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Step 5: Get Richer While You Sleep 231
The mistake occurs most commonly when people violate Rule No. 1 by starting a business that they know little or nothing about.
Itís an understandable mistake. You have a special interest or a pet peeve and you think of how to turn it into a great business. You assume there are plenty of people in the world who share your feelings and imagine it would be very easy to sell your new product or service to them.
You talk to a few friends about your idea and they bolster your courage (though they donít know anything about it, either). And before you know it, youíve spent a year and most of your life savings getting a business going that falls flat on its face with the first promotion.
ďWhat went wrong?Ē you wonder.
Answer: You forgot to see whether there was an active market for your bright idea.
We would all like to think that we could create the next Wite-Out or Post-it pad or AOL. In fact, 99.9 percent of such brand-new ideas result in dismal, disappointing failures. The reason is simple: There is practically nothing new under the sun. Although you may feel sure that your brainchild is unique to you, chances are that it, or something very similar to it, has been thought of by countless other peopleóand months, or years, ago!
This is true in every aspect of business, but itís especially true when your great idea is outside of your experience. Thatís because most ďgood ideasĒ donít work for reasons that are invisible to outsiders (including new employees) but are obvious to anyone whoís had the benefit of seeing such ideas fail in the past.
The solution is to follow Rule No. 1. If you do, youíll probably avoid most of the mistakes youíre likely to make. But if you must (or simply really want to) get into a business you know nothing about, donít invest a nickel in it until youíve determined that there is an active market for your product.
What do I mean by that? Iím talking about lots and lots of buyers already out there purchasing similar, if not identical, products.
When it comes to investing your time and money in a side business, you want to be very careful not to blow everything on your first effort. A good way to increase your odds is to make sure that there is already a ready market for your business.
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Iím not recommending getting into a crowded market with a weak, copycat product. But your chances of success doing that would be much greater than trying to create a new market with an untested product.
When it comes to launching a new product, a very good position to take is second or third place. The marketability is proven with the first success. By coming in second or third, you reduce your risk while still enjoying the momentum that the first product may have created in the marketplace.
But even if you are fourth, fifth, or tenth into the market, you can still be successful so long as you price your product competitively, sell it forcefully, and develop its own peculiar benefits to distinguish it from the competition.
Rule No. 4: Develop a Unique Selling Proposition
As you learn more about your customers, continually redesign and improve your product so that it better fits their needs.
There is a theory in business management courses called incremental degradation. The idea is that you can ruin a product gradually by reducing the cost of manufacturing it by slight amounts over time. The example I heard had to do with a soda that originally had, say, 32 flavorings that were part of its formula. A taste study by an enterprising, cost-conscious executive revealed that the company could remove one of the 32 ingredients without any of the customers noticing it. The savings in production costs were substantial, so the ingredient was eliminated. Several months later, the same executive did a second test and found also that another ingredient could be removed without anyone noticing. The idea was repeated a dozen times over a two-year period, with each successive degradation going unnoticed. Then, all at once, the market crashed. Sales dropped in half and nobody could explain why.
The explanation, the theory goes, is that although you canít distinguish incremental degradations from one another, the cumulative effect is noticed by consumers. Thus, the decision not to degrade a product is one that canít be subject to short-term, narrow-basis testing.
If a product can crash because of incremental degradation, why canít it also soar because of incremental augmentation?
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Why canít a good product get better, in terms of both its intrinsic qualities and its success in the marketplace?
I think it can. And I am a strong advocate of incremental augmentation with clients. In recommending improvements, however, Iím not so foolish as to fix whatís not broken. Every change must be tested in two ways: first subjectively by insidersówho must feel that the improvements are, in fact, improvementsóand then objectively by measuring the reaction of the buying public.