How you know you have a good idea – Prof Russell Smith interviewed by Monique Chambers.
Originally recorded and broadcast by CampusFM
Full transcript of the interview is below:
Monique: You’re listening to Entrepreneur Clinic with me Monique Chambers on campus FM. This is a new 17 part series on setting up your own business or launching a new product. This week, we have Professor Russell Smith joining us telling us how you know if you have a good idea.
So Russell, what are the elements of a good idea?
Russell: Well, I think it’s a really difficult question to answer. Although it sounds like a simple question it’s actually quite a complicated question. The first thing is not so much about what it is you’ve invented or thought of. The first thing is, what’s the problem? There has to be a problem. People buy things when they solve a problem. So if you can think of a problem, and you can solve that problem with a product or service, then I would call that a good idea. So I’m making the distinction here between just intelligent thinking good ideas and commercial good ideas and commercial good ideas, solve a problem. And that’s what we want. What I want people to think about too, is what are the benefits that that idea brings with it the product or the service? Because that’s really what you need to be thinking about? What are the benefits to the person who’s buying it solving a problem, but what are the benefits? So problem solving and benefits.
Monique: Okay, so sometimes an idea, you see is so simple, why hasn’t somebody thought of this before? How do you prove them that your idea is not so simple at the end of the day?
Russell: Well, I think the classic example of why hasn’t anybody thought of this before relates to when food preservation was first tinned, the first tin can opener didn’t emerge for about 16 years after the tin can process was invented. So sometimes you just don’t need it. And why didn’t they needed it was for the troops and troops had daggers or swords or whatever. So they didn’t need it. So sometimes a good idea arises because it’s just possible to make it in a way because technology’s changed or something’s happened. But generally speaking, a lot of good ideas. People keep themselves that simple ideas. Why didn’t I think of it before? It’s just a way of it. I’m afraid there’s no rhyme or reason or rule around that.
Monique: So once you think you have this problem solving idea, what do you do next?
Russell: Well, I think a good example would come from, say, in the UK, a man called Simon Woodruff who came up with yo sushi, which was the sushi restaurant and the conveyor belt decided that the problem he was solving was an unusual choice of lunch, and that would solve people’s hunger and it was a bit different. But for him, the next thing is how many people wanted it. So he literally stood all different locations over London with a clicker just pressing it with his
thumb, a counter just counting footfall so it’s can you actually get it to market, will people know about it and buy it. So it’s not just about whether it will solve one person’s problem, it’s got to solve lots of people’s problems. And so you can then generate a return which will ultimately make your profit.
Monique: So can one assume that one has a good idea because you have the need yourself because it’s just people counting going for lunch, did he then take that further and talk to them about their choices of lunch?
Russell: Okay, did use that example. I think what he was looking at to begin with was not necessarily the choice of people but the choice of location where enough people walking past so that there was footfall in that particular area but you’re talking also about critical thing about market research. And it’s absolutely vital to know whether enough people want to buy it. And to be honest, when would they buy it at a price that you must sell it at in order to make a profit. Now, honestly, I don’t care what you do with the profit. But you’ve got to make one you can spend it on cocktails in the Bahamas, or you can give it to charity doesn’t matter. But unless you make a profit, you will get a business. And then that’s the end of the story. So you’ve got to make sure you can sell enough things at a price that you can make a profit. And you’ve got to be very open to the difficult bad information, the things that you might not want to hear. So in other words, don’t ask friends and family that will tell you it’s marvelous.
Monique: So you would go out to do market research to a general audience to start with, or you think you have a generic idea of who your audiences should be and you start there?
Russell: I think people who are good at business. And I’m not so fun of using the term entrepreneur, I think different people mean different things by entrepreneur, it’s certainly very different from an inventor, the person who has a creative idea, the person who’s good at business is good at enterprise. Entrepreneurs there, I think people who have been good at more than one business in different areas of business activity. In other words, they can apply principles and approaches, and they’ve been successful more than once, otherwise, they might just be lucky, or you could be a plumber. I mean, I’ve never met a poor plumber. So it’s one of those things where I think you should be very careful about and think about all these things. But you’ve got to get the right information, you’ve got to have a clear idea of what it is. But it’s about the business process and the actual product or the service matters less than you knowing about the process.
Monique: So this process, where do you start?
Russell: Well, I think in terms of enterprise, that sounded like an opening for me to plug my book, but I won’t. So for that kind of information there’s a huge amount out there available via
the internet. So an overwhelming amount to be truthful. So I think one of the things if you’re lucky enough to be in close proximity to the universities, come and talk to people, take off which is incubator facility, lots of people there who happy to share ideas and advice within savvy CEBI, The Center Of Entrepreneurship And Business Incubation. Again, it’s our remit to try to help people who’ve got good ideas, look to see how they can turn it into commercial opportunities. If you don’t have access to that, then there are a number of websites that one can one can think about, or just by a simple how to do it book, but it’s the process of enterprise that you need to know about, entrepreneurship will follow; enterprise is the key thing you need to know about.
Monique: Are there main principles that you should follow?
Russell: Yes I think I would just repeat slightly what I said at the top of the program, which was that you have to find a problem that you need to have a product or service that solves that problem. And you should always be thinking about the benefits that you’re offering. You’ve got to know who it is that this product is for. For example, my son who’s 16 very good badminton player tells me he’s going to play for England one day, just so long as I buy him all the next top of the range products. He also mentioned that he’s going to choose my care home. So it’s a bit of a sort of leave it there, but essentially, I’m the purchaser, he’s the beneficiary. So all of the marketing to Unix does very sensibly is to market to him as the person who is the beneficiary, but I’m going to be buying that. So you’ve really got to know who’s paying, who’s the beneficiary and therefore knowing your market is critical.
Monique: So that brand would also or should also target the purchase and not just the person they want to convert the person that wants fresh to be the end user of their products.
Russell: I think that can be very valuable but equally I would say that it’s less critical you know the supply and demand; the demand is created by promoting it to my 16 year old who then turns to me to fund it. So I think the person who’s going to ultimately use it is the one where you’re creating so called pull through so they want you to sort of get them really and you want to get them energized about why they should be using it and I think that’s a very important sort of type of marketing. Oftentimes you would use celebrity endorsements so whether it’s football boots or whatever happens to be or makeup you the celebrity endorsement bit I think is stimulating it a need. Apple a classic of that and they were fantastic they had an iconic post years ago with a picture of a man called Richard Fineman who bit of a hero of mine. He’s very, very clever man, two Nobel prizes if I recall, one for quantum electrodynamics, very difficult songs. So this is a really clever guy. And they just did a photograph of him, and it says, think different. And at the bottom, it just said, www.apple.com, I just think that was the first post to just to quote only a website, but he was one of the first and the clever thing there is that they’re saying, if you buy a product like ours, you’ll be like Richard Fineman. And so again, I think it’s about that endorsement, either explicit or implicit.
Monique: And then I guess educating the parents or the payer on the product, so that they are happy to go ahead and buy and not just be, you know, have them be manipulated by their child.
Russell: I think that can be extremely helpful. But sometimes it’s very difficult to do that. For example, picking up with Apple, the iPhone six, Rowan tells me he needs an iPhone every has an iPhone five, I don’t really know the difference. And if I don’t buy that, it’s going to again ruin his life. And I’m not sure that the features of the phone are really what he wanted. So it’s much more important to possibly impress Emma who is badminton partner. I don’t know why he wants that. So persuading me, if Apple were to persuade me about the benefits of the features, I’m not sure to, that would make any difference.
Monique: Because you’re still going to buy on impulse and emotion essentially.
Russell: I’m going to try to buy on value in terms of value for money. I think my son’s assessment of value is a little different.
Monique: So it’s quite an interesting way of looking at it. I think we all do is actually in our in our own way. So you were talking earlier about savvy and how you can teach people to help people along with these ideas and ways of thinking, can you tell us a bit more about some of the courses that they run there?
Russell: Well, I guess the flagship course at the moment with savvy is the so called MENT, Mastering Entrepreneurship. This was a very deliberate departure from traditional ways of teaching. So we have four weeks of very intensive has to be said, teaching with lots of assignments, and lots of group exercises too but all of that is about teaching the principles of enterprise and entrepreneurship. Every assignment that the student undertakes is the creation of a business document. So whether it’s a job description, or advert, or a brochure, or a business plan, or cash flow forecast, every assignment as a business document that will be useful later in life. So that forms four nights and once completed, we then go on to work with the individual to take their idea and help them to create a fairly substantial market appraisal. So it is market research. But it’s also looking at the types of people who might be buying it. And can I make this at a price where I can make a profit, and so forth. And if that is successful, and that forms their first dissertation. They go on to do a second dissertation, which is a business plan. And that’s the key be all end all about the start of a business, you have to have a plan. But the telephone directory, PhDs thesis 30 pages or less, very simple, very straightforward, one page per year for a budget, what we call a cash flow forecast. So very simple. And the viva as part of this Master’s Course, is a funding presentation as if they were going to the bank or to an investor for money in real life. So we’ve tried to mimic the process of how that works over The National History of starting a
business. That’s been drawn from work that we’ve done in the past over the last 20 years. And that program that was developed has been used by the range of different people from very clever academics quite literally through to disciple people working from the bedroom because they can’t get out of the bedroom. So a very broad spectrum. And I think the pleasing thing is that the same principles help people with a business, whatever it is, about 80% of the information you need is going to be the same, 20% will differ. And we found that over the years that people have been using that and more than 3000 people have now they’ve raised over 100 million euros in business finance, so seems to work across the board. But the most pleasing thing is that we’ve followed the program in terms of whether or not the business was sustainable. And we can certainly make a big difference on sustainability, you may not know that more than half of businesses fail in the first three years, which is quite a quite a harsh statistic. So we have to do something about that.
Monique: And so this course is run only in Malta or elsewhere too?
Russell: So the course , speaking of the Masters from savvy is the really the technology transfer version of that, which is to say, if you are an academic or you have a fairly sophisticated idea then we can take you all the way through and help you raise the millions of euros that you need. But versions of that, and earlier versions have been used with a variety of different situations from disadvantaged groups who to younger people, x forces personnel who retired for medical reasons, through to the sort of academics to so it’s the basic principles that will be using, and that’s been done in Italy, and Latvia, in the UK and elsewhere.
Monique: So do you have to have an idea before you come on this course?
Russell: No, I think that’s one of the really interesting things about savvy is that we have recognized because we’re involved all together with the knowledge transfer office, which to say, if you have academic, so you’ve got a great idea, but they don’t want to be a business person, they want to be an academic, because they like research. And if they’ve come up with some invention, they’re obviously good at it. So why wouldn’t we want them to continue doing research. So what we say to people who come on the masters and entrepreneurship programs, if you don’t have a good idea, then we can match you with the university opportunity and put the tow of you together. So I think that’s quite a clever way forward, really. And we’ve got over 50 now on the island who’ve qualified through this, there’s some here next couple of years will have over 100, so will soon have quite a lot of people. I think you can develop good ideas, but may not necessarily have one on their own.
Monique: And is there a shortage of good ideas in Malta or is there going to be plenty to be able to feed?
Russell: I think the astonishing thing is that I’ve been involved in this kind of thing for about 25 years now is that there is an overwhelming amount of good ideas. And when you start a business I can guarantee that the thing you’ll be doing in three years time isn’t what you thought, you’d have a lots more good ideas, you’ll meet people with good ideas. So there are lots of good ideas, entrepreneurs, I just couldn’t choosing which are the best.
Monique: And that’s the best in terms of making a profit at the end of the day.
Russell: Being sustainable, I think it’s about doing things that you think you can sustain. Now, that sometimes means making a profit, but it could be a social enterprise activity whereby you doing something for public benefit, and it may be partially funded by grants or government. But yes, you have to actually make ends meet.
You’re listening to entrepreneur clinic on campus, FM with me, Monique Chambers. And my guest this week is Professor Russell Smith from savvy we’re discussing good ideas and how to know that you have one.
Monique: So you mentioned earlier in the program that you’ve written a book recently.
Russell: Well, the book came out of an interesting project. We were with 150 new businesses, and they all started pretty much in the first week of January, on a particular year. And we followed them over a year. And over that period of time, I hired nine MBA graduates, a business school graduates, and they did two and a half thousand interviews with those people who started a business. And it was really quite interesting to see the challenges that they faced in business. They weren’t all that we predicted, we thought we knew pretty much what they face, but they’re often challenges that we thought they would have, that they didn’t have, and challenges that we thought were not so problematic, that were problematic. So it’s very interesting piece of work. And then we track those people over the following five years. And we shared just providing people with basic information about business when they need it were very valuable. Because the overwhelming problem that people have is the amount of information on the internet, it’s just huge. So we came up with a slightly non academic approach of saying, okay, reading requirements of one page per day, six page module, and one page fact sheet that summarizes it provide you with one of those every week. So the seven pages and that’s a page a day and if we can think of all the things you need to know and condense them into sort of 48 packs, we can email those to you and that’s very straightforward. Now, I’m gonna be honest money, it took us 18 months to fight our way to agreement over what the content should be, but it seemed to work okay. So what I can tell you is that improving a person’s basic understanding your business and financial marketing topics can make a big difference and we found that we halved business failure rate so that’s quite a small amount of information that’s in a structured sensible way can make a dramatic difference to business failure.
Monique: So what are the surprises that you found, what really stood out?
Russell: Well, first of all, we read quite a lot of information and we still get it in the popular press in the UK about how red tape bureaucracies strangling business. We didn’t find other two and a half thousand interviews addressing one question came up about red tape and bureaucracy, it was not a problem. And now that have key advice, for example, was: Don’t waste your time trying to turn yourself into an accountant, pay your accountant. So in terms of things like calculating salary and taxation on a monthly basis for what you have to find some as you can accountants have a computer program that does that and charge you maybe 10 euros a month, you know, just get on and do something more valuable. So what we found was that red tape wasn’t a problem. And that surprises a bit we thought it might be. In terms of where we found problems that we hadn’t really realized was the businesses where people did not pay themselves to begin with. So they often said yet my businesses are successful. I’ve made 30,000 euros this year. And the first question is, how much did you pay? So I didn’t pay myself anything? What do you have made your money? Oh, yes, I have. my accountant says, I’ve made 30,000 profit. So getting people to understand that they were funding their own business and running up credit card bills, and borrowing from friends and family, all has to be repaid in the end. And our attitude we took was look; banks are banks. The banks that I’m sure they are all juvenile people but banks are banks. Friends and family, they are rather more important and so when you borrow from a bank, take it seriously; when you borrow from a friend or family, take it very seriously. So again, some difficulties arose because people were just thinking it was a rather unpleasant phrase, but sort of soft cash is easy money for borrowing from Bank of mom and dad. But that’s not the way to approach it. So not what we thought.
Monique: So you said that you’d help to reduce the failure rate quite dramatically. Was that purely through the education?
Russell: Yes, we believe so. And the key thing I think that made the difference was having people understand whether we’re on a financial basis day to day. Very accurate predictions about what they might sell. Most people are over optimistic about sales, and very accurate predictions about what things will cost, most people forget certain things. So you end up with a business that all businesses go negative money wise to begin with, and that’s just part of it. But then ultimately, you have to begin to sell more, make a profit, and then turn it around and become profitable. Most people fail because they keep putting their own funds into it, they keep going and going and going and going, then about year three, it crashes because they’ve run out of their own funds.
Monique: So you can actually teach people almost when to pivot, I guess, or when to cut the ribbon.
Russell: Very much so, very much so. And very simple lessons, it’s not complicated. The whole process of business planning sounds like you should go to university for three years to learn how to do that. No, it’s straightforward. It’s about what you intend to do, how you intend to do it, when and what it will cost over perhaps a period of three years. I haven’t yet found somebody that I’ve helped to, who couldn’t prepare a business plan. And if you write it on the back of a cigarette packet, frankly, I’ll still be happier than if you have no plan at all. But without a plan, you are likely to be in trouble.
Monique: So plan obviously being very important, and the good idea, but what should potential entrepreneurs and business owners be aware of before they even start? What because there’s obviously a glamorous view that you can work part time you can have your dog in the office, you can have holidays when you please. What are the things that actually you’ve noticed? Or you would highlight to people before they set out on a journey of being an entrepreneur?
Russell: Well, I think the first thing I would say to them is, forget this chair to become an entrepreneur, start in a in a more structured measured way. The first thing is, learn about business, learn about enterprise, it’s very straightforward concept, you can break it down into a series of steps, and therefore you can learn about it. So learn as much as you can about enterprise.
Second thing I would say is that you’re going to work hard. Yes, you can wear a T shirt, yes you can have your dog in the office if you wanted your business, but you will never work for a tougher Boston yourself, and you will be working all night some nights. And you will have things that go wrong, difficult, but it is extremely rewarding as well. So, it’s exciting. But be prepared to be surgical, rather than medical. What I mean by that my background is medical. So my, what I mean by that is, rather than trying to make things better, and better and better, you have to know when to cut it out and stop. So people who go on to become good entrepreneurs often know when to stop. Is that a failure? No, because entrepreneurial people usually have at least three businesses on the go at the same time, or three ideas. So again, don’t think of this as one job. Think of it as one of your many jobs.
Monique: So Russ, if somebody wanted to come and talk to you about their idea, how could they do that?
Russell: Well, just show by to the savvy office and pop along and have a coffee or plenty of coffee, Caesar and lots of coffee. So happy to have a chat and talk about ideas, particular from people within the university. Because often academic say, all this kind of thing isn’t really for me, you know, I’m academic. And I asked them, Well, what do you do? Well, I teach, and I supervise PhD students. And I do some consulting work. By the end of the conversation is clear, they have at least seven jobs. So people are much more entrepreneurial than they sing. So pop along how the chat and we’ll see if we can help.
Monique: So that’s the savvy office based at take off. It’s in University at the third floor. Russell: Yeah.
Monique: And then once you’ve this chat, what are the services that you offer there that can help people take their idea forward?
Russell: Well, I think coming into take off if you want to start a business and make it happen is a very positive thing. Because there’s a group of like minded people are supportive people there who can help you bring you into contact with finances and a range of other things. But I think just get involved with some of the events that they put on. So look what’s happening in the take of things, events, most weeks come along, because those talks to people and begin to think was you’d like to take it forward. If you do, then we can help you with some kind of plan. That’s the first step
Monique: So that’s actually helping with the business plan that we’ve made.
Russell: Yes, we can help with things like that. But we want to just plan it out and we can use different tools. I would like to have, for example, a one page document that says, What have you got, what problem does it solve and what benefits does it bring, from that we can create a business mind
Monique: Okay, so I hope you’ll be absolutely inundated with new ideas from all our listeners