From Idea To Business, How do I turn idea into a business?

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Many businesses start with a great idea. But a great idea isn’t enough; you have to make it a great business. If you know business, that might be easy. But if not, here’s an overview to find out what’s involved in going from idea to business.

Building a business takes four things: a product or service, a business model, a team, and money. There is no standard order to gathering these, though they all affect each other. For instance, raising money first makes it easier to attract a top-notch team, but you will have to give up more of your equity to raise the money. Having a prototype first makes raising money easier, but without money, prototyping must be done on a shoestring. The tradeoffs will reflect your judgment, willingness to take risks, and the circumstances that come your way.

One word of advice: beware “equity paralysis.” I’ve seen entrepreneurs stall their business to keep as much equity as possible. It is better to own 10% of a $10,000,000 company than 80% of a $1,000,000 company. And if your idea needs to come to market quickly, giving up equity may make sense if it will buy speed.


You need a product or service

Most entrepreneurs start with a product or service idea. Make sure that your idea fills a real market need. Better technology rarely wins in the marketplace. It must meet a real need, and must be marketed in a way that the customers are willing to buy it.

In fact, you don’t always need a new product category. Microsoft was a late entrant in window systems, spreadsheets, word processors, and presentation software. Yet they virtually own those product categories.

Without a product or service, it is harder to raise money or a team. But even so, some entrepreneurs raise money for a “search fund” where they take a year to find a business to buy or a product idea to develop from scratch.

If you plan on raising venture capital funding, you will find that products/services that alleviate customers’ pain are easier to fund than products/services that simply make life nicer. In general, people buy immediately to eliminate pain, while they are less urgent and motivated to make things better. A leaky roof gets patched before a homeowner adds ornamental trim.


You need a business model

A business model describes how your business makes money. It summarizes what you sell, how you get paid, who pays you, how much, and how often. It also includes your major costs. The same product or service can have several business models.

For example, a diet program could make its money by charging members for individual consultations with nutrition specialists. Or it could offer free consultations, and make its money by charging for special foods and diet products. The business model it chooses will affect what capabilities it has to develop, where it has to concentrate its service, and where it has to cut its costs.

The most fundable businesses have business models which include recurring purchases from a customer. For years, Xerox rented their copiers, thus guaranteeing regular income in perpetuity. When Canon entered the copier market selling low-price copiers, Xerox had to change their model to include selling machines (and they now enjoy recurring revenues in the form of service contracts).

Click here for more examples of business models and how the same product might have several different business models.


You need a team

Teams are great for moral support. And competent teams provide great credibility when raising money.

Choose your team by identifying your business’s needs and finding the best people you can to fill those needs. Consider many different skill sets and when/whether they are necessary.

Financial skills—including knowledge of budgeting, cash flow management, income and balance sheet preparation, use of financials in day-to-day management, and fundraising.

Project management skills—including how to identify, marshal, and coordinate people, partners, and resources to complete a project on time and under budget.

Marketing skills—including an understanding of customers, competitors, alternative products available in the marketplace, distribution channels, advertising, and public relations. I believe (despite 17 years as as engineer) marketing is the most important skill set in business.

Production, manufacturing, logistics skills—including an understanding of the specific technology needed to make your business succeed. For a restaurant, a chef would bring the necessary skills. For a manufacturing company, design and production engineers would bring the skills.

Some tempting strategies for choosing a team bear hidden pitfalls.

Beware choosing friends. Especially in business schools, groups of friends will form start-up teams without regard to whether they bring strong, complementary skills to the team. The team then finds it hard to define clear roles for all members as the company grows. And if more experienced people need to be brought in to replace a founder, the stress can tear the team apart. Have clear roles, accountability, and reporting relationships if you start a business with friends.

Beware choosing financiers. Having a team member bankroll the company is easy, but it muddles accountability. If that team member doesn’t perform, coping can sap morale. Keep the money relationship separate from operational relationships, and make sure everyone understands that an investor has limited operational power, and an operational role carries certain responsibilities, even if that person is an investor.


You need money

Most companies use money before they make it. Stores buy inventory before they can sell it. Manufacturers buy parts before shipping their final product. And even solo entrepreneurs need to buy food while they create the business.

Having an experienced team, a well-thought-out product, and a solid business model will make it easier to raise money. Though venture capital is all the rage today (early 2000), there are many sources of capital:

The Small Business Administration
Banks and bank loans
Trade credit (credit from your suppliers)
Rich private investors, often called “angels”
Funds that target certain ethnic groups, socio-economic classes, etc.
Venture capital firms

When you approach funding sources, be prepared: be able to explain your idea and business model quickly. Prepare sample financial statements, showing how your company will operate. And find out as much as you can about each source, what their needs are, and how you might satisfy those needs. A written business plan can help your credibility. Click here for hints on writing business plans.

Your investors are partners, through good times and bad. Choose them as carefully as you choose your team. If an investor doesn‘t have the patience to weather a bad spell in business, or if they decide they need their money back, it can drain your time and attention exactly when you most need it for the business.

The best investors bring more than just money. They can bring guidance, industry connections, and contacts, which may prove more valuable than mere money. They also bring a relationship, and sometimes the most important differences between investors may be trust levels, time horizons, and personalities—not just valuation.

You Need to Go For It!

Hopefully, you now have an idea of what you need to create your business. We have barely scratched the surface, however. You will revisit your idea, your business model, and your team many times as you start your venture. Reading is one of the best ways to learn the “how to”s of these d




ifferent topics.

Visit a book store and checking out books on entrepreneurship and starting new ventures. You’ll go a long way with a little research!

Best of luck!