Quite often, the motivation for starting a business, or your business idea comes from the desire to create another source of income. There is nothing wrong with keeping an eye on the income side. Cash flow is the lifeblood of any business. However, when money is your primary focus, you are putting the cart before the horse.
In coming up with your business idea for a product or service, we often do not take time to really think through what indeed we offering that makes us different from others already doing it. We often do not define our niche.
In simple everyday language, a commodity is something that is common – others are doing exact same thing or can reproduce it. Whenever you are comparing prices between two products, you are dealing with a commodity. How do you choose when you have products that do exactly the same thing? – You simply go for the lower price. Hence if your product is a commodity, you are competing on price.
When you are competing on price, you have to keep slashing your price to remain competitive. Slashing prices means reducing your profit margin, and when your profit is gone, you start cutting costs further, lowering the quality, layoff staff, etc. It is a downward spiral toward eventually going out of business. This is called fighting for the price basement. Bigger companies sometimes run their competitors out of business by slashing prices to the point their competitors can no longer keep up and hence fold up.
Niche products do not compete on prices. Examples of automobiles include luxury automobiles like Porsche, Lamborghini, Range Rover, etc. If you walk into any showrooms displaying these cars and complain that the price is too high, you will be directed to where you can get cheaper models. These cars are not for you – yet. High quality does not go on sale. There are shops that never have items on sale. It is either you can afford it or not. It is not for everyone.
When your product is unique, you do not have to compete on price. Your clients just come to you because you have what they need. When Oprah Winfrey started her show in the eighties, Paul Donahue was the king of talk shows. Oprah stamped her personality on her show, adding empathy, humor, and emotions and connecting with her audience in a way that took her to the top of the ratings after a few episodes.
When Robert Kiyosaki invented his game Cashflow 101, he was not making just another board game. Cashflow 101 was a personal finance seminar condensed into a game. He knew if he priced it at $399.99 like Monopoly, scrabble, etc, then every Tom, Dick, and Harry will want to buy one out of curiosity. However, what would follow would be a record return rate. Folks who bought it will not understand the game, get angry, and return the game for a refund. To align the price with his niche, he priced it at $199. Everyone thought he was crazy. How will he find people who are ready to put down $199 for a board game? To find his audience, he wrote the book – Rich Dad, Poor Dad. If you have read the book from beginning to end, you will notice that you wanted one if you could afford it. That is not a coincidence. That was the plan. The game went on to become a bestseller.
You can enter an existing market segment and design a unique product that will stand you apart from your competitors. This is referred to as your unique selling proposition (USP). If you do not have your unique selling proposition ready, you may want to hold on for a while before you start your business. If there are no competitors in your neck of the woods, you may start, but be ready for when competition does show up, which is a matter of time.
