Required components of any business
The five parts that make up any business:
- Creating value – learning what people need and creating it.
- Marketing – attract attention and build demand for what you have created.
- Sales – turn potential customers into real customers.
- Value Delivery – Give customers what they have promised and make sure they are satisfied.
- Finance – make enough money to continue business and make a profit.
- If you remove any of the five parts, it will no longer be a business.
Iron law of marketing
Each business is limited by the size and quality of the market it wants to win. The iron law of marketing is cold and inexorable: if you don’t have a large number of people who really want what you can offer them, the chances of building a business are very low.
If two markets are equally attractive, it is worth choosing a market with competition. The hidden advantage of competition is that you know from the very beginning that you have a market of solvent customers.
Basic human desires
There are five desires of people that influence their behavior:
- The desire to acquire – tangible and intangible benefits – for example, cars or influence.
- The desire to build relationships is to be loved and valued in relationships with others.
- The desire to learn is to satisfy one’s curiosity.
- The desire to protect oneself, one’s relatives and one’s property.
- A desire to feel – to have an emotional experience, such as pleasure or joy.
When a group of people has an unsatisfied desire, a market is formed to satisfy it.
The more desires your offer satisfies, the more attractive it becomes for people
Ways to evaluate the market
If you are going to start a new business or expand an existing one in a new market, you should first investigate whether you should do it at all.
There is a method that helps to quickly determine the attractiveness of any potential market.
- Urgency – how much do people want what you have now? For example, renting a movie is a matter of low urgency and watching a new movie on the first day of release is more urgent because it happens once.
- The size of the market – how many people actively buy such things. For example, the market for macrame courses is very narrow, and the market for cancer drugs is huge.
- Price potential – what is the highest average price a buyer wants to pay for your offer.
- Client’s purchase price – how easy it will be to buy a new client – on average, how much one sale will cost, on money and efforts.
- Value delivery price – how much it will cost to create and deliver the offered value, by money and effort.
- The uniqueness of the offer – how unique your offer is in comparison with others in terms of money and effort, and how easy it is for potential competitors to copy you.
- Speed to market – how fast you can create something to sell.
- Start-up investments – how much you will need to invest before you are ready to sell.
- Sale potential of additional services – are there any additional services you can offer to your customers that complement your main product? For example, customers who buy shaving machines need foam for shaving.
- Perpetuity – once you’ve created the initial offer, how much extra work you’ll need to do to continue selling it. For example, business consulting is a full-time job, and a book can be published once and then resold without changing or putting in additional work.
- As soon as you have evaluated each item by 0 to 10, add up all the points.
The mercenary’s rule
Never start a business just because of the money, because you will always need to invest more effort in it than you initially expect.
When you do your project, it means that even after it’s finished, you’ll have to change or completely redesign it to meet the current market and customer requirements. So choose a market that interests you so much that you will want to work in this area every day.
Don’t ignore the “boring” markets – if you can find something that attracts you, they can be very promising.
Award for trouble
People almost always want to pay for the things they think are hard and troublesome to do on their own. Where there is trouble, there are business opportunities.
The more time-consuming a task or a project is, the more people will want to pay for a simple solution or for someone else to do it for them.
Perceived value
The most valuable offers:
- satisfy one or more fundamental desires. For example: a bed for sleeping, a ready-made pizza.
- offer an attractive and clear end result. For example: a hair iron for a beautiful hairstyle, a toaster that will make the bread crispy.
- Solve the troublesome tasks for customers. For example: the service of a janitor at home, pressure cooker for fast food preparation.
- They satisfy the status wishes of customers and make them look better in the eyes of others. For example: expensive car, jewelry.
Tying and untie
Linking is when you take on an already created value and create an even bigger one by combining many small sentences into one. The more offers in one bundle, the higher the perceived value of your offer.
Unleashing is when you divide one big offer into many small ones.
Linking and unleashing help to create value for different customers without creating anything new.
Economic values
There are nine economic values that people take into account when assessing a potential purchase:
- Efficiency – how well it sells,
- Speed is how fast it’s gonna work,
- Reliability is whether I can count on it,
- Ease of use – how easy it is to use the product,
- Flexibility – what else the product can be used for,
- Status – how it affects the way others assess me,
- Aesthetic appeal – how beautiful the product is,
- Emotions – how it makes me feel,
- The cost is how much I have to pay for this product.
After you have taken into account the wishes and values of your customers and have become familiar with the laws of the market, it is time to create a product with minimal functionality.
Product with minimal functionality
A product with minimal functionality, or MVP, is an offer that contains the minimum number of advantages required for sale. In other words, it is a prototype product that people are willing to buy.
When you have created a product with minimal functionality, you can quickly get feedback and feedback from customers and maybe refine the idea.
Iterations
Once you have received customer feedback, you may want to refine the product. A series of iterations will help you do this. This is a process in which you are constantly improving your product.
The iteration consists of 6 main steps:
- What is going on? What works and what doesn’t?
- Think about what you could improve. What are the ideas?
- Think about which of your ideas would be the most productive.
- Decide which change to implement.
- Introduce it.
- Measure the impact of the change on the product, whether you should continue in the same spirit or return to the previous version.
- The iteration cycle is a necessary extra work. If you create the final version right away, you take a great deal of risk – you put all your efforts into something that may not be available for sale.