The Three P’s of Starting a Business

There is a famous concept in the marketing discipline called the 5 P’s.  It describes the five principles of marketing, including:

1. Positioning (the strategic position of the product in the marketplace)
2. Product (the qualities, features, and benefits of the item for sale)
3. Promotion (advertising and other methods of communicating to the marketplace)
4. Placement (sales channels and other aspects of getting the product to customers)
5. Price (charging enough to be profitable considering the price of competitors)

This is an oversimplification of the 5 P’s but I refer to it because I want to suggest something similar – the 3 P’s of starting a business.

I have made it a habit when conducting training programs for start-up businesses to ask them to identify the one, and only one, reason to start a new business.  Few people get the right answer.  They tell me that they want to be their own boss; that they want to make a lot of money; that they can’t find a job so they want to try something different.  These may be good reasons but none of them is the reason.

The one, and only, reason to start a new business is because there is an opportunity in the marketplace.  There are enough People who will buy the product or service at a Price at which the company can make a Profit.  And those are the three P’s.

This sound simple enough perhaps.  But each of these P’s has enough behind it to fill a book.  The entrepreneur has to determine whether there are enough People – customers.  How to determine that?  Market research is the answer, and a lot of work has to go into determining what the right customer demographic is for a particular product or service; who is buying something similar now; how much they are spending on it; how much of those dollars can be diverted to the new product.

The entrepreneur has to know what Price to charge for the product or service.  S/he can’t know how much to charge until s/he knows the costs of making the product or delivering the service, bringing it to the marketplace, making sure all of the costs are covered, making enough to produce a Profit.  And that’s only one aspect of pricing – what is being charged by competitors for similar products?  Can the new entrepreneur fit his/her price into the marketplace without charging such a low price that profitability is impossible or such a high price that no one will buy the product or service?

There are so many questions to be answered that it is usually advisable to prepare a complete business plan which provides a standard format for thinking through, and answering, a lot of these questions.

By the way, a couple of paragraphs ago, I didn’t want to seem like I was insulting people who give me the wrong reason for starting a business.  These are creative, independent, sometimes courageous individuals who are striking out on their own and deserve a lot of credit for that.  But it is a new path they are following, one that requires a lot of new learning.  As hopefully has become apparent from this article, knowing the one reason to start a business is just one of many, many lessons that new entrepreneurs have to learn.

If you are considering starting a business, turn yourself into a sponge!  Soak up all the new learning you can get your hands on.  Take advantage of training programs and other resources to learn about managing a business.  The U.S. Small Business Administration offers a number of such programs, either on their own or through one of the programs they support:  the Rhode Island Small Business Development Center at Johnson & Wales University; the Center for Women & Enterprise; and SCORE: Counselors to America’s Small Businesses.  The Rhode Island Economic Development Corporation offers programs and they are also offered by your local Chamber of Commerce and at various colleges and universities, as well as online.  Take advantage of these programs and learn all you can about this exciting new venture you are embarking upon.

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