Small Business and Entrepreneurship - To Startup or Not to Startup Part IX - Markets

"In marketing I've seen only one strategy that can't miss - and that is to market to your best customers first, your best prospects second and the rest of the world last." -- John Romero


"Marketing is too important to be left to the marketing department." -- David Packard 

We continue our discussion on the decision of whether or not to start a business with a look into product markets and market segmentation. In this article we will examine the difference between industries and markets and the benefits of focusing on market segments. The next article in this series will look at how to segment markets and identify which to target.

Last post we started at the broadest industry our product could fit in and then narrowed industries down until we thought we might begin cutting out potential customers. This led us to the beginning of market segmentation, so we'll start here with a discussion of the differences between industries and markets, as the definitions can get a little hazy and distinctions can blur.

According the Robert M. Grant in Contemporary Strategy Analysis industries are groups of firms that provide products for markets - and industries compete in both product markets and input (supply) markets. Industries are therefore broad while markets refer to more specific products and a company in a specific industry can compete in multiple product markets.[1]

As an example, we could say a company in the automobile industry can compete in multiple markets like the individual consumer market, the rental car fleet market, and maybe golf carts.

 Why are we discussing this? Decades ago there was one primary marketing technique -- mass marketing. Basically, a company would attempt to tout their product at some general level or appealing to a very basic need in order to appeal to as many people as possible. As an example maybe advertising a cereal as satisfying hunger, a very basic need and therefore “food for everyone”, as opposed to a cereal positioned as quickly dissolvable, healthy, and full of all the vitamins needed for an infant just starting on solid foods (therefore satisfying the same need but for a very specific group). The mass marketing approach is still possible today in some industries like commodities where there is little product differentiation.

However, with competition and product differentiation companies can and do focus products on specific groups within the broader market. Today when you look at major companies, they will often have separate products targeted at specific groups or combinations of groups.

Since we've just passed Easter let's take a look at a company like Cadbury. If you look at their product line at their website (here)  you will see dozens of different types of products. They have the cream-filled chocolate eggs always available this time of year, chocolate bars with very colorful, fun wrappers (perhaps to draw the eye of children), chocolate bars with more simple wrapper designs emphasizing the chocolate (perhaps to draw the eye of adults), and even cakes, hot chocolate and coffee creams. This complicated line of products is almost all chocolate based meaning they could theoretically all be targeting the same broad market, but there likely exist many charts in the Cadbury company's marketing department detailing their definition of the different Cadbury customer groups and how each product is positioned relative to the different segments.

Large companies can afford to develop large product lines and target specific groups of customers, they can position products to overlap each other, target multiple segments, they can have broad-targeted products and very specifically targeted products. They can saturate segments for the sole purpose of preventing competitors from targeting that group. However, for someone trying to decide whether or not to launch a product and start a business, it is probably best to focus on what appears to be the best bet at the time.

There is definitely an appeal to targeting the larger number of customers that may be available in the broader market. However, it is often the case that some form of differentiation of a product could yield more success focusing on a smaller segment, then an undifferentiated product unfocused on the broader market.

Let's consider a product that has two potential market segments (A & B) which prefer different features. We can choose one or the other, or both. We can focus our product on segment A by providing A's features, or we can focus our product on B by providing segment B's preferred features. To target the general (A+B) market though, we would need to either provide both A&B's features (which would likely be more costly) or we would need a basic product which provides neither groups features (which would be less appealing).

Failure to focus on one, could lose both as a competitor will come in with an A-targeted product and another with a B-targeted product and they will either have the features your product does not (if you created the featureless version) or their products will be cheaper (if you have created the A+B version).

However, the more immediate concern is that this is a start-up company. A start-up will want successes and self-sustainability as quickly as it can get them. It may also have limited resources preventing it from targeting both markets. Studying the segments, identifying which is the most attractive and then launching one differentiated product focused on either A or B, (whichever is more attractive) will likely yield the greatest chance of success. Ideally, after achieving a bit of success with A, the company can look at offering a product for B as well, but getting to the first customer, and the first dollar, quicker, is often a key to success for a start-up.

Next in this series we will look at how to differentiate between market segments and how to identify which is the most attractive.

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[1] Grant, Robert M. Competitive Strategy Analyis Blackwell Publishing 2008 pg 85

Small Business and Entrepreneurship - To Startup or Not to Startup Part VIII - Industry Analysis

"There exist limitless opportunities in every industry. Where there is an open mind, there will always be a frontier" - Charles F. Kettering

"The early bird gets the worm but the second mouse gets the cheese" - Willie Nelson

We continue our series on the decision of whether or not to start a business by analyzing industries and markets.

Industries are typically defined according to their product (automobiles, soda, solar panels, etc), and industry participants can include all those companies along the value chain leading to product creation. Since an industry may be defined by its product there are therefore nearly an infinite number of industries. It can therefore be difficult to decide in which industry you are competing.

Let us say we want to start a company making solar power inverters (a device that converts the direct current (DC) received from solar panels into the alternating current (AC) used in our homes). Are we in the inverter industry? The photovoltaic (PV) industry? The solar power industry (Photovoltaics, Solar Thermal (ST), Concentrating Solar Power (CSP))? It can be tough to figure out where to draw the line, but for this section we want to take a pretty broad approach, and narrow things down more when we get into markets and customers (markets are typically defined along customer groupings).

Running with this example, what we can do then is start with a brief look at power generation (gas, coal, nuclear, solar, wind, etc), then look at solar power generation (PV, ST, CSP) when it looks like we will begin excluding potential customers by narrowing further that may be a good time to stop.

For example, inverters would not be used with ST and probably not with CSP, so we concentrate on PV, but if we try to narrow the PV industry down further we may start excluding inverter users.

Now that we’ve got an idea of what our industry is we can move on to what we want to know. We will eventually want to become experts in our industry, to start we can begin with:

• What has happened in our industry in the past?
• What is happening now?
• What changes are coming, what will happen in the future?
• Is the industry growing?

Answering these 4 questions can give us a good grasp and insight into our industry and help us understand changes that are occurring. Change means opportunity and the ability to find a niche for a new company or product in a changing landscape is many an entrepreneur’s key to success.

When trying to understand the dynamic of the industry as it is now, one analysis tool that is helpful (and taught in every business school) is Porter’s 5 Forces. Our list will include more than 5 items but is heavily based on the original Porter’s forces. Analyzing our industry along these lines can greatly contribute to our understanding of the way the industry works.

Substitutes – A substitute product is a competitor that does not directly compete in your industry but which customers may still choose as an alternative. This is best explained with a simple example: in the soda industry where Coke and Pepsi may compete with one another, tap water is a substitute.

Barriers to Entry / Exit – Are there heavy capital requirements to get in our out of this industry? If so it may be a big deterrent. When thinking of high barriers to entry or exit one common example may be the airline industry, where if you decided you wanted to start an airline you may need quite a bit of money to get in, conversely if you felt you were done running your airline company and wanted out, having to sell off your assets in order to exit may be a little difficult.

Suppliers – How common or rare are the supplies you need to create your product, and therefore, how much power over you will your suppliers have, how vulnerable are you to shifts in supply? In 2009 the PV industry saw a major drop in prices (revenues for some companies) due to an overproduction of silicon, an important component of photovoltaic cells. This overproduction was a response to prior years of short supply in which the high cost of silicon made solar installations much more expensive. How vulnerable is our industry to shifts in supply?

Buyers – On the other side, what is the power of the buyers in this industry? If your industry has few buyers then they would seemingly have more power, however if the buyers have limited options available to them, limited competing products or substitutes that would lower the buyer’s relative power.

Complements – Complementary products are those that increase value when combined or used together with other products. If our product has a complementary product, where does the power in that relationship lie? Think of the solar panel example. To the end user, let’s say a homeowner, the solar panel and inverter may be complementary products, in fact, if the homeowner wishes to use a solar panel he needs an inverter to convert the power to useable alternating current. From the perspective of the inverter company, the solar panel is a strong complement, but an extremely powerful complementary product as few customers are likely to buy inverters without also buying the solar panel.  

Rivalry - In this area we are considering what are the established competing companies, how concentrated is the industry, are these companies locked in fierce price-wars (which would make things a little unattractive to a new entry)? Perhaps there is room, if there are large companies locked in fierce competition perhaps a small new entry focusing on one product niche may be tolerated as the larger companies focus on each other?

Considering all these angles, where the industry has been, whether it is growing, the nature of competition in the industry, and where the industry may be headed will hopefully lead to a good idea of the way the industry operates and possibly point out potential problems or potential opportunities for our new venture. In our next section we will narrow things down a little bit and look at analyzing markets. 

Entrepreneurship and Entrepreneurs Part II

"A ship in harbor is safe. But that's not what ships are built for." -- William Shedd


"Ever notice how it's a penny for your thoughts, yet you put in your two cents? Someone is making a penny on the deal." -- Steven Wright


In our last post we looked a little at “what is entrepreneurship” and discussed some aspects of entrepreneurial thinking. Here we will look at some common entrepreneurial traits and behaviors and then take a look at “why” entrepreneurs do what they do.

One major trait that entrepreneurs may have in common is a higher tolerance of risk. There is a definite perception that taking the leap and starting a new business is a risky endeavor. A failed business could potentially result in serious financial problems, strained relationships, and even health problems due to the high levels of stress that can be associated with entrepreneurship. A person deciding to start a business may be walking away from a regular paycheck, a secure job, a career path, and future opportunities derived from their career path. They may be walking into a time of uncertainty and high stress.

Entrepreneurs often need to take additional risks beyond those above by putting themselves on the line, making promises and taking chances. Sometimes these actions are necessary in order to get the business moving forward. Also there is always unpredictability in business, one may never know when their number one customer may leave, or which if any of a myriad of potential problems may be waiting around the next corner. When the responsibilities for the business rest largely one one person’s shoulders, the problems for the business can potentially pose big problems for that person and their personal reputation, credit and relationships.

Many entrepreneurs will try to mitigate these risks as much as possible, perhaps by conducting extensive market research or talking to as many potential customers as they can prior to launch (“testing” the idea). They may attempt to start a business in the cheapest possible manner to mitigate financial stress. Perhaps they can seal a deal with a customer, getting their first order in before they really begin to incur any costs.

There are also others arguing that entrepreneurship isn’t nearly as risky as it is perceived, especially in today’s world where jobs are not as secure as they once were. They also cite the off quoted “90% failure rate” (or something like that) for new businesses that everyone has heard and show why that number is misleading or wrong (in fact, we’ll be writing about the misleading business failure statistics in an upcoming post as well).

Whatever the true level of risk facing the entrepreneur, honest is an important characteristic. Entrepreneurs need to be honest with themselves about the condition and capabilities of their company. They need to be honest to themselves about the real potentials of their products. It is good for them to exude optimism about the company’s future and how great their product is when talking to others but if the entrepreneur buys too much of his own salesmanship they may be headed for unexpected troubles. Finally, and quite importantly, entrepreneurs need to be honest to their spouses and the friends and family. They need to be honest up-front with those people that they will need to rely on when the stress gets very high, or the money gets very low. Hopefully all of these people are aware that such things may be headed their way in the future.

Why then, with these pressures and risks do entrepreneurs choose to start businesses? Of course, with higher risks come higher proportions of rewards. Strictly monetarily, many entrepreneurs have the potential to make far more money starting a business than they may have sticking to their prior career paths. However, money isn’t everything (right?) and entrepreneurs are often quoted saying things like “you have to be passionate about what you’re doing otherwise your business will not survive the low points”. Entrepreneurs often make it sound like the potential money alone could not inspire them enough to get through what they need to go through as they grow a business.

So what does get them through the low points? Inc. Magazine, in their March 2012 issue published the results of a survey they conducted of 2,000 business founders asking why they start businesses. The #1 reason among all groups (males in their 20s, 30s, 40+s, females in their 20s, 30s, 40+s) was – Autonomy. According to the article the only distinction was whether they were seeking independence or whether they were “fiercely” seeking independence.

The next most popular response, for 5 of the 6 groups, was Power and Influence – the desire to be a leader (female entrepreneurs over 40 preferred intellectual challenges over power and influence). Other common responses where desire to manage people, seeking variety, altruism and financial gain.

We asked David Walker, CEO and founder of Enable IPC for his thoughts -  why did he start Enable IPC and other companies. Here is his response: "I think the biggest motivating factor for me to start a new venture was to avoid becoming old and regretting that I never tried". 

This concludes our brief look at entrepreneurs. Next week we will return to our series on deciding whether or not to start a business by beginning to take a look at industries and markets. 

Entrepreneurship and Entrepreneurs

“I have not failed. I’ve just found 10,000 ways that won’t work.” - Thomas Edison 

“My son is now an “entrepreneur.” That’s what you’re called when you don’t have a job.” - Ted Turner

We've decided to take a brief break from our series on deciding whether or not to start a business to take a look at the business starters themselves. We'll begin here with entrepreneurial thinking and "what is entrepreneurship" and then continue next week with a discussion of some common traits and behaviors and a look at "why" entrepreneurs start companies.

First of all, what is entrepreneurship? It is a difficult subject to discuss. According to the Small Business Administration over 600,000 new businesses are started per year in the U.S. alone. The process of forming an organization therefore can take many paths and the people behind the process come from a wide variety of backgrounds. It can be very difficult therefore, to find commonalities and it is probably impossible to say "this is what makes an entrepreneur"! For that reason, in discussing entrepreneurship we will be talking a lot about "tendencies" as opposed to "certainties".

In academia there is even debate about how to study entrepreneurship. Some advocate "behavioral approaches" focusing on the process whereby organizations come into existence. This removes the entrepreneur's personality characteristics from the equation and instead focuses on his/her actions and behaviors. The other approach, the "trait" approach focuses on the personality of the entrepreneur, seeking to identify key qualities and characteristics held in common among entrepreneurs in order to explain entrepreneurship[i]. The basic idea behind this debate is this - how do we define or explain entrepreneurship? Is it  what the entrepreneur does or who the entrepreneur is?

At http://enableipc.blogspot.com/, fortunately, we do not have to answer such questions. Instead, we can look at a wide range of common tendencies, behaviors and attitudes that help explain entrepreneurs and entrepreneurship without having to settle any academic debates (and therefore avoid having to read dozens of journal articles dating back to 1816). 

In a previous article "The Idea" we looked a bit at entrepreneurial thinking, specifically focusing on the "pains" in life and looking for solutions to those pains. In her article "What Makes Entrepreneurs Entrepreneurial", Saras D. Sarasvathy discusses different forms of reasoning - causal, strategic, and effectual:

Causal reasoning - (also called "managerial thinking" by Sarasvathy) a person identifies a goal and their given means, and then identifies paths from their means to their goal.

Strategic reasoning (or "creative causal reasoning") -  a person identifies their goal and their given means, and then identifies paths from their means to their goal, however, they may also identify or imagine new or other means, and new ways to reach the goal provided by these new or other means.

Effectual reasoning (also called "entrepreneurial thinking") - a person identifies their given means and then imagines multiple possible ends that may be reached by these means[ii].

The "pain" focused thinking comes into play more prior to developing a product or idea while effectual reasoning takes place more post-business-launch but what these two modes of thought share is that they are opportunistic. Entrepreneurs tend to benefit from flexibility and adaptability. 


The ability to re-imagine the company or the company's product in order to fit the present opportunity can be an entrepreneur's key to success. Target markets and target customers may need to be very fluid as entrepreneurs adapt to new information and head towards their next (or first) customers. This is exemplified in the "ready, fire, aim" approach -- study, research, decide and launch a company, then adapt that company to market realities.

An important part of entrepreneurial thinking therefore is in their view of the future.  Looking for and attempting to predict change is a way of identifying new opportunities and anticipating obstacles in the road ahead, but entrepreneurs often also try to shape the future. They believe that the future can be controlled by their actions and that "To the extent that we [entrepreneurs] can control the future, we do not need to predict it."[iii]

In our next installment we will look at some more common entrepreneurial traits and behaviors, and also discuss "why" entrepreneurs do what they do.

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[i] Gartner, William B. "'Who Is an Entrepreneur?' Is the Wrong Question" American Journal of Small Business Spring 1988

[ii] Savarsthy, Savars D. "What Makes Entrepreneurs Entrepreneurial" University of Washington 2001

[iii] Savarsthy, Savars D. "What Makes Entrepreneurs Entrepreneurial" University of Washington 2001

Enable IPC Update - First Profitable Quarter!

Today we have announced that Enable IPC will close this fiscal year with the first profitable quarter in the company's short history! 


Enable's CEO David Walker was quoted as saying:


"The company’s revenues have increased substantially, quarter-to-quarter, beginning with the S/Cap RFID Tag® product announcement in June 2011. As the company continues its efforts to commercialize new products including RFID tags, AAO nanopore templates, ultracapacitors and lithium-ion battery cathode coating materials, we anticipate revenues to continue to grow through the next fiscal year and beyond. We are pleased with the current pace of revenue and product development and expect these exciting times for Enable IPC to continue."


Enable IPC also announced an agreement to begin S/Cap RFID Tag® sales in China, the world's second largest RFID market, and also that the S/Cap patent applications have been filed and that the product is now officialy considered "patent pending". 


The full update can be read here: http://www.enableipc.com/press/2012/PR20120313.htm


For more information on Enable IPC's products check out the following links:


RFID Tags 
The Enable product page: http://enableipc.com/rfid.htm
Our original blog article about the product's release: http://bit.ly/yrqe4n
RFID Journal (leading industry publication) S/Cap Feature: http://bit.ly/naJqhy


AAO Nanopore Templates: http://enableipc.com/aao.htm


Ultracapacitors: http://enableipc.com/ultracapacitors.htm

Small Business and Entrepreneurship - To Startup or Not To Startup Part VI - Sensitivity and Scenario Analysis

"Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery." - Charles Dickens David Copperfield

 "A nickel ain't worth a dime anymore." - Yogi Berra

After reviewing costs, sales projections, and compiling our cash flow projections over the previous 3 weeks, we turn this week to analyzing our statements using sensitivity analysis and discussing the use of different financial scenarios.

Now that we have our completed financial projections we can begin playing with the numbers to better understand our company. First we need to think about the figures we just developed and try to determine the key assumptions that were made. Do we think that everything hinges upon the sales price we used? Maybe we think it is our ability to secure a certain cost of materials, or to charge and collect a certain amount of shipping revenue?

If, for example, our figures were created with a sales price of $10.00 per unit, what happens to our cash needs (from Part V of our series, the amount of money needed to get our company to a cash flow positive state) if we can only sell our item for $9.00? We need to understand how vulnerable our company is to changes to our assumed figures. It may be that a change in sales price from $10.00 to $9.00 makes it impossible for this company to ever become profitable. It may be that the change has virtually no effect. If the change is drastic than we know our company is very sensitive to the sales price, but maybe we can find something to alleviate that sensitivity (maybe increasing shipping fees or find an additional source of revenue) or maybe the company is a no-go due to that sensitivity. Either way we would want to know prior to moving forward.

The other thing that sensitivity analysis can do is uncover hidden dangers. Perhaps we are certain about our cost of materials but find out that a slight increase in those costs could be devastating. Once we've studied our company's sensitivity to our assumptions we can make changes to our assumptions, or even modify the company's business model.

In this manner we need to play with our spreadsheet, alter the numbers in our assumptions, or alter combinations of our assumptions (e.g., what happens if we adjust our sales price and our rent?) and see the effect these have on our projections. This helps us to understand the interplay between the components making up our revenues and costs.

Now we can also create separate financial projections for different scenarios. We can make full sets of projections with different assumptions to show what could happen if we have to sell for $9.00, or if our material costs are higher than estimated. This can lead to "optimistic", "pessimistic" and "most likely" scenarios.

After conducting sensitivity anaylsis and compiling different optimistic, pessimistic and most likely scenarios you may begin to wonder just what are your actual cash needs? Well there are a few ways to answer that question. You can simply use your original financial projections and chalk the extra work up to better understanding the key characteristics of your company.

There are also a few methods others have suggested for what to do with your different scenarios. Say you have a pessimistic scenario with cash needs of $25,000, an optimistic scenario with cash needs of $10,000 and a most likely scenario with cash needs of $22,500. Which should you use as the real cash need for your company when considering whether or not to start this business?

One is to simply take the highest number, but this may be the least realistic of any approach as it does not take into account the likelihood that this would be your true need. In our example the highest cash need comes from the pessimistic scenario but how likely is this scenario to happen?

Another method is to take the average of your pessimistic, optimistic and two-times your most likely scenario. So in our example: $25,000 + $10,000 + 2x$22,500 = $80,000 / 4 = $20,000. This method factors in the pessimistic and optimistic scenarios while weighting the final number with the most likely cash need.

Another method we've heard of is to take the greater difference between either your most likely and optimistic, or your most likely and pessimistic, and then add that difference to your most likely number. So $22,500 - $10,000 = $12,500 (most likely minus optimistic); $25,000 - $22,500 = $2,500 (most likely minus pessimistic). The greater of the two is $12,500 and we add that to our most likely number $22,500 + $12,500 = $35,000. This method is designed to provide more of a safety net.

You can also simply weight each scenario based upon your understanding of the true likelihood of each scenario and come up with your figures that way.

This concludes our look into the financial aspects of deciding whether or not to start a company. Beginning next week we will start looking at our industries, markets and customers.

Summing it Up - Part 20 in our IP and Patents Series

This is the final part in a 20-part series of articles on intellectual property protection and commercialization.

Over the past few months, we’ve posted a lot of information, consisting mostly of summaries relating to intellectual property, patents, commercialization and other related topics. None of these articles are comprehensive, and they are not meant to be – they were simply meant to help a novice acquaint his or her self with some of the processes involved in these areas.

We’ve been concentrating on three general areas:

• Having an idea
• Protecting the idea and
• Turning the idea into something useful

Intellectual property is an interesting term – the words themselves seem to refer to things you own in your head. But, to expand on that, to make the idea useful, takes work, perseverance and a sometimes difficult but vital dose of honesty.

We are a country and a people built on innovation and risk. Ideas are great, but good ideas that are not implemented are useless.

And, while we have harped on the concept that, if there is no market for the idea then it might need to be abandoned, keep in mind that creativity is not black and white – true innovation rarely is planned.

Penicillin, potato chips, Teflon and Viagra have one thing in common: they were each discovered by accident.

So, despite our harping, an idea that seems nutty might just change the world for the better.

It’s a tough, unexplainable and impossible balance. No one can truly tell 100% of the time when to quit and when to continue a pursuit.

All we can do is keep in mind a quote from someone who knew a whole lot more about ideas than anyone else:

“If at first, the idea is not absurd, then there is no hope for it.” – Albert Einstein