Start, run or save a business today !

      Finding business ideas

 

a) General concepts

 

The first step towards starting a business is to come up with a business idea, or more adequately with business ideas, and then carefully decide which one will be the most fit to be undertaken. We are going to examine below what must be the determinants in your choice of a business idea. We will then proceed with a description of the strategic analysis you should carry in order to carry on an in-depth analysis of each business idea and decide which ones are worth investing into.

 

-          your interests: examining what are your interests may help you a lot in deciding which kind of business you want to start; indeed, you will be able to put absolute dedication into your business only if you have a true interest in its core, independently from any financial motivation.

 

Example: Yahoo started in April 1994 as a collection of bookmarks collected by two friends (Jerry Yang and David Filo, who both were Stanford graduate students in Electrical Engineering) and later grew into one of the major search engines of the Internet.

 

-          your expertise: what do you know and that the world would be will willing to pay for ? Oftentimes, you can reasonably assume that you are more likely to generate value within the sectors in which you have been trained or in which you have your hobbies.

 

Example: the juggernaut Google was started by two Stanford students during the course of their PhD in computer science, which is no wonder considering that the algorithm they developed in order to provide the internet users with a better online search experience was based upon rather sophisticated mathematics, and the complexity of the project required expertise in computer logistics and servers maintenance. In this case, the knowledge assimilated during years of higher education acts as a strong barrier to entry.

 

-          your initial investment: how much money (equity) will you be able to inject in order to start your business ? What is your financing potential and can you (and are you willing to) resort to debt ? If yes, how much money will you be able to raise with debt and what are the risks associated with it ? (answers to those questions will be provided later when we detail the method to perform a decent financial analysis).

 

Example: if your financing power is already quite strong, you may want to invest into franchises (which will avoid you the operational risks inherent to startups, but will also prevent you from growing too much, since you will not detain full rights over the brand of your franchise). If, on the contrary, you are starting from scratch or with a very limited financing ability, then you may want to turn to ventures which require no starting capital (typically, internet startups). However, you will have to keep in mind that the amount of money that you will be able to save in initial investments will need to be compensated with special skills (otherwise, since the markets stand in general equilibrium, everybody would rush to compete with you on the same idea). The morale of the previous point is that barriers to entry may not necessarily take the form of a hefty financial investment, but they still exist under various forms (time, skills, etc …). The essence of the problem will be to determined which are the resources that you are lacking and which are those you can put forward in order to start your business.

 

-          your expected returns: what kind of “potential” are you expecting from your business ? In other words, are you looking to invest into a business that will provide you with low and stable returns, or rather into a sector which will offer explosive growth opportunities ? Each of these two investment profiles come up with different advantages and constraints, and you must be able to determine from the scratch exactly what you are looking for (nobody is supposed to ever find something if he doesn’t know what this something is supposed to be, right ?).

 

Example: if you decide to run a drugstore in your small town, then you can decently assume that your returns will be quite predictable and stable (just use the benchmarks of this industry in your area), and in any case, unless you provide a particular value added that can’t be found in any other drugstore and expand from there (by franchising your brand, for instance), your drugstore won’t offer exceptional growth opportunities (for the mere reason that people usually purchase from the drugstores that are closest to their home: we are thus in presence of a geographical restriction). On the contrary, online ventures offer quasi-unlimited growth perspectives since they have the ability to appeal to a global audience (a striking example of this fact is provided by Facebook).

 

-          possible synergies with other businesses: do you have stakes in other businesses that could help you launch your new venture and what would be the synergies generated ? Synergies can be of  various natures and pertain to strategy, marketing, etc … For instance, managing a blog about the music industry might help you launch a music mp3 store by cutting the marketing costs and building upon your existing traffic and the credibility you have developed among your readers.

 

Example: Microsoft used its power in the software industry in order to make incursions into the web industry (by creating its search engine Live.com); reciprocally, Google is striving to make incursions into the software industry by popularizing the concept of online applications (spreadsheets, word processing, etc …).

 

-          the time you wish to devote to your business: How long will it take you every day in order to manage your operations ? How much time will you have for your business ? Do you have any partners, are you planning to hire employees or are you going alone ? Are you pursuing a strategy of diversification or one of focus ? A strategy of diversification consists in investing into several small projects and see wait for one of them to take off, while a strategy of focus consists in putting all your forces into one specific project (oftentimes innovative) because you strongly believe in it and are convinced that you will be able to make a difference. Of course things are not so clear-cut in practice and you may decide to invest into a small number of average-sized projects that will each require a significant chunk of your available time.

 

Example: creating a product and selling it online basically provides you with a source of passive income which will essentially be on autopilot (this is notwithstanding the updates you will have to perform in order to maintain the appeal of your product and keep it in phase with the expectations of the market). On the other hand, launching a specialized newspaper will require permanent maintenance from you, since material will need to be updated daily (or at least frequently enough) in order to grow enough traffic or/and sell enough subscriptions. The crux of the matter will therefore lies within the following question: are you really willing to afford a significant time investment ?

 

-          scalability: are you planning to further expand your business in the future in an attempt to create a multinational empire ? If such is the case then you might want to give special consideration to businesses that can easily be franchised or otherwise developed. This implies, in particular, that the appeal of your business shall not be strictly regional.

 

Example: by starting your business in a small town (as opposed with a large city), you actually decrease your chances to be able to expand it in the future. A simple reason for this is that if someday you decide to franchise your business, potential investors will be deterred by the fact that your brand hasn’t enjoyed much exposure (since it was known only to a very limited amount of people from that town).

 

-          growth perspectives of the market versus size of competitors: if the business sector you are targeting has high growth potential, then you must beware large competitors because they will try to achieve even higher market shares and will want to engage in price wars in order to maintain new entrants at bay. 
Conversely, if the business sector you are targeting is already mature, then you must beware a situation where you are facing multiple small competitors, because chances are that they will make it difficult for you to enter their market (since they will be fiercely defending their small market shares in order to survive).
The general principle you have to remember from the above is that you shall prefer to invest within sectors with high growth potential and multiple smaller competitors, or within mature sectors with one or a few larger competitors (monopoly or oligopoly).

 

Example: the video industry, which is a high-growth market, is extremely competitive and provides very mediocre returns on average when compared with other more mature industries where a few large competitors are ruling (for instance, the tobacco industry).

 

-          your associates: are you considering to go alone or with the help of associates ? If you decide to go with associates, then you will have to take into account every associate’s personality and how it will fit within the group; you will also need to question the structure of the decision-making; for instance, will it be easier for the company to be run by 2, 3, or more associates ?

 

Example: the virtues of triumvirates

 

A triumvirate designates a form of governance in which three partners are sharing the power (as in the case of the company Apple); it presents the advantage of allowing a prompt correction of management mistakes. Indeed, when one of the partners commits a mistake within a triumvirate, the two other members will be inclined to drive the company back to the right direction (and their majority will override the first partner’s potential opposition, which is determining since a manager rarely wants to admit his own mistakes). Within the context of a two-person partnership, this self-correcting property is absent since when both partners detain 50% of the decision-making power, one of them can’t make decisions against the other.

 

-          monetization method: no matter how revolutionary your new venture is expected to be, you need to have a clear idea about how it will generate profits from the onset: are you going to earn revenue by selling a product, advertisement, services ? Can you leverage affiliate networks in order to increase your sales ? With how much accuracy are you able to predict the future level of sales ?

 

Example: the acquisition of YouTube by Google has been seen as a fiasco essentially due to the fact that Google failed to come up with an appropriate monetization method at the moment of the acquisition. The result was a website generating a lot of traffic but failing to be profitable (the cost of running the servers and facing legal lawsuits were higher than the revenues brought by advertising and by the deals struck with the music industry).

 

-          legal issues: some business sectors (such as casinos, pharmacy) are heavily regulated in certain countries. Are you sure that you are not overlooking certain laws pertaining to your business sector ? Trademarks need also be taken into consideration. Before picking a brand and building upon it, you must ascertain that you are not infringing any registered trademark.

 

Example: the gambling industry has long been regulated in many countries around the world. For instance, gambling is still prohibited in certain countries (e.g. China, with the exception of Macau) and remains a preserve of governmental institutions in other parts of the world (e.g. France, where the government has been holding a monopoly in the gambling industry with its company “La Française des Jeux”; this situation is in the process of being reformed today as European laws will require France to deregulate the gambling sector and thus pave the way for individual entrepreneurship).

 

-          value added: what kind of value added is your business going to bring to the market ? More specifically, are you planning to bring high value and follow a strategy of price, or are you rather going to follow a strategy of volume ? Are you going to implement a strategy hinging upon innovation or one revolving around imitation ?

 

Example: a strategy of volume can be very profitable; for instance, you may want to offer a product similar to one of your competitors’ but at a much lower price (thus targeting a different segment of customers, namely those with less purchasing power). However, in order to achieve this, you will have to compromise on the product’s quality, which does not constitute a problem provided that a market exists for such a kind of product with such a level of quality. For instance, during a period of crisis, people tend to steer away from brand products and turn to cheaper alternatives whenever possible (that is, they will tend to cut on what they consider to be luxury products).