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.
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