Key Takeaways
- A business opportunity starts with an idea
- There are several ways to generate ideas
- Opportunities frequently arise from what people complain about
- Many entrepreneurs develop solutions around these 'pains'
Ideas are the seeds of growth and expansion for business start-ups or scale-ups. How will you find gems in a world that seems to have thought of all the great ideas? However, the world will always need solutions and innovations to close gaps and struggles in our lives. The demand for creative thinking to identify better ways will never cease, and your journey of discovery as an entrepreneur will never end.
Several industries did not exist 100 years ago. These include Petrochemicals, aviation, pharmaceuticals, music recording, management consulting and the automobile markets. Forty years ago, we did not have Mutual funds, cellular phones, biotechnology, discount retailing, express package delivery, coffee bars, and discount retailing. These industries arose because entrepreneurs could identify people's challenges and bring innovative solutions.
Computer struggles
In the early days of the personal computer revolution, users were computer geeks who knew how to program and assemble the necessary hardware—it was a do-it-yourself-hobbyist sort of thing. While some experts predicted that computers would become mainstream and change our lives profoundly, there was a big gap in technology. If a revolution has to occur, then how can innovators create a bridge to more widespread use?
The founders of Microsoft, Bill Gates and Paul Allen, and Apple's Steve Jobs and Steve Wozniak became legends as they found a way to bring software that was so easy to use to the average person; it was like introducing the automatic transmission to the automobile. But something else was missing to make computers more pervasive.
Another entrepreneur found an innovative way to make PCs cheaper. As Henry Ford did not invent the automobile, Michael Dell did not create the computer, but both did something that took away the struggle to own one. Ford used the moving production line (he is reputed to have discovered this technique from a visit to a meat packing plant) and applied Adam Smith's division of labour. When workers mastered their areas, they became more productive, and the learning curve moved down the production line from start to finish.
Dell used a variant of the mass production model—sell directly to the customer, and like cars, the retail price would plummet. He used global sourcing too and assembled the PCs to meet the customer's requirements; however, this was different from Ford's strategy of only one Model T. This customized model is like the moving production line on steroids. Still, Dell's way trumps buying a machine at the store, which was many times 20% higher.
The PC revolution was not born out of significant technological innovation but more insight into an opportunity of struggles that had to be unlocked—a market worth billions globally.
Shopping struggles
Consumers want to spend more and raise their standard of living, but high prices can be a significant barrier to achieving that goal. Sam Walton was a man who dreamed of bringing prices down across the U.S., a landscape dominated at the time by iconic names such as Sears and J.C. Penny. The behemoths offered various items in various sections, and department stores were also the anchors in many American malls, making them more convenient.
In 1962, Walton opened his first Walmart store in Rogers, Arkansas, and it was the beginning of a revolution in discount retailing. Like Southwest Airlines, this big box retailer was a master of operational efficiency, delivering low prices—15% savings compared to the discount department stores. Walmart's lower profit margin focuses on the cost of goods sold (COS) and proper inventory management. Stock is the big elephant in the retailing business, and if you can keep minimum inventory and improve stock turns, you are on the road to lower inventory costs.
Walmart's model involves a well-managed supply chain, reducing stock-outs, and keeping enough for current demand and shelf stock. Of course, innovative inventory management software and agile suppliers make this system work well.
Another high cost area was property expenses. How do you reduce the price of a big box store? The retail entrepreneur was a master of location analysis; it is reputed that as a pilot of a light aircraft, he would fly around possible sites to make a selection. In addition, he would avoid expensive urban areas (such as Sears and J.C. Penny) and locate where the middle class lived as their primary target.
Investment struggles
Investing is to business as style is to fashion. While investors tend to be sophisticated, the appeal is limited as the average person does not know a competent financial investor. The concept of the mutual fund is simple yet attractive to small investors. A mutual fund manager or firm would research stocks, bonds and other investments and pool the risks while looking for attractive returns.
Although there are different types of mutual funds, the core concept is to outsource the management to experts who are supposed to beat the market. The modern mutual fund was born, some say, with the creation of the MFS Massachusetts Investors' Trust in Boston in 1924. This development started what would become a US$4 trillion industry and an explosion of investments, especially in the stock market, by individuals, firms, and pension plans.
While he may not have been an entrepreneur in his later life, Warren Buffet had some enterprising endeavours when he was a kid. At 11 years old, we would sell newspapers and chewing gum, and he invested in a pinball machine company in his teenage years. This early dip into investing shaped his super-successful investment strategy in the mutual fund industry.
He started Berkshire Hathaway (a mutual fund holding company), and in 2024, it was valued at US$978 billion. His unique investment strategies have made him one of the world's wealthiest men, with a nearly US$90 billion net worth. Buffet's entrepreneurial financial strategy is focused on value companies with management that pay regular dividends and have a high profit margin. He also likes firms with lower debt-to-equity ratios. All these make up his famous value investing strategy.
The cognitive barrier you need to overcome as an entrepreneur is to see people's struggles, look beyond industry boundaries as Ford did, and be prepared to discover new opportunities.
Sajjad Hamid is an Entrepreneurship Educator who supports entrepreneurs in scaling their ventures. In his spare time in Trinidad and Tobago, he tries to produce organic tropical fruits and vegetables and practises sustainable farming in his home garden.
He is the author of Build Your Legacy Business: Solopreneur To Family Business Hero.
Sajjad is a Fellow of the Family Firm Institute.
You can contact him at [email protected] or visit www.entrepreneurtnt.com for a complimentary mentorship session.
Responses