First-time Business Owners – Don’t Underestimate Demand

By Amy DeGeer Roten

A strange and fascinating phenomenon is happening in Midland.

Several new businesses over the last few years have opened their doors and found unusually high demand for their products. In fact, the demand is so high they run out of products and close early. You might think, “Wow! How awesome! They’re immediately a success!”

In reality, the opposite can be true. When you’re opening-day inventory is depleted due to unanticipated sales, it does communicate that you have a hot product. However, it may also communicate that you are unprepared and out of touch with your customers, which can be devastating.

One company that experienced this phenomenon never could ramp up to meet demand and within weeks, closed the doors forever. Imagine putting all your money and years of effort into a new business only to see it fail because demand couldn’t be met!

Most first-time business owners plan for little to no profit for the first several years. Furthermore, most don’t have the net assets and cash flow to quickly scale operations for a surge. So how can new, small business owners better forecast inventory and sales to align with potential demand?

Here are seven tips to make sure your new business isn’t overwhelmed by opening-day sales:

  1. Test the market validity to anticipate volume with a Google Ads campaign.
  2. Use the Google Keyword Tool and Google Trends to research competitor sales and anticipate demand.
  3. Set up a crowdfunding campaign to secure capital for your business startup. Most people today have heard of crowdfunding. Crowdfunding sites are platforms where business investors are solicited over the internet. Rocket Hub, Kickstarter, GoFundMe, or Indiegogo have been at it since 2014. Learn more about crowdfunding on these platforms to see if it fits your needs.
  4. Pilot your product with pre-orders to evaluate real-time demand, and generate cash flow and volume estimates. Here’s a quick and easy article to help you with tips 1 – 4.  Estimate volume by units and then forecast sales by multiplying the price by volume. Here’s a great article to walk you through it.
  5. Do not close early if you run out of product. Meegan Holland is a small business consultant and former VP of Marketing and Communications for the Michigan Retailers Association. “If operating hours have been advertised but they are closing early due to depleted inventory, DON’T CLOSE!” said Meegan. “Greet the customer, talk about how hot the product was, tell them you’ll order or make the product just for them, and give them some sort of perk to retain their business.” Meegan also suggests offering free delivery, a discount, or whatever it takes to keep new patrons happy. Be willing to special order unless you cannot fulfill that promise due to supply or vendor issues.
  6. Analyze the competition on Facebook (reviews, pricing, demand). Identify and promote your differentiator. There are several tools to help you do this. Here is an article to help you.

Successfully operating a small business is part research, part common sense, and part intuition. It also takes courage, passion, and risk. Avoid being overwhelmed by demand you can’t meet. Make sure to work through a few of the tips above to have an educated understanding of the inventory you will need to meet sales for your grand opening.

For more information or resources, contact aroten@mbami.org.