering value – Helping others to get what they want.
Getting paid – Defining exactly how to receive adequate remuneration.
By the way, at this point I was now unknowingly scaling my operation.
As I progressed I encountered yet another entrepreneurial challenge. My latest little spanner in the works was that I was attracting far too much attention from my competition, or in my case the school tuck shop and senior teaching staff. To combat this little inconvenience and to ensure that I could still manage to continue with my expanding enterprise I gave a quantity of my sweet packs (which incidentally had become a full-time after school packaging job) to some of my friends who would go off to other areas around the school and sell on my behalf for a commission.
Although I did not know it at the time, I had effectively franchised my operation with independent vendors selling my products for me by leveraging my established brand and reputation. I later cottoned on to the fact that they should have been paying me for the privilege rather than me paying them a straight commission, but hey you learn something new every day. I now understand that I was inadvertently scaling my operation. More sales people meant more sales, which in turn meant increased revenue growth and profits.
With sales on the rise, the next natural move was to start negotiating better deals from my suppliers. By this time I was going to a number of sweet shops to both mitigate potential supply issues and introduce some competition for supply based upon the growing size of my purchases (volume). I was now buying sweets by the box load. I did manage to negotiate the prices to a degree but was largely unsuccessful due to my complete lack of negotiation skills, knowledge and experience in this area at that time.
What I really needed to start doing was looking for ways to cut out the retailing middleman altogether and start buying the sweets from a more direct source. In my case that would mean going directly to a wholesaler, which was successfully navigated when an older friend’s brother (thank you Martin) went to the local cash and carry to buy stock on my behalf, for a small percentage of course. This entrepreneurial mindset, as it turns out, appears to be everywhere.
I realised much later, and with a little experience and hindsight, that I had in fact successfully navigated the complex world of the startup. I had intuitively built myself a little business from the ground up based upon nothing more than the burning necessity to do so. I had never read a business book, I didn’t even know they existed, and to be honest I would not have done anything differently if I had.
This experience taught me a lot about starting, running and scaling a small startup enterprise and as I would later discover this process could be distilled down into a simple repeatable system that could be applied over and over again whilst significantly flattening the steep learning curve.
Success Kept Coming, But…
I was riding high on the success of my thriving operation. I had money in my pocket and a seemingly Midas touch when it came to maximising the resources I had. What I was blissfully unaware of at the time however were the downsides, those unforeseen and often ignored risks that you never see coming until it’s too late.
At some point in your budding entrepreneurial career you will get to experience an unexpected downturn, or even worse a catastrophic downfall. If you don’t get to experience either at some point then you’re either a unicorn case or probably weren’t doing enough in the first place. My awakening to the downsides of walking the entrepreneurial path was well and truly in the post. I never saw it coming and it abruptly ended my little enterprise literally overnight.
Startup Pro Insight: You cannot plan for the inevitable failures that WILL occur. I say inevitable because being an entrepreneur is all about the inevitability of failure, interruption and challenges. All of these scenarios will happen at some point to some degree during your entrepreneurial career. Nothing lasts forever even if you’re riding the heady wave of success right now, eventually it will fizzle out and die. Let me give you a simple real-world piece of advice from the trenches here. Like the Grim Reaper you cannot avoid failure, in fact it’s a necessary part of your entrepreneurial evolution, a rite of passage if you like. In the same way that exercise resistance builds muscle and makes you stronger, so the resistance that challenges and failure creates also builds strength, increases your resolve and drives future successes. The truth is I have had more failures than successes, it’s just that the successes have completely outshone the failures. I would never have had the highs of success had I not experienced the lows of failure and had the opportunity to learn the valuable lessons, and rules of the game, along the way.
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