Friday, November 21, 2008

What is a good business idea?

By Olu Akanmu

Ideas come like a flash in our mind. We see opportunities, we ponder on it and wonder whether the opportunity is real. We are essentially going through the process of asking this key fundamental question of entrepreneurship—“What is a good business idea?”. Essentially, a good business idea (in its most ideal form), it’s a business where there is good return on investment with positive cash flows. The elements of a good business idea are as follows.

There is a true need for a service in the market, and that need is not being fulfilled by anyone. Sometimes, it is not a clear as the above. Existing supplier/ players could currently fulfill a service-need in the market. A good business idea in this context could be a new way to fulfill that need either in better way, more efficiently or at a lower cost to the customer. A more efficient way could imply the customer will get more value through the new business idea for the same amount of investment she would have made under the current situation.

A good business idea as described above is not a wishful thinking. It is grounded in reality. An organization or individual who can fulfill a market need in a unique way must have unique capability. In essence, the organization must have something that is not common, something that others within the boundary of that market do not have. This uniqueness must be such that it can be translated to deliver a unique value to the customer by enabling the customer to fulfill an unfulfilled need or fulfill an existing need better, more efficiently or at a lower cost.

A good business idea must be executable, at least by the conceiver of the idea. Sometimes, there are significant hurdles to cross to execute an idea. This may include finance, government regulation, technology etc. In many instances, the true value of the idea can only be realized when a significant hurdle is overcome. Such hurdles tend to protect the existing incumbent players, protect their inefficiencies and poor customer-value delivery. Overcoming such hurdles may need a lot of courage, doggedness and commitment. Such attributes are the stuff great entrepreneurs are made of.

It is important to recognize that sometimes a good idea may not be executable by the original conceiver because he lacks the capability to do so. This might be due to issues like capital, knowledge or technology. Good business ideas should not be killed because one cannot execute it. The opportunities to partner with others who could bring complementary capabilities to execute the idea in a fair commercial arrangement should be explored.

A good business idea also tends to be such that only the conceiver, when it is brought to live, can do it for a long time. Essentially, if I can fulfill an unfulfilled need in the market, and everyone can quickly copy it, then the idea will loose its uniqueness and ultimately its potential to deliver unique value to the customer. A good business idea must therefore have the potential to be protected, or I must be able to build barriers to entry around the business. This protection may include capital (I can raise money than anyone), technology (I have a unique technology that cannot be copied), legal (intellectual property, copyrights, contracts, regulations), knowledge (I know what others do not know, or what it will take them a long time to know), relationships (I have critical relationships that others cannot build). It is important to recognize the limits of legal protection in places like Nigeria where the institutions that can help enforce property rights are weak and under-developed.

A good business idea must also be expressible in a simple statement to a defined customer. It is amazing how many businesses fail this test. This sometimes called unique value proposition. It is essentially, a statement like “ I am X. You want something like this. I can do it for you in better (more for your spend) or do it for you cheaper (so that you spend far less). And this is why… I am the only one who can do it for you like this at least around here”. Communication is key bedrock of marketing. If it cannot be easily communicated or understood by the customer, it is probably not a good business idea.

The strength of a good business idea must also be measurable. In its simplest form, it must be measurable in the context of how many people could potentially buy the product, the likely cost of producing the service or idea, the price ranges that people will be willing to pay, the revenue stream and profits. Essentially, a good business idea must be expressible in financial terms or in a financial statement. This exercise must however be done without a delusion. It must be grounded in reality of your capability, competition, and customer purchase power and value appreciation.

As simple as the above sounds, they are not easy tests for business ideas to pass. Hence, a good business idea is not common. If it were so, success will be common. This is however not to say that one should be discouraged. Good business idea tends to come out of an iteration, trials, perfection and improvement of other ideas. The chances of getting a good business idea also tend to increase the more options, one could conceive and articulate. Hence, don’t stop trying. The next idea you have may just be the winning one.

Olu Akanmu, July 2006 .

1 comment:

Adekunle Yusuf said...

A wonderful right up sir. If you can dream it, you can achieve it.