Starting Small Business Concern : In a previous article I dug a little deeper into small business volatility but it is worth mentioning again especially in the context of starting a business. Small businesses exist because big businesses have carved out methods to meet needs that don’t reach everyone in the market. In other words a small business is a small business because large businesses consider such market pursuits not worth the effort.
Big businesses are looking for opportunities that exist in well-established mature markets. This will be a market that produces smaller margins but is also less volatile. As a result, this leaves a more dynamic and volatile market for small businesses. This is part of why small businesses don’t last long, they compete in an ever-changing market.
So, what does this mean for you? This means that the opportunities that will exist for you and the business you aspire to will be opportunities that require quality and custom solutions quickly. This also means there will be a lot of work involved to gain market share for your niche.
Ignore the idea of providing a single product or service, you need to diversify your product/service, customers and possibly your industry. To combat the ups and downs of a small market, you need to diversify all aspects of your company.
Alignment
OK, now that you understand a bit about the realities of the small business market, the next thing to look at is how well your potential business aligns with who you really are. In the early stages of a business, the founder is the business and the business is the founder. To offer the highest value, the business must be the embodiment of you and you must be the embodiment of the business.
The realization of a single opportunity should not be the only determining metric for starting a business. As an example; A few years ago I had the opportunity to start a frozen yogurt shop in my town that would be modeled after a profitable model that was doing well in other cities. I did my homework and found that for $40,000.00 I could get everything I needed to open the door and start selling yogurt.
I decided against it for two reasons, 1. I live in the Four Seasons area and I don’t want to overeat or demand hunger and 2. I’m not too crazy about yogurt. Now, the opportunity exists, and since then many of these shops have opened, but I didn’t want to invest 80 hours a week into the frozen yogurt business.
Market position
So you have an idea that aligns with who you are, and you understand the nature of the small business market, how are you going to position your product or service? How will you meet customer needs? The answer has been explained above, but due to the nature of the small business market, you need to be a fast, high-quality company.
Small businesses have an edge in the small volume custom area. Your competitive advantage will be your ability to meet the specific needs of your customers. As a small business, you don’t have a business that competes on price.
Limit
You are your business, and chances are you don’t have much capital behind you. This means that achieving a positive cash flow situation as quickly as possible is key. Cash is king and without it you have no business. The advantage is that the small volume of high-quality work demands high dollars. That’s right, by being a small business you are competing in the big margin arena. The mark up on your products and services can and should be high.
The market will tell you when you are too far out of reach, but healthy profit margins are to be expected for small businesses. People who fail to understand this start lowering their prices in hopes of getting some sales, but what they don’t realize is that they are undermining the market and putting themselves out of business. So don’t be afraid to charge for your work!
Growth Strategy
The last thing I will mention for those looking to start a small business is that a growth strategy is very important. You need to have an idea of where you are going if you hope to make it as a business owner. Naturally, small businesses will only stay small for a while, if your company is not growing, it is dying. Markets mature, customer needs mature, and guess what… your business has to mature too.
Knowing where your business is headed will allow you to take the right steps today to prepare for tomorrow’s markets. Growth strategies can be unclear. You don’t need to define every variable, but you should use your intuition to determine where you should position your company.
If you are planning to start a small business, understand that it is a lot of hard work and there are no rules. No one tells you what to do and what not to do, you will be responsible for your success or failure. You have to be persistent and willing to invest more in yourself than the next person in line. If it were easy, everyone would do it, but because it’s demanding, few can compete.