Norm Brodsky, columnist for Inc. Magazine and serial entrepreneur, asks three questions before starting a business. Have you answered these yet?
1) Has the concept been around for 100 years?
While 100 is an exaggeration, the point he is trying to make is that he looks for an established concept because he says there is nothing more expensive than educating a market. Brodsky wants to run businesses that operate on an established concept so he doesn’t have to spend money on teaching customers what it is or how it works, etc. He says he would rather be in the largest most competitive market than have to educate his customers on the product concept.
Brodsky learned this lesson the hard way so you don’t have to. He owned a messenger business in the early ‘80s when companies delivered documents and packages by putting secretaries in taxis. No one had considered using an outside company for that task. Indeed, the secretaries even enjoyed their time out of the office. Educating his potential customers cost him so much, he’s unwilling to do it again.
2) Is the industry antiquated?
And by that he does not mean “old fashioned” or dying. He means an industry that is ripe for innovation because its companies have been doing the same thing for many years. Look for industries in which the customers’ needs have changed but the industry has yet to respond. Look for industries not utilizing the latest technology. Look for any situation in which a change has occurred and the industry hasn’t followed.
Brodsky uses his record storage business to illustrate this point. There was a time when the record storage industry was just that – a record storage warehouse where files stayed and were never accessed again. Then, because real estate prices had risen so sharply, companies began storing files that they needed to access from time to time so they wouldn’t have to pay high rent just to store files in their offices. However, much of the record storage industry was ignoring this change. Brodsky didn’t and his company grew strongly as a result.
3) Does the business occupy a niche?
The niche that you should occupy will likely be identified in considering question 2. If there is a need that an antiquated industry is not filling, that is by definition, a niche, and a profitable one at that.
Brodsky’s records storage business occupied that retrieval niche in an innovative, for the time, way. To keep his customers’ files near their offices so they could retrieve them quickly, yet avoid the high rent his customers were paying, Brodsky built up. He rented and purchased warehouses with higher ceilings so he could fit 150,000 boxes in 10,000 sq ft whereas his competitors could only fit 50,000 boxes in the same space.
Of course, these are not questions that a revolutionary company should consider if it really wants to blaze a trail and change the world. Those companies are few and far between. If you want to start and run a solidly successful business, however, take these questions to heart.