When I started my telecommunications business from my bedroom, I really didn’t have any idea how broadband worked in the UK or how I should supply it. All I knew was that people wanted to move from dial-up to broadband and there were lots of Internet Service Providers (ISPs) supplying it.
When I started my business there were over nine hundred direct competitors, and even back then they were all competing for only about 25% of the overall market. The main provider, BT, still has over 75% dominance. My point is, I didn’t know how to be an ISP, but I did know there was a demand and a significant number of companies supplying those services.
As I discuss in the podcast, selling internet access is hugely repeatable. Once a customer has been won and the service delivered you just repeat the process with the next customer. And again with the next. As volume grows, margins increase as you can negotiate higher levels of discount from wholesalers, and if you deliver a great service to your customers, then they will continue to buy more connections and upgrade existing lines.
Our long-term ambition at the time were just to control 1% of the market. We never achieved it whilst I owned the company, but it’s still a goal of that business, and it continues to grow to this day. It always was an achievable, if not slightly outrageous, ambition.
When trying to validate your own business idea, try to dissect it down to its very basic parts. It is usually the simplest concept that will serve you best, especially at the start, and will be the part that can be repeated over and over again.
For example, I am looking at starting a business building homes, but rather than look at the sexy side of executive homes, I am more interested in the concept of how to build low-cost social housing. Something like that is hugely repeatable, because while the margins are a lot less, councils and local authorities need homes all the time – it’s recession proof. The UK population is forecast to grow by almost a further 10 million in the next 20 years. The simple fact is that we don’t have enough homes for everyone.
However, rather than trying to build in the more profitable but volatile premium space, picking a part of the market that is simpler, builds a great foundation (terrible pun intended!) on which further innovation can evolve.
And that’s the really important part – you don’t have to innovate from day one and your idea doesn’t need to be innovative. That can come later. If you are looking to detail cars to a high level, you might decide to use steam cleaners (an innovation) a few years after you start, but you certainly don’t need to make that expensive innovation form the start. By steering clear of too much innovation upfront, you can also minimise your initial investment. By directly comparing your product or service to the competition, then you can be reasonably sure that there is a market there to consume it.
Also, when looking at that potential customer base, trying to break down what exactly the issue you are solving will help tremendously with your own business message and reaching a niche clientele. A lot of sales people will talk generally about their service or specification, but the secret to consistent sales is getting to the core of your customer’s problem: what keeps them up at night? If you can answer that, then you can position your business to fix that problem.
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