What Is The Single Greatest Risk When Starting An Online Business?

What Is The Single Greatest Risk When Starting An Online Business?

Whenever we are starting a new venture, whether it’s in business or a personal project, there is always the risk that it’s not going to work out the way that we thought it would. 

Let’s use the example of building a house or investing in property. The risks there are multifarious. There’s capital risk – we can’t get the money together. There are cash flow risks – we might have the money, but we don’t necessarily have it at the right time to pay builders, for example. There are also legal risks – I might not be able to get planning permission for the extension I want to add to the property in order to increase its value. There will be personnel or HR risks – people I work with, might not be honest. Or maybe they’re just not very competent and money is lost through this. There are also time risks – it might take longer than I thought it would. 

These risks all increase the liklihood of other risks. The risks that I want to talk to you about today in reference to online business and digital marketing are product risk and market risk. 

Product risk is the idea that I put something out into the market. I send it out to people and they just don’t care. They don’t buy it. They don’t particularly want to know about it and the product that I’m putting out there is just not something that is of interest to them. Therefore, you might end up with a warehouse full of inventory, full of useless widgets that you’re never going to be able to sell. This is product risk, and specifically inventory risk in that example. 

The big risk, though, and this is the risk that I think underlies nearly everything else is market risk. 

Market risk is the risk that a market does not exist for the product or service that you are offering. Now a lot of people think, oh but my product or my service is so innovative that I’m going to create this market. I’m going to take whatever I have out to the world, people are going to love it and they’re going to flock to me.

It doesn’t really work that way; it will work if you are a massively innovative company like Tesla or Apple. But even in those examples, the electric car and the MP3 player existed before these innovative companies came in and kind of locked down the market in their respective areas. 

Market risk is the cause of most businesses failing. You’ll hear these figures like nine out of 10 small businesses fail. The main reason for this is the market does not exist to support the vision that the business owner has in the first place. And despite this special traditional business brick and mortar high street businesses, the business owner, the entrepreneur will invest a lot of money, invest a lot of time, they might get themselves into a lease and commercial leases are normally a couple years long and very expensive. They will buy all of their equipment and they will spend a lot of marketing; they’ll hire staff and then they open their doors. And then they hope people will come to them, but they don’t necessarily know that the market exists before this point, which means they’re fully invested. But with this hope that once they build it, they will come, the customers will come. The problem is they don’t. 

Often the market does not exist, and all of the entrepreneur’s, or the business starter’s dreams were based on what he or she thought would work in the market. 

BUT there is an alternative to this, and it’s called lean start-up methodology. There’s a great book summarizing this method called ‘The lean start-up’ by Eric Luis. There are also many, many resources about this online if you look it up.

The basic idea of LEAN is instead of staying in stealth mode and developing in secret, without reference to your customers, without reference to your market, you start the creation process without the end in mind, instead you start WITH the market. You start with your customers, so you start putting out content. You start putting out minimum viability products (MVP). 

These MVP are the simplest form of the value that you’re going to be offering in the market, without you having to invest huge amounts of time, money and effort in creating it. If you use an MVP to test whether or not there is any need for this in the market, we spend a little bit of time thinking about how we can create a test of our value, we get it out to the market, and we actually see how real customers respond. 

So, all the theorising, all of the market research doesn’t matter until you get your first pound, or your first dollar in the door and when somebody actually gives you the cash. 

There’s a famous example from market research – the Sony Walkman. Sony brought in people from market research and showed them a range of Walkman in different colours or stereos. They had a yellow one, a bright red one, a bright green one, all these different colours and then the normal black one. People in the market research study they said, “oh yeah, I like the yellow that’s really vibrant, that’s really summery, that’s really me.” But then at the end of the market research project when everyone was offered to take one home for free, everyone took the black. So, what people say and what people actually do, especially when money is involved, is very different. People say one thing and then act in a different way. 

Until you have an opportunity to take your product to market to have people actually open their wallets, you don’t know whether your idea, your product, or your service is going to work. So, we use the lean methodology, we use this assumption that we are ignorant, and we know nothing. And instead we go to the market first, we ask them whether they want to buy a product and if they do then we go ahead. So, that’s lean methodology and that’s what we are going to be applying through the BATON course.

One issue with lean methodology that a lot of people push back on this, they say well that’s going to decrease my profits out of the gate. I want to open large; I want lots of customers, I want to be able to sell large number of units and make a lot of profit in a short amount of time. Fine, I get that. The problem with that is you expose yourself to risk, and you expose yourself to the possibility that you’re going to take a huge loss which is going to knock you out of the game. 

The idea of lean methodology is, you yes decrease your initial rewards. But you’re also decreasing your initial risk, your market risk. And that allows you to stay in the game for longer, using an analogy from poker, you might start by making small bets and then making small losses in order to kind of feel your way around the table, to know the strategy of the other players. To see how they play, how they react, to see if they have any tells. 

During this discovery phase you make small bets and you make small losses. That’s fine because you’re still in the game. If you go all in straight away, and bust out in the first couple of hands, then you are no longer in the game. You cannot keep playing. This is what a lot of small businesses do. So, the BATON model is built on this incremental approach where at each step we are going to make sure we’ve got all our ducks in a row, before we move onto the next. 

We are going to make sure there is a market for what we are going to be producing. Then we are going to make sure that the product that we will be producing makes sense for that market, and so on, and so on. Yes, it’s slower. It is more incremental, the big profits come further down the line, but we are also decreasing the risk. We are allowing you to continue to incrementally build this business over time. 

The way our BATON system works at the moment  is by going through three different levels, and it goes through a business, audience, tribe, offer, network in each of these levels, and it slowly builds upon itself. This does mean, yes, the training spread over a longer period of time. But this isn’t necessarily to sell more courses. This is instead because I know if I was to give you all of the information, you wouldn’t act on it. It would be overload, there’s too much information and no clear path through it and you’d just see all of the technical stuff, especially the third level and think no way. 

Instead we start slow. We make sure it’s actionable. We make sure it’s stuff you can actually do and see the results start to actually see revenue coming in, start to see audiences, start to see your tribe building up. And then move it to the next stage.You won’t do it if I give you everything. Even if you do do it, and you go all the way through the training and you produce everything that is needed, you are increasing your risk massively. By not incrementally stepping through the process and reducing risks one at a time. 

We are exposing ourselves to a giant risk, which is you might go all in, spend £20,000, producing your product on advertising, on a beautiful website, etc but you haven’t tested your idea. You haven’t gone to market early enough and when you go when you open your doors, people don’t come to you and you’ve lost money, you’ve lost that time. And you are more likely to say, sod this, online business doesn’t work and leave the game. 

That’s capital risk, that’s time risk, that’s market risk, that’s everything. All the mistakes that a lot of people make within the brick and mortar business, and we are not going to do that. So, incremental slow and steady, actionable, and then building from there to a larger online business. That’s how we are going to be doing it in order to reduce the market risk and to allow us to actually build a sustainable online business.

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