Lesson 4: Idea versus Opportunity

Where are the big ideas?

Just because you think you have a great idea doesn’t necessarily mean it’s a great business opportunity. In fact, a key cause of failure for most entrepreneurial ventures is not a failure to develop products or services, but rather a lack of customers. We will delve deeper into this in Module Three, but for now, you need to understand what constitutes an idea versus an opportunity.

Big ideas can be hard to find (Source)

While ideas tend to prioritise product development, opportunities are focused on customer needs. As an entrepreneur, you need to ask yourself:

  • What pains are people dealing with?
  • How do I resolve them?
  • What do people love?
  • How could I further add to this enjoyment?
     

Being able to see an opportunity through the eyes of potential customers leads you to potentially viable business ideas.

According to Hess and Goetz, the difference between a business idea and a business opportunity is twofold:

  1. A good business opportunity satisfies existing customer needs
  2. Customers are willing to pay for satisfying those needs

A great example of a business that failed to focus on customer needs and instead prioritised an idea is Amazon’s Firephone. This 3D-enabled smartphone had several features that made it great for online shopping or use in a retail store. However, it failed dismally because the research team neglected to concentrate on a specific market for the product.

Enthusiasm for the Firephone burned out fast (Source)

Instead of focusing on the Firephone being adopted solely as a retail application and further developing relevant retail apps for the product, they launched it as a mass-market product. People already had smartphones – they didn’t need another one! Unless the Firephone was going to focus on a very specific market with very specific needs, it was destined to fail.

This doesn’t mean ideas are bad – ideas are powerful and necessary in the design process of your potential product or services but they need to be developed after an opportunity has been identified.

Distinguishing between ideas and opportunities

What distinguishes an idea from an opportunity?

To determine this, we suggest you review these four areas:

  1. Timeliness
  2. Fit
  3. Real Customer Benefit
  4. Generalisable

Let’s look at each one individually. 

Timeliness

Timing really is everything. Entering a market too early or too late can have a significant impact on whether your business succeeds or fails. The Innovation Adoption Curve, developed in 1962 by Everett Rogers, illustrates the significance of entering a market too early. The innovation adoption curve is bell-shaped. It can be divided into five different categories, namely:

  1. Innovators
  2. Early Adopters
  3. Early Majority
  4. Late Majority
  5. Laggards

Rogers’ model outlines how a market’s slow uptake of a new innovation in the beginning leads to a speedy acceleration towards a peak which marks maximum competition, and then slows down once market consolidation sets in.

  1. Innovators tend to be risk takers who adopt a new product or service very early on. They make up approximately 2.5% of the population.
     
  2. Early adopters make up almost 13.5% of the population. While they are also risk averse, they tend to have a very high degree of leadership or influencing power, which the other groups don’t necessarily have.
     
  3. Early Majority adopters describes 34% of the population. The only difference between them and Early Adopters is that their time to adoption is slightly longer, but there are more of them than innovators and early adopters.
     
  4. The Late Majority, at 34%, is the fourth category. This comprises individuals who take a long time to adopt a new product or service. They tend to do extensive research and are especially sceptical of new innovations. They adopt a new product or service because of peer pressure.
     
  5. The final category of individuals is called the Laggards. They are extremely reluctant to change, and by the time they do cave in to a new product or service, it tends to already be out of date or obsolete.
     

Geoffrey Moore added to the Adoption Curve in 1991 by determining what he believed was the perfect time to enter a market. He called this the Chasm. According to Moore, entering at the cusp of early adoption and early majority is the sweet spot. His rationale was that the market would have sufficiently proven any risk in investment but still provided the opportunity to scale appropriately and sufficiently before consolidation set in on the end half of the curve.

While a young startup might be inclined to enter the market as early as possible to beat the competition and grab onto those influential early adopters, it doesn’t come without risks. With limited resources and a tight budget, entering too early can leave a young startup reeling.

Sometimes the best approach is to approach the market with caution and learn from others’ mistakes. Take the likes of Google and Facebook. They were far from the first search engine and social media applications, but they were very fast followers. They learned from the likes of Yelp and Myspace and adapted their offerings accordingly.

Fit

The best way to ensure you’re building a valuable startup is to leverage the skills and knowledge you already possess.

“Fit” is all about how your own expertise and experience as an individual relate to the opportunity at hand. While you might identify a real need and opportunity in the marketplace, you still need the requisite skills, interest, experience and know-how to act on it. Teaming up with someone who might have the specific skills is an option, but this can also be tricky. The cost of not focusing clearly on the business you could be building and instead pursuing something you might be good at is risky. Choose wisely and with care.

Real Customer Benefit

When identifying a potential opportunity that could manifest into a successful product or service, you have to look at the value proposition. A value proposition is something that creates real customer benefit. In Module Two, we will delve deeper into the specifics around value propositions and their integral role in a startup. For now, just remember that opportunities need to solve a real problem or fulfil a real need!

Generalisable

The fourth way to differentiate between an idea and an opportunity is to assess whether you will be able to create customer value that is generalisable to other customers. Can you identify specific characteristics and benefits that will endear your potential product or service to a range of customers so that the effort of pursuing this opportunity is worth the cost?

Intriguingly, opportunities change and evolve over time. If your startup is open to the pursuit of a viable opportunity as opposed to a specific idea, then evolution isn’t a problem.

Take a look at a startup that prioritized an idea over a real opportunity in the file section of this lesson. 

This brings us back to the need for entrepreneurs to prioritize customer needs over their own ideas. Perhaps if Bellenson and Smith had tried to conduct some initial research and understand what customers really needed, they might be on a different journey today. Eric Ries, author of “The Lean Startup”, argues that one of the major impediments to successful startups and innovations is a mentality that priorities ideas over opportunities.

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