Toolkit—New Customers and Product Development

Abstract

This chapter gets down to the nitty–gritty of what we are going to do: How we are going to develop a way of adding value and creating a product or service that is useful and sustainable. The key issue in the chapter is to be truly creative. The chapter discusses innovation and how our unique business offering is going to make money. So, we need to think about market research and the difference between marketing and sales. The chapter also discusses three ways to get into the market: business tendering, starting a business with no products (‘drop-shipping’), and starting a business with no money. To start a business, we sell a product to a customer. The SHAPE Lean Model highlights the importance of working out what people want; we then sell it to them and build an organisation that can continue doing this.

1 Introduction

This chapter gets down to the nitty–gritty of what we are going to do: How we are going to develop a way of adding value and creating a product or service that is useful and sustainable. The key issue in the chapter is to be truly creative. The chapter discusses innovation and how our unique business offering is going to make money. So, we need to think about market research and the difference between marketing and sales. The chapter also discusses three ways to get into the market: business tendering, starting a business with no products (‘drop-shipping’), and starting a business with no money.

To start a business, we sell a product to a customer. The SHAPE Lean Model highlights the importance of working out what people want; we then sell it to them and build an organisation that can continue doing this (Fig. 7.1).

Fig. 7.1

(Source Steenberg, 2017)

The SHAPE lean model

2 The ‘New’ for Our New Business

It has been said that every ninety days, we live in a ‘new’ world. This may be an exaggeration; it simply means that many things around us change rapidly. For example, we don’t use the same type of phone that our parents used when they were young, and cars today don’t look or work the same way they used to. Many of the products that existed when we were children are no longer available, like the iPhone Bluetooth headset Apple discontinued in 2009.

The world is moving forward more and more rapidly, and any business that wants to stay relevant and in business needs to look at new ways to do things. This is called ‘innovation’.

The owner of a business must ensure that the business has something to offer the customer that will set it apart from its competition in the short, medium, and long term. A business that fails to innovate will lose customers to businesses that do innovate.

When thinking about innovating, we need to ask these five key questions (Fig. 7.2):

Fig. 7.2

Five key questions for innovative thinking

3 Cost of Finding Customers

One of the highest costs for any business is finding new customers. Advertising can be expensive, and not every advert or hit on a website or app download will make us a profit. We need to understand the cost of acquiring a single customer (cost of customer acquisition) and also work out how much money we make from each customer (lifetime value of customer). If we can get to a point where we make more money from a customer than we spend getting a new customer, we start making profits.

4 Building a Reputation

By having good products and developing a reputation for quality and service, we can reduce the cost of finding new customers and work on ways to sell more to customers we already have.

5 Expressing Our Uniqueness

To be unique, we could position our product in a way that we appear to be (Fig. 7.3).

Fig. 7.3

Key questions for personal differentiation

6 Doing Market Research

The best people to ask what they want to buy from us are potential customers.

If we produce a product that is too radical, we may be the only person who understands it or sees its potential. We also need to know if anyone else is already in this type of business. If no one is doing what we are planning to do, we may also need to ask why not. Perhaps there is no demand for this product or service.

To start researching the market, we need to draw up a brief description of our product or service, with some questions that will give us insight into what customers are looking for. The best way to find out what customers want is to ask them, rather than fooling ourselves that we already know what they want.

Here are some questions that could be useful to ask a potential customer (Fig. 7.4):

Fig. 7.4

Market research questions

It is not too difficult to conduct telephonic or face-to-face meetings with potential customers to get this information. Once we have held between twenty and eighty such interviews, we can use the feedback about our product or service and design something that will work for most of our customers.

It is extremely valuable to speak to potential users of the product (and not just our family and friends). If we find out that our customers will not like an aspect of our planned product or service, we can improve the offering, and then more of them will like it.

We may read an article on the Internet which says that ‘Demand for Product X will be so many billion by 20xx’. But this does not mean that the people we can reach will buy Product X. What is really important is to do our own market research.

7 What Does Our Business Sell?

Too many start-ups begin with an idea for a product they think people want. Then they spend months, sometimes years, perfecting that product without ever showing the product, even in a basic form, to the prospective customer. When a product fails to reach broad acceptance from customers, it is often because the product developers never spoke to prospective customers to determine whether the product was interesting. When customers finally communicate—through their lack of interest—that they do not care about the idea, the start-up fails.

Entrepreneurs may find it useful to apply the SHAPE Lean Product Development Cycle while ideating their business value proposition (Fig. 7.5).

Fig. 7.5

(Source Steenberg, 2017)

The SHAPE lean product development cycle

8 Sales and Marketing: Two Sides of the Same Coin

The marketing function needs to bring leads to the table, and the sales function needs to take those leads and convert them into customers. Salespeople usually complain about the quality of leads, and those concerned with marketing complain that the salespeople are not sending out the correct message to the target market they have sourced.

When we start a business, we need customers. To get customers, we might build a website with relevant content, listing our products and services and using pay-per-click (PPC) advertising (via Google or Facebook, for example) and other strategies to ensure that we get people to phone us.

As entrepreneurs, we often overestimate how interested people may be in our product.

All contacts, form submissions, and phone calls generated by marketing campaigns, using search engine optimisation (SEO), PPC, email, and display advertising, among others., are generally lumped together by those involved in marketing and called ‘leads’.

Doing this is a mistake because not everyone who interacts with our business is a potential buyer of our product. Even when someone phones in response to an advert in a newspaper, it does not necessarily mean that they are interested in our product. They may just have found the ad interesting and wanted to find out more. Because a person submitted a form on Facebook, it does not mean they will come to our event.

Form submissions and phone calls could be leads, but they could also be (Fig. 7.6):

Fig. 7.6

Validating leads

Thoroughly validating all leads by separating genuine sales inquiries from irrelevant inquiries ensures that we target the right people and follow up on them correctly. Sifting through form and phone inquiries to separate true sales leads from non-leads (like the ones listed above) is called ‘lead qualification’.

It is well worth the effort to qualify all leads since typically, as many as 45% of all inquiries are not true sales leads.

9 Marketing to Get People Interested

How will people find out about our business? Where are the people who will buy from us? Marketing aims to get our message out to people who could potentially buy from us. Once we understand who those people are, we need to let them know what we offer.

A key part of building a new business is understanding the market we are servicing. Especially when it comes to digital marketing, we want to ensure that the leads coming in are potential customers.

We use the data in the ‘persona’ that we design (see Sect. 7.12) to target people on digital platforms. This allows us to be specific and get exactly the clients we’re looking for.

10 What to Do with a Qualified Lead?

A qualified lead is someone that we can start selling to. To do this, we need to present the product to the customer, highlighting its features and benefits, and at the same time work out what the customer’s potential objections may be to buying the product, buying it right now, and buying it from us.

If we can answer the customer’s objections, we can bring that customer to the decision point where he or she decides to proceed with the purchase; we then give the customer the necessary information to make payment for it.

11 Marketing Funnel

Most businesses have a marketing/sales funnel like the diagram in Fig. 7.7. Many software packages can help us to manage our sales funnel.

Fig. 7.7

(Source Steenberg, 2017)

The SHAPE marketing and sales funnel

When we design our sales process, we observe that not every person who will visit a website will be interested in our product and would thus not be a lead. So, not all leads are qualified leads, and not all qualified leads will become customers. So, it is important to work backwards and work out how much of a drop-off we will have at each stage to ensure that we do enough to market to our potential customers so that we get enough customers.

As an indication, as few as between 1 and 3% of unqualified leads turn into paying customers. This means that for every 100 people who walk through the door, no more than three of them may buy. To get one person to walk through our door (whether a physical shop or on the Internet), we need to spend money. Taking care of our customers is one of the pillars of business success because each potential customer has indirect cost implications for the business. Money has to be spent on marketing and public relations to hook potential and existing customers.

In making sales projections, it is advisable to determine how many people need to enter the funnel and how much we will have to pay to have one person click on our website. Once we have determined this, we will have a good idea of how to set up our sales process.

12 The Buyer ‘Persona’

With internet advertising, we can target our potential target market very specifically. We call the buyer that we are looking for the buyer ‘persona’.

Getting as much information as we can about who potentially buys our product (our end-user) will enable us to increase the number of people with exactly those characteristics who walk through the front door. In this way, we can pinpoint a narrowly defined subset of potential customers with similar characteristics and needs.

Do not be afraid to go out and speak to real potential customers. Do good, direct customer research now, and it will pay off later. It might seem that not all of this customer information is relevant, but it is certainly better to have too much information than too little. With issues like gender, for example, we want to know the percentage split between our male and female customer base.

Here are some suggestions on how to map a segment of the market. Look especially for characteristics that would make this end-user unique, characteristics that differentiate them from non-target users.

Characteristics that we could map include (Fig. 7.8):

Fig. 7.8

End-user characteristics

Once we have a broad segment, we should define it more narrowly to create a persona, a portrait of one specific end-user. Table 7.1 lists some suggestions. What we are trying to aim at is to identify those characteristics that make this buyer’s persona unique.

Table 7.1 Example of a persona map

The information can be used to target these buyers specifically, and a well-trained sales team will be able to respond specifically to the needs of a given persona.

Building a correct sales strategy is important so that the business can accurately plan how many leads it needs to get to reach the required revenue. Not everyone who walks in the front door of a business is going to buy, and every business needs to understand the importance of this.

13 Sales Activity

We are all desperate to create more jobs and to make money. It is tempting to think that there is a simple formula that is guaranteed to make this happen. The only sustainable way to make money is to decide what to sell to customers, find a way to do that and then use the proceeds to allow us to sell to more customers. If we do this successfully, we will grow and expand our business while making money, creating jobs, and satisfying customers.

Even if we create a business that works for us, it may not work for everyone. If everyone does the same thing, there will be too many businesses in competition with each other.

14 Brochures and Prototypes

Once we have mapped out the types of things that people are looking for in our product (‘features’ and ‘benefits’), we can put this information into something like a brochure, a web page, or Facebook.

Most of us buy things from adverts and brochures that tell us what the product does. By creating a brochure, we create a physical representation of the product.

A lean start-up business has three basic pillars: prototyping, experimenting, and pivoting. By putting a product out into the market (prototyping), getting feedback (experimenting), and then adapting the product or its delivery before we push out the next product (pivoting), we can constantly improve and ensure that we stay relevant.¹

For a prototype, we may only need to make just a few copies of a product, perhaps just one.

Speak to eighty potential customers about our product. Without trying to sell the product to them, ask them why they might buy the product? Why wouldn’t they buy the product? If we plan to sell our product to thousands of people, it may be a good idea to speak to a couple of them before starting to build the product!

Group the features that customers are looking for most often. Can we create a product with these features?

Once you have decided that it is feasible to create the specific product, you manufacture a prototype—a type of proof that we can create the product. For some products or services, a prototype is a massive undertaking and may involve computer models, production models, and complex engineering challenges. For other products, it may be something that we can do in writing, on paper, or very practically. If we can create a prototype, we have already proven to potentially interested parties that it can be done.

Statistically, if we can get to the point where we have a clear brochure and prototype (even if it’s only a representation), we’re more likely to achieve sales than the 60% of people who believe they will be required to first write a detailed business plan.

15 Sales are About Getting People to Buy

Just because someone says they are interested does not mean they will take money out of their pocket to buy your product.

15.1 The Sales Process

The sales process fills in the gaps in a person’s understanding of why they should buy this product at this time. The sales process (Fig. 7.9):

Fig. 7.9

Five-step sales process

15.2 After-Sales Revenue

In most cases, just because we have sold the product to an individual does not mean that the relationship with the customer has ended. With many products, the relationship only starts when we have concluded the sale.

It is important to maintain our relationship with the customer after the sale, support their purchase with after-sales service, sell additional products in the future, and maximise the word-of-mouth advertising and sales that flow from a satisfied customer.

The total cost of getting a new customer (COCA) is usually quite high. The challenging part is to maximise the lifetime value (LTV) of the client. A lot of time and energy goes into getting each new customer, so it is important to ensure you keep your customers and work hard to do that.

16 B2C Versus B2B Trade

A lot of the business that’s done with large organisations: government, semi-government entities (public schools or universities, Eskom, Transnet, etc.), municipalities, big corporations, and suchlike, is done through tendering, where even quite small entrepreneurs can apply. This is called tendering for business.

Tenders are usually advertised (in newspapers or online), and smart entrepreneurs watch for opportunities to apply for business in this way. Here are some examples of organisations that invite tenders:

• National Departments of government such as SA National Roads Agency, Department of Correctional Services, etc.

• Provincial Departments of government such as Departments of Education KZN, Health Eastern Cape, Human Settlements Free State, etc.

• Local Government Departments such as City of Cape Town, Johannesburg, eThekwini, etc.

• Parastatal organisations such as the state-owned enterprises include Eskom, Transnet, etc.

• Local and international NGOs (non-government organisations), for example, World Vision, Doctors Without Borders, etc.

• Certain large corporates such as Anglo Incorporated, Oil companies, Unilever, etc.

There are also commercial tender service databases worth knowing about that scan the government and business world for open bids, e.g., tradeworld.sap.com and ZapMeta.

17 Starting a Business with No Products: Drop-Shipping

It is possible to start up a business without any funding (except maybe the cost of your smartphone). Yes, it is. One interesting example is drop-shipping, a type of e-commerce (conducting business electronically on the Internet). The merchant entrepreneur sells a product online, but instead of buying the product and storing it in a warehouse or storeroom before shipping it to the customer, the product is shipped directly from the manufacturer to the end customer. Although the wholesaler could be a manufacturer, distributor, or another supplier, he or she may never meet the distributor or even the end-user. Virtually any type of product may be sold in this way. The key is to provide a smooth supply chain from an online store to the manufacturer, distributor, and customer.²

The beauty of drop-shipping is in the simplicity of the model. If the partnership between retailer and distributor works well and the retailer builds an effective online marketing platform, there is no need to outlay any expense on buying, storing, or even manufacturing products upfront. All we must do is make sure our orders are fulfilled and delivered smoothly.

17.1 Tools to Make Drop-Shipping Work for Start-Ups

Drop-shipping entrepreneurs’ only responsibility is to provide an effective link between customers looking for a particular product and manufacturers or distributors who can supply that product. The drop-shipper is in every sense a ‘middleman’, working online. It is simple, hands-off sales, without the packing, delivery, or warehousing of product. The sequence is as follows (Fig. 7.10):

Fig. 7.10

(Source Van der Westhuizen, 2022)

Drop-shipping four steps

17.2 Pros and Cons of Drop-Shipping

Drop-shipping sounds like a good idea, but before launching an online store based on this business model, it is wise to look at its strengths and weaknesses.

17.2.1 Advantages of Drop-Shipping

There are numerous advantages to drop-shipping (Fig. 7.11):

Fig. 7.11

Advantages of drop-shipping

17.2.2 Disadvantages of Drop-Shipping

What are some of the downside issues for the drop-shipping model as our e-commerce business? (Fig. 7.12).

Fig. 7.12

Disadvantages of drop-shipping

Despite these potential drawbacks, drop-shipping is one way of starting a business with little start-up expense and no products. Virtually any product, anywhere in the world, has the potential to be sold through drop-shipping. All we need to do is market it successfully and keep the customers happy by ensuring the quality of products and delivery and attending promptly to any complaints.

18 Tools to Starting a Business with No Money

Adapted from Bose (2018).

It is possible to start a business with no money. Many services only require a person to be present and do something for someone else.

All this requires is to find a way to advertise ourselves.

Can we walk dogs for someone or babysit? Can we buy groceries for someone or drive them to the shops once a week to do their grocery shopping? Each of these is something that can be done for a fee, and through careful investment, we can build towards bigger and better initiatives over time.

18.1 Businesses That Can Be Started with Little or No Capital

The following are some businesses that require little or no capital to start. There are many more (Fig. 7.13).

Fig. 7.13

Businesses that can be started with little or no capital

18.2 Businesses Requiring a Low Initial Investment

The following are some of the businesses that require low initial investment. There are many more (Fig. 7.14).

Fig. 7.14

Businesses requiring a low initial investment

19 Tools in Applying the Transaction Model: How Are We Going to Get Money from the Customer?

Buying a house and renting a house is not the same thing. The difference between these two ideas is the model to show how a transaction (or sale) may be concluded. There are various possibilities in terms of the transaction model for our business.

The transaction model defines how we get money from the customer. This could, for example, be through a cash payment, electronic fund transfer (EFT), card payment, or cryptocurrency.

As we have seen, we do not need to register a business to start a business. If we have something that others want to buy, and they are prepared to pay us for it, then it is a business, and a business has three essential components (Fig. 7.15):

Fig. 7.15

Applying the transactional model

20 Conclusion

By now, we should have a good idea of what opportunities are out there, how to set about drafting a business plan that will convince all those we show it to that we have a viable business proposal, and where to start looking to bring our proposal to life. At this stage, it is all about marketing, marketing ourselves and marketing our product or service.

If we can find our way through the paperwork and have the skills and resources, tendering might be a good way to get our foot in the door. Drop-shipping is a great way to start with a minimum of start-up capital outlay, provided we can target a product and market and bring them together. Then there are a host of opportunities out there that require little or no funding to get going. All that is required is our imagination and perseverance.