Take Small Risks and Test the Market First
Last weekend, my brother and his friends came by. Like always, they were looking for some advice on doing business on the Internet. My brother, he just completed his degree in landscape design. And landscape design in kind of a division of architecture. So he’s always into involve with all these architecture student’s movements and things like that.
My brother and his friends are looking to start a brand for architecture students. They plan to have pencil holders, t-shirts, books and more. In fact, there’s a convention coming up gathering architecture students from across the country, and even neighboring countries. They plan to setup a booth there showcasing a product there.
Now, they came up to my showing a pencil case that they designed. It’s unique, I give them that … even I would like to have one. And then they continued the story saying that they want to produce 10,000 pieces of that. And they plan to sell it online, and maybe even distribute it to bookstores. They even showed me their website, which is great by the way. You know how creative architects can be …
You know what? I like the general idea. I like that they are targeting a unique niche market – architectural students, or maybe even graduates. And they start with a market that they are familiar with.
But there’re things that I don’t like about that idea too. For a start, I don’t think that they have a clue on how to get started sending their marketing message to their targeted market. I know because they never talked about their exact marketing plan. And I don’t think that just putting up a booth is good enough. And secondly, I don’t like the idea of producing the 10,000 pieces of that pencil holder, even though I like that thing myself.
I know they are ambitious and they see the big picture. That’s a good thing. I salute them for their ideas. But they need to see the nitty-gritty of how to have it done. Through out the first half of my conversation with them, they never really said to me about their actual plan on how to take it off the ground.
And as the wise big brother, I have to point out the little errors of their ways. Seeing that they are clueless with their marketing plan, I laid out a plan that I would do.
I tell them to continue with the website … and make sure that the website is ready to take orders online. I showed them 2CheckOut.com and recommended that they use that to get started.
And since they mentioned about the convention, I agree that they need to have a booth there. People are excited with big things, so I told them to have at least 100 pieces of that pencil holder there, or at least 100 of the boxes, even if it’s empty. They can stack them up and get people interested to have a look at their booth.
And then I tell them that apart from selling the pencil holders, what they really should do is try to recruit “joint venture partners”. Architecture students from all over the country will attend the convention. This is their chance to recruit agents. But rather than making their agents get the sales, send it over, get payments, and all those difficult things, they can use the online affiliate program model.
Here’s what I suggested to them. They can create a special page for each college and university students that are attending the convention. They can have a special web page that says something like “Welcome Students from University ABC”. And during the convention, they need to identify the person with authority from the each college delegates. It doesn’t have to be the students itself, it can also be their lecturers and so on. And then, they need to proceed and recruit that person as their agents. And the agents need to understand that they need to send traffic to the specific URL for their college.
Now, these agents can get back and spread the message to their peers. We can even prepare posters for them to put up in their colleges and universities. And of course, with each sale that comes through, they will earn commission.
Here’s another thing that I told them – don’t order 10,000 pieces of that pencil holder – at least not yet. But they insisted by saying that if they order 10,000, the cost per piece goes down to $0.90. OK, make sense … NOT!
Why did I tell them this? I have one simple reason … no matter how much you like it, or how much I like it, or how much their friends like it, it’s not really proven in the marketplace. I told them to get only 100 pieces, which is just 1% of their original plan.
OK, maybe the price per piece will go up. And maybe they have to spend $5 per piece for that. And that is $500. But I think that’s a better plan than blindly risking $9,000 away. Now what if the 100 pieces sold like hot cakes? That’s a good problem to have. You just need to order more. And with the agents that you recruited and your website ready to take orders, you know that more sales will be coming through.
Now what if the 100 pieces did not do so well? You didn’t even sell half of it. Aren’t you glad that didn’t risk $9,000? It’s never a good thing to take loses, but losing $500 is better than $9,000.
I told them the concept of all this. Start small and test it in the marketplace. The marketplace tells the truth.
I continued to tell them about what direct marketers normally do with their advertising. Now, when you go to the newspapers or magazine, you are always tempted to take that long-term advertising rate. They say that the advertisement will costs $50 per day, but if you take a 14-day exposure, you only have to pay $30 per day. And that will be $420 instead of $700. Now aren’t you tempted?
You can take that 14-day exposure, with one condition – your ad is proven to perform that that newspaper. If you haven’t tested your ad yet, then you know what you need to do first. Try a 3-day ad run instead of a 14-day.
What if your ad doesn’t perform? You’ll be glad that it’ll be over in just 3 days. But imagine if you took a 14-day commitment. Can you change the ad in between that period? Very unlikely. But what if your ad does perform? That’s easy – now you are ready for the 14-day exposure.
I guess most of us are tempted to get that special deal, that one time offer. But when running a business, you need to understand your priorities. Don’t take unnecessary risks.
Sitting back after all the talk, I think to myself, “Hmm … that was wisdom. Never thought I have it in me.” And I smiled …
