Entrepreneurship. Innovation. Buzzwords that we see and hear everywhere. But, in practice, both are only meaningful if the end result is a bunch of happy customers or clients who are prepared to pay a viable amount for an idea that someone has generated, prototyped and put on the market.
Several ideas that struggled to make it
Recently we referred to several New Zealand companies, Pacific Lithium and Vortec Energy, that went into liquidation when the ‘good ideas ‘behind failed to deliver viable business outcomes, even after vast sums of investors’ money were expended. In both cases it seems that the ‘good ideas’ behind the companies were flawed and making them viable was always going to be a challenge.
Some that are struggling today
An analysis of 9 technology company initial public offerings (IPOs) listed on the New Zealand share market in 2013 and 2014 found that shares in only two were higher at the end of 2016 than their IPO price. Six of the seven had lost 47 to 81% of their initial listed value and one had gone into receivership. A commentator noted that, ‘retail investors need to focus on facts and the reality is, as with so many ‘good ideas’ from the investment banking sector, more often than not, that what is good for the industry is anything but good for…investors.’
A simple test
Ken Erskine, when working at The Icehouse Business Growth Hub, shared a process with us that could be applied to any ‘good idea’ to gain some level of understanding of whether it had the potential to be saleable – and viable. It was quite simple. We used it in practice with a number of aspiring entrepreneurs. Basically, it involved doing the following:
- Testing the ‘good idea’ with a minimum of 30 potential customers/clients to see whether it attracted any interest before prototyping,
- If enough interest, develop and test a prototype with a minimum of 30 potential customers/clients to see if it continued to attract interest, and at what level.
- Refine the prototype, if needed, and then ask how much a minimum of 30 potential customers/clients might be prepared to pay for it.
- Once completing the last step the go/no-go decision would depend upon two things:
- How broad the interest from potential customers/clients might be. Does it have broad-based appeal or only niche interest?
- How much will it cost to produce commercially and how much margin is there between that cost and the prices customers/clients have indicated they might be prepared to pay for it? If the margin is small or negative then it may mean going back to the drawing board. If the margin is high, there is a chance that a viable business could be built with the right team, leadership and investor support.
There are millions of ‘good ideas’ out there. Only a small percentage actually make it commercially. For example, only 3% of registered patents actually generate commercial success. The other 97% are just ‘good ideas’ that someone had. Anyone who becomes involved with ‘good ideas’ – as a company participant, a board member, an investor – needs to check out whether the promoters of these ideas have actually tested them with potential customers/clients to see if they have the potential to be viable, and are not just another ‘good idea’!
(Originally published on our partner Marcollie Blue’s website – http://www.marcollieblue.com/blog/2017/1/30/ideas-are-only-worth-something-if-you-can-sell-them)