My Opportunity Model For Aspiring Entreprenuers

Where do I start?

Aspiring entrepreneurs and students often ask “how do I go about finding and developing an opportunity”? My answer is a model that is a 5 step process I developed and used in my career as a successful entrepreneur. The steps are:

1.      Find a “commercially viable problem” (one that both needs to be solved and is ready to be solved).

2.      Create a solution to a “commercially viable” problem (a product and/or service) that is unique (a strong competitive advantage). It must also include an effective method of distribution (the selection of a distribution channel is second in importance to positioning the product and or service) and creating awareness (making your potential customers aware of your product and or service and why it is special is critical and can be very expensive and challenging).

3.      The solution must be sustainable (patents, trademarks and first mover advantage are all helpful).

4.      The solution must be profitable (long-term).

5.      Build an effective team. 

Step 1: Finding a commercially viable problem

It is important to first realize that there are always frustrated consumers that have problems that need to be solved.  Learning what these problems are can be done either by personal experience or observation. One of the oldest sayings in marketing is “find a need and fill it”. In other words, if you find a need that is not being satisfied, you will a problem not being solved whose solution (product and or service) may provide an opportunity. I have underlined the word may because not all problems that need to be solved are ready to be solved commercially (the demand for the product and or service must be great enough to earn and sustain a profit). 

An excellent example of a product that solved a “real” need but was not commercially viable at the time of its invention is the flush toilet. The inventor of the flush toilet Sir John Harington invented the forerunner to the modern flush toilet in 1569 as a gift for Elizabeth I of England. It can even be argued that the flush toilet was even invented thousands of years before his model. Certainly the problem Sir John Harrington discovered (or others before him) needed solving (disposing of human waste sanitarily) however his product was not commercially viable until the late 1800’s. Why? There weren’t adequate sewer systems to deal with the waste from the flush toilets until the industrialization period when large numbers of people moved from the country to the cities looking for work. The shift in population to the cities created the need for sewer systems and demand for flush toilets in numbers great enough to establish a large and growing market (large and growing markets always present the best opportunity). 

The irony of this story is that the inventor Sir John’s product was a bust financially while entrepreneurs like Thomas Crapper’s English company was so successful that his name remains linked with the product until this day along with John Douglas’s Cincinnati Company and other companies with “John” in their names. The other lesson we can learn from this case is that you need not be an inventor to be a successful entrepreneur. All you need is to be able to recognize a problem that is commercially viable and develop a unique solution (it can and often is someone else’s invention). There are many examples where this is the case, IBM did not invent the computer, Zerox the copy machine, Texas Instruments the calculator.  

It could be argued that Sir John’s invention was so far ahead of its time that it didn’t have a chance to be successful. However there are examples of situations when it would seem everything is in place for a product to be successful and yet it still fails. An excellent example of this is Sport Cola the first caffeine free cola. Canada Dry who at the time was the third largest soft drink manufacturer in the world introduced Sport Cola in the 60’s.  Parents were allowing young children to drink colas that contained a significant amount of caffeine (a 12 ounce can of cola contained the same amount of caffeine as a cup of coffee). Yet these same parents would not allow their children to drink coffee. Canada Dry realized that most parents then and now would not allow their young children to drink coffee yet they gave them cola to drink. They concluded that given a choice parents would prefer giving their children cola that did not contain caffeine. 

The product failed miserably and cost Canada Dry millions of dollars. It is not that the public was not interested in purchasing the solution to the problem (caffeine free colas became popular a decade later in the 70s). The public simply was not aware of the problem in great enough numbers to make a product successful. Health concerns over caffeine and other food ingredients resulted in a change in labeling laws for food and drinks in the 70s that provided consumers with information necessary to make informative decisions. The awareness of health issues created by the media along with the information provided by the new food label laws created an opportunity for a whole list of food and drink products, i.e. low fat, low carbohydrates, natural. 

a) Human behavior and social needs

The best place to look for a commercially viable problem is to study human behavior and social needs. The President of Sony was asked how much his company spent researching the Walkman (the predecessor iPod) before its introduction. To paraphrase him, “zero, you can’t research a product that doesn’t exist. We study human behavior. We knew that people liked to exercise and listen to music so if we could make it convenient we knew we could sell the product”. What he didn’t say was that they had plenty of research on the number of people that exercised, liked music, did both, their demographics including income. This information provided them with an excellent “guestimate” of the size of the potential market that allowed them to determine if the product was commercially viable. The end result was that the Walkman was a huge success.  

A sudden and unexpected change causing a serious problem for the “general public” that receives a great deal of publicity can also be a great way to find a commercially viable problem.  An excellent example of this is the problem caused by antiquated voting machines in Florida during the 2000 Presidential elections. The “hanging chad” produced by voting machines made the Florida recount next to impossible. As a result of this, the sales of electronic voting machines in Florida and throughout the country increased dramatically. Before this much “publicized” incident there was not a great deal of demand for electronic voting machines. 

Another key point to recognize regarding change is that the “haves” (market leaders) resist change. They (leaders) for the most part are committed to protecting the present conditions and generally are slow to make dramatic changes.  For example General Motors in the 60’s dominated the car market with large cars (recently they did the same with SUV’s and trucks along with Ford). Both companies were slow to focus on the small car market where as much smaller Toyota aggressively pursued this market. Toyota became the largest car manufacturer in the world last year helped a great deal by rising gas prices.

a)      Do you need a great deal of education or money to develop unique products and/or services? Not hardly! Bill Gates left Harvard as a freshman to found Microsoft. Facebook was founded by Mark Zuckerberg while at Harvard who ran it as one of his hobby projects. Facebook, Google, MySpace, eBay and YouTube all demonstrate that it is possible for young people with sparse resources to become extremely successful in a short period of time. You also don’t need a great deal of money to start a business however start-up money can be difficult to obtain. Most start-ups are funded by family, friends and credit cards. With the help of his parents who refinanced their house, Ben Kaufman a 21 year old college drop out and serial entrepreneur, founded Mophie, a start-up that makes iPod accessories. Last year he sold his Morphie product line and used the proceeds to start Kluster, a virtual forum that provides consumers and businesses with an opportunity to collaborate on the design on products and services. Mark Zuckerberg  started Facebook with some financial help ($20,000) from Eduardo Saverin. Of the U.S. fastest growing firms, 73% were started with less than $100,000 in capital a number well within the reach of most aspiring entrepreneurs. My Favorite case of a successful business founded by a novice with very little financing is L.L. Bean. L.L., an avid sportsman that loved to hunt and fish who was tired of having cold, wet feet so he made a pair of rubber boots to solve his personal problem. When friends and strangers saw them, they asked if they could buy a pair and the rest is history. 

b)      The Importance of a method of distribution. Selecting a distribution system is second in importance only to positioning a product and/or service. There are traditional systems for companies with large budgets, retail outlets, distributors, franchises etc. all of which can be very costly.  A unique method of distribution can provide cost benefits and a competitive advantage. L.L. Bean is also a wonderful example of a unique and special distribution system. When most retailers were busy opening stores which huge overhead costs and headaches, he was shipping his products to his customers by mail eliminating a tremendous amount of costs and headaches. His 100% guarantee, no questions asked, overcame the fear of buying through the mail. Dell and Gateways distribution system where also very special and unique in that they initially sold their PCs directly to consumers. Microsoft and Intel added a brilliant twist in distributing their products. Both companies sold their products to manufactures of PCs as part of their operating systems and requiring the manufacture to display both companies’ trademarks and logos on their products. MySpace and Facebook both used the Internet as a distribution system to provide social networks (clubs) that compete very successfully with brick and mortar social clubs which have been in existence for centuries because a) they are much less costly, b)there are fewer social clubs available for young people than their older counterparts and c) they provide a huge international membership that would be impossible to gather together upon request in one location .

c)      Awareness.  Creating awareness can be one of the most difficult and costly steps in product/service development. There are traditional methods of creating awareness, TV, newspapers, magazines all of which are very costly. Even more of a problem is the difficulty to reach customers, the cable offers many choices, TEVO allows consumers to skip commercials and newspaper circulation is down. Of all the groups young people are the most difficult to reach.  There are new and innovative free ways to reach consumers especially young people. Websites like buzz.yahoo.com, dig.com, and Slashdot.org (for techies) and many more that can be found on Google and Wikepedia can be used to create a buzz for new products and/or services. Articles in newspapers and journals are very helpful in that they tell the “real story”.  Consumers trust this information more than advertising because it is newsworthy and not paid for.  “Word of mouth” advertising is the oldest form of creating awareness, it’s powerful (it comes from someone you trust) and free.  Each person on average comes in contact with 250 different people each year and they talk about a variety of things including products and service that they are passionate about. The products and/or services that benefit most from “word of mouth” are ones that have a strong competitive advantage (they are so special that their customers are passionate about them ). Excellent examples of companies that became successful by relying on “word of mouth” are L.L. Bean, Ben and Jerrys, Starbuck, Google, MySpace, Facebook, and YouTube. None of these companies spent a great deal of money (if any) on traditional advertising in establishing their products and/or services. Microsoft and Intel not only were able to have their products distributed for them they also piggy backed the computer manufactures advertising and sales to create awareness. As mentioned both companies required the PC manufactures to display their logos and trademarks on the PCs which was instrumental in creating brand awareness for their products, Windows in the case of Microsoft and the Pentium Chip in the case of Intel. This also provided Microsoft with the awareness and brand recognition to sell their soft ware separately, directly to the consumer and in retail outlets. 

Step 3. The Solution must be sustainable. Patents bring protection from competition (this is debated however having one is better than not), trademarks can be very valuable (it is said that Coke is the most valuable trademark in the world and is valued in the billions) and first mover advantage are important factors that contribute to sustainability. First mover advantage however is not always a benefit to the company that first introduces a product and/or service. It is more a case of “first to have the best product and/or service in the eyes” of the consumer. Yahoo preceded Google by 3 years, IBM was not first with the computer nor was Zerox first with the copy machine, and Quicken was 47^th.  

How do you keep the benefits earned by first mover advantage? One answer is constant and continuous improvement. The companies that fail to do this lose their advantage. An excellent example of this is the electric calculator. When I ask the question “who invented the electric calculator”, no one hardly ever gets it right (only once in the hundreds of times did someone know the answer).  A company by the name of Bowmar (it was called the Bowmar brain) marketed the first electric calculator (most people believe that it was Texas Instrument). Why doesn’t anyone ever get it right? They went out of business 2 or 3 years later because they failed to improve their product and stay ahead of their competitors (whenever you introduce something new that is successful, competitors will pop up quickly and in lightening speed in the age of the Internet). Most successful companies thrive on continuous improvement and constant upgrades, some examples are Proctor & Gamble, Gillette, Google, Microsoft, Intel, and Toyota.  

It should also be noted that sustainability is a factor of continuous improvement in every area of doing business which include marketing, operations, and finance (the best companies strive for excellence in every area). The one area most neglected and most beneficial to sustainability is customer service. It is something that any person or company can excel at and few people and companies do. It does not require technical skills, a great deal of money, or a lot of training. Outstanding customer service is just a matter of wanting to please your customers. 

 a.) The Wow Factor.  Our method of continuous improvement started with our “Wow Factor”.  Most people and companies settle for “good enough” and not excellence (I am sure that the Bowmar leaders thought that their product was good enough considering that they invented it). In today’s market place “good enough” doesn’t cut it because of the intense competition (I don’t think it ever did however companies maintained their leadership positions longer before the Internet and world wide communication explosion). Our “Wow Factor” was based on the premise that we would pursue excellence with a goal of creating a “wow” in every area of our business.  A “wow” is to be dramatically better than your competitors when possible (it doesn’t have to be a lot better just better in ways that are significant and noteworthy; the iPod is a good example).  All changes were governed by this rule, “change is not justified unless it can create a “wow”.  A “wow” with your customers is a powerful marketing tool. A great example of this is the outstanding customer service that L.L. Bean has maintained for many years. There “no questions asked” return policy, and a human being still answers the phone on the second ring (wow, how many companies do this?). Starbucks coffee, Ben and Jerry’s Ice Cream, are just a couple of examples of companies that earned a “wow” while developing into successful companies.

Step 4.The Solution must be profitable (long-term). Most often-new products and or services are not profitable in the short-term (start-up costs usually create initial loses). The key is that eventually a solution has to be profitable to assure its survival. Patents, trademarks and first mover advantage are also key factors in profitability. All three of these factors contribute to a competitive advantage. The stronger the competitive advantage the larger premium a company can charge for their product and/or service. Some examples of this are iPod, BMW, Mercedes, Starbucks. It should also be mentioned that good business practices in marketing, process management, financial and business planning are also critically important to long-term profitability.

  a.) Cash is king. One of the most common and difficult problem for new companies is liquidity, having enough cash to operate. It is also very common with companies that are in trouble. Guard your cash, negotiate beneficial terms from suppliers (as long a payment period as possible), and police your account payables with diligence to guard against bad debt (thorough credit screening of new customers and constant credit review of existing customers payment experience and credit rating). It is important to realize that no company in our country has ever been forced out of business that could pay its bills. Many companies have lost huge sums of money (our car companies recently are prime examples) and remain in business because of substantial cash reserves.

Step 5. Build an effective team. It can be argued the most important step in developing a successful opportunity is team building. First and foremost successful entrepreneurs are not inventors, they are leaders. Or better yet they had better be a good leader if they are to be effective and successful. Effective leaders surround themselves with good people and then are able to earn the willing cooperation of their team members. In a new venture or for that matter any venture an effective team is the most critical factor that determines if the first four steps can be implemented. Good people will recognize a commercially viable problem, help to develop a unique solution, assure sustainability and profitability.

To sum up what has to be done to be effective in identifying opportunities to create successful new ventures, find a commercially viable problem, develop a unique, sustainable and profitable solution for the problem, and build an effective team to implement this.  If you can do this, you are on your way to becoming a successful entrepreneur.  

                                            HELPFUL HINTS

A good place to start to look for a commercially viable problem is to become familiar with the five basic human needs categorized in “Maslow  Hierachy of Needs”, to paraphrase: 

1. Physiological needs….first and foremost humans need oxygen, food, water and a comfortable and relatively constant body temperature.
2. Safety needs….next is the need for security. Threatening times for adults and childhood create concerns for safety and security.
3. Needs of love, affection and belongingness… Maslow states that people seek to overcome feelings of loneliness and alienation. This involves both giving and receiving love, affection and the sense of belonging.
4. Needs for esteem… humans have a need for a stable, firmly based, high level of self-respect, and respect from others.  Satisfying these needs leads a person to self-confidence and feeling valuable.  
5. Needs for self-Actualization… Maslow describes self-actualization as a person's need to be and do that which the person was "born to do." "A musician must make music, an artist must paint, and a poet must write."

1. The unexpected success, the unexpected failure, the unexpected outside event.
2. The incongruity-between reality as it actually is and reality as it is assumed to be or as it “out to be” (this is very close to find a need and fill it)
3. Innovation based on process need
4. Changes in industry structure or market structure that catch everyone unawares

The next three are changes that take place outside of the organization:

1. Demographics (population changes)
2. Changes in perception, mood, and meaning
3. New knowledge, both scientific and nonscientific