I have a tradition of going for walks with my kids. Today’s work life doesn’t afford much free brain time to enable us to work well in the first place. Sharing your wisdom with those generations after you is something I enjoy on walks with my kids. These walks pay dividends, and today was one of those days. My son, Abdul Ahad and his friend have decided to start a pretend business. I am excited with pride and God’s mercy on me. The real fun was going through processes that I enjoy with clients with my 10-year-old son. This involved explaining the fundamentals of products and business, and refining products.
I’ve broken the conversation up into sections.
Section 1: Purpose
Dad: Ahad to start any business you need to answer five questions: 1. What is the purpose of your business? 2. Who is your customer? 3. What does your customer get? 4. Why are you building the business? 5. How are you going to make it happen? So what is the purpose of your business?
Ahad: We want to build a paper phone.
Me: That is the function of your business. What is the purpose of your business?
Ahad: It will have changeable screens.
Dad: Listen closely Ahad. That’s a feature. What is the purpose of your business? What happens when someone uses this phone?
Ahad: Oh! We want to create a pretend toy phone that kids can play with during lunch.
Me: Excellent! So, your purpose will be to “Spread joy by building pretend toys”. Correct?
Ahad: You can say that. But it’s too much what old people will say.
Me (Thinking): “Yes, thank you for recognizing I am old.”
Dad: Ahad, that is called a mission statement in business. Usually, it is to show what is the guiding light for all your business decisions. Do you get it?
Ahad: So, it’s like if there is something we do but it doesn’t have to with pretend toys we won’t do it?
Ahad: In that case, our mission is to “Spread joy to kids”
Me (Thinking): Ah so proud of you.
Dad: So, what you just did was what we call increasing Market Share. You just increased kids you can sell to by removing pretend toys.
Ahad: Yeah, actually! you are right.
Section 2: Customers
Dad: So now we know what your purpose is. Now we have to figure out “Who is your customer?”
Ahad: Jimmy, Elizabeth, Carl, Anthony.
Dad: Ahad, who is your customer? Have you studied in school what the lowest common denominator is? Also having customers like you do, is called Market traction in the business world. That’s something for you and your friend to be proud of.
Ahad: Yes, we learned that in the third grade. It the number you can divide everything by.
Dad: Can you give me an example?
Ahad: 9, 15, 21 and the answer is 3.
Dad: So, it the most common between all numbers, right? What the Lowest common denominator between your clients?
Ahad: They are all kids, they are 10 years old, they go to school.
Dad: Correct, that is called Customer Personas in the business world. You and friend need to create a list of Lowest common denominators for your customers in your next meeting.
Section 3: Product
Dad: So now we know your purpose and more about your customer. Let’s talk about the third question “What does your customer get?”. So Ahad tell me what does your customer get?
Ahad: They get a pretend paper phones.
Dad: Remember when you wanted me to buy the iPhone?
Dad: How did ask me? You said you need to do this and that. Right? You didn’t just come and say “I need an iPhone.” You told me WHY you needed an iPhone. It took you a while to convince me but you finally got it last year, right?
Dad: Ok, now think in the same way if you wanted me to buy you this paper phone. How will you convince me? You tell me the features and how you will use them. Again, what does the customer get?
Ahad: They will be able to order custom phones on which they can make pretend apps and play with friends during breaks.
Dad: Tomorrow in your meeting you should write all these down. Remember I said to write.
Dad: So, we got the first two questions answered. (Now Abdul Hadi, my other son has joined)
Ahad: No, we did three, the purpose, who and what.
Dad: Yeah you are right. Now the main question: “Why are you building this business?”
Abdul Hadi: To make money!
Ahad: No Hadi, during lunch time we see kids being bored as they can’t use their real phones. My friend thought we can start a company that makes these pretend phones.
Dad: So Ahad, Hadi has a valid point. You will need money. But we can talk about that in next question. So, you want to do this to make something for your friends to enjoy during lunch. That a good idea.
Section 5: How?
Dad: Ahad, so we answered the 4 questions. Now the final question: How are you going to make it happen?
Ahad: First I am going to talk with my friends and discuss the questions.
Dad: That’s what we in the business world call getting team consensus. Tell me this: how are you going to pay for the material for the phones?
Ahad: I can use my savings, I saw paper cost $9.
Dad: Are you going to print it?
Dad: What about the ink?
Ahad: I will use your printer?
Dad: Why will I let you use my printer for your business?
Ahad: Because you are my Dad?
Dad: Yes, but let’s pretend I wasn’t. How will you convince me?
Ahad: I don’t know.
Dad: Think, you can make me a partner. Or offer me money from profits. Or offer to do chores. There are many ways.
Ahad: What would you do?
Dad: Well that’s a decision a business owner like you must make. But I explain what’s involved. Do you want to know?
Dad: I will tell you anyway. If you take someone an investor, it’s a responsibility that you will take to pay them back. An investment should be treated like a loan that you pay back with profits. Only reason someone invests is to get ROI.
Ahad: What is ROI?
Dad: Return on investment. It’s how your mom and I pay for everything for you and your siblings. Spend time with you to do your homework. It’s us investing in your future, so when you grow up you are successful. An investment is not necessarily about who gets ROI, but someone needs to get it.
Dad: Then there is a partnership. A partner is investing more than money and is also willing to share in the loss. So, you and your friend are partners. It’s like me and your mom.
Ahad: So, will you be my partner?
Dad: No, I can’t be. Because you are my son and it won’t be fair to me.
Ahad: But you can be an investor?
Dad: Nom because it won’t be fair to you and your friend. You need investors and partners who are at your own level. See, if I invest as you are my son, you won’t be able to negotiate with me. You are obligated to follow me. Then there is a third way, and that is that you can do chores for me. With this option you guys will keep the whole of your company and not lose equity, you will control your company and have pride working for it.
Ahad: What is equity?
Dad: Ah, equity is owning part of the company. Based on your agreement you can be sharing in profits or in sales of the business. So sometime equity will pay off when the business is sold. In any case, whatever option you decide, you will have to be responsible for the return.
Dad: There is one other way. It’s called crowdfunding.
Ahad: What is that?
Dad: It’s not new. Basically, the goal is to sell a product that you don’t have yet. So, you can go to your customers and have them pay upfront, and you’ll deliver next week when it’s ready. In business, it’s called advancing sales. You are doing two things. You are testing if people will buy the phone, and at the same time getting the money to build the phone. So, have you decided on the price?
Ahad: We were thinking of charging a quarter for it.
Dad: How did you come up with that price?
Ahad: I don’t know.
Dad: Make sure you set your price on value, and not on cost. If you have answered the first 4 questions honestly, you will be able to see what value this phone brings.
Ahad: I don’t get it.
Me: So, go back to the question What does the customer get? Think. I pay $3 for Dunkin’ Donuts coffee. I do that because 1. I know that is a fair price, and 2. It’s the coffee I like, and 3. The coffee does what coffee is supposed to. And the main point being, the value of the coffee to me is higher than the value of $3. So, talk to your friends about these and we will talk tomorrow.
Next Week: Value Proposition