Passion to Profits. Alice LaPlante

      In many cases you’ll know exactly who your competitors are: the restaurant down the street, the other big law office in town, the overseas manufacturer who produces the same component as you, or the other Web-based payroll service in your areas. Other times, though, your competitors might not be who you think they are. Sometimes competition comes from indirect sources. If you provide landscaping and lawn maintenance services, your direct competitors would be other like services. But your indirect competitor would be the local hardware store or superstore, because they sell supplies and equipment that allow people to maintain their own properties. As you price your services, you might have to keep in mind that new products and equipment make lawn do-it-yourself outdoor maintenance easier and are coming down in price significantly.

       How Big Is the Market?

      You might have the highest quality, most innovative and in-demand product or service in your particular market segment. But if the market for your product or services is too small, you won’t be able to earn sufficient income to sustain your business. Inventors frequently run into this problem: they may come up with a device that performs a task extraordinarily well, but if it will only be of interest to a small number of people, the resulting revenues won’t sustain a business.

      On the other hand, you probably can’t be all things to all people. If you view your market as huge, chances are good it’s crowded with lots of competitors, and it could be harder to differentiate yourself than if you’d chosen a specific niche within that market.

       business Buzz

      words

       “channel”

       The sales channel is simply the means by which you get a product or service from you, its originator, to the end user or customer.

       Direct, wholesale, and retail refer to different types of channels; typically, the wholesaler is a middle-person between the creator of the product or service and the retailer, which is the business that deals directly with the user. You may actually be a retailer yourself—in which case, you have a “direct” channel, or you may choose to supply others with your product or service and create a “retail channel.”

       Sales channels can include trade shows where potential distributors or retailers find out about new products and services. Depending on your distribution strategy, you may need to reach these kinds of people rather than the end users themselves. In technology and engineering markets, for example, products are frequently sold through third-party intermediaries who install or otherwise add value to the product. (Indeed, these individuals/companies are commonly referred to as value-added resellers.) For example, rather than simply selling the software that operates an electronic cash register for a small retail business, a value-added reseller might also install that software (along with other technology tools) and provide ongoing maintenance.

      The way to gauge whether a market is a good size for your business is by seeing how expensive it is to reach and advertise to them. Are there trade shows, magazines, and websites aimed at your target market, and can you afford to be part of them? If you have to use general consumer media—such as TV or the most popular websites—to reach your market, you’ve probably defined your market too broadly.

       How Will You Let People Know About Your Product or Service?

      Reaching your target market can take some ingenuity—as well as cash. This is where further research (yes, more!) and marketing and advertising come into play. After all, just because you build it, that doesn’t necessarily mean that customers will come. Entrepreneurs must understand how to get the word out—not only to let people know their products and services exist but to make people aware that those products or services are superior in some crucial way to competing products and services. This is called marketing, and there are a variety of ways to do it—indeed, different businesses will require quite different marketing strategies. (For more on marketing, see Chapter 17.)

       How Will You Finance Your Business?

      Where will the money come from? You may not have enough personal funds to jumpstart your business or keep it going until you’re able to turn a profit. Restaurant owners, for example, routinely face this challenge. It takes a lot of capital to set up an operation, buy all of the necessary equipment, pay the staff, and purchase the ingredients for the meals they will serve. Few individuals possess these kinds of resources, and most must look elsewhere—to friends, family, angel investors, venture capitalists, or financial institutions—to bankroll their business visions.

      Without a viable plan for funding—even if this just means “bootstrapping” your venture or using only your own money without any outside financing—you won’t have a viable business. Spend some time thinking about this upfront and be realistic about your comfort level owing other people money (called “debt”) or perhaps sharing ownership with them (called “equity”). (For more on financing, see Chapter 15.)

       Location, Location, Location

      If you’re a retailer or service provider, you’ll be concerned about the neighborhood or business district you operate in. What other businesses are nearby? What kind of automobile or foot traffic do you need to be successful? Will you depend on “drop-ins” or expect that people will make a special effort to come see you? The chart below shows how your business needs relate to your choice of location.

TYPE OF BUSINESS	BUSINESS NEEDS	BEST LOCATION
Seafood restaurant	Populated area, vacation crowd	Seaside/tourist town
Women’s clothing boutique	Foot traffic, upscale clientele