The wind beneath the wings of New Zealand’s angel community, Ken Erskine talks about what makes a compelling, investable business.
You’ve seen lots of ideas for startup businesses come and go over the years. What factors have you observed make for a good business idea?
A good business idea can often be one that initially you’re not really sure if it’s a great idea or a really bad one – it’s usually one that is something in between. What I mean by that is if something’s a really great idea then the obvious question is ‘why hasn’t someone done that before?’.
The opposite scenario is also true – if it’s a really dumb idea, then there’s a good reason why no one has done it. So it’s that area in the middle where I generally see the best ideas coming from.
Often those ideas are also inspired by people’s insights gained from working in or around a particular industry or market. The mad inventor-style ideas – the random ones that just pop into someone’s head in the middle of the night – are generally the ones that are really hard to commercialise without that previous understanding of how the existing market behaves and operates.
When asking people to adopt any new idea you’re asking them to change their current behaviour, and getting them to do that comes down to how compelling a proposition you have to meet their unmet need or want.
The other thing about ideas is you have to understand the time and money it takes to get a new idea to market.
Therefore having an innate knowledge of what the latest trends and developments are in the marketplace, and trying to move ahead of the curve to where the market is going to be – not necessarily where the market is today – is really important.
What are the key factors for taking an idea and turning it into a viable business?
The key thing first of all is to validate the idea and establish if there is true a market need. One of the typical things that people who haven’t started a business before will say is ‘first I need to patent my idea’ and they can spend a fortune doing so.
My suggestion for non-research intensive ideas is, before you invest money on patenting your idea, first of all establish if there is a real market opportunity for it. You don’t need to say what your invention is – you can go out and ask open questions about the market or the need – but there’s no better time to establish if there’s a real opportunity than before you actually build or develop the thing.
Also, an idea on its own is never enough. Very rarely does anyone have a unique idea that no one has had before, so part of the challenge is doing something with it in an appropriate manner. As an entrepreneur it’s really about keeping that balance between dogged determination and resilience, and knowing when to say ‘I’m not getting enough traction, let’s move on to the next idea’.
What I really like to see is a business that’s trying to move towards break-even or commerciality as quickly as it can. You may be commercially sustainable on day one, but it’s important to always have a keen eye on how you get to a point of being cashflow positive. Because without customers and money what you can have is a really expensive hobby. And there’s nothing wrong with having a hobby as long as you realise that’s what it is.
Some entrepreneurs have really interesting back stories to their ideas. What role do you think having a great ‘story’ behind an idea makes?
Every startup needs to have its own story and that story has to resonate. So I think it’s fundamentally important as a way to communicate between the founder and potential partners or customers. People love stories, but a key thing to understand is you have one mouth and two ears; you want to use your story to engage in a dialogue, so you can bring others along on the journey.
What’s a key piece of advice you’d have for anyone looking to turn their idea into a real business?
While the idea is key and a catalyst to get you started, it’s what you do with the idea that makes the difference. Thousands of people have a millions of ideas every day; it’s what you do with that idea and how you bring it to life that’s most important. In business, that involves relating your idea to potential customers and markets and allowing others to join in your idea and share it and help you develop it to meet their needs.
Coming up in Your Business: Etsy is a massive global marketplace to buy and sell all things homemade. So what are some of the great Kiwi businesses making a living out of selling on this platform? If you’ve got a story to tell on growing a small business through Etsy, drop me a note: [email protected]