It’s tempting to think that funding is the most important part of starting a new business. Capital might be the first thing on your mind as a new business, but the Harvard Business Review says that new businesses overvalue capital and underestimate the importance of market need. When they do, they’re more likely to fail.
Our most successful business partners at FNB recognize a market gap, talk with customers about their pain points, and understand the sizes and needs of their markets. Often, these business owners or entrepreneurs are “second movers” in a market who have watched other, similar businesses fail or struggle. They may even have been customers or employees of the first movers in a market and recognize how to do it better by achieving efficiencies or creating better customer experiences.
Those same entrepreneurs study local online search patterns, spend time understanding consumer behavior, research supply chain and inventory requirements, and analyze customer complaint patterns. They do comprehensive work upfront to know whether or not a business can succeed and where they can spend smart capital.
Armed with this information, these entrepreneurs can start lean, introduce a single product or service with a low cash requirement, and then pivot as the market provides feedback. Cash helps these businesses identify a niche, conserve money, and scale as sales grow.
Businesses that start with capital and an idea, but fail to understand market need, are more likely to burn cash quickly and less likely to be successful. These entrepreneurs have energy, drive, and resources, but may quickly run into low product or service demand. They may use funds to unnecessarily market, advertise, purchase or lease space, or buy inventory. And, it’s very possible that none of these activities will return on the investment they’ve made because they just lack market demand.
At First National, we’ve worked with businesses who are thinking about a start-up, and we know how to talk through the basics of starting a business. In fact, we like to share that with potential customers so we’re starting our relationship on the right foot. Most of the questions we ask depend more on market, niche, and understanding of customer needs rather than cash requirements. Cash is part of it, but it’s less important than knowing your product or service has a market and having the research to back your idea.
When you’re thinking about starting a business, think about us: we’ve been doing this since 1885 and no single bank in Sioux Falls or the region has more experience starting and growing businesses. And if you are ready to talk with a banker – even if it’s to share an idea and talk about what to do next contact us. We’re ready to help you Start Doing!
-Jill Mockler, The First National Bank in Sioux Falls Business Banking Team Lead