There is a painting on the wall of the main conference room in my law office. It comes from the cover of the October 1939 edition of Fortune magazine, and was painted by Antonio Petruccelli. The painting is square. Within the square, however, is a series of objects, arranged in a circular form, which, at first glance, would possibly seem to represent the image of a wheel. Upon closer examination, however, you soon realize the objects consist of, starting from the center, a large round conference table, at which are seated, each in a high-backed red leather chair, nine, similarly bald-headed men, each wearing a dark suit and white shirt. Each has, neatly placed in front of him, in uniform fashion, a white piece of paper, a coaster and a drink.
This probably doesn’t sound either too interesting or relevant to the topic at hand, but let me try to connect the dots. When you first look at the painting, your eye seems to see a consistent, geometric figure. The closer you look, the more you notice details with a difference. Some of the figures have slightly different colored suits and ties, but this subtlety is minor. The vision is of uniformity and conformity, and this is just what most of us expect from a board of directors.
What intrigued me about the work, is what the artist probably intended you to notice last. Each little bald-headed man is subtly leaning his right hand on the circular conference table, pointing his index finger accusingly at the board member to his left. You don’t know who is in charge, nor do you know who is first in rotation or last. The following quote, again from Fortune magazine, sets the mood:
If you have five directorships it is total heaven, like having a permanent hot bath…. No effort of any kind is called for. You go to a meeting once a month in a car supplied by the company, you look grave and sage, on two occasions say, “I agree,” say “I don’t think so” once, and if all goes well you get 500 pounds a year”
Chamberlain, Why It’s harder and Harder to Get a Good Board, Fortune 109 (Nov. 1962)
There are all sorts of boards of directors. Historically, corporate law has deemed this board as a group of wise individuals, legally mandated to manage the business and affairs of a corporation. The board does not manage on a day-to-day basis, but meets periodically, having appointed officers to deal with daily operations. Classically, the stockholders elect the members of the board on an annual basis, although many corporations utilize a staggered board system to provide continuity. With a staggered board term, some directors go on and come off the board at intervals longer than one year, and a portion of the full board will remain in office as the next group comes in. In not-for-profit corporations, the members of the organization may select or elect the board of directors.
One of the best known cases in early American jurisprudence on the issue of liability of a member of a board of directors of a company, involved a man by the name of Andrews. He became a member of the board of directors of a company during its start-up phase and served for about eight months. His only attention to the business of the company seems to have been a few discussions with the president of the company, when they met from time-to-time.@
The business later went into receivership, due in no small part to the incompetence and extravagance of the officers of the corporation, and the receiver sued Andrews for mismanagement. There were two primary issues in the case, relevant to this subject. The first dealt with the issue of negligence of the director, in terms of attending meetings. Since there were only two meetings during this director’s term, having attended one and missed the other with valid excuse, no negligence was found. The issue of the importance of attending meetings, as a matter of a finding of negligence, however, was firmly established.
The second issue was the attention to detail required of a director. The following quote from Judge Learned Hand in this early, landmark case, should help to demonstrate that duty:
[He] did not press [the president] for details, as he should. It is not enough to content oneself with general answers that the business looks promising and that all seems prosperous. Andrews was bound…to inform himself of what was going on with some particularity, and if he had done so, he would have learned that there were delays in production which were putting the enterprise in most serious peril.
Barnes v. Andrews, 298 F. 614 (S.D. N.Y. 1924)
This case stands for the proposition that members of a board of directors have a substantial duty to look beyond the “herd” and personally investigate the affairs of the business. The depth of the investigation is beyond this piece, but it has repeatedly been found to exist. Members of a board of directors are typically held to a standard of care similar to that of others in a fiduciary relationship. This means they can be found to have a degree of personal liability.
- ∙ in good faith;
- ∙ with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and
- ∙ in a manner the director reasonably believes to be in the best interest of the business.
Picking a company name is both a science and an art form for several reasons. If you are going to register your new business entity in Kentucky, for instance, the name must conform with the Kentucky guidelines and not be in conflict with a previously registered name in Kentucky. The same is true for most states, but that only addresses registration at that level.
Before you even contact a lawyer to help set up your company legal structure, I strongly suggest using a Google or other extensive online search, for the word, word combination, and meta tag names you are interested in using for your company name. I also strongly recommend doing at least your own trademark search to make sure another company has not registered a similar name in the same category of business. The United States Patent and Trademark Office has quite a bit of good information on trademarks, which are important to protect your name and to help ensure the name you choose does not infringe on one already registered by someone else. To take a look at some of the information there, start here: http://www.uspto.gov/trademarks/basics/index.jsp
Since you will probably spend quite a bit of time, money, and effort marketing your company with the company name you pick, you may want to have a professional trademark search conducted for you. You may also want to engage one of the many consultants that creates names for companies and products. Many of those companies (ex. Brand Institute http://www.brandinstitute.com/services_namedevelopment.asp) may also be able to help you with creating a unique logo and slogan, which can help establish your “brand.”
There are many free, online resources. A good place to start may be a free online naming “engine,” such as namestationor the one posted by WriteExpress®: http://www.naming.net/. This tool should let you plug in a variety of factors and generate names for you. It also has naming advice and some examples of “coined” names, names with a “twist,” “deviant” spelling, etc. If you want something that rhymes, there’s even a Web site for that: http://www.rhymer.com/namilng.html
In my opinion, and in general, here are some of the basic considerations, aside from how your company name might look on a business card.
1. Is the name available:
a. in the state where you will organize your company
b. for registration with the United States Patent and Trademark Office
c. for a domain name with minimal deviation from the exact company name
d. on Twitter and other social media channels you will likely use to market your company?
2. It should be easy to pronounce
3. It should be as short as possible.
4. It should have no negative connotations in other languages.
5. It should come, alphabetically, as early in any listing where you would want it to be found.
6. It should distinguish you from everyone else, and especially competitors in your market space.
7. It should tell everyone who you are.
8. It should tell everyone what you do.
9. It should tell everyone how you do what you do and why that is better than the competition.
10. It should be easy for customers and others to remember and spell correctly when typed into a search engine.
11. It should be interesting.
12. It should not be misleading in any way.
13. It should not be subject to going out of style or become easily dated.
14. It should be likely to turn up in search results of those who are searching for your product, service, or company.
Here are a couple of short articles I wrote:
Here’s a short video: How Can I Come Up With a Name for My Company? (although I don’t totally agree with everything said)
Here are a “gazillion” additional resources:
How to Name a Business Nice article by the SBA covering many aspects of this issue.
Register Your Fictitious or “Doing Business As” (DBA) Name Very nice SBA articles with links to state DBA Filing Requirements
Business Name & Tag Line Generator; “Use the 19 steps on this page to create a company name or tag line that sparkles with distinction” by Marcia Yudkin
Analyzing Your Business Name Search Results by Rich Stim
Is Your Domain Name Hurting Your Sales? Tips on Selecting a Domain Name by Stephanie Frank
Pick a Winning Name for Your Business; Choose a business name that will identify your company’s products and services. by Rich Stim
8 Steps to Create Your Business Identity; Create a Business Identity and Hang Out Your Shingle by Randy Duermyer
8 Mistakes to Avoid When Naming Your Business by Phil Davis
How to Get Your New Business Name Right; Part 1: The Six Essential Elements of a Business Name by Susan A. Friedmann
Put Your Business Name to the Test; Learn how to develop a “winning” business name by Laura Lake
How To Create a Great Business Name by Scott Allen
5 Rules for Choosing a Business Name; How to Create a Winning Business Name by Susan Ward,
Business Name Ideas; Tips for Brainstorming a Retail Business Name by Shari Waters,
Choosing a Domain Name for Your Website; Factors for Selecting a Domain Name for Your Home Business Website by Cliff Posey
The 10 Commandments of a Great Business Name by Darrell Zahorsky
Should You Name Your Startup After a Meme? By Brenna Ehrich
How to Name Your Business; What’s in a business name? Plenty. Follow this guide to choose a memorable name that will best represent your brand.
The Name Game: Naming Your Business by Terri Lonier
How To Name Your Company So You Don’t Get Sued by Mo Chanmugham
Join the Applied Entrepreneurship group on LinkedIn. Membership is free and I try to post about ten articles a day there. We have some great discussions going and if you are an entrepreneur, we hope you will join us.
Perhaps it is the economy, or perhaps it is the change in the weather, but I seem to be spending more of my time lately, counseling entrepreneurs on ways they can get through a transition in their existing business. Some want to add a product or service, which is a common issue. Some, however, realize they’ve grown, opportunities have emerged or been discovered, or their existing market has changed. Others simply want to be happier in what they do, or aspire to reach a new level.
Here are some basic tips I suggest in looking at such a potential transition in your business.
Determine where you want to go with your business, considering:
∙ what you’re good at
∙ what you want to spend the majority of your business time on (do what you love because you’ll be doing a lot of it and your long term enthusiasm is essential)
∙ what will be needed (ex. relieve customer pain or provide something they can easily understand is faster, cheaper, more convenient, longer lasting, etc.)
∙ what will provide an opportunity for you for the period of time you will be working on it (i.e. how long do you plan to be doing this?)
∙ what customers will pay for (a great product or service that customers won’t buy is not necessarily a “great product.”)
∙ something at which you can develop a sustainable competitive advantage and distinguish yourself from others (i.e. barrier to entry)
∙ a business you can sell when you’re done or use as a foundation for others, such as family, employees, etc.
Determine who your preferred client is and:
∙ who makes the decisions on spending money on businesses, products, or services like yours
∙ what the decision makers’ criteria are for spending money on a business like yours
∙ where and how the decision makers look for vendors of your product or service
∙ how they perceive the need for your service or product (i.e. what do they think they need)
∙ who they are currently using to fulfill this need
∙ how you can serve them better and justify the distinction between your product or service (or bundle) and what they are getting now
Make sure your product, service, or bundle meets the “sniff test,” in terms of quality, ability to scale to quantity, price, distribution, service, and any other criteria the customer will likely expect.
Make sure your marketing material will support your claims for the new business.
Market for what and where you want to be, as opposed to what and where you are, if you are attempting a transition, expansion, etc.
Form alliances with those who are already selling to your preferred future customers, proving to them that they can benefit from selling your business with theirs.
Be in front of your decision makers in any way that will demonstrate you are knowledgeable, capable, and a “player’ in the space where their needs are fulfilled.
Join the Applied Entrepreneurship group on LinkedIn. Membership is free and I try to post about ten articles a day there. We have some great discussions going and if you are an entrepreneur, we hope you will join us.
One of my clients recently contacted me about yet another e-mail he had received, which he considered to be SPAM. We are all getting more and more annoyed with SPAM, regardless of the effectiveness of our filters. SPAM forces us into a huge waste of otherwise productive time, to deal with the nuances of those who would inflict their unsolicited marketing efforts and avarice upon us.
My client had received an unwanted e-mail “offer” for something from a company which produces software he uses in his business. He complained to the company. They responded, apologizing (something I find exceedingly rare these days), and said they would remove him from their e-mail list. End of story, right? Of course not!
He got more e-mail and even a phone call. As it turns out, the company, somewhat amazingly, felt it had to continue to apologize because they had turned their e-mail marketing efforts over to a “respectable third party” which, as they said, had created what they considered a “fail-safe mechanism.” This mechanism was designed so that when the “respectable third party” company received an “unsubscribe” message, the primary company was “blocked” and could no longer communicate with the “customer” by e-mail.
Bottom line seemed to be that my client continued to get hassled, possibly because multiple e-mail lists had been generated at some time after his initial subscription to an online professional publication he used in his business. Neither the primary nor the “respectable third party” e-mail marketing guru company seemed to be able to find where the continuing stream of e-mail was coming from, and so the SPAM continued.
My client finally got a total refund for his subscription, but during the process, felt, as many of us do, that, like the thermostat in a hotel room, the unsubscribe button seemed to be for show. I’ve actually read a few articles which caution against clicking on the unsubscribe button because some marketing companies use it to verify that they have actually hit a “live” e-mail address, and thus ramp up their marketing efforts on this newly verified e-mail account.
What we have here is a failure to communicate, effectively. (With apologies to Cool Hand Luke and Paul Newman)
It looked to me like this company did make a much better than average attempt to do what they could to “make things right” for my client, including the personal phone call, apparently thoughtful letter and e-mail, and presumably full refund. Key words, however, are “average” and “what they could.”
This point coincides with a growing frustration I have with big and small companies. That includes a recent attempt to redirect a birthday present I had tried to get shipped to a relative. I was presented with a logistics system from one of our major package “facilitators,” that apparently does not include humans, and a previously well rated vendor who, no doubt, intentionally conceals any ability to investigate the status of shipments or contact a human, once your credit card payment is accepted.
I likewise recently tried to get my hands on a software shipment that was mistakenly delivered to the wrong address. Being at least a semi-nerd, I went to the package “facilitator’s” Web site to redirect or attempt to pick the package up, since it seemed to be floating around town faster than I was. The shipping agent’s notice on my office door indicated the package was accompanied by a “don’t turn it over unless you get his signature” caveat. From the facilitator’s Web site, I happily changed the pick-up location to indicate I would drive 20 minutes away and pick it up from the local distribution hub, rather than chasing the drivers around town.
When I got to the hub the next day, however, I was actually told by the facilitator’s employee that the package had been delivered to my office’s next door neighbor, who had apparently been kind enough to sign for it, and that the Web site deal pretty much never seemed to work. It took several days, e-mails and phone calls with my office neighbor to coordinate with her part-time schedule to finally get the software, at no small inconvenience to her or me.
Back to key words: “average” and “what they could.” I’m pretty well fed up with companies who cannot control their technology, and particularly those who tout the strength and efficiency of their logistical technology assets. Your experiences and mine, although different in many respects, may be similar in that more and more of these companies seem to have made a deal with the “devil” in order to leverage their business.
We all face this issue from time-to-time, but I’m afraid some aspects of the technology some companies use seem to be taking on a life of their own, not unlike the “Terminators” and “Cylons” of science fiction fame. I’m actually now starting to worry about whether I should unplug my iRobot vac in the basement when go to sleep at night or am away from home.
The efforts of my client’s vendor did appear sincere and beyond what most companies seem to be willing or capable of doing in such situations. I understand economies of scale and that a vendor can probably ship something more cost effectively through a company which focuses only on logistics. I also realize there may be a further economy of scale for the vendor if it turns over other functions, such as e-mail marketing, to other companies that concentrate only on that.
The problem seems to be developing and monitoring an effective way for the primary company to retain control of the whole process. In the 1984 science fiction film The Terminator, by James Cameron (more recently of Avatar fame) the premise was that mankind had developed an artificial intelligence system, including a network called Skynet. That AI network was so sophisticated that it became self-aware and then set about to eradicate the pesky and less efficient humans who built it. The humans fought back and were on the verge of winning back their planet. Skynet, according to the story, then used emotionless cyborgs they had created called Terminators, to try to kill off the survivors.
These Terminators were very effective because they had no emotion. They were totally focused upon the goals they were programmed to achieve. Does this start to sound, even remotely, like a company with good intentions, turning various core functions over to “respectable third parties” who, in turn, create a fail-safe system to prevent errors? When the next step is turning your customers into the “resistance,” is it possible it might be time to rethink your strategy?
I believe it was Winston Churchill who said: “However beautiful the strategy, you should occasionally look at the results.” Some companies may be creating their own Terminators, as part of their effort to improve efficiency and their own bottom line. The bottom line, however, could be terminating their customer base, and in turn, themselves.
Join the Applied Entrepreneurship group on LinkedIn. Membership is free and I try to post about ten articles a day there. We have some great discussions going and if you are an entrepreneur, we hope you will join us.
This is a collection of articles I have found interesting and, hopefully, useful in our current economy. All of these deal, in one way or another, with strategies, tools, methods, and techniques to make the most out of what you have or to take advantage of what others might think is a bad situation. They deal with cost savings, harvesting, economies, and other planning and implementation techniques, which are part of applied entrepreneurship. I hope you will find them useful, will comment if that might help others, and will suggest other, similar articles you have found valuable.
What you find below is a “starter set.” I plan to add many more shortly, and to keep adding as long as there appears to be an interest.
Since I’m a lawyer, I’m compelled to state a disclaimer. I have not received anything from any of the companies, so I have no axe to grind on any of these tips or the companies mentioned. I do serve as a pro bono SCORE counselor with the Louisville, Kentucky chapter of SCORE.
I also do not endorse any of what you find below, but I would not have put them there and published this list if I didn’t think there might be merit for some in considering what is said, suggested, or offered below. As we lawyers love to say, caveat emptor (let the buyer beware).
“As more and more small businesses are failing each day, companies are trying to develop new strategies in order to stay alive and earn profit. It may be the perfect time to shed a light on some useful small business cost control tactics and the fact that they can mean the difference between success and failure of a business.”
“Excess inventory can be a serious financial drag for any business. But what to do with excess items – no matter what they are or where they came from – can be a difficult dilemma…”
“There is a low-profile but high-octane national network of 393 manufacturing assistance centers —stocked to the gills with cutting edge expertise — whose sole purpose in life is to help small widget makers like yours become more tech-savvy, more efficient, more competitive and more profitable…”
SHAPE UP YOUR BUSINESS
“You have to be pretty lean now, but there are opportunities to grow if you are in a position to take advantage of them,” says Edward Marram, a senior lecturer at Babson College’s Arthur M. Blank Center for Entrepreneurship in Wellesley, Mass. “It’s a good time to evaluate your business, find ways to conserve cash and improve. Then look at where other competitors aren’t making it and go after those opportunities.”
“On a shoestring budget (and what entrepreneur isn’t?), it really pays to scrimp and save. Just in case you’ve forgotten the value of a hard-earned penny, we’ve come up with a slew of money-saving ideas to boost yourbusiness’s bottom line-from cutting your legal bills to inexpensive ways to draw in customers. Though some tips will save you more money than others, the end result of your overall spendthrift strategy could add up to a bundle.”
RESOURCES AND LISTS
“The What Works for Business 100 is our annual list of the best websites, organizations, products, services or other solutions for your business. Some are household names — others you’ve probably never heard of. The common bond is that they are terrific at what they do and can help your business in a critical area.”
“What Works for Business continuously seeks out, rates and analyses thousands of business resources.”
“These links are provided for the convenience of SCORE Web site visitors. They are not an endorsement of the companies or Web sites listed, or the products and services offered by them.”
SCORE is a Resource Partner with the U.S. Small Business Administration. It provides free counseling as well as low cost seminars. The Web site provides numerous resources for small business owners.
The last four posts in this business startup series dealt with ways to get started brainstorming, for the purpose of coming up with a great idea for a new business. Some of the authorities quoted in those posts seem to play down the value of the initial decision, since, in their respective situations, major adjustments had to be made later to survive or grow. Some of the articles suggested you could probably just lie on your couch and have an idea run into you, rather than having to get up off the couch and work for the idea.
In her article, Getting into a Breakthrough Frame of Mind, Lisa Gundry, Professor of Management and Director of The Center for Creativity & Innovation at DePaul University, suggests “[D]uring this time of economic recovery it can be an opportune period to rediscover and even reinvent your business. The following ideas can help create the conditions for breakthrough thinking:”
- Unlock yourself from your expectations and be open to possibilities.
- Review the opportunity or problem as you understand it.
- Engage in experimentation.
- Focus your attention on what you want to see happen, rather than what you do not want to occur.
Here’s one more set of steps on how to brainstorm your initial business idea, and to move the ball a little further down the field. I always believe in looking a little further down the road when I’m trying to read a map, and Kathy Korman Frey’s article, How to Turn an Idea into a Business, takes us just beyond the business concept stage. In fact, she even gets into mind mapping with an article you definitely should read if you’re interested in ways to come up with an idea.
Frey suggests a seven-part strategy for coming up with ideas. She suggests starting by taking a piece of paper, drawing a circle in the middle, and then writing the name of an interest or passion in the middle of the circle. She then suggests, in the area just outside that circle, writing every word that comes into your head when you think about your area of interest. From there, you try to find those words that are connected in some fashion, .linking them with lines, then drawing circles around clusters of words, and, finally, picking your favorite cluster. Having found a nexus, you develop an “elevator speech,” briefly describing what the cluster-based business is about. At the end of the exercise, you develop and deliver your “pitch” to sell your product or service for this business.
A few years ago, there was a marked increase in the number of firms, and “inventors,” who spent a substantial amount of time studying patents which had been issued but never commercialized. Many patents boasted great and novel ideas, but could not be commercialized after the patent was issued, because there was either very little interest in the ultimate product (i.e. fruit) of the patent holder’s labor, or because it could not be produced efficiently.
Some of these patented creations needed lighter and stronger materials to be viable. Some needed an energy source, and some needed another part or component to reach marketable potential. Then along came lighter and stronger alloys, more efficient batteries, etc. Guess what? Great ideas were not really reborn, but they were resurrected and updated and lots of folks are making lots of money because they could “connect the dots.”
Some of these new business concepts may revolve around disruptive innovation. This “term of art coined by Clayton Christensen, describes a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves ‘up market,’ eventually displacing established competitors.” Harvard Business School professor, Lynda M. Applegate, describes this in her article, Jumpstarting Innovation: Using Disruption to Your Advantage, as follows.
“These disruptive innovations are not just novel inventions. Successful innovators take ideas and turn them into opportunities by adding a business model that creates sustainable economic value for all stakeholders. They then go one step further and exploit the opportunity by creating a sustainable business.”
This is exciting stuff. Part of this process, however, is Balancing interest and excitement, as mentioned by Jeffrey Kalmikoff, former chief creative officer at skinnyCorp/Threadless:
There’s nothing wrong with being excited. However, excitement is energy, and what you do with that energy is often times more important than the fact that it exists. Just because a car can go fast doesn’t mean it always should, right?
Kalmikoff makes the point that “excitement is what brings on the onslaught of brainstorming – new idea after new idea after new idea” but “I can now see how unbridled excitement can actually derail focus.”
Likewise, Richard Mammone points out in his article, Humility and the Successful Startup, that:
“You must take a full accounting of your strengths and weaknesses before you get started. This takes a great deal of honesty and humility, but it is the only path to success.”
“Every skill set required to form a startup should be subjected to a make-or-buy decision process. In other words, if you don’t have it, outsource it. Let me just stop here for a moment and mention that outsourcing is the strategic entrepreneur’s solution to most problems. There are too many moving parts in a business to have deep expertise in every area; it’s not practical for you to hold on to tasks like marketing if you are an engineer—or product testing if you are a marketing guru.”
I’m in the camp with those who value extensive work to come up with the best possible business concept right off the bat. We all know things change, but that is something to be factored into any plan for a business startup. We will get into synchronizing business goals and personal goals in a later post. For now, however, we must consider whether our new business will be a short-term venture, or is to be of much longer duration.
A huge segment of businesses, both in the United States and internationally, is family controlled. Some were started for that purpose, but many were not. We will look at the unique overlay of issues related to family businesses down the road, but if your goal is to start a business, which will survive your own life and be a foundation for improving the financial health of the family tree, then a substantially different set of options comes into play. Clearly, this might not be just starting a little Internet-based operation in your spare time, in order to get a little extra cash. Of course, if you start a really good Internet-based business, it can have the same impact on your family.
We have already looked at elements some feel are essential for a productive brainstorming session. Certainly, if there are things, which would seem to improve your odds of success in a venture, they should be considered carefully. Likewise, if there are elements which would tend to distract your efforts, delay them, or lead you in less than the most promising direction, efforts should be taken to minimize these. Low hanging fruit is one thing, ignoring the odds is another.
We have also looked at a few baseline considerations, such as whether it is better to try to go it alone, find friends to work with, exclude friends and find others whose only focus is on the prospective venture, or some combination thereof. All of these factors may or may not impact any given startup situation. As you work through the process, it just seems to make sense to try to cast the broadest net of concern, in true brainstorming fashion, to fish for as many of these potential “show stopper” factors as possible. Then, again using the brainstorming techniques we’ve looked at, we can start to rank them, discounting ideas with factors which seem least likely to impact us, and setting the others aside for further study and action.
There are many great articles, books, and seminars on developing innovative ideas. We’ve covered a few, and I suggest you look at as many as possible to come up with the perfect method for you. After all, what you’ve come up with in this exercise may not be the only one you will need or want to brainstorm in future. At some point, however, you’ve got to get beyond the concept stage and on to the next part of the process. In his article, How Good Is Your Big Idea, Tim Knox sums this up.
Every business idea, no matter how good it sounds while bouncing around inside your head, should be put to the test before you invest time and money into its execution. Success lies not in what you think of your idea, but what the buying public will think. Many entrepreneurs find out too late that the public’s opinion of their idea differs greatly from their own. Wasted time and money aside, the last thing you want to do is hear “I told you so!” from your husband, so take a deep breath, slow down, and let’s look at the ways you can test the feasibility of your idea.
We can presume there is probably competition of some sort for almost everything we might come up with, in terms of a concept for a new business. Are we not defying the odds again, if we pick the low hanging fruit, knowing there is likely to be much more sustainable business models within our reach with more effort? My vote is yes, and since I don’t see a show of hands in opposition, we’re going to take a brief look at some “macro” issues before we get to our final, short list of business concepts.
Perhaps one of the simplest “show stopper” tests is described by Alan Hall, founder and Chairman of Grow Utah Ventures, in his blog post, Two Questions Every Entrepreneur Should Answer. The two simple questions are:
- Who are your customers?
- How are you going to make revenue?
One of the popular “brilliant ideas” these days is to build a business based upon creating something free, building a gigantic social network around this concept, and then slowly finding ways to “monetize” the user base, either with ads on the Web site or blog, or by other means. We’ll look at this phenomenon in a later post, but suffice it to say, this can often land in the “low hanging fruit” bin. An article by John Tozzi, Building a Facebook for Wine, points out some of the hazards, even for lawyers. Michael Stajer’s original idea was to start an Ebay site for buying and selling wine, but the path took an unforeseen twist.
The Bay Area attorney sold his personal wine collection for $25,000 to finance the site, called WineCommune. At the time, he hoped to get venture or angel funding early on. “My original plan was, ‘Hey, I’ll get this product up and then I’ll shop it around and see if I can get some money, hire some people, and then take it to the next level,’” Stajer says.
That didn’t happen. The dot-com collapse came a year after he started WineCommune, and investors were wary of the regulated market of alcohol sales. Stajer kept his day job and gradually developed the site. He amassed more than $40,000 in credit-card debt to finance the business. But despite the time he spent wondering how he would ever pay the bills, Stajer says he’s glad he never got funded.
As it turned out, Stajer was able to change directions and stay with the wine concept, but his initial “brilliant idea” needed a major overhaul. This points out the need to have a backup plan, as you explore and finalize your own brilliant idea for a new business.
The prospect that your venture may never make money makes it important to have a backup plan, says Stajer. His father, a hotelier and restaurateur, advised him that “if you want to be an entrepreneur, that’s fine, but have something to fall back on.” Stajer knew that if his business failed, he could always work at a law firm for a few years to pay off his debt.
Stajer was able to rework his love for wine and desire to make it big by taking wine online. Ultimately, he scrapped the Ebay of wine concept and went with a little less inventory startup expense.
The company expanded by launching online retailer J.J. Buckley and WineZap, a price comparison site with a social network. He expects WineCommune to have $17 million in revenues this year from a mix of advertising, paid referrals, and retail wine sales across the three sites. “Now, of course, [the credit-card debt is] paid off, and I got my wine collection back,” he says.
If your big idea is trying to create viable wine businesses through social networks, flip through this slide show.
At this point in our journey, having spent the last four posts on coming up with the initial business concept or idea, it is probably time to take a short break. We started with a desire to create a new business from scratch. We have looked at a number of ways to brainstorm our first concept, trying to use the funnel approach. We first threw all our possible ideas up on the wall. Then we gradually started to look at ways we could reduce “all” to “fewer,” and more logical choices during the initial selection process.
This idea creation process is as much art as science. There are definitely many “scientific” approaches to it, many of which we’ve looked at, and many of which we have not. Every entrepreneur must pick his or her own combination of these methods for each venture. The method and the elements will change, in many cases, depending up the goals of the entrepreneur and other environmental factors.
At this point we still don’t know what we don’t know. That is a very dangerous place to be. Our excitement and growing passion for our initial selection make cause us to take off, rashly, in the wrong direction. A good general would never march troops over the hill without sending out scouts and having the best possible reconnaissance on what lies ahead. No one wants to be ambushed. We already have an investment of time in the process. As we continue our journey, that investment of time and other resources will increase substantially.
Every step we take in one direction may very well be two steps away from another direction. If we spend $100 or 100 hours pursuing choice “A,” then we have $100 less or 100 hours less to pursue choice “B.” We have a “gut” feeling at this point about which direction we should start out on, but being mindful of the “vector” factor mentioned in a previous post, we certainly want to conserve our resources, including our time, and reach our ultimate goal as quickly as reasonably possible. Some say it is all about the journey, but we don’t want to waste time on the trail either.
Having come up with some initial selections for our new business concept, in the next posts we’ll review what we have come up with and start down the funnel to refine and conduct further screening of our new business ideas to see if there are any show stoppers, which eliminate the reasonable prospect of going forward. We may hit the wall on one or more, but our initial research may also lead us to simple work-arounds, such as outsourcing. They might even help us discover some combination of factors leading to a disruptive innovation.
The path we are seeking is one which leads us to success. There are many, trails which will lead to failure and many, which will lead to disaster. We have to be as sure as we can that when we make further investment of our time and other resources, we are well prepared for the next steps in the journey, and have the greatest chance of success for the future.
This is the fifth post in the business startup series. For others in the series, check the series index.
The title of Melanie Lindner’s article, Is Your Great Idea A Real Business?, asks what some might consider a fair question as we continue our journey to starting a new business.
“We were trying to find businesses that would want to buy our software, but it was hard to get new leads,” says Moodley, 36. He figured other sales organizations would be willing to pay $30 a month to drum up new business through his site, which would offer more targeted information than, say, mainly free sites hosted by Bloomberg and Schwab.
Good idea, terrible timing. About four months later, after plowing $2,500 and putting hundreds of hours into a prototype, Moodley watched in horror as Google launched its own finance site, called Google Finance. “It literally looked exactly like my site,” says Moodley. “I had a sinking feeling in my stomach as I clicked around and realized that their site was completely free, and I was planning to charge for the same information.”
Moodley’s mistake is all too common, says Toby Stuart, professor of entrepreneurial management at the Harvard Business School, who warns would-be small-business owners not to “overestimate their originality.” In other words: If you’ve thought of it, chances are someone else has too.
Fortunately for us, Lindner also gives us some help on how to answer this question, by asking two more:
The first question you should always ask yourself: Do I have a compelling value proposition? It might seem obvious, but it bears repeating: A great idea is only a great business idea if it has an obvious and compelling value proposition–meaning that enough people are willing to pay for your product or service at a price above your cost to deliver it.
Next question: Is there a viable market for your product or service? Even if your business is likely to turn a profit, professional investors won’t line up to fund an operation with limited growth potential. Also, don’t expect to create a new market–if one doesn’t already exist, there’s probably a reason
Have You Created an Impossible Business? by C.J. Hayden works through the efforts of a consultant to help entrepreneurs in two different scenarios. While these deal with existing businesses, rather than the determination of the basic concept or business idea in a pre-start up situation, there are relevant lessons for our journey. It sometimes helps to look a little further down the road when you’re studying a map (or GPS display). Here’s some wisdom from Hayden’s article.
It’s easy to think that any business can be successful if you work hard enough, but there are many situations where this just isn’t so. Consultants, coaches, and other service professionals often start a business believing that all they need to do is charge a “reasonable” fee and sell “enough” of their time. But unless you do the math to prove or disprove your assumptions, you may be creating a business that can never succeed.
New consultants, coaches, and other professionals almost always overestimate how much they can earn and underestimate the amount of time and money required to successfully market themselves. They also forget that they will have to cover not only their living costs and business expenses, but pay self-employment tax, buy their own health insurance, provide for their own retirement, and allow for unpaid vacation and sick time.
Another way to look at the process can be found in the article, A process to test a startup idea, by Brian S. Courtney. In Courtney’s case, he had an existing business, but was interested in pursuing something different. Courtney said “[S]o what does this have to do with a startup? Well, I’m using this same process to help define my next move.”
We use five steps to align business users and software developers:
- Define the idea
- Determine the business case for doing it
- Create alignment around it
- Define an implementation plan to execute it
- Get executive buy-in to fund it
I love (perhaps too much) the phrase “low hanging fruit.” Common definitions include a simple problem or target; a target that is easy to achieve; or a problem that is easy to solve. Most of us love to find low hanging fruit, and in our search for the best business idea for us, we’re sure to find some. An article by Andrew Goldsmith, which I posted today on the Applied Entrepreneurship group site, Here’s an Idea That’s Not Quite Ripe, gives another view of this.
Goldsmith’s article seems to focus, literally, on orchards and consultants. He says:
How is a company like an orchard? In the minds of some consultants, we’re all field hands and they’re the Johnny Appleseeds of change. And the right way to work those trees? It’s advice we’ve all heard: pick the low-hanging fruit.
Plowing (no pun intended) through the article, discounting the general feeling of some that consultants may not be worth the fee, the article ends with the news that the consultants have figured out a better solution than the clients thought.
“In the past,” Faubion says, “we had larger trees that required ladders. The new trees are ‘pedestrian’ trees that don’t require ladders. So instead of picking the low-hanging fruit, the industry has lowered the tree.” Now that’s thinking outside the, uh, orchard.
The real lesson for us at this stage of our journey to start a new business is not how brilliant some consultants might be. Returning to the orchard, Goldsmith’s article mentions that “low hanging fruit” may not always be the best. It is the easiest to pick, but often the better fruit is higher on the tree and requires more work to reach. The lesson for us may be that we may come across many, easy to find “answers” on our quest. Just as there are often several equally plausible answers to a question, a common tendency is to harvest what seems acceptable, rather than working a little or a lot harder, going for the better answer and the real prize.
All too often I hear people say that they have had a brilliant idea and can’t understand why people will not buy into it. What they don’t realize is that the idea is only a small part of the equation. In some cases a good entrepreneur can even have success with an average idea so long as it is well implemented. An entrepreneur needs to tick a number of boxes. Firstly, potential investors and clients will need to buy into the person and their management team. A good management team will succeed with an average business idea, whereas a poor management team with a good idea will fail. Secondly, the team will need to be excellent at implementation. This involves writing a good business plan and executing on it. Thirdly, focus is essential. Very few entrepreneurs succeed without extreme focus at least in the early days. Finally, adaptability is a key point. The business idea will evolve on a monthly basis until the right model is discovered. A good entrepreneur can deal with ambiguity.
Wannabe entrepreneurs can spend their lives brainstorming the way to build a better mousetrap. If they do, they may never become a “real” entrepreneur. On the other hand, they can also dive in too quickly, perhaps having plucked some of the low hanging fruit we discussed earlier in this series, only to find it spoiled and worthless. That could leave the wannabe entrepreneur broke and exhausted from pursuing the “impossible dream.” Not a good scenario.
There must clearly be a balance in our efforts to discover the best business idea for our new venture. Just like the saddlebags on a mule, there must be balance between working hard and “working smart” on this stage of the process. At some point, however, we must also make one of our first business judgments and determine that we have exhausted our reasonable prospects of coming up with a “brilliant idea.” If we have not, we might want to start at the beginning and go through the basics again, recruit others in the process to give us different perspectives and skill sets, or simply find a mentor who can help us get back on the right path.
Once we find the first “brilliant idea,” our journey has just turned the first corner. In the next post, we’ll finish our quest for the perfect business idea and start the stage. We will embark on the process of initial research and testing of the idea we’ve come up with to give ourselves our first internal performance audit.
This is the fourth post in the business startup series. For others in the series, check the series index.