We have all seen loads of business plans. And probably written quite a few as well.
They always contain thousands of numbers. They always prophesy success, and a great return on investment.
Which is odd really. Because most new ventures fail.
Why? Lack of leadership and poor financial management account for a good number, but a recent Bloomberg study highlighted the following three key reasons:
- Not really in touch with customers through deep dialogue.
- No real differentiation in the market (lack of a unique value proposition)
- Failure to communicate the value proposition in clear, concise and compelling fashion.
In other words, the idea wasn’t good enough. Or in the language of my book THE VERY IDEA, not valuable enough.
It is difficult to find funding for a new business, and that is because investors are looking for a distinctive proposition, and an idea that offers value to the target consumer, stands out from the crowd, and is compellingly expressed. That is basically how it works on DRAGONS DEN, and in real life.
You see, it is all about the idea. Not the projections for years one and two. When did you ever see a business plan that showed very little revenue in the first month, spiked towards the end of year 1, and then went sharply south? Yet that’s what happens to most new restaurants, for instance.
But ideas – your ideas – aren’t yours only to judge. Ideas are like jokes and gifts. In the end, the only opinion that matters is that of the person or people on the receiving end. The good news is that fortunately we have the means to anticipate the value of our ideas, and how they might be received.
There are four stages where we can value ideas:
1. Targeted value
What is our objective here? How valuable has the idea to be, for it to be worth commissioning? With Idea Economics we can calculate in advance the value we need, as well as measuring the actual and potential value of delivered ideas. Targeted value will need to take account of cost (what will it cost us to develop/implement the idea against the anticipated returns?), market (what’s out there now?) and income (how much is the idea going to make us over time?)
2. Judged value
When we are looking at contending ideas, what do we think (estimate? guess?) that this particular idea is worth? When we compare ideas, which one do we judge to be the most valuable?
3. Anticipated value
Before we press Go (or as it is first appearing in market) how much value do we think this idea is going to end up having?
4. Achieved value
Totting it all up, after the event (and trying to separate out all the other contributory factors in the sales) how much was the idea worth to us?
For example, in an advertising pitch:
The targeted figure (let’s say £23m) might be the master benchmark, calculated as the aggregate of incremental profitable sales and increased brand value over three years. We can get help here from strategy consultants, business plan writers, corporate strategy departments, market planners and brand strategists.
In terms of judged value, is the winning idea (now we’ve chosen it, and can properly evaluate it) as potentially valuable as we hoped for (the £23m)? These discussions would involve agencies, marketers and maybe procurement.
Now that it’s been executed and ready to roll, is its anticipated value worth more, less or about the same? We are looking to contributions from market research companies, analytics, professional critics and so forth.
Three years into the campaign, what is the achieved value? How are the sales figures and brand value looking? Did we achieve our goal? Now we are calling on econometricians, brand valuation businesses, case study writers and historians.
What are the lessons here?
Business is all about ideas.
It is easy to forget that sometimes. The original 18 carat idea which made the founder’s fortune is going to disappear from sight in a morass of process, meetings and report writing.
Sometimes the focus on funding means that sufficient time is not spent on torture testing the business proposition, and making the positioning as sharp as possible.
It is easy to put short term revenue ahead of building the business that truly reflects the original concept.
And many a business sale values transportable client income above the idea that made the business stand out in the first place.
Overall the biggest mistake is seeing investment as purely a financial consideration, when it is the idea itself that is the real investment. That is what Idea Economics is all about.