Chapter 1 - The Idea
“We couldn’t sleep, because we thought it was such a good idea.” – Neil Blumenthal, co-founder of Warby Parker, (Now valued at $1.75 billion)
If you’re here, you might already have a brilliant idea for a business. If so, that’s great! So should you skip this chapter? Sure, you can. I can’t stop you. Think of this book like a buffet of ideas; you can always come back for more. Some of the content may not be relevant to you, some of it may have already been accomplished, and some things you may not be ready for, or quite understand yet. That’s ok! (The great thing about the Club is that you can always ask questions) However keep in mind that this book builds on itself, and this chapter is the foundation. So stick around, and let’s talk about the fundamentals. It all starts with an idea.
A startup idea can come from anywhere, but the best ones emerge from “pain points.” Pain points are themes or problems from your daily life. They are inefficiencies in the status quo, and you have probably encountered many of these in your lifetime, but just never noticed. Take for example Spanx underwear. Sara Blakely, the inventor of Spanx underwear, said:
“I spent all my hard-earned money on this one pair of white pants that hung there, and I decided to cut the feet out of control top pantyhose one day, and I threw them on under my white pants, and went to the party. I looked fabulous, I felt great, I had no panty lines, I looked thinner and smoother… and I remember thinking, ‘this should exist for women.”
The pain point in Sara Blakely’s life was that she had two options, choose a different pair of pants, or tolerate panty lines because that was the status quo. How many people put on clothes and hated the way it looked, but did nothing about it? She recognized this pain point and decided to solve the problem. (Her net worth is now valued at over $1 billion, and rising.)
Recognizing that a pain point exists in your life is the best motivation for starting a company. Why? Because starting a company is not easy. It will require a lot of hard work and concentration. Both of which are much easier when you have a personal connection to the purpose of the business.
“The advice I have or entrepreneurs is… number one, you need to solve a real problem. I look for those problems in my own life. Mint was because I had a challenge managing my own finances using Quicken and Microsoft Money. So I built it for myself.” – Aaron Patzer, founder of Mint.com. (Which he later sold for $170 million.)
If you are experiencing a pain point, chances are, other people are too. Look for those suffering the same thing because they’re called your customers.
The first few months or years of running a business are notoriously difficult. You will likely find yourself wondering if you made the right call. Especially if you left a well-paying job or are sacrificing time with your family to pursue your dream. The desire to make money alone may not be enough to carry you through the first several years. But if you find the right pain point, and start with the right idea, something that excites you to get out of bed every morning, then you stand a fighting chance.
So many newbies give up too soon. Most successful entrepreneurs will tell you it takes at least three years for your startup to gain real traction. Set out to solve a problem that you are passionate about, and it will give you the drive to stick it out.
You may think to yourself, “Someone else is already doing this.” And you’re probably right. Almost everything has already been done before, and almost every idea is already out there. But that shouldn’t stop you. A defining factor in your success is the way you implement your idea, how you execute your plan, and how you position your company. Many billion dollar companies began as tweaks to other ideas. Look at Facebook for example. It was far from the first social network: there was Friendster, SixDegrees, Myspace, VirginStudent, and others. What made them successful wasn’t the idea, but the way they presented it. Tell yourself, the world NEEDS your business. There is always room for your company in the marketplace.
Once you have developed your idea, the next step is to get feedback. The best way to fine-tune your idea is to get outside perspectives. Some of the best sources of feedback include:
Friends and Family
Classmates or Teachers
Members of networking groups (like THE STARTUP CLUB)
& Potential Customers
“For several years, I worked closely with a brilliant inventor named Natan Parsons, who had almost a hundred patents under his belt and invented the mechanism behind automatic flush toilets. He would always solicit feedback about products he had in the works from prospective customers. He’d tell people what he was doing, but not how--and it was the “how” that he patented. Remember, if sharing your idea gives away all its value, it’s probably not a defensible idea to begin with.” – Robert Glazer, the serial entrepreneur behind Acceleration Partners. (Acceleration Partners generates ~$8.7 million in annual revenue.)
Patents, Copyrights, and Trademarks
When you are considering launching a new product or service--especially if there is nothing like it on the market--it is important to get feedback from potential customers in order to gauge their reaction and see if it suits their needs. Don’t be afraid to share your idea. It is far better to get valuable advice on how to improve your idea than it is to operate in stealth mode. You may think you need a patent, but experts say your limited resources are better spent on developing your business. Patents can be great for companies (investors may insist on them) because they give you some legal standing, but when you’re starting out, there are more important steps. The truth is, in order to defend a patent you would need large sums of money to litigate and retain a qualified law firm. Instead, focus on launching and creating revenue. Fend off competitors by creating better products, smarter marketing, better pricing, or higher customer service not spending time and money building legal walls around you.
You have up to one year after launching your product or service to file a patent. You can also file a provisional patent to claim your invention and have the option to file a patent later. Bottom line, you don’t have to do this alone.
Copyrights are the same story, but for creative works like writing, video, and music. Having a copyright is great, but it takes several months for the U.S. Copyright Office to review your work and give you a decision. Ultimately, even if they do decide to register your work, there is little that can be done from stopping imitators from slightly changing your words and republishing on their website as their own. Having the ability to scour the internet for copy-cats and then pursue legal action against them is most likely outside your budget when you’re just starting out. So it is up to you to make the decision: Is a copyright worth the trouble for blog content? Probably not. Is it worth the effort for a book or other art work? Maybe. Sometimes your publisher or “label” will have copyright protections in place and will provide you with rights and safeguarding. If you’re on your own, you can publish through Amazon or direct through your website and forego the copyright. Keep in mind, it is always illegal to copy someone else’s work, with or without copyright, and filing for a copyright does not guarantee you’ll get one.
Trademarks on the other hand, are fairly easy to get. You can apply for your logo and name to be trademarked, which will prevent anyone from using that exact logo and name for that particular line of work. Keep in mind that reserving your business name with your State does essentially the same thing, and so the Trademark may be redundant effort. A cheap and easy way to file for your Trademark is through LegalZoom.
Build a Team of Advisors
It is never too early in your entrepreneurial journey to surround yourself with good people. Dave Ramsey (whose net worth is now $55 million) once said, “Surround yourself with people who add the fuel of advice and encouragement to your fire.” Starting a business can be lonely, so surround yourself with people who have the same goals who can give you support and accountability. Antonio Neves, a leadership speaker, recommends that new entrepreneurs build a “personal board of advisors.” This can be a small group of experts that help guide your decision making and provide important feedback and advice. To choose them he recommends listing the areas that you will need help with; maybe that’s fundraising, marketing, design, accounting, or some other area of weakness. Whatever gaps you need to fill, one way you can find someone to help is to join the San Antonio Startup Club. At the Club you’ll find guidance, connection, and encouragement. Whether you need feedback on an idea, solutions to a problems, advice or a referral there are amazing and trustworthy small business owners right here in San Antonio. They can help you, and you can do the same for them. We’re in this together.
Other ways of finding advisors are through your family, Facebook, LinkedIn, college, or church. There are tons of ways to find a team to inspire and motivate you. Just be sure to thank them and recognize the value they bring to your business.
Next, Gather Information on Your Target Market
Whether your product or service is a niche item or is intended to help everyone, you need to know what makes your market tick. Understanding your target audience is the best way to know if there is potential demand for your idea. Big companies spend millions on market research to determine whether it would be worthwhile to launch a new product or service. Luckily for you, it does not have to take a big budget to know your customer. There are many ways you can learn who your customer is, what they want, and how many potential customers there are. Here are some good places to start:
Though we will cover more on funding in Chapter 3, crowdfunding is also a way to gauge interest in your product or service.
Try asking questions to your potential market by finding Facebook groups, Meetup, Twitter or LinkedIn. San Antonio garage sale Facebook groups for example, are great places to start. You may receive some biased feedback through these sources but it’s a good way to measure engagement.
Tools like SurveyMonkey or mailers can be used to gather research from a focus group. Try to start small. Ask your office (or one nearby) or local school if they are willing to respond to a written or online survey. You don’t need many people to give you a general idea which direction to go.
One of the best ways to conduct market research is at industry events or conferences. These venues are a great place to meet face to face with your future customers. Expos are not only a place for new ideas to collide, it is also a place to survey what is new to the market, or in development.
However you research your market, be sure to document what you find. Every customer input, whether email, in person, or through a survey is important. Capture them and study them. Get to know your customer, what are their habits, lifestyles, and pain points.
Refine Your Elevator Pitch
The next step is to summarize your idea. Create an “elevator pitch” to describe your company. This should be a short and sweet, under 30 seconds, spiel about who you are, what problem you’re trying to solve, and how your solution will fix it. This is known as an elevator pitch because of an old adage. Imagine finding yourself in an elevator and a customer or CEO of some big investment bank steps in to ride with you. This is your shot, you may only have one. How would you convince this person to take an interest in your company in just the 30 seconds it takes to ride the elevator to your floor? Though the elevator scenario may never happen, there will be thousands of opportunities to tell people about your business. Represent your business well by having a practiced and refined “pitch” prepared and ready to go at all times.
Analyze Your Competition
A competitive advantage is defined as something that sets your company apart from everyone else--a unique strength that allows your business to gain more customers and sell more than your rivals. Finding your competitive advantage can be the difference between success and failure.
In order to find your “special sauce” you need to scout your competition. Especially if you are entering a market that has many big players already operating. What are they doing or not doing that you could capitalize on? Can you beat their price, their quality, their distribution, customer service, or strategic relationships?
Jim Koch, the founder of Boston Beer Co., once said, “In business, you have only two ways of surviving: either your product is better than your competitors’; or its cheaper. There’s simply no other foundation on which to build a successful business. None. Better or cheaper, take your pick.” (The Boston Beer Company now has a $1.9 billion market cap.)
Remember a good way to find your competitive edge is to survey your potential customers. What do they wish your competitors did, watch how they navigate the competitor’s store, read their reviews of your competitors’ products or website.
Michael E. Porter, the famous Harvard economist and author of the book Competitive Strategy, described the “five forces” that shape every industry. Knowing these five forces can help you discover your competitive edge:
Threat of New Entrants. Sometimes referred to as a “moat,” barriers of entry surround every industry. Some industries are easy to penetrate, like the lemonade industry: anyone can sell lemonade on the side of the road, you just need to build a stand and squeeze some lemons. Other industries are harder to break into, like cell phone carriers: you need enough money to launch or rent a satellite and receive authorization to transmit signal frequencies over the air. How easily can competitors enter your industry?
Threat of Substitute Products or Services. How easily can someone copy your product, or create another option for customers? If you sell wooden tables, you should worry about metal and plastic tables.
Bargaining Power of Customers. How much room is there to lower pricing? Are materials expensive? Is time your biggest cost?
Bargaining Power of Suppliers. Do you have options when it comes to suppliers, or is there only one? They have a lot of power to set your prices if they are your sole source, or if they have lots of other customers and they don’t need your business.
Competition Intensity. How fierce is your competition? Do they actively try to crush each other, or do they operate in peace? Some industries eat their young.
Which of these five forces play to your strengths? Which to your weaknesses? In an interview with Inc. Porter listed three strategies for achieving a competitive advantage:
Lower Your Costs.
You can be cheaper, so long as your quality remains acceptable.
Whether it’s a superior brand name, better color, or sleeker design you can simply be different from the competition. As long as costs are under control, you can command a more premium price for small differences. Take regular chips vs Pringles; same basic taste, just a different shaped chip, or packaging.
Maybe your competition is doing too much. For example: Raising Cane’s only sells chicken, they focus on making that one product great, while their competition tries to do it all. McDonald’s sells egg sandwiches, burgers, chicken nuggets, shakes, salads, wraps, and barbecue.
Plan your competitive advantage early, so you can build your marketing around it. However you choose to be different, commit to it. Jack Welch, the former CEO of General Electric, said, “If you don’t have a competitive advantage, don’t compete.” (Welch’s net worth is $720 million)
Face Your Fears
As an entrepreneur, you should not fear failure. Daymond John, founder of Fubu and star of Shark Tank, says “I spot winners by looking for somebody who went out and tried a business by him or herself and maybe failed several times, but still has that determination, that love, and that passion for the company. It’s very important to me that somebody has failed.” (Daymond John’s net worth is $250 million)
In the startup world, failure is almost always synonymous with learning. Successful entrepreneurs everywhere say not to fear failure but to embrace it. In the book Happy Accidents, Morton Meyers says failure is the foundation to innovation. Without mistakes we wouldn’t have penicillin, smallpox vaccine, pacemakers, Viagra, and many other medical innovations. Failure is simply a departure from expectations.
A famous failure, Thomas Edison, said “Many of life's failures are people who did not realize how close they were to success when they gave up.” Do not let the fear of failure, keep you from accomplishing your dreams. Fail fast, and often, but never give up.