The idea of Mature Markets and Emerging Growth Markets is an old concept dating back to the traders of early civilization. Today large and small cap securities trading companies devise graphical indexes of performance, i.e., showcasing Gross Returns over a specified period. Where multiple franchises are represented, a composite sampling of Franchise Disclosure Documents can be taken to provide a reliable statistical mean, mode and median for a particular industry.
Similarly, as security firms examine markets globally, even a home based entrepreneur in today’s age of information is able to compile financial data of franchises from cross-sections of geographical locals to discover indicators of Gross Returns as an Annual Percentage. Just as your financial securities adviser attempts to educate financially intelligent investors, the entrepreneur has at his disposal the means to determine where he might receive the best return on his or her investment in their own company.
Of course, the numbers show only part of the complete picture. Other factors to consider are the political landscape, cultural and linguistically variable circumstances, overall economic conditions, per cap income and so on. From all of this a model of performance indicators can be constructed to compare franchisee to franchise and city to city, or even primary to secondary and tertiary markets. The driving principle is to uncover pockets of growth opportunity for intelligent investments. Partly art and partly science, the most successful entrepreneurs as measured by net income are those who have perfected a set of matrix which aid them in removing the cloud of emotional attachment that is normal for any business person who has a true passion for his trade. Using numbers to shine a light of due diligence to your business investment process will greatly help you to make an objective analysis of the opportunities and risks associated with a particular venture.
In my experience having owned four pawn shops, two thrift shops, a newspaper and several service companies is generally this: What appears at first to be the most attractive market are primary markets, oftentimes revealed themselves to be the areas of Least Growth Potential for new investment. Now this is not to say that it does not make sense for you to open your new coffee shop in Seattle, which might or might not make sense. Joya opened the Tin Umbrella in Hillman City (a South Seattle neighborhood with the most diverse zip code in the nation: 98118) and by all accounts she is doing great. The Tin Umbrella offers bicycle courier service to bring the coffee right to your door! However, the cost to upstart in a primary market compared to the startup costs in a secondary market or even a tertiary market is enormous. What’s more, the competition in a primary market includes many sectors which are mature markets with the most deeply rooted and entrenched companies.
A professional boxer doesn’t debut his career in a championship fight, similarly an entrepreneur who is early in his accumulation of equity and assets might do better to consider various points of entry for his new business ventures. It will be most difficult to wrestle a market share from companies that already enjoy a good reputation in that region. Reputation is an important intangible asset that must be considered when challenging someone’s crown. In my own career as an entrepreneur I have contended for the crown and lost, contended for the crown and won, and defended the crown successfully going undefeated in two separate industries. I have also have found myself competing where my core competencies were no match for the competition. This is why I am advising you now. I have made many of mistakes that you might yet make unless you learn marketing as it is practiced in the real world.
My final two cents is this: study the market leaders in your industry, look closely at their financials (the FDD). If you do not properly understand the three important financial statements obtain the book Financial Intelligence for Entrepreneurs by Karen Berman and Joe Knight (with John Case from Inc. Magazine). Go to Seattle and grab a seat in the Tin Umbrella and take it all in. When you have absorbed everything leave Seattle and find an underserved market to grow your American Dream.
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