new business

The Holy Grail of the entrepreneur is supposed to be the 'gap in the market': some line of business which nobody else has discovered, and which, because it is all your own, produces no competition. The gap sounds like the easiest approach to success. It isn't. The fundamental business error in Somerset Maugham's story, The Verger, shows why.

Sacked by a new vicar because of his illiteracy, the verger finds himself wandering disconsolately down a long street and dying for a smoke. But there isn't a tobacconist. He reasons that other people must have felt the same need, sees an empty shop, rents it and is on his winning way. Sunday strolls around London looking for similar long, tobacco-less streets lead to further shop openings and a substantial fortune.

All very logical - yet it flies in the face of expert retailing knowledge. For preference, the experts don't (like the verger) choose an isolated 'pitch' where they will be the pioneers. They prefer a pitch where an existing business is generating heavy traffic for the trade concerned. That's why you see clusters of fast food outlets within yards of each other, or boutiques lining up for trade, cheek by jowl.

If there's no supplier for miles around, that could be because there are no potential customers, either. The gap-seeker's game is inherently chancy, because the firm is by definition offering something for which actual demand doesn't exist. The potential demand may be enormous - as two guys called Steve, Jobs and Wozniak, found when they launched the Apple personal computer on an unexpectant world. But the demand may also be derisory: witness the flop of Sir Clive Sinclair's bizarre C5 electric midget-car.

Sinclair's record at spotting true gaps is uniquely rich: pocket calculators, digital watches, home computers. Yet all three ventures ended in business failure. The risks of pioneering are double: you may pick a non-existent gap, or you may be stymied by the unknown hazards of an unknown product or market. That's why, just like Burger King seeking safety close to McDonalds (and near to its general business formula), most business successes have a strong me-too element.

That's obviously the case in a franchise operation, one of the most common ways for a small business to establish itself. The outlet mimics existing franchises down to the last detail. But this isn't an either/or situation: there's a half-way house between the total plunge into the unknown and total imitation. The truly expert gap-seeker looks at existing, well-established markets and chooses an approach that will exploit them in new ways, without taking a real flier:

1. Unfilled need: like that for portable computers, for people wanting to do their work at home or when away.

2. Disadvantages in existing products: like the fatteningly high sugar content in ordinary Coke.

3. Omissions in otherwise well-served markets: paper nappies.

4. Extensions or new formats for proven lines: Weight Watcher soups by Heinz.

5. Technological breakthroughs: that's how electronic typewriters destroyed electro-mechanical and mechanical machines.

6. Transferable successes from other markets: Hello magazine being adapted from the Spanish.

7. More economical ways of satisfying wants now being met expensively: fast food.

8. Less economical ways of satisfying wants that are being met only adequately (Haagen-Daaz, Ben & Jerrys, Sheba cat food, etc.)

These happen to be big-time examples, but the principles they enshrine apply to every business. Whatever line you're in, look constantly for any of the eight possibilities, not only because they may provide a new and important opportunity, but for defensive reasons. When a rival introduces some new feature or service, you may shrug it off - but what if the customers want it?

There was an advertising man named Rosser Reeves who won immortality by coining the phrase Unique Selling Proposition. The USP is something which you have that the competition doesn't. It can be anything from staying open for longer hours to home delivery: a no-questions money-back policy or a lifetime guarantee. Finding and concentrating on his clients' USP proved a great USP for Reeves and his agency, Ted Bates. And that's what 'the gap in the market' really means - a reason why the customer should buy from you, and not from anybody else.