The Smart Entrepreneur E-Book

Bart Clarysse

• Herausgeber: Elliott & Thompson
• Kategorie: Fachliteratur
• Sprache: Englisch
• Veröffentlichungsjahr: 2011

Seitenzahl: 423

Beschreibung

The ideal companion for anyone starting out on a new venture. Successful entrepreneurs are smart. They take small steps, use their judgement astutely and reassess their assumptions at every opportunity. In today's fast-moving and technology-driven business environment, they collect the tools and the knowledge they need to manage uncertainty and stay ahead of the competition. Above all they strive to understand their market and business environment - as a result, they may even end up selling a different but commercially smarter idea than the one they first started with. But how does the aspiring entrepreneur get to this point? Imperial College Business School is ranked number one throughout Europe for its teaching on entrepreneurship. Here entrepreneur and professor Bart Clarysse and venture coach Sabrina Kiefer set out their hands-on approach to coaching novice entrepreneurs in this comprehensive guide, distilling academic wisdom into practical principles. 'The Smart Entrepreneur' features real-life case studies as well as in-depth analysis by authors with direct experience of developing start-ups and venture coaching. Divided into twelve chapters that can also be read separately as mini-manuals, each section offers practical advice and guidance to cover all aspects of your new venture, from building a smart business proposition to assembling a dynamic team, carrying out affordable yet effective market research and seeking investment. Whether you've been nurturing an idea for some time but haven't yet worked out how to launch it or you're in the early stages of a venture and in need of detailed advice and coaching, it will guide you through your decision-making process and show you how to turn your initial idea into a comprehensive, credible and investable proposition.

Leseprobe

ACKNOWLEDGEMENTS

Thanks are due to many entrepreneurs, scholars and students, near and far, whose experiences and insights have found their way in some form into our thinking and this book, but who are too many to name here.

Kristien De Wolf was instrumental in co-developing, over the years with Bart Clarysse, a practical and structured method for coaching entrepreneurs which provided the inspiration for this book, and in helping us to deliver the method in its present form at Imperial College Business School. Johan Bruneel, another valued colleague, read early versions of many of the chapters and made useful suggestions.

Jean-Marc de Fety, Wouter Van Roost, Professor Colin Caro and Igor Faletski generously shared their time and enthusiasm in interviews for case studies. We also thank Luc Krolls and Rika Ponnet for consenting to our use of their written materials and video-recorded presentations for the case study in Chapter 4, and thank Bruce Girvan, Chris Thompson, Tom Allason, Frank Gielen, Johan Cardoen, Emma Stanton, Mirjam Knockaert, Mathew Holloway and Matthew Judkins for their contributions to the content and accuracy of case studies elsewhere in the book.

Matthew Dixon, of patent and trade mark attorneys Harrison Goddard Foote, cast an attentive and critical eye over Chapter 6, helping to make certain that our treatment of the ins and outs of intellectual property was precise and reliable. Chris Haley of Imperial Innovations helped us to identify a fitting science commercialisation story for our theme in Chapter 1.

In addition, three teams of students on the Innovation, Entrepreneurship and Design (IE&D) programme at Imperial College Business School created Figures 16 and 17 (Richard Lough, Rosie Illingworth, Howell Wong, Philippa Mothersill, Yann Helle and Lino Vital), Figure 36 (Stacey Sunderland, Christina Stampfli, Damon Millar, Joel Tomlinson, Prashant Jain and Sebastian Lee), and Figure 37 (Solomon Oniru, Clementine James, Olga Borets, Saravanogiri Manoharan, and Luke Trybula).

We also thank Professors David Begg, Principal of Imperial College Business School, and David Gann, Chair in Technology and Innovation Management, for their support to the activities of the Entrepreneurship Hub at Imperial College, which made the IE&D programme possible.

Finally, we’d like to thank the people at Elliott & Thompson for their support, advice, patience and, finally, gentle nudge to get on with it and complete the book, particularly chairman Lorne Forsyth, former and present publishers Mark Searle and Olivia Bays, project manager Jennie Condell and copy editor Kate O’Leary. We are also grateful to author and friend David Charters for introducing us to this affable publishing firm.

CONTENTS

Title Page

Acknowledgements

Introduction

I Idea creation and evaluation

1Understanding the fit between opportunities and ideas

2Fine-tuning demand-driven ideas and solutions

3Shaping applications from knowledge-driven ideas

II From idea to business proposition

4Segmenting your market and using preferred witnesses

5Carving out a place in your business environment

6Protecting your business ideas from imitation

7Choosing entrepreneurial strategies for entering new markets

III Proof of concept

8Using prototyping

9Testing the market

IV Marshalling resources

10Setting up venture teams

11Seeking sources of capital

12Introducing the venture roadmap and basic financials

Epilogue: the entrepreneurial business case

Notes

Index

Copyright

INTRODUCTION

“When I was in college, guys usually pretended they were in a band…. Now they pretend they are in a start-up. ”1

The entrepreneurial dream

Over the last 15 or so years, ‘entrepreneurship’ has become synonymous with ‘cool’. Paraphrasing the above quotation, you could say that garage rock has been replaced by garage start-ups.

Enterprise has also become a more accessible option for a larger group of people than previously, thanks to the advent of new technological opportunities. In the 1990s, as the reach of the internet and world wide web spread beyond the academic and governmental space into the civilian and commercial arenas, new business models could be conceived to transfer normally face-to-face commercial interactions into the virtual world. Services could be automated and productised, customers could be reached and products downloaded globally, niche markets could be created and served in an economical and unprecedentedly profitable manner. A venture could be started at little cost by a few people tapping code on some computers. A relatively inexpensive website interface could replace a capital-intensive chain of bricks and mortar shops or branches, and a customer base could be built up quickly and ‘virally’.

Hence was born a new generation of technology entrepreneurs, whose celebrity status was achieved in record time and stretched beyond the ‘in’ community of Silicon Valley to the readership of the broadsheet dailies, not to mention television and films. From a business perspective, things became a little silly at the end of the 1990s, when many investors were willing to fund any revenue-less proposition that involved a website, but after the bubble burst a sobered-up new economy began to materialise in the new millennium.

Perhaps not sober enough, though. Entrepreneurship has turned into something of an industry in its own right, spawning a slew of how-to and how-I-did-it books, fanzine-like websites about the start-up scene, and blogs by entrepreneurs and venture capital investors. European universities have played catch-up with those in the US by setting up entrepreneurship centres, business plan competitions, start-up incubators and student entrepreneurship clubs. Politicians and policymakers sing the praises of technological innovators and entrepreneurs as the seeders of future economic growth, and sometimes create public agencies to promote enterprise culture. ‘Entrepreneurial attitude’ has also come to be considered a positive attribute in high-level job seekers.

Throughout this quasi-industry runs the inebriatingly romantic and inspirational image of the lone entrepreneur; something of a renegade and iconoclast, a charismatic autodidact with an unconventional dress sense (or perhaps none at all), who knows what people will want to purchase before they know it themselves. The archetypal entrepreneur’s start-up company generally begins its life in a shed, garage or student house (probably in California), an impressively contrasting image to that of the minnow firm’s subsequent expansion into a multi-billion-dollar company.

Why do we propose to join this industry by producing yet another book on entrepreneurship? First, because we have been coaching entrepreneurs since the mid-nineties and were deeply involved in a number of start-ups ourselves. Over time, we saw that the same sorts of problems were raised, almost repetitively, by the different entrepreneurs who came to us for help. Often, just one or two workshops gave them enough of a grounding to get started and overcome initial barriers to growing their ventures. We turned the vast amount of material accumulated through this experience into a core entrepreneurship programme at Imperial College Business School which, we think, has become rather good. This book is an extension of that programme and reflects our hands-on approach to coaching students through entrepreneurial projects and starting entrepreneurs on their journeys.

Second, because the above-mentioned typecast character and many books on entrepreneurship hail from the US, we think a need exists for a book which offers a European perspective, using European case studies and taking into account some of the challenges faced by European entrepreneurs, including the higher degree of scepticism and risk aversion generally found on this side of the Atlantic. The European entrepreneur does not necessarily fit the mythical American stereotype (and many US entrepreneurs probably don’t either). Many of the examples in this book thus provide useful guidance for UK and European entrepreneurs and students interested in entrepreneurship.

Third, because not every entrepreneurial light-bulb moment is destined to become the next Google. A tremendous amount of uncertainty surrounds every venture idea at its conception, and we hope that the structured approach presented here can help the reader to manage that uncertainty, by testing his early assumptions about a business idea and adjusting them, if need be, to end up with a more probable business proposition. We don’t want to take the excitement or vision out of entrepreneurship, but we do want to insert a bit of realism.

We also hope to convey some insights from academic research that may be applied in practical ways to the shaping of a business concept and the creation of a company – not as hard and fast rules but as initial aids to face the uncertainty inherent in a new venture with an open and dispassionate mind.

The lowest-common-denominator advice frequently given to novice or aspiring entrepreneurs tends to be construed by its recipients as:

• Get an idea and set out to write a business plan.

• Search for information in support of your idea to plug into the business plan (shoehorn it in, if necessary).

• Pitch the business plan confidently to investors and raise money.

However, we stress that, before you can convince an investor or even a customer, you need to convince yourself, with an argument that’s a little more than personal conviction or the citation of some high-level market figures from a generic industry report. That’s why we propose a book about putting together a business case for a new venture, not a book on how to write a business plan.

A business plan is simply a document describing the business you intend to start – essentially, what it will sell, how it will operate and how it will make money. An entrepreneurial business case is the rationale embedded in the business plan, explaining why the business is capable of thriving – the substance of your business plan. This book aims to provide the tools to build a credible rationale.

Entrepreneurial reality

Only 45 per cent of businesses started in the UK in 2002 survived the five years to 2007,2 and the average sales turnover for small and medium-sized enterprises (less than 250 employees, accounting for 99.9 per cent of UK businesses) in 2007 was £298,000.3 To reiterate, not all new businesses become Google. Note that these figures cover a period of relative economic prosperity, not a recession. Furthermore, these are general numbers referring to any type of new firm, including small businesses in mature, stable sectors, such as a local restaurant or corner shop.

What we instead call entrepreneurial ‘venturing’ – starting innovative businesses with high-growth ambition and subject to considerable uncertainty and risk – cannot rely on such stable sectors and business models, and it is this area of new business creation that we address in this book. Innovative ventures typically deal with a product, market or idea that’s so novel that little past data or experience exists from which to generate easy predictions about its success. Such start-up ventures also lack the financial resources, established reputations and staying power of large companies. The venture entrepreneur doesn’t yet have a direct line of communication to potential customers; in fact, at the beginning of her entrepreneurial journey she may not even know who the right customers will be, nor how the business should be structured. With no exact statistics for business survival in this unstable environment, a failure rate of some three out of four start-ups is the oft-quoted rule of thumb.

This book is consequently aimed primarily at innovation-and high growth-oriented businesses, usually in the form of technology ventures or businesses with new product and service models. Entrepreneurs in these novel situations may need considerable financial capital to start, thus requiring a plan for high growth to justify the investment, and are likely to have less room for trial and error once capital has been invested. Consequently, they have to proceed in small incremental steps, investing time and money in stages, making use of any information they can obtain, applying some cool judgement and willingly adjusting their plans as they become wiser.

We often apply the analogy of dating and finding a spouse to the process of developing a start-up. When you first meet a potential partner, your information about that person is incomplete. Consequently, you’re unlikely to propose a commitment to marriage the next day. Nor can you really undertake meticulous research – you’d have to contact your prospect’s friends and former love interests and they’re unlikely to be accommodating. So, perhaps you start with a short date for coffee and, if that goes well, follow it with a dinner date and so on. At each meeting you learn a bit more about the person, perhaps eventually meet some of their friends, and at each stage your increased insight helps you decide whether to go further. If you discover a ‘deal-breaker’ flaw, you eventually wind down the relationship; if your perceptions and experiences continue to be predominantly positive, or more positive than negative, you take the further steps leading to a possible long-term commitment.

The decision to start a venture develops in a similar manner, with gradually increasing degrees of personal and material investment.

Who is this book for?

This book will appeal to the following readers:

Aspiring entrepreneurs. You may be considering taking a break from a career in industry or finance to start a venture of your own. Perhaps you’ve been turning an idea over in your head for some time, but aren’t entirely sure how to make it happen. You may have some technical and business skills and knowledge, but not the entire range needed to incubate a new venture. You want to develop these skills to some extent yourself and, even more importantly, understand enough to identify the right skilled people to complement you in the enterprise.

More specifically, if you’ve been working in an established business or running your own company in a stable environment, chances are that your acquired management skills haven’t equipped you to understand, navigate and mitigate the uncertainty that’s typical of a new venture, where the environment in which your business operates – or your knowledge of it – frequently shifts and demands that you reshape your idea.

Students, academics and inventors. If you’re a student on a business, engineering or science course, you may have been tasked with developing an entrepreneurial project as part of your coursework. Or you may be thinking of starting a business outside of your studies or after you graduate. Or you’re putting a business plan together for a competition.

This isn’t a textbook to prepare you for an exam or to write an essay on entrepreneurship; rather, it’s a practical manual to help you research and prepare a credible business case. The content is the same as that offered to our MBA students on the Innovation, Entrepreneurship and Design course at Imperial College Business School, and – in amended form – to students in the engineering, medicine and science faculties.

If you’re an academic considering commercialising an invention or piece of research, this book will also help you understand important aspects of commercialising new knowledge or technology.

Industry. You may be a manager who aims to stimulate entrepreneurial thinking and innovation in your company, or an employee who’d like to launch an ‘intrapreneurship’ idea. How can the engineers and technicians who design and build products communicate and work with the marketing people who understand customers and the finance people who run cost–benefit analyses? And how can they co-operatively address the stumbling blocks and avoid the blind spots of habit that arise when you depart from established business activity to pursue new opportunities?

This book addresses these different modes of thinking, and includes exercises we have used with success both in university courses and workshops aimed at students of business and other disciplines – such as engineering, science and design – and in executive education sessions on corporate venturing. It can be used on its own or as a handbook for such sessions, as well as for ‘accelerator’ courses, aimed at developing career skills, such as those run by universities and company academies.

Investors. Finally, you may be entering the world of new venture investment, either as an angel investor preparing to risk your own money or as an employee of a venture capital fund. This book can just as easily be used as a due diligence tool to help you assess a potential investment.

If you’re an experienced investor, you can recommend this book to new or aspiring entrepreneurs so they can understand how to satisfy your investment criteria.

How to use this book

The book is divided into four sections, which we present as stages in an entrepreneurial journey. This construct is somewhat artificial, as the evolution of a new business concept is neither so linear nor so predictable in reality. To aid the reader’s understanding, however, the information must be presented in a linear and reasonably logical fashion.

Stage 1: Idea creation and evaluation

Our aim in this section is to look at how business ideas are matched with credible opportunities, whether you’re starting from a perceived market or from a technology or competence that you’d like to commercialise. We emphasise the importance of considering a range of possibilities and evaluating each new idea with respect to existing alternatives already on the market, and perhaps modifying or improving it accordingly.

Stage 2: From idea to business proposition

This section looks at the broadening of an initial idea for a product, service or application into a rounded business strategy, by employing preferred witness research (see Chapter 4) to identify and roughly quantify a target market. We show you how to consider the opportunities or limitations of your prospective business environment (Chapter 5), how to protect your ideas and inventions from imitation by competitors (Chapter 6), and how to draw on this information to shape a commercial strategy (Chapter 7).

Stage 3: Proof of concept

This section covers ways to demonstrate and test your business proposition, both technically and commercially, through prototyping and some rough-and-ready market testing.

Stage 4: Marshalling resources

This section describes the resources – primarily human and financial – you need to bring a business to fruition, and discusses how to work out a strategy and roadmap for obtaining the most suitable resources at the right time.

Depending on the current status of your business idea, you may find yourself reading each chapter sequentially from start to finish, or jumping forwards and backwards from one topic to another as you need them – rather like consulting a recipe book. Each chapter is thus structured as a self-contained mini-manual, but also refers to related content in other chapters.

Several chapters contain a structured how-to exercise to help you assess and shape a certain aspect of your business case. While these exercises may at first seem rather formulaic, practising them offers a way to retrain your thinking about issues that every venture must consider. Each new venture has a particular set of objectives and problems, so some activities or exercises will be more relevant to your concept than others. Each chapter also contains case examples to illustrate the real-world relevance of each topic.

The Epilogue aims to tie the pieces together and outlines what we hope you can achieve from using this book. No book is a panacea for all problems and no methodology is fool-proof, but our aim is to get you fairly far along the initial process of ‘dating’ your business idea.

We wish you well on your entrepreneurial journey.

SECTION I

IDEA CREATION AND EVALUATION

1. UNDERSTANDING THE FIT BETWEEN OPPORTUNITIES AND IDEAS

Fitting opportunities to ideas

New ventures aren’t conceived in one sitting. Every new venture starts with a perception of an opportunity and the small seed of an idea. During the entrepreneurial journey that follows, this initial hunch will be investigated and developed, reality-tested, corrected, investigated and developed a bit more, reality-tested again and so on. The process continues until an entrepreneur feels enough certainty about the potential value of the idea to think investing time and money (her own and other people’s) in it worthwhile – or else discards it as unfeasible.

Before anything else, your venture will rest on two essential ingredients: the identification of a good opportunity and a solution to exploit that opportunity. This stage of your entrepreneurial journey – the idea stage – introduces you to the early building blocks for finding these two ingredients.

The first thing you’ll do on your journey – and the first thing an investor will eventually ask you to do when you come to meet one – is to outline your opportunity and your solution. So we devote two chapters to introducing different ways of finding and assessing opportunities and solutions. This isn’t a one-off exercise, however; you’ll refine your opportunity definition as you move through the subsequent stages of your journey, exploring all the factors that could help or hinder your business.

Most of this book is about testing, elaborating and modifying your initial idea about your opportunity and your solution. This first section is devoted to making a few early and basic decisions about your idea(what the business might sell, or several variations) and why it may be a sellable business proposition (the opportunity), using information you already have or can obtain fairly easily, mixed with a bit of your intuition. Later sections of the book are devoted to gathering more information to test your early assumptions.

Many aspiring entrepreneurs move straight from this early idea stage into writing a business plan, and will selectively seek out information that backs their original idea. We do not recommend this approach. Like the first draft of a document, your first idea is more of a hypothesis than a reality, and likely to need retuning before it becomes a proposal for a viable business. Stage 1 helps you make your idea clear and concrete enough for you to start investigating its value in the next stage.

Sources of opportunity

Your opportunity is the compelling reason why your business idea would appeal to customers, and is usually defined as an unsolved problem, a gap in the market or an unaddressed ‘customer pain’ with respect to existing products or services. Your solution is the thing you’ll sell, which may be a product, service or combination of the two, or possibly a platform technology that will be turned into products by others.

It is important to emphasise that, even if you have already devised a technology or designed a product, you’ll need to find a genuinely compelling opportunity to sell into. If you don’t find a compelling opportunity, you won’t have a viable business.

Starting points for new venture ideas typically fall into two broad categories:

• The demand–pull idea. This arises in response to a customer need or problem, whereby the entrepreneur needs to create a profitable, innovative solution to meet a need.

• The ‘knowledge–push’ idea. This typically involves a new technology or competence, whereby an innovative solution itself may seem like an opportunity but the entrepreneur must seek a profitable area of application and market – that is, a problem seeking that solution.

We dedicate one chapter to each type of starting point, containing different thinking tools to aid your first steps. The rest of the present chapter is devoted to outlining the difference between the two.

The demand–pull or ‘entrepreneurial’ business idea

The most compelling opportunities frequently come from satisfying demands overlooked by your competitors. If you can solve a pressing problem in a way that will suit potential customers or meet a desire that other companies have missed, your product or service has a good starting chance of being adopted.

How are unmet needs discovered? Frequently an entrepreneur happens upon an unsolved problem through personal or professional experience or observation of the experience of a relation or friend. If she subsequently discovers that the experience is not individual but widespread (a market), and can determine the cause of the problem (thus suggesting possible solutions), a business opportunity presents itself. The conception and consideration of potentially promising solutions becomes the basis of the idea stage in a demand–pull situation.

Tom Allason’s courier nightmare: the seed of eCourier.co.uk

‘Does your courier make you happy?’ flashes an animated video on the eCourier.co.uk website. The courier business may not appear to be a fertile bed for innovation, but possibly because no one before Tom Allason felt aggravated enough to see it that way. Like many urban office workers, Allason had already experienced unreliable ‘express’ courier services but, one day in 2003, a slow and slovenly courier made him so unhappy, while he tried to send last-minute event tickets to a group of friends, that he concluded he could probably do a better job himself.

Repeated phone calls to the culprit courier company revealed to Allason that the company’s despatch office never knew exactly where the assigned courier was at a given time – whether near the destination or elsewhere. To track his parcel, the despatcher had to radio the courier to discover his location and then phone Allason to pass on the information. Jobs were assigned to individual couriers based on their workload, not their proximity to a customer’s location. As a result of traffic problems and the constant juggling of multiple and geographically scattered jobs by the same courier, accurately predicting location or delivery time was impossible, so a premium-priced service that was meant to be a ‘fast solution’ could end up being neither. Here was a typical customer problem. Could a set of causes be identified?

After berating the boss at the courier company and being told to try doing a better job himself if he was so dissatisfied, Allason decided to investigate the potential opportunity with a bit of further research. In addition to the problem of real-time information, Allason learned that the £1 billion same-day courier industry was extremely fragmented between many small firms (600 in London alone). In fact, it wasn’t profitable for a courier company to become too large. The sector’s operational model meant that, as customer volumes increased beyond a certain threshold, the number of control room staff – and hence overhead costs – would rise too much in proportion, reducing profit margins. Heavy price competition between so many courier companies also meant this cost could not be passed to customers. This drove wages down, consequently depressing staff morale and performance, as couriers had to take on more deliveries for less pay.

Allason’s idea in response to this situation? He thought that if the order and despatch process could be automated and optimised with the use of technology, including a tracking system to monitor each courier’s movement around the city, operating costs would go down while order fulfilment would improve.

The entrepreneurial journey proceeded from there. Along with friend and co-founder Jay Bregman, Allason began to search for an expert who could build such technology. They found a team at two Italian universities to build the system for less than $500,000, which Allason managed to raise from friends, family and individual investors, and persuaded logistics expert Dr Cynthia Barnhart, of MIT, to oversee the project.

Today, the eCourier.co.uk despatch system, dubbed ‘Larry’ by the company, allows customers to book deliveries online, reducing telephone operator staff and saving money. It uses GPS technology and advanced metaheuristics to locate and book the optimum courier for the job – calculating time needed to reach location rather than just distance, by taking into account the road layout and traffic conditions at different times of day. It tracks the progress of pick-up and delivery, so each customer can view his parcel’s movement on a live online map. Finally, the ‘smart’ system is set up to record successes or delays and to ‘learn’ from this history, adjusting future despatch decisions accordingly.

Today, eCourier.co.uk’s tagline is ‘happiness delivered’. According to the company, 98 per cent of its deliveries in central London are completed within an hour, and the average bike collection time is 14 minutes. Couriers drive or ride their own vehicles, but the cost savings on control room staff allow the company to pay better rates than competing firms, driving staff performance and customer service up even further and avoiding the risk of manpower shortages. Furthermore, the online technology makes it possible to hire additional couriers and serve additional cities without increasing operational costs, compared with peers who still employ telephone staff to manage orders. Allason and Bregman succeeded in solving the customer and business problems they had observed when they first set out on their journey, and the company reached sales of £5.9 million in 2008. In 2009, eCourier.co.uk was ranked sixth on Deloitte’s list of the UK’s fastest-growing technology businesses, registering 5,291 per cent growth since 2004.

In 2008, Allason left the running of eCourier.co.uk – which had by then grown to some 250 staff – in the hands of a professional management team, in order to develop another venture. He had considered the fact that the business market for couriers was declining due to the availability of ever-faster broadband connections that make it possible to send heavy business documents digitally. On the other hand, consumer online shopping had become mainstream, and purchased goods needed to be delivered to people’s homes. One of the drawbacks of buying online is that you normally need to wait several days for delivery, and often cannot arrange to be home when the courier arrives; even when the retailer notifies you of the delivery day, they will often give a six-hour window. Research had shown that delivery was often the reason why shoppers abandoned an online purchase. To solve this problem, Allason founded Shutl, a start-up whose technology platform allows shoppers to book either same-day delivery (arriving in as little as 90 minutes) or delivery within a one-hour time slot on a specific day. The Shutl platform is linked to the retailer’s website, and then acts as an aggregator of local same-day delivery companies (including, but not limited to, eCourier.co.uk) in order to arrange a delivery to the customer’s liking. The service is designed to be of benefit to retailers, courier companies and consumers alike. Shutl launched in the spring of 2010, and soon after began offering its services to London customers of Argos, one of the UK’s largest retailers.

The knowledge–push or ‘solution-seeks-problem’ idea

Like entrepreneurial ideas, scientific research may also be undertaken in response to unmet needs – such as the dream of seeking a successful cure for cancer without side effects. If such a discovery is ever made, demand from patients will be unquestionable (although future chapters will point out that there may be other hurdles to commercialisation). But the pursuit of knowledge and science may also throw up discoveries with unforeseen commercial opportunities, sometimes outside the initial scientific domain. So, the idea stage of an entrepreneurial journey in a knowledge–push context typically amounts to a search for possible and promising markets and applications where a new discovery or technology could be in demand.

Professor Colin Caro: from vascular pathology to oil rigs

Professor Colin Caro of Imperial College London describes the evolution of his personal research interest to the filing of several patents and the creation of two spin-out companies, Veryan Medical and Heliswirl, as a ‘long, stumbling process’. A science-based business may have a long incubation period when compared with the immediacy of a demand–pull business opportunity, but the process can throw up unforeseen applications.

Caro began his career as a doctor and physiologist. Several years into his career, the untimely death of his brother from a brain haemorrhage prompted him to switch specialism, from pulmonary to cardiovascular medicine. Thanks to the presence of several engineers in his family, he also took an interest in engineering problems, which led him to form professional relationships with biomechanics experts and to co-found a bioengineering unit at Imperial College.

In his search for the cause of atherosclerosis – the hardening of arteries, mainly from build-up of fatty deposits on artery walls – Caro made two important discoveries. First, he proved that this build-up occurred in areas of stagnation: locations along the artery where the flow of blood slowed or accumulated to form a temporary pool. Until that point (and for some time afterward, since the medical profession was slow to accept his findings), it was believed that damage to arterial walls was actually caused by the attrition of blood flowing through the vessels, not by its slowing down. Afterward, he began to consider whether the structure and geometry of the arteries was a factor in blood flow. With the help of magnetic resonance imaging, he discovered that blood does not normally flow in a straight trajectory through the vessels, but rather swirls in a rotating, three-dimensional spiral, which gives the flow increased momentum. This spiral flow is further helped by the subtly helical shape of arteries themselves. Even subsidiary arteries branch off a main vessel in a spiralling curve, rather than a two-dimensional angle. Static flow, stagnation and damage to artery walls are thus likely to occur in places where this spiral geometry is for some reason not present or defective.

Caro imagined the commercial potential for recreating these naturally occurring flow efficiencies, not just in biomedicine but also in broader industrial applications where efficient flow of liquid through a duct might be important, so he approached Imperial Innovations, the commercialisation arm of Imperial College.

An early science commercialisation process aims to identify ‘problem-solving’ applications with high potential value, protectability and customer demand. Veryan Medical, an Imperial Innovations spin-out founded in 2002 to commercialise Caro’s discoveries, first developed helically-shaped grafts for use in coronary bypass surgery and dialysis, SwirlGraft™. By improving flow, the helical grafts have been found to prevent the thickening of vessel walls, (termed ‘intimal hyperplasia’), which is a frequent complication resulting from such procedures. More recently, even more compelling applications have been found within the multi-billion-dollar medical stents industry. Stents are tubular devices inserted into blood vessels (or other conduits in the body) when they have become constricted. The stent widens the vessel and prevents the constriction from recurring. Conventional straight stents, however, typically are also prone to becoming blocked by a thickening of the vessel wall. Veryan developed a second patented invention, the BioMimics 3D™ , which is helical in design and acts to overcome this problem by promoting a more physiological blood flow. As of early 2011, testing in patients is currently underway.

Caro’s discoveries were also applied beyond medicine. A second company, Heliswirl, was launched in 2004 to develop engineering applications. The company’s patented Small Amplitude Helical Tubing (SMAHT) was designed to improve efficiency in a range of fluid-handling industries, such as chemicals, oil and natural gas.

Tension between an opportunity, your knowledge and your solution

Although categorising an idea as demand–pull or knowledge–push is helpful to orient your thinking, do keep in mind that entrepreneurial opportunities don’t always fit neatly into one category; even those that sit fairly clearly in one category may contain some element of the other. For instance, Tom Allason was working as a ship broker when he thought of starting eCourier. It’s possible that his work experience and knowledge, not just his anger and frustration on that one day, may have attracted his attention toward a business opportunity in transport logistics rather than a different area, and given him enough confidence to pursue it. Caro wasn’t initially considering demand from the medical device or oil and gas industries, but his inclination toward engineering as well as medicine helped him first to discover a structural problem behind a disease, then to perceive its wider implications, leading him to approach the technology transfer executives at Imperial Innovations.

As an aspiring entrepreneur, you may have already decided to start a business that will draw on your existing abilities and experience, rather than walking blindly into a completely new business sector. So you might search for a demand–pull problem where your technical knowledge could provide a solution. Given that you already have a bias, this creates a somewhat hybrid situation: is your idea really motivated by demand, or by your preferences?

We raise this question and point out this ambiguity because your desire to create a business that capitalises on your existing abilities and industry knowledge is a smart choice, on the one hand, but could also make it hard for you to be objective enough about your market to create a product offering that customers truly want, rather than one that you’d simply like selling, on the other. Paying attention to the tools and questions in this book will help you to maintain a realistic, dispassionate and enquiring attitude until you’re certain you have something that can sell.

Emma Stanton and CBT4L: knowledge meets demand

Emma Stanton was an established psychiatrist with an interest in entrepreneurship and leadership when she entered the Executive MBA programme at Imperial College Business School in 2009. A registrar at London’s prestigious Maudsley Hospital, and later seconded to the chief medical officer’s Clinical Advisory Scheme, she was accustomed to studying problems and seeking solutions in the domain of public healthcare delivery. She had also observed that Cognitive Behaviour Therapy (CBT), one of several techniques in which she was trained, was rapidly gaining wide legitimacy in the NHS, as well as popularity with patients and publicity in the media.

Stanton’s starting point for an entrepreneurial project on her MBA course was to see if there was some way to use CBT in a new venture in the private sector. She knew that stress was a recurring problem for busy corporate executives, so her initial idea was to create a luxury walk-in centre for stress relief, combining CBT sessions with relaxation therapies – a kind of ‘spa for the mind’. CBT would lend itself to a walk-in centre because the approach addresses specific problems in a short series of structured sessions. Essentially, her business would replicate what patients do when they attend an NHS clinic for psychotherapy, only the surroundings would be more plush and pleasurable, the customers would pay handsomely, and they wouldn’t need a GP referral. What could be more attractive than starting a business through which you could create a new spin on your existing knowledge, one you’d probably enjoy being a pampered customer of yourself?

However, in the process of researching her idea’s potential while studying on Imperial’s Innovation, Entrepreneurship and Design programme, Stanton identified a few factors likely to prevent the venture from succeeding. One of these was the fact that her target customers – high-earning executives – experience stress precisely because they’re so busy and so often on the move that they’d be unlikely to attend the centre regularly, probably resulting in fluctuating or even low revenues. Furthermore, such high-flyers are often reluctant to admit to negative effects of stress, perceiving them as an admission of weakness or inability to do the job. They’d be more likely to put up with stress until assailed by a full-scale breakdown – by which time they’d need dedicated medical care rather than a walk-in stress spa.

So Stanton had to search for a different problem to address, find a different customer and create a different commercial application for CBT, outside her normal area of work. She also had to consider how customer decision-making differed from patient decisions. A broader perspective came from the other MBA students on Stanton’s project team: these included Jonathan Trayner, an HR consultant, Heather Thompson, who designed employee learning and development programmes, and John Abbot, a psychology graduate and computer scientist.

The team eventually glimpsed an opportunity in the corporate training and coaching market for leadership development skills. Most corporate training cannot boast a scientifically proven methodology, and desktop research revealed that a staggering 50 per cent of attendees on corporate training programmes believed they hadn’t gained any lasting benefit from them – a significant waste for the employers paying large sums for company managers to attend such programmes. This situation looked like a clear problem searching for a solution.

Stanton and her team’s final business plan was for a company that would design and deliver effective leadership coaching for high-potential young executives (opportunity), acquired as group packages and paid for by their employers (substantial revenue), based on a cognitive method that’s underpinned by academic research and clinical literature (a credible way to address the opportunity, and possibly a brand), delivered by a team of qualified CBT practitioners. They named this business ‘CBT4Leadership’. During their coaching sessions, executive customers would also be at liberty to raise the subject of stress as a leadership challenge (the opportunity initially explored), but as it wasn’t the explicit aim of the training, the clients wouldn’t be put off the sessions by a perceived risk to their reputation (thus catering to the customer’s viewpoint rather than the entrepreneur’s). Furthermore, to address the fact that executives are frequently on the move, the company would design ‘homework’ materials to reinforce the coaching, downloadable as IT applications for an iPhone or other mobile device, for use during a commute to work or business travel (further catering to the customer).

CBT4L didn’t ultimately start up as a company, but it is a fitting example of the tension between knowledge–push and demand–pull issues. Your professional or industry knowledge alone may not give you enough insight to land on the right venture idea for the right customer. Usually, some further investigation and refinement will be needed.

In summary…

New business ideas originate from various sources. Sometimes an entrepreneur hits on a good idea from the start, but even so, most successful entrepreneurs have gone through a thinking process to ascertain if they really have identified an opportunity before making the jump. The key is not only to be able to state why your idea or solution is good, but to explain why it compares favourably to alternative solutions on the basis of key criteria.

The next two chapters offer some methods for undertaking that thinking process and assessing an idea. As part of the process, they also demonstrate a refinement process for making adjustments to an initial idea.

2. FINE-TUNING DEMAND-DRIVEN IDEAS AND SOLUTIONS

What?

It all starts with a dream or ‘the idea’. But when you get an idea, do you devote time to evaluating it or refining it? The BBC’s Dragons’ Den series often puts on display aspiring entrepreneurs who’ve spotted a problem but come up with an impractical and unsellable product solution, which consequently does not attract investment. This failure can usually be pinned to two oversights: they do not investigate the problem and characterise the opportunity clearly enough, and they don’t stop to consider alternatives or the wider view of the market and industry. They may come up with an idea that would suit them personally, but is not likely to attract a wider customer base.

In order to compare and evaluate several ideas and discern an attractive opportunity, you would benefit from going through a structured idea generation and evaluation exercise, balancing your creativity, intuition and subjective views with some objective facts and considerations. Although it may seem like a formal exercise, the discipline of this process may encourage you to approach business ideas from a broader perspective.

The exercise is based on a simple process: be creative and open-minded in generating many possible ideas, but subsequently be dispassionate and sensible to evaluate and select the best ones. The evaluation is just as important as the generation of creative ideas, and may give you options to fall back on in later stages.

Why?

Should you use this exercise even if you think you already have an excellent new venture idea and are raring to go? At the outset, don’t narrow your choices and fix your mind on one idea but consider several possibilities, and the advantages and disadvantages of each option. Why? Because a high chance exists that your idea is based on untested or intuitive assumptions, and it’s better to investigate these now rather than when you’ve already committed your life savings to a new business. For instance, your idea may be great on paper but not technically practicable in real life; it may be something you’d buy yourself but that other people wouldn’t; it may not really solve the problem it is intended to or may create other ancillary problems that you didn’t consider in your first light-bulb moment of enthusiasm.

For example, very technical people often have ideas that won’t satisfy a typical customer. If you’re used to dealing with complex machinery or systems, you may be thinking of a gadget that you’d be happy to operate but a technophobe would barely know how to switch on. Engineers famously enjoy fiddling with gadgets and figuring them out; the rest of us usually want to flick a switch and see everything work as if the machine were reading our minds. If you don’t build these demand–pull considerations into your idea, you could get so far as developing an expensive product prototype or writing a 50-page business plan before you actually realise that it isn’t going to appeal to users. An idea generation and evaluation exercise can help you to broaden your thinking and identify your criteria from the start.

Furthermore, this exercise will help you devise alternative ideas, or modifications to your initial one, so that you may find a better opportunity at the end of it than when you started.

The story that follows, about an entrepreneur developing an idea, demonstrates that the best way to conceive a business is to start by asking a set of questions rather than to base an idea entirely on your personal bias. The story also demonstrates the wisdom of scrapping an idea if you don’t find encouraging answers to your questions.

Idea generation through enquiry: Jean-Marc de Fety and mummysworld.co.uk

Jean-Marc de Fety was a second-time entrepreneur when he founded Real Village, the company behind mummysworld.co.uk, in 2009. A former investment banker and vice president at Credit Suisse First Boston, he already had one technology start-up experience under his belt. In the early 1990s, he’d become enchanted by a CD-Rom presenting an animated virtual tour of the Louvre. He decided he wanted to be in the business of digital simulation, so in 1995 co-founded Paris-based Monte Cristo Multimedia, one of the first companies in the world to create educational business simulation games, including Wall Street Trader, a European best-seller with net receipts of around €2 million. The company averaged 100 per cent annual sales growth in its first four years.

After selling out of the business and returning briefly to banking, de Fety caught the entrepreneurship bug again, and began to look for another technology idea, this time using the internet. A graduate of the École des Mines, one of France’s most selective engineering schools, he had a stronger interest in sociology than in technology by the time he completed his studies. He now searched for a social problem that might be solved by technology – and found one very close to home. As a divorced father, he faced a single working parent’s difficulties with time management whenever his sons, Paul and Thomas, came to stay with him at his home in London.

Since a good deal of business was now conducted over the internet, his first question was: could online content help parents to save time? How?

Indeed, the most time-consuming tasks were those that couldn’t be performed online, such as buying children’s shoes, a frequent task as children grow, necessitating trying on before purchase. Perhaps the internet could help you find a shop in your neighbourhood that stocked the type of shoes you were looking for at the most attractive price, and perhaps even the size you needed? You could head straight for the right shop instead of wandering all over town. So his first idea was to create a price comparison site devoted to ‘real’ retail shops located near the user’s address, specifically for products that needed to be tried in the shop. He’d start with shoes and then add other products. Revenue would come from the now familiar model of online advertising.

As he researched this idea, he identified some problems. Most shops in London – especially clothes shops – are part of large chains rather than independents, and large companies are slow movers. Getting a company on board – so that it will share its inventory information on a website – would probably take two years. He didn’t want to wait this long to collect revenue or prove the soundness of his business concept. So this idea was scrapped. He then decided it might make more sense to find a specific, attractive group of customers whose expectations could be met fairly easily with a low investment, creating some early revenue and subsequently finding ways to extract additional value (income) by adding other features to the business.

His second question was: where is the money? In other words, to whom could he sell?

Sticking to his basic idea of helping parents, he researched UK national statistics, and discovered that 26,000 mothers lived in nine central London postcodes, with a combined household income of £1.5 billion. This looked like an attractive niche market.

His third question was: how can I extract value from this group? Or in more detail: what do they need? What online content or technology would attract them?

For answers, de Fety turned to his target market – fortunately he knew a few mothers living in this area. He interviewed 20 such women, asking what parenting and time management problems they experienced and what kind of internet content could help. One detail he discovered was that buying children’s shoes was indeed a big headache for parents. He also learned that these mothers were an attractive customer group not only because they had high household incomes but were also highly qualified – many had PhD, Masters and MBA degrees and had engaged in full-time motherhood because finding part-time jobs in their professions was difficult. (This actually proved to be a bonus for de Fety, as eight of the women, including a sociologist and a designer, became freelance collaborators in the business.) Furthermore, this was a highly international group, including many expatriates. He could think of many businesses that would like to gain access to this group of customers.

Recognising that if he started a website he’d be up against all the established online business directories and social networking sites, de Fety chose to be distinctive by focusing on a specific location and specialising in mothers and children. His final online business concept, mummysworld.co.uk, isn’t so much a social network as an online club for these mothers. This club is exclusive – you need to live within the target postcodes and can only join if you’re recommended by an existing member. The content is suggested and created by women from the same target group. The site provides a forum for the women to communicate with each other, but also offers advice and information.

So much for attracting the target group: how will the business make money?