By Ernesto Lanata
When creating business plans for our clients, one main point of discussion is the topic of products and services offered. Many start-up owners feel that the idea is “the more the better”. This is a very risky proposition if you plan to get into any competitive industry.
There are two ways to tackle the sales of products and services and the location of your services:
The most common and easy to monetize is the idea of focusing on the most profitable and easily sold service or product the new business owner can offer. This enables them to create cash flow faster and develop a reputation for quality and service, which to most start-ups – is the most important presentation card they can create.
The idea of focusing is to concentrate the effort in polishing the sales pitch, pricing, implementation, delivery and collection processes that one or two items/services generate. As a new business starts, not all the processes and systems are in place, creating the need to improvise and test new ways to manage the client acquisition, sales conversion, product or service delivery, and finally collection systems. The simpler the process, the easier it is to come out ahead. Similarly, the simpler the process, the more it can be duplicated and systematized.
This second part is very important in creating a company that can be expanded beyond the knowledge and abilities of the owner. The more systematic and repetitive the processes, the more they can be taught to other employees. The owner can start delegating and the company can start growing.
Once the systems are in place and the process can be replicated, other products or services can be added to expand the business’s market penetration.
The drawback of this strategy is that there will be a narrower customer base, consequently generating a higher need to market and promote a more limited set of goods or services.
This strategy means that the new business has to buy a larger inventory of goods, or provide a broader array of services that may require additional investment, in the hopes to access a larger market and satisfy more clients in the short-term.
In reality, this creates more confusion for the client, who has to decide whether this new company can deliver all of the offerings with the same level of quality and service as the competition. The perceived risks may be higher and the final decision to buy may be compromised.
This does not mean that this is a bad strategy for every new business, it only means that in order to be successful with it, the new company needs to be very organized, the services or products need to be mutually inclusive (complement each other), the sales process should be simple and the customer buy-in almost self-generating. In addition to this, the quality of delivery must be consistent or better than the competition.
In summary, the dilemma of the new business owner is to either have a very focused and narrow set of products or service offerings, or offer a larger array and varied set of products or services. The advantage for the prior is less cost, ease of duplication and systematization and ability to transfer knowledge to subordinates. The advantage of the former is the ability to have a wider customer appeal, potentially more ways to create revenue and encourage repeat business from past customers.
The challenge is to establish a strategy that results in long-term success with the least initial investment and the most potential for generating revenue in the shortest amount of time.
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Lanata and Solis Business Consulting Services in a Houston, Texas company dedicated to expanding the knowledge and understanding of business management of the small to medium size business community.