Bradley Treat is the type of guy that carries several business cards. He teaches entrepreneurship at the Johnson School at Cornell and at Ithaca College. He’s involved in the startup incubator Rev: Ithaca Startup Works. And he was also the CEO of the video and voice communications company SightSpeed before it was bought up by Logitech.
So the self-described serial entrepreneur was a natural fit to join eCornell’s Chris Wofford for a WebSeries event on what makes a great startup business idea. What follows is an abridged version of their conversation.
Treat: What I’m going to talk about today is actually an excerpt from a class I teach at the Johnson School called “The Business Idea Factory.” As people begin the entrepreneurial journey, they need to make sure they have some great ideas to start with. We’ll focus on giving you the tools to generate a lot of ideas and then help you filter out the best one and decide where to go from there.
To start the process, ask yourself: “What is a business?”
A business solves a problem that people care about. Someone has to be willing to pay for the solution. To break that down a little bit, the first thing we have to ask is, not what does your business do, but what problem does it solve?
Wofford: So this is really thinking about your potential customer in terms of what problems they might face and what kinds of solutions to that problem they’d pay for?
Treat: Right. Why do they care about solving this problem? Why should they be willing to pay you?
What I want to do next is give you some examples of businesses that solve problems. The first problem we’ll look at is the need to save money.
There’s a company called Forward Air, which is an air freight company that doesn’t own planes and a trucking company that doesn’t own trucks. What Forward Air does is to drive trucks between airports in the middle of the night.
You might say, “But Brad, why would somebody want to drive trucks to airports in the middle of the night?”
Well, what they figured out was a lot of air freight doesn’t have to go on planes. If you were to send an air package from Syracuse to Boston, you’d have to send it by 7pm. It’s not going to leave the FedEx depot in Boston until 7am the next day, so that’s a 12-hour period. They realized Syracuse to Boston is a one hour plane flight or a five-hour truck ride. So why not put that envelope on a truck and drive it to Boston? It’s much cheaper to drive mail than it is to fly mail. Forward Air figured out that they could handle a lot of airmail for the overnight carriers and save them significant money.
I also mentioned that this is a trucking company that doesn’t own trucks. One of the things Forward Air identified was the fact that many trucks sit idle in the middle of the night. So they went to truck owners and said, “Hey, your truck is just sitting there overnight. Let us use it. We’ll drive it, fill it back up with gas and get it back to you in the morning. You’ll make a little money instead of it just sitting in your driveway.” They identified a problem and solved it in a very unique and practical way.
Another example of a company solving the “Save Money” problem is a company called Kettleshell. This company invented a way to turn dumbbells into kettlebells. As you might know from the gym, a kettlebell sort of looks like a Civil War cannonball with a handle on it and there are a lot of workouts you can do with them.
Kettleshell converts a dumbbell into a kettlebell through a handle that bolts right on. If you’ve already got a set of dumbbells, you can now bolt this handle on and do kettlebell exercises using your existing dumbbells.
It’s a tremendous idea but interestingly, the founder originally thought he was going to save people money on not having to go out and buy a bunch of new kettlebells but it turned out that people in urban areas, particularly urban gym owners or urban apartment dwellers, were actually less concerned about the cost than the space. They didn’t have anywhere to put a bunch of kettlebells. So this product ended up solving two problems.
Wofford: It sounds like one of those products where you think, “Why hadn’t anyone thought of this before?” What about addressing problems that aren’t money-related?
Treat: Another area where businesses find success is in making something more convenient.
A good example is Sean Neville, the founder of Simply Audiobooks. Audiobooks are still something that people listen to on a physical medium because so many people listen to them in a car. So Sean developed a subscription service similar to the early days of Netflix, in which subscribers get mailed the audiobook CDs. Part of their innovation was coming up with a packaging sleeve that allowed the company to mail multiple audio discs at once. Unlike Netflix, which would send one disc at a time, Simply Audiobooks would send all of the discs required for a book, which sometimes could be as many as 12.
At the time Sean sold the company to a Toronto private equity firm, they had 25,000 customers and were North America’s number one audiobook rental company. Each one of those customers was paying an average of $25 to $35 per month.
To understand how valuable the convenience they provided is, you need to remember that their number one competitor wasn’t charging anything. Their top competitor was the local public library, where users could get an audiobook for free. But the convenience of having the audiobooks come to your home and being able to send it back and forth was worth $25-$35 a month to over 25,000 people. Convenience is truly valuable even if you’re competing against free.
Another good example is a Cornell company called Rosie. Rosie is an app to do grocery delivery. Now, people typically view grocery delivery as a luxury item for rich people. But what Rosie discovered was that rich people actually like to go to the grocery store. They like to walk the aisles at Wegmans. They like to pick out their own apples.
It turns out that the people who really need something like this are folks for whom getting to the grocery store is actually quite inconvenient. This is primarily people without cars. It could be students, it could be people who can’t afford a car, it could be people who choose not to have a car because they use public transportation for most things. But going to the grocery store is wildly inconvenient if you have to take a bus. You have to fit all of your grocery bags on the bus or you have to pay for a taxi, and that’s both inconvenient and expensive.
So what Rosie discovered is that although they thought they would be selling to rich people, their audience was really those who found the value in paying a very low delivery fee that was cheaper than a cab and more convenient than a bus ride.
Wofford: I know someone who has a modest income with three children under the age of two. With the inconvenience of trying to take the kids to the grocery store, this sounds like a no-brainer.
Treat: That’s a perfect example of who Rosie reaches. The company polled college students and asked why they needed a car and the number one reason given was for going grocery shopping. With Rosie, you don’t need a car anymore. I can also tell you that university administrations don’t like having to deal with a lot of cars and parking and all the permits. They’d prefer that students do not have cars. I also know that here in Ithaca, our mayor is very excited about it because he’s trying to figure out how to get people out of their cars from an environmental standpoint.
Wofford: So this company is actually addressing numerous problems at once.
Treat: Exactly. When you’re thinking about problems, think broadly. It’s not just about saving money or saving time. There are always creative ways of solving a problem for someone out there if you can deliver on it in a meaningful way.
One thing I really like to point out to people is that you do not have to come up with a business that nobody else has ever come up with. It’s a popular myth that a good idea is one that nobody else has ever had. But think of Google. There were all kinds of web search engines that existed before Google but Google came in and said, “Hey, we can do this better, we can do it differently, and we will be able to compete with all of these.” And of course, they didn’t just compete, they completely took over the market.
The way we see it is that if there are no competitors doing it, that’s a problem. It means nobody cares and you don’t want to try to solve a problem that nobody cares about. Having competitors is good — you just need to know your competitors and understand how you’re different and unique from them. If you can be slightly different or slightly better or target a different, underserved market, that’s a tremendous opportunity for you. Don’t get discouraged and just say, “Gosh, somebody already came up with that idea.” Revisit the idea and say, “How can I do it better? How can I do it different? How can I find a new market that is being underserved?”
Wofford: I think that’s great advice. It certainly seems easier to improve upon something that already exists than to invent something out of whole cloth.
Treat: It is. If you can understand how big a problem is for people or how you are better than the competitors at addressing it, you’ll have an edge. Focus on the problem you solve and then you can build an organization around that.
So, where do you find the ideas? You need to put on your entrepreneur glasses and look at the world in terms of problems that you could solve. If they’re big problems, people will pay to solve them. The bigger the problem, the more they’ll pay. Find somebody who has their hair on fire and they will pay you a lot to put it out.
Once you change your lenses and look at the world through different ways, you can actually start coming up with lots of ideas. I would encourage you to put everything on the list.
Wofford: Let’s say you have a list of 100 ideas. How do you know which ones are worth acting on?
Treat: There are certain criteria that we can use to define what makes a good business idea. You have to make sure it’s a good business idea for the customer. We want you to say, “I want to make what customers want to buy.” That should be the focus rather than trying to sell something that you want to make. Understand the customer and build an organization accordingly.
Wofford: I’d like to now turn to the audience and take some questions. We had a good one come through from Lawrence in the chat window while you were speaking: “How should a successful startup value its equity prior to seeking angel funding?”
Treat: I would actually encourage him to not value it. I know that sounds like a dodge, but valuing early-stage companies is extremely difficult to do. It becomes a sort of a thumb in the wind.
Still, there are techniques we can use, the most notable of which is something called convertible debt. What this says is that any money that comes in will be valued at some future date and there is a whole mechanism for doing it. You can actually find a lot of these templates online but basically what it says is you put the money in now, that money will earn interest, and then at some future date it will convert into equity once we have a better way of determining valuation.
Wofford: Here’s another great one: Once you’ve got a good idea for a new or improved product, what’s the best way to go about getting it out there?
Treat: Let’s go back to the Kettleshell example. He made the handle that goes on the dumbbells and he thought he should go out and build a prototype out of steel, aluminum, rubber handles — the whole thing. I said, “Don’t do that. Just make a mock-up.” So he went over to the art supply store, got some styrofoam, some duct tape, and some spray paint. That was enough to make a mock-up that he could put into gym owners’ hands. They were then able to give him feedback and suggest some changes. That styrofoam version turned out to be way more valuable than had he made the real thing. He was able to get pre-orders based on a CAD drawing, essentially. The more you can talk to customers, the better.
Wofford: We’ve got another audience question here, this one from Rohit in India. “I have a great product idea, but building it requires funding. I’ve done my research and believe this product will be the first of its kind. Where and how do I begin?”
Treat: Well, as I said earlier, it is rare that I find something that’s truly one of a kind. So I would challenge Rohit by asking how people are currently solving the problem that his product addresses. You may be solving it in a unique and different way, but how are others currently solving it? If you can go out there and talk to customers and find out what their needs are, then they’ll help you build the products.
I would challenge you, Rohit, to think very creatively about how you can get a minimally-viable product. If the guys from Kettleshell can do it with Styrofoam, then you should be able to creatively come up with some way to demonstrate your product.
Wofford: We have a question from Lance, who asks if you can recommend any other resources for generating ideas.
Treat: The best way to come up with a lot of ideas is to talk to a lot of people. Ask them open-ended questions about what problems they face. The more open-ended, the better. What’s your top expense? What check do you hate writing each month? What is one thing that you do in your job that you wish would just go away?
If you’ve currently got a job, look at the company you are at right now and ask yourself “What’s something that my company does now but shouldn’t be doing because it’s not our core business?” That could help you spin it out into a whole new business.
Wofford: Those are all great ideas. We’ve unfortunately run out of time, so I want to thank Brad for joining us and thanks to all of you in the audience for posing such good questions.
Treat: Thanks Chris, this has been fun.
Want to hear more? This interview is based on Bradley Treat’s live eCornell WebSeries event, What Makes a Great Startup Business Idea? Subscribe now to gain access to a recording of this event and other Entrepreneurship topics.