A few days ago, I was walking through a neighbourhood in a big Canadian city. The neighbourhood is currently under heavy residential real estate development. There were construction cranes and equipment everywhere as the skeletons of residential buildings were being erected at a feverish pace.
Interestingly, some developments that were still under construction had already moved some residents into parts of the buildings that had been completed.
These tenants were the brave pioneers who come in early and are willing to live in noisy construction zones for a discounted early-bird price.
The Allure of the Up-and-Coming Neighbourhood
It’s the kind of neighbourhood that realtors like to say is “up-and-coming” when they’re trying to convince clients to buy into the potential of a new neighbourhood.
For a home buyer, it could be a good idea to invest early in the area before the crowds show up and inflate the home prices.
But for a small business that needs sufficient cash flow to pay its bills, investing here can be a risky proposition.
Businesses Closing Down in the Up-and-Coming Neighbourhood
As I made my way through the neighbourhood, I noticed an alarming trend. There were multiple eviction notices and “Closed Permanently” signs on the windows of small businesses that had only recently opened up in the area.
Most of the businesses had been opened there only within the last 6 to 18 months. And they had already thrown in the towel. Either they got evicted by their landlords or they voluntarily shut down.
There was a burger joint, multiple coffee shops, and other retailers that were no more. And the retail stores that were still open were visibly empty on a Saturday afternoon as the employees sat inside looking bored with nothing to do. You could tell business was not good.
There simply weren’t enough tenants living in the new uncompleted neighbourhood to provide them with enough cash flow to pay their rent and business expenses.
They had invested in a low-traffic zone and learned a valuable business lesson:
If you’re a small business with limited resources, never invest in a low-traffic zone. You will go out of business.
A big business can afford to use their big new store budget to tap into their cash reserves to pay their bills while they wait for the crowds to slowly make their way to the new up-and-coming neighbourhood. But a small business doesn’t have this luxury.
This rule applies to selling your products offline and online.
Always place your product where the traffic already exists.
Sell on the high-traffic online platform. Open your physical store where people already go, where there’s traffic. If you can’t afford to do that because the rent is too high, then set up in the lower-traffic area and physically go out to where the traffic is to tell people about your product to bring them to that low-traffic area.
Remember: A business with a great product will fail if no one knows about the product. But a business with a poor product can succeed if it is popular.
Big Businesses with Terrible Products Still Bring in Lots of Cash
This is why big businesses with terrible products still do well. They go where the big traffic is.
No matter how much customers complain about their products, the big businesses seem to be thriving. It’s because they’re visible, they’re popular. They bring a large enough crowd into their stores that a small customer conversion rate and new customer acquisitions are enough to keep them doing just fine.
Big businesses open up their stores in the popular downtown locations, at the busy street intersections, in the middle of the chaotic traffic. They’re willing to pay a premium to be there because they understand that their economic survival depends on high traffic.
And they advertise on the popular TV, radio, and Internet media channels. They make sure to let as many people see them as possible.
Why Do Small Businesses Really Fail?
They say over 80% of small businesses fail within the first 5 years. And that they fail due to insufficient funding.
That may be true but it’s probably because of where they choose to invest the small funds that they do have. Most new entrepreneurs believe if they invest all their money in building a fantastic product or a cool store, then the crowds will come no matter where they are. This is not true.
Allocate some of that money to promote the product and less to the product itself. You can develop the product further after people actually show up and pay for it.
As I walked that street and peered into the other still-open businesses on that Saturday afternoon, I noticed they had really cool stores and interesting products on display. But they had no customers. So their cool products were irrelevant. It didn’t matter. They were very likely going to be out of business too very soon.
Raise your business funding and allocate a good percentage of that funding to promote your product. Don’t be invisible. Don’t be irrelevant.