How to build a business with real potential
When you’ve come up with a cracking business idea, there’s a range of considerations you need to make to work out if your fledgling enterprise has the potential to fly.
According to Dr Anna Jenkins, an expert in entrepreneurship and innovation at UQ Business School, first it’s essential for budding business owners to work out the amount of risk they are willing to take on to build a business. This includes not just the financial risk but also the emotional and social risks. Running a business can be a highly uncertain and stressful endeavour and failure is frequent.
“Developing a successful new business is not just about whether you have a good idea. There’s so much uncertainty around the feasibility of any really novel product, and how quickly the market will adopt it, and it’s important to acknowledge that,” she explains.
An important initial step is to understand whether a customer would purchase your product or service – often you can only know this by talking directly to the potential customer.
“Look at whether your idea builds on a new trend. Products that take advantage of the emergence of trends such as the sharing economy, the Internet of Things and the automation of processes will be in emerging and growing markets. But if you’re going into a market that’s already established, you will have to compete harder for market share because increasing your market share usually means taking market share away from a competitor.”
Another approach is to address a new or under-serviced market. Dr Jenkins uses electronics business retailer Kogan as an example. Its ability to produce lower-cost flat screen televisions allowed it to open up an entirely new market segment. Its relatively inexpensive product range gave the business a buffer when it entered the market because it wasn’t directly competing with the large electronic retailers, whose products were more expensive.
As this shows, there are many considerations beyond just coming up with an idea if you want to be successful in a new business.
Another important determinant should be working out whether the business is right for you. That decision should be based on whether you have existing expertise, or a knowledge advantage, that means you have access to information that others don't on which to build your business. This can help create your own unique competitive advantage.
Dr Jenkins uses Rewardle, which offers businesses customer loyalty programs, as an example. The founder already had access to a network of coffee chains, which gave the enterprise a leg-up in its early days. Cohort Solutions, which facilitates tuition payments for international students, is another example. Founder Mark Fletcher already had expertise in foreign currency exchange before establishing the business.
“You're in a better position to your competitors if you have a knowledge advantage when it comes to developing or executing the idea. If you base your idea only on externally available information you won’t have anything unique about you with which to compete, and it's highly likely one of your competitors will have that.”
So when should you walk away from a business idea?
Be prepared to walk away from an idea – rarely is the first idea the one that leads to success.
“It can be a really tough decision. Entrepreneurs are usually working on ideas that they are passionate about so it can be very difficult to walk away from them. Often feelings of personal success are tied to the performance of the business which can make the walk away decision even harder. There is a fine line between perseverance and throwing good money after bad and it is often only with hindsight that you can really know what the best decision was.”
So what does it mean for you? While there’s no magic potion that will make a business thrive, ensuring your idea solves a real consumer problem, builds on a new trend and leverages the founder’s knowledge advantage will give it the best chance of success.