TEDxNJIT - Dr. Michael Ehrlich - Is Your "Million Dollar Idea" a Viable Business Concept? December 2, 2011
With over 25 years experience as an angel investor and currently working as a professor at NJIT, Ehrlich shares the system he has developed to evaluate the 1000's of funding proposals he has seen. If you do not start with a viable business concept, then you will never be able to develop a successful business.
Good morning. How many of you are thinking that you might want to start your own business at some point in the future. Excellent. Now, do you already have the million dollar idea that you’re going to need to make your business a success? Or are you still working to find that perfect idea – the one you’re really going to want to dedicate your new business to?
In any case, when you start your new business the first problem you’re going to have is you’re going to put in a ton of effort and work really hard, so you better find an idea that you really love. If you don’t have an idea that you really love you’re just never going to be able to put in the kind of effort that’s going to be required.
Now once you get your business going you’re going to have to put in lots of effort and hard work, you’re going to put in hours, you’re going to commit resources and money. But when you commit all those resources and money you’re hoping that it’s going to be something that works, and it better be something that you’re passionate about. We’re going to talk later about passionate ideas, but it’s not enough for you to be passionate about your idea – you’re going to need to convince other people that this thing actually makes sense. Investors, potential employees, potential customers all have to get on board and think that what you have here is a business idea that makes sense.
Now when I work with students at the NJIT Acceleration Club it all comes down to four letters – NAVC. And NAVC really just refers to – at least initially – that you’re going to need a viable concept for you’re new business. If you don’t have a viable concept, you’re never going to get it off the ground. So a lot of entrepreneurs wonder whether their million dollar idea is going to be a viable concept. And in order to help you figure out if you’re million dollar idea really is a viable concept, we’re going to spend some time talking about the ingredients that are going to allow you to determine up front whether you actually have something that might work.
I’m going to share with you some more letters that we talk about in the Innovation Acceleration Club and that’s NAVC yet once again. In this case the first N stands for ‘need.’ You need to be able to explain why your business concept solves an important problem. Now, the core part of any pitch that you make as an entrepreneur is going to be based on answering this question – this is the hook that’s gonna allow potential employees, investors, customers, suppliers to participate and understand why your business is important.
Now if you’re talking about the cure for cancer, that’s important, but if what you’re proposing is for instance a new and better way to rip the steering wheel of a car that’s going to take some explaining. And what you have to know is that if you can’t explain clearly why your business idea solves an important problem, then you’re never going to be able to explain why potential customers should eventually buy your product or service.
The second letter stands for ‘application.’ You need to explain what the solution is. And in explaining what the solution is you have to articulate how you’re going to solve this problem that you just proposed. Is it going to be a new device? A new web application? A new formulation? A new mobile solution? Some new system? It could be any of these things, but at this point the most crucial thing that you need to know is that your explanation of your application has to be credible, because if what you’re going to say is that in order to discover that new cure for cancer what you need to do is send a man to mars or discover a new element, it’s going to be hard to explain why your solution is credible and that you’re going to actually be able to provide it.
The “V” stands for value proposition. Value proposition is really to answer the question – how do you propose to make any money from this particular idea that you have? Now that’s going to be important to you because this is something that is going to be your livelihood, and so you would like to believe that you could support yourself out of this business idea that you are presenting and proposing. It’s also going to be critically important to potential investors because they’re going to want to know how they’re going to get a return on their investment. So if you can’t explain those things you’re going to be unlikely to capture the resources that you’re going to need to start your business.
Now oddly, this is not actually as important as it sounds, because if you’ve done a really good job explaining that you’re solving a really important problem and that you have a really credible solution, most investors are going to believe that if you build it the money will follow. I mean, you might think of Google or Facebook as examples.
The “c” stands for competition and competence. And here you’re going to really try and explain why you’re the one who is supposed to be the one bringing this business forward. Now, if there is a real problem that you’re trying to solve, then somewhere out there people already have some sort of solution. Now you might be offering a much better solution, and it may be very different from the previous solution, but if there is a real problem then there must already be people out there solving it somehow.
Potential investors absolutely hate it when you tell them – ‘my business idea, there’s no competition’ – because when you tell them there’s no competition generally it means you have no idea who the competition actually is. So in this particular case, you need to be able to articulate how your idea fits in the space of all other similar or related ideas in order to be credible with your solution. You can also gain credibility by showing them a prototype, or a patent application. All these things are going to try and explain why you’re the right person to lead this venture forward.
Even for a product that creates a whole new category – maybe somewhat revolutionary; you might think the iPad. People were solving those problems before iPads existed. They may have been walking around with a laptop open in order to solve the problem, but they were still solving many of the same sorts of problems, so you need to know who your competition is and be able to articulate it.
So we’re going to try to work through a simple example. I propose that we start a new restaurant here in Newark. I’d like to introduce a new cuisine and feel that the market would really like to disover the food of Chechnya. Now you might shrug and say ‘Chechnya, really?’ But I know that when I bring my friends home to my mythical grandmother’s for Chechnyan food they fall all over themselves in appreciation. And there’s already a bunch of Portuguese, Italian, Brazilian restaurants in the iron bound and there’s room for something new – there’s a need, a need for something new.
Now the application’s easy because it turns out Chechnyan food is actually rather simple to cook. Pretty easy to prepare - typically it’s made of dumplins, pancakes, little bit of meat. Chicken, beef, never pork it’s not (?). Cooking styles are boiled or pan fried and typically pretty quick and can be made fresh from ingredients that are easily prepared in advance. And you don’t need a lot of special equipment to set up a restaurant to cook Chechnyan food. And there’s always restaurants going out of business. You could find a restaurant that went out of business. You could basically quickly take over their lease, do a little remodeling, do a little decorating and then pretty soon start cooking.
So then the value proposition – well Chechnyan food, the ingredients aren’t very expensive. And it’s going to be easy to prepare – you don’t need a very fancy chef or a lot of people preparing the food and we’ll be able to charge a premium by the fact of the novelty value since a lot of people haven’t tried anything like this before. Prep times are going to be quick – we’ll be able to turn over a lot of people, we’ll get a lot of people served in our restaurant and in addition we can setup a takeout business and get additional leverage from that from our restaurant.
So then we come down to competition and competence. People are already eating. And they’re already going out to restaurants – we know that. So all those existing restaurants are already substantial competitors. We have to figure out how to draw them to ours. But I feel that an entirely new cuisine is going to catch the attention of reviewers and foodies who are going to say ‘hey let’s try that out, that’s something new’ and through word of mouth and through they’re going to help bring in a larger, broader audience to try out our food. And I have a secret weapon. Because my mythical grandmother – she passed down all of her favorite recipes to me and I know how to cook it like she did.
So what it comes down to then if you have this valuable concept, it comes down to now you need to collect the resources so the next stop is you need an appointment with a Venture Capitalist. And we’ll talk more about that later today. Still, it’s just NAVC. Now assume you get those resources, put in the hard work, have a little bit of luck, you have a successful restaurant, what I suggest is that our next stop is let’s all go have a plate of Galnish. Thank you very much.
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