Entrepreneurship. Rhonda Abrams
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business opportunities made possible by the opportunity to provide better service than competitors. “Better service” can be defined in various ways. The obvious way is to give customers more personal attention—the department store Nordstrom, for one, has staked out a competitive advantage based on its high quality of service, particularly its return policy and its ample sales staff. Another type of better service is to take care of customers faster. FedEx founder Fred Smith pioneered a way to deliver mail and packages overnight—thus combining service with innovation.
■ New delivery system or distribution channel. Often, you don’t need to sell anything much better or differently than your competitors—you simply have to sell it by different methods or through different channels. Some successful companies have been founded by creating or using new sales channels. Tupperware pioneered in-home parties to sell food storage containers. One of the earliest companies to see the possibilities in the Internet as a sales channel was Amazon.com. Because wholesale book distribution companies already existed that could deliver individual copies of books to customers, Amazon did not need to buy inventory to open what it claimed to be “the world’s largest bookstore.” Amazon leveraged that operational advantage to use a new channel to reach customers.
■ Increased integration. Integration refers to a situation where a company controls more steps in the design, production, and sale of its product or services rather than relying on outside suppliers. This can create a competitive advantage because it gives the company more power to oversee the quality at every stage of a product’s life, and also because there may be increased profit margins. Vertical integration may be particularly useful for companies that want to gain a competitive advantage based on quality—such as Apple or Starbucks, both companies that maintain control over more stages of design, production, and sales than other electronics companies or coffee shops. Still, it is often difficult for one company to manage all the various functions well, and often vertically integrated companies do not benefit from suppliers’ ingenuity or cost-cutting methods.
If you build it, will they come?
One of the biggest mistakes entrepreneurs make is focusing more on their product or service than on understanding their customers. You could have what you think is the coolest new idea on the planet, but if no one is interested in buying it, then you don’t have a business.
During the Internet boom of the late ‘90s, Webvan’s concept of delivering virtually everything to people’s homes—from groceries to prescriptions, dry cleaning, and movie rentals—seemed like a brilliant one, and it received over three-quarters of a billion dollars in funding!
It turned out that customers were used to going to their favorite grocery store and liked picking out their own produce and meat; not enough of them were willing to pay for the convenience of delivery. The company’s demise was one of the most spectacular during the so-called “dot-com bust.”
Characteristics of highly successful businesses
You know you have a great business idea—but does it have the potential to become highly successful? You may be satisfied with running a one-person show that provides a comfortable income. But if you have dreams of a company that will become a household name, employ thousands of well-paid workers, make an initial public offering (IPO) of company stock, and make you rich, your business should have most of the following traits:
■ Compelling, executable business idea. The basis for the business itself must be rock-solid. You must have a truly effective and impressive product or service that fills a real need in the market. And you must be able to build a business around it, over a reasonable period, with a reasonable amount of money.
■ Large market and potential for high or rapid growth. Certain businesses that you could come up with might offer a great product or service and become successful enough to provide a very high income for you. But you need to have a sizable and expanding market to grow large, as well as to attract the kind of investment you’ll require to expand. If you want to be the next Google, you need investors, and they will look for a speedy, high return on the funds they put into your business.
■ Growing industry. You’ll have far better luck building a highly successful company in a healthy, growing industry than in one that is flat or shrinking. Yes, some businesses do grow significantly in old, mature industries, but it’s easier to grow when your industry is growing too.
■ It’s a business, not just a product. Many would-be entrepreneurs dream up great ideas and devise wonderful new products. But some are destined to be “inventors,” not “entrepreneurs.” Often, one good product idea is not sufficient to support an entire business. A song is a product and may have a short shelf-life; a music publishing company is a business, in for the long haul.
■ Capable entrepreneur and strong team. One of the most important contributors to business success is a company’s management. Being a visionary entrepreneur, or having one at your right hand, isn’t enough; you have to be able to assemble a quality team, capable of both developing the product and managing the company.
■ Original idea, but not completely new one. Most widely successful companies build on concepts and markets pioneered by others. But why not just implement your own truly new and groundbreaking concept? Because a novel product or invention typically requires a very large budget, to educate customers on how the concept works and why they need it. That takes time and money, so sometimes it pays not to be first. Many people have become fabulously wealthy by letting the first or second company in the market invest in developing demand and proving the concept—and then coming up with an improved version.
REAL-WORLD RECAP
Characteristics of highly successful businesses
■ Compelling, executable business idea
■ Large market and potential for high or rapid growth
■ Growing industry
■ It’s a business, not just a product
■ Capable entrepreneur and strong team
■ Original idea, but not completely new one
See page 40
A company’s values and integrity
Every company must make money. You can’t stay in business unless you eventually earn a profit. Yet studies of business success over time have shown that companies that emphasize goals in addition to making money succeed better, and survive longer, than companies whose sole motivation is profit.
As you develop your business concept, keep in mind those values that you want your company to embody. These values can be aimed externally, at achieving some business, social, or environmental goal. Or they can be aimed internally, at creating a certain type of workplace or quality of product or service. Or they can be aimed at both.
Articulating your company’s values to employees, suppliers, and even your customers can strengthen their commitment to your business. Values-driven companies often achieve greater success in attracting and retaining good employees, and they can usually better weather short-term financial setbacks because employees and management share a commitment to goals in addition to financial rewards.
A company is likewise strengthened by maintaining integrity in all aspects of its dealings—with employees, customers, suppliers, and the community. Certainly, you will face situations where it appears that you will be at a disadvantage if you’re more