Germ of an Idea

I have been trying to commercialize various businesses for a long time since I was in college. I have failed in those efforts but learned a lot from them. There was also a time when I worked with IBM in their research division, commercializing their technology before I joined Applied Materials (a Fortune 500 company based in US)
In Applied Materials, I was responsible for developing new businesses from scratch. They were already a very large company. Entering new markets where they already had a significant position in the market spaces that they operate, was not an easy task. There were lots of ideas floating around and we wanted to come up with a systematic process of doing that.
I will share a six-step formula that I found pretty helpful. This will be useful not just for entrepreneurs who are starting out, but also for intrapreneurs or anybody trying to build or grow a business.
Step 1: Clarify your vision and goal
The questions that need to be asked are:

• What do you want to achieve?
• Is it short term or long term?
• What are the revenues and timelines that you are looking at?
• How quickly do we need to do it?
• What sort of a company do you want to build? Do you want to build a lifestyle business or a public company? The two are very different. If you’re going to raise money, you need to show very large growth.
• How important is growth?
• What is the size of the revenue?

If it is a large and a rapidly growing business, then taking the company public would be a challenge. Lifestyle business is not a wrong choice. It does not mean a mom-and-pop shop. It could also mean a very large sized business that has not gone public. More than 90 percent of companies which have not gone public are in that category.
The last dimension is profitability. Do we look at the revenue alone or do we look at profitability or do we look at GMV? A lot of newer age companies are looking at this where profitability comes last or even as an afterthought. Once you are clear about this, then the next steps become fairly easier.
Step 2: Generate ideas
For generating ideas, you can brainstorm, go to industry conferences, talk to customers, identify their pain points, identify what the customer spends are, talk to suppliers and talk to the competition. And if it’s more of B2C, you could set up focus groups. Even in B2B, you could set up focus groups specific for the kind of ideas you are trying to look at, which could be viable.
Andy Grove talked about the “strategic inflection point”. This is a very important concept. The industry’s functioning changes dramatically if there is an inflection point. The competition is different. The rules of the game change and existing companies need to change their behavior to adapt to this situation and grow. If they don’t adapt, they could decline and fail.
Why do we talk about this concept, in the context of generating ideas? There are lots of inflection points that happen in the market. It could be government policies. For instance, there are lots of discussion about how India is going to frame rules on Bitcoins or Electric Vehicle policies. The government drives a number of policies that could become large threats or opportunities–threats if you are in existing business and don’t change; and opportunities if you are looking at entering into a new space.
For example, in autonomous driving and telematics, many changes are taking place. Safety policies are coming in. There are also large global trends like people talking about consuming more organic food and sustainability. These provide opportunities for new businesses and startups to play with.
New technologies like the Bitcoin create opportunities that did not exist earlier. We have seen this in dotcom, when the Internet became available to consumers and large opportunities came up. Companies which are able to take advantage of such inflection points, not once but repeatedly, are the ones that build very large, sustainable businesses. This would be something to look out for in new business models.

When Google started offering their businesses for free, nobody believed something could be available for free. Today, we take it for granted and do not want to pay for anything that is online. The inflection point could be caused by a competition as well.
Step 3: Prioritize ideas
Ensure that your ideas meet your vision and goals.

• Is there a strategic fit to what you want to do? Does it leverage your strengths? Can you bring something to the table that makes you a particularly advantageous person to play in this space?
• If there is an inflection point in the near future or happening right now? It is a great opportunity to ride that wave because the rising tide can move up a lot of boats.
• Is there a window of opportunity that can give you a first mover advantage?
• Is there a strong pull from the customer?
• Is there a way to mitigate risk?

I have modified Ansoff’s Matrix which talks about existing products, existing markets and new products and new markets. I have added ‘New to the World’ category. The risk colour coding gives an idea about the degree of risk, with green indicating low risk and red indicating high risk.
If you are in an existing market with an existing product, the risk is very low, because you are going to make incremental improvements. Also, you are not doing anything new. This is not growing much and it won’t get you much reward as well. For an entrepreneur who is a new player, it is a completely new market because he/she may not have an existing business. If you have a number of ideas, choose the one that has lower risk, because that will help you succeed better and faster.
When you extend existing products into new markets, you have to adapt to the new market and make some changes. A completely new market creates new opportunities. You could ‘productize’ things which you are giving away as goodwill services. Though you are not monetizing today, you have the expertise to deliver that product or service.
Step 4: Preliminary business proposal
Once you have chosen your top few ideas, then develop a preliminary business proposal. There are a few things that we need to put on paper:

• What is the customer need?
• What problem are we trying to solve?
• What is the exact business activity? This is important. If you don’t specify the details, it can be very ambiguous.
• What is the size of the market? For raising money, this becomes a very important activity.
• What is the value proposition? What is the value that we bring to the customer? Why would they want to buy our product or service?
• What will be the differentiation, not necessarily technical, that makes us unique and drives the customer to buy from us?
• Can the business generate multiple revenue streams? For example, if you sell a printer, then we could go on and sell cartridges, followed by services for it. One business that creates additional revenue streams becomes very attractive.
• Is there a strategic fit?
• What challenges do we anticipate at this very preliminary level itself, to reach the revenue or profit goals that we have set out in our vision document?

Choose businesses that can create sustainable streams of businesses rather than creating point solutions.

Once we do this, a lot of ideas will drop out. This helps us to screen through a number of ideas and pick out what we think would be winners. I have used this approach not just in Applied Materials but in the manufacturing set up as well. Applied Materials is into semiconductor; capital equipment; services; flat panel display; solar products and services and spares. They are also into the sub-fab, which is basically basement equipment. They are into software which manages the entire fab.
With IBM, I have had experience in developing software products for businesses. I have designed and manufactured products for automotive and aerospace. Most of my experience has been in B2B, but this can work for B2C model too.
Create waves and wakes
When you ride a boat, you first create waves but you also create a large wake that is coming up at the back of it. It is not just one business opportunity that you can create with a business. The first business is the one that you are seeing in the front. The big tail at the back is a large opportunity. A sequence of businesses can be created behind the first business that goes through. Once you have created an opportunity and set up something with the customer, the way to scale and grow that and create multiple opportunities becomes easier than starting from scratch. So, choose businesses that can create sustainable streams of businesses rather than creating point solutions. If you solve one single problem for a customer without any further application beyond that, then it may not create waves and wakes–although it may bring in revenues.
Another lesson we learned, is to stop projects that are not promising. Cut your losses at the earliest so that you can move on to more exciting opportunities; pick the right opportunity or pivot and do what is right than continuing down a hole that doesn’t take us anyway.

Step 5: Segment the customers
Segment your customers. Know who they are, what their needs are, how big they are and how big their spends are. This varies between B2B and B2C.
I had a person reach out to me who said that he wanted to get into telematics space and that it can be used in marketing in segment A, B and C, for insurance, individuals, OEMs and so on. The point is, each of these is a different segment. The problem you are trying to solve for them will be different. The needs and regulations for different market segments are different. In the semiconductor, we could segment the market based on the lifecycle of fabs. We can segment based on what is on the top of the fab or below the fab. It could depend on the size of the chips that they are producing. Once the segmentation is complete, choose the one that makes the most sense for your specific application.
Step 6: Identify the target segment
Listen to the customer. I can’t overemphasize on this. I failed a lot because the voice of the customer was not clearly understood. You may have a nice technology and a good market but the customer may not be ready to pay for that product or service at that point. Maybe you are too early for the market. It does not mean the idea is bad.
Follow Porter’s Five Forces model (Competition, Potential Entrants, Suppliers, Customers and Substitutes). Combine all these with your core capabilities.
Rank the various segments that you could pursue; it is quite easy to figure out the most attractive segment. Then, develop a roadmap for the products and services that you would like to build for each of these, and prepare a detailed business plan.
The next step is raising funds. If you have thought through all these things, answering your investors, pitching and raising funds become a lot easier. Of course, that is just the beginning. Then follow a very detailed stage wise product development process. The stages can help you to redirect or change strategy as required.