Understanding Business Needs
The author, in this Part – V of his Entrepreneurship Series, highlights how a departure from the current ‘business trends’ and instead playing a supporting role to the same can mean good business.
We Assamese, and in general, north-easterners are great trend-followers unlike our friends and competitors, the Bengalis and the north-Indian communities living in the NE regions.
Allow me to elaborate. You might have observed that in Guwahati and other regional cities, there are cyclic investment drives with a sudden spurt of a particular type of business at a certain time. It started in the 1990’s with PCOs, wine shops, mini buses (popularly called Canters) and continues till the current day with the trend being on restaurants and gyms.
There are more restaurants trying to service a hyper-saturated market to the extent of aggregators like Zomato, Swiggy and Uber Eats offering ridiculous prices for a food item. While the cost of the food item is heavily subsidized by the aggregator, the model is flawed, especially for the NE. Over time when the offers dry up, the market would snap back to its original shape and a number of these establishments would fold up.
Sustainability is simply ignored by us and hence, most start-ups fail. Again, if your intention was to merely circulate and wash out some ill-gotten black money, then this is a good model. But for any business owner looking to establish themselves, such quick schemes and structures are untenable.
Unlike us trend-followers, my Bengali and Marwari friends do “baarikkaam.” They rarely go out of business and more often than not, have several businesses, each feeding off the other and constantly growing. How does this happen? It happens by building on market demand and delivery of sharply analyzed products/services. In a trend-following economy, they supply support structures. For example, in a restaurant-crazed market, they provide food packaging and ancillary items, special F&B ingredient items (large commercial sizes), commercial space etc. Unlike the trend-followers, they refuse to participate in the trend and rather supply the trend. In the northeast, take a market survey of any support services/products, you’ll find the market is cornered by Marwaris and similar people. Every time there’s a trend, they are already ahead of the curve and ready to supply the people whatever they need. Application of the basic principles of Market Analysis and supplying a need for sustainability and growth is ignored at the cost of failure and huge financial loss.
Have you done your homework for your product/service before going to market? The purpose of the market analysis is to help you better understand the dynamics involved in selecting and targeting customers for your product. To conduct a market analysis, you need to consider and then describe the key factors that affect your marketplace. Each of the following steps of the market analysis covers a different market facet relating to the customer:
1. Market issues:
a Consider the issues that may affect your market’s customers and offerings.
b. Many of these issues will be revealed by conducting an environmental (or, PEST – google it) analysis and an industry analysis.
c. Both of these focus on the high-level drivers of change in a market (the key trends and players) and how they impact the fundamental supply-and-demand relationship in a marketplace.
d. Are there broad trends or industry structures that create particular opportunities or threats for your business?
2. Market segments/target customer
a. Evaluate various aspects of the market and identify the most attractive target customers or segments.
b. In the early market, it is especially important to focus on defining the ideal customer, as it is hard at this stage to define general criteria along which to segment the market.
c. Rather than risking excluding any parts of the market, focus on defining a target customer on the basis of the needs you can meet. Later you can look at defining market segments.
3. Needs and demands
a. Highlight any gaps you see in the current market.
b. Any circumstances where customers are going about their business (either as consumers or as a business) in a way that is slower, less effective, or more expensive or inconvenient than if they had your product.
c. Try to identify these unmet needs and build your product around this specifically.
4. Switching costs
a. Weigh the difficulties and costs involved for potential customers to switch from their current supplier/solution to your offering.
b. Examine key elements such as whether your potential customers are locked in to a long-term contract with existing suppliers.
c. Is there a deep technology or organizational integration with your competitor(s)? The presence of these will create barriers for customers to change suppliers.
d. What’s your strategy for such situations?
5. Revenue attractiveness
a. Consider the elements that affect pricing power and profit margins (the most relevant will be covered in the industry analysis).
b. Remember to evaluate the revenue attractiveness in light of your business model.
c. Many successful companies (for example, Google) have created an attractive revenue stream by combining their technology advantage with an innovative business model.
The market analysis plays an important role in clarifying the factors that affect your potential target customers and their ability to move from one vendor to another. A careful market analysis will help you better plan who to target first and how to craft your offering. While the above suggestions seem to be inherently technical and strongly business school-structured doctrine, please remember that it’s the basic elementary education given to any business-family scion from his mother’s milk. The delivery mechanism aside, whether at a grandfather’s “galla” cash-counter or in the hallowed premises of IIM-A, the lessons are basic and need careful understanding and application.
Recently, during a heated negotiation, I was accused of “thinking and behaving like a Marwari” by a respected and senior Assamese businessman. Inwardly, I smiled at the compliment.