Innovative Ideas

Where do innovative ideas come from?By Roche Mamabolo

 

Growing up in the township,television was a luxury in a number of households. I grew up just as television was introduced in most households(I’m not that old though),I remember those daysmy brother and I would to go to our neighbour to watch a soccer match.Later on I also remember a period when satellite dish was introduced. There would only be one house on the street that had decoder, those who didn’t have had to watch MNET open time or once again like the old days had go to that neighbour’s house and watch a movie after the open time is closed. Owning a satellite dish was a sign of class, only few people owned it. However today almost every household especially in major cities have a decoder and even in squatter camps you are likely to spot shacks with satellite dish, giving true to what Seth Godin said about innovation that “what is unique today will be common tomorrow.” The concept of the television, mnet decoder and later DSTV are somephenomenal innovations that have revolutionised the world.

 

Growing up in the 80s, television was a luxury, it was not available in most households and even when we had it at home, my parents were strict in limiting us to watch it because they felt it would distract our studies. So I became allergic to watching television.Groncho Marx put it very well when he said “I find television very educational. Everytime someone switches it on I go into another room and read a good book.” This time when I switched the TV on, I stumbled on a program called Dragons Den. Dragons Den is about entrepreneurs who pitch their innovative ideas to five multimillionaire and potential investors with the hope of raising funding. The budding entrepreneursget few minutes to pitch their innovative ideas and then are interrogated by the Dragons (the potential investors) on the viability of their ideas. Unlike Groncho Marx,I couldn’t go to another room and read a good book;instead I was hooked to this Dragons Den. This programhighlighted one of the most underrated concepts about entrepreneurship, which is innovation. A business starts as an innovative idea. Just like a house needs a solid foundation, an innovative idea is the foundation of a successful business, the weaker the foundation, the weaker the business, lack of a solid innovative idea will result in a weak business.

 

The essence of this article is to answer two questions: where do innovative ideas come from and how do you assess and pitch your ideas to potential investors? But before answeringthese questions, it is important to understand why innovation is vital. Innovation has revolutionised the world, from Isaac Newton‘s light bulb to Henry Ford’s model-T to television.Innovation continues to change the world. When Steve Jobs recruited John Scalley from Coca Cola he said “you could give up selling sugar water and come with me and change the world”.If it wasn’t for Isaac Newton you wouldprobably be reading this article under a candle light. Innovation makes the world a much better place to live in. It’s through innovation that we have flushing lavatories. But also from an entrepreneurship perspective, entrepreneurs who innovate tend to be marketleaders, they are game-changes, trend-setters, the crazy ones as defined by Steve Jobs.They create market where there was none, they don’t follow the rules they create the rules.Their first-mover advantage gives them dominant market share. In the book Blue Ocean Strategy, the authors talk about “The only way to beat the competition is to stop trying to beat the competition. In red ocean (less innovative industries), the industry boundaries are defined and accepted, and the competitive rules of the game are known. In blue oceans, competition is irrelevant because the rules of the game are waiting to be set.  Innovative companies instead of focusing on beating the competition, they focus on making the competition irrelevant by creating new innovative markets. Entrepreneurs who replicate each others business models ends up using lowest price as a competitive advantage, this reduces margins to an extent that the only way to remain sustainable is through increased sales volumes. Ultimately such businesses tend to be less worthwhile to operate because the flood of competition has saturated the market and the profit margins.

 

1. Where do innovative ideas come from?

1.1 Customer Frustrations

Customer frustrations are always a source of innovative ideas. It is through reading feedback forms, complaints records or listening to radio when potential customers complain about a service or product that an entrepreneur can use spot a gap in the market and turn those frustrations into innovative idea. Internet banking came as a result of customers complaining of long banking queues, iTunes was a result of people being frustrated of buying an entire album in order to listen to one or two of their favourite songs. Visiting websites that records customer complaints or browsing through the complaints/compliments register to get a sense of what the issues customers are complaining about is a source of innovative ideas.

1.2 Rising Tide

 

Look at the rising tide. Just like ships in the sea, when the tide rises, all the ships in the sea also rises. Telecommunication is a rising tide in Africa, therefore most of the players in that space will also rise. You are unlikely to come up new innovations in the fax machine industry because that industry is not a rising tide, but you are likely to hit a market in the telecommunications industry in Africa.

1.3 Environmental

 

Any idea that has strong environmental efficiency will give you a competitive advantage (off-course the concept has to be solid)

 

1.4 Export Opportunities

 

The Department of Trade and Industry (their export department) have a list of countries that require products from South Africa. This will provide the entrepreneur with a market of willingand ready buyers.

 

1.5 Academic Institutions

 

Approach local research and academic institutions for innovations they have done and tested, enter into an agreement with them to commercial their innovations. Most research institutions are not inclined to be entrepreneurial. CSIR, NRI, Innovation Hub might be great places to visit.

1.6 Venturing Funding Institutions

 

Research international venture funding institutions and the innovative projects that they funded. This can be through browsing for websites of international venture funding institutions. The rationale is that if international venture funding institutions can fund innovative project overseas, local funding institutions can fund similar innovations after being customised for local conditions.

 

1.7 Attend Innovation Conferences

 

Attend conferences where innovative ideas are discussed. This is where latest innovative ideas, concepts and proto-types are discussed and presented.

 

1.8 Network with Industry Experts/Thought leaders

 

Industry experts or thought leaders tend to provide information on the direction the market is going. Check their articles, websites, follow them on twitter; they provide valuable information on future trends.

2. How do you assess and pitch your ideas to potential investors:

2.1 The Jockey

 

As an entrepreneur, you need to have researched your idea, show experience and passion for your innovative idea. Even though investors are assessing the innovation as a concept/idea, ultimately they will be investing in the person behind the innovation. They are betting on the jockey rather than the horse. Show passion, commitment and the sacrifices you made to make the innovation work. Be presentable, articulate and willing to take feedback and criticism as a learning curve for your innovation.

2.2 Market Gap

 

Is there a problem that you are trying to solve?  Is there a gap in the market? An innovation must solve a hard core real problem. One of the mistakes that entrepreneurs make when pitching their ideas in the Dragons Den is to create a problem that they think is the problem for everyone else. Just because it is a problem to you or your friends may not necessarily be a problem for their entire country. Therefore it is important to research your idea, test it not only with your friends and family but also with strangers because your friends and family will tend to be give you positive feedback, but strangers have nothing to lose by telling independent objective feedback. Therefore look at statistics, trends, and customers feedback.

2.3 The Valpre Effect Product/Service

 

What product or solution are you offering?Is you product or service solving real problem? This is called the valpre effect, the link between the gap in the market and the product/service you are introducing to fill the gap. Is your product/service solving a market gap meaning as an entrepreneur have you adequately diagnosed the problem and is your medication the right one to solve the illness. Most important is your product innovative, has been tested, is it safe to use and has been it been patented. Is the idea easily copied and if so what are the mitigations to keep the idea competitive.

2.4 Traction

 

What is the traction of the idea/product?How long will it take to get the innovation to start generating cash? The sooner it is to get the innovation to the market and start generating revenue, the better. The longer it takes, the risky the viability of the innovation. Rather spend time testing the innovation before pitching for funding.

 

 

Mistakes that entrepreneurs make when pitching their ideas:

 

  • An innovative product may not necessarily result in a viable business opportunity. Sometimes an innovation can be a fad; it can be good for a limited duration or may not be scalable. It may not be an idea that can be translated into a huge market force that will reach critical mass. It may be a great idea but not a great business idea;

 

  • Entrepreneurs don’t demonstrate the market for the product. They don’t market response to the innovation. Product orders from potential clients on the innovation will put the pitch in a favourable position. The entrepreneur often neglect to demonstrate that there is ready market for the product;
  • Entrepreneur pitchesan untested innovation. Pitching an innovation for funding at an idea phase without testing it first is risky. Investors don’t invest in innovations that are on research stage, their view is that you want to use their money to experiment with the innovation and when the innovation fails, they will lose their investments;

 

  • Entrepreneurs don’t test their prototypesfor functionality before pitching them. If your prototype is not functional during the presentation phase, investors tend to be weary that if the originator struggles with the pro-type, customers will also struggle with the product. Sometimes investors mayview the innovation for its potential and will ignore the technical faults during the pitch, but this is a big “sometimes”;

 

  • Entrepreneurs tend to be defensive when pitching their ideas, this sends the wrong message that the entrepreneur is not advisable as a potential business partner and investors feel the entrepreneur is impossible to work with. Being obsessed with an innovation to an extent of not listening to feedback from potential customers and investors is career limiting move. One characteristic of entrepreneurs is being stubborn to pursue their goal irrespective of the negative feedback however it is important to be flexible and responsive to advice. Richard Branson started off selling magazines, and then moved to music records, then Airlines, the gyms and other types of businesses. Herman Mashaba started selling insurance, then cutlery and linen, then fire-detection devices, until he settled for hair products. If both these entrepreneurs were stubborn and did not respond to feedback from customers, we wouldn’t have known about them. Listen to advice from customers and investors. Entrepreneurs pitching their ideas in the Dragons Den often get told: “don’t spend another cent or another second of your time on this idea, it is a terrible idea, leave it.” When family and friends say the idea is terrible, I would understand if you don’t listen to them, but if experts, people who evaluate thousands of ideas every year advices that the idea won’t work, maybe you ought to listen, or maybe consider amending and improving the idea. It is important for the entrepreneur to be teach-able;
  • Entrepreneurs don’t know their financial projections, break-even and therefore making it difficult to invest in a business where the investor cannot calculate their return on investment.Entrepreneurs also don’t demonstrate how the investment will be spentto generate revenue. Another mistake that they make when pitching for funding is to use the investment to pay salaries. Investors are reluctant toinvest in a business that will use their investment to pay salaries. The idea is to invest in a product that will generate more revenue, off-course that revenue will be used to pay operating expenses includingsalaries, but the emphasis is using the investment to generate cash; and
  • Entrepreneur’s projected profit margins are very low. If the profit margins are low, the entrepreneur needs to demonstrate that he will push more sales volumes so that the business can generate a reasonable return on investment. If the margins are low, it makes it difficult for the investment to derive better return on investment and making it difficult to attract investment.

 

After having researched the innovation, perfected it and impressed investors with the pitch, the money is in the bank the product is ready to be launched, it is important to remember what Seth Godin says: what’s unique today is common tomorrow. In order to remain relevant it is critical to constantly innovate. The Japanese call it:“Kaizen” translated for “improvement” or “change for the better” which refers to philosophy or practice that focuses on continuous improvement. Change before you don’t have a choice. Ideas and innovations evolve.

 

After-all television is not a bad instrument, if used adequately it can be a great source of learning, but I still remain a great fan of reading. I believe that the power of the “off” button on the TV is underestimated. But the Dragons Den has restored the power of the “on” button. Innovation comes before a great business; you build your business on a good and sound innovative idea. Like they always say in Dragons Den, if your idea is not innovative: “I’m sorry I will not be investing in your business, therefore I’m out.”

 

Roche Mamabolo is founder and director of Radipolelo Entrepreneurship Consulting. He holds B.Com (Accounting) Honours, Postgraduate Diploma in Company Law, Higher Diploma in Taxation, MBA (Finance) and currently studying for Phd in Entrepreneurship. He is an entrepreneur, researcher, speaker, mentor and organiser of various entrepreneurship projects.

 

References:

  1. Black Like You – Herman Mashaba, An Autobiography (by Herman Mashaba & Isabella Morris)
  2. Dragons Den (www.cbc.ca/dragonsden)
  3. Steve Jobs by Walter Isaacson


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