This blog post is co-written by Yngve Dahle and Mark Robinson.
You may find the term business idea misleading. An “idea” generally represents a sudden insight or perception; however, it is used differently in different contexts. Idea can also mean a plan, an invention or a thought. While the word can be used to describe thought processes and fantasies, it can also describe spontaneous whims or sudden inspiration.
The concept of a business idea has little to do with this. The development of a business idea is a careful and complex process. Brainstorming and creativity are just two of many methods you might use to help you find the right way forward. In addition, a business idea should be founded on a thorough market analysis, financial considerations and trial and error in the market. You will combine all of these techniques to define your business idea. Include your co-workers! This imparts broad ownership to the business idea, and utilizes competence within the organization.
Vision, business idea and mission
A few years ago, one of us was at a strategy meeting that came to a halt simply because of a semantic confusion: What is the difference between a vision and an objective? What do mission and business idea mean? We had to take a break to clarify these concepts.
A vision can also be thought of as a ‘guiding star’; a point in the distance that the company and its employees can use to steer the course. We will never be able to fulfil our vision one hundred per cent. For example, if the vision of the company is to create a better world, we will always be able to make the world even better, regardless of how good it has become. The vision should be an inspiration for action. We believe that the owners of the company should define the company's vision and include it in the Owners Mandate. The management of the company should focus on the work outlined in the business idea
According to Canadian professor Chris Bart (2002), the mission consist of three components:
- Key Market: Describe your target group or customer.
- Key Contribution: What do you do for this customer?
- Distinction: Why does the customer choose you?
This is almost word for word the same three components that we use in the business idea. We can say that business idea and mission are so close that they are synonyms.
What does a business idea contain?
A business idea includes the answers to three questions: what problem will you solve, who has this problem, and what unique core competence do you have that enables you to solve this problem better than anybody else?
What makes you unique?
One fundamental aspect of the business idea is that which makes you different from others. If you do not have something unique to offer, you do not have a business idea.
Our preferred definition of a business idea is “what you do better than anyone else”. Of course, there will always be a need for more than one coffee bar, petrol station and accounts software package in the world. You just have to find a market-related or geographical area with a sufficient number of customers. For this reason we have a slightly more pragmatic definition of a business idea:
What you do better then anyone else - where you are.
The ability to do something better than anyone else means that you have a specific unique competence. The Chinese basketball player Yao Ming was able to perform athletic feats on the basketball court few others could; one of the main reasons for this is that he is 229 cm tall. In your business idea you should include the areas where you excel or characteristics that make you unique.
What problem will you solve?
You cannot operate a commercial enterprise without a need for the product or service you wish to offer. A typical error when working with business ideas is that people confuse needs with solutions. Even if the fellow next to you were to say: “Now what I need is a beer”, this does not necessarily mean that the need is beer. Taking a walk in the forest with a friend may well equally satisfy him. He might actually need the social contact, while beer is only a solution. The customer’s so-called needs must always be considered in a greater context (maybe the problem actually was thirst or a need for escape from reality). There are also different levels of need. For example, the need for clothing arises from the need to keep warm, which in turn comes from the need to stay healthy.
An important demarcation when you formulate your business idea is that you concentrate on the most central need. All other needs, regardless of their nature and regardless of level, fall within the business model.
This can be illustrated by Cal-Train, which serves people who have a need for transport. In the business idea we do not consider whether their customers need comfortable transport, catering facilities, dining cars or reading materials. The single, important, overriding need of travellers with Cal-Train is simply to get from A to B.
The renowned Harvard professor Clayton Christensen (Reinventing Your Business Model, 2008) suggests you think of buying a product or service as hiring it to do a job for you. If you can describe this job accurately, designing the product or service will be easy.
He concluded this after researching a fast-food chain that could not boost their milkshake sales. No matter how they changed the flavour, texture, packaging and price, the sales remained the same. Christensen stood next to one of their restaurants, and registered who bought milkshakes. He was surprised to learn that most were bought before eight a.m. by people arriving alone in their cars. When asked what problem buying the milkshakes solved for the customers, they said they needed something to do when bored in the morning commute. A milkshake was suitably filling, well tasting, it did not make their fingers sticky, and it fitted perfectly in the cup-holder of the car. This allowed milkshakes to solve their problems better than the competitors, which turned out to be chocolate, fruit, donuts, coffee etc. Can you see how much easier it is to improve the product when you understand the customer’s problem?
Who has this problem?
Sam McCraken works at Nike and developed a new type of running shoe that is wider than a regular running shoe. Why do we need a wider running shoe? You, the reader, may not need wider running shoes. In such case you are in line with most people. We do not belong to the target group for these running shoes. Sam McCraken had an advantage: he had detailed insight into a target group with wider feet than other people. He belonged to the target group himself and had most likely felt the pain of shoes that were too narrow for his feet. Pain is often an important element when it comes to uncovering needs. The shoes are called Nike Air Native Q7, and the target group was Native Americans.
Meeting a need is meaningless if you cannot say who has the need. History is full of inventors that have tried to solve imaginary problems for non-existent target groups.
Template for creating a business idea
In his 2004 book “The Art of the Start”, Guy Kawasaki wrote that if you cannot describe your business idea in fewer than ten words, you do not have a business idea. We actually don't mind if you use eleven, twelve or even more words. However, the point is clear. Your business idea must be brief and precise.
Your business idea should be comprised of:
- The problem you will solve
- The target group who has this problem
- The unique ability that makes you able to solve the problem
A good business idea should be as follows:
[name of company] serves [overarching customer segment] that has a need for [the customer segment’s most important need] because [your relevant unique competence].
[Yao Ming] serves [basketball clubs] that have a need to [win matches] because [he is 229 cm tall].
Now try to make one for your own Startup! It will take you no more than a few minutes, and you may learn something new about your business. And remember, any business or startup can have several business ideas.
We hope that this blog post may inspire you, and perhaps start a discussion. If some of the entrepreneurship terminology used is new to you, you will find it better explained in the Business Idea chapter of our Lean Business Planning book. Please download a free preview PDF of the book.