Tuesday, February 7, 2012

Small Business and Entrepreneurship - To Startup or Not To Startup Part II - The Idea

"I ain't never had an idea before, how does you know when you has had one?" -- Ali G

In the segment on Da Ali G Show from which this article's opening quote was taken, Ali G explores the commercial prospects of his new invention, the Ice Cream Glove. The Ice Cream Glove is basically a rubber glove designed to be used while eating an ice cream cone in order to protect one's hands from the dangers of melting ice cream. Most of us have had ideas for new products or businesses and most of those were probably superior to the Ice Cream Glove. Ideas do not need to be fully examined before taking the leap and turning them into businesses, but thoroughly examining an idea prior to launching a business can certainly help! This article will examine "the idea" and discuss some important components of, if not a "good" idea, then at least a "fully-fleshed out" idea.

First off, where do ideas come from, and where can I get one? Not surprisingly, many business ideas spring from work experience. As one works in a particular field or in a particular function, one gains increased understanding and expertise. Solutions to particular problems in that field or function are therefore more likely to be generated by someone with that expertise and familiarity than from someone completely detached. A person's "prior knowledge" is important in that it helps to shape the range of available opportunities that they see when considering a problem, but the key is identifying the problem.

Obviously ideas can come from anywhere, and there is no way to guarantee or predict a brilliant new idea, but there are ways to assist in idea generation. One effective way of business idea generation is to be "pain focused". When observing the world, as you go about your life, focus on your pain! Specifically, think about what is the pain, and how can I solve it? Whenever you come across an obstacle, or view others reaching an obstacle, define the problem and try to come up with solutions. For example, picture yourself walking down the street eating an ice cream cone, only to have the ice cream melt and get all over your hands and suit:

Pain - Ice cream melts and becomes messy

Solution - Gloves!

While that particular idea may already be copyrighted it provides a good example of being pain-focused. Constantly looking for pains and their corresponding solutions can, with practice, become an automatic part of one's thinking -a habit - and can perhaps lead to the next brilliant new product or service. All else being equal, an idea or product that is focused on solving a particular pain will be superior to an idea or product that is searching for a pain to solve.

Once we have a business idea it needs to be clearly defined. This is the "what, who and how" part of the idea, and means specifically identifying:
  • the product or service (What you will be selling)
  • the target customer (Who you will be selling to) and,
  • the business model (How you will generate revenue)
It is important to identify all 3 of these components of your idea. Why? If any one of these 3 components are lacking it can severely hamper the business potential of your idea. Let's say you have a great product and customer identified, but no business model, no way to make money - would you still pursue the idea? If you have a customer and a way to make money from them but no product? Perhaps in that situation you have identified a pain and part of a solution but just need to figure out that specific product or service to bring it all together. What if you have a product or service and a way of generating money with it but no one to sell it to - will that business get very far?

In clearly identifying the product or service, much of what we've discussed already in this article applies - what is the pain and what is the solution. This Ice Cream Glove prevents melted ice cream from getting all over people's hands. What we need next is to identify the customer.

Part of understanding our idea is understanding to whom we will be selling this product or service, how can we reach them, and why would they want it? The absolutely essential point in this is examining our idea and identifying the key benefit. Ali G says the target customer is "people who eat ice cream and people who have hands" but the key question is why would those people buy the Ice Cream Glove? What is it about our product that makes it irresistible to customers? What is the key benefit the customer derives in exchange for purchasing our product or service?

For the Ice Cream Glove perhaps the key benefit is cleanliness? Perhaps it is not cleanliness - maybe it is the prestige and self-satisfaction the customer gains in knowing that by wearing this glove in public others around him view him with envy and see him as someone to be reckoned with? Identifying the benefit helps immensely with guaging how we can later test this concept, just how successful this product can be, and helps us to begin thinking about how to market our product. Understanding the key benefit thus helps us to narrow in on and identify who our target customer is, and then we can explore how to reach them. The target customer is a vital part of any business idea. We will be discussing examining markets, targeting customers, and testing customers in more detail in later parts of our series.

Along with the idea and the customer comes the business model. Do you sell a product directly to customers? Do you provide a service and charge membership fees? Do you provide a service to people for free and instead sell advertising to other businesses? A business model in our context means primarily "how do you intend to make money"? There are some examples of companies launching without defined revenue models, especially internet based companies. Some of these have successfully implemented business plans much later in their life (perhaps they started as a hobby site and reached a large number of users and then implemented an advertising or membership-based revenue model). However, most companies are not going to be able to get very far or secure funding without explaining how they plan to generate money.

The idea is the first part of the journey towards starting a business. Clearly defining what that idea is, whom it benefits and why, and how it will become a successful business is an important part of the process of examining the commercial prospects of potential business, but it is also just the beginning!

1 comment:

  1. Very insightful and compelling choice of quotes. This article reminded me of Catch 22 author Joseph Heller- "I don't understand the process of imagination — though I know that I am very much at its mercy. I feel that these ideas are floating around in the air and they pick me to settle upon."
    Joseph Heller