The Entrepreneurial Process: How to Create a Successful Product or Service
The Entrepreneurial Process:
I like to think about a killer business IDEA in a reverse and somewhat counterintuitive sort of way. Before jumping right into your product or service, I think it is critically important to first dig deep into the problem that you’re trying to solve for your customers. Many entrepreneurs start with the solution, and have a sense of the problem they are solving, but don’t really dig deep into the customer-related aspects. You really need to answer these questions:
- Is this an important problem for the customer?
- Is the customer desperate to solve this problem?
- Is my idea vastly superior to the alternative ways this problem is being addressed?
Great entrepreneurs start with the problem they are trying to solve, and only then propose a unique and creative solution. The difference is both subtle and dramatic. If your idea does not have value to a customer, if someone is not willing to pay for it, then obviously you can’t build a business around it. Your idea MUST have a Unique Value Proposition.
Any kind of market that’s attractive, even if you’re the first company to have a solution based on your IDEA, will attract competition. If it’s a small market that doesn’t offer much opportunity, you might not get competition, but that also means that you’re not attacking a very attractive market opportunity. What is your Competitive Advantage? Is it Sustainable?
The final thing we’ll talk about with respect to your IDEA is the concept of Idea Refinement. You might have a great idea, but having a feedback loop based on interaction with customers in your target market will help you to refine your idea and thus make it even more valuable.
Sources for Business Ideas
I hunted around and found some practical sources for business ideas on PracticalBusinessIdeas.com. I think it’s a really good list. You want to mine your experience. For an idea to be great, and for you to be the right entrepreneur to implement it, you’ll want to do something where there is an intersection of your domain knowledge, your passion and a unique value to a customer. Successful people are typically very observant. They look at their world and ask:
- What problems exist out there?
- Do I have specialized knowledge that can help solve that problem?
- Do I have a hobby or some business experience that makes me uniquely qualified to propose credible solutions in this space?
You might find something in the media, a magazine, a newspaper, on TV or on the web that resonates with your experience and hobbies. But again, make sure it intersects with your domain knowledge and passion. Can you provide special discernment that few others can? You might be attending trade shows and exhibitions when you see certain things being done, that maybe you could do in a different, better and unique way.
Maybe you’re working at a company and you do a survey or you get customer complaints, which identify other ways of doing something. There are things that are consistent customer problems. Brainstorm with colleagues or customers. They are good ways to come up with ideas.
How Can You Tell If Your Idea is Good?
Once you have a basic idea, it is usually more a diamond in the ruff, and hopefully not a lump of coal! Rarely does it show up as a miners cart full of gold! You need to turn your basic idea into an actionable business plan, and even then there is usually additional refinement over time. So, what is a good idea? A good idea is something that someone is willing to pay for if you have a promising business proposition around it.
The IDEA has a unique value proposition. It solves a critical customer problem or pain point. The problem is currently not being solved at all or it is being solved in a much less efficient or cost effective way. Ideally your idea provides some innovation. It adds value. Someone is willing to pay for it.
In my experience, the best ideas are where entrepreneurs have specialized knowledge combined with passion. If you have specialized knowledge but there’s no passion or momentum around it, it’s nearly impossible to build a successful business enterprise. There are so many obstacles in the way. There is so much inertia from existing competition that you won’t be able to break through that. You need to have a deep-seated passion and belief that you’re going to do something that is going to change the world in a positive way. You’re going to be able to benefit from that as well as clients reaping the benefits. Without that, I think it’s going to be super difficult, if not impossible.
How do you sustain a value proposition? Almost any idea can be copied or duplicated over time, with sufficient resources. My experience is that today’s competitive advantage becomes the basis of competition over time. In other words, if you have a feature or product that is different than what everyone else has, that difference will dissipate over time, and you will have to come up with something new. It may no longer be breakthrough innovation, but you need to continue to have evolution of your product or solution to sustain an advantage over time. This is true even if you do a good job of protecting your intellectual property.
There are two ways to have sustainable value. Either you’re in a small and relatively uninteresting niche market that will not attract competition –which probably means that you can’t build a big business enterprise around it–or you need to build layers of competitive advantage over time.
Building Layers of Competitive Advantage
In my experience, having just a single competitive advantage will not last a very long time, even if you’re protecting it with intellectual property. It’s what we call a one trick pony. Of course you need a unique value proposition and you should protect your intellectual property in your initial solution, but you also need to build other commercial things into your solution that create barriers to entry for the competition. Can you closely marry your product to your customers’ products to build-in switching costs? In a lot of different solutions in companies that I’ve had, there were software components of our product that was married with the customer’s software, thus building switching cost. Also, if customers get used to the usage model of your product and new training is required to bring on a competitor; that is a switching cost.
Even if the competitor comes in with something that’s similar in terms of quality and price performance, if it’s significantly costly for the customer to move from your solution to their solution, it gives you time to work through things and make sure that you have the sustained advantage there.
It’s important to have a strong roadmap of follow-on products and to leverage off the earlier products. The development cost for the customer isn’t as high because you’re leveraging off existing solutions. In the tech world we call this backward compatibility, but it can apply to other types of products as well. Then there are things like service and quality. These things can seem subtle, but there are ways to quantify them, and the great companies do this. You should build relationships, even in times of difficulty. Bill Gates talks about the best learning opportunities with customers being when they have a problem with your product. My experience is that if you do a great job solving problems in this environment, you build trust and credibility with customers. You solve problems quickly. You should always get back to your customers in a timely fashion. Consistently provide superior price performance. All of these things build upon themselves and give you a stronger position to keep the business over time.
The Importance of Idea Refinement
Now let’s talk a little bit about idea refinement. How do you make sure that the idea, if it’s a relatively good idea in the beginning, becomes a great idea so that customers really resonate with that? You must refine your idea, the same way that crude oil is refined into valuable and usable fuels.
In every company I’ve consulted with and every company that I’ve worked for that has developed unique products, there’s a dialogue that occurs initially with trusted advisors, specialists and people in your inner circle that you can trust not to disclose your idea to anyone else. They will also provide you with unfiltered feedback as to whether they think it’s a good or bad idea. Do they think it could be a good idea if you refined it somewhat? Having that dialogue with people who know what they’re talking about and that you trust, and who trust you, is very important.
The second thing is to gain feedback from expert sources in the market. I do a lot of industry monitoring in various areas of tech. You need to make sure you’re constantly educating yourself about what’s out there. Anytime someone approaches me about an angel investment, the first thing I do is go to the web after the meeting.
What competitive solutions are out there today? What are analysts saying about things? Maybe it’s an opportunity where it’s not well known or well understood. If you have ways of looking over the horizon, maybe the industry experts aren’t talking about it yet, but there is still evidence that this could be a big market based on the problems being solved in a unique way, and no one else is doing it.
Then, as you get into more formal ways of getting feedback, you can do customer surveys. If you have an online business, you can use things like SurveyMonkey. Even if you get feedback from five or ten people, that may not be statistically significant but the quality of the responses could be incredibly valuable to refining your idea. There is both qualitative feedback and quantitative feedback.
If you’re looking for something more statistically significant, you need to get about 100 responses to something, depending on the overall market size. Even if you get a few responses and they’re high quality in terms of the feedback, they can be extremely helpful. If you have the time and money to do focus groups and you’re in a consumer-facing market, that’s also incredibly valuable in order to get qualitative feedback. Again, it’s not necessarily going to give you something statistically significant, but if you get the right people in a room discussing things, that can provide some great information.
Ultimately, you need to make incremental refinements and improvements to your idea until it gets to the point where it really has a lot of value. Unfortunately, I’ve seen circumstances in companies that I’ve been associated with and have made investments in where they get too caught up in the cycle. Especially engineers sometimes want to make things perfect. It doesn’t need to be perfect. It just needs to be better than everything else that’s out there. That’s something to keep in mind. You need to continue to make incremental refinements to have a sustainable competitive advantage.
If you’re in a business where you can develop prototypes, it’s worth doing that. Then you can get something in customer’s hands. In a lot of my previous companies that were chip businesses, it’s hard to do chip prototypes. But you can do system-level prototypes. You can do demonstrations. Times when you are actually able to show customers what you’re doing and how the solution works, and get feedback around that, are extremely valuable.
In a book that I recently read, The Lean Startup by Eric Reis, he talks about the minimum valuable product. This is beyond a prototype. This is a product that you can sell but it has the highest return on investment versus risk. This is something where you can really test at least a portion of the market. This deals with so-called “lean” startup ideas.
Many of these ideas have been around for decades, but I think Ries has a way of packaging these ideas that are easily digestible by today’s entrepreneurs. The idea of refining things, having a minimum viable product prototype that you can get out in front of customers, that you can potentially commercialize does have incredible value.
Here is a quote from the book. “A minimum viable product is a version of the new product which allows a team to collect the maximum amount of validated learning about customers with the least effort.” Anytime that you can get real-time, high-quality feedback from customers, you potentially increase the value of the product and improve your unique value proposition.
A good entrepreneurial process consists of listening to customers, refining your idea and roadmap over time, and a process of iteration. This ensures that your business idea is viable, it has value for customers, and that your competitive advantage is sustainable over time.
This is Patrick Henry, CEO of QuestFusion, with The Real Deal…What Matters.
This article originally appeared in QuestFusion.