Sun | Jul 25, 2021
ADVISORY COLUMN: SMALL BUSINESS

Yaneek Page | Why your start-up is struggling to grow sales

Published:Sunday | April 25, 2021 | 12:11 AM

QUESTION: I need your advice urgently, please. I started my dream business last year in the middle of the pandemic after I lost my job. I make wet seasonings, pepper jellies, and jams. I was also thinking of expanding into dry seasoning, spices,...

QUESTION: I need your advice urgently, please. I started my dream business last year in the middle of the pandemic after I lost my job. I make wet seasonings, pepper jellies, and jams. I was also thinking of expanding into dry seasoning, spices, marinades, salad dressings, and hot pepper sauces. Business started off very well, and my family and friends have been my main customers.

I didn’t even really advertise, yet it took off with word of mouth based on what they were saying about the quality and taste, especially on social media. The problem now is that since January, there has been a huge drop-off in orders, like about half what I used to get in November and December last year. I am worried because what I am making now is not enough to cover the costs, much less my bills. What’s your opinion on why this is happening, and what can I do?

– Nickesha, St Catherine

BUSINESSWISE: Don’t be alarmed by the drop-off in business - yet. What you’re experiencing is a fairly typical phenomenon that I try to warn boot strapping start-ups about as they plan to launch their new business.

This phenomenon is called the ‘friends and family effect’ or ‘pity purchase effect’, which is an early but misleading boom in your business resulting from the overwhelming and enthusiastic initial support from sympathetic relatives and friends.

Let’s consider what happens when someone suffers loss of a job, especially in challenging economic times. We may often feel sadness, sympathy, and even fear for them. On the other hand, when a close family member or friend launches a new business, we are overjoyed. We’re excited about their new journey, especially if it has been a lifelong dream or major goal.

It’s normal to be proud and want to see them succeed against any odds. Now imagine the range of emotions we feel when someone we care for has suffered loss yet is on the verge of a major comeback?

We are likely to be so exuberant that we’re willing to buy whatever they are selling. Even if we don’t need or want it. In fact, even though we may not be able to afford to, we’ll probably spend considerably more than we think the product or service is worth in a desperate attempt to show support. I’ve made many pity purchases that I don’t want or need to show support.

But this type of buoyancy is short-lived and not sustainable. Therein lies the hazard of the friends and family effect. It doesn’t represent real demand and will eventually taper off, which is where you now find yourself.

At the beginning of the article I told you not to worry, yet, because the good news is that you haven’t yet embarked on structured and strategic marketing and sales.

A few guiding principles as you mobilise these business functions are:

- The ultimate purpose of marketing is to increase sales;

- And the traditional marketing ‘rule of 7’, that a prospect must see your message seven times before they consider buying, may still be relevant;

- Because when it comes to business in Jamaica, people still prefer to do business with those they know, like, and especially trust.

Your first step will be to segment your market into the most lucrative segments for the business. In your case, it may be better to focus on higher volumes from fewer customers than many customers who purchase smaller volumes, for example, restaurant and cook shops instead of householders. That will likely yield the most profit at your stage as you process fewer transactions, enjoy lower transaction and delivery costs but earn higher revenues.

The next step is to define and study each segment according to its form, needs, challenges, purchasing power and demand. Determine your sales universe by quantifying the value and profitability of each market segment, then prioritising according to your unique ability to offer the requisite value they demand.

Once you’ve done that, you can set a sales target and align your budgeting for marketing, advertising, promotions and sales activities. The challenge you will face is trying to balance all the demands of a small business with no team or business units to execute the many functions of a growing business.

If you have no experience in marketing and sales it will be worthwhile to partner with or hire someone to guide you in these areas, and where possible, outsource these functions as you focus on producing orders, quality control, service delivery and building strong customer relationships. Good luck!

One love!

- Yaneek Page is the programme lead for Market Entry USA, a certified trainer in entrepreneurship, and creator and executive producer of The Innovators and Let’s Make Peace TV series. yaneek.page@gmail.com