So, you want to start a business?
You should know going in that embarking on a new business will be one of the most challenging tasks you will ever undertake. Regardless of the size or the type of business you’re planning on starting, you are going to find that you will wear many different hats and in doing so you are going to learn a great deal about yourself. You are also going to face an endless hurdle race, as each time you take a step, you will most certainly have to leap over an issue or deal with a new surprise.
This is the first in a multi-part blog on business planning I will take you on my own personal journey. It’s a journey I am still on.
Private Sector
The first thing I think you have to consider is your customer. Before you decide on what you’re going to sell, (and you will sell); consider the following broad customer segments. Each of these segments has advantages and disadvantages and due to a ton of variance’s this can’t be an exhaustive list but I’ll discuss a few that I have encountered so far.
The first customer segment is the private sector. The private sector is comprised of any private organization (this would include publicly traded corporations). Your local business owner, small businesses, medium and large businesses, franchises, and non-profit organizations are all included in this category. The private sector is a lucrative market but the consumption of external resources is limited. That is, private companies secure only the services and products they need at the time they need those services. So work may not be consistent or ongoing. It will take a lot of effort to ensure continued revenues on goods or services from the private sector.
Advantages:
• Smaller organizations can be easier than most to contact and find the decision-maker.
• Usually, private organizations are easier to deal with in terms of contracts and negotiating.
• There is less “red” tape in purchasing.
• Larger businesses have a commensurate buying power and impact discounts your distributor or supplier can provide.
• Larger and medium firms can be open to solutions which save their firms money and this is your “in”.
Disadvantages:
• Smaller businesses may be reluctant to secure services and extraneous goods due to their own needs to promote growth.
• Smaller businesses have less buying power which can impact your bottom line but also impacting discounts from suppliers or distributors.
• Larger and medium businesses are likely to have established relationships with firms providing the same goods or services your firm provides so competition is greater to “break-in”.
• While each business might have a simple process to work with, each business might have a unique and different set of requirements and contracts.
Government Sector
The second customer segment is the government. Government agencies abound in every state and have enormous buying power and have an endless flow of work in a variety of trades. Government agencies consume pretty much every single trade, service, product, and good in the marketplace. So, if your company sells something (and it does) then you’ll want to sell to the government at some point if you want to have maximum market penetration.
Advantages:
• Buying power.
• Some states have minority-owned programs.
• A consistent method of procurement with an agency or group of agencies.
• Utilization of Co-operatives.
• Networking and system of procurement instruction.
o Government agencies leverage networking events and the use of “Prime contractors” to encourage the participation of new businesses.
Disadvantages:
• Long arduous processes just to do business with government agencies.
• Each municipality has different requirements.
• The use of Co-operatives.
• Local, State, and Federal may all require separate certifications.
• Have a large amount of bureaucracy to get through.
• Regulation.
Consumers
The third customer segment is the consumers. The consumer segment is perhaps the largest single segment. Consider that an electronic device like your phone might be bought by all three segments for the same person. The difference is that the consumer segment doesn’t have refresh cycles, but are also the most limited in their procurement options. Consumers are not likely to buy industrial soap cleaners or tar for roads for example.
Advantages:
• Can be the easiest market to reach.
• Easiest market to sell products and services with no interruptions to sale.
• No requirements, policies, or procedures to follow to make a purchase.
Disadvantages:
• Can be the hardest market to reach.
• Extraordinary competition for the dollars of this market.
• Purchase power limited by “family” unit.
• Heavily affected by economic strength.
Now that you have this information, think about what you want to sell and who you are going to sell to, and how you will sell it. Consider each of these customer segments as a “Channel”.
If your business is a tech company and you’re making an application, think about who is going to use it and how you will get it to them. If the application is a finance application intended to help with payroll for government agencies, then you’ll need to research how to sell to government agencies in your state. If your application is intended to help families with a budget, you’ll need to figure out what means of distribution to use to reach the consumer.
Some of this may seem obvious but what you’re going to discover once you pick a channel is just how complicated it can be to be effective in reaching your intended customer. Each of these customer segments has different challenges and I’ll discuss the challenges I faced for each of these segments in later parts.
For now, I would like to leave with the following words. Think carefully about your product or service and consider how each of these segments will use what you have to sell. Reach out to members of the segment and get their feedback, especially if you’re developing something new or have a new approach to an old mousetrap.
Until next time.
The Cintman Group.