How to pick and idea for a startup? Part 2

If you haven’t read part 1, you can do it right here

WHAT WILL YOU FIND OUT FROM THIS ENTRY?

  • What can be more important than the idea for a startup itself?
  • What are the three methods of looking for a new business idea?
  • What three rules should one follow when looking for a business idea?
  • How did I choose the ideas that I later decided to take up professionally?

The idea for a business itself isn’t the most important factor of success. According to some analyses, it isn’t even on the second place. Bill Gross is the founder of Idealab, the company which has invested in tens of startups. Bill studied their successes and failures (watch the TED lecture). He divided each company into five elements:

  • idea
  • team
  • business model
  • funding
  • time

According to him more important than the idea itself is „Timing”, so appropriate time and the right team, and running the enterprise efficiently.

Let’s look e.g. on the renewable energy market in the United States. At the beginning of the 21st century in the USA, there was a huge interest in technologies which were supposed to clear the world. More than 50 thousand billions of dollars were invested in thousands of companies, that were founded then. For example, Solyndra start-up had come up with an idea of producing cylindrical solar cells. Despite a huge financial support (also from the government), the company collapsed.

In 2012 alone, several dozen American solar cells manufacturers declared bankruptcy. On the other hand – although nowadays nobody is no longer keen on traditional solar cells, news about innovative SolarCity photovoltaic panels regularly appear in the media.

Another example – also from ecological industry. Between 2007 and 2012, an Israeli company Better Place invested 800 million of dollars in the production of cells for electric cars. In May, 2013, it collapsed. On the other hand, almost everybody today has heard about Tesla company, run by Elon Musk, which produces electronic cars.

All these companies associate with products which are used in environmental protection. But only a few have managed to succeed. Why?

In cases of SolarCity and Tesla, ecology is treated as a sociological phenomenon . What was used here was the fact that rich people want to be regarded as ecology sympathizers, and they were offered products which make them look even cooler – great looking sports cars and a modern photovoltaic panels design. This of course doesn’t explain their success entirely. What’s extremely important is the team (managed by an experienced engineer and salesman Elon Musk), the technology (Tesla is known for its modern technologies, which are used in their cars, which are also used by other car manufacturers ), or the distribution network. Even when the product doesn’t really stand out from the competition, a well- planned distribution can make lots of people use it. But even the best product in the world needs a good distribution to achieve great success.

Of course this doesn’t mean that the idea isn’t important. It’s very important… but let’s come back to earth. If you are reading this entry, then these examples with million and billion companies can put you off a little. Then how to choose an idea for your own startup? You can learn a lot about entrepreneurship but there is no formula that guarantees success. However, you can follow certain rules which can bring you closer to success.

In case of looking for an idea, we’ve got a couple of possibilities.

1. COPYING
It seems that this is one of the easiest ways to earn money. There is a Rocket Internet company which copies the ideas of American startups. The vision is simple – the most profitable startups from Silicon Valley are chosen, and their clones (usually indistinguishably resembling the originals) are set up on other continents. After reaching a huge number of users, the company is sold.
This seems unthinkable – they decided e.g. to create a clone of Groupon in Germany. They named it City Deals and sold it to… Groupon itself for 170 million dollars just five months after setting up the company (read the article).

(…) in only five months, they’d even become larger than the largest Groupon knockoff in the U.S. It’s absolutely insane how quickly they’ve scaled, with 600 employees working from 80+ European cities, and already saving their customers over $5 million in April alone – their fourth month of operation.

Well, this can be a way, but you would probably need a lot of money to do it. Their clone-companies’ development strategy is based on investing millions of dollars to get the biggest market possible. Besides, there were more such clones – and it was them who managed to convince Groupon to buy theirs.

Besides, every company which doesn’t stand out from others on the market will eventually start a price war. If the customer has two online bookshops selling the same book and sending it within the same time then why would he buy the more expensive one?

As Peter Thiel wrote in his book „Zero to one”:

In business, every moment happens only once. There won’t be another Bill Gates who will create an operating system. Another Larry Page and Siegiej Brin won’t start a search engine. Another Mark Zuckerberg won’t start a social network company. If you are copying these people, that means that you haven’t learned anything from them.

Unless you have as much money as Rocket Internet company, you will rather need a different strategy.

2. WATCHING THE COMPETITION AND OFFERING SOMETHING BETTER

You can also watch other companies’ products and think about how to offer something similar, but better. But not 10 or 20 percent better because it’ll be hard for you to change people’s habits in case of such a small change. When a telemarketer calls me to offer me a reduction in my mobile subscription fee from 50 zl to 40 zl, I usually resign. I’m discouraged by the need to spend time on signing documents. I am also afraid of the risk – yes, the offer is cheaper but maybe there are some hidden catches that I haven’t been told about?

If you are going to create something similar to the competition, you should make something which will be at least 10 times better. When Amazon was founded in 1995, it offered at least ten times as many books as other bookshops. It’s hard to assess how much were the iPads better than their predecessors, but surely better enough to convince the world to buy them. When Gmail appeared on the market for the first time, it was offering 1GB of free space for e-mails. Hotmail was offering… 2MB.

3. OFFERING SOMETHING BRAND NEW

But it’s easier to create a worldwide company by offering something that hasn’t appeared before. As Michał Czekalski and Łukasz Olek state, their internetowykantor.pl was the first website on the Internet which conducted online currency exchange. Nowadays, hundreds of thousands of people use this web page.

How to find such an idea? They come up with it preparing for their holidays. They were using a traditional exchange office and started wondering – why can’t we do it online?

Such ideas usually come when we do daily, easy activities. Just pay your attention to something that annoys you, troubles you, or something which is missing. This moment when such feelings appear is very important. If there is a situation in which you often want to change something, there is a chance that other people will feel the same. And that means that they can be interested in your product. Just wonder if there is something that you could do better, faster, easier.

If you offer something brand new, you will encounter a so called „blue ocean”. I have written about it in one of my posts on Facebook – can there be anything better? No competition, nobody to go after, when setting price you don’t look at the competition – because there is none. Google, Facebook, Groupon started this way. Kim W. Chan and Mauborgne Renée described all the pros and cons of such solution in a book called „Blue Ocean Strategy”.
But such situation can mean that there are no customers for your services. You’ll have to spend some money in order to bring people around to your idea. For example, Paypal, so popular these days, at the very beginning of its development process… was paying every new user 10 dollars for registration in the service.

In case of businesses on the blue ocean, it statistically takes from three to seven years from the premiere of the product before the market reaches sufficient size. But after that period you are on the winning position. When Paypal was created in 2001, it wasn’t bringing any profits despite the receipts growing by 100% every year. Today it is estimated that the most of company’s value will be generated after 2020.

If you want to create a company which attracts people, don’t set up a business which creates products which are indistinguishable from others.

So we have three ways of looking for an idea. What rules should one follow when choosing one of these three ways?

4. CONCENTRATE ON WHAT YOU ARE GOOD AT OR WHAT MAKES YOUR HEART BEAT FASTER

You should also wonder if and what value it will have in the future. You can be a 100% chairman of your company but if it doesn’t work out, you’ll have 100% of nothing. If you had 0,01% of Google, you would have over one hundred million zlotys.

What does it mean to „be good”? When setting up an innovative cake shop, should one be good at entrepreneurship or maybe at baking cookies?

For many of today’s technological millionaires and billionaires, the startup that they had set up and that gained great popularity was in general the first company to be set up by them. Lots of people who set up a startup say openly that they had little to do with entrepreneurship before. Of course not always, but quite often.

Business experience can be really helpful and you and it will allow you to avoid many painful mistakes. But it is possible to learn it during running a company. You don’t have to be the master in entrepreneurship from the very beginning.

So should you be a great baker when setting up an innovative cake shop? Some of the IT startups were set up by people who do not have much in common with programming. They employed programmers or made use of third-party services, and it can be done this way. However, it is much better to involve in the company at least one person who has such knowledge. The situation in which your product is made by some outside company can be compared to hiring a babysitter. Well, you can phone and ask how they are doing but if you see your child after a year, you may not be able to admit to him.

You should have a good orientation in the business that you will run. If you want to set up an innovative cake shop, you should know how the competition works, what your future customers can expect, what you’re going to be better at, what unique offer you have on the market. If you don’t know that, don’t worry – you can learn everything. But it will be harder to enter to the market which is completely new for you.

Being a great baker doesn’t necessarily mean that you will have a great innovative cake shop. Just like being even the greatest programmer in the world won’t make you the owner of the best startup. But the passion for what your company is supposed to do will really help you to bring this project to the end. I think that passion is one of the crucial factors when setting up a startup.

5. BELIEVE THAT IT’S POSSIBLE TO CREATE SOMETHING THAT HAS NEVER EXISTED BEFORE

In the past, hardly anyone could imagine that you could earn billions of dollars on an idea of communication between people who want to go somewhere and those who can take them there. Especially since there are already taxis. And that is what Uber did.

Fermat’s theorem was an unsolved mathematical problem for a very long time. Andrew Miles proved the truthfulness of this theorem after 358 years of lack of success among other mathematicians. Of course he had talent. But no talent would have helped if he hadn’t believed in the possibility of that. It took him 9 years, but he did it.

Faith in success can evolve into pride, the confidence in one’s own uniqueness and infallibility. Humility is crucial then. But if you don’t believe that you can achieve success, nobody will.

Where to get such faith from? It can come from previous experience and listening to your own heart (so the institution which is influenced by the experience). Your environment also has a huge impact on you– people you are surrounded by, conversations that you have, books that you read.

In 1998 the Silicon Valley rush started. Each week newly set up companies organized glamorous inaugural parties. Money was everywhere, and hence there were lots of enthusiasts. Everyone was willing to conquer the world.
If you live in such environment, your faith in success is huge. Everybody around sets up their company and gets millions of dollars from the investors – why shouldn’t I do it? Of course at some point there was a collapse and life verified the assumptions.

Nobody will be able to predict if you can achieve success or not. Future is mysterious. That’s why I think that the answers to the questions I wrote about in the first part of the entry are so important.

6. LOOK FOR MYSTERIES

In the world we have to deal with common knowledge, secrets which are hard to understand and incomprehensible mysteries . From time to time someone reveals the mystery and it becomes common knowledge. Discovering such mystery can often lead to a great new company. But it seems that there are less and less of those mysteries. It’s like discovering Earth. Little was known about distant corners of the Earth before. Today we know almost every corner of the world. Most of us live in the belief that there are almost no mysteries to discover.

Take a look at your life until now. I don’t remember anybody teaching me how to discover mysteries. How to seek something new. Our school system gives knowledge and assesses how we absorbed it. I have never had a lesson on which someone would teach me to do something completely new, something nobody has never done before. This makes us afraid of mistakes and social assessment. It’s hard to dedicate yourself to something you don’t believe in. It can turn out that you’ll be all alone. And it is even harder to accept the situation when it turns out that you weren’t really right.

Besides, we often think – if there was still something undiscovered in this world, wouldn’t there be anybody to think about that? After all, I don’t have any unique skills, why should I succeed?

But it appears that it happens. It’s worth to be patient and not to give up. Colonel Sanders set up his first restaurant at the age of 40 after many years of full-time work. For the next 25 years he develops his company and gains critics’ recognition. But when he is 65, his restaurant goes bust, because a highway was built next to it.

But he didn’t give up. The favourite dish in his non-existing restaurant was the chicken which he prepared according to his secret methods. He believed that it could still work out, despite the fact that he was at retirement age. He didn’t want to open a new restaurant at his own expense, though. He saw the franchise’s potential – somebody sets up a restaurant and gets an instruction regarding its functioning, starting from recipes, to the restaurant’s looks. This is how KFC was set up. Colonel Sanders had his mysteries which he decided to sell to other people. He eventually died at the age of 90, as a millionaire.

How do I choose my business ideas?

I am a person who has lots of various ideas. Not everything that comes to my mind I realize in my company straight away. I pass these ideas through the sieve of questions – lots of these ideas are good for charitable work rather than for business.

First of all, I check if it is something which brings out an emotion in me. Do I feel excited, does my heart beat faster (concentrate on what you are good at or what makes your heart beat faster). If I am interested in it, why would somebody else be interested? These are often the least expected moments during the day – e.g when you are driving a thought comes to your mind „What if XYZ existed…”. Some of the ideas were created after talking to other people who were fed up with something, who felt that something was missing.

Then I stay with the thought for a week or two. I check if anybody has done anything similar (look for mysteries). I talk to people and test their reactions. This can be dangerous – if you have bad luck, somebody can criticize your great idea or praise the useless one. Do not bother about one or two opinions and talk with more people. I primarily talk to people who would eventually use that product.

If after a month I still like the idea – I go further. This is when the hardest part starts – believing that it’s possible to do it :).

The entry is quite long although I’ve tried to focus on nitty-gritty. There are no ready answers here. If you look for them, you can visit http://www.ideaswatch.com/ and choose one of over 2000 ideas that people have proposed . It’s hard to do something which doesn’t come from your heart, which has no deeper motivation than just realizing another idea.

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