Entrepreneurship 101 — Finding Your Million Dollar Idea
In our third part of “Entrepreneurship 101” we are diving into the all-important process of how a startup creates its business idea. This is the core purpose that rallies a startup and gives it the motivation to spur onwards during late-night development and gives them confidence when pitching to vulture-like investors. More importantly, a bad business proposition may ruin a startup so it’s important for startups to find one that is viable, and realistic.
1. What is a “Pain Point”?
A pain point is essentially a point of pain that your customer or target market feels, and is something they need a solution to. As a startup founder, you are essentially trying to find a solution that will relieve your customers of this “pain”. If you do economics, it is another form of the basic economic concept of “supply and demand” with a startup “supplying” the solution.
Pain points have varying levels of complexity. They can be as simple as customers not wanting to go downstairs to get food or something much bigger, like not being able to buy a house in Australia.
One of the issues that startups often have is forgetting what pain point they are actually focussing on. Sometimes startups may be so distracted by the processes or the type of product that they want to make, they forget about the core question their product should be assessing, the core “pain” the customer is experiencing.
This is where “first principles” based thinking comes into the equation. It is the process where you ask yourself “what is the real issue/problem at hand?” by deconstructing the assumptions you have made and then reconstructing the solution around the core issue/problem (this is a really rough explanation).
For example, imagine the issue of drills that go blunt easily and have low battery life; the startup may assume that the “pain point” of customers is that of faulty drills (but this is wrong). A startup trying to find a solution to this problem may use its technical capabilities to create a more efficient drill that doesn’t break down easily, maintains its drill sharpness, and has a higher battery life. However if they were to use “first principles” thinking to approach this issue the startup would note that at the core of the issue, customers are simply looking for a tool that makes holes more efficiently; this is the real “pain point”. Therefore the startup may not need to necessarily expend their energy thinking about redesigning drills and focus more on a new product that makes holes better than a drill.
Thus, for a startup looking to find a “pain point” for them to base their business on, it’s important to know if the “pain point” you have recognised is the REAL “pain point” experienced by customers and “first principles” thinking can help you.
2. What is Ideation?
The concept of “ideation” is quite simple. It comes from the words “idea” and “creation” and describes the process of idea creation (to no one’s surprise). Ideation is a method for startups to come up with ideas and concepts to turn into a business model, product, or plan. However it’s not just about creating ideas, but also about analysing the best ideas and strategies for a business and apply the ones most suitable to a startup.
Now the first step is to actually identify the problem and identify who you are solving the problem for. Once you have this, it’s time to ideate!
Benjamin Chong, a partner at Australian VC fund Right Click Capital and advisor at Textbook Ventures, believes that ideation consists of 5 steps:
1. Brainstorm:
The first step to creating sound business ideas is to brainstorm in your team or group. There are no stupid ideas and every possibility and angled should be considered. If you think about it, trusting complete strangers to live in your own home (Airbnb) goes against everything they told us in primary school (sorry Healthy Harold)! This is where the “creation” aspect of ideation comes in because it’s all about applying your team’s creative potential.
2. Evaluation:
The next step is to pool your ideas together and begin evaluating them one by one. This may take some time and it may be really difficult if you don’t know how to begin evaluating your ideas. Benjamin believes that some good questions to begin evaluating revolve around your (or your team’s) passion for the idea, the simplicity/complexity of the idea, the monetization of the idea, and the distinguishing nature of the idea (from what already exists). Sometimes it helps to seek external opinions about your ideas but at the end of the day you and your team need to choose an idea based on what your team can achieve, the likely success of the idea, and whether you will enjoy doing it (this is really important!).
3. Research:
Out of the initial ideas that you brainstormed you want to limit them to a handful of the most viable ideas. Once you’ve done so, it’s time to do some research. This not only involves research on how you can implement the idea, but most importantly, how your idea(s) will perform in the open market. This will not only involve surveying the trends of the current market, but also in doing research on any similar business ideas that currently exist or have existed in the past.
Benjamin believes the best form of research you can do is to go and talk to your target market. Many startups talk about their ideas in general terms and don’t take the time to ask potential users what they think. Discuss and consult with others as much as possible to see if there is a want or need for your idea(s). This not only helps you identify your best ideas but also reduces your chances of failure as you can be certain that users will buy into your idea once you establish your business.
4. Discuss:
Of the handful of ideas you had after evaluation, reduce that down further. Spend more time evaluating, researching, and discussing your idea to anyone and everyone. Surveys are a great way to see if your ideas will gain traction, and it’s important to bring your ideas to business mentors, other entrepreneurs, friends, and family. It may even be a good idea to come up with a mock-up of your idea to give the people you survey a general feel of your product/idea.
5. Be the devil’s advocate:
Now that you’ve come up with one idea that has beaten all the others, it’s time to tear your baby to pieces. Be the devil’s advocate and critically evaluate and find holes in your idea. By doing so, you further reduce the chance of your idea failing because you’ve scrutinised its ability to stand on its feet and you know it will most likely become a success in future.
Although it can be difficult to rip apart an idea that you believe in, emotions and pride aside, it’s better that you and your team are the ones doing the shredding not the market, if you launch your business idea and it flops.
3. What is FMA (first mover advantage)?
The first mover advantage is the concept of having a competitive advantage because you are the first business to create a product or bring a service to the market. For startups and other SMEs, the idea of having FMA is often well sought after most startups believe that being the first in a market will help to consolidate the success of their business. Having FMA does not guarantee the strength and growth of your startup, however it can mean that your business is the most recognised brand in the industry and customer loyalty is created before other competitors enter the market.
As the first business you essentially “set the standard” for the product or service and you may gain the novelty of having an original and ingenious product. Additionally you face less competition by having FMA and it will initially be easier to capitalise on the market, and maintain that market share once competitors latch on.
However it must be noted that the FMA can apply differently depending on a startup’s market, and product. FMA also doesn’t last forever as competitors may eventually capitalize on your shortcomings. Furthermore having FMA is not the be all and end all of your business, as there are innumerable factors that can assist your startup even if you are not the first in the market. Read this article by the Harvard Business Review to learn more about the downsides of FMA.
4. What is a startup launch?
A startup launch is essentially what it sounds like. It’s the break-out of your startup. It’s unveiling it to the market and to the world. The launch is often made when most of the early iterations of your product or service have already been completed. You are past your MVP stage, and now have a generally available and more substantive product.
For a lot of startups, nailing the launch is a big thing. It’s the one time where your startup has been given a stage and it’s important that your startup’s “coming-out” is planned with careful collaboration, and strategic insight. Essentially your startup launch is there to announce to investors, customers, the press, and competition, that you’ve polished your startup and its product, and you are ready to prove it’s worth to the world.
There are many different types of launches and each of these will suit different types of startups, products, and teams. Below are some of the more common types of launches:
1. The Big Launch:
This type of launch is a once in a lifetime opportunity. It usually takes place on a set date where stakeholders, the press, and potential customers are informed of the launch of your startup with much fanfare. The hope is to create a great deal of buzz to gain more traction for your startup’s business. These launches are often favoured by startups that are launching a product or service and thus the purpose of the launch is to draw all attention on their product.
2. The Soft Launch:
Soft launches are the opposite of a Big Launch. They may not be a one-time event and may be composed of different phases. This way, the startup can focus more on the capabilities and services of the company as opposed to simply the product offered. The soft launch may also have a limited release of their product. As soft launches are team/business orientated, they can also be great opportunities to create visibility within the industry to attract talent to the team, and to create press and social media buzz. The soft launch can also be used as part of an FMA strategy especially where a competitor is close to a product launch, but a startup chooses to have a soft launch without a detailed release of the product, simply to be the first name in the market and overshadow the competition.
3. The “No launch”:
Some startups brag that their product is so good that they don’t require a launch. They use the “build it and they will come” philosophy and state that their product was released without fanfare and did not require a launch as users naturally found a need for their product or service. However this is naturally very risky as common sense tells you that it’s best to have a considered marketing strategy.
5. What is the share economy?
A share economy is pretty straightforward: it’s an economic model in which individuals share, borrow, or rent a product or asset that is owned by another person or business. The sharing economy is often used in the renting of products/assets whose purchase price is quite high and it may not be an asset that is needed or used all the time. From a consumer’s point of view it would be cheaper to rent the product/asset when needed. Therefore when one person does not need it, it can be rented out or borrowed to someone else who can use it in the meantime.
Although the concept of the sharing economy has existed for as long as humans have been renting or loaning assets to one another, startups are using the internet and other forms of digitalised technology to help form bridges between renters and rentees at a larger scale. As such the traditional “marketplace” of sharing has become decentralised through the creation of online platforms. One of the shining examples of the sharing economy in the modern startup age is “Airbnb”. At it’s core, Airbnb is just a marketplace for homeowners to rent out their homes when they’re not using it; this is nothing new as hotels, hostels, and the simple concept of renting has been around for centuries. But because Airbnb is an online platform that can be used by renters and rentees around the world at any time, the network of users and the number of properties available grows exponentially and the sharing economy has grown further than a sharing economy between neighbours in a cul de sac.
In the internet age, the sharing economy has expanded the ability of the ordinary consumer to become their own “merchant” on a casual-basis. Where sharing and renting were historically reserved for landlords and rental companies, the average consumer can now be more of a “merchant” simply by renting out assets or services when they are not using them. This is why startups like Airbnb and Uber have become so successful, as they have created a marketplace or platform where the average consumer can become their own “casual merchant”.
Sharing Economy 2.0
In China, there is a new type of “share economy” that has arisen. “Bike sharing” apps like “Mobike” and “Ofo” are a big thing in China and they consist of startups that create a network of dockless bikes that are placed around cities for the ordinary consumer to use at a small charge. This saves the consumer from having to own their own bike as they have access to dockless bikes around the city through an app. This is different to the “share economy” pioneered by Uber and Airbnb as the average consumer is no longer a “casual merchant” who can rent their unused assets on an online platform. Instead, startups are the ones creating the asset network for consumers to use through the sharing of the startup’s dockless bikes. In this sense the sharing economy is less about casually sharing assets between renters and owners as it is about a startup being a decentralised service provider.
More coming soon! Have a term or concept you’re confused about?
Feel free to e-mail us at marketing@textbook.ventures for any other terms or concepts in the startup world you want explained, or just leave a comment below.
