BIG mistakes entrepreneurs make...

This is probably going to take a while!

Pehaps the best advice I've heard about growing a profitable business comes from Scott Bedbury who spent several years with both Nike and Starbucks as each company grew to unbelievable size. This is from his book "A Brand New World" ...

"Start with a great product or service that peple desire and that you can sell profitably. The best brands never start out with the intent of building a great brand. They focus on building a great-and profitable-product or service and an organization that can sustain it. Once that has been accomplished, you can slam your foot on the marketing accelerator and let the whole world know about it."

The key part of that (in my opinion) is "Start with a great product or service that people desire and that you can sell profitably".

The trouble is most failing/failed businesses violate this rule at every turn... Here is a real life example:

Over the past few months I've poked my head up on this board and asked for opinions concerning a line of naturally made body lotions, shampoos, conditioners and other personal care products made by a small company I do business with. Their products are good...very good. Product quality has never been an issue. Regardless of the time and attention they've spent creating their assortment of produts they've never made money. They'll get behind on their bills for a few months, get caught up and then get behind again. They'll take home a few dollars per week (sometimes)... for a wage that is typically less than the accepted minimum wage here in the U.S.

And they've been doing this for seven years. Seven long years they've been grinding out a minimal return on the sale of these products. They typically have less than 6 employees and most of those are family members--two sons, a daughter and
their mother.

The mother and daughter started the business. The daughter is the one that created most of the formulas for the products. Did I tell you they've been doing this for seven freakin years and they've made virtually no money despite the amount of time they've spent creating these products?

Last year I came across them. They were working out of a small industrial type building that had no airconditioning. Let me tell you this, body lotions and hot weather don't mix. They were throwing out as much product as they were making. I found them a better location.

One of their biggest mistakes is that they love line extensions. They love making more and different products. Instead of one type of shampoo they have 3 or 4. Instead of focusing on just liquid soap they started creating bar soap also. They added potpourri, they added tub teas, they added salves, they added body oils. They just kept on adding. They tried building their walk-in retail business but couldn't. Soon they decided the location was "bad".

They decided not too long ago to move to another location that would be more retail friendly. The trouble is this new location is in a mall, and their rent will increase by 2 1/2 times. AND their payroll will explode. Instead of going home at 5 at night they're going to have to be open until 9. They'll have to be open on Sundays too, which they've never done.

That's an extra 31 hours a week they're going to have cover.

Needless to say I think their days are numbered as an organization. They've never proven to me or to themselves that anyone actually wants their products. Or enough want them to be profitable.

Thank goodness if they go out of business I can still get my products made but it is still a bad situation and it goes back to the fact they've continually violated the rule brought forth by Scott Bedbury...

They've never found one product that they could sell profitably. Not one... they've always sold a little of this and a little of that but no one product has become that lead dog that would lead to growth. Maybe they haven't marketed well enough. That is a possibility. Or it could be that just having a "very good" product isn't good enough.

Seth Godin believes that... Here is quote from Seth out of his "Purple Cow" book:

"The Opposite of Remarkable is very good. Ideas that are remarkable are much more likely to spread than ideas that aren't. Yet so few brave people make remarkable stuff. Why? I think it's because they think that the opposite of "remarkable" is "bad" or "mediocre" or "poorly done". Thus, if they make something very good, they confuse it with being virus-worthy ("virus" in this case is what you want as a business owner. You want your product to spread like a "virus" to consumers throughout your target area--read Seth's book "Idea Virus". MSW). Yet this is not a discussion about quality at all. If you travel on an airplane and they get you there safely, you don't tell anyone. That's what supposed to happen. What makes it remarkable is if it's horrible beyond belief or if the service is so unexpected (they were an hour early! they comped my ticket because I was cute! they served flaming crepes suzette in first class!) that you need to share it. Factories set quality requirements and try to meet them. That's boring. Very good is an everyday occurrence and hardly worth mentioning. Are you making very good stuff? How fast can you stop?"

You see that's what scared me about this company's product line. They're all about top-quality. But so are most of their competitors. They do use mostly natural ingredients but I can go on the net and find dozens that claim the same thing. Their products are indeed very good. And because they are very good and not remarkable and they are due to failure expecially with the questionable management decisions they've made.

But I see the same thing everywhere. Everyone is trying to make/sell the "very good" and "very good" doesn't get it done anymore. From body lotions to business opportunities I see a lot of "very good" but little in the way of "remarkable".

The combination of a lack of a clear "lead dog" with the concentrated focus on creating "very good" products (rather than remarkable) probably has doomed this little company.

What they should have done is tried marketing a single remarkable product... if it doesn't fly try another and another but you can't waterdown your efforts over a multitude of weak products. They need to be great in a small area rather than very good over several categories.

Author Richard Koch said it best in his book "The 80/20 Principle"...

"Specialization is one of the great, universal laws of life. This is how life itself evolved, with each species seeking out new ecological niches and developing uniqe characteristics. A small buisness that does not specialize will die. An individual who does not specialize will be doomed to life as a wage slave."

Well, that's my view.

Take care,

Mike Winicki

Hi Mike,

Thanks, great post!

My thoughts after reading it is the lotions company you talked about need to do something DIFFERENT. Something to make them "stand out from the crowd".

There are plenty of companies which make natural lotions - what makes them different?

When you do it differently, you get

ATTENTION!

And when something is different, people talk about it....

(Excuse the plug.) In The Great Ideas Letter, Michael Ross and I cover a number of businesses which are quite "different". It's often by being different that they get attention and streak ahead of the pack....

Of course, you still have to have something that people want. But that's not enough.... It has to get attention in some way too, by being different....

Surprise people!

I'll give an example I came across while doing research for The Great Ideas Letter....

There is a woman who sells a particular type of natural soap. "Another natural soap?" you might think. Aren't there enough natural soaps around already?

But she's doing well with hers. What makes it different?

In her natural soap, she puts in glacial silt. That's right, extremely fine silt left over from the movement of glaciers. She claims that the glacial silt in her soap helps to give you smoother skin.

Does it really give you smoother skin? I have no idea - and I bet her customers have no idea either. But glacial silt soap? Wow, what a difference! That's sure to get people talking!

- Dien Rice


More DIFFERENT ideas here....

Hi Mike,

Your post commented on the topic of line extensions....

Clearly, some line extensions work, and some don't.

Al Ries and Jack Trout rail against the evils of line extension in their classic marketing book "Positioning". They say it dilutes the position you hold in people's minds, and dilutes what your brand stands for.

On the other hand, Richard Branson's Virgin "empire" is an incredible case of taking brand line extension to the maximum - and it looks like there's no stopping it!

Check out some of these "Virgin" businesses....

• Virgin Atlantic
• Virgin Holidays
• Virgin Blue
• Virgin Trains
• Virgin Balloon Flights
• Virgin Cola
• Virgin Mobile
• Virgin Publishing
• Virgin Active
• Virgin Megastores
• Virgin Energy
• Virgin Bride
• Virgin Cars
• Virgin Wines
• Virgin Direct
• Virgin Cosmetics
• VirginMoney.com
• Virgin One
• ...and there are plenty more.

So - why do you think Richard Branson succeeded (for the most part) with line extensions, where many fail?

In my opinion, there's no point extending the brand when you're not making a profit in the first place!

In the lotion company you mentioned, they were not making a profit (or making very little). To me, that's a sign they either need to do something drastically different within their business, or get out of the business and do something else altogether. Especially if it's taking up a lot of their time. If they're not making much profit, and if it's not growing, then they can't afford to hire others to do the work - which should be their aim (in my opinion). That would free up their time to focus on growing their business further, or focus on building more businesses.

Richard Branson, in contrast - while he was always extending - was generally making a profit. His first venture, "Student" magazine, I think more or less broke even. But his next business, which was a mail order records business, made money. Profits are the bottom line.

I think what Richard Branson does which is different is that the "Virgin" brand does stand for something - and I think all the Virgin businesses try to fulfil the image.... The "Virgin" businesses tend to be about

• fun
• reliability
• good value for money

So, in this case, I think Richard Branson extends his brand in a "correct" way - in that all his businesses are built around the image that his Virgin brand continues to build. He won't slap the "Virgin" name on just anything.

Jumping to another topic.... On the theme of "specialization" - I think what's more important is "specializing" your product in the mind of the consumer. That's what something such as the "glacial silt soap" does.... It's a "specialist" product. There's a difference between being a "specialist" yourself, and having a product with a "specialist" image in the mind of the consumer.

In contrast - as far as I can tell - nothing in their marketing distinguishes the natural lotions of the company you mentioned from the thousands of other natural lotions which are out there in the market place....

When you ARE your product (such as in service businesses - being a lawyer, an accountant, a copywriter, etc.) - then "specializing" the product is often the same as also being a "specialist" yourself. However, when you are not the product, then you don't need to be a specialist yourself to have a specialist product.... "Glacial silt soap" will be a "specialist" product in the mind of the consumer, no matter who owns or runs the business. The specialization is within the product and marketing.

Just a few ramblings from a fat balding man in his 30s.... :)

- Dien


Something cowritten by the fat balding man in his 30s....

Great posts but as in all theories, there are the exceptions. And when you start looking in detail, you start realizing that your original hypothesis should have been more like. "It depends."

I agree that extension after extension is pointless unless you have a realistic potential for turning a profit at a given point in time. However, there are those cases where you have to develop a complete line in order for any part of the line to be competitive.

Consider trying to get private label work away from a company the size of Proctor and Gamble. You just aren't going to do it with 3 items in your line. This is also true in consumer lines. A recent client of ours has one item, a vitamin, in her product line. One product, one strength, one size. Her goal is to become profitable on that one and then move on to the next.

If you have a highly specialized product, you can get away with one or two items. If however, you have commodity items, you are probably going to have to go pretty deep. I would say however, that the deeper you go, the more revenue that you should be seeing for all lines.

A common product tactic used by many companies is to continuously expand the product line and continously excise products that just don't do well. But again here, there is an exception where you must keep certain products that don't do well but complete your product line. Even the smallest product in a line can be the one that will differentiate you from your competitors.

The original case of the soap family sounds more like a marketing issue first and foremost. Maybe they have the best products in the world but nobody knows about them. They need some strong expertise to help them define and then target a market, and then get the word out. Only then can they know if they have a viable product.

My experience with family run companies is however, that they won't go that route because they have "paid their bills so far", and they cannot see hiring any consultant that will tell them that they are doing something wrong. A client from many years ago was told that he should change a particular label on one of his products. It was old and looked old but not old enough to be cute. Problem was that the old label had a picture of his grandson as a baby on it. He kept that label till he died.


SeniorMag

> Pehaps the best advice I've heard about
> growing a profitable business comes from
> Scott Bedbury who spent several years with
> both Nike and Starbucks as each company grew
> to unbelievable size. This is from his book
> "A Brand New World" ...

> "Start with a great product or service
> that peple desire and that you can sell
> profitably.

I'd like to alter that just a tad...

Start with a product or service people desire and that you can sell profitably.

It does not need to be a Sethism "remarkable" product. It doesn't even need to be "great". Nor "very good." Even if it is just "good" your business can grow quite well. (Not everyone wants the best. Some are quite happy to save a few bucks and settle for good.)

You don't even really need to be different. You can be just like every other business in the same industry. For instance...

Say there is a total market of 1,000 people for some service you provide. Lets also assume each of these customers uses your service once a month. And that with you, there are 9 other competitors - 10 of you all up. It just so happens you each have 100 customers paying you $25 per month - $2,500 a month in total.

If just one other business comes along to join the competition, there is still room. If each of you lose 9 customers, the original providers will have 91 customers and the newcomer will have 90. Your income will be $2,275 per month. Slightly less than original, but not enough to send you bust.

Will you be able to grow and expand?

Probably not. Then again. You may not want to.

And that's the basis of my bug bear with the Sethism of "remarkable." Mayhaps the majority of business owners do not want to take on the world? Maybe they are quite happy making the amount of money they are making.

Maybe your natural-like product makers don't care for world domination. Maybe being as large as Estee Lauder is not really something they want to aim for. Maybe they have no interest to be as big as Revlon.

Besides that. The Sethism "remarkable" is also an after-fact thing.

It is easy to say such-and-such is remarkable... after they are remarkable. But not before.

We must be careful not to look for reasons to make a business fit the Sethism "remarkable."

Anyway. All that really matters in the end is...

are you making any money?

If not... if your business is not self-funding... if you aren't making the money you want your business to make... you need to ASK yourself WHY? And what do you need to do to increase sales/turnoever and profit.

You say there is no proof anyone wants those natural-like products. But someone must, right? Someone has been buying them for seven years, haven't they?

Who is to say how long it should take this business to grow to its fullest?

Is there a customer list? Is there a drop-ship program?

Not every business within an industry can be the Sethism "remarkable."

Michael Ross


Tops

I believe apart from Virgin Atlantic, which makes immense profits, almost all of the other Richard Branson's businesses made a loss or just about broke even lat year.

> I believe apart from Virgin Atlantic, which
> makes immense profits, almost all of the
> other Richard Branson's businesses made a
> loss or just about broke even lat year.

Is that really true? I think in most cases we just can't know for sure. That's because they are all privately held so they don't have to reveal their earnings (unlike public companies)....

This gives him a competitive advantage against many competitors which are public companies. They have to reveal their earnings to their shareholders and tell them what they are doing, whereas Richard Branson can keep everything a secret!

However, I don't think he'll keep a business afloat eternally if it's not making a profit. For example, he had a company Virgin Films - it made the movie "1984". However, since it was apparently losing money, he shut it down....

- Dien Rice

Dien,

Great post w/ insightful comments. But,... aren't most of the Virgin [insertbizhere] "brand" extensions, rather than line extensions? Or, maybe "business empire" extensions? In other words, they are new businesses, sometimes with a product/service similar or related to another (e.g., airline, trains, balloon flights) and sometimes totally different (e.g., cola, energy, money). On the other hand, a true line extension would be, say, starting with liquid soap and adding bar soap, then shampoo, then facial cream, etc. That is, extending the product line.

Or, am I being too narrow in my definition?

Just an observation from another thirtysomething, blessed with a full head of hair but a slight gut from too much pizza & Dr. Pepper (among other things),

Chris

> Hi Mike,

> Your post commented on the topic of line
> extensions....

> Clearly, some line extensions work, and some
> don't.

> Al Ries and Jack Trout rail against the
> evils of line extension in their classic
> marketing book "Positioning". They
> say it dilutes the position you hold in
> people's minds, and dilutes what your brand
> stands for.

> On the other hand, Richard Branson's Virgin
> "empire" is an incredible case of
> taking brand line extension to the maximum -
> and it looks like there's no stopping it!

> Check out some of these "Virgin"
> businesses....

> Virgin Atlantic
> Virgin Holidays
> Virgin Blue
> Virgin Trains
> Virgin Balloon Flights
> Virgin Cola
> Virgin Mobile
> Virgin Publishing
> Virgin Active
> Virgin Megastores
> Virgin Energy
> Virgin Bride
> Virgin Cars
> Virgin Wines
> Virgin Direct
> Virgin Cosmetics
> VirginMoney.com
> Virgin One
> ...and there are plenty more.
> So - why do you think Richard Branson
> succeeded (for the most part) with line
> extensions, where many fail?

> In my opinion, there's no point extending
> the brand when you're not making a profit in
> the first place!

> In the lotion company you mentioned, they
> were not making a profit (or making very
> little). To me, that's a sign they either
> need to do something drastically different
> within their business, or get out of the
> business and do something else altogether.
> Especially if it's taking up a lot of their
> time. If they're not making much profit, and
> if it's not growing, then they can't afford
> to hire others to do the work - which should
> be their aim (in my opinion). That would
> free up their time to focus on growing their
> business further, or focus on building more
> businesses.

> Richard Branson, in contrast - while he was
> always extending - was generally making a
> profit. His first venture,
> "Student" magazine, I think more
> or less broke even. But his next business,
> which was a mail order records business,
> made money. Profits are the bottom line.

> I think what Richard Branson does which is
> different is that the "Virgin"
> brand does stand for something - and I think
> all the Virgin businesses try to fulfil the
> image.... The "Virgin" businesses
> tend to be about

> fun
> reliability
> good value for money So, in this case, I
> think Richard Branson extends his brand in a
> "correct" way - in that all his
> businesses are built around the image that
> his Virgin brand continues to build. He
> won't slap the "Virgin" name on
> just anything.

> Jumping to another topic.... On the theme of
> "specialization" - I think what's
> more important is "specializing"
> your product in the mind of the consumer.
> That's what something such as the
> "glacial silt soap" does.... It's
> a "specialist" product. There's a
> difference between being a
> "specialist" yourself, and having
> a product with a "specialist"
> image in the mind of the consumer.

> In contrast - as far as I can tell - nothing
> in their marketing distinguishes the natural
> lotions of the company you mentioned from
> the thousands of other natural lotions which
> are out there in the market place....

> When you ARE your product (such as in
> service businesses - being a lawyer, an
> accountant, a copywriter, etc.) - then
> "specializing" the product is
> often the same as also being a
> "specialist" yourself. However,
> when you are not the product, then you don't
> need to be a specialist yourself to have a
> specialist product.... "Glacial silt
> soap" will be a "specialist"
> product in the mind of the consumer, no
> matter who owns or runs the business. The
> specialization is within the product and
> marketing.

> Just a few ramblings from a fat balding man
> in his 30s.... :)

> - Dien

That Virgin is the KING of "market extensions."

Record store. Recording studio. Record label.

I believe there is a Virgin Haulage - probably originally created for the distribution of the records and other Virgin related businesses - such as moving food to the Virgin aircraft, and moving Virgin cola around.

So Virgin's business approach could be... whatever our business spends money on is a business we would be well advised to own. Thus we get to keep more of our money PLUS have a business which can be profitable in its own right.

That would be similar to a cleaning business buying a cleaning supply business, and a cleaning equipment repair business, and a cleaning training business.

Or your vacation tour business owning a few buses, restaurants, motel/hotel, duty free store and other stuff holiday makers spend money on. So ultimately your businesses: book the tour (like a travel agent), conduct the tour in buses they own, and take the tourists to shops and sights they also own. The Japanese do this kind of market-extension all over the place.

Michael Ross

Specializing is so important yet for some reason doing it brings up so much fear. (I've been there myself).

I was afraid to let go of the life and career part of what I love to do. I let go of even talking about the career stuff a few years ago. And through some recent work I've done on my business, I realized I had to let the "life" part go, too.

So I tried it for a while... just highlighting the business part of what I do. And you know what? After the first time I introduced myself with just the business peice, people came up to me after the meeting and asked me if I do career coaching or work with teams.

That situation has happened a few times in the past few months. Enough so that now I am interviewing referal partners who just do the career coaching/assessment/resume part -- which I dont' enjoy doing so much. (I prefer doing the "finding your ideal career part)

And I found a team coach/consultant to partner with, too!

So the lesson I've learned is that that specializing helps grow businesses and businesses support bases. I can "grow" my business products later, but I have to start by specializing in something "first". (hit on head) Now isn't that what I've been working on with my clients!?


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