Tuesday, 28 October 2008

So Whats your Big Idea

My October Column in Mint

A few months ago I spoke at a conference on entrepreneurship at IIM Ahmedabad. In the audience were several students who were aspiring to be entrepreneurs. The most persistent question thrown at the speakers during informal interactions in the evening was “I want to be an entrepreneur – what business should I start?”.

Most of the speakers who were there found the question a bit absurd. Any business that you start has to be your idea – you cannot go haring after an idea that someone else has given you in a casual conversation.

So the question becomes - where do the best business ideas come from and is that where you’ve been looking? While good ideas can come from anywhere or anyone, the best ones come from observing and interacting with customers.

If you know your prospective customers well enough, if you have spoken to them, if you have been a customer yourself, if you have felt the pain – then perhaps you have gained customer insights which contain in them the germ of great business idea.

Great business ideas are those that solve a customer’s problem. Sometimes customers will tell you what problem they need solved. At other times they will not articulate it and you will have to dig deep. Many times customers will not even know they have a problem – you will have to get into their skin, join the dots and figure it out for yourself.

However you look at it – successful new businesses usually solve a problem. So the first test of a great business idea is whether you are solving an unsolved problem.

But apart from the unsolved problem test, a good business idea also has to pass three other tests before you can call it a great business idea - the right one for you to pursue.

The first test is the test of passion. Does the idea resonate with you? Have you lived with it long enough? Have you explored it from various angles? Have you discussed it with prospective customers? Does it capture your imagination? Does it motivate you enough to spend the rest of your life doing it? Is it your calling? How passionate are you about it?

The second test is the test of unique qualification. Will you be the best person to execute it - do you have the capabilities required to bring that idea to life? As an individual you cannot personally possess each and every quality required to build a large business – but then do you have a team of founders that can provide leadership to the company in most of the critical areas? Are you and your team uniquely qualified to pursue that business – the chosen ones so to speak?

The third test is the test of scalability. Is there a reasonable probability that the pursuit of that idea will result in the creation of a large profitable business that grows fast – assuming of course that you do wish to create this kind of business. I must acknowledge here that you can be perfectly happy building a small profitable business or doing a not for profit. Having said that – the fact is that most people do want to build large profitable businesses.

To the extent that the test of passion and, to some extent, the test of unique qualification depend upon qualities internal to you the answers will be different for different people.

However let us look at the test of scalability and explore some of the generic traits of businesses that become large and profitable.

In general, businesses that scale up quickly address potentially large markets. They solve an important problem that is felt by a large number of people. They are first movers in their space or at least early movers – entering markets before competition does. They are usually market leaders.

They have a clear, credible, compelling and differentiated value proposition that is simple and easy to communicate to their prospective customers. They are able to hit a hot button with their intended customers.

They execute well and use a service or product creation and delivery method where capacity is capable of being scaled up quickly.

They create defensible intellectual property. They innovate continuously and focus on those areas where they have a core competence.

They frequently benefit from a positive network effect, have high operating leverage and are in businesses where revenues scale up disproportionate to head count.

They build other barriers to entry in their spaces as well.

They survive recessionary cycles - more than once.

They are magnets for talent and the best people in their industry are usually to be found there.

And they share the wealth with the employees who helped create it.

The most successful companies built in the last three decades around the world by first generation entrepreneurs possess many of the attributes listed above - Microsoft, Yahoo, Google, Infosys, Oracle and many others.

So what’s your big idea – does it measure up?


M said...

Thank you very much for this wonderful article.

Yes i also wish to be an entrepreneur soon. I am now very young and have just a year and half experience but surely would want to start soon.

This article really gives an an insight .

Be it starting a new business or doing a business in somethng that already has a solution, all tat matters is the innovation.

Thank you again.

Happy Diwali .

Devakishor Soraisam said...

A very good article, especially for people like me who is trying to come up with a good business idea.

The tests you mentioned will certainly help me decide if the idea i come up is worth pursuing.

Sakshi said...

Hi Sir! Nice article I must say.... but then so many times young (or not so young) people like us have ideas but lack the direction/finance.... what about that?

djranga said...

@ Sakshi .. If you want to read more of such articles .. please read the book "Stay Hungry Stay Foolish" by Rashmi Bansal. I'm sure Sanjeev sir would also recommend you the same book. :)

Sakshi said...

Thanks for the recommendation!

Ashish said...

I think an idea is the base of any business. All these qualities/parametrs are added to an organization if the founders are passionate about the idea and have purity of thoughts as well/ Google, Infosys and others are the examples of this thought process and keeping stick to their basic values.

Anonymous said...

Very Nice article !!
These tests would certainly help me in my pursuits,
as in looking for the Big Idea!!

Specially Coming from the Horse's mouth!!
Thanks Sir!!