Are you building a cheap business?


Laptop for less than $5, are you kidding me?

I ran a cheap business once.

It did not help me much.

I am happy to have learnt my lessons.

Sharing what I learnt so that you make changes when there is still time.

Cheap business is not good for anybody. Not for the person building it, not for the people working in it. It may be good for some customers while it lasts – but how long it will last is anybody’s guess.

“What is a cheap business?”, you may ask.

A cheap business tries to win customers – by being the lowest cost provider in the market.

Let us see how being cheap hurts your business.

1. A cheap business is not competitive.

If your only competive advantage is low price then this advantage will not hold for long as there will always be somebody who is willing to offer lower prices than you.

2. It does not help if you want to sell your business.

Businesses buy other businesses either for loyal customers/users or for increasing profits. Cheap businesses do not have any of these two. There is no  loyalty  because  customer is always on a look out to find a cheaper option. Cheap businesses also don’t have healthy profits because they use whatever little they earn for survival.

So either you create another business like Instagram (50 million users and growing) – and get acquired by Facebook for $1 billion+, or get to work and increase your revenues and profits.

3. It is REALLY tough to grow a cheap business.

Cheap businesses can’t pay their contractors, employees, partners well – so the business stays what it started as – Cheap and Small.

Such businesses can’t invest in brand building – so no  visibility, no growth. Cycle continues.

4. Cheap business owners are not happy.

Cheap business owners are not happy because they are always thinking about serving their existing customers (while they last) with their limited resources, and thinking again and again about – offering low prices to win more business.

It is tough to be happy in such situation.

5. Cheap businesses do not last long.

Because there is low profit, not much growth and no fun – in building such a business. People tend to quit when there is no fun and reward in doing what they are doing.

If you persevere a lot then you may learn above lessons on your own – but not many last that long. They quit, looking for easier options like getting a job. [I have nothing against getting a job, but give your best to whatever you do].

All these reports that you read elsewhere about 95% businesses closing within first 5 years or some other reports telling you – 51%  businesses closing within first 5 years – are about these (cheap) businesses.

Cheap businesses with no creativity, lazy founders who make little effort to differentiate themseleves, create a stellar product and to win new business.

Do not be that business – while you are at it. Build premium businesses with high quality offerings (solutions, services,  products). Spend time doing things that matter – like talking to (potential) customers, improving your packaging. Spend less time on activities than have almost no effect on your growth – excessive online research, and thinking about doing something rather than doing it.

Just to make it clear.

By cheap I do not mean businesses/entrepreneurs who believe in running an efficient operation and spend their money thoughtfully.

By premium I also do not mean a business that spends like crazy. A premium business is one – that serves customers who have potential to pay – and charge them a premium to deliver extraordinary solutions.

Hope this motivates you to take action.

Next post is in this series is –

How to Charge More.

Hope it helps.

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  1. Pingback: How to charge more? | Mohit Pawar . com

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