When Jim Kolb founded Wisconsin-based House of Flowers in 1993, he introduced a product line and shopping experience that no one else in town was offering. From his lodge-style shop that uniquely utilized every square inch of space to the new South American roses he was selling, it was evident that Jim was taking a leap of faith.
"Although these things were on-trend in larger markets at the time, pushing this envelope in conservative Oshkosh was certainly not a guaranteed success."
But it was successful; thanks to an audacious mindset and a meticulously planned strategy. If you feel that you and your business are ready for a new venture like this, here are five best practices to take into consideration before doing so.
1. Seek trusted advisors
As hard as it may be for them to accept, small business owners can't know everything. Your attorney will be able to tell you if this new venture is compliant with state laws or if there are any potential legal infractions that could trip you up. Your accountant can inform you of whether or not your ideas are financially feasible and also help develop an action plan should this venture be wildly successful or a complete failure.
2. Build a tolerance for risk
Be patient. When you know for a fact that your business can handle small successes and failures well, then it'll be time to up the risk.
Whenever Jim launches a new product or service, he does so slowly and methodically, taking great care to ensure that employees are up to speed before it's marketed to the public. He's also careful to select merchandise that doesn't obligate the customer to become too fancy and provides price points that appeal to everyone.
3. Plan for any outcome
If you only reach 15% of your projected sales for a new product, do you have a plan for the extra inventory? How will it affect your business? How will it affect you personally? What if you exceed your projection, will you be able to keep up with demand quickly and effectively? Some things are hard to predict, but analyzing all possible scenarios and having a solid contingency plan will allow you to flex more when the pressure is on.
4. Create a new entity
If you're adding legal risk, new partners or venturing into a different state, you should look into creating a separate legal entity. Doing this can help protect your assets (e.g, renting your property to the business itself) in the event you incur huge losses after taking on a big risk.
Sidenote: If you're working with a third party to create a new product, considering taking steps to protect yourself from potential lawsuits and other damages by writing things like indemnification clauses into your contract.
5. Put the risk on insurance companies
New products can bring about new risk. Whether it's a new machine that ends up damaging your facility, a new process that injures an employee or your new product injuring a customer, product liability insurance can cover some major risks and help put your mind at ease.
Failure can be an immobilizing prospect, but all great business owners know that risks are inherent in striving for progress. Whether it's a strategic, financial or operational risk, use these best practices to be prepared for any outcome.