Creating a New Business

December 14th, 2009 by Shaun McNerney Leave a reply »

Note: This is Part 1 of a 3 part series — Part 1 | Part 2 | Part 3

One of the hardest things to do is to come up with a compelling idea for a new technology business. Here is the process that I use to help uncover hidden opportunities.

  1. Identify Fundamentals
    • Asset or Baby Business
    • Product or Service
    • Better-Faster-Cheaper or Brave New World
  2. Collect Ideas
    • You
    • Your Company
    • Customers
    • Emerging Trends
  3. Fail Fast
    • Prototype The Business
    • Test The Market
    • Time – The Most Precious Resource

Identify Fundamentals

Before you can start to evaluate new business ideas, you need to create a foundation for yourself. One way to create a foundation is to establish a few ground rules – a few business fundamentals.

Asset or Baby Business

The very first thing you need to decide is whether you want to create an Asset Business or a Baby Business. This is important because it influences every other decision that you will make.

I tend to favor asset businesses. In the world of technology, I think asset businesses have a greater chance of a big success.

If you like to have total control or you don’t like working for someone else then you should consider a baby business.

Note: You can read more about this topic at “Your Business – Asset or Baby?.”

Product or Service

Are you going to sell a product or a service? For technology businesses, products include hardware, software, and software as a service (SaaS). Services typically include various forms of consulting.

If I have a choice, I would choose Software as a Service (SaaS). I like SaaS because it generates reoccurring revenue, has a lower barrier to entry, and there is no inventory to maintain. The downside to SaaS is that it takes time and resources to build the reoccurring revenue stream.

Service businesses (aka consulting) are great baby businesses. The path to revenue is immediate. The problem I see with service businesses is that they really don’t scale well.

Switching from a service to product business is tough. I have seen several service companies fail when they try to switch to a product business. A venture capital investor friend of mine (Craig Dawson) summed it up best – “Consulting deals are like doing drugs. Once you start you can’t stop.”

Switching from product to SaaS is a challenge as well. My first company (TellSoft) started as a product company then transitioned to a SaaS (we just didn’t call it that in 2000). TellSoft encountered several problems because one of their business fundamentals changed. This is why it is so critical that you decide product or service right away.

Better-Faster-Cheaper or Brave New World

To be successful, a new businesses needs to be either Better-Faster-Cheaper (BFC) or Brave New World (BNW). Choosing one over the other affects the potential success capability. BFC businesses are more likely to succeed (they are tapping into an existing market). BNW businesses are more likely to grow faster (first to market).

Many BFC companies are the second company to enter a market space. Second companies can be more successful than the first company. This is because the second company doesn’t have to educate customers and they can replicate and enhance the first company’s products.

BNW businesses are pioneers, trend setters. Done right, BNW business can be very successful for a long time. Done wrong, they can be big failures.

I tend to favor a BFC business with a BNW twist. It is hard to find a compelling Brave New World idea. It is much easier to find an early stage market opportunity and then build a BFC offering with a BNW twist. The end result is a better product than is offered by the current market leader.

Continued …


Shaun McNerney

Note: This is Part 1 of a 3 part seriesPart 1 | Part 2 | Part 3

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