Fifty years ago it was access to capital that set you apart – people who had money were generally in a better position to make more money. Now it is the quality of your business concept and your ability to execute it that positions you to create real wealth. In this environment it is possible for a twenty-something student to write an inventive computer code, launch a business, and if the computer code is found to be useful, generate more than a billion dollars – think Google, Mark Shuttleworth, Yahoo, YouTube or Facebook. For others, it may be a slightly longer, more arduous process but all around you people are discovering sources of new wealth in the form of exciting new business ideas.
We all want to know how they do it. Where do those big ideas come from and how could we put ourselves in the position to uncover the next million dollar idea? The truth behind most million dollar ideas is that they are a complicated combination of timing, genius and luck.
Entrepreneurship is a practice that is part art and part science. As a scientist, the entrepreneur needs to apply basic business principles and laws and as an artist they need to break with convention and do things that are out of the ordinary and novel. This article will provide a practical framework to uncover viable, exciting, creative business ideas by exploring the sources of new business opportunities and highlighting some tools that can be applied to uncover and capture those opportunities.
New opportunities generally emanate from change. Entrepreneurs respond to change in an innovative way to create new value. Peter Drucker said: “The entrepreneur always searches for change, responds to it and exploits it as an opportunity”.
Such change may have already occurred or be underway. Therefore, if you wish to see opportunity you need to be aware of change. I have built on the framework of Peter Drucker to identify seven distinct sources of new business opportunity.
1. The Unexpected
One of the richest sources of new business opportunity is unexpected success. This is what happens when, after a period of tinkering and messing around, you wake up one day and realise that you have created something that may be of huge economic value to others. Three of the world’s largest Internet companies were the result of unexpected success. Google was created out of a PhD project in which Larry Page and Sergey Brin were just trying to create something interesting for their dissertation at Stanford. They had no intention of creating a business and only founded a company when no one else would buy their technology. Yahoo and eBay both had similar origins: their founders were messing around with the Internet with no intention of launching a business but both stumbled upon valuable concepts that they later turned into billion dollar businesses. Unexpected success is not limited to Internet start-ups. Raizcorp, the highly successful South African business incubator was born out of Allon Raiz’s efforts to assist some of his friends clean up their business operations. He was driving from one business to the next imparting advice and assistance and thought to himself: “Would it not be more productive for me to bring all these businesses under one roof”. Before he knew it he had a business incubator which has evolved into an innovative profitable business that is respected across the globe.
Your chance of uncovering unexpected successes will be enhanced as you tinker and experiment. It is for this reason that 3M insists that all of its employees spend 20% of their time working on personal projects. The tinkering from those personal projects often evolves into a new product or a new line of business. Unexpected opportunities emerge out of the act of serious play. As Michael Schurge of MIT said: “You can’t be a serious innovator unless and until you are ready, willing, and able to seriously play. ‘Serious Play’ is not an oxymoron; it is the essence of innovation.”
In order to harness the opportunities offered by the unexpected you need to be open-minded and alert. So many unexpected opportunities are passing people by every day. Because they are so focused on what they are doing, they ignore opportunities that may be staring them in the face. “Chance favours the prepared mind,” said Louis Pasture.
2. The Existing
Existing business ideas are ideas that are “borrowed” from others. In South Africa this is a viable and promising strategy for uncovering new business opportunities. Due to the country’s geographic location and relatively small population, many innovative global companies ignore it as a market. This enables others to “copy” their innovative ideas and establish thriving businesses in South Africa. In 1985, Naspers sent a representative to the United States to study the pay television industry and out of this M-Net was born as a concept borrowed from cable television networks in North America. Kulula.com was founded after Gidon Novick spent time doing his MBA in the US and discovered the low cost airline models abroad. He realised there was huge opportunity for a low cost airline emulating Southwest, Easyjet and Ryanaire in South Africa.
To uncover existing ideas, spend some time exploring large developed markets. Look for products and concepts that are new, innovative and exciting and that could be implemented in South Africa.
An incongruity is a discrepancy between what is and what ought to be. It is something that is “out of sync” with what makes logical sense, but is often overlooked because people get used to the status quo. In the 1950’s, the general view was that ocean freight would be replaced by airfreight because ocean freight was slow and risky. It took so long to load and off-load that often cargo would be spoiled or stolen while it waited on the docks. Many people predicted the demise of shipping companies, yet, in 1956, Malcolm McLean invented the simple but revolutionary idea of a standard-sized shipping container that could be loaded onto ships, railcars and trucks. It changed cargo shipping from a messy loss-making labour-intensive process to a viable equipment-intensive process. Today the ocean freight industry is thriving because of McLean’s recognition and response to the incongruity in the existing shipping process. In South Africa, the Automobile Association has effectively recognised and responded to an incongruity in the second-hand car market. Sellers fear being hijacked when taking a prospective buyer for a test drive and they don’t know how to safely facilitate payment for a second-hand vehicle sale. Buyers fear they could be sold a “lemon”. AA has responded to these incongruities by establishing AA Autobay, a service that provides inspections of private cars before they are sold, brings buyers and sellers together at safe AA locations and facilitates payment for car sales within a predefined and controlled process. They take a small commission for providing these services. I predict that AA Autobay will save private used-car sales from a certain death in South Africa.
The reason that we miss incongruities as new business opportunities is that we become oblivious to them. We accept subtle problems as “that is just the way it is” without asking questions like “what if we could solve that?” or “how could we solve that?” Those who attempt to answer the “what if” or “how” questions in a sensible, systematic, creative way inevitably uncover exciting new business opportunities.
4. Industry Change
An industry structure is a description of how the various participants within an industry interrelate. Participants in an industry include buyers, sellers, competitors and financiers. The four highly visible indicators of impending industry change are:
- Rapid growth within an industry.
As an industry grows so power shifts and new opportunities open up. Government spending on infrastructure development in South Africa gave rise to rapid growth in the construction industry creating a plethora of new opportunities.
- Convergence of technology.
This means that a number of industries merge together giving rise to new competitors, new markets and new opportunities and niches to exploit. The convergence of wireless technologies (cell phones, computing and television) is fuelling growth for some of South Africa’s largest companies such as MTN and Vodacom, while providing fertile ground for the emergence of new companies such as Leaf Wireless and iFind.
- Deregulation and new legislation.
Changing laws cause power shifts within an industry and those who can correctly predict how the power will shift can seize new opportunities. Derivco, a Durban based company emerged as a leading developer of software for the online gaming industry internationally because in 1996 the founders realised that the laws in the gambling industry were changing. They recognised that the change in laws and emergence of the Internet would give rise to a whole new gambling system. They built the back-end for online gambling, seizing a huge opportunity to become world leaders in that niche.
- Business practices are shifting.
Over time the accepted practices within an industry may change and this inevitably gives rise to new opportunities. The increased use of the Internet by retailers was the change in business practice that opened the door for Mark Shuttleworth to create Thawte Consulting, the online security company that he sold to Verisign for $575 million.
try this Using industry change as a source for new business ideas involves monitoring the regulations, relationships, practices, technology and growth within an industry. When changes are evident, one needs to critically assess the impact and likely outcome of the change and judge where the new opportunities will exist as a result of such change.
5. Demographic ShiftS
Demographic shifts are changes in a population, its size, age structure, composition, employment patterns, educational status or income. They are generally clear and measurable changes, unambiguous in nature, with predictable consequences. Many notable shifts are currently taking place. In the developed world, populations are aging, giving rise to a range of new business opportunities in healthcare, travel and retirement planning. In South Africa, the emergence of a black middle class created opportunities for new retail outlets, new schools and new residential housing complexes. All of this is so obvious that you would think there was no need to be reminded of the importance of demographics; yet, many businesspeople ignore the simple reality of demographic shifts.
Demographic statistics are the starting point for gauging opportunities, but the key is to interrogate the numbers and ask:
- What do the demographic shifts mean for our current business?
- Are there going to be under-served needs in
- Could we provide products or services to meet those under-served needs?
With a little effort, details on demographic shifts are easy to find. Most census bureaus publish their information on the web and many marketing research houses and consulting firms publish demographic details for different sectors of the population. A simple Internet search will give you access to details of expected demographic shifts in sectors of the population. You just need to be inquisitive and conscientious to find the details.
6. Altered Perceptions
Perceptions change. That is a reality of life. Anyone in the fashion, design or retail industry knows this fact all too well. But, it is not only fashion related businesses that need to be conscious of changes in perception. Any business that connects with a consumer, directly or indirectly, will be impacted by changes in perception. Changes in perception create wonderful opportunities for entrepreneurially orientated companies. Woolworths responded to changes in perception about health and personal time with a wide variety of healthy pre-packaged meals. Cape Storm, the outdoor clothing and equipment company, was founded in response to the trend towards adventure orientated sports and activities.
Changes in perception can be difficult to interpret and starting a business in response to changes in perception can be risky. Perceptions are fleeting and often unclear. Therefore, one needs to be cautious when using perceptions as sources for innovation and new ideas. Peter Drucker says: “There is nothing more dangerous than to be premature in exploiting a change in perception…a good many of what look like changes in perception turn out to be short-lived fads, and they are gone in a year or two.”
If you are relying on a change in perception as a source for a new business idea ask yourself these questions:
- Is this a genuine shift in perception?
- How long will people perceive things in this way?
- What could happen to cause a further shift in perception, making my original idea relevant?
7. New Knowledge
Knowledge based innovation is what many perceive to be the panacea of entrepreneurial activity. Knowledge-based innovations attract publicity and attention. The development of new medicines in the biotechnology industry, the development of new computer codes in the software industry and the attempt to uncover new sources of energy in many areas of science, all represent knowledge-based innovations. Knowledge-based innovations, in spite of being very valuable, popular and important in society, are also very risky. Such new business ideas often have long lead times, heavy financial investments to get them to market and very uncertain outcomes. Those that succeed create massive amounts of wealth for the entrepreneur, such as Bill Gates in creating Microsoft or Robert Noyce in founding Intel, but the many others that fail result in loss, frustration and despair for the entrepreneur.
If you are considering opportunities to apply new knowledge to create a viable new line of business think about:
- The development of technology.
Can you predict how technology is developing in a particular field and could you engage in a process to create the next major improvement in a particular technology?
- The convergence of technology.
Do you foresee certain technologies linking up and does this create new opportunities?
- The emergence of new technology.
The opportunities created by new technologies such as the Internet or mobile phones when they first emerged were very significant. New knowledge usually emerges from research laboratories. Emerging new technology is hard to find but if you do uncover something that is currently on the fringe and promises to go mainstream, then with the right kind of investment, you could become very wealthy.
Finding new ideas is one of the most fun, exciting and engaging aspects of business but it is also one of the most challenging and frustrating processes that you can go through. The joy of discovery can put you on an emotional high but the energy required to be effective in seeing new business opportunities can be draining. Many people are tempted to avoid this process. They realise that it is easier to just go on doing what they have been doing. But then one day they wake up and their business is no longer relevant. Engaging with new ideas and new opportunities is part of staying relevant, profitable and successful, in your personal and business capacity.
Tools for Uncovering New Ideas
Just knowing what gives rise to new opportunities is not enough. You need to position yourself to see, capture, evaluate and build on new ideas. The primary mechanism for doing this is an alert mind and an inquisitive spirit. To awaken your mind and foster your spirit you can: explore, experiment, record, research and track trends.
Go on exploration journeys
An exploration journey is a trip that you make to learn from what you see and feel as you immerse yourself in a new experience. An exploration journey could be a trip abroad for a number of months or it could be a journey of a few hours to observe how your clients use your product so that you can look for opportunities for radical improvement. In 2006, Koos Bekker, the innovative and highly successful CEO of Naspers, the company that owns M-Net, Multichoice and a host of other media investments, announced he was taking a six month sabbatical. He set aside time to travel around the world and engage with people about how the technology landscape was shifting. He felt that he needed this deep, rich, immersive experience to get an idea of which direction Naspers needed to go next. In an interview midway through his exploration trip, Bekker described the incredible insight he had gleaned and the new ideas he had generated.
He spoke of the democratisation of media, the entrepreneurial opportunities that are emerging for skilled young computer geeks, the importance of broadband and how government needs to allow people to experiment.
An exploration journey can assist in uncovering business opportunities emanating from a number of different sources including incongruities, altered perceptions and existing opportunities.
The characteristics of a useful exploration journey are that it is:
- Engaging. It is an active experience. You get the opportunity to engage first hand with either experts or customers/users and learn from their experience.
- Broad. It has a broad and sometimes ill-defined purpose. If you make it too specific and narrow in purpose, you often shut out important things that you could learn.
- Captured. The insights and inspiration from the trip are recorded in an effective way. Using a combination of digital photographs, video, an idea journal and/or a voice recorder, you need to capture and consolidate what you learn on your journey.
Engage in active experimentation
Experimentation is the activity of tinkering with different ideas, quickly building prototypes of new products or offering a new service to a small client base for a limited period just to test it out. Experimentation has been consistently linked with highly innovative activity in small start-ups and big, world class companies such as Google and 3M.
Productive experimentation is:
- QUICK. Building prototypes and experiments to test out and play with new concepts should be a speedy exercise. The idea of experimentation is to quickly learn what works and does not work. “Fail fast to succeed sooner” is the motto of effective experimentation, as pointed out by Dave Kelly in The Art of Innovation.
- Tangible. If you are in a product-orientated business, quickly build a mock-up of your idea using whatever materials you can find. If you are in a service business, quickly emulate the service you wish to create and see if it works.
- Rough. Experimentation is not about being perfect. Many people avoid tinkering because they want what they produce to be perfect. The purpose of being in experimentation is to avoid perfection and focus on action and output.
Keep an idea journal
Every innovative businessperson I have met has a mechanism for capturing ideas. Many use what I call an idea journal – a small, accessible book in which they can capture thoughts as they spring into their head. They scribble, draw diagrams, jot down key words or merely record a reference or website address that they can use at a later stage. A simple, easy to access book that you can keep in your pocket is all you need to start.
For an idea journal to be effective make it:
- Readily accessible. You must keep it in a place where you can access it whenever you see or hear something or when an idea pops into your head.
- Your own. Write and scribble in it in your own style.
Don’t worry about whether others will be able to decipher what
you have written.
- Lasting. Don’t throw away idea journals. You never know when you may want to go back to something you thought about or saw a few years ago. Once a book is full, label it and file it in an easy to access location.
Develop a research orientation
With the growth of the Internet, the world of information has opened up for everyone. Access to information used to be for the privileged few and as a businessperson you would need to pay a marketing research company to summarise important data for you. Now, much of that data is readily accessible on the web, and all you need is the ability to search for it and evaluate what you find. Information can give you huge insight into where opportunities exist. Many people feel intimidated by information or are too lazy to search for it. If you can learn to find and use effective research data, you can create a distinct advantage for yourself or your business.
To develop an effective research orientation you should:
- Learn to search. There is an art to searching, or using a search engine. There are ways of describing what you wish to find that can make your Internet search far more effective and targeted. (www.googleguide.com is a good place to start)
- Systemise your findings. It takes a bit of effort to store
and label what you find but it can pay big dividends over time.
You will be surprised by the number of times you wish to go back to something that you previously found on the Internet and if you have stored the reference or file in an easy to access location then you will be able to benefit from all your previous research as you build new business ideas.
Track Trends – Monitor changes in trends and perceptions
Tracking trends can be tricky. It is difficult to distinguish between a true trend and a short-lived fad. But tracking trends is a skill that can be developed. The more you try to monitor changes in perception and understand emerging trends, the better you will become at it. In tracking trends it is useful to read widely what others are saying about shifting and emerging trends. As you develop a feel for the directional shifts in perception, then you should become more critical and focused in your analysis of what that means for your business and the new opportunities it may generate.
To effectively track trends you need to:
- Look back. History can provide a glimpse into the future. By understanding past trends, technology developments and social changes, you will be better positioned to make assessments about the future.
- Read and engage widely. Read across domains. If you only read and research in one area you are limited to one perspective. If you read in multiple areas you can develop a big picture mindset that will give you a much better idea of what is likely to occur in future. Pick up magazines that you would not otherwise browse through, search websites that you would not otherwise explore and listen to an alternative radio station at least once a week.
- Record and share your thoughts. Write down the trends that you see changing. Build an argument for why you think they are shifting and share your thoughts with others. If you don’t write things down, your thinking will remain messy and unclear. If you don’t share your thoughts, your thinking will not develop and evolve as much as it could.
Take control, make it happen
This article has provided you with insight into the sources of new ideas and tools to take advantage of that insight. It is now up to you to use this knowledge and these tools to effectively make yourself and your business relevant for the future.