The next important attribute is the development of new products and services, or innovation. This is the second revelation from our survey of selected small business owners.
The reason why some businesses succeed and others fail under exactly the same circumstances and in exactly the same business lies in their point of view about what a business is, and what it isn’t. The difference is that successful business owners are all entrepreneurs, but the vast majority of the people who go into business are not.
Every successful entrepreneur, every successful businessperson, has been someone who has been able to identify a problem and come up with a solution before someone else did. An entrepreneur is a person who habitually creates and innovates to build something of value around perceived opportunities.
Companies that are really successful are innovative, always creating new product and service offerings. Companies that provide “me-too” products rarely succeed. The laws of economics and markets play a role here. Whenever a new product is developed that generates above average profits, other businesses will be drawn to get a share of the honey pot.
The first in the game will make most of the profits, but only for the short period that it takes for others to enter the same market. In the end, competition will force prices downwards until all players in that industry make average profits.
Let’s take an example of a staple food, bread. Say, in your town people consume 10 000 loaves of bread daily. The existing bakeries will share this market in varying proportions. If you decide to start your own bakery, making the same ordinary bread, you may be able to capture a share of the market only by taking away other bakeries’ customers. If you decide to offer a lower price, others may also reduce their prices, thus reducing the overall profit in this product market.
In our sluggish economy, consumer demand and spending are still very low. Many of the entrepreneurs we spoke with cited this as the reason for the decline in their businesses. That could be true, but it is not the only reason. It appears a majority of the less successful owners have been doing the same type of business in the same way, producing the same products and services, for decades. They failed to change with the changing markets, technology and competition.
The economic downturn of the past couple of decades, with its resultant retrenchments and lack of new job creation, forced more people to start their own businesses. This increased competitive pressures in the common industries preferred by SMEs. Business owners who fail to be innovative in the face of the onslaught of competition suffer from slow growth or decline as younger and more agile firms join the game and capture market share.
An innovative entrepreneur will not merely copy products that are already being adequately supplied in the market. Neither will he or she continue supplying the same product offerings to a constantly changing market.
With their big imaginations, entrepreneurs can think of ways of changing or improving anything. Opportunities for innovation are everywhere. They are just waiting for you to seize them. You just have to stop thinking as an ordinary business person, but be an entrepreneur, think and act extraordinary.
Innovation is not something that you have to go out and do somewhere, separate from your business. Small businesses have the advantage of being close to their customers; that close connection is a springboard for innovation. Every customer problem is an opportunity to sell that customer another solution. You can read an on article I found informative, entitled: “Innovative lessons from small businesses”; it’s available on my blog
Our first SME BusinessLink seminar for 2011 is set for April 28. It will provide a great opportunity for networking and sharing ideas among entrepreneurs, watch this newspaper for details.
Next week, we shall look at the third part of key attributes to small business success, Don’t miss it.
Phillip Chichoni is a business planning consultant who works with SMEs and entrepreneurs. His e-mail address is