First, Sell Something

July 26, 2013

 

The owner of a company that had secured access to a fantastic new product approached us. The manufacturer had not yet released the product, but it had granted this company exclusive distribution rights for the state of Virginia. The product had undergone extensive testing in the laboratory, but had done very limited field-testing.  No one had demonstrated that a successful business could be built around this new product. The business owner wanted us to help him secure warehouse and office space, purchase the necessary equipment (forklifts and such), and set up his operation.


A young woman had great plans for opening an event planning business. She had some experience in the industry and was certain that she could make a go of it. She wanted us to help her secure financing. We asked why she needed capital. She replied that she needed money to up fit office and display space downtown and to pay the rent.

 

Our advice to both of these business owners was the same. First, sell something.

 

In the case of the first business, it is ill advised to make significant investments when a product has not yet been thoroughly field-tested and no one has demonstrated that it can lead to a profitable business. Even after someone demonstrated the product’s efficacy in the field, they will still need to prove its economic value. The only way to accomplish this is by successfully closing a number of sales that result in ongoing business. Once it is clear that there will be demand for the product, an investment in warehouse and office space can be justified.

 

In the case of the event planner, while office and display space might be helpful in closing some sales, it is certainly not essential. Our advice is to develop enough business to support the cost of the office and display space before accepting the expense.

 

Both of these examples highlight what we call the “Fail Fast, Fail Cheap” approach. When you are launching a new product or service, we advise that you fail fast and fail cheap. The stark reality is that the first attempt at launching a new product or service is probably not going to be a smashing success. It is likely that, at a minimum, you will have to adjust, change, and refine your offering. Frequently, budding entrepreneurs reach the point where they have to completely scrap their plans and start over.

 

Since you know, there is a high probability that you will have to modify your offering, invest as little up front as you can. Prove the concept. Before you make big investments, sell something first. If it doesn’t work out exactly as planned, make changes and try again. This may require several iterations.

 

Once you have demonstrated that people are willing to pay you enough for your product or service to make it profitable at reasonable volumes, you can begin to invest in the infrastructure you need to support the burgeoning business (e.g., office space, warehouse space, equipment, employees, etc.). Fail fast, fail cheap. Test your concept as quickly and as inexpensively as you can. If it isn’t completely successful, make smart changes and test again. This is the key to launching a successful business.

 

While we fully believe that you should fail fast and fail cheap, we do not believe that you should allow yourself to fail because you are cheap. When you are developing the thing that you will test, don’t do it so cheaply that it’s destine to fail. Make the investment to give your product or service a chance to succeed.

 

For example, if you want to test a concept for a new restaurant, at some point you will have to invest in opening a restaurant. Before opening the restaurant, you can test your menu items to make sure that people like them. You can use focus groups to test the restaurant concept, but at the end of the day, you’ll have to open a restaurant. You do not, however, have to open six locations until you’ve demonstrated that the first one is successful. Give yourself a chance to succeed. Fail fast, fail cheap, but don’t fail because you are cheap.

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