My thoughts on the key concepts in any new businesses — start-ups, innovation projects… whatever (MVI — post)

The three major concepts in any new business.

TL;DR: There are three major concepts around any new business. These concepts have different components or Point-of-Views(POVs), how they can be evaluated.

My goal here is to clarify my own views, and possibly to provide an overview of all the different aspects I see relating to any new business. In the end I hope to have heuristics on, how to discuss new business development in a more fruitful manner. Hopefully this will also bring some focus for my Master’s Thesis.

Any new business faces trade-off decisions. It can be inside or between the team, the funding or the idea. What interests me is the ability to make those decisions and the motives behind them, when facing these trade-off situations.

The three key concepts behind any new business are:

The Team: The founders behind the idea. They can be entrepreneurs or intrapreneurs, but in general they are the people whose responsibility is to make the Idea happen.

The Idea: Idea is a shared rendition of the founders. A view on how things should be in the world. A future state.

The Funding: The people providing the necessary financial resources for the Team to work towards their goal. It can be self-funded, VC, Angel or budget from the corporation’s R&D funds. This is the force that either let’s you continue experimenting or forces you to go work on an existing profitable idea.

Each of these concepts have different components - or ways to evaluate them.

Skills, Resources and Risk-Personality — the three main components from which to consider the team.

THE TEAM: What are the skills of each team member? What resources do they have? What is their risk-personality?

If I consider a team, I think of it as a sum of skills, resources and risk-personalities. Skills — are the concrete skills that the team itself has in orderd to make their Idea a reality. Skills can be coding, designing, selling, research … whatever is needed regarding The Idea. Resources — are the network effects of a team or a team member. The team itself doesn’t know how to code, but they are able to buy the coding through their networks. Or that they are well know figures in their industry, which may open many doors for them. Risk-personality is the ability to take risk and cope with failure/success. Have the team members showcased the ability to get through tough times? (Because they will for sure come.) Have the team members showcased that they are willing to take risks in order to win a situation? Are they willing to risk their own success in order for The Idea to succeed?

Solution and Business — the two components of the Idea.

THE IDEA: What is the solution? How is the business side of things?

An idea can be a good solution, but a crappy business. Or sometimes it can be a good business, but a crappy solution. Right? Some might consider solution to be something that can be evaluated through concepts such as problem-solution fit. And business to be something that can be evaluated through product-market-fit. Without the jargon, I would say that a good solution is something that a customer understands and can imagine using. And a good business is a situation, when you can find those customers and provide them with your solution, with less money than it takes for you to produce the solution.

A good solution is something that a customer understands and can imagine using. And a good business is a situation, when you can find those customers and provide them with your solution, with less money than it takes for you to produce the solution.

THE FUNDING: What kind of risk-assessment is involved? What kind of vision of the future we want? What are the benefits of this for our other investments?

I consider funding decisions to be a process of risk-assessment, at least in most cases. And when we consider investing in new businesses, there is always a lot of ambiguity involved. I perceive risk-assessment to be either personal or indirect (depending if you invest your own money or if you make investment decisions for someone else).

You can also evaluate funding decisions based on vision. What is your vision of the future, and what kind of activities you want to support with your equity? In practice this can mean that the Idea supports your vision, or that the Team or a Team member supports your long term vision, and this is why you are willing to fund it — even if it wouldn’t be a good practice of risk-assessment.

There might also be indirect benefits for your other existing investments. This has lot to do with portfolios, both from the aspect of investment-portfolios and the aspect of innovation-portfolios.

What is interesting, is to try understand the motives and mechanics behind the funding decisions. I have not yet, formed a clear understanding of this, so here is how I perceive different kind of funding archetypes and my hypothesis on, how they view the matter:

There are active, passive and activist funders. Active funders want to affect the decision making in their investment (participate in the board or steering group). Passive funders believe in the team and its abilities to provide profit for the funder. Or mutually non-exclusively passive funders realise that they have nothing to provide except monetary value, in which case it is better not to get involved in the decision making process. Activist funders are driving a change in the world, and they are usually people or organisations investing their own money towards their own agendas, where business logics don’t necessary apply.

What are the main questions for me now?

  • What are the main components behind risk-assessment for different types of funders/investors/portfolio-managers?
  • How do VCs, Portfolio Managers, Self-Funders, Angel Investors, Public Investors, Family Funds etc. differ in their decision making process?
  • How much do they think about the Idea or the Team? What is their own inner decision model?
  • Can the involvement of design processes such as Lean Service Creation affect this?
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