From Idea to Business
“I have an idea… how do I turn it into a business?”

Many businesses start with a great idea. But a great idea isn’t enough; you have to make it a great business. If you know business, that might be easy. But if not, here’s an overview to find out what’s involved in going from idea to business.

Building a business takes four things: a product or service, a business model, a team, and money. There is no standard order to gathering these, though they all affect each other. For instance, raising money first makes it easier to attract a top-notch team, but you will have to give up more of your equity to raise the money. Having a prototype first makes raising money easier, but without money, prototyping must be done on a shoestring. The tradeoffs will reflect your judgment, willingness to take risks, and the circumstances that come your way.

One word of advice: beware “equity paralysis.” I’ve seen entrepreneurs stall their business to keep as much equity as possible. It is better to own 10% of a $10,000,000 company than 80% of a $1,000,000 company. And if your idea needs to come to market quickly, giving up equity may make sense if it will buy speed.

You need a product or service

Most entrepreneurs start with a product or service idea. Make sure that your idea fills a real market need. Better technology rarely wins in the marketplace. It must meet a real need, and must be marketed in a way that the customers are willing to buy it.

In fact, you don’t always need a new product category. Microsoft was a late entrant in window systems, spreadsheets, word processors, and presentation software. Yet they virtually own those product categories.

Without a product or service, it is harder to raise money or a team. But even so, some entrepreneurs raise money for a “search fund,” where they take a year to find a business to buy or a product idea to develop from scratch.

If you plan on raising venture capital funding, you will find that products/services that alleviate customers’ pain are easier to fund than products/services that simply make life nicer. In general, people buy immediately to eliminate pain, while they are less urgent and motivated to make things better. A leaky roof gets patched before a homeowner adds ornamental trim.

You need a business model…

This article is continued in the “Entrepreneur’s Companion” volume 1. Click here to purchase.

This article was posted on Wednesday, April 5th, 2006 at 9:03 pm and is filed under Entrepreneurship.

Sign up for Stever’s newsletter.
Email Name

Back to Stever's articles index