For any entrepreneur, the route from idea to established business is a long and winding one. Stuart Crainer examines the starting points of the journey and some of the key stages along the way with London Business School’s latest wave of founders.
This article is provided by the Deloitte Institute of Innovation and Entrepreneurship.
Points of departure
Esin Akan spent more than a decade working for some of the world’s best known fashion brands — Burberry, Jaeger, Anya Hindmarch and Duchamp. She worked in Paris, Milan, London and Istanbul. And then the real journey began. “I used to work for Burberry handling the global sourcing of leather handbags. While I was working for the company my friends and family always requested different products to the products we actually had. Later, I did some research and found that there is unmet demand for a different type of product for working professionals. I decided to pursue the opportunity.” Esin Akan’s eponymous company was created in December 2012, and launched in May 2013, aiming to offer customised luxury handbags to bag a share of the 200 billion euro global luxury goods market (www.esinakan.com).
Every business starts with something. It might be an idea or the germ of an idea. It might be a thing, a world-changing product, a smart enhancement to something which already exists. It might be a dream, a desire to shake up the status quo, to change things.
Meet Shivani Parmar (www.shivspix.com), a habitual builder of brands, businesses and ideas. “I’ve always been into building things. I didn’t know there was a word for it. But when I was eight I was making greeting cards and selling them to neighbours. When I was in college I created a global health magazine, which ten years later is still running. I was the photographer for the US Olympic rowing team. It wasn’t a job that you applied for. I just went to the team and said I’d like to do this, and they liked my work enough to let me stick around. I’m doing what I’ve always been doing and I guess it’s called entrepreneurship.”
Her new venture is good news. Literally. “The idea is if you look around you’re constantly surrounded by bad news and actually there's a lot of amazing people doing remarkable things in the world and you just never hear about them. And so our goal is to share these stories and offer support to people doing these things, so whether it’s training to win an Olympic gold medal, win the Boat Race or whatever it may be, bringing some of these untold stories to the public.”
Other entrepreneurs smartly connect two circling dots. Neil Daly and Julian Hall are founders of Skin Analytics (www.skin-analytics.com). “Skin Analytics was born out of the idea that there are so many smartphones in the hands of people all around the world now and there’s a real opportunity for us to use the power of those smartphones and run some analytics on data that people can collect,” says Daly. “We thought about that for a while and realised that there’s a lot of health problems that just get diagnosed purely on a visual basis. So by using the smartphone’s camera and doing the analytics in the backend, we’re able to try and detect skin cancer earlier. So that’s how the idea came up.”
Skin Analytics uses cutting-edge image processing algorithms, developed in partnership with leading academics from the University of Cambridge. The algorithms allow it to detect and track changes in key properties of moles over long periods of time just using images taken at home with a digital camera or smartphone. Dots connected. For other entrepreneurs, the point of departure is that they have been in situations where things could have been better. Dissatisfied, they have set off to do something about it. Perhaps the best known examples of this phenomena are Phil Knight and Bill Bowerman, Nike’s founders. As distance runners they had suffered the pain and performance-limiting discomfort of poor quality running shoes.
Advice for travellers
Whether inspired by a compelling dream or mounting exasperation with the products currently available, before departing on the entrepreneurial journey, it is worth being reminded of the sometimes harsh rules of the road. There are a host of advisory notices for would-be travellers. “Most opportunities are not what they appear to be, as the business failure statistics demonstrate. Most of them have at least one fatal flaw that renders them vulnerable to all sorts of difficulties that can send a precarious, cash-starved new venture to the scrap heap in a heartbeat,” warns John Mullins of London Business School and author of The New Business Road Test and co-author of Getting to Plan B. “An abundance of research makes it clear that the vast majority of new ventures fail for opportunity-related reasons:
- Market reasons: perhaps the target market is too small or simply won’t buy
- Industry reasons: it’s too easy for competition to steal your emerging market
- Entrepreneurial team reasons: the team may lack what it takes to cope with the wide array of forces that conspire to bring fledgling entrepreneurial ventures to their knees.”
Businesses start with a bright idea, a glimpse of a gap in the market, a once-in-a-lifetime opportunity. And then what? Well, then you have to make it happen. But where? Perhaps ironically, sometimes claustrophobically and often hugely successfully, the entrepreneurial journey often begins by not going anywhere.
For some entrepreneurs, the answer is a cupboard under the stairs, or the spare bedroom. For others the answer is the garage. The garage at 367 Addison Avenue, Palo Alto, was the birthplace of Hewlett-Packard. Walt Disney’s Uncle Robert’s wooden garage in North Hollywood was the unostentatious base for Walt Disney when he arrived in California in 1923. He paid $1 a week for the garage which has now been moved en masse to a museum.
Many others have followed the route from idea to garage and beyond. Elsewhere, Henry Ford turned a coal shed into a garage to start his business. Joseph Cyril Bamford started up in business in 1945 in a lock-up garage in Uttoxeter. His first product was created from war surplus and was sold for £90. This laid the foundation for the JCB company which has been making the earth move ever since.
The garage stage on the entrepreneurial journey is a time for tinkering, tweaking and thinking. Few businesses make an instant leap from idea to actual business. At this point ideas and models are incubated, products and services are prototyped and tested, business plans are honed, potential customers are talked to, markets analysed, locations weighed up and much more. Preparation is everything.
For many entrepreneurs this can be a period of eye-opening realisation. The world is not breathlessly awaiting their arrival. It is getting along very well without them. What customers actually want is not quite the same as what you had in mind. Plan A becomes Plan B.
Shivani Parmar’s recent experience as the photographer of the US Olympic rowing team was a vital stage in her journey to beginning an entrepreneurial venture. Talking to potential customers she was surprised that people weren’t especially interested in having one-on-one contact and conversations with athletes. “People love the photos and videos, but what they really love is that the athletes are quite candid. It’s not something that a PR person has written.
“We started off thinking it would be interesting to people aspiring to achieve similar goals. But it’s turned out to be a full range. People who have just started out in certain sports say why talk to someone who’s at my stage when I could see what Olympic athletes are doing? That was a bit of a surprise for us.”
It is at this point on the entrepreneurial journey that the need for support and re-assurance, as well as sometimes crushingly honest feedback, is felt most. It is as if the explorer has set off for a far flung land and then realises that they haven’t thought about what they are taking or, sometimes, where they are going.
Incubation provides a hot house of ideas, shared experiences and vital feedback. NeuroLogic Medical Solutions (www.neurologicmed.com) is among the businesses incubated at London Business School’s Incubation Unit. “My background is in bio-medical engineering. I’ve been working with a couple of neurosurgeons in Calgary, Canada where I’m from since I was an undergraduate,” says NeuroLogic’s Justin Waghray. “We have been working on different ideas that could have potential. My goal was that by the time I graduated in 2010 I wanted to create a company that I could work full-time on. That was a bit ambitious but we didn’t really know what it took to get funding, to get the proper systems in place, to actually have a sustainable business.
“Being in an atmosphere like the incubator really gives you a chance to talk about shared experience. If you’re looking for somebody to hire for website design you can get an introduction from somebody who’s gone through three website designers and likes the third one. It is also useful to have senior people in place who have been through the process before and who know how to guide you.” Shivani Parmar’s fledgling business is also in the incubator. “Every business is trying to figure out many of the same things at the same time, and so if you can ask quickly, how do you do this, how do you do that, it makes things a lot faster,” she says. “And then of course there’s just the logistics of you have an office, you don’t have to worry about I need electricity or internet or all those details. You can just focus on building the business.”
Part of incubation and the process by which any business makes the leap from idea to reality is feedback and robust interrogation of what it is the business will do, its business model and how it is differentiated from the competition. It is here that mentors can be crucial in a business’ development. The Deloitte Institute of Innovation and Entrepreneurship at London Business School presents annual Founder Awards to students who have started their entrepreneurial journey at the school. Among the 2012 winners were Esin Akan, NeuroLogic Medical Solutions, PlayEnable and Shivani Parmar. The winning start-ups — spanning social entrepreneurship, fashion, health and medicine, fitness and sport — receive a package of support which includes a year-long place in London Business School’s Incubator, a small cash injection and mentoring from Deloitte and London Business School faculty.
Paul Fletcher, a partner in the London practice of Deloitte, acts as a mentor — his recent mentees include the crowdfunding platform CrowdBank. “It’s refreshing for us to be exposed to entrepreneurs at all stages of growth. It always reminds us of what business is about and what being a business advisor is truly about. Actually, it’s why most of us got into the business in the first place: wanting to be a business advisor and to help people grow their businesses.” As a mentor to aspiring entrepreneurs, Paul Fletcher identifies three recurring issues:
- Focus: “Entrepreneurs take risks, see opportunities, and get moving on things. The stimulating part is they do all three of those. Sometimes the challenge is to really help them with their focus on what they need to achieve to break into the market or to define the problem they’re solving for other businesses or people.”
- Resources: “Entrepreneurs commonly underestimate the resources they will need — in terms of people, networks, relationships, as well as more obvious resources such as finance. They often tend to think that they can do a lot of it themselves and overestimate the speed at which they can accomplish things.”
- Results: “Results matter and so entrepreneurs always have to focus on results. They have got to plan ahead and plan for the near term on delivering the results they need, whether it’s partnering with someone, keeping a key employee or raising the cash they’ll need to get to the next milestone.”
Funding the journey
High on most entrepreneurial agendas is the need for funding. Pitches, business plans, websites and a profusion of other activities have one aim in mind: to attract money either from investors or customers.
Entrepreneurs have a unique relationship with money. For some it is the driving force — though most (publicly at least) say that their motivations are more wide-ranging and noble than mere money. The reality is that studies show that most entrepreneurs make less money in general than their corporate counterparts. For many, money is hard to come by, sometimes impossible. Dauntingly, it has been estimated that less than one per cent of those who submit business plans to business angels, venture capitalists or similar sources of funding will be successful in raising the money they seek.
Whether motivated by money or not, cash is the vital fuel for virtually all entrepreneurial journeys. Support from family and friends, and your own personal savings, are distinctly finite resources. Funding is where reality kicks in. Until investors are attracted or money invested, the business exists chiefly in the imaginations and hard drives of its creators. Funding is where an idea grows up. “Once you’ve got funding then you’re an entrepreneur. Before funding you’re just working on a project,” notes Justin Waghray.
The sheer range of funding options is daunting — angels, venture capitalists, banks and much more. This junction in the entrepreneurial road has numerous potential turnings. The rise of crowdfunding adds a new and bright option.
Another potential route is proposed by John Mullins. “There seems to be an assumption that if you’re an entrepreneur and want to build a high potential business, what you should do is come up with a great idea, write a business plan, raise some venture capital and two weeks later you’ll be rich. That’s the default idea,” he observes. “But the vast majority of companies that grow to be large and successful never raised any venture capital. So why are we so focused on raising money and putting the investor at the centre of this entrepreneurial phenomenon? I think the person who ought to be at the centre of it is the customer, not the investor.” His latest work looks at businesses which have raised money via customers to develop.
Others go lean. “You hear a lot now about the lean start-up,” says Deloitte’s Paul Fletcher. “A lot of founders are essentially creating concept companies while either keeping their day job or managing to do that and some other activity at the same time. One of the real challenges gets to be commitment; at what point do you depart or leave the day job to join the lean start-up and make it an operating business?
“What’s interesting is that 20 years ago the lean concept idea didn’t exist and most people just said, ‘I’m building it, I'm committed, I’m in’. Now I think entrepreneurs hedge a little bit more to see if they can get traction first in a lean start-up and then there has to be a decision point when they need to commit.”
Lean and hungry is a pithy summary of the entrepreneurial traveller. They have to be. The journey from idea to successful business is always long and inevitably fraught with challenges. Only the truly adventurous need apply.
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