I often tell my
students to be very careful when considering a new business opportunity if you
are on the outside looking in with a solution to a problem you perceive to
exist. An example would be for someone
with software development experience in, say, customer service software who decides to develop software to automate some aspect of medical records in
doctor's offices. He or she talks to a
few office managers for doctor's offices and develops a set of features for
this software based on this very limited information.
Our entrepreneur
then induces a doctor's office to be a beta site for the software and, with a
great deal of hand holding, decides that the beta site was a success. This is a disaster about to happen. Usually, the doctor's office in the beta test
has not paid money to use the software and, therefore, didn't have to consider
the value versus the cost of the software product.
Inevitably, the
software needs many bells and whistles to handle all the variations
"required" by different doctor's offices making it impossible to
charge a price that the doctor's offices are willing to pay that will cover the
actual cost of delivering the product.
The entrepreneur deceives him or herself into believing the
"value-added" by using the product exceeds the price the entrepreneur
must charge and the entrepreneur runs out of cash chasing a "vapor"
opportunity.
Compare this to a
person with some knowledge of software who works as an administrator in a large doctors' office who sees the need
for a similar product, but with a simplified set of features that will meet the
need. He or she sees that the product
can be developed, from the beginning, to have flexibility to handle additional
features, if a doctors' office is willing to pay for them. This person decides to team with a software
developer and designs the software to meet the real needs of a doctor's office
that have subtle, but very important, differences from the needs perceived by
our first entrepreneur. The bells and
whistles (that often cost more to develop than the basic product and often
cause more problems for the customer) are offered only as add-ons. This entrepreneur has a real chance of
succeeding.
What I've described
above happens very often. The first
entrepreneur conducted a superficial analysis of the problem he or she
perceived to exist and developed a product without knowing the subtle aspects
of the customer's problem that will be the difference between success and
failure of the product. This often
happens because of an arrogance on the part of the first type of entrepreneur
who thinks he or she can understand the customer's need and thinks he or she
knows the decision making process the potential customer will use in deciding
whether or not to pay money for the product.
In reviewing a
business plan, I always look for a section that walks the reader through the
thinking process of a potential customer in deciding to purchase the
product. I very seldom find this
analysis and, when I ask the entrepreneur to verbally tell me, the entrepreneur
can only give me generalities that are useless.
Yet, when I ask someone like the second entrepreneur described above who
has had personal experience in dealing with the problem, he or she can usually
give a very good explanation of the customer's decision making process. Which of these entrepreneurs is likely to
raise capital from investors?
The lesson - team up
with a person with real experience at dealing with the problem you think you
can solve with your product; not by simply interviewing the person, but by making the person a part of your team!
