I Have a Great Idea – What Now?

One of the most common questions encountered in regard to new businesses is in regard to what to do with an idea. There is often a misconception among those who have not yet ventured into the realm of starting a business that an idea has value. In truth, ideas are fairly worthless without execution.

If you have an idea for a new business, a product, or a service, the first thing you need to do is to get customer validation – that is, confirm that someone with no ulterior motive (that rules out your parents/siblings/kids) would pay for a good execution of your idea. For more details on this aspect of getting started, read my earlier post on Starting a Business.

Assuming you can get your idea validated with a paying customer, it’s time to do some thinking about your ability to succeed at your project. This is, perhaps, one of the reasons that some advocate writing a formal business plan – because it will make you think about some of the questions you really should be answering:

  • Who is your competition?
  • What are they doing?
  • What are some of the industry rules, processes, or expectations?
  • How will you set yourself apart?
  • What are the barriers to entry?
  • What are your start-up costs and your operating costs?
  • Where will the money to run the business come from?
  • How will you make money, and how long will it take to prove profitable?

There are, of course, many other questions that a business plan covers. It will walk you through an overview of your business, industry analysis, marketing plans, sales, operations, finances. It will enable you to see the bigger picture of your own business before you risk a single dime.

I recently advised a couple of people who were setting out to build a business. Both were creating online stores to market and sell their products, and wanted to know what it would take to succeed. In both cases, the products were high quality, with a corresponding price tag. In one case, there was a large start-up cost in terms of machinery, other than that, the two businesses were quite comparable.

For both, I advised they start with the most basic eCommerce system available that could be quickly installed and configured, although it’s longevity for their business was questionable. The reason was that the system is free to install, and can get someone non-technical running with an online store in a matter of hours (this includes many kinds of reports, product management, newsletters, etc). However, once both their businesses start to be profitable, I suggested that they then invest in a better eCommerce solution, which would be more pricey.

In other words, both needed to understand that the distribution channel would not set themselves apart, and so they shouldn’t be focused on it (even though both would be primarily marketing via their websites). However, their product needed to be as good as possible, and that’s where the energy was directed.

If you want to succeed, you need to understand what it will take, and which parts of the road are not important. For the unimportant pieces, push it out to the most time- and cost-effective solution, while for the important pieces, spend the time and money to do it right.

Question: What would drive you away from a business?

A concern that every business owner or manager should be paying attention to is what drives customers away. As much as attracting customers is important, if other customers are leaving, it’s important to understand why. The best way to understand motivation for customers to leave is to think about what would make you, or someone you know, stop using a particular place of business.

What would make you leave a business?

Measuring Progress

In last week’s question, I was interested to know what factors you use in business to measure progress, or your ability to reach goals.

In a recent course on writing business plans, I learned that while many businesses use income as a measure of progress, it’s actually counter-productive to do so. For example, a business which wants to earn $120,000 a year needs to bring in $10,000 per month. Perhaps that’s not such a big deal, but if after 6 months it’s realized that the average has been only $5,000 per month, it can be de-motivating.

Perhaps this is why the focus in business plans is driven toward number of customers, or leads, rather than dollars. I might know that a customer is worth about $5,000 in income, and that to reach my goal of $120,000 I need to find 2 customers per month. If, however, after 6 months I realize that I’ve missed my goal by 50%, that’s an extra 6 customers to find in the second half of the year.

As well, since many businesses operate on a recurring basis, that is, where customers come back over time to continue to support the business, the importance of any given month is limited, since there is the secondary influx of consumers that will happen over time. While missing the monthly goals continually will hamper a business’ ability to flourish, people are still aware that minor bumps in the road can still be navigated successfully.

Other ways to measure goals can involve number of positive reviews from clients, the number of referrals acquired and turned into clients, the number of networking events attended at which at least one new contact was made. The goals, though, should be directed at the long-term success of the business, and not the monthly quota – that is, they should be used to benchmark those events which bring your business closer to its eventual success. When you fall short of those goals, it is easier to pick yourself up and move forward, since falling short does not negatively impact your business, but rather, fails to have a positive impact.

Say No to a Million Dollars – Again

Last March, a pair of entrepreneurs from Toronto surprised viewers by turning down a potential investment of a million dollars on the show Dragons’ Den. In this week’s episode showcasing entrepreneurs who have been given a second (and in one case, a third) chance on the show, the same pair turned down yet another offer of a million dollars.

Brian Crozier and Joseph Iuso have now presented their business, UseMyBank, twice on Dragons’ Den asking for the exact same investment, at the same valuation – $20 million. The first point of contention is therefore the fact that their previous valuation a year ago was clearly wrong – a company that does not change in value over the course of a year is quite unusual.

Once again, they turned down the offer, which was for a 50% equity stake in the company, or a $2 million valuation. Clearly, the difference in opinion as to the value of the company was quite high. What I found interesting, though, is the fact that they got any offer at all.

When I wrote my previous review of their pitch, I looked at their website and was not impressed. The current website, though, is a lot more sleek and polished, which was a significant problem with the prior version of the site. However, based on my research, at the time of their most recent presentation, sometime mid 2010, they were still using the old website, which did not bolster confidence. Various technical details about their current site also leads me to question their credibility with the volume of exposure they claim to be getting.

At a more fundamental level, I do not believe that the market wants their product. With the increasing number of stories of fraud, the use of a credit card, or any kind of intermediary service, can help reduce the risk of fraud. If someone uses my credit card, I can dispute the charge with the credit card company before I actually pay any money. With a debit service, I need to dispute the charges after the money has left my control. While some people may accept the risk, more people will look for ways to use existing intermediaries to handle their online transactions.

The fact that they turned down the offer is not surprising – it was a massive difference in valuation, even worse than last year. The fact that they are still in business, and claim to have high transaction rates, and yet continue to seek an investment of 20% of their income for the previous year, however, begs questions as to their true ability to run a proper business.

New Business from Old

A question pondered by owners of businesses is how to fit new ideas into existing businesses, or whether the new idea should be the basis for a new business. Often, the new idea arises from an existing part of a business, or is being developed using resources from the existing business. Perhaps it is only because of the current business history that the idea even has potential, for example, if it will be marketed using existing channels to similar customers.

However, if the new product or service is sufficiently different from the existing business operations, then trying to run with it within the existing business structure may not make sense. Even if legally this is possible (that is, you are not operating with a regulated industry which may object to running the two businesses together conceptually), there could be other reasons to run them independently of one another.

For one thing, isolating the two business operations from one another, when being run within a single business entity, becomes difficult, if not impossible. There is a strong bias toward using existing resources for the new venture, which can negatively impact existing operations.

Second, determining the true value of the business can be difficult, since there is no clear demarcation between businesses.

However, the mere existence of an independent business entity does not mean that the business will be any easier to manage, nor does it ensure that true measures of costs and income will be any easier to calculate. However, if the business succeeds, then spinning off the business to be operated independently, or to be sold, or to acquire an investment, becomes a lot simpler to do.

The advice I would suggest, though, is a cross between the two. Internally, consider the business to be separate, operating off its own accounts, with its own books, and “renting time” for any shared resources with other parts of the business. That way, even if the same people are working on the new idea, their contributions can be measured accurately.

If, after some time, it is determined that the business will succeed, then the effort can be made to set up a proper corporate structure for the business which will further isolate the separate business units. If the business does not succeed, then there has been no harm done, and the idea can be easily discarded.

Goals for 2011

Last year, I continued my tradition of posting and reviewing my goals from the previous year, as well as inform you of my new goals. Like last year, I haven’t had a perfect batting average on my goals, but I’m okay with that.

First, my goals for 2010 were accurate as of the time of writing, though priorities changed over the year, and with good reason. To recap the goals, and my current status with them:

  • Learn PHP and Zend to a reasonable degree of proficiency – this has gone well, and while I would hesitate to call myself an expert on either, I am comfortable programming a web application using those technologies. I’m still working on getting the turn-around time down, but it’s moving in the right direction.
  • Launch Client Data Tracker – this has not happened, because priorities change. The project turned out to be significantly larger than I anticipated, and I put it on the side because I didn’t feel I could do the project justice.
  • Continue side development until I’m doing in excess of 30 hours a week of billable time – this has happened, and I’m now working solely on a contract basis. Happily, I’ve been able to leave the corporate setting.
  • Complete the work required for KNIRL.com – this has not happened, though we learned a lot of interesting pieces of information and technology working with it.

Overall, 2010 was a good year for business, and looking forward, 2011 looks like it will be even more exciting:

  • Launch the product I’m working on for my primary client before the end of the first quarter;
  • Learn the intricate details of a fairly large industry to determine how to be able to carve out a niche in it;
  • Solidify my knowledge of certain technologies I use frequently to the point I would call myself an expert.

What are your goals? Do you have a way to measure yourself against them?

Why Not to Compete Based on Price

It can be tempting at times for a business owner to contemplate competing based on price – that is, offering a product or service at a price lower than their competition. The net result of this is hoped to be a quick influx of customers who will take advantage of the lower price, and then remain customers even when the lower price might no longer hold true.

In reality, for many businesses, this can break the bank and drive the business under. The reality is, competing based on price is simply a game of chicken – each competitor lowers their price in turn, until the last business standing takes all the customers. This is a very costly way to eliminate the competition, assuming you win, and there’s no assurance that another competitor won’t arrive to repeat the cycle.

That being said, this does not eliminate the offering of discounts or sales, but the reason should not be simply to be competitive. As an example, a chiropracter might offer a 20% discount on your first session because you’re a new customer. A printing company might offer a 10% reduction in the printing price for orders of over 10,000 prints. In other words, the reason for the discount is not in order to be cheaper, but because there’s another benefit to the provider to giving that discount.

Additionally, even if you intend to give a discount to the client, make sure that you inform the client of the value they’re getting before they’re informed that you’ll give them a discount. Once the subject of price comes up, you won’t be able to negotiate based on anything else. As well, if you’ve assigned a particular value to your work (e.g. $75 per hour), then you can always offer a lower price later, but you cannot raise it. If you start negotiating price too early, then you risk being trapped with having lowered your price below what the client would have paid, had you explained the value you provide in advance.

Compete based on value. As a business, you offer a mix of quality, service, and price. If you fix quality and service, then the price you should be offering should be set as a direct result. Offering a Rolls Royce for $30,000 will immediately make the potential buyer doubt its authenticity or quality. If the quality or service is higher, then the price MUST be higher too. Lowering your price will negatively impact your credibility, and thereby be unlikely to benefit you in any way regardless.

Question: How do you Measure Progress?

In a recent course on writing business plans, there was a discussion about the creation of milestones and objectives, and ways to measure them. What methods do you use to measure progress, and to set appropriate milestones for your business?

Goals for 2011

As I mentioned last week, goals need to be SMART: Sustainable, Measurable, Actionable, Realistic, and Timely. In a discussion with a business coach, though, a valid point was made regarding goals. Goals need to be measurable and timely in order to be considered goals. Not necessarily good goals, but they are, in fact goals.

However, when goals have actions attached to their outcome – that is, being able  to take an action to bring the goal to fruition, then they are practical goals. If the goals are not realistic, then there is no chance of them coming to be.

Finally, if a goal is not sustainable, then it is a foolish goal. For example, if a business has a goal of selling a particular number of units, and the product is faulty, maintaining that goal is foolish. It can do more long-term damage than the short-term benefits. Selling 1000 units which eventually get returned achieves nothing.

The reason I asked about having written them down or telling people is because there is a potential benefit to sharing that information. Writing down goals makes it less likely that the details are forgotten (perhaps conveniently). Sharing the goals with other people means that when you see those people, and have to explain why you have yet to achieve the goal, can be a motivating factor.

However, having spoken to several people who’ve made goals to lose weight or quit smoking, they’ve pointed out that if people know about your goal, they can nag you about it to no end. The nagging does not increase the likelihood of reaching the goal, and tends to be more frustrating to the goal-setter than anything else.

If you choose to share your goal, I suggest that you be careful about who you share the goal with, to ensure that it will be someone who will help you reach the goal, not hinder you.

Landing Pages and Business Strategy

When a recent posting on Facebook directed me to a page screaming free and asking for an email address, I immediately questioned the author of the post’s integrity in suggesting the link to their associates on Facebook. The page read like a marketing scam aimed solely at getting email addresses, with no indication as to what the email address would then be used for. Instinct suggested that the purpose was to send email blasts or the like, which in social media is akin to standing at a downtown corner with a bullhorn shouting out your message.

Perhaps the author was unaware of the implications of their message, though I find that unlikely, and suspect that author was perfectly aware of the implications of the appearance of the landing page. The result was a marketing pitch that had all the appearances of a scam.

If you’re in business and looking to design your website, there are better ways to get people’s email addresses and communicate with your target market than to offer them something free before you’ve convinced them that value exists. As such, there are a few fairly simple rules to follow when designing your site:

  1. Keep the design simple, with subdued colors. The page shouldn’t appear to be shouting its message, but rather to be displaying its message in a cool and calm manner.
  2. Provide information, or something of value, without asking for anything in return. This can be pages of your site with tips and suggestions, a public blog, or a free PDF that can be downloaded in a single click.
  3. When asking for an email address, explain what you’re going to do with it – what kind of emails will you be sending, how often, and will you share the address with anyone?

Failure on any of these might gain you addresses in the short-run, but you will find that people will either ignore your emails when they start arriving each morning, mark them as spam (which eventually can impact people who actually read your emails as well), block you, or report you. As well, if the people who’ve given you their emails are active on any of the social media sites, they may pass along the information about your practices to their friends.

Perhaps this is the confusing aspect to this form of marketing. Your website is a place where you can post information about yourself, what you’re selling, and your expertise. Social media is a place where you can interact with your target market. However, pushing a hard-sell at your target market is little different from being an aggressive telemarketer – and most people have learned how to block such people out of their lives.