Before I get into today’s thought, I would like to share some facts. Small businesses make up 99.9% of all US businesses and create 1.5 million jobs annually. There were 32.5 million small U.S. businesses in 2021, according to the SBA. Of those, 22 million were individually operated, meaning they have no other employees other than the owner. Women owned 11.6 million, or 38.7%, of small businesses and minorities owned 8 million, or 26.5%. Veterans owned 2.4 million, or about 8%. It’s no wonder why there are so many entrepreneurs.
Now, couple those facts with the latest statistics that show more than 20% of small businesses fail in the very first year and nearly 50 percent of small startups fail within the first five years (Bureau of Labor Statistics, 2021). Business failure isn’t something you want to think about when you start a business.
But if you want your startup to succeed, you need to know and avoid the common reason why businesses fail … lack of critical thinking focus … trying to do everything all at once. This is why an entrepreneur should follow a strict procedure for starting a business … validate the business model concept using the vetting process >>> transition from a vetted concept to a full-blown business operation by following the key startup execution stage steps >>> communicate, as needed, the organization’s expectations to investors, lenders, BODs, employees, customers and yourself >>> update the business planning periodically. The reason for following this strict process procedure is so that the entrepreneur can focus their time when it is important on product market fit, distribution building, and then organizational development.
During the startup vetting business model concept process, the time focus should always be on determining if there’s a market for the product offering that is large enough to be profitable. Keep in mind that “everyone” isn’t a market. The market must be an identifiable target group that can be reached with the marketing dollars and resources available to the entrepreneur. The search for product-market fit starts during the vetting process.
As you vet the business model concept, think in terms of product/service, customer and value. Vetting a business model concept is an iterative thought process that should lead to figuring out the product you can offer, what customer is best for this product and how much they value it (which means you have to figure out what about the product they value). The process is iterative because the product, target customer and value are interrelated so it is almost impossible to figure out all three without going back to revise the first…and then the second…and then figure out the third again. Having a great business model means all three are well aligned and fit your own interests and abilities.
You will know there is a product fit with the target market when the product/service to be offered fits (almost) perfectly with the customer segment identified and those people are the ones who place the highest value on the product/service. This means you have designed and developed a product offering that corresponds exactly to what the customer would value having.
By the way, value is not a dollar amount. It is the outcome the customer gets from using a product offering. Whether the customer likes a product or not has nothing to do with how it is produced or what materials are used. It is all about the outcome or aspiration experienced in using it because they buy something expecting that outcome experience. Remember, customers are willing to pay a price based on that outcome experience. The better the outcome, the higher the price can be. A business model is all about understanding that your business is your customers, so you must customize it to them. In order to do so, you must know who they are and what outcome they seek. What are their dreams? What problems do they have? What can you do to make their lives easier?
To evaluate the product-market fit, do what you need to do to get in front of the target audience and pitch the product/service. For instance, use local farmers markets to test Food Truck menus. Or maybe use a landing page to get feedback on a new product design. Perhaps tell them if they buy now, they will be the first to have access to it when it is ready in thirty days. If they agree, the fit exists! If they don’t agree, ask them for feedback. What problems do they have that the product/service could be adapted to solve?
During the startup vetting process phase, about 90% of your time should be spent improving the product offering, refining the target market, defining the niche and making the product-market fit even better. The product-market fit isn’t just something that startups address…even when the first sale is made or even the millionth sale is made, validating product-market fit is an ongoing, iterative process to keep tabs on the market and the ever-changing customer needs.
Embarking on an entrepreneurial journey can be exhilarating, especially after successfully vetting a promising business model concept. But conceptualization is just one half of the equation. The real challenge lies in executing that concept effectively. Transitioning from a vetted concept to a full-blown business operation demands meticulous planning, unwavering commitment, & the agility to adapt. The product-market fit validation may still demand up to about 20% of your time doing inflections testing and analysis. The other 80% of the time should be spent reaching the target customer by developing and successfully implementing the distribution strategy. Validating product-market fit is important, but there isn’t really a business until the distribution is nailed down. The more the distribution is refined, the more profit a business will make.
Distribution usually means some sort of customer acquisition funnel. Focus on devising a way to earn over $2 in revenue for every $1 you spend acquiring a customer. It doesn’t matter if it’s Google Ads, Facebook Ads, YouTube, direct mail, SEO, carrier pigeons or a banner tied to the back of a biplane — once it costs you less to acquire a customer than that customer is worth in revenue, the business can be scaled.
Once the distribution is in good shape, about 80% of your time focus shifts to developing talent and culture within the organization. This focus will continue for as long as you are in business. Yes, you may devote some time on improving product-market fit and distribution, but hiring, firing and building culture will occupy the vast majority of the executive attention.
When I talk about firing and firing, I mean all aspects of the support services like white label SEO, website maintenance or independent contractors. Many entrepreneurs stall their businesses growth because they are afraid to take the leap into this phase. They try to operate as a solopreneur … staying in the trenches with busy work isn’t a good use of an entrepreneur’s time.
But if you truly want to scale your business in a sustainable fashion, you need to let go of that “in-the-trenches” mentality. You need to focus on building a motivated team unified around organizational SMART goals and the motivation to achieve them. With great talent and culture, you can hand off tasks for good and free-up even more of your time on talent and culture.
All three of these activities (product-market fit, distribution, culture and talent) are the key time focus areas that you must critically think about to achieve success. At least with this breakdown, you never have to be confused about the highest-leverage use of your time. Depending on the phase you find your business in, you will always know where your focus should be.
If you are planning to start a business or are thinking about scaling an existing one, be sure to read the ebook “Customer Centric Business Planning: A Guide to Optimizing Your Business for Maximum Success”. It is an essential book for business owners, managers, and entrepreneurs looking to leverage real-time insight to start and improve their business operations. Learn how proper customer centric business planning can assess risk and opportunity, and create an actionable roadmap for success.
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