How to Start a Business – Ideation Phase – Part I

Entrepreneurship is perhaps the fastest way for an individual to accelerate their wealth building pursuit.  It not only offers an individual the ability to make an exponential return on the time that they expend on the activity through profit, unlike a job where it is linear pay for time directly being spent, it also offers leveraged gains from systems and other people’s time spent.

Although there are significant challenges starting and operating a business, I would argue that the biggest challenge facing an entrepreneur is perhaps the mindset required to be successful.  If you are only going into it to make money then chances are you’re not going to be successful.  The market itself will sort you out.

Build a Business around passionately solving Customer’s problems

I say this from the experience of counseling now over a 1,000 entrepreneurs in my career. 

The one constant amongst the successful entrepreneurs that I’ve worked with is that they built a business around passionately solving their customer’s problem. 

The outcome of successfully doing that was that they received substantial financial rewards.  However, had they not adequately solved their customer’s problem(s) to begin with, I don’t think that they would have had the financial success that they had.

What this shows and which now is being widely celebrated in the business creation space is that the most empathetic businesses are the ones that become successful.  More specifically, those entrepreneurs who start businesses on the premise of intimately understanding the pain that their customers have in a particular area and solving it in the best, most affordable manner are the ones that succeed. 

To that end, an idea for a business must in a direct way either solve a pain or provide a gain for a potential customer.  This is what is referred to as the Value Proposition.

An Idea must have Product–Market Fit

The other factor that an entrepreneur must come to grips with is that they must find a market that is large enough and lucrative enough to scale their business and be the solution that the market is looking for at that particular time.  This is referred to as ‘product-market fit’ and is routinely championed as being the most important element in starting a business. 

I’m of the same school of thought on this and believe that a product or services ability to be promoted by its users at a level of what is called ‘raving fans’ stands the best chance of being successful. 

This is as a result of what is called the ‘net promoter score’ (NPS) and is a reflection of how well a customer thinks of the product or service.  Businesses with high NPS’s tend to succeed as their customer base actively works on their behalf to recruit other potential customers because they are enamored with the product or service. 

As a result, these businesses do not have to spend an inordinate amount of resources advertising, marketing and promoting their business as it is being done for them virally by their customer base.

Checklist of business launch questions

In the Idea Generation phase, or Ideation stage, I insist that entrepreneurs that I work with answer a litany of questions.  The following are the critical questions that I ask they answer for themselves before they launch into their business:  

1. What’s the problem that the idea solves?
2. What value does it provide for the customer?
3. How does it differ from existing products/services?
4. Why now?  Is the market timing favorable?
5. Is the product/service dependent on other products/services?
6. Does the product/service depend on other infrastructure outside of the business?  
7. Is there a market for this product/service?
8. Is the market big enough in order to be profitable?
9. Is there enough profit in it for me to invest my time/money?
10. What are the barriers to entry?  Are they formidable? Can I overcome them?
11. What does the startup cost curve look like?  Disproportionate to start?  Linear?     
12. How will I/can I structure the business?  Solopreneur?  Small Team?  Large Team?  Outsource?  Partnership?
13. Do the distribution channels exist?  Are they accessible?  Are they affordable?
14. Do the marketing channels exist?  Are they affordable?
15. Is there a tried-and-true business model in existence that can be used?

If the entrepreneur can successfully answer all of these questions they may just in fact have ‘A Big Idea’.  However, there’s more that needs to be done.  The entrepreneur then needs to refine the approach that they’re going to use to execute upon this business idea.  The following questions are critical in this area:

1. So what are customers struggling with?
2. What don’t they like about certain aspects of the products/services currently in the market?
3. Is it just the product/service OR could it be how the product/service is delivered? (Customer Experience)
4. Is the price point an issue?  Could it be lower? 
5. Could the price point be HIGHER and provide for a new product/service offering?

Niche Identification

With these questions now satisfactorily answered, we move on to the next filter in which to strain the business idea through.  This is what I refer to as Niche Identification.  It’s now a pretty common phrase to hear that “The riches are in the niches”. 

It certainly is cliché but there’s a ton of truism in this statement.  If you are looking to be everything to everybody you’re going to be nothing to nobody as a company.  Therefore, it is especially critical to identify WHO is the customer for your product or service.  More importantly, who is your ‘ideal customer’.

This ideal customer is called an Ideal Customer Avatar (ICA).  More specially, this person is essentially the one person on Earth who would be the most accurate depiction of who your customer is. 

In fact, can we identify this customer at such a high level so as to literally give them a humanistic profile? 

As an example, I had one of the businesses that I work with describe for me who their ICA was.

Who is your Ideal Customer Avatar

The business owner, who manufactures a high-end cosmetic and skincare line, told me that her ICA was named Megan.  Megan is a 38-year old female executive with two children and has a professional job that requires her to dress up in more formal business attire. 

Megan and her household have recently reached a financial level where she could move up from store bought cosmetics and skincare products and work with a boutique manufacturer who caters to custom colors and ingredients to fit her skin type and issues.

The way she spoke about Megan I just had to ask the question.  “Is this Megan a REAL customer?”  She replied that it was a fictitious person but that the profile of the average customer she served fit this profile to a T and that everything she did surrounding her products and services within the company were vetted through the lens as to how it impacted ‘Megan’. 

I found this intriguing but it showed me how specific a company needs to be in finding its tribe of ‘raving fans’.  Because if it doesn’t, it will just be another face in a very, very crowded space.

This new approach to identify a niche in the market for your product or service is not necessarily new but it certainly has much more energy around it.  In fact, the newest approach in finding a business’ ICA adds the traditional demographic profiles (gender, age, income level, etc.) to the newer data layers identified as psychographics and ethnographics.  

Psychographic information includes characteristics of the customer such as personality, values, opinions, attitudes, interests, and lifestyles.  Ethnographic information consists of customs, culture, and habits of individuals as they relate to the product or service being offered.

Adding Psychographic and Ethnographic data

With the introduction of psychographic and ethnographic information in how we identify niches, consider for a moment the power an entrepreneur now has in discovering the most advantaged product and market fit. 

As an example, let’s assume we are selling a wallet.  We can assume that it would appeal to men for starters.  Let’s assume we now want to make this wallet out of ballistic fabric. 

Should we believe that everyone out there is still a potential customer?  Probably not.  Just as wanting to make the wallet out of soft leather wouldn’t necessarily appeal to every man looking for a wallet making it out of ballistic fabric won’t either. 

Conclusion

What if we wanted to brand the wallet in painted schemes that had military equipment or outdoor scenes on them?.  Would our product be appealing to every man looking for a wallet?  Probably not but it might be very appealing to men from the ages of 18 to 35 years old who live in more rural areas that work in the trades and who support the military. 

Clearly by making certain decisions on what our customer has for a ‘job that needs to be done’ with this product we are invariably whittling down our potential market of customers. 

The natural response to this is usually, “Well why don’t we then just offer a basic bland unbranded wallet that is of basic design and utility and that everyone will be a potential customer for?” 

Well, now we have entered the world of commodities or utility products and would otherwise need to compete solely on price because there’s very little to no variation of our product from the thousands that are available to our potential customer base.

However, if we were to manufacture a ballistic fabric wallet with military themed images on it I can confidently tell you that there’s not only a market for that product but there’s probably an opportunity to create additional products along that line that could also be sold to this niche market.  That being said, identifying how your product or service fits into a specific niche and serves that specific niche’s problem is exceedingly important to understand and identify upfront in order to have a successful business.

In the next post, we will discuss how interacting with our potential customer early in the process enables us to design something that people actually want.  It sounds surprisingly obvious but surprisingly, so few companies actually do it!