Startup lore is filled with stories of heroic underdog entrepreneurs with unconventional ideas who silenced their haters, riding market forces that others seemingly couldn’t see, and taking their place in the pantheon of startup greats.
Many believe that coming up with a winning business idea is an act of divine inspiration, and it’s easy to see why. But the reality is that coming up with ideas for winning businesses is about as mystical as baking a cake. If you know the right recipe, anyone can do it.
So how do you consistently dream up successful business ideas? Certain kinds of ideas, and certain ways of generating them, are much more likely to succeed than others.
Below, I’ll share a handful of methods that are simple, effective and impactful. These have all been learnt and honed by Rainmaking Venture Studio, where we have built 65 startups with Fortune 500 partners and invested in thousands more.
The essential ingredients
Most business ideas begin in one of two places, either by solving an observable problem or by building a vision of the future. Good business ideas do both, they solve a problem and build toward a vision of the future.
The very best ideas, however, solve a problem, build the future, and capitalise on the individual strengths of the founders and team behind them. Let’s discuss each of these ingredients and how they make a recipe for great ideas.
Ingredient 1: Solve observable problems
Great startup ideas begin with a specific problem to solve.
Much of our time at Rainmaking Venture Studio is spent looking for big, important problems, and then taking deep dives to understand the needs of different stakeholders surrounding those problems. There are a few approaches that both aspiring startup founders and large organisations can take to find the right problems to solve:
Build what you wish someone else would build for you
Starting with a problem you have personally is one of the most productive ways of generating ideas. Not only is it a great source of ideas, but you have the benefit of starting with yourself as a customer from day one. Get in the practice of noticing when something is frustrating and wondering, “why do I have to do it this way?”
Internal frustrations are also a great source of ideas for corporate ventures. Amazon Web Services famously started as an internal solution that made it easier for IT teams to launch new web servers. As of writing this, AWS generates 13 per cent of Amazon’s total revenue and 100 per cent of its operating income.
Look into industries that seem broken
Industries that are inefficient or outdated are ripe for disruption and change. Looking into these industries for problems and inefficiencies is a great starting point for startup ideas.
Rainmaking has built a large number of ventures in industries such as construction, logistics, and energy precisely because they largely have not been updated for the digital age and one can observe many inefficient, manual processes that are generally accepted as the status quo. While most people may see the challenges, few believe that there could be a solution because it can seem that things are simply “stuck” the way they are
The cash advance lending industry is another example of such an industry. Jake Hill, founder of the startup DebtHammer, realised that payday lenders regularly overcharge borrowers in interest and the legal costs of disputing it are often more than the loan itself.
Also Read: 9 steps to create a successful product launch strategy
Most accept this as an unfortunate and unavoidable side effect, but Jake decided to dig deeper under the surface and realised that the actual legal process for disputing is itself not very complex, and could be done without a lawyer, but most people simply do not have the time or know where to find the right information.
He then designed a way to automate the dispute process to bring down costs and then set borrowers on an attainable plan to get out of debt.
Ask people what is most stressful and painful about their lives
This strategy involves asking people questions about their lives to discover the challenges and problems that they face. The challenge with this approach is that people do not naturally talk about their problems, in fact, many people are not aware that they have challenges at all. They have simply accepted the status quo.
Sometimes we can ask directly and people will point us to their challenges, but more often, we need to look for clues that indicate people have an unmet need.
For example, where are they hacking together their own homemade solutions? What do they spend significant amounts of time on despite them viewing it as low value? Likewise, where do they hate spending money but have to anyway? What behaviours or tasks do they ritually repeat, and most importantly, why are they doing them?
Caution! Pitfalls ahead
These are three reliable ways to generate ideas based on problems. But even following these recipes, there are several common mistakes I see founders and venture teams making.
The first pitfall is choosing a problem that isn’t big enough. A large number of people need to have the same problem or the problem needs to be of a significant cost for each person for there to be a compelling market opportunity for the solution. There’s a gap in the market, but is there a market in the gap?
When looking for a problem to solve, many people already have a solution in mind. While having a hypothesis is useful, being too closely attached to this solution can close them off to other potential opportunities that are much bigger, more compelling, and much more attainable.
We call this a ‘solution looking for a problem’. Unfortunately, only a small per cent of these solutions ever find their problem, and too many hours and dollars are wasted chasing shadows.
The third pitfall is not going deep enough on the problem to really understand it. By no means does this mean exhaustive, lengthy, academic research, quite the opposite, we want to move fast. But very few problems are shallow.
Most have deep roots and we need to understand those roots if we are to really nail the customer problem. As they say “a stitch in time saves nine”, and an investment of time upfront almost always pays dividends later down the line.
Ingredient 2: Build a vision for the future
But what about those more revolutionary, unconventional, “spark of genius” ideas? Instead of narrowly focusing only on the problems of today, forward-thinking startup founders can form a thesis about what is likely to happen in the future, and anticipate the second and third-order effects many steps ahead.
By looking at trends in technology, macroeconomics and society, one can identify ‘signals’ of what the future holds and then imagine different scenarios that might play out. These scenarios are the spark of inspiration to imagine businesses that could either create new value or solve problems in the future. This approach is often referred to as ‘Futures Thinking’. Let’s look at an example in action.
While working in the energy utility industry, Fabian Le Gay Brereton realised that the direction of change for the energy industry meant a massive shift away from fossil fuels toward distributed solar panels and batteries.
While that might be a widely held view, few people have thought about what that transition will mean for society and the energy industry. Instead of selling and building static power plants, power companies will need to design small, interdependent systems that dynamically communicate and send power when and where it is needed. This is no easy thing to design when all of the current engineering & pricing models are based on an old paradigm of centralised energy generation.
Also Read: Guide to successfully start realising your product ideas
In anticipation of this paradigm shift, Fabian built Gridcognition, an analytics software that helps renewable energy developers design and optimise distributed energy systems. Fabian began building the solution in 2020, and if he had asked developers then whether they needed a powerful software to design renewables systems they would have said that all they needed was a spreadsheet. Fast forward just two years and Gridcognition is seeing adoption from the world’s largest solar power developers.
For corporate ventures, however, this approach can be more powerful and more challenging. On the one hand, corporations start with a massive advantage, they have established scale and competitive advantage that ought to enable them to dominate emergent sectors of the market with ease.
On the other hand, their existing assets and footprint create conflicts of interest. If a future scenario is likely to undermine my core business, why would I want to invest in that scenario and accelerate that threat? This is what Clay Christensen famously dubbed the ‘Innovator’s Dilemma’.
The great thing, even for corporate teams trapped in this dilemma, is that anyone can learn to practice Futures Thinking. All it requires is observation, imagination and maybe a little courage. Amy Webb from the Future Today Institute has great perspectives on trends of directional change and many resources that show you how to spot ‘signals’ of what is coming.
Focus on what is probable, not just possible
On the other hand, it is easy to make mistakes on timing when painting a vision of the future.
For example, if we look at the impact of artificial intelligence on cars and self-driving capabilities, one probable future is that all cars in the future will be capable of self-driving.
One possible result is that nobody will need to own a vehicle because autonomous fleets of cars will drive around the city and pick us up whenever we need as a concierge batmobile. Many startups in the past 10 years have bet their future on this reality.
Unfortunately, a great many of these startups radically underestimated the timeline of this future and underestimated the human desire for ownership and hoarding. One day, perhaps none of us will own cars.
But that day is not today and it does not appear to be very soon. The result is that the future painted by these startups is taking far too long to reach, and they are running out of cash long before the world catches up to their vision.
Ingredient 3: Play to strengths
The final recipe is to leverage personal strengths as the bed of knowledge to generate winning ideas. Successful startups will have a strong team-solution fit to do exactly that.
A strong team-solution fit means having a founding team of uniquely qualified individuals who are able to use their personal strengths and knowledge to identify the right challenges to solve, with the skill sets to develop the solution. The strengths of the team can range from industry experience, such as renewable energy, to personal passions, such as stamp collecting.
Playing to strengths is equally important for corporate ventures, but rather than the strengths of individuals, organisations should look more broadly at core assets & capabilities that could provide a competitive advantage.
Here’s an example:
One of our corporate partners is one of the world’s largest renewable energy producers. They have a world-class ability to deploy project-based financing and have a strong balance sheet on which to finance infrastructure assets. So, we asked ourselves how could we apply this strength to a market that is outside the organisation’s core business and what other kinds of infrastructure could be financed?
The result was an IoT startup that helps restaurants save energy. The startup benefits from using the corporation as a project financing partner to invest in IoT hardware. The corporation, being a Fortune 500 company, has a cost of capital lower than the startup or its competitors could achieve on their own, giving the startup a significant competitive advantage.
Don’t overlook intangible soft strengths
Especially when working with large organisations, we find that people tend to identify and value hard strengths, such as physical assets and technical capabilities, more readily than the less tangible “soft” strengths.
Soft strengths are anything which could be advantageous that cannot be physically or legally transferred, for example, consumer trust, networks of people and partners or a unique perspective on a market. While the intangibles might be more difficult to identify, they are no less useful for generating ideas and can be powerful boosters for new ventures.
Also Read: How to pursue a product idea into a successful business
When looking for soft strengths that we could leverage with corporate partners, we always ask a few questions to help tease them out, what is the mission of the organisation and how could it galvanise internal support for a new venture with a similar mission?
What groups of people outside the company does the organisation’s network provide access to and how could they be potential customers, collaborators or supporters for a new venture? What is the brand known for and how could we bring the same values to another niche or sector?
Pull it all together
The very best businesses are those that can pull on all three recipes; they solve an observable problem, have a bold vision of the future, and play to strengths.
Stripe, the unicorn online payments company is a prime example. The founders, Patrick and John Collinson, were working on several internet startup ideas prior to Stripe and wondered why it was so difficult to accept payments online. They had found a problem worth solving.
At the time, the online payments market was not particularly large, and seemingly well covered by companies such as PayPal. But, the Collinson brothers believed that a mainstream shift to online commerce was coming soon and that solving the friction with payments would unlock a massive new market opportunity. They had a vision of the future.
The brothers are both engineers with the technical know-how to personally build the solution. They played to their strengths. Stripe is now a market leader in online payments and is still growing at nearly 50 per cent a year.
It can seem that good ideas are difficult to generate. Actually, they’re easy to find, because there are many, many problems in the world, and more avenues to shape the future than ever before. If you’re having trouble finding them, it’s just that you haven’t yet learnt the right recipe.
Once you learn how to notice good startup ideas, you’ll see them all over the place.
This article is written as part of the Corporate Venture Launchpad programme. The SG$10 (US$7.5 million) million pilot programme by EDB New Ventures aims to enable large, established companies new to corporate venture to launch a new venture in Singapore within six months.
–
Editor’s note: e27 aims to foster thought leadership by publishing views from the community. Share your opinion by submitting an article, video, podcast, or infographic
Join our e27 Telegram group, FB community, or like the e27 Facebook page
Image credit: Canva Pro
The post How to generate winning startup ideas appeared first on e27.