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a dose of market reality

Even great ideas need
a dose of market reality

Jane Plitt molded a shaky idea into a successful business. Her idea was to found a consulting firm that specialized in helping companies cut through government red tape. So in 1979, she left a job as an ombudsman for the state Department of Commerce to start JP Associates.
But Plitt’s founding idea ran into trouble.
Businesses proved unwilling to pay for services they could get for free from the state–a fact Plitt says with a chuckle it took her three months to figure out.
Many entrepreneurs like Plitt start with an idea, such as the desire to open a restaurant or design software for kindergarten classes. The successful entrepreneurs then lay groundwork with research and planning, experts say, and adjust founding ideas to market realities.
“The more work you can do before you quit your job, the better off you’ll be,” William Stolze says.
Stolze should know. He left his job at General Dynamics Corp., while supporting six children, to found RF Communications (now Harris RF Communications Division). Today Stolze both invests in start-ups and counsels entrepreneurs seeking investors. His book, “Start Up–An Entrepreneur’s Guide to Launching and Managing a New Business,” advises budding businesspeople to differentiate, concentrate and innovate.
Differentiate your idea from the competition’s, he says. While the concept of a pizza chain was far from new, Domino’s Pizza Inc. broke into a market dominated by Pizza Hut Worldwide by offering home delivery. Similarly, Paychex Inc. grew by serving firms with fewer than 100 employees, while other payroll companies only handled the big guys.
Small businesses entering the market against larger competitors should take precautions, Stolze says. Do not follow an idea that big companies with more money can do better. Build on the intrinsic advantage small companies do have: the ability to accommodate the customer.
When Stolze headed RF Communications, his major competitor was giant RCA Corp. One of Stolze’s customers wanted a green radio to match the rest of his equipment. RF Communications was small enough to fill the request, whereas RCA might have scoffed at it.
Concentrate your idea to find a narrow focus or niche, Stolze says. Eastman Kodak Co. realized it had veered from the imaging path, and sold its interests in health care.
“Even big companies drift away from things they’re good at (and) usually end up being sorry about it,” he says.
Market research is the key to making an idea work before the company is launched, says Robert Barbato, associate professor of management at Rochester Institute of Technology’s College of Business, and director of the Small Business Institute.
“If you think what the marketplace needs is another dress shop on Jefferson Road, you need to take steps before you put your money in,” he says.
Entrepreneurs first need to determine if the marketplace wants their ideas, Barbato advises. Question people already in the industry, be they trade associations, distributors or competitors. Read industry journals and attend trade meetings. Through those contacts an entrepreneur might even find a business for sale in the niche he wants to enter.
However, some ideas might fill such a small niche that a company could not build up enough business to do well, Barbato says. Some ideas might only take off in, for example, New York City.
Build on a strength, Stolze says, recalling Paychex founder Thomas Golisano’s advice not to try to learn a business at the same time you are starting one.
“Pick a product or service based on a skill you already have,” he says. “A rocket scientist should not open a beauty parlor.”
Finally, be innovative, Stolze says. But that does not necessarily mean the idea itself must be brand-new. Companies can be innovative in all aspects from pricing and payment structure, to manufacturing and service.
What Stolze calls innovations, Barbato calls wrinkles. For example, one person may always have wanted to open a restaurant. The want-to-be restaurant owner saw people drinking cappuccino from oversize cups in Boston, and that is the wrinkle he would like to add to his own establishment. Maybe then he will add other wrinkles, like books to read and classical music to listen to.
“I think a lot of ideas do come from seeing what others have done successfully and adding a little bit to make it better,” he says.
Some companies grow out of simple observation, which is how Jane Plitt’s father came up with the idea for his company, she says. During the Great Depression, young George Plitt noticed that while people were hungry, they still fed their animals. The observation led him to believe a business catering to pets would do well. Using his background in agriculture, Plitt invented cat litter, and Kleen Kitty became a successful product.
Both Stolze and Barbato agree on the importance of a founding idea. But the initial idea or product is less important than other issues, says Lawrence Albertson, managing director of High Technology of Rochester Inc., which arranges investors for high-tech ventures.
“There’s a saying in real estate, that it’s location, location, location,” he says. “Similarly in investing, it’s management, management, management.”
Good leaders are the most important element, Albertson says. Second comes market opportunities, while the product or concept itself runs a distant third.
Often entrepreneurs come to High Tech Rochester with only their products. If they do not have track records, Albertson looks for their passion and enthusiasm. Market research and mentors can always be arranged.
“All investors would agree, a hot-shot management team can be successful with a mediocre product, whereas the opposite is not true,” he says.
Albertson often finds good ideas brought in by mediocre managers because in his area of high technology, he deals with scientists and engineers who have had little business experience. Other entrepreneurs starting service-oriented businesses like retail stores may have had more training in marketing, finance and business.
Stolze adds that management teams seem to have greater success than do individuals. One outside person usually does the marketing and raises the money, while an inside person deals with the product. These complementary skills are not often found in the same individual.
But Stolze could not say that management is more important than the founding idea. Neither could Barbato, who says he has seen both situations: well-run companies which have turned less stellar ideas into success stories, and poor managers who have dropped the ball on great ideas.
For example, Wal-Mart Stores Inc. does not differ greatly from other general merchandise stores, but the Waltons provide the energy and drive so their employees give customers what they want. On the other hand, Xerox Corp. once had the best software technology and never went anywhere with it.
There are no right or wrong answers, Stolze tells entrepreneurs. You will not know if it is better to go with product A than product B, unless product A does not work.
“You must also keep in mind that (on) the road you pick to travel, you might have to take a left turn,” he says.
Flexibility is most important, says business consultant Plitt, and that is how she made her business work. She changed the direction of her firm dramatically from her original idea, skipping the tape-cutting to concentrate on low-cost financing for small companies.
Then as Plitt arranged her clients’ financing, such as for new buildings, she began offhandedly suggesting they hold open houses or use other means to build customer and business relations. Because Plitt’s clients trusted her, many turned to her and said, “You do it.”
She did, and today while JP Associates still arranges financing, Plitt’s main drive is business consulting with a specialty in marketing.
“While I do think the idea is very important (for success),” she says, “I’m the first who will say don’t stick to your idea if it’s not working.”

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