You Need to Do This Before Opening a Business

It’s hard to imagine now, but in 1998, there were no major retailers selling shoes online. The prevailing belief was people won’t buy shoes they haven’t tried on.

Zappos.com founder Nick Swinmurn thought otherwise.

Armed with a statistic that 5% of all shoes were sold from mail order catalogs, Swinmurn approached venture capitalists with his business plan. Unfortunately, statistics weren’t enough to convince investors. He needed proof of concept.

So Swinmurn ran a test. He went to his local shoe store, snapped photos of their shoes, and posted them for sale on a temporary website. Whenever an order came in, he’d run to the local store, buy the pair at full price, and ship them out.

He lost money on every order, but it was a small price to pay to prove his market existed.

By 1999, he had convinced Tony Hsieh to invest in his company. Ten years later, Zappos sold to Amazon for $940 million.

Don’t Believe the Statistics

There’s nothing scarier than opening a new business.

The statistics are gruesome. Motley Fool says only around 50% of businesses survive their first 5 years, and only 33% survive their first 10. And other sources have far worse doom and gloom claims.

Before you begin to feel discouraged, realize that these statistics are misleading since many companies don’t survive because they are bought at a large profit. Still more companies are successful but close for other reasons like retirement.

Proving Your Concept

But even if you believe the negativity, there is one thing you can do to know your business is viable and has a better chance at success.

You can prove your market exists, like Nick Swinmurn did, only without the sprints to your local shoe store.

Only you will know the best way to prove your concept.

It might mean a straightforward review of competitor sales data and location demographics. Or it might mean something more innovative like passing out research surveys, placing a small quantity of products in a local consignment shop, or even getting a job at a competitor.

Those opening an auto repair shop might start fixing a few cars from their home garage. And those hoping to start a freelance writing business, like I did, might build a list of regular clients before quitting their day job.

Whatever you do, just make sure you’ve been a fair judge of your product or service and the realities of the market.

And the next time you see statistics discussing the failure rates of small businesses, know that you’re ahead of the curve because you’ve done your market research.

 

Adam Lucas holds a Finance degree and an MBA from the University of Kentucky. His work has appeared in many major outlets including AARP.org and GoBankingRates.com.