Starting a business: new ideas and spotting opportunities

Can a business that changed how people travel be built on an idea that is hundreds of years old? In two thousand and seven, two flatmates in San Francisco could not pay their rent. A big design conference had filled every hotel in the city. So they blew up three air mattresses on their living-room floor, and charged guests for a bed and a breakfast. The business they started, Airbnb, now lists millions of homes around the world. But people have rented out spare rooms for centuries. Was this a new idea at all? To answer that, start with why anyone starts a business.

People start businesses for five broad reasons, and each one is about what the business will do. Some start to produce goods, which means making physical products, such as a brewery making beer. Some start to supply services, doing a task for customers, such as a hairdresser. Some start to distribute products, moving goods that others make to the people who buy them. A wholesaler that delivers crisps and drinks to corner shops does that. Some start to fulfil a business opportunity, meeting demand that nobody else is meeting. And some start to provide a good or service that benefits others, where helping people matters more than profit. Now five start-ups to match with those reasons. A man delivers parcels for online shops. A woman makes wooden toys in her workshop. Someone sets up as a dog walker. A free homework club opens for refugee children. And a woman opens the first escape room in her town, after seeing queues at one in the city. Which reason fits each one? Pause it there and work it out for yourself. The parcel deliverer is distributing products, because he moves goods that others make and sell. The toy maker is producing goods, because she makes physical products. The dog walker supplies a service, a task done for customers. The homework club provides a service to benefit others, because helping the children is its purpose. And the escape room fulfils a business opportunity. She saw the demand in the city, and nobody was meeting it in her town. How a business starts follows a pattern. Someone spots an opportunity and develops the idea. They research the market and write a plan. Then they raise the finance, choose a form of ownership and a location, and open. Planning, finance, ownership and location each have their own videos, so this one stays with the first two steps: the idea and the opportunity.

New business ideas come from two places. An original idea is new to the market, such as an invention, while an adapted idea takes something that already exists and changes it. Adapting can mean improving a product, combining two existing ideas, or taking an existing idea to a new market or online. Now a prediction before the details. For a small business with little money, which costs less to bring to market: an original idea or an adapted one? Usually the adapted one. The product, the recipe or the method already exists, so there is less to invent and pay for. That is the first benefit of adapting. It is cheaper and quicker to market, and the demand is already proven, because people are already buying something like it. The drawback is that an adapted idea stands out less, and rivals can copy it quickly. An original idea is the other way round. It can stand out and charge more, but it costs more to develop, and nobody knows yet whether people will buy it. Now a case. Kettleby Kombucha makes a fruit drink sold in glass bottles at farmers' markets. It plans to adapt the drink into a sugar-free version in cans, to sell in gyms. A question asks you to discuss the impact on Kettleby of adapting its existing product rather than inventing a new one. Two students start their answers. A: new products help a business grow and attract new customers. B: Kettleby already has the recipe and suppliers, so it only changes the sweetener. Which is the better start, and why? B is the stronger start. A talks about new products in general, while B stays on the adaptation, using Kettleby's own recipe and suppliers. One examiner's report says a significant number of students discussed a business developing a new product, rather than the impact of doing it by adapting an existing one. When it was answered well, students focused on the cost of adapting, or the speed it reached the market. The habit is to keep every sentence about the adaptation, and to lead with cost and speed. So here is the full answer. Kettleby already has the recipe and its suppliers, so it only needs to change the sweetener and find a canning firm. It could be selling in gyms within weeks, rather than spending a year developing a new drink. The demand is partly proven, too. Its customers already like the flavour, which means there is less risk that nobody wants it. Now the other side of the case. What is one drawback of adapting, for Kettleby in particular? An adapted drink stands out less. Gym fridges already hold sugar-free canned drinks from big brands, and a rival could copy Kettleby's idea quickly. Which means it may have to compete on price. The judgement: adapting is the better route for a small business like Kettleby, with little money to spend on development. Whether it works depends on whether its fruit flavours give it something the big brands' drinks lack.

A business opportunity is a chance to sell something people want that is not yet being supplied. Spotting one is where the idea starts. An opportunity can come from a gap in the market, which is a need that no business is meeting. It can come from a change, such as new technology or a product going out of date. Or it can come from a problem that people want solved. Now a quick sort. More people driving electric cars means more homes need a charger fitted. Is that a gap, a change or a problem? A change, in technology. Before electric cars, nobody needed a charger at home, so the need was created by the change. The gap it opens is what installers rush to fill. Responding quickly matters, because the first business to fill a gap can win the customers before rivals arrive. A business that waits may find the gap already filled. Now a case to develop. Sami opened Halal Bites, the only halal takeaway in his town of forty thousand people. The town has a large Muslim community and a university. A question asks why Sami started his business. The words a gap in the market are a start, but on their own they are only a label. How would you develop that gap into what it lets Sami do? Have a go at this one before I show you. No other takeaway in town served halal food. Muslim residents and students had to travel to the next town for one, so there were customers whose needs no local business was meeting. By being first, Sami could win those customers before any rival arrived, which means he builds his own income from demand that was already there. One examiner's report says the majority of students answered that the owner spotted a gap in the market, but most were unable to develop it. The way to develop it is to say whose need was not being met, then what being first lets this business do. Now the reason behind that second step. Sami's being first is part of the answer. Why does it matter that Halal Bites got there before a rival? Because customers form habits. The students and families who start eating at Halal Bites are harder for a later rival to win away.

Now pull the threads together, one question at a time.

A retired teacher sets up a free reading club for adults who cannot read. Which of the five reasons for starting is that?

Providing a service to benefit others, because helping the adults is the purpose, not profit.

Now the two kinds of idea. What separates an original idea from an adapted one?

An original idea is new to the market. An adapted idea changes something that already exists.

Now the trade-off. What is one benefit and one drawback of adapting for a small business?

It is cheaper and quicker to market, with demand already proven. But it stands out less, and rivals can copy it.

One more, on a new case. The only gym in a town of night-shift workers opens all night. How would you develop its gap in the market?

Night-shift workers had no gym open when they finished work, so the gym can win them before any rival does, and keep them paying every month.

So, back to the three air mattresses, and whether they were a new idea. Renting out a spare room was an old idea. The flatmates adapted it, taking it online so strangers could find each other and pay. And they did it at the right moment, when every hotel in the city was full. An old idea, adapted, and an opportunity spotted and acted on fast.

If you could develop a gap in the market for any business now, give this a thumbs up, and that's in the bag. If not, leave it, and watch it again. A second watch can land what the first one missed.

Next in the chapter is Risk and reward in business enterprise. Hopefully that's next in your feed, but if not, search for ScholaFly B U oh three, oh four.

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