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More on Buying or Starting a Business

More on Buying or Starting a Business

There was significant reader interest in the article entitled “To Buy or Start a Business”.  Therefore, I would like to elaborate a bit more fully on one of the key concepts in the article; namely, the difficulty of building a customer base and how this relates to the personality of the promoter.

As I wrote in the article, most new entrepreneurs who start a business vastly underrate the difficulty of building a loyal and stable customer base.  This is usually due to inexperience or, sometimes, they believe that there is a larger market for their product or service than there really is.  And sometimes, they believe that their product or service is more unique than it is, or that it fills a need that is not really there.

Regardless, the new entrepreneur should anticipate that it will take at least three times as long to build a customer base than he or she would like, and that it will probably cost three times the anticipated investment in promotion, advertising and marketing to build a profitable and stable following.

Most businesses can be thought of as being on a continuum of say “one” to “ten”, whereby a business with a score of one, in order to succeed, requires little or no interaction on the part of the owner with customers.  Examples of these type of businesses would include gas stations, dry cleaners and liquor stores; no one cares who they buy a tank of gas from or a six pack of beer. They do not require personal connections or “networking”, and in many cases are location sensitive.   Likewise, a business with a score often requires constant interaction on the part of the owner with clients and customers; who the owner is and what he or she is about as a person is extremely important.  Examples of these types of businesses include most professional practices, childcare centers, and insurance agencies.

As a budding entrepreneur, you need to think long and hard as to where your business falls on this continuum, and how your personality and work ethic fits into the scheme of things.   If you do not like networking, are not willing to reach out to college classmates from 20 years ago to buy from you, and do not have an extensive network of business and professional connections, you are probably better off buying or starting a business with a low score on the continuum.  Alternatively, if you like networking and already have an extensive network of professional and social connections, you would probably do well in a business with a score that is high on the continuum.  Think long and hard, and be objective.


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