Tuesday, March 28, 2017
Why Your Business Idea Should Sell Itself
With all the challenges that entrepreneurs face, why complicate things by making your business idea hard to explain?
I saw a wonderful example of this principle on Monday when five teams of my "Foundations of Entrepreneurial Management" students at Babson College tried to convince their skeptical classmates to buy from their businesses.
Before getting into the details of which idea virtually sold itself and the one that seemed to be a near-impossible proposition, I'll point out that an easy-to-sell business idea runs the risk of also being easy to copy -- which could be a problem.
Ideally, you want to have a business idea that's easy to sell but that will be really hard to copy because putting the concept into action requires all sorts of difficult-to replicate operations and logistics.
Amazon provides an example of this. I'm guessing that its simple-to-sell idea is to provide consumers with everything they need at the lowest price with great service. Who wouldn't want that?
Yet, as I saw when I toured the factory of Amazon's North Reading, Mass.-based robot maker Kiva Systems, which it acquired in 2012, delivering on that premise is extremely challenging. As the Los Angeles Times and other media reported this week, Amazon has invested in enormous warehouses and 15,000 powerful robots that help slash the time for processing a customer order (from more than an hour to 13 minutes) that's put in a cardboard box for mailing.
Such technologically enhanced logistics not only increase the amount of inventory handled by a warehouse 50 percent but also help improve customer service in a way that's harder for Amazon's simple business idea to be replicated.
Indeed Amazon exemplifies the principle of picking an idea that sells itself. The company's basic idea of selling goods at a low price with great service has remained constant for two decades but it keeps investing in new technology and improving operations to stay ahead of rivals.
If you imagine a two-by-two matrix mapping an idea’s salability, whether it's easy or hard, against its replicability, easy or hard, Amazon's concept is in the best of the four cells: easy to sell and hard to copy.
This week's easy-to-sell business idea imagined by one of my student groups involved a service that would charge Babson students 99 cents to list textbooks for sale. Students who no longer needed their books would gain extra cash and their peers would score big discounts.
Contrast that with a gift-giving service developed by another student group. It sounded good at first: Gift recipients, such as young birthday girls, could post their wish lists for others to see.
The complicating factor is that the student group wanted retailers to provide discounts for items on the wish lists.
When my students tried to sell two colleagues who were playing the role of retail managers, at say, Nordstrom, the brick wall went up. How would Nordstrom benefit from bestowing the discounts? After all, the startup has no customers yet and therefore could deliver virtually no additional volume to justify such discounts.
And the student group had no data, with the exception of highly speculative revenue projections, on which to base an estimate of the additional business it could bring to the retailer.
And without discounts from retailers, what would lure gift recipients and gift givers to the newbie site? And without a huge tally of potential customers not already buyers, why would Nordstrom want to participate?
In short, this proposed business would face such a difficult sales process that I became convinced it could not work as originally configured.
On the other hand, the used-book-swap app idea is so simple and obvious in its value proposition that it would be quite easy to copy. Members of this team would need to figure out how to get an edge over those who might try to replicate it.
To be fair to those team members, if their company were the first to launch it on campus and it worked well, odds are good that it would gain popularity, making it harder for copycats to enter the market and steal its customers.
When I compare these two businesses, the one that sells itself has a much better chance of succeeding. It would not need to hire such a large sales force. This startup would close sales faster and have an easier time turning satisfied customers into its best salespeople.
In short, pick a business idea that sells itself.
Three years ago, I saw some robots in action when Amazon was a Kiva client. It seems to me like Amazon has improved the setup since the robots now are in the warehouse, fetching the relevant shelves and delivering them to the cardboard box being filled with the customer order. The economic benefits are obvious. I'm expecting that as long as Amazon does not have any accidents with the new technology, it will replace lots of warehouse workers.
This robot endeavor along with Amazon’s investment in the failed Fire and its talk of using drones to deliver packages highlights an important principle: An easy-to-sell business idea won't stay sold unless the CEO systematically fights complacency by making bets on new ways to give customers more in a manner that outpaces the competition.
So you have a great idea for a product—something that’s bound to capture the hearts and minds (and wallets) of consumers everywhere. Or ...