VenturePORT Series - The Idea
Almost any successful entrepreneur will tell you there are many great ideas. The real problem is identifying the right one and making it happen. A lot of effort goes into finding an idea that can succeed and is right for you.
Not all entrepreneurs have the same ambitions. Some merely seek a way to make extra money during high school or college. They don't need a business plan; it's the simple math of selling their labor or skills to people in the community. Others hope never to work for a company and get started on a business right out of high school or college, often after having worked part-time in that area of business during school. Yet others work a few years for a company and realize they have to go out on their own, often taking advantage of the skills and relationships they gathered on their first job.
No matter what your goal, you will need a market, a unique selling benefit, a way to fill the need at a profit, and enough money and resources to get to profitability. Here are some of the factors and considerations.
Being in the Right Place at the Right Time
Timing is everything. You always hope to find a great new idea no one has never thought of. We know a company that got started in the pre-paid debit card business about a dozen years ago, just when that concept was being born. The company has since started and sold two other businesses related to that field, and it's on it's way to a third. But timing isn't everything. One business we know came up with the idea for a gift card display in grocery stores where consumers could buy gift cards from name brand retailers and companies along with the greeting cards sold nearby. The company knew several gift card retailers and thought it had an edge. In the end, the company that actually processes those gift cards and has relationships with the stores made it happen first. Our friend had a great idea, but he didn't have the right relationships. You can now find the gift card gallery concept in thousands of retail stores throughout the country.
Being in the right place at the right time doesn't mean having to dream up the next big invention; it means finding the right time and place for a product or service in any marketplace. It could be the right time for a gourmet food delivery service on a college campus or in a fast-growing community. It could be the right time for a Web site serving a particular market. It could be the right time for a new approach to SAT test preparation, as it was for one of the entrepreneurs we profile elsewhere on this site. It depends on whether there is a need, a method of finding the people with those needs, and reliably filling those needs.
Depending on your ambition, you don't have to have the greatest idea in the world to create a very good business. Some of the most successful entrepreneurs never make headlines, but they do make millions.
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Is There an Accessible Market?
Entrepreneurs often get ideas by listening, reading, and watching for opportunities where there are underserved needs. What are people around you complaining about, wishing they had, or trying to find? Then, assuming you've identified a common need or desire, how would you reach those people to tell them you have the solution? What would it take in terms of money and resources to find these people through sales or marketing, presenting what you have, making the sale, and delivering whatever you promised?
Many of the most successful entrepreneurs start locally. It costs much less money to reach a small community than a large one. McDonald's, Starbucks, and Kinko's are companies that started locally.
You want to start with a concept in a market you can identify and feasibly contact, either face to face or through very targeted local marketing. Better yet, find people or companies that like your idea so much, they'll sell it for you — no easy task, but it's sometimes possible. That's how Google got started. (There will be much more on this in the chapter on Sales and Marketing.)
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Your Unique Selling Benefit
You will almost always face competition. The key is to have a unique selling benefit people want. Unique selling benefits are the desirable characteristics of your product or service that set it apart. A unique selling benefit could be as simple as a promise to deliver a service within four hours, when the competition promises eight hours. It could mean providing a specific type of product, such as organic pet foods, when no one else does. Don't be discouraged by competition if you have a unique selling benefit you can reliably deliver, especially if it would cause a competitor to change their way of doing business to compete. It often takes longer to change than to start from square one with a new approach, giving you a little time to build a loyal clientele before the competition figures it out.
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Do You Have to Educate a Market?
Curt Carlson, one of the great American entrepreneurs, once said: "If you want a big headache, start a business in which you have to educate a market to change their ways." What he meant was: If your idea involves convincing people to do something different than they are already doing, or that requires them to learn a new way to do something they already are familiar with, brace yourself for a tough journey. Like cats, people are creatures of habit. A concept as simple to some as R.S.S. (Real Simple Syndication) for managing blogs and feeds on the Internet has taken years to catch on. Many companies still don't have effective contact management systems, otherwise known as customer relationship management or sales automation software, even though they have become inexpensive and easy to use. Humans take time to absorb change, even when change is good for them. That doesn't mean your idea will fail if it requires much of a change in human behavior, but it could mean you will need more money and time, and you will be in for a tougher go of it. The more your concept requires changing behaviors, the more you will benefit from having business relationships with people who believe in your idea and who will test or promote it.
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What is the Competition?
Sadly, really great ideas do get snuffed out by competition. Having a short-term price advantage is no guarantee of success when you face a giant company that can lower prices temporarily and lose money if necessary to shut you down. That said, almost every new business launches against competition, and sometimes some mighty big competition. You can win if you have a clear and unique selling benefit that is sustainable over time and you can consistently deliver. Another advantage entrepreneurs often have over established organizations is passion. Oftentimes, their counterparts at major companies are salaried employees without the same level of engagement and commitment. Your energy can provide a competitive edge, especially if you can sustain that passion over time as you grow and bring on employees.
Before you get started at anything, take a hard look at the competition and try to put yourself in their shoes. What would you do, if you were in their position, to put you out of business? On the other hand, don't let such speculation overly discourage you.
Ideally, your niche is so precise, you have no direct competition. If that's the case, you will often have time to grow before anyone directly responds. That's because the big companies rarely take little companies seriously — unless, of course, those companies are funded by high-visibility backers. You can often build up a loyal clientele and gain market position before the competition even notices you, and then it often takes them time to figure out how to effectively respond.
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Do You Have Relationships?
The Internet has both reduced the need for personal relationships and made it easier to forge them, but it still pays to know people. Almost any entrepreneur will tell you about people who became interested in their business, and began to advocate for them, opening doors to help make it all happen. The case histories of entrepreneurs elsewhere on this site are full of those kinds of stories. The more people you know in your potential area of business, the far better off you will be. If you don't know someone in your targeted area, it will help to have a partner or colleague who does. People are almost always more receptive to buying from someone they know than someone they don't.
For those who don't have relationships, it often pays to get an endorsement. This is commonly done in small local publishing businesses, such as when creating local travel guides for communities. We know of a business right now launching a new series of travel guides by getting endorsements from local chambers of commerce upfront, so it's easier for the publisher to walk into local shops to break the ice. If you don't have relationships in your field of interest, you'll almost certainly have to find people who do to help you. And that's a sales job in and of itself.
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How Much Money Will It Take?
The ideal way to start a business? Sell yourself into business. This will be explained in a later chapter of this guide titled "Do You Have the Money?" But essentially it means: Sell your products and services before you have to lay out much money, so you have cash flowing in before you have to pay everything out. Many terrific businesses started with no upfront money, by identifying a product that could be distributed or a service that could be provided without requiring a lot of people, space, inventory, or investment to get going. We know a man who never had more than one employee and who built a business designing highly specialized business forms. He never had more than a half-dozen clients at one time, worked out of his office. He didn't need any financing and became a multi-millionaire. The less money you need to hire people, buy inventory, get real estate, or purchase technology, the easier it will be, and the less you'll have to give away to investors — if you're lucky enough to find them. You always hear about the people who win the lottery; you rarely hear about all who lose. It's the same with trying to raise money. Unless you have good access to people with money, look for a business requiring as little upfront money as possible.
To calculate how much money you'll need, you have to estimate very conservatively how much you will need to pay your people and suppliers and when you will need that, versus how much money you will invoice and when it will be paid. If people will pay for your products and services in cash, it's much easier than if you have to invoice and wait for them to pay.
Remember, when you have very little money, what counts is cash flow — when the money comes in versus when it has to go out. Your goal is to get to positive cash flow, or you will need investors or someone to lend you money, which opens up many other issues covered in the chapter titled "Do You Have the Money?"
Unless you have terrific relationships with wealthy people through family, friends, school, or professional life, or are a tremendous salesperson, or have a truly extraordinary idea, raising investment money at any time is a challenge. So try to find an idea you can "sell your way" into business.
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Can You Deliver the Promises — at a Profit?
It's one thing to sell something, it's another to deliver. The big unknown with every new product and service is: How well will the company deliver it? Does the actual product and service match the promise made in terms of quality, delivery, or whatever you promise? That could apply to anything from a computer repair business to a food delivery service. Most importantly, can you provide this product or service at a sufficient profit to cover your costs, and not only the cost to deliver the product or service, but for the fixed expenses, salaries, office, phones, etc., needed to run your business?
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Practical Concepts for Entrepreneurs
Here are some general business ideas that don't require a lot of upfront investment:
- Computer and household repairs
- Software development
- Sales and marketing services
- Consulting
- Small meeting and event planning services
- Cleaning, maintenance, and upkeep services
- Marketing services, promotional products, etc.
- A reseller or distributor of some other company's products or services.
Other businesses with lower cash needs are:
- Web sites that focus on a specific subject of interest to a group of people targeted by advertisers. Selling sponsorships for a Web site or for an event in advance is possible, but it requires having relationships with people who trust you or terrific selling skills and good marketing materials.
- Events you manage to pre-sell before you launch or bootstrap by doing a lot of the work yourself. This might be a local trade or consumer show bringing together buyers and sellers of a particular product or service.
- Regional or trade publishing: If you have relationships — or someone on your team does — you can pre-sell commitments before you have to lay out much cash.
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Less Practical Businesses
Businesses that generally require more money upfront, and are therefore less practical for many people, are those that involve retail, manufacturing, or real estate. Retail requires an investment in real estate, equipment, hardware, and probably people. Manufacturing has huge capital (money) requirements, unless you can arrange to have products manufactured under contract under favorable terms, so in effect, you manufacture to order without the cost of running the factory.
Franchises might seem inexpensive to launch, but they often require a big investment upfront and warrant considerable research to select the right one for you. Many franchises provide little more than some promotional materials and a lot of promises, but can take up to 10 percent of your revenue. The best often require a significant investment up front. That said, you might have a better chance of getting a bank loan or Small Business Administration loan if the proceeds are being used for an established franchise.
Business ideas that require equipment can often qualify for leasing arrangements that lower the monthly costs to manageable increments. They will have to be signed by someone with a good credit rating, depending on the value of the equipment leased.
Be very wary of seminar programs promoting specific get-rich quick schemes promising great wealth if you follow some "proven" formula. Most get-rich schemes are just that — schemes. Millions of people desperately seek to make money the easy way, and many businesses take advantage of the fact by making false promises. The better something sounds, the more you should question it before giving anyone any money.
In fact, the more excited you are about putting up money for something, the more you should step back and make sure your enthusiasm has not distorted your judgment.
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