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Do I need a new idea to start a business?

The inspiration of an idea leading to a new business
The inspiration of a new idea

Do I need a new idea to start a business?

Aspiring entrepreneurs often ask the question “Do I need a new idea to start a business?” The question raises some interesting issues about the role new ideas play in business generally and in startups in particular.

Type of startups

In my last blog I mentioned that you could say there are broadly two types of startups. Firstly, there is big idea startup (also called the “true startup” by Peter Thiel, the PayPal co-founder). Secondly, there is the “ordinary”startup.

The big idea startup is based on a revolutionary idea that will result in a very big business, which will become a virtual monopoly. The ordinary startup is the run of the mill “me too” type of business, usually found in well established industries. Obviously, ordinary startups are, more common than big idea ones.

A new idea

If you hope to launch the big idea startup, you obviously need to have a big idea. This big idea will usually also be a new idea. But, what exactly is a new idea?

I have been reading a very interesting book by Matt Ridley called How Innovation Works. Please see: https://www.forbes.com/sites/cognitiveworld/2020/06/01/how-innovation-works/#61390e007ea9

In the book Matt explains how business ideas are generated. He also examines the people who have come up with them. Furthermore, he looks at the people who have implemented the ideas.

Matt calls the first group the inventors, and the second he calls the innovators. He notes that sometimes, but not very often, they are the same people.

Matt believes that innovation is a mysterious process. He suggests that the formation of new ideas results from a cumulative effort through the cooperation of associated individuals. Consequently, ideas are passed from person to person with incremental changes being made on the way. Their final form is often dependent on the corresponding advance and availability of new technology.

Moreover, he suggests that nothing is actually completely new and there is seldom a eureka! moment (in the bath or elsewhere), or an apple dropping on a head.

The passing on of ideas

Although Matt Ridley is concerned with business innovation and ideas, the same process in passing on ideas and building on them can be seen in the artistic world. The novel just didn’t appear fully formed in the nineteenth century. It was adapted and developed from what had been written earlier. No single author can claim to have “invented” (or had the new idea) for the novel. It was a cumulative process with authors copying and building on previous genres.

Similarly, in music, although there are many candidates, no one can say who invented rock n’ roll. Was it Bill Haley, Little Richard, Elvis, or Arthur “Big Boy” Crudup?

I’m sure we all have our opinions, but if I had to choose I would go for the Big Boy.

What is a new idea?

If we assume there are no completely new ideas, it doesn’t mean that there are no new ideas in the way we usually understand the term. On the contrary, there are thousands of new ideas generated everyday. There are thousands of ideas that those who have them think are new. Or put another way, thousands of ideas that are incremental but important advances on other previously known ways of doing things. The last description of a new idea is the one I think works best.

This has been succinctly put by the person who said “Better is better than different.” In other words, it is enough to be able to undertake business tasks in a better way (quicker, cheaper, cooler, friendlier) rather than inventing a new way of doing things. If you new idea is the newish way of doing things, this could be enough.

Doing it in the same way

In reality, despite all the focus on new ideas and innovative technology (and the glamorisation of entrepreneurship), millions of businesses start up all over the world without the owners having any new ideas in any sense of the words. These are the ordinary startups that occur in “ordinary” businesses. These include businesses such as retailing, hospitality, small manufacturing and distribution, etc.

Not only are there no new ideas utilised in these businesses, the owners are probably not doing anything in the business much better than their competitors.

These me-too businesses are doing things in the same way as the thousands of other me-too businesses all over the the world. Unfortunately, however, there is a distinct disadvantage in this approach, namely approximately 60% of them will fail within three years

Answering the question

Politicians are often (rightly) accused of answering a question that has not been asked. Not wishing to make this mistake, I will answer the original question “Do I need a new idea to start a business?” in the negative.

However, I suggest that a more relevant and useful question would be “Do I need a new idea to start a successful business?” The answer to this is yes. But only if by “new idea” we mean either a clever adaption of an existing idea, or a better way of implementing the original idea.

And I thank Matt Ridley for helping me to reach this conclusion.

Free help

You can bet your business idea analysed for free by going to:  https://www.freeforumofideas.com/free-help/business-analysis-form/

Further reading

Please refer to https://www.freeforumofideas.com/blog/i-have-a-good-business-idea-but-i-havent-got-an-idea-about-business/

and https://www.freeforumofideas.com/faq/3-how-do-i-know-whether-my-business-idea-is-viable/

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“Pioneers end up with arrows in their backs”

Pioneer’s home in Utah

I came across this saying “Pioneers end up with arrows in their backs” when reading about the risks of starting a new business and it got me thinking about the myths and reality surrounding startups and entrepreneurship.

Conventional wisdom

Conventional, often glamorised writing on startups is usually along the following lines:

  • Find a great new business idea, which you are passionate about
  • Be clear about your target audience
  • Build suitable customer “avatars” (i.e. your perfect customers) for your target audience
  • Get direct feedback from your avatars, to ensure your great business idea fulfils their needs
  • If all is positive – launch your business
  • Maintain your passion; work hard; huge financial success will surely follow!

Another view

In reply to the question “How should I start a new business in 2020?” from an obviously young enquirer, I was interested to read a rather more prosaic answer, which went as follows:

  • Don’t try to come up with a great business idea, or a hot new product
  • Remember, “Pioneers end up with arrows in their backs!
  • Rather … get a job first
  • Then become good at it
  • Then start a business selling to the clients from your old job
  • You don’t have to be passionate about your new business – you just have to provide a product or service people want
  • Ideas are not important; everyone has ideas; execution is what matters

What is a startup?

Before trying to decide which of the two startup scenario discussed above is the closer to reality, it is worthwhile trying to define what we mean by “a startup”. This will help us establish whether the writers with the apposed ideas are talking about the same thing. (We will call the two types discussed “big idea startups” and “ordinary startups”.)

One of the more famous entrepreneurs of our times is Peter Thiel, https://www.forbes.com/profile/peter-thiel/#30d1989a533a a joint founder of Paypal and now a writer and billionaire investor. Thiel’s best known book is Zero to One in which he says:

  • You must distinguish between new business ideas, which are a dime a dozen, and true startup ideas
  • True startup ideas are those that solve big, important problems by doing things in an entirely new way, instead of only making incremental changes (that is not just doing the same thing better or differently)
  • A true startup idea will lead to a business that will truly dominate the market and likely turn into a monopoly

Peter Thiel’s definition of a true startup falls clearly within our big idea type. He doesn’t say what he calls the other type.

Defining a big idea startup

To decide whether your business idea could become a true startup or not, Thiel suggests the you should ask yourself the following questions:

  1. What valuable company is nobody building?
  2. Can you create breakthrough technology instead of just incremental improvements?
  3. Is now the right time to start your particular business?
  4. Are you starting with a big share of a small market?
  5. Do you have a way to not just create but deliver your product?
  6. Will your dominant market position still be defensible in 10 and 20 years time?

New idea or same as?

The vast majority of new businesses arise not out of great new innovative ideas, but are merely “same as” entrants into existing industries: these are what we call the ordinary startup. It is clear that while they are not the big idea startups in Peter Thiel’s sense of the word, they are, of course, startups in the conventional sense of the word.

But is there a useful distinction to be made here or are we merely falling into semantics? To my mind an important distinction does exist and it is in trying to establish if there are different levels of financial risk between the two types.

Underestimating risk

The person who wrote “Pioneers end up with arrows in their backs!” suggested that there is more financial risk in big idea startups than in ordinary ones. But, is he correct?

A great deal of writing glamorises startups (especially on the internet) and highlights the financial reward while downplaying the risks. This writing usually does not overtly distinguish between ordinary and big idea startups but, by its tone and glamorisation of big idea entrepreneurship, it implies that failure is less likely with the big idea startup and that most entrepreneurs end up rich and famous – the rock stars of the business world.

Common sense, however, would suggest that the ordinary startup in existing, well-established, well-trodden industries would be the less risky proposition, while accepting that, unfortunately, its proponents are less likely to become rich, famous and involved in rock and roll!

The facts

There are no statistics I know that break down startup failure rates between the ordinary startups and the big idea ones. We only know that the overall rate of failure for all startups is an alarming 70% to 80%.

One problem in trying to distinguish risk between the type of startups is that failure rates will be influenced as much by the types of people that start up businesses as by the type of businesses that they are starting up. It is possible that less talented people start up ordinary start up businesses.

So, do all “Pioneers end up with arrows in their backs?”

Ultimately, it is probably more correct to say that all startup entrepreneurs are likely to get arrows in the back, than to say it is more risky for one type of startup than the other. What is certain is that entrepreneurship (whatever type of business you start) is not so much glamorous as hard work.

However, as successful entrepreneurs will tell you, it is all worthwhile in the end!

Free help

You can get your business idea analysed for free by going to:  https://www.freeforumofideas.com/free-help/business-analysis-form/

Further reading

See alsoFAQ 3.4 and https://www.freeforumofideas.com/blog/do-i-need-a-new-idea-to-start-a-business/