Planning mistakes that will lead to failure

Last week in Darwin I came across a shopkeeper who had made every mistake in the book.

I was in Darwin the other day. It’s damned hot in Darwin. I remember how hot it is because I worked there years ago as a young lawyer before air conditioning. Anyway, I wanted some shorts, so we browsed around the Smith St Mall on a Saturday morning.

There were lots of shops selling shorts and just about everything else! One shop took my fancy. It didn’t have a “down beat backpacker” tourist appearance. It was rather slick and modern.

So I went in to find a beautifully fitted out shop with a smattering of high quality products, including men’s shorts. A lot of people were in the shop in comparison to the other shops that were almost deserted. There was a sign up “70% off everything”.

Everything included women’s and men’s wear, home ware, giftware and ornaments. So I bought some stuff before it all went (things were going and had gone like hot cakes).

I then spoke with the pleasant lady running the shop. “Are you closing down?” “Yes,” she said, “things are too quiet.” She didn’t know, but there was something I knew about Darwin, having visited it often and having once lived there.

The centre of retail activity had long since disappeared and shifted to the suburb of Casuarina where there were wall-to-wall shops and supermarkets. The Smith St Mall had seen retail casualty after casualty.

This lady had done a great job in setting up the shop, fitting it out beautifully, displaying high quality gear – but simply could not make a go of it. She had made every mistake in the book.

For a start, the diversity of her offerings prevented her from branding her shop.

What did people think of when they wanted a gift or women’s clothes or men’s clothes? They generally think of a shop that specialises in those products. Once we try to become all things to all people, we run a real risk of losing our identity.

Sure, if we specialise we narrow our offering, but have a much better chance of developing some form of brand recognition if we know what we are doing.

The next mistake was to open in the mall, in any event. It is packed with lookalike shops with no differentiation, and it certainly does not attract the more upmarket locals for whom the shop’s offerings would have been more relevant.

Tourists tend not to buy upmarket homeware. In any event, there are simply not enough people going through the mall to support such a shop. It seemed to this lady a good idea at the time, and she really did put together a great presentation, but she didn’t go to the trouble of doing some leg work – which is called by the more sophisticated “market research” to discover how many people would buy her product at a price that would return a profit.

Sometimes people say this is too difficult. If it is, then the risks of failure are high.

But what was really interesting about this little experience was that right at the moment I was in Darwin, the lady was selling more stuff than she had sold since she had been open.

The trouble was she was selling the stuff at a loss. However, despite the fact that few people shop in the Smith St Mall in Darwin, the locals, who would not normally visit her shop, were beating a path to the door because they could get things so cheaply.

She was outselling every shop in the mall because she was offering recognised brands at huge discounts.

This little exercise demonstrates that everything has a price and the market is very perceptive about price competition. If we can get the price right, people will buy the product and even go out of their way to do so. If we get it wrong, we end up selling the stuff at a loss and closing down.

Selling 10 widgets in a day at a 5% margin delivers a much greater profit than selling one widget in a day at a 20% margin.

So, if you are going into business, get the right location, do your market research, define your market and your offering, and get the price right.

Incidentally, I bought some great shorts and T-shirts with some really sexy brand icons prominently displayed. However, the shop is now closed.

Louis Coutts left law and became a successful entrepreneur. His blog examines the mistakes, follies and strokes of genius that create bigger, better businesses. Click here to find out more.

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