This is Part 2 following How to Become Very Rich.
Now that you’ve committed to starting a business, how do you come up with an idea?
Writing by hand can stimulate your mind more, so get out a piece of paper:
- List every topic, interest, hobby, and passion of yours
- Detail every problem you’ve encountered yourself, or noticed other people having. Research what people are complaining about
- Write every product you wished existed or a service you wish was available
- Combine two, three, or even four interests and see what kind of products you can come up with. It can be as grand or as mundane as you want. Keep your mind open and you might think of something else after you write down a fantastical idea. E.g. Tea x Stationery = Scented tea paper, tea themed paper, paper made from tea plants, pens and rulers based on a specific tea. You could also think of it as products for specific enthusiasts, like stationery for tea enthusiasts
You absolutely don’t have to come up with a never before seen invention. Most new products are not new inventions. In fact, it’s rare for an entrepreneur to be an inventor, and it’s a good thing if there's competition because it means there's a thriving market demand for your product category. There’s a 99% chance you are not a visionary. If there’s no product that is even remotely similar to yours, proceed with caution as it likely indicates lack of demand.
You have just have to make it better or add your own twist to it. For example, paper already exists but who says it has to be made from trees? What if you don’t want to cut down trees, or want paper that looks and feels totally different from all the others?
If you’re looking to do something online, consider if there are new platforms you could potentially sell on. I’m not just talking social media. When Amazon came out with their Echo smart speakers, it also released a skills store. Much like an app store, it allowed people to do more things on their Echo devices. An entrepreneur early on the scene released an app that allowed people to listen to nature sounds, like the ocean, forest and rain. It was a simple $0.99 app but thanks to the millions of Echos sold, tens of thousands of people purchased it per month.
New technology is coming out at an accelerating rate. How could you use it to your advantage?
Now that you have a potential list, ask yourself these three questions.
Are you personally interested in the idea?
If your primary motivation is money, fame, or prestige, don’t consider it. Only when you are genuinely interested in the idea will you be able to sustain yourself when times are tough. You will also be outcompeted by those who really do care.
This doesn’t necessarily mean you have to be super passionate about the idea, but that you seriously care about solving the problem. For example, perhaps you’re starting a company to create new materials from things usually thrown in the trash. In this case, you are not passionate about garbage, but you want to do everything you can to stop waste.
Are people interested in your solution?
There must be a need for your idea. This sounds simple but many businesses never took off simply because they were solving a problem that didn’t really exist.
Let’s say you are moving apartments and go online to find a mover. You don’t have any trouble finding a mover, in fact, there’s too many to choose from! Maybe you get an idea in your head to start a platform exclusively to find movers. You invest so much of your time, energy and money into it, only to find out too late that most people just select the top three results on Google or Yelp and pick the cheapest mover. Make sure your business is creating a solution to a real problem.
However, if there is tremendous interest in your chosen business industry, it might not be best to move forward. Millions use to do lists, but precisely because of that, there’s an avalanche of to do list apps you can install on your phone (not to mention the one that already comes pre-installed).
A lot of people are also into cooking and recipes. This means that if you’re considering a new platform for recipes, it has to be revolutionary. Every newspaper has a cooking section and there are already a ton of other recipe sites. You will be competing against a tidal wave.
So your idea doesn’t has to appeal to tens of millions of people, and catering to a niche is a good thing! Instead of another recipe site, what if you combined your two interests in cooking and watches and created a line of horology inspired cooking utensils?
How much capital will the business require?
You should have a good estimate for not only what you’ll need for the business to get off the ground but for how many months you can keep running the business before turning a profit. When you’re buying something online, your money is transferred almost instantly to the business. But if you’re selling products wholesale to a retailer, you could be waiting two months until you’re paid.
If you’re looking at creating a product, contact a few manufacturers to ask for a quote and their minimum order quantity (MOQ). And don’t worry, you don’t need to be an expert in everything to start a business. That’s what freelancers are there for! Reach out to a few people and tell them in detail exactly what you need. They can then estimate how many hours it will take, and therefore, how much it will cost you.
Don’t assume you will be able to get a bank loan, even with excellent credit. Most banks lend money to existing businesses to help purchase inventory or grow their business, not to a potential business idea with no existing revenue. I’m reminded of the adage, “banks give money to people who don’t need it.” However, you can start a business with a lower capital requirement and save up money, or you can seek funding from venture capitalists and angel investors. You won’t have to pay back the money you get but you will have to give up a part of your company in exchange. If you’re going this route, find a mentor who has experience raising money.
Now that you’ve reflected on these questions…
Validate first. Do not wire tens of thousands of dollars to the manufacturer before knowing 100% that people will pay money for your product. Asking friends or family and sending surveys don’t work in gauging potential demand. Is it possible to start small at home before moving on to a factory?
If it’s hard to do that for your product, grow your online presence by starting an Instagram and making a simple website. Explain in detail what you are going to sell. Add concept photos. Then create a simple sign form that asks for their email. If you find yourself with thousands of email addresses, that is validation. Anybody can and probably will tell you they like your idea, but strangers don’t give away their email addresses unless they’re truly interested.
Entrepreneurship is not about taking risk, it’s about managing risk. Limit your potential downside. Consider producing locally first with a lower MOQ requirement but a higher unit cost. You can always switch to another supplier once you have more experience and capital. Don’t not pour your life savings into the first manufacturing run. That way if no one buys your product in the beginning, you can still pay the rent and put food on the table. Your only downside will be saving for a few months before you can try again.
Don’t believe you are doing yourself a favor by going with the supplier with the absolute cheapest per unit price. Be extremely careful of manufacturing in a cheap foreign country. Trust is paramount as there is zero recourse available to you if something goes wrong. And in manufacturing, something always goes wrong. You probably won’t be able to afford a lawyer and if you’re producing in a foreign country, you might have even more limited options.
Find a mentor and broker to keep you away from manufacturing pitfalls. Reaching out and working with factories for the first time can be a complex process but you don’t have to go at it alone!
Just because you've already started the business, it doesn't mean you have to stick with your idea. It could mean the death of your business if you keep going with what's not working. Many successful companies have evolved from their original ideas.
That’s a wrap! If you’ve just started the process, you probably won’t come up with your idea right away. Keep brainstorming every day, it won’t be long before you know what kind of business you want to start.
