The ABC of Building a Business

As we approach the anniversary of our first year, we reflect on the time spent helping our clients create business ideas through careful corporate structuring and business development. Working with a large number of startups, small enterprises, and even some medium-large businesses (including multinationals), there are some key themes which are distinct. We highlight some of these below.

Back to Basics.

The first thing that stuck out, is not which clients produced the best marketing campaigns, or hired the “smartest people” to make some “amazing” and abstract idea work. The primary ingredient for success, we have found, revolves around which businesses meet basic needs most effectively. We can categorize physical human needs into 5 basic categories, being: food/water, shelter, hygiene, healthcare and clothing. The best businesses we dealt with, even if they were service providers, offered a service which supported their customers in receiving these needs, whether directly or indirectly. For example, an effective logistics company helped clients deliver raw materials and supplies more cost effectively on a global scale. An IT solutions provider offered connectivity and software solutions to a large number of clients working in the restaurant, food and beverage sector, so that they could easily connect with customer orders quickly. Even if a business was not directly related to these five factors, the strongest startup business models we have worked with offered solutions linked to them. If the business idea was not linked to these basic needs, once the company started thinking along these lines, it became easier to identify their own value proposition to their customers.

Developing a Value Proposition

It is ironic that in an age where there is an ample supply of food/water, shelter, hygiene products, state of the art healthcare facilities, and clothing, there are still a large number of people worldwide suffering from extreme poverty. Most developed economies are experiencing economic slowdown as well, where many young people face the reality that they may not be able to buy their own house, or pay off their debts very soon. Despite having so much, the world on the whole, is getting very little out of it. A major reason for this is value attribution in the modern age. Some of the most expensive products on the market are luxury items, or recreational goods. These can come in the form of expensive phones, or entertainment goods such as TV/video games. Beyond these items however, are the instruments of the global financial system. Banks who store and print money, charge a huge amount of fees and interest, without clearly establishing what these fees cover. Consulting companies can take the lead from the banks, and often develop unclear or vague value propositions, filled with superlatives to justify high prices.

To think about how to develop your own value proposition honestly and effectively, it is helpful to imagine what a “barter” system would look like if it was in effect today. A barter system revolves around the idea of exchanging goods directly for goods. So if you have a shortage of food in your fridge, and your neighbor needs clothes, you could exchange your clothes for his/her excess food. In the modern economy, governments set the medium of exchange as paper currency, which is traded to be used for the purchase of goods and government services (i.e. public goods). In essence, however, the currency system exists simply to “manage” the barter system more effectively. Rather than store excess food in your fridge to give to you neigbour, you can store the bank notes/currency you own in the bank, and use your money to buy food from the supermarket, which stores and stocks food in bulk, for customers to take when they need it.

Basically, it is important to think of what physical benefit you are providing to the customer. Rather than imagining what revenue or earnings you want to capture, it helps to think about what value you wish to contribute to your customers. What benefit do they receive. How does your good/service improve the customer’s life? How does it meet their needs? Clients of ours who have managed to successfully answer these questions have gone on to achieve sales targets more easily.

Contracts and Management

The next step we see our most successful clients take is to document their value proposition through their contracts and terms. If they sell products in bulk, or to the public, then invoice terms and conditions, or clear packaging/advertising should legally and officially establish their value proposition in writing. Registering their intellectual property (patents, trademarks, copyrights), can also be useful in memorializing their idea. Setting out franchising agreements with partners who wish to utilize their idea can also be useful. Finally, for larger or more regular customers, with more important projects, it is crucial to enter into a purchase or managed services agreement. The aim of this agreement is simply to price your value proposition effectively. If you are a consultant, you can effectively set a price on your time, and give yourself the discretion to charge clients when they take that time. You can secure yourself against risk of loss, if you are shipping products overseas to an international buyer. There are many benefits of managing your contracts effectively, and oftentimes this can be the key ingredient of success.

Finally, Honest Marketing

We have seen many clients come and go, with extremely provocative, loud and expensive marketing campaigns. Oftentimes, such firms may promise a trip to the moon, but only deliver the equivalent of a trip to the mall. What ends up happening to these businesses, is that they may fill their pockets initially, from the inertia of their “anything goes” marketing efforts. However, when the word gets out that their value proposition is more of a “scam” than a reality, the work will start drying out, and the legal claims will start flooding in. In these cases, even the strongest contracts won’t compensate for dishonest marketing efforts.

Therefore, it is important to think strategically, cost effectively, and HONESTLY when marketing a startup. Luckily, with the digital marketing tools available to businesses, this is entirely possible. However, this area is broad enough to take up an entire article in and of itself!

If you need any help managing your startup, evaluating risk or developing its business/legal structure, get in touch today at info@borderlesscounsel.com.