In my last post I discussed the "Platform Boom" and the fact that everyone these days has a big idea bubbling away in their mind to be the next "big thing". This could be a platform, a technology or even a unique innovation or product in your industry that will take the world by storm.
As a Business Innovation Strategist I love to see the new cool ideas flooding in to the market, but it is a fine balance between independently assessing a business for its true value and getting caught up in the hype of the idea. Often before any product is even in the market these entrepreneurs are already trying to value their ideas.
Now whilst a disproportionately high number of these people truly believe that they are about to be bought out by Google and propelled to instant multi-millionaire stays, the question must be asked,
"Why would anyone want to buy your business when they can just copy your idea and do it themselves....and fast?"
So when I work with my clients to help them create a business worthy of buying we consider 7 essential criteria to success:
1) Make your offering simple enough for the market to understand
I have worked with companies over the years who are so far out in front that the market just can't accept them yet. The technology is not mainstream and it is so inventive that trying to sell it becomes an education process. This makes the sales cycle long and costly and unless the offering has a price tag to suit, the cost of sale will make it prohibitive.
If you can't explain the concept quickly and simply then how will your customers understand it?
Have you ever noticed that those technologies that go viral and pretty simple to understand, and often they are not the only ones in the market that do what they do. Take a look at how many startups had the same idea as Uber but never go he traction. It was initially not necessarily the best or unique. They just had the best execution and now the cash to steam roll ahead of the rest.
2) Solve Real Problems
This is one of the most challenging aspects of innovation. Do you really know what problem you are solving for your customer? ..and will they pay for it to be solved? Many innovators tell me about all the great things their product will "do for the customer" but fail to understand that this may not be the customers priority.
The only reason people will buy your product is if it fixes a real problem for which they are prepared to pay. Which is why 42% of startups that fail do so because there was "No Market Need for their product" *
Consider a vacuum cleaner in this example, as they have a long history of interesting innovation and sales tactics. A buyer does not decide to buy a vacuum cleaner because of how well it sucks air, which is basically all it is doing. They have a problem that needs to be solved. Maybe they have allergies, maybe they like a clean house, maybe their problem is they they don't like buying bags for their current vacuum. Whatever it is the decision to purchase will always come from a perceived need to solve a problem. The vacuum cleaner salesmen of the 1950's understood this well and had a slick sales pitch to move the products in to homes. How? They understood their customer and were adept at helping them understand their problem before they started peddling the product. That's why they travelled with a bag of dust and dirt with them to sprinkle on the floor to demonstrate the problem in a graphic and extreme way. How well can you truly demonstrate the problem and how you are solving it in a way that is quick and scalable and does not need you to go door to door?
3) Get the right funding early
A lot of hard work, strategy and effort goes in to building an "overnight success". Sure there are some small products with not much thought in them that go viral (like Flappy Bird* which at one stage was earning the author $50,000 per day), but the reality is that this is not the norm. In most instances these overnight successes have had a number of previous iterations, successes and failures that have got them to this point.
One of the most common mistakes entrepreneurs make is that they underestimate the time it takes to startup. This puts undue stress on the business during the early stages and can hamper their ability to continue to fund the product development or have enough funds to roll the product out.
If your business requires external funding then start your plan to secure this early while your head is clear and before you become desperate.
Lack of cash-flow in the early stages is a key reason why over 74% if businesses fail in the first 18 months. Too many great ideas never make it to market as the founders just run out of cash.
I often see business owners trying to lure in employees to work for free based on stock options and a future value of the business. Whilst this is nice in theory, it is a risky strategy for everyone. The employees may become cash flow constrained in line with the business which over time will impact behaviour and commitment to the outcome. If you can't pay staff (including yourself) then consider if you need funding and how quick you can pay it back. If this doesn't add up then maybe you need to reconsider if the business is as robust as you first thought. You may need to rework your business plan until the business becomes viable.
4) Build Management Capability
From day one you must consider what an ideal management team would look like in your business. Sure, you are a smart entrepreneur who can do just about anything, but this is the last thing that will appeal to a buyer. There are lots of smart people in this world and your ideal buyer may already have many of them on their team. In fact if they want a smart person they will hire one. What they are looking for is a smart business that is doing something they either can't do or they didn't think of doing.
They don't want you. In fact the more it is about you, the less attractive the business looks as an investment.
So you need to surround yourself with a strong management team that help you to build the business with their own unique skill and expertise.
5) Secure your channels to market
A common misnomer with startups is that once they have developed their unique and world changing product the world will seek them out and it will go viral within months. Sadly this is about as likely as winning the lottery.
The key to world domination is "scale and leverage"
One thing I love about working with entrepreneurs is their optimism and ability to think big. However without a clear growth strategy, it is more wishful thinking and hope. One of the most important steps is to secure the partners, channels and referrers who can take you places you would never be able to go to on your own or within a short time frame.
In doing so, you must also solve the "What's In It For Me" (WIIFM) puzzle. Put yourself in their shoes and get clear on why they would want you as a partner and how this will help them in their business. If it is too hard or moves them too far from their core offering then you will not get them committed to your products success. To create real value for your partners you must also be solving a problem for them like, more sales, more profit, ability to differentiate etc.
6) Map your plan from Startup to Exit (including identifying your ideal buyer)
Your buyer or exit strategy may not be what you think. To start with scrap the idea of being bought by Google. You are just not big enough yet.
However if you secure your channels as per the previous point and show ways to leverage your asset through them, then you start to look a lot more appealing to a large acquirer. Who knows, one of your channels to market may in fact be your buyer. Focussing on delivering them value will increase your value to them and you may be surprised by what shows up.
7) Have a great Product
Inventiveness and uniqueness of your product is notably at the bottom of the list. Many quite average innovations and technologies are sold for ridiculous sums of money which leaves us scratching our heads as to why (think WhatsApp for $19 Billion). The answer is simple. They got the top 6 right from the outset and the technology is merely just the icing on the cake.
This is not to say that you don't need a great product, but too many great products fail. Success will come from great teams, great strategies and great execution wrapped around your great product.
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