Minimise the Risk of Small Business Failure With This Simple Idea
Sarah and Jessica both want to run health and wellness retreats targeting professional women. They are passionate about helping people, but have limited capital to invest in starting a business.
They follow different paths…
Sarah takes out a loan to buy a large property in Byron Bay to run the retreats from. She hires a marketing agency for branding and logo design and invests in an expensive website.
Jessica finds a beautiful property she can hire to run her first retreat and begins promoting her event. She doesn’t have a website yet, but she has all of the information available on a Facebook page.
Both Sarah and Jessica made an assumption that their customers would pay $4,000 for a week long retreat. After running their first retreat and talking to lots of potential customers they both realised that professional women prefer a long weekend to a week and they can only sell these for $1,500.
Jessica quickly adapts her marketing message and finds another property to rent which is available for weekends.
Sarah is in a much more difficult position as she invested money upfront before testing her assumptions with customers. This is putting her under pressure to meet her loan repayments and ultimately risking her business.
By testing assumptions with customers as quickly as possible you minimise risks and can grow faster.
Now let’s go back a step
In the first article of this ‘Grow Your Business’ series we talked about how you can leverage your full-time job to maximise the success of your first business.
So you’ve done all of that and you’ve been saving hard, building up your personal network and have a plan for transitioning from full-time work to a business.
You also did some deep thinking about your ‘why’. This will vary from person to person, but common themes are finding balance between work and family life, having financial freedom and doing work you enjoy.
You can’t wait to get started … but first you need to decide on your business.
Choosing a business idea
You’ve probably had hundreds of business ideas running around in your head! So which do you chose?
I believe that being an entrepreneur is a career.
This means that your dream business doesn’t have to be your first one. In fact you’ll be learning along the way and probably making mistakes too … So it might actually be better for your ‘dream business’ to be your third or fourth business.
My ideal business has ‘recurring revenue’, a large market in which to operate and can be scaled to run without me.
My first (real) business was a consulting firm which didn’t have much ‘recurring revenue’ and was difficult to scale. It wasn’t my dream business, but it was a great first business as it required little investment to start, was low risk and provided immediate cash-flow.
“The first step is figuring out the problem that needs to be solved and then developing a minimum viable product (MVP) to begin the process of learning (from customers) as quickly as possible”.
– Eric Ries
Applying the Eric Ries ‘lean startup methodology’
Friends and family telling you a business idea is great doesn’t necessarily mean it is!
You want your customers to tell you it is a great idea that they are willing to pay for.
This is where the lean startup methodology comes in. The key points from this methodology are:
- Find the thing that customers want and will pay you for
- Test your idea with customers with a ‘minimum viable product’
- Get feedback from those customers and continue to improve and adapt your product / service
This means continually learning and evolving and make decisions based on data rather than assumptions.
How Jessica applied lean startup methodology when launching her retreats
In the example at the beginning this article Jessica applied lean startup methodology when launching her retreats by:
- Creating an MVP – creating the retreat and Facebook page
- Testing it with customers – running the retreat and talking to lots of customers and potential customers
- Adapting based on customer feedback – changing the format of the retreats to long weekends instead of weekdays and changing the price
Now she should be doing it all again! Running another retreat, getting feedback and gradually improving the product.
By testing assumptions before investing large amounts of money you are minimising risks and improving the chance of business success.
The next article in this series will be looking at how to scale your first business.
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