Size doesn't matter...

Joseph Ades - New York City's "Peeler Man" (RIP Feb 09)

...in most cases anyway, size doesn't matter ;)

In New York City, there was a distinguished English man who, for many years, sold a very simple product: a vegetable peeler. He secured an exclusive distribution agreement with the Swedish company that made them and started to sell their peelers right on the streets. He had no fancy offices, legions of employees nor a big ego. He was a very humble man who knew how to draw a crowd, entertain them and get them to buy his product.

Most would think that this man lived a simple life based on his small cutting board and his very low stool. In reality, the man was a MILLIONAIRE. He lived in an expensive high rise on Park Avenue, was a very distinguished gentleman and a connoisseur of fine arts, wines and music (apparently women too, because he married 4 times). How did he make his fortune? Selling his vegetable peelers.

Most days, he would go to a high-traffic area (i.e. China Town, Times Square, Union Square, etc.) and set up shop. He'd take out his vegetables and start using the peelers. All the while, he'd tell jokes, ask passers-by questions and show how ridiculously easy it was to peel carrots, potatoes and all kinds of vegetables with his peelers. He would sell them for $5 a piece, and often sold out every single time. Even if the weather was cold or hot, he'd be out there (with the exception of snow or rain of course).

He knew how people think, and how to use a crowd to his advantage. When people see a crowd, they stop and look to see what's happening. When people see someone buying, chances are, they're that much more likely to buy too. It's the concept of "Social Proof" where people look to their surroundings to help determine their decision. Some people call it a "herd mentality" as well.

Entrepreneurs can learn from his example. Sometimes, it isn't size that matters. You don't need a giant organization to do what you love or make a good living. You just need a good product or service, motivation, the ability to connect with people and a dream. Remember, at the end of the day, it is how much PROFIT you make that matters. You could be making billions in revenue, but what about if your costs are nearly that high too? Sure, it's good to think big...but it's even better to think smart and simple.

For those who asked him about how he became successful, he had one simple saying:

"Never underestimate the dollar."

He sure didn't.

So you've got an idea now, is it worth it?

Some weird balloon in orbit...

Ok, I told myself, "They're going to start getting tired of these space photos..." Hey! I can't help it! SORRY!

Continuing from the "Eureka!" piece on March 3rd, now you've got a single idea or maybe two good ones that passed your initial questioning process.

Now the real fun begins. Now that you've identified your idea, now you need to quantify it and see if it's actually worth the time and if there's real demand in the market for such a product/service.

There are four key areas you need to look at to determine the feasibility of your idea, which I will break down more in detail:

1. Competition - Is your idea already being done by many competitors? If so, what are their strengths and weaknesses?
2. Market growth and trends - You need to determine if the pie is growing or shrinking. Also, it is essential to determine key consumer and supply trends to determine if there's demand and needed resources to make your business successful
3. Suppliers (if applicable) - If you're making a product, are there good suppliers out there? If you're marketing a service, can you find the talent needed?
4. Economic trends and conditions (to start, in your local area first, unless your idea is international, nationwide, or purely on the internet) - This isn't as important as the other 4, but it's useful in solidifying your approach. This category includes government regulations.

Before we delve into these 4 factors, lets go over a list of reliable free resources you can use to do your research:

• Google (of course)
• Bureau of Economic Analysis (www.bea.gov) useful for seeing macro-economic trends
• Bureau of Labor Statistics (www.bls.gov) could be useful for labor-related research
• US Census (www.census.gov) great for demographic information
  
• Major publications (New York Times, Inc Magazine, Wall Street Journal, Crain's)
• Trade associations related to the industry you're going into - these guys often provide data and statistics for free (not all of them though)
• Trade publications related to the industry you're going into - there are trade publications for literally every industry and subject under the sun. These often have very useful articles and statistics you can use to collect information on the market and your competitors
• CALL people up such as industry experts, journalists, etc. and even your competitors! (you just need to be a bit more careful when calling competitors). Usually you can learn A LOT just from talking to people.
  

Now...here are some PAID resources you can use if you either have the money, or already have access to them through your local library or something.

• Factiva/Lexis Nexis - These databases aggregate articles from all major publications nationwide and worldwide)
• Marketresearch.com - Often have great market reports with robust statistics and data you can use to determine the market and the strength of your competitors
• Business Source Premier (EBSCOHost) - The literal hub of trade magazines and articles - very useful
• Dun & Bradstreet - There could be many small businesses in your region that you don't even know about. This database is useful for determining companies' credit ratings and their estimated revenue and employees. Also, a lot of bigger companies conceal the actual number to their corporate headquarters. This database also gives you their direct number in case you want to call them
• Trade shows / networking events - Sign up for a bunch and go to them, ESPECIALLY if they're in your area. You can learn A LOT and meet new people who can help you.
• Gartner - Only if your venture is IT-focused. These guys are EXPENSIVE though, so try to access them through a library or something.
• Author of this blog *COUGH* ;)
  

Competition

Competition will be one of the most important factors you look into. In order for your new venture to be successful, it must be able to take advantage of the weaknesses of your competitors.

Using your research, you need to be able to answer some key questions about your competitors:

• First of all....WHO are your competitors? and WHY? You need to know why, otherwise you might overestimate who your competition truly is. You should only count someone as a competitor if they serve the same demographics and a similar need to your own business.
  

Let me give a quick example. Lets say, for instance, you're opening up an organic dog food store (I want royalties for that idea if you use it!!! ;) ). As you do your research, you find out that someone else in your area has a store that sells organic food to fish and cats. Is he a competitor? No. Why? Because he doesn't serve the same "demographic" or "needs" as you do. Dogs are not fish or cats, therefore the other store is not competing with you.

Let me give one more quick example to drive the point home. Lets say you're opening up a retirement home for rich, socially inept younger people who don't want to work anymore and who are in their 20's to upper 40's (I REALLY want royalties for that one ;) ). Would you consider a retirement home for the elderly your competitor? No. You don't serve the same demographics or needs as they do. Your demographic is towards younger people. The needs you serve for them are not really health or hospice-related, but rather, probably more for hooking them up with fun activites and new friends.

• If your venture is more regionally focused: Who is your competition in your area? and why?

• What products/services do they offer, and what is their geographic coverage? (this depends on your idea)

• What are their strengths and weaknesses? This is very important because it will determine your angle of attack, if there is one. Your idea must be able to take advantage of your competitors' weaknesses.

• Is the market dominated by a few big companies or by many small ones? You can determine this by the market share of your competitors. The more fragmented your market is, the better. It is difficult to enter a consolidated market, and the big guys like to keep it that way. You must understand what kind of barriers to entry you are facing.

• What are your competitors currently planning to do? Are there new technologies or product/service lines that they're developing that could threaten your business?

The Market & Trends

Everyone wants a piece of pie. Question is, is there enough pie to satisfy? (hey, that rhymes!). The condition of the market you enter into is essential in determining whether your idea is even worth pursuing.

You need to be able to answer some key questions about your market:

• Is it consistently growing or declining? And by how much? Large increases indicate the market is still in its growth stage. Flat growth indicates it is mature, and declines mean the market is dying off. If you enter a mature or declining market, your only chance of being successful is to actually steal market share from your competition, which can be quite difficult. In a growing market however, everyone has room to grow, and there is not yet enough supply to meet demand.

• Are there any substitute technologies that might threaten the market? For example, the CD market has been consistently shrinking due to increasing adoption of mp3 players.

• What are the consumer trends in your market? Do you see signs of consumers embracing things that are similar to your product/service? Remember, your idea must serve a need or create one. However, you can't do that unless you understand what your future customers are thinking. You need to understand what makes your intended consumers want to buy the products/services in your market. Is it Price? Quality? A mix of both? These things you need to determine.

If you're more regionally focused, then you need to try and figure out the market conditions and trends in your area specifically. For example, you find out that the luxury yacht market is growing overall. However, if you serving somewhere like Mississippi ...chances are you're in for a rude awakening. That area would show a stronger preference towards smaller boats rather than luxury yachts.

Suppliers

Determining the nature of your suppliers and what they charge is essential for when you begin to put everything into numbers. You need to understand this area well in order to accurately predict your costs. You need to answer some key questions:

• If you have a product: Are there a few big suppliers or many small ones? This will determine how much leverage and negotiating power you will have with them. What are their prices and lead times? (Lead time refers to how long it takes for them to manufacture and ship the item to you)

• How scarce or plentiful is the labor you need? And what is the going market rate for employing them? (you can determine this either by articles or by the Bureau of Labor Statistics) Can you outsource? Sometimes, utilizing a third party is the best way to go, and often more affordable.

• If you're providing an outsourced service (i.e. you use another company to serve your customers) - what do they charge? What is their lead time? And what is their quality of service?

• What are the different incentives/perks among these suppliers? (i.e. bulk discounts, free shipping, etc.)

• WHERE are your suppliers located? (this can apply to both products and services)
  

Again, this will be essential in determining if you can secure the supplies you need, and also essential for your financial planning. You can't run a business unless you know if you're even making a profit.

Economic Trends & Conditions

Chances are, you will find out more about this subject as you look into the three other categories. Therefore this is the least important of the four. However, it is worth looking into, and you'll want to answer some key questions:

• Are there any government regulations in place that could have an adverse or positive effect on your idea? You need to find out about both federal and state regulations. If you're going international, then you should understand any relevant laws of those countries that affect your business. (this is the most important question in this category)

• One interesting thing to check is to see if there are any government grants related to assisting in starting a venture like yours. You'd be surprised what regulations are out there that provide incentives for people to start all kinds of businesses.
  

• Has disposable or overall income been on the rise or on the decline for your demographic and geography? What about living costs? (again, this is a plus to have, but not necessarily required)

• What is the employment situation for your demographic/geography? The more people that have jobs, the more people that can spend money. (again, this is a plus).

As you do your research, you'll probably come across more questions that what I listed here. Depending on your industry and your idea, there might be specific questions that come up that you will need to answer. Remember, "Luck" is simply when preparation meets opportunity. Do your homework!

And if, from your research, you find out that perhaps your idea isn't as attractive as you thought, SCRAP IT! Base your decisions on facts rather than emotions. If the facts don't support your hypothesis, then it's time to look somewhere else. Many entrepreneurs come up with many ideas that don't fly. The successful ones dump the bad ideas through research, and embrace the good ideas with the proper planning and knowledge. Ultimately though, no matter how many facts you have, you will still need to make a decision based on your gut feeling. Don't get into what some people call, "paralysis through analysis." Get the facts, but then MAKE A CHOICE.

Also, you must remember that it'll eventually come down to numbers if you're planning to start a business with high overhead. If you start a business with very little overhead, then financial projections are not as vital, because you have very little to lose and potentially a lot to gain.

Remember, you can make the numbers say whatever you want. In the end, numbers are there to make sure you're not losing your shirt rather than telling you how rich you're going to be.

If the idea turns out to be good, then the good news is, you have most of the stuff you need to write a solid business plan.

Eureka! How to filter and focus on an idea

Helix Nebula - Spitzer Telescope

Space...the final fron... woops... wrong topic ;) The reason you see that picture, is because there are MANY ideas out there, but only few end up shining upon greater scrutiny. It is important to focus, otherwise you'll find yourself never getting off the ground.

Here's a real story to illustrate the point. After about 40 minutes or so of brainstorming in dark rooms (they were separate rooms! Sorry ladies), we came up with a list of about 20 ideas for a new business. We were thrilled. It was one of our first times trying the whole dark room thing out, and it worked great. There's just something about a dark and silent room that just triggers your mind to think and be imaginative. Perhaps it's a subconscious desire for the mind to escape what seems to be emptiness and darkness? Who knows.

After our alarm clocks rang, we stepped out and I started to write our ideas down on a big board, while occasionally taking a deep whiff of my marker. There's just something about markers...anyone ever sniff those markers that actually smell like fruit? That was the best invention since the toilet. Yeah... TAKE THAT sliced bread!

Anyways, I digress...

We were pumped up for sure. We then took those 20 ideas, and filtered them down to 5 ideas, based on four criteria: 1) Can it make good money? 2) Is there a demand for it? 3) Is it resistant to economic cycles? 4) Is it fun? Yes...looking back, those exactly weren't the most accurate criteria to use. Each criterion was scored from 1-5, and we took the top 5 average scores.

Thankfully, we had a mentor. A real business veteran who started successful ventures in the past. We met up with him after we came up with our list. We felt like we could take on the world, that we could revolutionize the way things are done. We gloriously presented him the list of our ideas on our fancy little Excel file and proved to him that we knew how to use the =Average(B1:D1) function.

The one thing I remember the most about that meeting was how red his face got with laughter. In fact, it reminded me of a tomato with glasses and thin hair. Of course, I knew him for a while, so he had a license to laugh...for now...

The first question he asked was, "Guys, do you even have the skill set for these ideas? These are awfully complicated." He was right, we didn't. In fact, one idea we liked a lot would have needed either us or someone else who had deep experience in law enforcement and almost espionage.

Safe to say, ALL the ideas turned out to be just like that nebula above...just floating and as fleeting as gas. Sure, they look nice, but they can't do anything, not like the star in the middle. We hadn't found that shining star in the middle. It was back to the drawing board for us.

So... with that said, how can one go about filtering and focusing on a single idea? Well, there are a number of steps to do this.

1. The first step is to HONESTLY assess yourself and your partner(s) (if applicable):

• What skillsets and experience do you have?
• How much DISPOSABLE income can you put into a new venture?
• Who do you know in your network? Are they trustworthy?
  
• How risk tolerant are you? Although starting a venture is always risky, some ideas are way more riskier than others because of high start-up costs and overhead.
• Are you genuinely motivated to start a new venture? You have to have a high level of motivation and will, because starting a venture is not easy, and you need to toughen up to see it through.

2. Once you've identified the base foundation (you and any partners you may have), then you can determine what idea can be built upon that foundation. Like in the previous step, for each idea, you want to ask and answer the following questions:

• Do I actually have the needed skills to execute on this idea? If not, can I find someone trustworthy who does?
  

Trustworthiness is extremely important. Knowledge is power, and power is used. If you are clueless about an idea, then a lot will rest upon the shoulders of the person who has a clue. That gives them a lot of leverage over you...so you need to make sure you bring unique skills that the other person lacks to compensate. You also need to trust that person, otherwise you may find yourself left behind.

• What kind of need does this idea meet? What value do you provide? If your only answer is, "well, I think people will find this to be pretty cool." Don't waste your time. It has to bring some sort of value to people.

If a need is met, then there will be demand for it. How much demand, however, will be determined in the next phase. Right now, this is just initial vetting.

• Can I actually secure the resources to execute this idea?
  

I have a personal preference to try and stick with ideas with relatively low start-up costs and overhead. However, there are many successful entrepreneurs who start ventures with high costs and succeed. You just need to be realistic on how much money you can actually secure for yourself and WHERE you're going to get it.

• Where will the money from this venture be earned?
  

Notice that I didn't say "how much" money yet. That comes later. Right now, this is an initial idea vetting phase. What you need to answer in this stage is basically: Do you know how you will earn money from this?


If you can positively answer ALL the questions for any particular idea (i.e. "Yes, I have the skills for this idea" or "Yes, I can find someone, and I can secure the resources" etc.) Then it has some real potential.

Chances are, by putting all the inital ideas through this questioning process, you will end up with very few left or even just one idea. If you end up with none, then don't worry! Just go back to the drawing board. There's nothing wrong with that, it's all part of the process.

Once you've focused on one or two ideas, you're still not ready to execute on it. The next phase now is to do your homework. Now that you've identified the idea, now you need to quantify it through market research to determine its actual feasibility based on FACTS rather than assumptions.

Stay tuned for next episode. We'll discuss how to do homework on your idea to determine - factually - if it's feasible and worth the effort.

How to find inspiration for your future venture

Artist: Bruce Clarke

"Whether you believe you can do something or not, you are right." - Henry Ford

As you may have read in the post before, one of the first steps you need to do before starting a business is to think about what interests you first.

The next few posts are going to expand on each and every step. Today starts with finding inspiration. There are a number of ways to do this:

1. One of the best ways I've found is to learn from the example of entrepreneurs who have already made it. Publications like Inc. Magazine are a great source of success stories. In fact, these success stores can often trigger a creative spark and allow you to think of a great idea you never thought of before.

2. Talk to people! Whether it be friends, co-workers or people you meet at networking events or parties. Often times, people are glad to give you ideas...usually because they don't want to do it themselves! Obviously, I'm not saying you should steal ideas from others, that's not cool. Make sure you're not stealing an idea that someone is already working on. Although we live in a jungle, that doesn't mean you have to be one of the apes in it.

3. Sit in silence and just let your imagination run wild. You'll be surprised what your mind can conjure up when you allow yourself to silence your thoughts and distance yourself from un-needed distractions. When you put yourself in the right mindset, you'll find that ideas will come to you rather than the other way around.

4. Closely observe your surroundings. Usually in the chaos of everyday life, we forget to just step back, take a deep breath and notice what's going on around us. You may overhear your friends or even complete strangers say golden things like "God, I wish xyz could be done better" or whatever. Not only that, you may find how things could be done better in the very industry that you work in (if you work at a job).

5. Learn new skills. By expanding your capabilities and horizons, you will most likely develop a great idea....or finally be able to execute on an idea you already had.

6. Approach someone you know who has a great idea and offer to help. You don't always have to be the one who thinks of the idea. If you think an an idea is great, be part of its success! It's much like someone who becomes an entrepreneur through franchising. You don't have to be a grand visionary, you just need to have the determination. Like Edison once said, it's 99% perspiration, 1% inspiration.

7. Keep reading this blog...unless of course my mentioning of taking a dump in your boss' top drawer didn't already give you a business idea related to human resource counseling or waste management ;)

Stay tuned for the next episode. We'll discuss how to organize your ideas and focus on the best one.