5 Questions to Ask Before Starting a Business

I used to think about starting a business in the internet as follows: Get the ability to create traffic. Develop and tweak a good product with a highly converting sales funnel. And wow, the business was supposed to be there. But it did not work out like that. Why not? There was an important part of the business missing: Me!

Don’t be a Leaf in the Wind

Testing of product features, price and sales copy have their place. But without a purpose the products and sales funnel resulting from your tests will be determined by the kind of traffic you use. And I am not only talking about buyers list versus freebie list. I am just talking about the people in your lists, their behavior, interest, preferences.

Testing involves several variables:

  • The traffic source
  • The copy
  • The product offer
  • The price

If you start with traffic, and a traffic source which is only defined by the fact that it’s readily available then the following consequences will appear:

  • The audience is limited and not well defined.
  • For this audience only a certain type of copy will work somehow, and no copy will work very well.
  • For this type of copy only certain products and services will work.
  • For those products you will be only able to ask for a certain price.

The audience in such a setting tends to be defined by your current relationships, especially if you avoid buying traffic. The other variables will work out according to your audience. So, your current relationships decide, what kind of copy you use to sell which product at which price point. This is a surefire way to keep your life as it is, at best.

The product or service you deliver decides what you do day in and day out. The price point decides what resources you have at hand to care for yourself, your family, and to develop your business. In one word: Your life is ruled by your friends and enemies, by your family and acquaintances. But you do not rule your own life. A tragedy.

5 Questions You Must Answer

I suggest to turn this thinking around and to ask the following questions

  1. Purpose: Where is my passion located? What do I really want to do with my life? What does energize me most?
  2. Benefit: How can I help people while following my passion?
  3. Market: What kinds of people are thirsty for this benefit, and where do I find them?
  4. Product: How can I frame my purpose into a product providing this benefit to a thirsty crowd and providing to me the money I need?
  5. Relationship: How can I build a reach out to the right people and let them realize that they satisfy their dire need with my help?

This way, you decide what you do with your life, and to whom you relate. Another word for this state of affairs is freedom.

Continuous Improvement Leads to Profit

You need to get the 5 answers pretty fast reasonably right to start a business. You need an offer to your market that fits to your personal purpose in life. The market must be big enough at least to cover your cost. Your product must be good enough to be desirable for your prospects, and you need a way to communicate effectively to your prospects. You will have to do some testing and tweaking of your offer, pricing and communication, and you will probably need some outside advice to reach there.

After breaking even, there is most certainly remaining a lot of room for improvement. You will get better in what you are doing. You will learn more about the desires of your customers, and where to find them. Your credibility will grow, and you will develop authority in the area of your passion.

Improving step by step will lead you from break even to profit. Your conversion rates will go up, because people know and trust you. You will learn to know your market better and to match your service better to customers’ desires, allowing for a higher price. You might be also able to frame your service in a slightly different way by employing more automation. This way you can also serve people who dearly want your product, but lack the means to pay for the full version.

Recommended for further reading:

Mobile Apps – the Future of Marketing

Mobile apps as backbone of future marketing? I’ve got this free report for you: 5 Reasons why Mobile Apps are the Future of Marketing.
After reading, your question will no longer be whether your business needs mobile apps. You will only ask yourself: “How can I get a mobile app for my business?”
The best thing: reading the report takes only 5 minutes.

After the Product Launch

This article is just kind of loud thinking about marketing information products on the internet.
The old model was to produce an ebook, video series etc. and to market it then via the own website, using PayPal or Clickbank as systems for payment and delivery.
Promotion worked mostly via affiliate networks and creating buzz using product launch techniques. Most products, even excellent ones, were dead a short time after the launch because all attention of affiliates and target audience was going with the noise to the next launch.
The need to launch even for the most successful internet marketers several high profile products per year just to stay in business and pay for their overhead did no good..

  • not for profitability
  • not for the quality of the products
  • not for value delivered to customers

Product Life Cycles without the Maturity Phase?
Even if we pretend for a moment that there was no quality problem with these many products released on a very tight schedule, the fact remains that the product life cycle was cut.
A normal product life cycle looks like this:

Here is a short explanation about the meaning and the function of the four product life cycle phases in terms of profitability:

  1. Development and testing naturally are investment phases, where you spend money. The cash flow is typically negative.
  2. After testing comes the launch. The goal is here fast and deep market penetration. This helps to establish the necessary scale to become highly profitable and to cement a competitive advantage over me-to products.
  3. A mature product should provide a stable positive cash flow over a reasonable time. This should make the whole project profitable, covering the cost incurred in the development phase and in the launch phase, pay for the cost of capital etc.
  4. The harvest phase is concerned with recovering as much as possible from the investment when the product becomes obsolete. This may be done by using assets as long as possible and not replacing them, by transferring resources to new projects and by transferring customer trust and brand recognition to a new project, if possible.

Now compare this to a graph I have drawn for a typical internet marketing product launch:

If you watch this graph you will see that the cash flow over the whole project is much smaller. In fact the cash flow is only positive in the final stage of the product launch and in the first part of the harvest phase. This means less profit, but it also means that you must strictly limit the expenses for product development and testing. The result is in diminished product quality.

Why Do Marketers Throw so Much Profit Away?

The shortcomings of this launch-and-run strategy are so obvious, that it begs an answer to the question: Why do people still use these aborted product life cycles?

I think there are several reasons for this. Some of them might be:

  • The digital nature of information products sold through the internet means that these products can be copied without effort by anybody. And they will be copied, because there are more than enough people around who do not care about copy rights and intellectual property provided both belong to others.
  • Affiliates will run after a launch. A successful launch means high market penetration. High market penetration means conversion rates will fall: Everybody will still buy only once, provided he likes the offer, whether 3 or 15 people tell him about the deal. And lower conversion rates mean less rewards for the same effort by an affiliate.
  • Limited product support, caused by the anticipated early end of the product life cycle erodes the value for the customer further and damages the value of the producer’s brand. Sales are hurt even more and the product leaves the marketplace even faster.
  • Limited resources for product development make for poor products. And poor products need pressure sales tactics, as they are accommodated in a product launch environment. Mature products do not accommodate pressure sales tactics, as products in the mature stage are readily available. Thus sales will break down after the launch.
  • The aborted product life cycle strategy allows still for some profits.

Possible Solutions
I am not the first one to note this problem, or to think about solutions. In fact there have been many product launches promising by themself to provide such solutions. The main strategy in the internet marketing place has been up to now to extend the product life cycle via continuity programs. This means, as far as information products are concerned, to drop-feed the information through a membership website or via coaching programs to the customer. It is easier to detect and act against illicit sharing of passwords and usernames than against outright copying of ebooks, videos etc.
Others left – at least as far as own products are concerned – the information product market and moved to ongoing services like web hosting, audio streaming.
But I think there arises a new opportunity to solve that problem: Platforms such as app stores by Apple and Google, Amazon offers for Kindle devices; probably Microsoft will establish a similar system, and regional book dealers will also try to develop such platforms.
Why do these platforms help us to solve the problem? First of all, they control the content distribution, i.e. on which machine an app or ebook might be copied or not.
But there is more: You can update an app on a mobile device to keep the quality high and the information up to date. This adds an element of the drop-feeding to your product, as mentioned earlier. And it allows you to offer a high quality product to new customers, while keeping the existing ones happy.
A third aspect: The cost for the user of an information product has two components: The money spent on the product and the value of the time used to consume the product. A mobile product reduces the value of the time the customer needs to invest to use the product. He can read and listen while sitting in a train, plane, waiting at the doctor etc. He can spare his quality time for his family and his customers.

Please Share Your Thoughts
I invite you all to share your suggestions how to overcome this problems in information marketing. If you have an idea how to solve the matter, or if you want to add another aspect to the problem description, please leave a comment.

The Power of Mobile

Watch this speech given by Google’s Eric Smith recently in Berlin to get an idea about The Power of Mobile.

He mentions a few concepts providing me with quite a bit food for thought:

  • The huge potential which becomes available whenever people connect cloud computing and mobile devices
  • The concept of crowd sourcing. You can get almost instantly a picture of events thousands of kilometers away by receiving information from a magnitude of eye witnesses. Raw information is distributed before spin doctors had a chance to get their hands on it.
  • How this changes the balance of power between buyers and sellers
  • How this changes the balance of power between government and citizen.

We had the chance to witness The Power of Mobile, which develops whenever millions of people have the ability to access this huge pool of information and the ability to publish instantly what they see, hear and think. Propaganda generated by governments and organizations like Hezbollah can now be dissected. Then suddenly becomes visible that one and the same person was shown as a dying bombing victim on 3 pictures taken in different places on different days, and the same toys scattered in the ruins of buildings on a host of photos taken in different towns on different days. (Examples taken from Hezbollah propaganda during the last Lebanon war)
Even the mere access to mobile phones, without the extra power of instant multimedia publishing has proven remarkably powerful. If people see something in the TV they may call a friend in the area affected and ask. “Are you o.k.? And what is going on.” As a result protests against Israel’s military offensive against Hamas in 2008 were much stronger in Morocco compared to Jordan, Lebanon or Egypt. People could already differentiate between the truth and TV coverage, as long as they were not too far away from the scene.
Such thinking is not new, but still valid and also economically powerful. I remember an article published about 20 years ago in the Harvard Business Review explaining that in rural India at the time the lack of phones was not a mere symptom of poverty, but an important source of poverty. The reasoning: Small farmers had to sell their product for a very low price to wholesalers, because they did not have a chance to know what people were paying in town for food. With a phone they could have called shopkeepers in town and ask what the pay for rice, wheat, potatoes or corn, make an informed decision what to plant and almost immediately increase revenue substantially.

How to Get More Sales

If you want to grow your business, you need to get more sales. By definition, there are only three ways you can get that:

  1. Get more customers
  2. Sell more often to each customer
  3. Sell more in each transaction

Get More Customers
If you do not want your business to die, you need to acquire new customers all the time. In truth, you lose customers all the time. To grow your business and get more sales, you need to find more new customers than you lose current ones.
Finding new customers is expensive and can be difficult. Many businesses do not earn a profit and even make a loss on their first sale to a new customer, the so called front end sale. They need to go a long way to find a prospect, make him aware of the offer, get his interest, nurture his desire and finally induce him to act on the offer. You need lots of effort and high expenses to guide him through his decision making process.

Sell More Often to Each Customer
It is much easier to get more sales from an existing customer, because you have built already a trustful relationship with him. You can get his attention, and it is easier for him to act on his desire, because his risk to be disappointed or look like a fool is now much lower.
How often you can sell to each customer depends on your product or service, and on your effort. The best scenario you could dream up is a product which needs to be replaced or serviced every couple of months, and you can approach your customer at the right time to remind him about the need. One simple example would be your dentist. He will send you a letter to remind you that it is time for a new checkup and ask you to call for an appointment.
The same system lies behind the riches of Gillette, Procter & Gamble and Coca Cola. In these cases, the body reminds you that you need more razor blades, detergents or drinks. To get more sales the providers of these products need just to be present in your mind as well as in the store.
In internet marketing we use social networks and email to be present in the customers mind. It is a bit more difficult to come up with products which need to be replaced on a regular basis, because we sell typically immaterial products consisting of information. But still, information needs to be up to date, which opens the door for membership sites providing a steady stream of news about a certain topic.
It may also be a good idea to drop feed your information product to your customer. This approach may increase usability in a big way. And every time you deliver the next installment of the product, you have the chance to get more sales by offering him a related product or service. If you deliver too much information at once, the consumer may feel overwhelmed, and your product may end up collecting dust on your customer`s hard disk.

Sell More in Each Transaction
If you have made a sale you have got already your customers attention and interest. He is in the mood to act. The simplest way to get more sales from your existing customers is to offer them another related product, which may increase the usability of the product they just bought. One example would be the sales man for shoes, who will inevitably offer you a shoe polish as soon as you have bought your new boots. This is absolutely legitimate, and your customer has every right to be angry with you, if you do not offer this shoe polish, travel insurance, video tutorial etc. He wants the full value of the product you just sold him, and it is up to you to offer him complementary products and services.

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