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Learn and follow the ‘laws of entrepreneurship’
Entrepreneurs often think that if they have a creative new product or service idea, they will make millions. Sometimes, the entrepreneur gets lucky and the product or service is a success. But, all too often, the “laws of entrepreneurship” influence the outcome. Successful entrepreneurs understand these laws and will never try to prove them wrong. The laws of entrepreneurship are similar to a physical law since they are typically conclusions based on repeated experiments or observations over many years and become universally accepted within the entrepreneurial community. So, if indeed there are laws of entrepreneurship, what are they and how do entrepreneurs navigate them and use them to their advantage without experiencing failure?
There are four laws of entrepreneurship. These are:
1. Your product or service must create value.
2. You must know as much as you can about your target customer.
3. You must have a sizeable target market.
4. You must make your target market aware of the value you have created. Disregarding any of these can and will lead to your new venture’s demise.
Value creation should be where the entrepreneur spends most of his or her time. Without value, there will be no exchange. With no exchange, the entrepreneur has a broken business model and no means of generating profit. The value we create depends on our target market but often includes performance, customization, design, brand, price, risk reduction, convenience, or usability. The value often occurs when the product or service solves a problem or reduces or eliminates a pain the customer has. Without solving a problem or eliminating pain, the entrepreneur’s product or service will not sell. The only way to address the law of value creation is to understand your target customer.
The best way to understand your target customer is to spend time with them. At every step of your entrepreneurial journey, you need to test your product or service to see if it can deliver value. To launch your idea into the marketplace without talking to or surveying hundreds of potential customers is a recipe for failure. You need to know how your customer thinks, where they shop, what they do in their free time, how much money they make, and above all what problems or pain they have. Without a solid customer understanding, no creative product or service is strong enough to succeed unless it can deliver value to your customer. Just because your family, friends, and you think it is the best idea since sliced bread, it will not create success unless your customer sees, feels, and tastes the value. Just because you create value and understand your customer completely does not mean the market demand will be enough to support your new business venture. Therefore, you might fall prey to the next law of entrepreneurship.
Market size is the third law of entrepreneurship and unless it is large enough to support your operation, you will not succeed. An entrepreneur must understand how much money it will take to bring the product or service to market, as well as the resulting sales that can be expected from the target market that has been identified. The more time you spend with your customer, the more they will reveal information that will enable you to estimate market size and the resulting market piece you can carve out. Keep in mind that an initial purchase of your product or service is nice to have, but repeat business is required to make a profit. From your intimate customer knowledge, you should know why your customer bought and what will be required to keep them coming back. If you do not know these requirements, then talk to more customers.
The final law is making sure your target market gets exposed to your product or service and understands the value it creates or the problems or pain it relieves. You cannot easily create a viral marketing campaign. In essence, when something goes viral it is usually by accident and not as a result of a well-executed marketing campaign. Further, do not count on social media to be your only approach to reaching your target market. Social media is one way to connect with your target market, but you will need to develop a marketing campaign that your customers want to share. Again, the only way to understand what your customer would want to share is by knowing them. Use your customer knowledge to target your efforts. If you appropriately reach your target market and they see the value in your product or service, the exchange will occur and you will be on your way to millions.
But, your work is never done as an entrepreneur. You must constantly be testing your assumptions about your product or service, your customer, the value you bring or the pain you relieve, and what new markets to target. As an entrepreneur, you need not fear the laws of entrepreneurship. Instead, understand that you cannot escape the laws. Embrace them, understand them, but never ignore them if you want to be successful.
Timothy Syfert, Ph.D., is an affiliate instructor at Grand Valley State University’s Seidman School of Business and staff member at GVSU’s Center for Entrepreneurship and Innovation.