Comments on: It’s The Economics, Stupid – Why A New Idea Isn’t The Key To Entrepreneurship

By: haig

haig — Mon, 06 Nov 2006 21:50:08 +0000

In my specific case, I can attest to another reason why people place more weight on new ideas rather than business economics…creativity. I always felt that entrepreneurship was in its own way a form of creative expression, seeing gaps in the market or new business models, or creating new products/services. By simply improving on an existing business you may actually have more chance to make money and be successful, but it doesn’t feel as good as when you come up with an original idea. That being said, entrepreneurs (or potential entrepreneurs) need to understand from the beginning which is more important to them, running a successful business or creating a novel idea.

By: OberTobi

OberTobi — Wed, 07 Jun 2006 19:26:13 +0000

Very good ideas. So I study economics since one year and i think it’s the best thing to understand what happens all over the world and what chances you have to create your own business. My Blog is new and my friends and I think about new ways in economy, so I would be very pleased if you can answer the first question on my page. Thanks

By: Vladimir Orlt

Vladimir Orlt — Fri, 02 Jun 2006 19:25:26 +0000

Studies show that a first-to-market company which survives competition reaps much greater rewards than any follower (seems obvious, doesn’t it?).

By: GRex

GRex — Fri, 02 Jun 2006 04:48:49 +0000

The real key for me is creating VALUE. Create value and the money will follow.

The mistake is equating great ideas to creating values. If the idea works out but the money ain’t following, then the value of the idea is in the wrong place.

On the other hand, I can also give a great example of an coulda-been industry that has thousands of superb life-changing ideas, but ultimately suppressed and killed by economics: mobile content.

Countless things can be done and beautifully executed and even possibly monetize. But just when everybody get psyched up about any great idea, the impossibility of payment simply destroy all hope.

So yes, economics rules the bigger picture, and as one chinese saying goes: “circumstances makes the hero.”

By: Rob

Rob — Thu, 01 Jun 2006 23:17:38 +0000

N,
I don’t think amazon was first to sell books online, but I can’t confirm it either. A google search turns up conflicting information. Netflix probably was the first, but no one is sure they are going to make it. My point is not that a first mover advantage is useless, my point is that I thought a first mover advantage was the key to success, and it isn’t. In other words, I’ve been more worried about being first than being good, and that was stupid of me.

Shalmanese,
All the companies you list are tech companies, but entrepreneurs still start up in old industries like steel, agriculture, etc. If you have money and better execution skills, you can copy someone’s idea and beat them at their own game. Virgin does this – they go into established markets, not new ones. By ‘ideas’ I was really talking about new concepts, not tweaks of old ideas.

That said, I think you are misreading the post. I’m not saying ideas don’t matter at all. I’m saying that isn’t what you should focus on. I hear too many people say “when I have my great idea…” but their great idea turns out to be something that only they would use and that doesn’t have an economic model behind it.

What I am saying, and perhaps I should update the post to say this more clearly, is that to be a successful entrepreneur you need to understand what makes good economics for a business/industry and you need to look for opportunities that have those economics.

By: Shalmanese

Shalmanese — Thu, 01 Jun 2006 23:01:21 +0000

I disagree. Googles big idea wasn’t search, it was PageRank. Microsoft’s turning point wasn’t with an idea, it was IBM licensing their OS rather than buying it outright. But what about ebay? Amazon? hotmail? True, they only eventually succeeded because their ideas were backed by solid execution. But it was the original spark of an idea in the first place that gave them that first push.

I would say a great idea is generally a neccesary but not sufficient condition.

By: N

Thu, 01 Jun 2006 22:32:52 +0000

You have cited Microsoft and Google- but how about Netflix- weren’t they the first online DVD rental service? and they’re market leaders too….

How about Amazon.com? First online bookseller think. Just a couple of examples that tell me that you sometimes have to be the first to execute an idea well.

By: Skip

Skip — Thu, 01 Jun 2006 13:38:25 +0000

Rob – as always, an insightful article and one that makes me feel renewed when I see the momentum we’re realizing at Six Disciplines Leadership Centers.

“Good ideas for startups basically come from recognizing an opportunity that could perhaps be described as “productivity and/or value arbitrage.” You see a chance to do something better in a way that encourages people to pay for it. You see a way to let people trade time for money, simplicity for money, productivity for money, or some other combination.”

Continual business improvement – lasting excellence – is something that many business leaders want/need – they just haven’t had the method, tools or proper guide before. And, yes, they’re willing to pay for it to get there.

By: John

John — Thu, 01 Jun 2006 05:48:06 +0000

It appears your line of thinking supports the idea that business success is less a function of the products & services provided and more a function of the machine you have built and the environment you’ve chosen to deliver those products & services. I have to admit that is reflective of my experience. It seems to me that my greatest business successes have come when I took steps away from the technical aspects of the products & services and moved toward the nuts-and-bolts aspects of actually running the business.

By: Rob

Rob — Thu, 01 Jun 2006 00:33:02 +0000

Russell,
That’s true, but I put it as a secondary factor because in the long-term economics still drives the success of the business. Although one could argue that if you enter the market at a bad time, you will fail in the short-term and not get a chance at the long-term.

Laurence,
I think I wasn’t clear enough in my post. The question isn’t really how you make money but “are the economics favorable?” I didn’t really think about market size etc. as much as I was thinking about individual transactions.

You are right that you can’t know how to make money until you try, but what I was trying to get across was one step before that. For instance, launching a fax machine is fine, but you have to believe you can sell the machine (or services on the machine) for more than it costs you to make.

To give you a counterexample of what I was getting at, there are 85 online video sites now. They all have customers, but most of them will fail because of bad economics.

Or maybe the better thing to say that is closer to what you are getting at is “if we can find customers, do the economics work out that we make money?” Some economics are better than others.