Permanent link for What Is Your Market Potential? on March 17, 2023

Entrepreneurs often struggle to figure out their revenue potential. I frequently see entrepreneurs greatly overestimate their market.

If you're selling a new inventory management solution into grocery stores, your total addressable market (TAM) is not the $810 billion grocery store market; your TAM is what grocery stores spend on inventory management solutions.

Your serviceable addressable market (SAM) is also not "every grocery store," but only the spending on inventory management solutions by those grocery stores where you have a real shot at making a sale based on your business model.

Your actual revenue potential, however, is only a fraction of that market; your serviceable obtainable market (SOM) is fraction of sales you expect to actually achieve based. This will grow with time and as your resources grow, and it's best to estimate it bottom-up.

Techcrunch has some great advice and insight: Nice try, startup, but that's not your serviceable obtainable market (SOM)

Categories: entrepreneurship
Posted by Thomas Hopper on Permanent link for What Is Your Market Potential? on March 17, 2023.

Permanent link for What customers need on March 10, 2023

When products are successful in the marketplace, it's never because they were clever or the most technically brilliant implementation, but about how well your solution solves a problem that customers have with existing solutions. When I work with clients, I push them to identify what pains their future customers are complaining about with current products or services, and what gains customers are actively wishing for.

Customer pains are what annoy a customer before, during, or after they get a job done with an existing solution. When customers regularly struggle to use a product, or complain about how it works, how it makes them feel, or how it makes them look, then you have a customer pain that you differentiate your product around.

In contrast, a gain saves a customer time, money, or effort. When customers regularly say they'd like more of something, or for better of some product or service, or that it's easier to use, they're calling out for a new solution with those specific gains.

How do you find out what customers want?

The best approach is to go to the places where customers buy or use the existing products or services, and just watch and listen. Take notes.

Another approach, though less reliable, is to simply sit down with some prospective customers, either one at a time or in small groups, and ask them about their experience. Be careful not to lead them in any direction, but definitely encourage them to talk about what's missing and what doesn't work well.

Reading through many customer reviews of similar—or substitute—products or services can also provide some useful insights, but recognize that reviews are biased toward the extremes. Don't assume that what you read in reviews represents the opinions of the majority of potential customers.

The video below offers some further insight into finding out what customers really need.

Categories: entrepreneurship innovation
Posted by Thomas Hopper on Permanent link for What customers need on March 10, 2023.

Permanent link for You Can Develop Grit on March 3, 2023

A key to entrepreneurial success is grit: passion and sustained persistence applied toward long-term achievement.

It's easy to talk about grit as something you have or don't. Successful entrepreneurs have grit; the rest of us don't. But this false. Anyone can develop grit.

Dr. Carol Dweck, PhD in psychology, has studied people's ability to learn and adapt to challenging circumstances. She describes two basic mindsets: the fixed mindset and the growth mindset. Her research shows that people with a growth mindset tend to perform better than those with a fixed mindset, and she's shown that people with a fixed mindset can develop a growth mindset.

People with a fixed mindset tend to see intelligence as static or fixed; people with a growth mindset tend to view intelligence as a characteristic that can be developed.

Growth mindsets enable entrepreneurs to move into new fields, fosters grit, makes it easier to iterate on your product or service, and keeps you from stagnating. Harvard Business Review has a nice run-down on why entrepreneurs need a growth mindset.

How can you develop a growth mindset?

1. Learn to recognize your fixed mindset voice. When you say things like "I'm not good at..." or "I always...," you're probably using a fixed mindset. Work to notice this voice, think about examples that counter the fixed mindset, and substitute conditional statements like "sometimes I..." or "In these situations, I often..."
2. Work on being comfortable being vulnerable, and seek honest feedback. Critical feedback is not telling you who or what you are; you're just hearing about weaknesses or oversights that you can improve upon.
3. Invest your sense of self-worth and your self-esteem in your values and basic human worth rather than in what you produce or your income.

Categories: entrepreneurship
Posted by Thomas Hopper on Permanent link for You Can Develop Grit on March 3, 2023.

Permanent link for The Three Rules for Businesses Strategy on February 17, 2023

You'll find volumes of advice on what business strategy to follow. Almost all of it is based on anecdote. Take it with a healthy dose of skepticism. However, Michael Raynor actually studied twenty-five thousand businesses and found three simple rules that the successful companies followed:

1. Better before cheaper—in other words, compete on differentiators other than price.
2. Revenue before cost—that is, prioritize increasing revenue over reducing costs.
3. There are no other rules—so change anything you must to follow Rules 1 and 2.

There's a proviso here, though, and unsurprisingly rule 0 is: do what the data says. Prioritize making data-driven decisions.

I'll let Raynor explain these rules.

Categories: management
Posted by Thomas Hopper on Permanent link for The Three Rules for Businesses Strategy on February 17, 2023.

Permanent link for What to Outsource on February 3, 2023

Entrepreneurs get in the habit of doing it all in their business, but as the business grows, they need to add staff to handle the growing workload. Being fully engaged in all aspects of a business, it can be hard to decide what to outsource. How do you decide what to outsource?

1. Outsource repetitive processes that do not require deep knowledge about the business and need a fast response rate. The best processes are those that the startup's owners or employees already know well; they can be effectively managed with minimal effort. This might include front-line customer support, certain aspects of social media marketing, or the manufacturing and shipment of merchandise that is not a part of your main product or service.
2. Outsource processes that require deep knowledge and that are outside of the core processes of the business. This would normally include many legal and human resources functions.
3. Outsource capital-intensive operations, but have a plan to closely monitor the quality and cost-effectiveness of output. These are almost always core processes, and could include manufacturing.

It can be helpful when deciding what and how to outsource, to think about whether or not a process is a core process of your business. If your business cannot run for any length of time without performing a process, that process is probably a core process. If you could get away with delaying a process for a while, it's not a core process. If your business uses KPIs, your core processes usually be associated with a KPI. It's usually best to keep core processes in-sourced and under your direct control, and look at other processes for outsourcing.

Core processes should usually be in-sourced; other processes can often be outsourced.

Categories: management outsourcing
Posted by Thomas Hopper on Permanent link for What to Outsource on February 3, 2023.

Permanent link for 5 Tips from an Entrepreneur on January 27, 2023

Many entrepreneurs think of a name for their product or service, then name their company the same. Yet a product name and a business name must serve different purposes, and they should be different.

Similarly, many entrepreneurs start their branding by having a friend or a Fiver contractor design a logo and a business card, without really considering their overall brand identity, or how that identity helps them market their products or services.

Even Mark Zuckerberg made these mistakes, and he just spent half a trillion dollars separating Facebook the product from Facebook the company (now Meta).

The CEO of Vipe Studio brings these sorts of small but impactful mistakes home with 5 Tips I Wish I Knew Before Starting My Business.

Categories: entrepreneurship
Posted by Thomas Hopper on Permanent link for 5 Tips from an Entrepreneur on January 27, 2023.

Permanent link for Why great innovations fail on January 20, 2023

One thing every product concept has in common is that its inventor is convinced they've got a great idea. And they often do. However, that doesn't mean that every idea will work.

There are a lot of steps in the innovation process, moving from concept to commercialization, and plenty of ways things can go wrong. Smart innovators therefore seek to find the weak points in their concepts and their business models as early as possible, when it's cheap and easy to pivot. That is: good innovators work to fail fast.

As an innovator, there are some simple questions you should be asking yourself

• Does the underlying technology that you want to use actually exist?
• Do you understand the underlying principles?
• Can it be manufactured?
• Are there any regulatory roadblocks to making or selling this product?

One of the first steps in vetting your inventive idea is to make sure you have a solid grasp of the underlying principles. If you're doing all your technology development yourself, congratulations. If you're using technology developed by someone else, you need to make sure the technology actually exists. It's surprising how many would-be innovators get caught out on this one. Seeing a video on YouTube or reading a website doesn't count as confirming that the technology exists. You need to be able to buy it from reputable sources, and ideally have acquired a sample and tested it. You also need a basic understanding of how the technology works, so that you can identify weak points in your concept and successfully integrate the technology in your product.

Manufacturing is another area where many inventors and entrepreneurs get tripped up. There are many potential pitfalls, such as attempting to welding dissimilar metals, designing assemblies that cannot be assembled together, too-complex shapes for injection-molded plastic parts, or unusually-specified raw materials with long lead times and high prices. Bringing onboard an industrial engineer, or experts in the planned manufacturing processes, early in the engineering design will often avoid many costly mistakes.

The last common mistake that I see inventors and innovators make is neglecting to check that they have the legal right to sell their product. Patents, trademarks on words and logos, and federal and state regulations related to your specific materials, markets, or industry can cause months or even years of delays. Whatever you're inventing, take the time to understand the legal landscape that you'll be operating in.

It's OK to fail at your first idea; lots of seemingly good ideas won't pan out the way you hope. Find those weaknesses early and cheaply—fail fast—then pivot, and keep moving forward.

Categories: innovation invention
Posted by Thomas Hopper on Permanent link for Why great innovations fail on January 20, 2023.

Permanent link for Should you hire or outsource? on January 13, 2023

Businesses must add staff to grow and better serve customers. Deciding how to add staff can be a tough choice. Adding employees allows you to retain control over how the work is done, and is often cheaper over time than outsourcing. Outsourcing only allows you to specify the work product, but you can get fully-qualified people without the extra effort required to maintain compliance with labor and tax laws. So how to make this decision?

Entrepreneur Magazine has you covered. Here are 7 Questions to Help you Decide if you Should Hire Staff or Outsource. I think that the first two are particularly good rules-of-thumb:

1. Do you expect the business growth to be short term?

2. Is the workforce need a business differentiator?

Even for entry-level positions, hiring is an expensive and time-consuming process. You really don't want to make that investment if your need to hire is driven by a growth in sales, and that growth is likely to be short term. Outsourcing can look more expensive to a cursory analysis, but looking at the total costs it's usually going to be cheaper and easier for employment contracts of less than six months and in some cases it's cheaper for contracts of less than a year or so.

However, if you're being driven by a need to staff in a competitive advantage - Entrepreneur gives the example of a golf ball manufacturer needing to design better golf balls - then bringing someone onboard and keeping them creates long-term competitive advantages. This is an example of the three laws for making a company truly great that I'll share in a future blog post.

Categories: management outsourcing
Posted by Thomas Hopper on Permanent link for Should you hire or outsource? on January 13, 2023.

Permanent link for The Hard Part of Innovation on January 6, 2023

Innovation is the process of creating a new product or service that better serves customers and is cheaper out-the-door. In very broad terms, it consist of three main steps:

1. Invention
2. Development
3. Commercialization

Invention—conceiving of the novel product or service and demonstrating its feasibility, or that it works—can take years, even decades, and requires daily coping with unknowns. By some estimates, only about 1 in every 100 concepts become feasible inventions.

Development is the process of taking the invention that works in your garage and turning it into a robust, market-ready offering that people will pay for. Not every invention will become a market-ready offering, or is even capable of being carried through the development phase. Maybe 1 in 10 inventions make it that far.

The commercialization phase involves developing the processes and infrastructure for marketing, manufacturing, and delivery. Entrepreneurs in this stage encounter a huge number of challenges in connecting to customers, gaining traction, and scaling their business. This is the stage where companies hit their first growth spurt as new expertise and resources are needed. At best, 1 in 5 market-ready products or services make it through this stage.

So which is hardest?

Whichever phase you're currently in is going to be the hardest. Every step will take longer and present bigger challenges than you imagine. When you've invented something new, and spent weeks or years getting it to just work, it will feel like everything else should be easy. Yet you'll find that the next step will be harder. Just having something that works isn't the same as having something that people can and will use. That doesn't mean you should give up. It means you need to be honest with yourself about where you are, while maintaining the faith that you can achieve your goal.

This ability to get through the hard parts is variously known as grit or the Stockdale Paradox. It's the passion and perseverance for long-term goals; the ability to maintain faith that you will prevail, while having the discipline to face the facts of your current situation, however unpleasant that situation is, and adapt. Researcher Angela Duckworth has a great, short TED Talk on grit.

Categories: innovation management
Posted by Thomas Hopper on Permanent link for The Hard Part of Innovation on January 6, 2023.