Understanding and navigating burn rate: a startup primer – 2: core products and services
An effective awareness of funds available and of potential expenses that would draw from that – of liquidity and of factors that would reduce it has to be built into a startup from the initial planning that would go into forming it, if that new business is to succeed. This is my second posting in a series on burn rate and liquidity (see Part One) and my focus here is going to be on what for most potential startups would be the first planning step – thinking through and planning for the products and/or services that would drive the business and make it a viable entry in an active marketplace. I will approach this by raising a series of connected questions that I would recommend any startup founders to think through with their proposed business in mind. I offer these questions in generic form, and further suggest that startup founders consider both these basic, generic questions and look for more focused additional questions that would more specifically address their situations and needs. But I start this with the absolute fundamentals, and regardless of proposed business specialty or location I would recommend starting there.
• What do you propose to offer to a marketplace as a product or service?
Focus here on your primary product or service – the reason and justification for attempting to build a new business in the first place.
• What do you seek to develop as a unique value proposition?
• What will you develop and offer to your marketplace that is unique and that offers unique value to your prospective customers – and from their perspective?
This is a crucial pair of questions. If you want to succeed you need to offer something that your customers will see real value in and that will draw them in to do business with you. Note here that what you offer does not have to be globally unique and a true breakthrough invention or discovery. It only needs to be unique for the customer base you would serve the needs of. There are Chinese restaurants in most every country on this planet and there have been for a long time. But opening that first new Chinese restaurant in a town that does not at least currently have one would be offering a unique value to that community. The same could be said for opening a gas station in a significantly underserved community for that, or a hardware store.
When I was living in Belize, Chinese restaurants were very popular, and that popularity dated back several decades to a time when a number of Chinese immigrated to that country – and found everyone eating rice and beans and saw opportunity to introduce a whole new dining experience. Yes, I know I am over-simplifying with that, but this is basically what happened and the people of Belize loved this new food option and at least for a period of time Chinese restaurants became among the most popular in the country. The food they offered was very different from what Belizeans could or would prepare at home, it was inexpensive and it was very good according to their sense of taste. I add this to stress that “unique,” like “value” is and should be considered from the perspective of the consumer that you would reach out to in your specific marketplace.
Start by thinking through your proposed products and/or services and prioritizing what you would offer in terms of centrality to your unique value proposition.
Write out the details in a list and ask yourself for every point and detail so listed:
• Is this a core component to what I would offer that is unique to the marketplace and of unique value there to my prospective customers, or is this more of an add-on that would not need to be included at launch, but that might be nice to include later?
Everything that you offer is going to cost you from your available liquidity to develop and provide so you want to focus up-front on the features and details that will help you stand out as offering particular value in the marketplace.
• Is this a supporting product feature or service that while not a part of the core unique value you would offer, would be essential if you to are to effectively offer that unique value proposition?
Services such as on-site installation and customer support my not be a part of your unique value proposition but if you are going to offer a product that carries a unique value proposition to a marketplace and installation and customer support are going to be needed in order to provide your customers value, then you need to plan on offering these from the start too. And even if you do all of this work yourself as a founder, that costs too as your time and effort carry value too. When you are installing a product on site for a customer or helping them with customer support post-installation, you are not available to be in other places at that same time, fully focused on other tasks and responsibilities.
If core unique value proposition product and service features need to be set at high deliverable-priority up-front, so do any essential supporting features or services that would make them work. Set aside the nice but non-essential details for later, and fine tune them before adding them in, on the basis of your developing business experience as you launch and follow through on your startup. And start with the core product and service essentials.
I stress that your planning for all of this should begin while you are still pre-revenue so you launch and seek to make your first sales with the right things and the right details and features to them offered first. And this brings me back to that key word: liquidity. Plan and build your business in stages and with both unique value proposition prioritization and the liquidity that you have available in mind as a sort of dual vision.
Plan and build your initial stage business with the limitations of your liquidity available in mind.
Build lean so as to conserve your assets and gain the most realized value from them. I still vividly remember pre-first internet bubble startups that I worked with as a consultant that spent from their initial liquidity to buy things like pool tables for their eager world-changer staff members, and yes most of these ventures failed. They ran out of money and time before they could develop a real foothold in a real marketplace and begin bringing in revenue and profits. Build lean and with a focus on the essentials for breaking into that marketplace you envision as your own. And this begins with your core products and services and any essential supporting features you need to include to make them viable – compelling and satisfying to real world customers. Note: customers and consumers might be end-users as is in business to consumers (B to C), or they might be other businesses as in business to business (B to B) – either way these are your customers I am writing of here.
I am going to continue this discussion in my next installment, there looking at the issues that relate here from the perspective of your marketing and industry analyses as would go into your business plan (see Online Store, Online Market Space – Part 9: business plans and filing in the gaps for an outline of a basic business plan structure.) This and related postings can be found at Startups and Early Stage Businesses.