Many times entrepreneurs start with a business “concept” or “idea” with little or no real knowledge of the market, their competitors, potential strategic partners or the customer requirements. Accordingly, the genesis of an entrepreneur’s business “concept” or “idea” can be based on many different things, including a hunch, a gut feeling, a discussion with a friend or colleague, or even some real market-based experience.  Many times, this “concept” or “idea” initially envisioned by the entrepreneur is correct in terms of the underlying supposition regarding the market need or problem they are trying to solve.  But in the end, the final configuration of their product offering is often very different than their original “concept” or “idea”. The reason for this is that the market realities necessarily dictate the final configuration of a start-up company’s business “concept” or “idea”. Therefore, entrepreneurs often end up with a substantially different product offering than they originally begin with.  This is not a bad thing, and ultimately often results in a much higher level of success in the market.   This article addresses the underlying reasons that an entrepreneur’s original business “concept” or “idea” changes as they become more familiar with the realities of the market.  In the end, the result is a better final product offering that has a much high potential for success in the market.

Review the Markets

With the instantiation of their start-up company and their associated business “concept” or “idea”, entrepreneurs often have a target market in mind for their final product offering. From the beginning, this target market is their primary focus and often they are not to be dissuaded from their single market focus.  This myopic approach to looking at the market(s) is often a big mistake and can result in a failed start-up company. As such, many of these same entrepreneurs often forgo the opportunity to review all the potential market opportunities that can be addressed with their technology, product or service offering.

A much better approach is for the entrepreneur is to step back and review all potential markets from the 30,000 foot level.   With this level of market-separation, the entrepreneur can now take into consideration all of the other potential markets that may be complementary or supplementary to their initial, primary target market.  This approach of reviewing all of the potential markets available for the entrepreneur’s product offering is invaluable for many reasons, including:

• It allows the entrepreneur to examine the underlying characteristics (e.g., size, growth, competition, etc.) of their primary target market and all other potential markets of interest on their individual merits,
• It provides the entrepreneur with the ability to identify other new, potential revenue generating opportunities,
• It provides a market-based approach for the entrepreneur to prioritize the necessary features, functions, and capabilities of their final product offering according to the market needs,
• It allows the entrepreneur to prioritize all of their potential markets into primary, secondary and tertiary market opportunities, and
• It provides the entrepreneur with necessary information to determine which markets will provide the highest potential return on investment for their start-up company.

This high-level market analysis is invaluable, as it provides the entrepreneur with the necessary knowledge to make an informed decision on bringing their technology, product or service offering to market.  Having now identified which target markets make sense for their product offering, the entrepreneur can now prioritize these same market opportunities appropriately.  As often is the case, from this high-level market review, the entrepreneur more often than not decides to target another, different market than they originally intended as their initial primary market focus for their start-up company’s technology, product or service offering.  Consequently, this change in market focus often drives the entrepreneur to develop additional and/or different features, functions, and capabilities for their final product offering than originally envisioned at conception. This is a good thing, as this enhanced final product offering can often support multiple revenue streams and a substantially higher return on investment than originally anticipated.

Study the Competition

Often, an initial business “concept” or “idea” by its very nature is half baked. The reason for this is that there is little or no market reality integrated into this initial business “concept” or “idea”.  Therefore, to get these same market realities into the features, functions and capabilities of their product offering and to further develop their start-up company’s business “concept” or “idea”, the entrepreneur must study their competition.

To most entrepreneurs the thought of developing a competitive analysis sounds like a difficult and painful task. More often than not, these same entrepreneurs do not want to spend the time necessary or the due diligence effort required to analyze the competition and their product offerings.  While it is true that developing a thorough competitive analysis is a difficult task that can take a significant amount of time, it can very beneficial to the entrepreneur and their start-up company.  Some of the benefits of developing a complete competitive analysis include:

• Identifying all the necessary features, functions, and capabilities of their start-up company’s product offering. 
• Defining the key features, functions and capabilities that differentiate their product offering to that of their competitors.
• Determining how to position their product offering against their competitors based on these same defining features.

The end result is that through the development of a thorough competitive analysis the startup company’s final product offering is often much different than that of the entrepreneur’s original business “concept” or “idea”.  But, again, this is okay, because this same entrepreneur and their start-up company now has a product offering that provides a competitive advantage in the market and at the same time provides significant value to the end customers.

Identify Strategic Partners

Most start-up companies go to market with a core technology, product or service offering.  At the same time, from the customers’ point of view, this core technology, product or service offering is often “incomplete” and many times requires one or more complementary technologies, products or services to make it a “complete” product offering to properly service the market.  Therefore, to develop a “complete” product offering, it is often necessary for the entrepreneur to identify potential strategic partner candidates that can provide the necessary complementary technology, product or service offerings. These strategic partners can range from hardware providers, to software developers to service partners, etc. By identifying the appropriate strategic partners, the entrepreneur is taking the proper initiative to make their initial business “concept” or “idea” into a “complete” product offering, further ensuring their success in the market.

Finally, take the necessary time to identify and analyze potential strategic partners. Remember, great strategic partners will add significant value to your start-up company beyond their technology, product or services.  In addition, take the time to also consider their market position, customer base and channel access.  These items can add significant value to your start-up company and its ability to secure and create a long term defensible position in the market.

Talk to Your Customers

All of the market research and analysis in the world does not mean much unless it is verified with your start-up company’s customer base.  Also, it is this customer verification process that many times causes a start-up company’s final product offering to vary significantly from its initial business “concept” or “idea”. What an entrepreneur initially believes are both important and necessary features, functions, and capabilities for their product offering are often much different from the end-customers point of view.  This is a significant point, as often, entrepreneurs never talk to their customers and therefore do not really understand what is important to their customer base.  Obtaining customer feedback is invaluable to an entrepreneur and to their start-up company.  It not only allows the entrepreneur to validate or invalidate their initial business “concept” or “idea”, it provides them with the ability to prioritize the necessary features, functions and capabilities of their product offering. Therefore, by talking to their customers, entrepreneurs often find out that their final product offering will be much different than originally envisioned at the business “concept” or “idea” stage.  This is necessarily a good thing in that it provides the entrepreneur and their start-up company with a final product offering that targets the needs of their target customer base.

A business “concept” or “idea” is only the first step in the development of a valuable product offering.  As often is the case, a start-up company’s final product offering will be much different than the entrepreneur’s original business “concept” or “idea”. This is necessarily part of the process of developing a product that addresses a market need, and at the same time provide a long-term, sustainable competitive advantage in the market. So, as an entrepreneur you need to review the markets, study your competition, identify strategic partners, and talk to your customers.  Your start-up company’s final product, although much different than your original business “concept” or “idea”, will be much more valuable to your customers and at the same time put you on a path to success in the market.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

Every year millions of individuals come up with a business “idea” or “concept” that they believe could be the beginning of a fundable start-up venture.  While many of these ideas or concepts may have merit at the 30,000 foot level, it is the process of taking a business idea or concept and making it a valuable business proposition that makes the difference between a fundable start-up company with a technology, product or service offering, or just a business idea or concept, to be left by the potential entrepreneur as a passing thought. This article addresses some of the basic steps that need to be addressed to take your business idea or concept and create a real business proposition that can then be presented to the venture funding community.

Is There a Market for your Business Idea or Concept?

As a potential entrepreneur interested in developing your business idea or concept, the first place to start in your due diligence planning process is to analyze the market.  Here, you need to identify and then determine which target market or markets are addressable with your proposed technology, product or service offering.  No market means no potential for selling your business idea or concept. Remember, the last thing you want to do is develop a product that is looking for a market. You need to solve a “problem” or “market need”. That being said, you not only have to identify which markets may use your product offering, you have to determine the basic characteristics of these markets including:

• Market size (Revenue and Unit Sales), and
• Market growth (High Growth, Low Growth, Declining Growth).

Both of these market characteristics have an effect on the ability to sell your idea or concept and at the same time generate a “scalable” business that will be attractive to potential venture investors.  For these given market characteristics, you want to identify markets that are large and are growing. These are the ideal characteristics of the target markets for your proposed business idea or concept. 

 Does your Business Idea or Concept Have a Long-Term Sustainable Competitive Advantage in the Market?

Just having an idea or concept does not necessarily imply that you will be successful in the market.  From an investor’s point of view, you also need to have a long-term sustainable competitive advantage in the market. Here, investors look to invest in start-up companies with an idea or concept that they consider to be “disruptive” in nature.  That is, the idea or concept needs to change the “basis of competition” within the targeted market(s) or sub-market(s) of interest. A disruptive technology, product, or service offering, with a long-term sustainable competitive advantage does not invoke an evolutionary change in the basis of competition (e.g., 10% cost reduction), but a revolutionary change that results in a new competitive paradigm shift for a given market. A revolutionary idea or concept can address any or all of the following:

• A shift in the structure or nature of the technology offering in the market,
• A significant reduction in the average selling price,
• A significant reduction in the time-to-market, and
• A new avenue for sales channel logistics.

Overall, the underlying theme of a disruptive idea or concept is that it provides the means and justification for the target customer base to change their status quo and go with your start-up company with its new technology, product, or service offering as a way to facilitate and obtain a competitive advantage in the market. Historically, there have been many companies with unique, disruptive technologies that have changed the basis of competition in the market and at the same time created a long-term sustainable competitive advantage in the market, some of these companies include: Ford Motor Company, Apple Computer, Google, Netflix, etc.

Does the Business Model of Your Idea or Concept Reflect an Industry Standard Business Model?

Venture investors are risk adverse.  This concept is not really intuitive for potential entrepreneurs, but by the very nature of their business they need to “manage” risk to protect their investments, and at the same time secure a return for themselves and their limited partners.  That is, investors do not invest to lose money!  With that being said, typically investors look for ideas or concepts that have business models that reflect well understood standard business operations for a given industry.  This allows these same investors to weigh the advantages of your business idea or concept over an industry standard financial model to see where and how you are going to secure a financial advantage over your competitors. Therefore, when developing your business idea or concept, look to the industry leaders in your market and model your financial statements (e.g. income statement, balance sheet and statement of cash flows) after these competitors.  This will provide your investors with a basis for their financial analysis, and at the same time provide a historical reference point to measure your projected financial success in the market. 

What is the Projected Return on Investment for your Business Idea or Concept?

As part of developing a legitimate business idea or concept, you need to determine what the potential financial investment returns are for your prospective investors.  This concept, although not foreign to most potential entrepreneurs, does provide issues for most first time entrepreneurs, from a practical point of view.  In general, it is understood that venture investors look for a 5 to 10 times their invested capital in a 3 to 5 year period, respectively.  These numbers reflect expected historical financial returns and should only be used as a reference point. Some venture investors expect more, some will take less, but the key here is to develop financial pro forma statements that meet the expected returns of potential investors and at the same time are defendable.  Here, the best thing to do is develop three financial scenarios for your business idea or concept, including a:

• Best case scenario,
• Typical case scenario, and
• Worst case scenario.

By doing this, you will have fully analyzed all financial aspects for your proposed product idea or concept.  In the end, you will have to pick one financial scenario to present to your potential investors.  But, by going through this financial scenario analysis, you will have a good solid basis for discussing the expected financial returns of your business idea or concept with your potential investors.

Who are Your Customers and How are You Going to Bring Your Idea of Concept to Market?

Another key attribute to developing your idea or concept is to identify your target customers and determine your appropriate sales channels for your technology, product or service offering.  These items are often over looked by first time entrepreneurs, and together are often a stumbling point for presenting your business idea or concept to your potential investors.  Here, one of the best things to do first is to identify your customer base and then break it down into tier one and tier two customers.  This will allow you to position your potential customers and determine, in your go to market strategy, which customers you talk with first and then second. In my experience, it is better to talk to your first tier customers second.  This will allow you to work out any issues regarding the presentation of your idea or concept to your customer base.  Then, by the time you talk with you first tier customers you will have already been exposed to most of their questions, and at the same time, this strategy will facilitate for a much smoother presentation.

Finally, you need to identify the sales channels you will develop to address your customers.  Whether, direct, indirect, or virtual, you need to spend the time to think through your sales channel strategy and determine why this will support your product idea or concept and at the same time provide the level of market penetration to allow you to be successful in the market. Here, a successful channel strategy can accelerate your time to market and break even, increasing the return on investment for your start-up company and your investors.

Having an interesting idea or concept is not enough to get venture investors’ attention.  As a potential entrepreneur, you need to develop your idea or concept into fundable business proposition.  Addressing the market, competition, business model, expected financial returns, customers and channel strategy, will get you moving in the right direction for developing a fundable business proposition.  The steps outlined here should be used as a baseline for any entrepreneur working to develop their idea or concept into a fundable business proposition and moving it to the next level with potential investors.