Starting a business
A student asked me: “It is easy to talk about startup but it is difficult to come up with a new idea and apply technology to support it. How do we get the new business idea? Please advice.”
Answer: Business idea is not as difficult as you think. Just look at all the problems that you see around you every day and consider each problem is a new business opportunity. A common person may see them as problems but entrepreneurs always see them as opportunities; and that is the difference between the two. By understand the problem you also think about a solution. You can ask yourself how to solve it and how to use technology to enable it, and then you have a good business idea. From this idea you can develop a business model and validate it with customers. If it is favorable, you can start a new business.
Starting a business is not difficult because people start business all the time. There are over a million businesses starting every year. In the past, startup’s success is often depending on “luck”. Today starting a company is a scientific method with defined process to ensure that it has the best chances to succeed. That is why entrepreneurship and startup are taught in universities as a field of study. As a scientific process, you should start with a vision and a business model to identify your strengths and weaknesses then go through a market analysis to validate your model. As entrepreneur, you follow the defined guidelines and business rules to start a company. You do not follow any fashionable trend or an emotional urge to imitate someone. The best business ideas does not have to be something completely new, it often involve improving something that is already exist in the market by doing better, faster or cheaper.
Let’s imagine that you go to a store to buy something but are not happy with the way the store operates. Instead of being angry, you think about what you can do better. This is what Sam Walton did when he went to a retail store to buy something that the store has advertised. The store already sold out the product so they told him to go back in the next few days when new products may arrive. He went back but the store still did not have the merchandise. He came back several times but each time the store did not have it. He found out that the marketing people who is in charge of advertising; the store managers who is responsible for selling; the warehouse manager who is responsible for ordering, and the supplier who builds the products did not communicate with each other. All of these functions were completely independent and managed at the top level of the company. The executives were too busy with something else and not paid attention to the company operation. The products were advertised and sold out but nobody told supplier to produce more; no one told the warehouse to order more; and the store clerks kept telling customers to come back.
The disconnection among key functions of this largest retail company gave Sam Walton an idea on how to fix it. He thought about how to connect and integrate all of these functions together. However at that time (1970s) computer was not used in retail industry. Mr. Walton developed a business model on how to automate everything for a retail store. He was the first person to apply information technology to automate retail business. His store Wal-Mart used computer to track and monitor all products sold and kept inventory of everything in the warehouse. When the Internet came in 1990s the company was ready and everything was fully connected. Wal-Mart was the first retail companies that have an Enterprise Resource Planning system (ERP) fully integrated with Customer Relationship Management system (CRM) and Supply Chain Management system (SCM). Mr. Walton sets specific rules: “Make sure that store shelves never empty but always full of products to sell; Customer never leaves the store without buying something that they come for; and always having the lowest price possible.” The integration of all IT systems allowed Wal Mart to be more productive than his competitors. Instead of inventory, product sales were immediately checked at the cashier by computer against the number of products in the warehouse. If the product fell below a set level, computer immediately contacted supply companies and ordered them to ship automatically. Everything in the store was fully automated to the lowest level of detail. Within ten years, Wal-Mart becomes the largest retail stores in the U.S. and Sam Walton become one of the richest people in the world. Today Wal-Mart stores are expanding all over the world as the largest and most successful business in history.
Many people dream of starting a business but never do anything. Most are afraid of failure but an entrepreneur must be willing to take risk and using failure as a lesson to be learned. Steve Jobs said: “You cannot go home and feel bitter about yourself, if you fail, try and try again until you succeed.” At that time, he was “Fired” from the company that he started, he was not bitter or angry but using that as a lesson to prepare himself for the next opportunity. That is why he came back and rescued his bankrupted company and made it the most successful company in the world. It is also important to note that Steve Jobs did not invent the personal computer, he made it popular; he did not invent the computer mouse, he made it an useful devices; he did not invent the iPod, he make it so easy to use; he did not invent the iPads, he created a need for it. All of these things have been invented by somebody before but they did NOT see the opportunities that Steve Jobs saw. An entrepreneur is someone who has vision, understands a good opportunity and seizes it.
In my entrepreneurship class, I often ask student to look at problems that they see around them to generate business ideas. When they begin to identify something and discuss that in class, many start to understanding the needs and opportunities then most tell me that they feel more confident about starting the business. Of course, some are hesitating about starting a business during a recession when many businesses are closing. I told them that recession time is the best time to start a company because there are fewer competitors.
Starting a new business often does not require a lot of money. The most important thing is to find a special need then find solution for it. Few years ago, a student in my entrepreneurship class came to me with a simple idea. He said most textbooks were expensive and students only used them for one semester. His business idea was to start a company to “Rent textbooks” at half price. He explained his business model as follow: “A textbook is priced at $50 but he can buy it wholesale at $40. He rent for $25 per semester so within one year he can make $10 per book. In a university of 10,000 students, the average student needs 3 textbooks per semester or 30,000 textbooks per school. He assumed that if only half of them rent textbooks or 30,000 rentals then he could make $300,000 per year.” After he started his one person company by advertised it on a website that he created himself, the response was overwhelming. He succeeds as more students were renting in the first year so he expanded into several universities. Last year, he told me that he already had 200 universities and made over several hundred million dollars.
Few years ago when I visited India, I saw a special lunch catering service deliver on bicycles in many major cities. During lunch time, thousands of people riding bicycle deliver foods to workers in offices all over the city. My friend told me that there were over half million office workers in the central area of the city. They need to have lunch but could not afford to eat at nearby restaurants because they are very expensive. The need was how to provide cheaper lunch for these office workers. The solution was simple: instead they have to go for foods; someone can deliver foods to them. Workers ordered their lunch via a websites, the lunch company subcontracted to hundred small restaurants that prepare the meal, and hired thousands of people to deliver the foods. The result was office workers had lunch at reasonable price. The lunch company took 20% of the sale price, the subcontracted restaurant got 60% and the delivery person got 20% and everybody was happy. This is another excellent business model for startups. Who come up with the idea? It was three computer science students who developed the website and recruited many small restaurants to work with them. They also hired many people to deliver the food on bicycles. This simple business also provides jobs to thousand of poor persons in Bangalore, Mumbai, New Delhi, and Hyderabad.
Startup idea can be very simple, just like deliver lunch or renting textbooks. As long as it fulfills a need; as long as it has customers who are willing to pay; as long as it is profitable, then you can start a business.
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
