Posted by: @spdlm | 21 Jun 11

The Risks of a Start-up 1 – The Idea

It has been a little while since my last blog, simply because I have been busy setting up another business. At the moment, I am very much interested the process of start-ups with respect to the idea, the technology, the passion, the human drama, the financial rewards and the consumers’ perception of these processes. There is much to be covered, analysed and debated so I would like to start with the very beginning, the Idea.

where do ideas come from?

The Inception

I saw the film, quite a complicated plot, and although I was a fan of this exploratory concept, I hope that we would never come to such an apocalyptical scenario. What I think the film highlighted very vividly is the importance of the origin of an idea. I tend to believe that the fate of all ideas are already decided at the point of inception. This notion assumes that if the idea that seems good enough, planning and strategy follows to materialise this idea and execution takes place subsequently. Although there are no perfect ideas, if the flaws of the ideas are managed and the goodness of the idea is properly exploited, a “good” idea would succeed in one shape or form. That is why it is a crime to waste a good idea. What is equally shameful, is the amount of misguided businesses in the world pouring tremendous resources into “bad” ideas. One could argue that bad ideas are required for the good ones to flourish. I argue that the difference between the good idea and the bad idea is decided at the inception and therefore a bad idea does not turn into a good idea, or vice versa.

The “good” idea vs “bad” idea

Like me, if your mind is constantly churning out ideas, how would you differentiate the good ones from the bad ones? Without being too philosophical, I will try to explain what happens in my case. Simply put, a good idea has more potentially positive output than negative, evaluated with the given parameters at the time of inception. Equally, a good idea should answer more questions than creating them. In my point, the distinction between the good idea and the bad idea is easily made if the initial thought process can be as subjective and logical as possible. This is why most of the bad ideas are conceived in a rush, possibly with a lot of irrational thinking. I know this mostly because I have conceived and spent much time on far too many bad ideas.

Post-inception

So what must follow the inception of a good idea to prove that it is a good idea and profit form this idea? First of all, write it down. If you don’t have a pen and paper, try recording it. Sleep on it, and then read/listen to the idea in the morning. In my case, over 80% of the ideas are scrapped at this stage. Not all of the 80% of the ideas are bad ideas but just not good enough. Some of them are cringe worthy. If your idea survives this important stage, then move on to expanding stage, where you would draw, contemplate or otherwise visualise how this idea will become a reality, or the final product, step-by-step. If your idea survives this second phase, share it or pitch it to someone. The aim of this process is not to validate that the idea is good, but to ensure that it solves a real problem with actionable and deliverable solution.

Risk Management

The safest way to avoid bad ideas is not to come up with any and borrow, or steal others’ ideas that are proven to be good ideas. As with anything else, lowest risk means lowest return. In the tech/software start-up industry, this approach is in abundance. As soon as a new innovator, such as Groupon starts to hit the headlines, “localised” versions start to mushroom up in every corner of the world. The high risk start-ups are often involved in ideas that are not readily validated. There are, however, professionals such as myself and my partner involved in validating these ideas. As an early stage investor, to invest into an untested technology can be very risky and measures are taken to minimise this risk, such as analysing the founders’ track record, and early market traction. Although these steps provide good indicators of a good idea, they are not fool proof. A seasoned entrepreneur is as likely to come up with a bad idea, as an inexperienced one. Market traction at a very early stage can be misleading too, simply because the early adopters of a very new idea are often small groups of risk takers themselves. How do you manage the risk of becoming involved with a bad idea? As with everything else in life, the only proven way is not to cut corners. Seek professional opinion to validate the product, the technology behind it and make sure the team executing the idea are competent enough to convert the good idea into an exceptional idea. All of this process is not new. This is Risk Management.


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