How many times have you heard of successful new business ideas and said to yourself, “Why didn’t I think of that”? Personally, I’ve started seven different businesses, but the ones that never happened are some of my most memorable ones. For example, I often think about Topgolf, the wildly popular golf driving range/sports bar venues that are popping up all over the US. I’ve been playing golf since I was eight years old and socializing in bars since I was 18. Yet never once did it cross my mind to combine these activities into a business. How did I miss that?
My goal with this article is to help you find the next big idea using business and creative frameworks that help you identify interesting concepts and create new business ideas. Hopefully, this will lead to other people kicking themselves as they follow your business success.
There are four steps to identifying a good business opportunity. The four steps are:
- Find an unmet market need.
- Create a differentiated solution that meets customers’ needs.
- Play devil’s advocate.
- Get market feedback.
1. Find an Unmet Market Need
At the heart of all business opportunities are customers. In order to have customers spend their money on a product, it has to provide better value to them than existing solutions. Thus, the first step in finding a business opportunity is to identify something that customers want that’s not readily available, or affordable, to them.
Your business idea doesn’t have to be some huge revolutionary concept. In fact, those “big ideas” typically take so much money to bring to market, they’re just not feasible for most entrepreneurs. For example, Meg Whitman and Jeff Katzenberg raised $1.75 billion of pre-revenue capital for their mobile video platform Quibi. Not many people could do that.
The best ideas are often incremental improvements over existing products where the market and distribution channels are well established, the product development risks are low, and customers can readily understand the product’s benefits. One of my most successful startups was a real estate syndication company that was the 50th company to enter an established market for providing tax-advantaged real estate investments to individual investors. We quickly became a major player in the market by simply focusing on giving customers a level of service they weren’t getting from other vendors.
So, where do you find unmet market needs? There are two places to look:
- Your work environment
- Your personal life
The beauty of looking in your work environment is that if your existing employer has customers, it also very likely has complaints related to customer needs that aren’t being fulfilled. In many cases, if customers aren’t satisfied, the solution they want isn’t readily available elsewhere, or they’d just go to another vendor. If you can find a solution that solves the customers’ problem, then you may well be on to an interesting business opportunity.
I have a friend who was working for a big company that builds satellite ground stations. His employer was in the equipment manufacturing business, selling complex multi-million dollar communication systems. My friend kept hearing smaller prospective customers say that they couldn’t afford their own system but wanted to rent capacity on someone else’s ground station. His employer was swamped trying to build enough ground stations to meet the demand of its big customers. So my friend resigned and established a data services company that owned one ground station and sold data access to a number of these smaller customers.
Away from work, I see potential business opportunities every time I need or want something that I can’t readily obtain at what I view as a fair price. I also listen carefully when my friends and family express their frustration over not being able to find a solution to issues they’re dealing with or their dissatisfaction with something they bought.
2. Come Up with a Differentiated Solution That Meets Customers’ Needs
Finding an unmet market need is always intriguing, but there’s no business opportunity unless you can figure out a way to meet the need. Differentiated solutions can come from your own creativity, your own expertise, or your knowledge of where to go to find the needed creativity/expertise. I’m living proof that you don’t need to have some special “gift” to come up with differentiated solutions. You just need to put your thinking cap on and/or socialize the unmet market need with others who might have specific knowledge that could help.
To demonstrate the concept of solving unmet needs, I have prepared some business idea examples from ventures that I set up myself. Each instance shows the process that I went through to ideate around the situation.
|Company||Unmet Market Need||Differentiated Solution||Source|
|1||Low-cost data communications service with ubiquitous geographic coverage (in the pre-cellular era)||High-frequency radio network that replaced existing (and expensive) satellite solutions with affordable digital ham radios||At the time, I worked for a company that had developed a high-frequency radio network for the government and was able to convert it for civilian use.|
|2||Accurate and reliable location tracking in campus environments (in the pre-GPS era)||PC-based system that used terrestrial radio signals to triangulate location||A friend’s company had developed a patented system for tracking pallets in large warehouses. My company adapted this system for theme parks, malls, and college campuses.|
|3||Investment banking services for SMBs in the underserved region where I live||I started a boutique investment bank to provide services to SMBs in the region.||I surrounded myself with experienced staff with deep industry knowledge.|
|4||Tax-advantaged investment opportunities with excellent investor relations services||I started a real estate investment company that focused on superior investor services.||With personal experiences on both sides of the table, I could quickly build a network of potential clients and staff.|
|5||Individual temperature control for employees in office buildings||Low-cost, easy-to-install, microzone HVAC system that gives each employee a personal thermostat||Working with partners, we quickly validated whether a solution was feasible, and more importantly, patentable.|
|6||Low-risk investments with good returns during a very low interest rate environment||Securities that were backed by cash flows from solar and wind farms||Marrying the "hunt for yield" dilemma with an increasing macrotrend of investment in renewables|
|7||Simple and affordable dynamic pricing solutions for SMBs||A machine learning-enabled software platform that adjusts prices based on market conditions.||My adult son and I had both encountered the problem, and by comparing our insights, we put the best parts together to form a solution.|
All too often, I hear stories of entrepreneurs who had a solution and were looking for a problem, rather than starting with an unmet market need, e.g., the infamous “build it and they will come” approach. Start with the unmet market need.
3. Play Devil’s Advocate
I’ve started seven businesses but have identified many more unmet market needs. How did I make the decision to start the ones that I did?
It’s easy to eliminate unmet market needs for which you can’t come up with a differentiated solution. However, it takes time, research, and self-awareness to weed out most of the remaining ideas. Here’s the process I typically go through.
As devil’s advocate implies, I try to shoot holes in potential business opportunities that I come up with. The framework that I use for performing due diligence on potential business opportunities is based on the four key elements of any business: Product, People, Market, and Money. The below table lists some of the key issues you should perform due diligence on in each category.
I usually start by looking for competitive products that are similar to the differentiated solution that I’ve come up with. Finding a similar product isn’t necessarily the kiss of death, because the market opportunity may be big enough to support multiple players. However, if you find a similar product from a company that’s been struggling for years, that’s probably a good indicator that your solution might not be as good as you hope—unless your product better addresses the need that is causing the competitor to struggle.
The other issue I often find when looking at competitors is that someone else has an even better product than what I’ve come up with, and thus, there really isn’t an unmet market need. When this happens, I typically just tip my hat and move on.
The next thing I usually do is look at the overall economics of the opportunity. What is it going to cost me to develop my solution into a real product that I can sell? What will it cost to produce in volume? What is a reasonable sales price? How many can I realistically sell?
If my back of the envelope financial model doesn’t indicate a real windfall, I usually walk away. I say a real windfall because inevitably, things always look worse, not better, when you do a really detailed financial model.
If I still think I have a good business opportunity after I’ve worked my way through all of the questions in the above table, and any other questions that come up as I’m doing due diligence, I share the idea with several colleagues, friends, or family members and ask for their honest feedback. In addition to getting their input on the business idea development, I also solicit their support for the new venture. If your colleagues, friends, and family aren’t supportive (e.g., lending expertise, financial backing) of the undertaking, that may well be a showstopper.
4. Get Market Feedback
You’ve made it to the final step, and you still think you have a good idea. Now, it’s time to see if knowledgeable people in the market have the same view of the concept.
You need to solicit input from as many prospective customers and distribution channel partners as you can to find out if they need and would pay the price you envision for the concept. It’s rare that anyone makes affirmative commitments at this point, but people will say no. Realistically, the best you can usually hope for is that some prospective customers say they’ll try your product when it’s ready, and the distribution channel partners indicate a willingness to carry it if it works out well for the early adopters.
Additionally, it’s often worth the money to hire former industry insiders who are now consultants to give you feedback on the idea. They can provide invaluable contacts and insights, not to mention fill key roles on your team when you’re ready to start hiring.
Sometimes, it makes sense to engage third parties to help solicit market feedback, but I’ve always found it invaluable to conduct at least some interviews myself so I can hear the feedback directly. This is especially true if third parties report rosy feedback. I’ve learned the hard way that many people don’t want to be negative about other people’s ideas. Remember, the goal here is not to delude yourself that you have a great business opportunity if you really don’t. The goal is to avoid spending time and money on business idea development that’s not likely to pan out.
If your business opportunity requires that you create a new distribution channel, e.g., selling directly from a newly launched website, you need to think hard about how much time and money it will take to create the brand and product awareness required to generate actual sales.
A final scenario to consider entails a business idea that creates a whole new product category, i.e., a product that’s unlike anything else on the market. Think of the personal computer when it first came out.
These types of opportunities create real challenges when trying to get market feedback because potential customers often can’t even correctly envision the product you’re describing. Think of trying to explain to someone in the 1970s that your new product is kind of like a typewriter combined with a TV screen. This is just one of many reasons that “breakthrough” business ideas are the riskiest and take the most money to bring to fruition.
Business Idea Development Is About Finding the Signals to Continue
If your market feedback is positive, it’s time to make the call. Are you really going to put this business idea plan into fruition? If your answer is yes, and your family is supportive, start drafting your resignation letter and read my next article on the details of forming a new company.
Understanding the basics
The initial stages of formulating a business idea comprise four elements: finding an unmet market need, creating a differentiated solution that meets customers’ needs, poking holes in the concept, and soliciting market feedback.