What’s the deal with having a niche?

If you think back to just about every business adviser since the flood they have all said “You need a niche” and then they leave it at that other than some general statements about it being good for business.

Here’s a link to an article I wrote on another site about what having a niche means for your business, and it also tells you why they say you need to identify your market. I hope you enjoy it, and that you get some profit from it.

Why do I need a niche?

Is Your Finance Department Working Against You?

It might sound strange, but your Finance Department (even if that’s you after normal working hours) might be holding your business back. Having the right financial environment assists your business to survive and thrive, having the wrong one can close it down.

It can be as simple as having the right bank accounts. What does your business really need? A Trading Account, of course, and what else? At a point in your business growth you will also need some form of investment or interest bearing account. Exactly what you need is best decided between you and your financial advisors at the time, but there is obviously no real point having all your money just sitting around at the bank for free.

Your business may benefit from ready access to liquid funds – a bargain that has to be accepted immediately for example. Having a credit card or debit card may be the solution you need (Debit cards have much the same function as a credit card but use only your own money, so they generally cost less).

Would your business benefit from accepting card payments? That obviously allows you to minimise the risk of having cash on hand. Some stores have recently opened that do not accept cash at all, including a local coffee shop! You also open up the possibility of online trading when you can accept card payment, and that opens up a wider geographic range for your business.

If you trade online then you might consider using an online currency. That’s a real currency that only exists as an automated payment. There are no coins or notes, only electronic payments (including your card as a means of making electronic payments). Bitcoin is probably the most famous, however some Reserve banks are considering launching their own version.

Maybe you need a hierarchy of accounts for different levels of manager, or different geographic locations. If nothing else that prevents a store manager somewhere taking all your money and disappearing overseas with it – at least they can only clean out a local account.

Your financial history has a lot to do with what you can or can’t do – ask anybody who is bankrupt about the limitations they face. That said: nothing lasts forever, and may very wealthy people are ex-bankrupts. Don’t let your past performance dictate your future. Instead: learn from your mistake and do it better next time.

Convincing people to invest in your business requires you to provide financial projections. Any accountant can do that – they take your current financial position, add any expected investment funds and sales income – allowing for any credit period you might offer for payment, subtract expenses and that gives a prediction of the financial position of your company for each month for as long as you care to project it. But that’s only half the story. To convince someone to invest you also need to demonstrate to them that you have the capability to deliver on your promise. You tell them not only what you will do, how much income that will generate, but you describe you and your team’s experience. That just means that finance is ore than just the money you earn and spend, it is the way you do it too.

Your cash flow is the life blood of your business, if you don’t already then you need to start treating it with the respect it deserves.

Four Legal Mistakes That May Be Harming Your Business

One of the most important and most overlooked things that help make you business a success is your ownership structure.

You might think it is of no importance, whatever it happens to be you can sell stuff, right? Kinda, but that’s not the important part.

Maybe you need to have something registered in more than one geographic region. What would happen if a competitor registered a business in an adjoining State that meant you couldn’t trade there with your existing name? Nothing, if you registered yours first.

You may not want to trade in many countries, and the internet can make it easy to actually trade in a single jurisdiction while servicing the planet – but if you want to avoid the same issues then you may want to own a number of country-based business registrations. For example: you have a .com business and somebody registers the same name but with a country-specific suffix: yourname.com becomes yourname.com.xx. People in that country might look for a local branch to do business with, which means all your advertising is building their business too. The same can be true for .biz, .tv and all the other suffixes.

A second often overlooked feature is the contract you have with those in your employ. Think you’re friends and don’t need one? Think again – a falling out can damage your business and cost you the friendship. (But please don’t ask me how I know!) You don’t need a 20 page document that prescribes how often they breathe per hour, but you do need a clear description of what you want them to do, what you will do in return – and that can be more than just salary, their authority and responsibility, and any ownership share that they have or may qualify for.

Your premises need to be somewhat guaranteed for the duration, you don’t want to be moving every couple of years. Your customers may follow you for the first couple of moves but after that you will start to look a bit, well, shifty. A typical lease has an initial period that is under lease, with a second period that is offered on a ‘first refusal’ basis. Maybe you have a “3 x 3” meaning you have a lease for 3 years, plus an option on the next 3.

Likewise your contracts with your suppliers (and your customers) need to cover more than just a single transaction. Your needs will change over time, so you will require different service from your suppliers, even if that’s just double or triple the quantity you now need, or for them to service the additional premises you have just expanded into. By the way: the contract works both ways – you get guaranteed delivery and service levels, they get guaranteed sales. It’s a win/win, as long as the signed contract exists.

All legal agreements should be locking a win/win into place. If they are too one-sided then somebody is at risk of being forced out of business. That’s bad if it’s you, and it’s bad if it’s the other business: do it often enough and you have nobody to do that trade with, and that puts you out of business anyway.

Successful businesses are about solving somebody’s problem: Hungry? Buy this food. Need transport? Buy this car. Cold? Buy these clothes. Need premises? Rent this space. Need help? Hire this person. If your business does nothing except solve other people’s problems, and they pay you for doing so, then your contracts will reflect the right balance, and if you look for the same kind of connection when it is your problem being solved then you have a solid foundation for a long term business.

Wrapping Up Production

Earlier posts have discussed many aspects of your production, or what your production process needs to handle. Here we cover the rest of the topic.

You know what to make, your suppliers are under contract, you know your cost of production and your logistics are getting the product to your market in good time. Sounds like a recipe for profits.

Unless your cost to support your market is not also under control. You provide a guarantee, and a 100% success rate just isn’t possible. So what does it cost you to support your warranty?

Maybe your product works better if the buyer uses it with more skill – so you need to provide some training. Unless you can turn that into a value-add product and charge for it, you will have to cover that cost. Even if you can charge for some parts there are likely to be things that you can’t charge for. Did you include those items when you calculated your margin?

Can your team keep up as  your production levels grow? Perhaps you bring in updated equipment, or new techniques with the older equipment – are your current staff trained in order to maximise your investment in the new technology? The cost of excessive failures or hiring new staff could far exceed the cost of providing some training.

Have you considered what quality you will deliver? Rolls Royce aim to deliver the very best, regardless of cost. Others like Mercedes Benz, Ferrari and the like aim for the best and pay scant attention to cost. The companies that manufacture the vehicles most of us drive are constrained by cost – they deliver the best they can within the assigned budget. That’s not suggesting that the popular manufacturers don’t deliver a quality item – there are plenty of 20+ year old cars driving around to illustrate that. What it does illustrate is that you don’t need to aim for 100% to be successful.

For example I’m told that in a country near Europe a few years ago the law was that on vacating he home at the end of the lease it was common that the now ex-tenant was required to paint the building. One enterprising paint company produced a low-cost, low-quality paint that cornered this market by allowing the tenant’s contract to be fulfilled at the lowest possible cost.

You have to understand your market, what problem it has and how you solve it, and there is only one way to really understand it.

You need some way for the market to give you feedback – before they vote with their money and stop buying from you. You can ask them after every purchase, you can establish loyalty programs and quiz your members, you can hold competitions and give prizes for the best new idea, you can establish an online meeting place/forum and monitor comments – you can do many things, the only thing you can’t do is “Nothing”.

By the way – if you already do all of these things and more: you still need to do better next year. Why? Because your competitors will. You have to do better to maintain your market leadership position, or even more than that if it is you that needs to catch up.

Production Basics

Continuing the story of your production – the previous post begins the story, you may want to read it first if you haven’t already.

Your business is producing what the market wants to buy, you have great connections with your suppliers and customers. But of course the rate at which the market buys isn’t always the same as the rate at which you produce. So you need storage.

The question is: how much storage? You could have a month or two of supplies so that your factory never runs out, and the same month or two of finished product so you can always immediately serve your customers. That would be expensive to have that much space, and it would require a substantial profit margin to over the storage costs when you sell, so maybe that’s not the best way.

You can reduce your storage needs by buying on a Just In Time basis. That requires you to communicate the relevant parts of your production schedule to your suppliers so they can deliver just before you need what they provide. That can be via a comprehensive system that plots your production and sends requests to every supplier, taking into account their lead time, every time you need additional material.

Or you could just have a public version of your production schedule that your suppliers have access to, and allow them to decide what to produce and deliver, and when. Won’t work? This is what Walmart does. It is up to each supplier to ensure that each store has their product on Walmart shelves. If Walmart ever run out they simply look for a new supplier who will deliver on time.

Or if you don’t want or need to manufacture then maybe you can arrange to drop ship someone else’s product. You won’t need any storage at all, though you need to trust that your supplier will deliver in a timely manner to your customers.

Depending upon the business model you choose you will need different software to support it – you might need a warehousing system that tracks every item and another to control your manufacturing, or you may only need a good communication system to you can order and have the product shipped directly to your customer.

The point is: what do you need your software to do? Establish your required functionality, then look for a program that does what you want. Once you have that, buy the hardware that the program runs on.

If you can’t find a program to do exactly what you want then either slightly adjust your requirements (if you can do so without compromising anything important) or find a developer who will create a bespoke system for you.

The next post will complete the production posts for now.