Is success of a business based more on the decisions or the idea?
I recently attended an event where one of the speakers talked about the large number of businesses that fail. She said that most business failures are less about the idea and more about the poor decisions made. I am curious if others agree with this. I think decisions are important, but also having the right idea is critical to success.
In a recent Innovation meeting where people come together to get help with start-ups, the speaker told the audience that the idea is worth 6% of the business. I would venture to say that the idea probably contributes to about 6% of the success of the business. The rest has to come from consistent persistent effort, AND the right mix of other ingredients.
I've seen businesses that blow me away by how successful they are when I look at how simple the product is. I know a man who had a hugely successful company where they mad custom painted hair barrettes with little girl's names. "How could this idea make a man rich?" I wondered. They only made about $0.20 profit per item. The answer is: SALES and DISTRUBUTION CHANNELS. The guy set up a network of specialty stores that had orders pouring in from all around the world.
Another example is the guy who started selling rice crispy cookies to gas stations. he and his wife made them in their kitchen after they had the idea, and wrapped them in plastic wrap. Nowadays, commercial kitchens must be used, but back then, they did it from home. They set up a network of gas stations buying their products, and got to the point where they were working 16 hours a day before they moved into a factory.
I know a guy who just invented a new process for 3D printing. His idea was revolutionary enough that he is signing a deal with a large Aerospace company, and he will need an manufacturing facility. Sounds like an easy dream come true...until you realize that he has spent $10,000 getting patents, and $25,000 in prototype costs, and lots of hours in the evening trying to perfect something over the past two years...and he has a regular job, so all this had to be done with extra effort. Nobody came along and said, "I'll fund your idea." He had to show a prototype before anyone would notice. Maybe this is how it all shakes out...Idea: 6%
Vision and hard work from founder to get there: 25%
Mentorship, or Connections: 20%
Manufacturing processes or production environment: 24%
Distribution channels: 25%
Hey Jason, I really appreciate your answer because you gave examples of the decisions made that had more of an effect than the main idea. This was really helpful, thank you.
Many entrepreneurs come up with great ideas. Some work and some don't. Their decisions following those ideas are critical. Rolling up their sleeves and doing the hard work - creating a business plan, marketing plan, etc. and a timeline for implementation are key. Knowing when to delegate to others is really helpful. Testing their idea, being flexible enough to adapt and change, and accepting that disappointment is simply a pothole in the road are the hallmarks of those who succeed and those who do not. I have seen many people start businesses with an idea, but fail to do the work needed.
I've watched friends and colleagues invest in their own start ups, and I've seen the main idea either grow or fall despite the intelligent or poor business decisions they're making. So to answer your question, I think success or failure is based on every business decision you make. But without a sustainable main business idea, there won't ever be success.
Hi Jen, I agree with you that the main idea is key to a sustainable business. But obviously the decisions you make along the way are going to affect the outcome.
I think the guest speakers were trying to get at that exact point Ed; the idea is a direct result of the decisions that have been made.
Success depends on the confluence of ideas, decisions made, execution against the decisions made, timing, and a good deal of luck. You might want to check out Reid Hoffman's interview on This Week in Startups, you might find it enlightening (http://bit.ly/1Fl12IH).
Hi Scott, thanks for the link. I can't wait to watch that later, I know Hoffman will have some great insight in the differences between the starts up that fail and the start ups that succeed.
I agree with speaker as would most investors. History shows smart money usually prefers to invest in people, not ideas. To me it makes sense because I've seen great ideas fail because of poor decisions and I've seen very ordinary, unoriginal ideas succeed because of good decisions.
If, as Jen says, she has seen good ideas fail despite intelligent decisions, I would say these people likely made some good decisions, but they also must have failed to make some other critical decisions correctly along the way. Or more likely, failed to recognize there was another important decision to be made and failed to make one at all.
Otherwise, as Ed pointed out, they failed on the first big decision they made - evaluating the idea.
Ideas are easy. I hear million dollar ideas all the time. I totally agree with what the woman said. Although I have seen my fair share of poor business ideas, poor business practices far outweigh them.
Thanks Ron, the way you phrased poor business ideas vs. poor business practices makes a lot of sense.
Both are important. It's like saying what's more important a leg or an arm? I believe there are six main factors that will determine likely success and I have developed a model which allows those to be mapped out. The most important factor is Customer Need or Want. If nobody wants to buy your product or service then whether the decision was good or the ability to make decisions become irrelevant.
The best idea or technology rarely wins unless it has a need or want plus a path to market. Then worry about the other factors.