Monday, August 11, 2008

Zen | 7 | Idea

An idea that is developed and put into action is more important than an idea that exists only as an idea.


Everyone has a great idea. Very few take action. And of those very few - even less know how to take action.

There is a "action gap" between an entrepreneur and a Zentreprenur. A Zentrepreneur believes an idea only has value if it has action. Many (so-called) entrepreneurs believe that an idea with a business plan has value. To be blunt - it doesn't.

Before we discuss how to take action on an idea. I first want to discuss different "types" of ideas.

IDEA TYPE 1: The "Big" Idea

This is the classic "Think Big" type - where the entrepreneur wants to build something bigger-than-life, and not necessarily looking at just solving a problem but instead changing the landscape of the market. Some classic examples of this type of idea would include Disney World and FedEx.

There are very few entrepreneurs that can pull these type of ideas off, because they require a lot of industry credibility, capital and typically a lifetime of work. Another aspect to a "Big" Idea is the difficulty to start. Some businesses can start small, and they can scale to become large companies (e.g. Walmart) - but the "Big" Idea companies really start "big". FedEx started with a few jets and grew into hundreds of jets - but on day one, the company needed tens of millions of dollars just to open business. These are high risk - big return ideas, but takes a special entrepreneur to take action and succeed.

IDEA TYPE 2: The "Cookie-Cutter" Idea

The Cookie-Cutter Idea is based on a simple principal - "If it works here, it will work anywhere". When you look at companies like Starbucks, Walmart and Subway - these are Type 2 companies. They start as one store, and refine their business - and then with capital start to duplicate the store across the globe.

This type of idea requires less capital, but more patience. Starbucks operated for many years before scaling across the country. The first store has to be successful, produce operational history and show promise in being successful in other markets. Many times companies like this leverage franchising (e.g. Subway) to open new stores - which is another complex model for scaling the business.

Overall, this type of idea relies heavily on the concept in order to scale to different geographies. Unlike technology businesses, this type is based on geo-based marketing and addressing a demand not served by other "big box" companies. Some entrepreneurs look to an existing franchise with a known brand and solid operating history as their idea. This is sometimes a better approach if you lack a good idea and experience in operating.

IDEA TYPE 3: The "Garage" Idea

The Garage Idea is the classic "Silicon Valley" Idea. Where two guys in a garage come up with an idea and build a product on a boot-strap budget. These type of ideas tend to be based on technology because the funding requirements are much lower for a tech business than a bricks-n-mortar business. A Garage Idea relies heavily on the product and its unique value proposition to a market. Unlike Type 2 business where the product is more of a commodity (e.g. coffee, burger, etc) and you focus on market share.

Some examples of Type 3 Ideas are Microsoft, Apple, Google and probably 90% of all tech businesses in the world. Although these companies can build a product for little capital, in order to scale the businesses many times they require significant capital to market the products to a global market. And unlike Type 2 businesses where they can focus on a small geographic region and have limited competition, a Type 3 business has a wide range of competitors looking to build the next best version of their product.

IDEA TYPE 4: The "Novel" Idea

This is not too different than Type 3, but the origin of a Type 4 idea is much different. The Type 4 idea is the idea that you always say "Man, why didn't I think of that?". It is the obvious solution to a small problem. It is the classic "back scratcher" concept, that typically solves a common problem we all experience.

Some great examples of Type 4 Ideas are TV Remote Control, Post-It notes and Smoke Detector. These ideas took a very small problem, and created a practical solution. Many of these ideas rely heavily on "patent" protection, which does require some capital but nothing compared to starting a company. An entrepreneur has an option on whether they want to launch a company, or simple license their patent (if they get one issued for the idea). Like a Type 2 idea, this requires patience (Patents can take more than 5 years to be granted).

Of course, some ideas are a combination of these types. The reason to outline each type of Idea is to give some perspective on how to take action on ideas. Not all ideas are the same.

So, the first step in taking action on an Idea is to define the type. This will help you analyze what it will take to turn the idea into a reality. Lets start by looking at Type 1 Ideas. The bottom line is that very few people can pull off a Type 1 idea. These are BIG ideas that need more than just an inspired entrepreneur. When you talk to a lot of people with "ideas", they typically fall into this category. In my mind, this is why so few entrepreneurs take action, because Type 1 Ideas require much more than ambition and willingness to work - they require a lot of capital, years of experience, and typically a life long investment of work to accomplish the action.

You will here a lot of people say things like - "I have this great idea - why don't we invent a plane that runs on water?". Of course, this idea would be a big hit - but the reality is that there is not only a significant amount of scientific innovation and research required, but also the capital and time requirements would be unpredictable. A great idea - but impossible to take action.

Let me repeat this statement, because I feel like it relates to many ideas I hear from entrepreneurs - "A great idea - but impossible to take action".

The Type 2 Idea is much ore realistic for an entrepreneur to grasp. They can start small, and grow with the market. The first step of action can be as simple as taking out a small business loan, or investing savings into opening the business. Most of the Type 2 Businesses don't go beyond the single store front. Primarily because the objective of the entrepreneur is to create a lifestyle business, and do not want to take the risk and invest the time and money required to scale the business.

When taking action on a Type 2 business, it comes down to having a solid business concept and enough capital to get to profitability. Many times this is not a lot of money, and I would say that most entrepreneurial businesses are Type 2 businesses. Type 2 businesses do not typically require a lot of innovation, or even a unique product - but a solid business model, a good market and a motivated entrepreneur.

The Type 3 Business is the classic "technology-based" business. Typically there is a high level of innovation and novelty to the business, and the entrepreneurs are more product-minded versus business minded. Just like Type 2 business it doesn't require a lot of capital (and in many cases it requires much less, since it doesn't have the need to lease space, buy inventory, etc). The Type 3 Business is where the terms like "boot strap" and "sweat equity" have become cornerstones of success in launching new businesses. The attractiveness of Type 3 businesses is not just in the lower capital requirements, but in the scalability of the business model. Most Type 3 businesses have a product that can be sold globally and done so "electronically" without a large sales force or massive marketing budget. Type 3 Businesses like Google and Microsoft show that the potential of scale is limitless.

In my opinion, the optimal business to start is a Type 3 Business.

The Type 4 business is based on the novelty of an Invention. If you are an inventor, then you may be able to build a business from your idea if you are able to protect the concept through a Patent, and find a way to distribute or license the product. A Type 4 business may require a little capital to file a Patent, and to find a company to help build or license the product. The Type 4 Idea is very similar to a Type 3, but the main difference is that a Type 4 Idea is about a Patentable Product that can be sold via retail distribution to businesses or consumers.

So when looking at taking action on an Idea - it is important to first analyze what type of Idea do you have, and is it realistic you can execute the idea?

A true Zentrepreneur realizes their strengths and capabilities, and accepts that not all ideas they can take action on - and more importantly that Ideas do not have to be "BIG" to be successful.

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