How to find a good business idea
Finding a good business idea involves much more than coming up with something brilliant and then taking it to market. You’ll need to understand specific challenges facing various industries, develop and de-risk your ideas, and be ready to pivot your would-be company.
Fraser Pogue, Leader of the Entrepreneurship and Innovation Group at UBC Sauder School of Business; and Guillaume Campeau, Program Director of La Base, the entrepreneurial hub at HEC Montréal, detail some of the fundamentals for finding a good business idea, developing it and then turning it into a viable and profitable business.
Identify pain points
A good business idea has its roots in specific problems facing an industry. These are referred to as pain points.
Pain points are problems waiting for solutions. Whether it’s a tedious task or an unmet need, solving these issues can lead to viable business ideas.
Campeau advises would-be companies to find a real problem that needs to be solved for the public or for a specific industry, get to know the problem inside and out, and then “fall in love” with it.
“By becoming an expert on it, you can come up with different ways to solve that problem.”
Get out of the building and go talk to potential customers. Ask them if their industry has this problem.
Fraser Pogue
Leader, Entrepreneurship and Innovation Group, UBC Sauder School of Business
Test out your business idea by asking people their opinion
Both Pogue and Campeau emphasize the importance of canvassing opinion for your business idea.
“Get out of the building and go talk to potential customers. Ask them if their industry has this problem,” says Pogue, who was previously head of UBC’s CORE business incubator (now Venture Founder) as well as an entrepreneur.
He suggests tracking people down at conferences or LinkedIn and then inviting them for a 15-minute conversation.
“More often than not—as long as it’s not a sales call—people are willing to meet.”
He says you need to find out the following from them:
- Has their industry been looking for a solution?
- Do they have the budget for something like this?
- Are they and their industry ready for a change?
Campeau says that by asking for opinions and being ready to change, founders will “de-risk” their business ideas.
“Talk to as many people as possible who are facing the issues you’re working on. Ask people about their interest in the idea and then be open to pivot, to iterate, to switch to another idea or to refine that first idea.”
Important questions to ask about your new business idea
Is it viable?
Are you able to build a business model that outlines your strategy and goals? Do you have a model that’s going to generate more revenues than expenses?
Is it feasible?
Do you have the right team? Do you have the right resources? Can you earn enough revenue early on?
Is it desirable?
Does your idea correspond to customers’ needs? Have you found a target market interested in paying for what you’re offering?
Is it scalable?
Can you a build product that will make money? Will there be enough additional revenue and investment to grow your business? If you have steadily growing sales, will you have the infrastructure to deliver on those requests?
Is it profitable?
Are you developing a solution that meets the needs of a significant number of people? Are there enough people willing to pay for this solution?
Is there a high value proposition?
How much money does your product or service save? Can its advantages be measured in time? Will this be a 10% improvement over what’s currently available on the market or is it closer to 100%?
Is there a healthy conversion rate?
Campeau measures a business idea’s potential through a series of percentages, with those percentage being the number of people who will remain interested as you ask them for more commitment.
“Keep in mind that this is an estimate but you’ll need about 75%-90% positive feedback over the phone. If you then ask them about doing a pilot or demo, or exploring the product, that 75% is going to drop down to 25%. And then if you ask them to hand over some money, that 25% is going to drop down to 5%,” he says. “You need to find the industry where those conversions remain high.”
If business ideas were worth something, we could buy them online. It’s all in the execution, the team and the external validation.
Guillaume Campeau
Program Director, La Base, HEC Montréal
Focus on execution
It’s not the actual business idea that’s valuable, it’s how that idea is brought forward, says Campeau, who is also a lecturer in HEC Montréal’s Department of Innovation and Entrepreneurialism.
“If business ideas were worth something, we could buy them online.” he says. “It’s all in the execution, the team and the external validation.”
Be open to the unexpected market niche
Pogue tells an anecdote about a group of PhD students at his school who were wondering what industry would benefit the most from their innovation in the field of wireless power transfer (the ability to power up a device without any physical wires).
Their first inclination was to look at the makers of phones, bicycles and automobiles. However, the students would end up settling on a less obvious area: solar panels.
“They’re prone to failure,” says Pogue, about the solar devices. “When one goes down, you can lose up to 20% of the energy being generated on that solar panel. That’s more of a problem in that industry than what you see with phones, cars and bicycles.”
He said the students found out about this after talking with people in their networks. “It wasn’t something top of mind, but they got there by going out and just talking.”
He brings up another discovery of an unexpected niche, that being the messaging app, Slack.
“The company was building a video game and created Slack as an internal tool just to help them out. And then when the video game folded, they said, ‘Why don’t we try commercializing this?’”
Pogue says finding the niche for your business idea, whether its about solar panels’ unreliable energy transfer or the chaos of too many team chats, is about discovering who really lives with a problem that can be alleviated with your innovation and if they are ready to spend money on it.
Think about future problems
Many entrepreneurs with business ideas tend to look at current pain points, but there is also potential in future problems.
“It may feel hypothetical, but if you get it right, you’re going to be one of the first movers in that space,” says Pogue.
He says sometimes the problem may be current but can take many years before someone is ready for your solution. He brings up the problem of plastic waste.
“You might have created a new enzyme that breaks down plastic waste, but will the city of Vancouver start using it tomorrow? Probably not,” he says, adding that your return on investment might also end up in that future realm.
Use regulatory changes to your advantage
Regulatory changes can propel a business idea. Whether it’s the legalization of cannabis or the ban on plastic straws, says Pogue.
He suggests would-be entrepreneurs explore them, as well as what are referred to as “wicked problems,” those big, global challenges that seem to be unsolvable, such as childhood obesity in the West or access to water in some developing countries.
“Entrepreneurs can access funding for these,” he said referring to organizations such as the Bill & Melinda Gates Foundation. “You can look at these wicked problems as a source for your ideas, as well.”
The beachhead strategy: a case study
A Canadian entrepreneur wanted to develop a type of almond milk that would satisfy coffee baristas looking for plant-based milk that can foam as well as regular milk. She had spoken with baristas who told her they were frustrated by what was available on the market.
She decided to focus on a very specific group of customers: independent coffee shops.
“Beachhead marketing is about starting small,” says Campeau. At war, ships choose a beach to land on before going further. In business, you sometimes need to do the same thing.” He adds that a beachhead approach allows you to gain traction, develop clients and earn revenues. “Then you can go talk to investors with more credibility.”
The almond milk company, one of about 700 that has sought out advice from Campeau’s business incubator at HEC, did not begin by approaching major grocery and coffee chains. Instead, it started small, attracting the interest of the independent cafés looking for this product.
The company did not even develop a product: the owner, simply talked to baristas and collected numerous letters that said if the company could actually develop the right almond milk, they would guarantee that they would become regular customers.
That support convinced initial investors to give the company money to develop the recipe.
Today, more than six years after those letters of intent, the company has become a successful producer of almond milk for the “latte arts” baristas and has made inroads into the larger grocery and mainstream café sector.
Find a local business incubator
Incubator programs can help take business ideas further and can also offer some sober second thought on businesses that don’t appear viable. They also help investors find business ideas that have gone through some vetting and de-risking.
Pogue says his incubator at UBC brings into the same room investors, mentors and start-ups and helps new entrepreneurs learn the language investors speak.
“You know, they’ll say things like, ‘We’re expecting an ROI (return on investment) of 10X and I’m expecting the competitive analysis to be this and I want your value proposition to be a 4X.’ Usually entrepreneurs early on have not developed that type of language yet,” he says.
He said the incubators push entrepreneurs to get pilot projects launched and letters of intent signed. They also focus on ensuring they’ve got a small list of customers who are willing to partner.
“The investors will then say, ‘I understand what you’re doing now.’”
Know what can and can’t be patented
Patenting protects your business idea from being copied but not all ideas are patentable. Patents protect inventions that are new, useful, and non-obvious, with different types of patents protecting different types of innovations, such as utility patents, design patents and drug patents.
Business ideas cannot be patented but business solutions can.
“A lot of our entrepreneurs will own intellectual property (IP) because of their business idea but only once they developed a technology around a solution,” Campeau says. “A business idea is not really worth anything. It’s the technology or the product you’re developing.”
Next step
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