How do you "scientifically" create a business?

Further down the forum, Boyd raised the EXCELLENT question of, how do you "scientifically" go about creating a business?

Don Alm then gave a great answer, in his post here

http://www.sowpub.com/cgi-bin/forum/webbbs_config.pl?read=9625

Here's a quote from Don's post....

The TWO MAIN benefits to doing "advertising type" products is....the cost to create a "Sample product" is very low and your potential customers are easy to find....just walk down the street and go into their stores or offices....show them your sample...explain why it will benefit them...tell them the price and ask them to buy...collect a deposit and go to the next store.

I think there's one "golden rule" I've noticed about many successful entrepreneurs.... That "golden rule" is - they do all that they can to reduce their "risk"! That is, the chance that they'll lose money is often a small one....

If you look at Don's idea, you can see that Don fits this mold too! He says, with the kind of advertising products he likes to deal with, that.... the cost to create a "Sample product" is very low and your potential customers are easy to find. Or (my translation), the risk is small!

There are many ways you can reduce your risk as an entrepreneur....

One way - keep the "startup" costs low! Some people think they have to do the opposite.... And they spend big, big, big! But that means that if their business flops, they also lose big, big, big! So if you can keep it "lean and mean" then that's one way to keep the "risks" low....

Another way that people keep the risk low is to always have a "way out" if the business is not successful.... Richard Branson did this when he started Virgin Airlines. When negotiating to buy a plane from Boeing for his fledgling airline, he was able to negotiate a clause that he could sell the plane back to Boeing if his airline didn't work out, for the same price he bought it at! That means, if his business didn't work, he already had a guaranteed buyer for the plane, which meant his losses would be kept to a minimum (since the bulk of the expense was buying the plane).

Donald Trump says something like, "Take care of the downside, and the upside will take care of itself." I think this is at the "heart" of the way many entrepreneurs approach business....

If you've set things up so you'll have huge losses if you don't succeed, then you essentially only have "one shot" at success - it's "make or break"!

But, if you've arranged things so you don't have huge losses if you don't succeed - then you can afford to "try, try again" until you get it right! I think this is truly the way many successful "serial entrepreneurs" (those who have successfully started multiple businesses) operate.... They know how to keep any potential losses low, so they can keep trying over and over until they hit the "jackpot". :)

There's quite a lot that could be written on this topic. I think I've only barely scratched the surface of it.... :)

- Dien Rice

Dien,

Great point. Business is all about risk and return. Maximising return while minimising risk. One of the best ways I know to reduce risk is to leverage the success of others and DO as THEY DO or have done - or said differently... MODEL success! (There is one other significant one I can think of right now which I don't think many businesses fully exploit)

BTW: along the lines of the second half of your message... I read but can't remember where... money is made when you buy... not when you sell. The logic is if you buy/invest well - even if you don't get the price you want when selling you still have a good chance of making the money. I'm in Asia and one of the best at this game is Li Ka Shing (a Hong Kong magnate who started with nothing and it really was nothing - not even a basic education - and is now one of the wealthiest men in the world according to Forbes).

Risk can never be completely removed - especially if you are looking to gain in some way. So it must be managed.

Brian

Hi Brian,

> Great point. Business is all about risk and
> return. Maximising return while minimising
> risk. One of the best ways I know to reduce
> risk is to leverage the success of others
> and DO as THEY DO or have done - or said
> differently... MODEL success! (There is one
> other significant one I can think of right
> now which I don't think many businesses
> fully exploit)

Yes, that's very true.

Here in Australia, there's a successful chain of stores called "Bras 'n' Things". I once read an interview with the founder of this chain of stores, Brett Blundy. He revealed exactly where he got the idea....

He was traveling in the USA, and came across a Victoria's Secret store - which is a chain of stores mostly specializing in women's lingerie. There were no stores like this in Australia....

Brett Blundy came back to Australia, and started a women's lingerie store, which he called "Bras 'n' Things." He took a good idea from one location, and implemented it in a whole different country.... He wasn't competing with Victoria's Secret, since they weren't in Australia at all. (I don't think they have any stores outside of North America, as far as I know).

Here's another way of applying this general principle too. I personally like the idea of taking something from one niche market, and applying it in another niche market which hasn't seen this approach yet.

I think Jeff Paul essentially did this.... He took general marketing techniques, and applied it to the financial planning business. That was his first big success!

Another person who has done this is Dr. Greig Roberts, with his site www.newdentistadvisor.com . He took the general concept of a membership web site, and applied it in a new place - to the dentistry industry.

Some of you may have heard of Paul Zane Pilzer, or read his books. I think he made his first fortune by taking the existing technology of CD-ROMs (I think in the late 1980s), and "blazing a trail" by using them innovatively in the education industry.

Michael Ross also writes about using leverage to reduce your risk in his excellent report, The Art of Leverage.

> BTW: along the lines of the second half of
> your message... I read but can't remember
> where... money is made when you buy... not
> when you sell. The logic is if you
> buy/invest well - even if you don't get the
> price you want when selling you still have a
> good chance of making the money. I'm in Asia
> and one of the best at this game is Li Ka
> Shing (a Hong Kong magnate who started with
> nothing and it really was nothing - not even
> a basic education - and is now one of the
> wealthiest men in the world according to
> Forbes).

I agree - if you pay too much, it can be hard to make your money back! If you pay less - everything else being equal - it'll be easier to cover that cost and make a profit in the end. :)

> Risk can never be completely removed -
> especially if you are looking to gain in
> some way. So it must be managed.

Actually, I've heard of cases where risk has been completely removed....

Specifically, there's a case of a guy who created a game. He did two main deals (if I remember right).... He did a deal with the factory to finance the manufacturing of the game themselves, and they would be paid a percentage of the profits. On the other hand, he also managed to do a deal with TV Week to promote the game, also for a percentage of the profits.

Essentially, he had arranged it so that others bore all the cost, yet in the end he would still get a percentage of the profits himself, for "setting" the whole thing up! The end result - no risk to him! If there were no sales, he made no losses, since he had no money tied up in it. But if there were any profits, he got a portion of the profits for himself too !

- Dien Rice

Don Alm has done an excellent job of demonstrating how an individual can do this on their own. By pre-selling the orders, his cost/investment is a speculative sample. Sometimes that can be accomplished with a sketch as opposed to paying a supplier $25 to $100+ to print a single piece.

I work with an excellent company, which has been around for a bit over 100 years. They take out even more of the risk and overhead costs for the individual.

I work as an independent agent, handling the sales and marketing in my chosen area (No restricted territories). K & B handles all the credit (and risk), billing, sales taxes, etc.

With their $60 Million in annual sales volume, there are no suppliers off limits. The dealers have the best of both worlds, as the entire $60 Million is generated by those same independent agents. There are no inside sales people or sales employees to compete with.

The only restricted territory we have is the United States and the territories. I've even shipped to the US Army, Air Force, and Navy overseas by using the Post Office Priority Mail.

With a population of nearly 300 million, that's a very sizable market.

The dealers have no inventory to purchase, as all of the products remain at the supplier's location, waiting to be imprinted as each order is placed.

So the dealers are operating similar to brokers in other industries. Each dealer is bringing together those with a need, to whichever of our 3800 suppliers can best meet it for price, quality, and on-time delivery.

Since K & B handles all the billing and credit risk, the most the dealer loses if a customer doesn't pay is the commission that was advanced on the sale. K & B actually covers the factory bill, and absorbs the loss.

With 750,000+ products available, it isn't very hard to build a base of repeat buyers. Take care of the customer on every order, and the customer can provide you an income for life.

Every dealer determines their own methods of marketing, chooses their target market both geographically and industrially. Every dealer has the option of selling online, offline, or both.

And unlike many MLM and other bizopps, there are no dealer fees. No required investment or monthly purchases. Not even a weekly or monthly quota to meet.

So even a part-time effort can be rewarding.

There are very few businesses that can generate a real profit on the first sale, but with no investment required, this is one of them.

This isn't a business for everyone, but several thousand people in the US make a living in this field. Kaeser and Blair is just one of 17,000+ US distributors in the promotional advertising field.

No distributor controls 2% of the estimated $18 Billion annual volume, so it is still an open field for those wanting to investigate the possibilities.

Dennis Bevers




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