A Market Focus for Entrepreneurial Opportunities
by Matt Allen, Associate Professor and Founder of the Family Entrepreneurship Amplifier Program
As a new year begins, we often see the transition as an opportunity for a fresh start. With this year’s transition especially, all of us are looking to 2021 with the idea that it can’t possibly be worse than 2020. As we look to this new year and consider what we can do differently and what needs to be improved, one question that many business families will ask is: How can be more effective at adapting to the everchanging business environment in which we operate. Even before the pandemic began, the rate of change in just about every market was accelerating. Now, more than ever, business families need to be ready and willing to adapt and change with the changing times.
At Babson, we see entrepreneurship and building an entrepreneurial mindset within the family as an essential capability for all business families, but especially in the current environment. I have been teaching family business and entrepreneurship courses to students and executives for many years. One of the most common questions that I hear from business families is: How can I help my family to be more entrepreneurial? One of the most powerful tools that families can use to build an entrepreneurial mindset, especially during times of significant change is to build a market orientation. Having a market orientation means that the business and the family are constantly looking to the market, not internally for feedback on performance, needs and opportunities.
Entrepreneurship research is clear that the best source of information and ideas for new opportunities is from the market itself. Successful entrepreneurs know how to effectively engage the market in order to understand needs and obtain constant feedback as they develop ideas to meet those needs. When we teach entrepreneurship to students at Babson, one primary activity is to get students out into the market so that they can observe and interact with customers, suppliers, service providers and other decision makers. We have found that constant engagement with the market is the best source of new ideas and opportunities. Only by understanding what is going out outside the family and the business, will business families have access to the information and knowledge they need to successfully adapt and change.
While working with your family has many benefits, a natural inclination towards a market orientation is not one of them. Because of the tight relationships found in families, business families tend to be more insular and will often look to the family or trusted advisors, managers or employees for ideas and opportunities. As a family business grows and later generations become involved there is a tendency to add to this insular approach a protective posture where the family seeks to lower risks in order to safeguard the business and its benefits for future generations. Both of these tendencies can reduce the ability of the family to build an entrepreneurial mindset and effectively adapt to change.
Below I outline three simple steps that business families can take in order to break away from the insular approach to information gathering and build market orientation. None of these efforts requires a significant investment and each will help build an entrepreneurial mindset including ideas and opportunities for adapting to a constantly changing market.
- Customer Visits. Most family businesses already benefit from strong customer relationships so this is often a great place to start. Customers can be a great source of ideas and opportunities and are often the first source of information regarding a need to make changes or adapt. There are many ways to stay in contact with customers from surveys to follow-up phone calls. One of the most effective, however, is to visit your customers where they actually engage with and use your product or service. While some information from the market can be obtained by asking questions, the majority is observational. Only by seeing how customers actually interact with, use and adapt your product or service will you be able to make connections between their needs and what you are able to offer. Business leaders who wish to keep their finger on the pulse of the market should have a regular schedule of customer visits that allow them to directly observe how customers are interacting with their product or service. Now only will this effort provide a multitude of new ideas and opportunities, but you will build stronger relationships with customers as well.
- Direct competitor observation. Most savvy business owners try their best to be aware of competitor activities. Like customers, competitors can be a great source of information about market needs leading to the discovery of opportunities for needs for change. While it is not generally feasible to observe the internal workings of your closest competitors, it is often possible to observe how those competitors interact with their customers and how competitor offerings differ from your own. Where feasible, visit competitor businesses, purchase and try competitor products and observe how competitors interact with customers. The purpose of these efforts is not to copy or replicate competitor efforts. That is a waste of time. The purpose is to better understand the market by looking at it from a different perspective. You will also gain insights into your strengths and your weaknesses and how those might be changed or leveraged as you adapt to ever changing market needs. Don’t just be aware of the competition, seek to understand the competition from the perspective of their customers.
- Indirect competitor observation. While most business owners are aware of their direct competition, many ignore what are referred to as indirect competitors. Indirect competition refers to how customers might be solving their need through means other than your product/service or other similar products/service. If you sell snowblowers, it is great to know about the features of competitor products, but it can also be very useful to understand snow shovels, snow plows, the neighbor kid who gets hired to remove snow and even the customer who just leaves the snow on the driveway until it melts. Each of these are examples of ways in which potential customers are choosing to solve the problem that your business solves and understanding why they don’t choose your particular solution can provide invaluable insights into their needs. As you consider indirect competition, don’t forget substitute products or approaches. If you are a restaurant owner, cooking at home might be the alternative to frequenting your establishment. If you sell vacation packages, retirement investment might be a viable substitute. The key is to understand why potential customers choose to do what they do in order to gain insights into their needs and decision processes. This knowledge will often lead to ideas for how you can adjust what you do to better meet their needs.
If your family is not engaged in any of these activities, any or all of them will help you to develop a market orientation that will increase your ability to adapt to change and capitalize on opportunities. If you are already doing these things, an increased emphasis on these activities can yield similar benefits. As a family you can likely come up with additional activities that can also increase the focus on the market and yield similar results. The key is to help your family and our business to focus more on the market as a source of learning and growth.