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Brick No29: How JK Rowling made her millions
By Matt Weston, Friday 2 January 2004 The first big error many would-be entrepreneurs make is mistaking an idea for a one-off product with an idea for a viable business. JK Rowling hasn't made her millions out of a single book: the Harry Potter range now spans 5 books and a shed-load of films, DVDs, computer games, trading cards, board games, and even Lego sets. And a Potter acolyte wants it all! Long-term it's very difficult to build a viable business and sustainable income off the back of a single idea or product – especially if that product is a one-off purchase. Single product businesses are naturally more vulnerable to market forces: competition, technological development, legal change and shifts in demand. Look at how, after great initial success, companies like Tie Rack and Sock Shop struggled. They simply ran out of things to offer their customers. They struggled to build on their initial success because they couldn't increase the margin they made from each customer. There was nowhere to grow. Whereas Amazon doesn't just do books: it does electronics, DVDs, Kitchen equipment, travel deals and more. When you buy the latest version of Microsoft Office, you'll be offered all sorts of other services. And what's more, when the next version of Office comes out, chances are Microsoft will get you to buy and update. Remember this rule of thumb: it can be four or five times more expensive to get a new customer to buy as it is to get an existing customer to buy again or buy another product you offer. And the more your customers trust you and your product, the higher the multiple. If you offer only a single product for one-off purchase then you multiply your marketing and customer acquisition costs. Every time you want to sell your product you have to start from scratch and find a new customer. Now, there's nothing wrong with starting off with just one string to your bow: we all have to start somewhere, and it's right to focus hard on your first product. But before long, you're almost certainly going to need to work out a way to sell other products and services to your core customers, or get them to buy your product more regularly. If you can't work out how to make money from these core customers, you won't succeed – it's as simple as that. Whenever you sell a product, you buy a customer - how can you maximise the value that you generate for that customer at the point-of-sale and over time? Dyson: the exception that proves the rule I've racked my brain for an exception to prove my rule that one-product businesses don't work: how about James Dyson's bag-less vacuum cleaner? Dyson's success with his first vac was extraordinary. And look at the business now: if you buy a Dyson you get (a) an order booklet outlining all the add-ons, accessories, replacements and tools that you can buy for your vac and (b) a form to register your details to qualify for a full warranty. Dyson knows his customers inside-out: he adds value by offering products that he knows fit their needs. Most recently Dyson has been extending his product range beyond vacuum cleaners (including upright, sit-down, and pet friendly models) to a unique 2-drum washing machine. It's a low-risk strategy - Dyson knows exactly what his existing customers want to buy. And what Dyson is doing is much, much deeper than what the advertising people call 'brand building'. It's building bone-deep relationships with his core customers and with it, the permission to sell other products, services, upgrades and add-ons. Dyson has moved on from his brilliant idea, and he's now running a brilliant business: Dyson now sells more than 4 times as many vacuums as its nearest competitor. 3 ways to put today's 'brick' into practice (1) Start with your existing customers, or your prospective customers if you're at the idea stage Ask them what other products and services they are likely to buy at the same time as your own. Brainstorm a shortlist with your partner, mentor or a friend. It's important to keep focused: try to serve the same core market, as that's where the synergies and cost-savings are. Don't throw away the ideas you can't use now, put them in your business plan as possible future product developments. (2) Can you change your product idea into a continuous service idea? I recently heard a radio ad for a firm of florists offering a last-minute Christmas present: fresh flowers, delivered to a loved one every fortnight for a year. Newsagents that offer a paper deliver service have an advantage over their counterparts that don't - they lock their customers in. A relative of mine pays a Mr Fix-it a yearly fee to cover her decade old washing machine. His income is guaranteed, and each year she renews her cover. Can you think of a subscription add-on or product that would work for your business? (3) You don't always have to develop new products yourself Brainstorm a list of companies that target the same group of customers you do, but with non-competing products: for instance if you're a plumber, you might list local electricians, builders, tilers, architects, kitchen-fitters and other tradesmen. Approach firms on this list (prioritise those you already know, and those that are 'best-of-breed'), and set up what I call a 'Trusted Partners Network' - it doesn't necessarily have to be a formal arrangement. Whenever you take on a new client, or get an enquiry, ask your customer if they are interested in any other service or product - and actively recommend your Trusted Partners. Make sure your partners do the same for you. You could take a cut of revenue for introductions, although the arrangement doesn't need to be that formal - you could just work on a goodwill basis. It's an approach I'll be taking with business bricks in the New Year: putting together a group of partners that I know offer 'best-of-breed' services for small business owners and start-ups. As always, any ideas and feedback would be warmly appreciated. Remember to sign up: back to top |
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