As an entrepreneur and trainer of entrepreneurs, I believe that we have done a disservice to entrepreneurs when we tell them that they should think of business ideas that are unique, revolutionary, creative, and innovative and that there are a series of tools that help with idea generation, etc. Honestly, I have had doubts about this practice for a long time, not only with entrepreneurs but also in workshops with established companies.
This article may be controversial for some, but I want to explain why my argument is that the worst thing we have been able to teach entrepreneurs is to think about business ideas. I want to refer to some great businessmen who created companies that changed the world, and who did not have to think about business ideas; they focused their company creation philosophy on practical solutions to people’s everyday problems. If I say, George Westinghouse, perhaps few know who he is, but if you have electricity in your house, household gas, and air brakes, perhaps this rings a bell. This man was the eternal partner of Testla. I could name a long list of businessmen with this philosophy of practical solutions to common problems.
It’s interesting because when we talk about the word “idea” and its evolution, we find that it evolved to describe general mental concepts and shape abstract figures or concepts that can occur to a person. But in entrepreneurship, having an idea does not imply finding a solution; that’s why many entrepreneurs are stuck thinking about the million-dollar idea, the idea that revolutionizes the world, idealizing famous technological entrepreneurs. But the truth is that these are exceptions; most companies fail due to ignorance of the market, as I will show below. We see that great businessmen who impacted the world simply analyzed small, everyday problems and created solutions that were big, scalable, and therefore, the market found value; this is called innovation.
So, many will say: if thinking about business ideas is not the way, where can we start? Well, more than ideas, let’s think about solutions; yes, creative solutions, but high impact. So if they say to me: “think of a solution”, my brain immediately asks me, “Okay, but a solution to what problems?”, and here’s where the process comes in.
Problems and/or market needs: Fall in love, obsess over people’s problems, the market, and how you can solve them more efficiently. It doesn’t matter how; the trick is to generate greater perceived value in your potential customers than your competition.
Opportunities: Yes, businesses also come from taking advantage of opportunities that the market presents. You may be able to import or export a product more efficiently or identify a change in regulation, and this gives you an opportunity or competitive advantage; take advantage of it.
Trends and technology: Are you one of those who are up-to-date and curious to see how market trends from other countries and companies are growing? Do you think that in your environment this will happen, but that you can take advantage of it and start a company because you know there’s a greater possibility of success and that it’s working? Well, go ahead, take advantage. We all know Mercado Libre in Latin America; they saw eBay and other companies that were doing well in the United States and China and took advantage of that knowledge and trend and put technology at the service of their company.
Now, I invite you to analyze the following numbers and reflect on these two things, Business Ideas? Or High-Impact Solutions?
According to an analysis published by Confecámaras, in the countries of the Organization for Economic Cooperation and Development (OECD), more than half of new companies fail in their first five years of life. Only in the first year, between 20% and 30% of them disappear, and from then on, the index increases by 10% each year until it reaches five. That is, by the fifth year, approximately 60% of companies have failed. Of this percentage of failure, we find that, according to a CBInsights analysis of 101 new companies, 42% of small businesses fail because there is no market need for their services or products.
The Startup Genome found that startups that pivot their business models one or two times raise 2.5 times more money, have 3.6 times greater user growth, and are 52% less likely to scale prematurely than startups that pivot more than 2 times or not at all. Although this study was conducted for startups, we can take it as a reference that allows us to understand the impact of knowing the customer through market research and their problems, expectations, or market trends. In addition to making a minimum pivot of two times, it drastically reduces the probability of failure, which by the fifth year can reach 60%, and 42% of this failure comes from a lack of market knowledge.
Theoretically, if we do the task of knowing the customer and providing solutions to their problems, needs, or expectations, we can reduce company mortality by approximately 25%. Now, if we take into account the Genome research, which indicates that those who have pivoted their business models and tested directly with consumers are more likely to succeed, we further reduce the probability of failure to almost 16.6%, which theoretically increases the probability of success to 83%.
Although this is theoretically crossing results from two investigations, it cannot be taken as absolute truth. But the fact is that if we start a business obsessing over our market, knowing its problems, needs, trends, etc., and build a business model based on solutions that generate a high impact on our potential customers, and pivot our solution and business model at least twice and make the necessary adjustments, the risk of failure is drastically reduced. Not only of failing but of increasing sales, bringing more investment capital, and having future sustainability.
Therefore, I reaffirm that we do not need to think about business ideas that revolutionize the world and become unicorns. We need to analyze the market, get to know it, see trends, and what is working, obsess, and from there propose creative high-impact solutions. This is different from proposing ideas, which are generally abstract and do not always correspond to solutions to concrete problems. That’s why many companies are failing, and in the end, innovation is not an incredible idea; innovation is summarized as delivering greater value to your customer so that they perceive it and want to keep buying the solution.
If you want to know more about my SKAI Creative High-Impact Solutions methodology that makes the world better. I invite you to visit my website http://www.jhoanalombana.com and sign up for my bi-weekly newsletter at the following link https://acortar.link/U6Jk3L
An entrepreneurial hug and I look forward to seeing you on my social media.
L. Jhoana Lombana
The entrepreneur who trains entrepreneurs
International consultant and speaker