How to Come Up With Business Ideas
Entrepreneurs have to have ideas. And only sometimes do worthy ideas simply announce their presence and smack you in the head. It requires some effort to find ideas worth your precious time. I believe that over time and with experience you can get better and better at spotting good business ideas (or at least avoiding bad ones). And the more you do it the easier it gets to think of ideas.
I don’t believe that business ideas should necessarily be someone’s “passion”. Like religion at the dinner table, combining your passion and your business may end in chaos. On the other hand, if you’re unable to develop a passion for your work you won’t be able to sustain the mental energy required to start and grow at the pace demanded by simple economics.
All that said, below is a simple guide that relates what I’ve learned in the past 8 years in the entrepreneurial trenches. If you’re looking for ideas, the tips below should help you think about the kinds of business opportunities that exist.
Below is my list of 7 different forms that business ideas can take. The more forms your idea fits, the better.
Here’s the short version:
- Solve Your Own Problems
- Create a Totally New Problem
- Take Advantage of Change
- “Tweak” an Existing Idea
- Adopt an Existing Idea to a New Market
- Do it Better
1. Solve your own problems
This is standard advice for coming up with startup ideas, and there’s a good reason for that. Its simple: the problems you’re most aware of and that you know best are your own problems. For me, every single company I’ve started has been an attempt to solve problems that I have.
There are several advantages to solving your own problems. Being a potential customer yourself, you’ll know firsthand what the needs of potential customs are. Moreover, since your are the type of person that would have this problem (since you have it!), the odds are better that you understand the target market well.
One implication of this is that the more problems you have, the more potential ideas you will have. If you are a rock-climbing, book-loving, traveling, concert-going, nature-loving young professional foodie in Oregon, then you’ll be exposed to all kinds of potential problems in those areas. If instead you’re an alcoholic compulsive World of Warcraft lover, you’re simply not putting yourself in a position to have problems that can lead to new ideas. Thus, curious, active, and engaged people are more likely to come up with ideas.
Maybe “Mo’ money mo’ problems” is in the wrong order- the more problems you have the more great ideas you’re likely to stumble upon.
An important caveat is that by solving your own problem you’re imagining the perfect solution for you. However, this solution won’t necessarily be the best solution for the majority of your potential customers, who may be different from you in important ways.
2. Create a Totally New Problem
Not every new idea addresses a well-known problem. No kids needed Pokemon cards until the other kids had them. I didn’t know I wanted biodegradable shoes until I was told I did by Crocs. And who knew that so many people needed to buy virtual seeds for their virtual farms and tell all their virtual friends about it?
New problems can come about because of changing circumstances, in which case they are literally “new problems”. However, new problems aren’t necessarily “new”. Many times, a new problem is just an old problem that nobody recognized before.
This is a tricky one to address directly. You can’t just start throwing darts randomly against the wall hoping you’ll come up with a new problem. Instead, this one comes direct from the imagination, and more on that in the next section.
For now, just note that in general these “new problems” aren’t what we’d call “real” problems. Most of the examples I’ve come up with fall under entertainment or games, or are essentially marketing gimmicks.
Now that you’ve read this section, go back and replace every “problem” with “opportunity”. Now you’re thinking like an entrepreneur!
3. Take advantage of change
Change is a powerful agent of opportunity. Google couldn’t exist without the internet. Below are a few different types of change that you might consider:
- Technological. New technologies create opportunities for new products or business models. The internet is the obvious example, but even within the internet the pace of technological change is rapid and creates a ridiculous amount of opportunity. Logistics is another area where technological change has created efficiencies that lend themselves to new business models (see: Amazon). For web-based startup ideas, here are a few relevant kinds of technological change to look for:
- Hardware: The iPhone created a billion dollar market for smartphone apps overnight. In addition, as these devices get more powerful, they’ll be suitable for more and more services that wouldn’t make sense right now. (Just look at what geolocation has done for companies like Foursquare, Gowalla, etc.) How will projectors on your phone or Google Glass or self-driving cars create new opportunities?
- Software: Commodity software stacks have made sophisticated technology affordable for bootstrapping entrepreneurs. Does your product require a maps feature or video streaming? You don’t have to make those from scratch anymore, and instead can license them cheaply from Google or Wowza. Your can make products combining these resources that weren’t available five years ago.
- Social. Social change creates demand for products that didn’t make sense before. For instance, as more people become comfortable using video chat, this creates opportunities for previously unviable business models that relied on people participating in video chat. One advantage younger entrepreneurs have is that they’re more attuned to the “pulse” of social and cultural changes that tend to start with teens and young adults.
- Demographic. Demographic changes increase the size of target markets, perhaps to the point where there is sufficient demand for a product that didn’t have a large enough demand before. When thinking of demographic changes, be specific. It’s not just that there are more people aged 60+, but there are more people that are 60+ and have some familiarity with computers. There aren’t just more people that are have smart phones, but there are more people that have smartphones and are younger than 18 and want to play games.
Anticipating changes is a great way to take on large companies that spend their energies addressing the status quo. To generalize, larger companies are much better at incremental change than revolutionary change, which makes them bad at addressing new opportunities that emerge as a result of change. Your agility and fearlessness make you a daunting David to their Goliath.
4. “Tweak” an existing idea.
“Tweaking” implies taking an existing product or business model, whether successful or not, and changing a critical aspect of it to address a problem in the existing market or in a completely separate market.
Tweaking is highly dependent on the specific market or product, but below are some reasons why businesses may leave themselves vulnerable to a tweak:
- Something is “too hard” or outside the domain expertise of a company (e.g. they have legacy systems or built-in revenue streams that they’re afraid to cannibalize)
- Its simply poorly-managed, and they’re letting opportunity glare them in the face
- They’re not current with technological trends
This is not limited to the product itself. Perhaps there’s a huge hole that you’ve observed in their sales model, or maybe you come up with a brilliant way to market the product.
As stated above, new ideas are simply new combinations of elements of old ideas. “Tweaking” is simply dissecting an old idea and finding the critical points that could be adjusted to create something new.
5. Adopt an Existing Idea or Model to a Different Market
On its surface, this form of a startup seems less original than others, but the creativity involved shouldn’t be underestimated. The key is to extract value from one product or service, and adapt it to the customs, laws, and environment of another market.
OLX is the eBay for much of Europe and South America. Baidu is the Google of China. And while adapting old products to new geographies is a great way to start a new company, geography isn’t the only flexible aspect of a current idea or model. For example, Chegg applied rental economics to textbooks. Ning made it easy to create customized social networks for groups and organizations. Amie Street brought auction economics to music sales.
When companies create a product with a very wide target market, they have to compromise the value of that product within every single niche market within the larger target market. If I’m making a ballpoint pen for the masses, then i can’t include that fancy push-button top and multi-color option that only some people want.
To be attractive, a niche market must first be large enough to support a product. A niche market’s geography, preferences, demographics, or cost-consciousness are somehow relevant to the product and substantially distinguish this subset from other rest of the target market.
Find a group of people being underserved. Make the iPad cover for the traveler, with a waterproof seal and extra strong cover. Create a music-sharing service for hip hop enthusiasts, an online art gallery for Surrealist artists or an interior-design firm for coffee shops.
7. Do it Better
This is a tricky one, as it can be easy to underestimate the challenge of taking on a competitor’s market by trying to do what they do better. It can work, but you must be able to clearly formulate how you’re going to do something better than an established company that is already doing it.
Maybe a company is doing well, but only because they were first to market and not because their business model is the best to fulfill a certain service.
Perhaps a large company is afraid to move to fast and is innovating too slowly. Make an innovation in their area ahead of the competitor, and you could become an attractive acquisition target.
Maybe a brand has been tarnished beyond repair, or maybe they don’t have the network that you do, or they clearly have incompetent leadership.
For “doing it better” to work, marginal improvements won’t do. Marginal improvements can be quickly copied by your better-entrenched and better-funded competitors. But it can work. Does Hotmail ring a bell? Maybe not, because Gmail conquered the market (atleast in the U.S.) with a vastly superior product.
As with many of the other ideas above, “doing it better” will achieve best results when combined with other tactics. Vimeo made a better online video player, but targeted it to higher-end and more serious video creators through its community. There were plenty of online t-shirt shops before Threadless, but conquered with amazing products.
The point of this post was to examine a few different forms that new startup ideas can look like. Sometimes incorporating just one of these aspects is enough to give an idea legs, other times it won’t be. Every idea is different, but hopefully this gives you some things to look for.