Tag Archives: Start up

Guide to Entrepreneurship – The Idea!

Chirag Shah (1)
Sainsbury Management Fellow, Chirag Shah, is a serial entrepreneur.  A Londoner born and bred from a family of medical doctors, he studied Engineering at the University of Cambridge. He completed his Engineering apprenticeship at Rover Cars where he worked as a Production Manager before gaining a scholarship through the Sainsbury’s Management Fellows to pursue an MBA at INSEAD Business School in France. Following a short spell in management consulting, he started his first business at the age of 28. His entrepreneurial ventures include Trading Partners (a business services company), écurie25 (the largest chain of Supercar Clubs in the world), MarketMaker4 (an internet software company), and Assassin Live (an iPhone application game). He is also active as an angel investor.

Most people think the biggest obstacle to getting started with a new business is coming up with a really great idea. But this generally isn’t the case. Ideas are all around us and mostly come from finding solutions to our problems.
Unless your name is Jesus and you can simply perform miracles whenever you hit a problem, we generally tend to address problems by tolerating them or avoiding them. The key to successful entrepreneurship lies here. Instead of living with your frustrations, take the extra few seconds to challenge the issue and explore how you might solve the problem. The answer could be your business idea!

In my experience, the much more challenging aspect to getting started is turning the idea into a viable business proposition. To illustrate, I’m going to use as an example my 19 year-old cousin – who has half a dozen more new ideas every time I see him. He’ll be a great entrepreneur one day but first he needs to overcome what I call the “CARD-test”. In order for an idea to become a successful business it needs to be Commercial, Aligned with resources, Relevant (to you) and Defensible.

An idea my cousin had when we were 15 was the concept of having a rotating sunlounger. Just like a sunflower, the lounger would turn slowly during the day saving the users from having to get up and move the lounger themselves.

Applying the “Commercial” test, the key question is: “can you make money from the idea?” If one manufactured the product, would there be enough sales to offset the manufacturing and distribution costs and still leave some profit leftover? In the case of the rotating sunbed, I’m not sure ‘enough’ users would pay the necessary sum to avoid getting up and turning the lounger themselves.

Aligned with resources
Another idea he had was to build a field of solar panels and sell the electricity, whilst growing some vegetables in the shade. In the right circumstances this idea can meet the Commerciality clause, and indeed there are such implementations around the world.

Alas, for my poor cousin, he does not have enough money to implement this idea nor could he hope to raise sufficient funds from other people given his lack of previous experience as a farmer or energy consultant or similar. So for my cousin, this idea falls down because it is not ‘aligned’ with his level of resources. [A particular frustration of mine, and a reason why I think the green energy movement fails to reach breakthrough levels of adoption is that so many innovative projects very quickly require significant levels of capital to bring them to market and hence remain the remit of larger institutional sources which are inherently more risk averse than your average entrepreneur. Compare this with the Internet revolution where the cost of starting a business is very small and new business concepts dominate.]

Relevant (to you)
As a general rule of thumb I tend to advise budding entrepreneurs to focus on businesses that they actually know something about – by way of their prior work experience, or background, or specialist product knowledge, etc. From the businesses I have seen people starting up around me, I would say your chances of success are less than 20% if you know nothing about a particular product or market, and probably closer to 80% if you have worked in that sector, already have relationships with potential customers, and are familiar with your competition. If you have a great idea in a sector you know nothing about, then getting a job in that sector is a great way to start.

Defensibility, or Barriers to Entry as the academics would call it, refers to how difficult or easy it is for others to copy what you are doing. Patenting or copyrighting an idea is an important consideration but don’t assume that just because an idea is patented it cannot be replicated or if an idea cannot be protected that others will definitely copy it. In any case I mention this criterion with lower priority than the others because a business lacking defensibility is not necessarily doomed to fail.

As you will see in later posts, how well and how quickly you execute your idea can play a much larger part towards its success and having imitators can even be a good thing. There are benefits to competition in terms of growing the size of a market that can outweigh the downsides of competing for business. For example, one of my own companies, écurie25 Supercar Clubs, is the global market leader for enthusiasts wishing to share the costs of owning a Ferrari but I actually wish we had more competitors because the sector would grow from the resulting greater awareness of such clubs. And I would rather have a smaller market share of a larger sector than a large share of a niche market.
Now that you have your idea in-hand and you’ve vetted it with the CARD Test, it is time to get started. In my next post, I’ll give you some tips for making sure you de-risk your venture as much as possible before you commit too much.