Preneur Marketing - The Blog of Entrepreneur Pete Williams

Risk reversal is all about removing any ‘risk’ that the prospect might be feeling and transferring it to your business. For example, I bought an expensive new computer recently, and I wanted to buy an industrial strength surge protector to go with it. The one I choose offered a guarantee that they would pay for up $70,000 worth of new equipment to replace anything damaged by an electrical surge while connected to their surge protector. So instead of me taking on the risk that their product doesn’t do what it should, they have taken this on.

Marketing expert Jay Abraham is generally credited with creating ‘risk reversal’, but in fact the original marketing guru Claude C. Hopkins in his 1923 book Scientific Advertising introduced the concept. He talks about the difference between selling your products and offering a refund for dissatisfied customers and offering a trial for a week and paying at the end if the product is acceptable. The risk is transferred from the buyer to the seller.

He gives the example of a man buying a horse. The first salesman said take it for a week, and if you’re not happy I’ll refund your money. The second salesman said take the horse for a week, and come and pay me then.

The second salesman got the sale.

HEY, did you know i’m running a contest while I am away…
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It is one of my strongest beliefs in business that you should do it your way. Too many people start a business by copying whatever most similar businesses are doing. Sure this might seem safer, but will this allow you meet your goals? And think about this: if you set your business up the same as everybody else, how do you expect to do better than them? How will you dominate your industry if you are doing the same things as everybody else? If nothing makes you stand out from the crowd, why will people pick you over your competitors? There is a difference between designing a business and simply entering an industry.

With this in mind, let’s have a look at some examples of how to arrange your business systems (remember, Save Your Self Time, Energy and Money). Because of the almost limitless different types of businesses that people can start, we will of course not be able to examine every possible business operation, but the following should give you an idea of how to match your systems to your goals.

Income before expenses — leveraging your money

The basic idea behind most businesses that sell products is to turn cash into stock, and then turn that stock back into cash as soon as possible. A footwear store will have capital (cash), and purchase shoes (stock) to sit in the stock room and on the shelves with the aim of selling them for cash — and for a profit — as quickly as possible. A whitegoods store pays upfront for the items in its showroom, and then aims to generate a profit by then selling these to customers at a higher price. Toy stores stock toys which they have already paid for; bookshops stock books that they have already paid for; even restaurants have to pay for food and other ingredients that they then sell to customers as meals.

You should already have noticed the major drawback of running your business this way. Think of the amount of cash that is tied up in stock that is not earning any money! If you are opening a bookstore, you might have to spend $150,000 just to put books on the shelf. And you will have to pay for most of these before you have made a single sale. It will take a long time to sell these books and recoup that cash. And you know that some of the books simply won’t sell, so this is cash that you will never get back. The cash that has gone into buying this stock could have been used on marketing to generate further sales.

A few years back I actually looked at purchasing my own Athlete’s Foot franchise. One of the reasons I didn’t go ahead was the amount of stock I needed to purchase to be operational — it was a large investment. Even though I could have designed the business to meet my goal and had less stock, you need to be intelligent and still keep your customers in mind. Footwear buyers in a retail environment don’t want to wait for their shoes to arrive; they will just go somewhere else and get them. Even though I am saying design it your way, you still need to be intelligent and consider your customer’s objectives. You must design your business to suit your goals, but you must make sure your goals make business sense as well.

HEY, did you know i’m running a contest while I am away…
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Fleur & I @ The NCAA Final Four, originally uploaded by Preneur Marketing.

…Please excuse any typos as this is being sent from my iPhone

Before you go any further, you must decide why you are going into business. Put this book down for a few minutes and think about it right now — it’s important! Before you even think about setting goals such as profit or sales targets, you must know what you hope to achieve with your business as a whole. Do you want to be your own boss? Do you want to work fewer hours? Or more? Do you want more variety in your job? Or to travel as part of work? Do you want to start a business with your partner? You must be able to clearly state what your personal goals are, so that you can structure your business and create systems to meet these goals.

Many people don’t think about this before getting started. They simply plan the business around their business goals, and then once they are up and running they find that they are working more hours than they did in the past, when they really wanted to work less. Or they hire staff to keep up with demand, when they really wanted to work by themselves. This is a result of putting the business ahead of personal aims. And it’s a mistake! Your business should be structured to meet your life goals, not your profit targets. Sure they are important, but are you going into business just to make money, or to improve the overall quality of your life?

You can set your own personal goals and desires for your business, and then build a successful business around these. Believe me, I know. I’ve done it — more than once! Don’t be lulled into going with the conventional wisdom, such as you need to work 9 to 5, or you need to have lots of stock in a warehouse, or you need to spend lots of money to get started, or you need to hire lots of staff. Build your business how you want. Create your own business goals. For me, this is the essence of being an entrepreneur — and most people get it wrong! They never think about escaping conventions. If you are going to keep playing by everybody else’s rules, why start your own business?

For example, if your goal is to create a business that allows you to travel, you can use the internet as your main distribution channel, arrange to have the products drop-shipped automatically when an order is placed, and do most of your customer service via email. Then you could be on safari in Africa, or at the top of the Eiffel Tower, or watching the sun set on the Gold Coast, and you could still run your business (as long as you can access the internet!). This isn’t a traditional business model, but I’ve seen people have great success doing this.

Maybe your goal is to work fewer hours. You need to create business systems that don’t require you to be constantly available during normal business hours. How do you do that? Outsource your customer service. Automate your ordering and shipment. Only take appointments in the morning. Sell a product rather than offering a service. Or maybe your goal is to work more hours (maybe the kids are driving you crazy), so you need to create business systems that will allow you to do this. Figure out what motivates you, what you are striving for, and then build your systems around this.

You must set both personal and business goals to be a successful entrepreneur. You will need the personal goals to help you when the going gets tough. If you have to work late or on the weekend while your friends go to the pub, or that crucial order is accidentally sent to Siberia (again), you’re going to have to remind yourself why you are doing this. And you need the business goals so that you — and others in your business — know where you are headed, and you will know when you get there.

Only once you have established your lifestyle goals for the business should you get down to the detailed stuff, such as profit levels, number of customers, and inventory turnover. All of these goals should be considered secondary to your primary aim of building your business how you want it. Think about what targets you want your business to reach. Do some research. Find out what other similar businesses earn, how many customers they have, what their profit percentage is. Also use your own experience if you are familiar with the industry.

HEY, did you know i’m running a contest while I am away…
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A must-see for every parent and teacher. Education guru Sir Ken Robinson makes an entertaining (and profoundly moving) case for creating an education system that nurtures creativity, rather than undermining it. Sir Ken Robinson is author of “Out of Our Minds: Learning to be Creative,” and a leading expert on innovation in education and business. (Recorded February, 2006 in Monterey, CA.)

More TEDTalks at www.TED.com

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