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Why entrepreneurs should offer only a few options at most

We tend to think that more is better, right? If we were entrepreneurs, we would typically assume that the more options we offer, the more customers we can attract. Or that the more options we offer, the more satisfied our customers are, because they will get the product that meets their exact needs. Or that the more options we offer, the more we can gain market share from our competitors.

Are these assumptions accurate? For a very few large companies, yes. For most small companies, no.

Why?

Can you really attract more customers if you offer more options? If people want a good Italian meal, would they go to a restaurant that offers Italian, Thai, and Ethiopian food? Or would they go to a restaurant that offers selected dishes from Southern Italy, only?

Also, by offering many options within one product category you can either assume that the customers know the difference between these products or you can choose to educate them. The former is generally not a good idea unless you offer something very simple. The latter means establishing strong sales and marketing, which, of course, is costly.

Finally, by offering more options you are more likely to compete with big players. Competing with big players requires serious monitoring and competitive actions (for example pre-empting imitation) that call for a fair amount of resources. Nascent entrepreneurs, or new ventures, usually suffer from lack of resources, so this is not ideal either.

So, should you offer less then?

Why offering fewer options can be good

Offering fewer options means that you might neglect and exclude many interesting customer groups and hence reduce the size of your total addressable market. Sounds much worse than it is. In fact, this can be a really good thing. There are two reasons.

First, it makes your life easier as an entrepreneur since you don’t have to focus on many different customer groups each with different needs. It forces you to focus, which will help you to understand your customers better, create more desirable products that solve their problems, and expand once you’ve established reputation. Most great companies such as Amazon started by focusing on one thing only.

Second, your customers will be happier. Many potential customers will not buy from you, because they want something you don’t offer. However, those who do buy from you are very satisfied, because you focused on solving exactly their problem and knew you would need only one (or very few) options to offer. This leads to a great customer experience as opposed to a situation where you offer the same solution in several different versions.

For example, buying a new toaster, jacket, phone, car, or anything similar can be a real pain in the rear. We’ve all been there. It can be extremely frustrating and exhausting to make complex buying decisions since we try to be rational but most of the time we have neither expertise in the respective subject area nor energy to gather all the relevant information.

So, generally speaking, choice makes us unhappy.

This very topic has been thoroughly studied by Barry Schwartz, an American professor of psychology. In his book, The Paradox of Choice, he explains how freedom to choose actually makes us miserable. In 2005 he also gave a TED talk on the same topic. Watch his incredibly insightful and entertaining talk below.

In his talk, Schwartz gives many examples and explains how even patients get options from their doctor and have to make a decision between choices they are rather unfamiliar with.

Paradox of choice

Not having to think as a customer is the best possible situation. If you, the entrepreneur, manager, seller, can offer this situation to your customers, they will buy from you again and tell their friends about you.

Easier said than done. How can you do that? Amazon, Netflix, GoDaddy, and many other companies across different industries have implemented recommendation algorithms that suggest best-fitting options to the customers based on their demographic characteristics and behavior. This, of course, assumes that you have sufficient data of your potential customers, which is probably not the case. However, the answer is still the same: knowing your customer is the best way to offer them exactly the right option. Or how else are you going to solve their problem?

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