Part 2: Good Vs. Terrible Product Ideas
Encouraged by the success of my first online store – and at the urging of a friend who wanted to become a partner – a couple of years later I started another web business.
My friend owns a TV repair shop. He noticed that online TV parts retailers claimed to be growing very quickly. And since used TV parts are salvaged from damaged sets that people often pay to dispose of, my friend told me that the cost of those parts is practically zero.
“Think how much money we could make by selling those parts a little cheaper,” my friend said.
His idea seemed impossible to resist.
So while my new partner continued to run his repair shop, I designed another web store and created the inventory and packaging setups so that we could sell the parts online. After working many late nights I launched the website and we started selling TV parts over the web.
Within a year I abandoned that new business. The frustrations were huge. The profits were tiny.
But I did learn a valuable lesson.
Know Your Customer… By Being Your Customer.
My big mistake was to invest so much time in a business that I really didn’t understand. I had never run a repair shop or purchased used TV parts.
Had I owned a television repair shop I would have known that many of those businesses are in serious trouble.
Progressively larger and cheaper flat screen TVs give consumers a huge incentive to discard broken sets instead of getting them fixed. This shrinking customer base forces repair shops to hire untrained, lower-wage staff who know how to swap out circuit boards but can’t do any real diagnostics.
I quickly discovered that our online parts store was really in the business of providing free diagnostic help – something that can be tricky to perform remotely even with talented technicians – and then handling an onslaught of product returns from repair shops that ordered the wrong parts.
There were frequent communication problems. And because many TV repair shops seem motivated to push costs onto the parts supplier, they often acted in ways that appeared to border on fraud.
Not being a TV technician, it was difficult for me to improve our technical support. And I quickly learned that my friend, who is brilliant with a soldering iron, doesn’t have the personality to provide good customer support. It seemed impossible to keep our customers happy.
As luck would have it, my other online business was growing so quickly that it I found it difficult to devote enough time to solve all those problems with the TV parts business. The decision to leave that new business was easy.
What did I learn? That it can be a huge mistake to focus first on profits, without understanding your customer or knowing how to solve their problems.
Fortunately I knew from my previous business to keep our start up costs low while testing the TV parts idea. After our first full year in the new business I was able to report a tiny profit to the IRS.
And then I got out.