The Defining Moment

When does an idea become a business?

It might start as a little spark of imagination out of nowhere, or an insight into how things could be better. Maybe you looked systematically at trends in your area of interest. Perhaps you saw a concept that could be applied elsewhere, or got frustrated with an unsatisfactory experience.

Whatever the source of your business idea, you soon realise there is a big gap between concept and reality.

So you look around, do some research, and bounce the idea off a few other people. You think it through, imagine variations on the theme, and flesh out a few details of how it might work. Through this process, your confidence grows. "This idea has real potential", you think to yourself. Plenty of uncertainty remains, but you’ll never be able to eliminate all of that without actually having a go.

And so the defining moment arrives – do you believe in the idea enough to commit to making it a business? Because if you don’t believe in your idea, then no-one else will.

The start-up phase of a business requires a snowball effect. The person with the initial idea has to generate enough momentum that the business takes on a life of its own.

It starts with their own belief in the opportunity and cascades out to others. Family, co-founders, potential business partners, customers, suppliers, investors & employees, … the list goes on. At some point, enough of the right people are convinced it will work – and magically, your idea becomes a early stage business.

It’s not incorporating a company that creates a new business. Instead, it’s the growing belief in the concept, cascading out to everyone whose involvement is required for success.

As a founder or early participant, you have to act with confidence in the business well before it appears to justify it. You see its potential, whereas others can only see a few scraps of paper and wild ideas. But it’s your belief, and ability to build similar confidence in others, that turns your idea into a business.

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Selling Stuff Made Easy

Every business needs sales to stay alive. But attempting to rush people into a purchase decision is not particularly effective and can even backfire. Instead, it’s better to step into the customer’s shoes and ask yourself: "what do I want to know before deciding to buy?". If you’re not providing the answers (or making them easy to find), then potential sales are walking out the door.

Credibility – Fit – Value

A useful framework to improve your sales is "Credibility – Fit – Value". Put simply, before someone will buy from you, they need to believe:

  1. You are a credible supplier
  2. Your offering fits their needs
  3. It offers superior (or at least acceptable) value

Typical questions that customers ask themselves before making a purchase decision include:

Credibility

  • Who are these people?
  • Do they know what they are talking about?
  • Who else uses or recommends them?
  • Can I trust them to do what they say?
  • Is it worth my time finding out more?

 Fit

  • What is their product or service?
  • What benefits does it offer?
  • What steps are involved in buying or using it?
  • How well would it meet my needs?

 Value

  • How much does it cost?
  • Do the benefits outweigh the cost and/or risk?
  • Is it better than my other alternatives?

Applying the Framework 

Customers go through the Credibility – Fit – Value process in order. For example, I don’t care what your offering is if I don’t believe you’re a credible supplier. Similarly, it is irrelevant how much better you are than competitors if you don’t offer what I need. And I’m not going to hand over my credit card unless I’m know what you offer is a good deal.

This approach is all about helping the customer decide they want to buy, rather than rushing them towards the checkout to "close the sale".  You need to recognise where they are in the decision-making process, and provide them with information and emotional signals appropriate to that phase.

Example

A good example is 37 Signals. Take a look at how they introduce you to Basecamp, their online collaboration solution. 

The headline tells you clearly what need it serves ("get projects done"), and just below that they start establishing credibility ("over 1,000,000 people signed up worldwide"). Your eye is then drawn to two major options – "sign up for free" and "take a tour" – which are both ways of helping you learn more. They then provide a range of different things to help you assess the fit and value of their product, such as press reviews, customer videos, screenshots of key features, survey results, a summary of the main benefits, and a detailed FAQ.

So take a leaf out of the 37 Signals book. Answer the customer’s unspoken questions about Credibility, Fit, and Value. It’s more natural and more effective than hard-sell tactics or rushing to "close the deal".

Arbitrage in the global village

It’s funny how markets work. For all our collective progress in creating a global marketplace, with the free flow of information across borders and a world-wide choice of suppliers, sometimes you come across examples of old-school practices that make you shake your head.

In recent months I was a consumer of several intangible products. These are ideally suited to selling and distributing online, so you could be forgiven for expecting keen pricing and competitive service from major vendors, wherever they are in the world.

The reality, however, was very different. Below are two specific examples where companies are trying to extract a premium price from one particular country – Australia. This time-honoured tradition used to earn companies a nice profit (call it an antipodean tax), because of our geographic isolation and relative scarcity of alternative purchasing options. But its days as an effective strategy are numbered…

Example 1:

Have you bought domain names recently? The first one I bought was from Melbourne IT, one of the biggest Australian providers whose professional looking website boasts they are “a world leader in domain name registrations and related online business solutions”. However, they charge A$69 for a basic .com address, with extra fees for proper DNS management.

Having made that mistake, I now use the US-based Nettica, who provide a domain with DNS management for only US$20 (equivalent to ~A$23, i.e. 1/3 the cost of Melbourne IT). If you look around, there are even cheaper options. For example, Google now sells domain names for only US$10 via Google Apps.

Example 2:

I recently downloaded a 30 day free trial version of Adobe Flash CS3 (ah, the magic of free) and after rigorous testing concluded it was well worth purchasing. But would you believe that, buying direct from Adobe, I can pay up to 67% more on their Australian website versus their US website ?

That’s right – I can buy the software in download form via Adobe US for US$699 or Adobe Australia for A$1245. And with the mighty Aussie dollar where it is, the US price is equivalent to about A$750. The difference is very nearly $500 on a $750 product.

Conclusion:

It’s deliciously ironic that two web-centric products like domain names and Adobe Flash are being priced and distributed in such an old-school way.

When consumers had few options, distributors could extract premium prices like this, but it’s an increasingly risky strategy in an internet-savvy world because arbitrage between markets is so easy. Plus it (rightly) annoys the customer, potentially damaging brand equity.

For start-ups, this presents an interesting opportunity. Can you spot markets where equivalent or better products can be sourced elsewhere and provided at lower cost through new distribution channels? This is your chance to shake up an incumbent living on an excessively fat profit stream. Consumers will thank you…