MISSING THE MARKET
Most startups suffer from anemic early sales, far below projections. In too many cases, the uncomfortable truth is that expected market demand for a new product or service, demand that is critical to the startup’s viability, simply doesn’t exist. A classic misjudgment on the part of the founding team is usually to blame: We believe passionately in this product, so everyone else will, too. It’s a build-it-and-they-will-come mentality, where the entrepreneur knows better than the customers what will make them happy. Too often, this attitude gives rise to inspired products that never find more than a few customers, or brilliantly conceived solutions in search of problems to solve. Even when a robust market opportunity does exist, over-confident founding teams rarely invest enough time, energy, and resources into marketing and selling their offering. They assume that the world will beat a path to their doorway. And they routinely underestimate, or dismiss altogether, the strength of competitive forces that will impact success.
Based on votes of confidence from her many friends and colleagues, as well as encouraging market data and her own deep sense of personal mission, Lynn Ivey planned to start signing up future clients in May 2007, four months before The Ivey’s scheduled grand opening. She decided to target wealthy families, who would pay out- of-pocket for an exclusive, club-like atmosphere, positioning The Ivey as an exception to other drab and depressing senior facilities. Her clients would be known as “members” and would pay an upfront membership fee of $3,000, as well as a weekly fee for attendance.
The Ivey’s business plan forecast sixty pre-registrations from May to September, which would generate $180,000 in registration fees. According to plan, one hundred members would sign up by the end of 2007, resulting in over $1 million in client revenues for the year (a figure thought conservative by Lynn and her team, as it didn’t include revenue from planned ancillary services, such as transportation, spa services, gourmet meals-to-go for caregivers, etc.).
To accomplish the sales task, Lynn hired a full-time marketing professional in January 2007 and engaged the services of a local marketing firm. She presented the sales plan to her experienced, well - connected board, and the group generated additional marketing ideas. Everyone seemed to know families who would be perfect prospects for The Ivey’s services, and board members were eager to help open doors with prospective corporate and institutional partners.
By the end of June, after two months of active sales efforts, Lynn and her staff were confused as to why no members had enrolled but remained confident that there was still plenty of time to generate sales momentum before the fall. Throughout the summer, Lynn received regular inquiries from curious families, but she saw few prospects that were both qualified and willing to move forward. After a barren summer led to still no sales through September, her puzzlement turned to concern.
Ever the optimist, Lynn had a two-pronged explanation. First, discussions with prospective client families were proving to be more complex and lengthy than originally thought. Spouses and children of declining seniors were grappling with emotional family issues of denial and guilt, and major care decisions often involved multiple children living in different parts of the country. Second, even though The Ivey had invested in colorful wall-sized renderings of the facility and world-class marketing materials, Lynn became convinced that having a finished building to show prospective customers would be the key to generating expected sales. A series of delays had pushed the center’s grand opening out until November, and she eagerly anticipated this event as the magical point when prospective members and their families could see the grandeur and comfort of the facility for themselves. No more abstract descriptions of the service—just oohs and ahs from touring families hungry to sign up.
But the lack of sales, combined with facility delays, were straining The Ivey’s financial picture. During the third week in October 2007, Lynn communicated to her board the need for approval to raise more investor capital. “The Ivey has a need for additional funding,” she wrote. “The primary reason is that I missed the boat completely when projecting that we would have sold many memberships from a virtual sales office prior to construction completion.” In closing, she wrote “I’m really sorry that I’m having to request this at this time. However, I am confident that we will fill up as soon as prospective members begin to see the facility.”
Not long afterward, Lynn and her staff moved into the new building, a dazzling 11,000-square-foot-resort-style lodge. The cedar shake and stone facility features a huge great room with wide windows, a massive stone fireplace, and vaulted ceilings, along with many other specialized rooms for activities and programming, a “tranquility room,” a physical fitness room, a craft and movie room, a full-service kitchen, and a library.
Although families began signing up for on-site tours, sales remained alarmingly low. By the end of 2007, only a few members were on board, generating revenues of less than $10,000 for the year, approximately 1 percent of projected sales. Head scratching and sleepless nights continued. Worse yet, at a time when her every minute should have been focused on solving the mystery of The Ivey’s missing market, Lynn was faced with the gargantuan task of coming up with another $1.5 million.
