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SMALL BUSINESS STRATEGIES | ENTREPRENEURSHIP 101

The Importance of Being Earnest

Thinking through the product, marketing and distribution, customers and finances is imperative. A great idea won't fly if you don't have a business concept.

October 14, 1998

All you need to start a business is a business card and a mahogany desk, a recent bank commercial cheerily proclaimed.

But what you really need is a feasible concept.

That means "a business you know there's a market for," Esparza said.

"You know that people want to buy what you're going to sell, and you can get access to the resources that will allow you to do it."

One entrepreneur came to Esparza with a 60-page idea for an organic pesticide, a sure winner with consumers, he believed. But he needed $10 million in manufacturing equipment, had never worked as a manufacturer and had no access to the spray formula, which originated outside the United States.

About 10% of the entrepreneurs Esparza has counseled over the years have had similar stories.

"They have not developed or thought out all the pieces of the business," Esparza said.

Those essential pieces make up the business concept, which includes the product or service, customers, marketing and distribution, and finances.

"If you don't have all these four elements and yourself to manage them, you leave yourself open for somebody else to figure that out and do the business better than you," Esparza said.

* Product or service

Most small-business owners begin here, Esparza said. They know their product or service intimately, because they have produced it or worked in that service industry.

"Having direct experience that can be related to your business significantly increases your chances of success," she said.

Starting without that background requires more time and money and can slow down success, she added. For example, a writer who dreams of running a muffin shop must spend precious start-up time learning the baking business or spend scarce start-up dollars paying an experienced baker to operate the business.

Yet a great business idea is only a start, Esparza said.

"It's not really a business until someone buys something," Esparza said. "That's where the customer comes in."

* Customers

Understanding the customer means knowing who will buy the service or product, when, in what form and how. That knowledge can often be the foundation for a business idea itself, even if the would-be entrepreneur lacks experience in production or service, Esparza said.

Knowing the customer is crucial to business success because a good product that doesn't reach its intended customer will flounder or fail as surely as a business with a bad product, Esparza said.

One business owner who came to Esparza for help had a great product--baseball cards with photos and statistics of children who played on Little League and community teams--but he did not understand who his customers were or how to reach them.

He spent hours taking pictures of children at the games and making sample cards, which the kids loved. Unfortunately, children didn't have the $20 to buy the cards.

The real customers--parents--were often not at the games and had to be reached via notes sent home with the children. The business struggled because the owner couldn't reach his customers directly, Esparza said.

* Marketing and distribution

Equally important is delivery/distribution and marketing of the product or service, the third essential element in the business concept.

Well-loved family recipes for salsa, salad dressings or barbecue sauces may seem like good business ideas, but distribution of these products often can't get beyond local markets or restaurants. Entrepreneurs with new food products need thousands of dollars to pay supermarkets to display their wares on the shelves and compete against giant food-manufacturing corporations.

The Internet and Web sites provide new opportunities for marketing and distribution and a way around this barrier, but business owners must remember that the Internet has worldwide reach. Products might have to be delivered across the country and around the world.

For retailers, distribution includes choosing a location that will attract the customers you seek. A drugstore owner counseled by Esparza did an excellent job, picking a spot across the street from medical offices and next door to a grocery store that lacked a pharmacy. He went one step better by improving his distribution, making deliveries directly to the doctors' offices. Thus, mothers with sick children and other patients could get their medical treatment and their medicine at one place in one visit, Esparza said.

* Finances

Being savvy about business finances includes knowing not only how to get start-up money from savings, assets, loans, credit cards or friends, but also understanding the bottom line and what it takes to show a profit.

With the costs of providing a service or manufacturing a product, plus marketing and distribution, can you attract customers and still make money with the price you will have to charge?

"A lot of times, entrepreneurs have a sales mentality and forget they have to pay attention to the profit margins," Esparza said.

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