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There are two ways of starting up a company. The first is to take an existing business idea, and do it better. Preferably you will concentrate on an area where the competition is limited or you have some existing connections.

The second is where you come up with an idea that’s completely new. People think that it’s the only way to make a real fortune, but that’s not true. It may come as a shock, but Bill Gates became the world’s richest man largely by improving on the work of others. He wasn’t the leader in new technologies, but he was close behind. And he did things very effectively.

Microsoft didn’t invent the Windows and mouse interface. It was invented by Xerox at its research labs. Microsoft didn’t even produce the first commercial Windows-based computer. That was Apple with the Lisa. But it did get its timing right, do a plausibly good job and market the product very well. The rest is history.

The problem with developing a totally new concept is that it’s totally new. You are not only selling the product, you have to sell the idea too and educate the market. Even if it would sell, it’s more than twice as much work. If you have all the capabilities you need, with limited resources it is hard to succeed. And it’s even harder to recover from a failure.

The world economy is driven in the long run by breakthrough products. But for your own success, it’s worth remembering that the odds are greatly improved by exploiting an area where a market already exists.

Chris Barling, Actinic

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I qualified with an electrical engineering degree from Southampton University in 1986. Various subsequent management and sales roles enabled me to build the knowledge and contacts needed to set up my first venture some five years later – designing and manufacturing production line machinery.

After growing, finding investment and selling that business, I ran a consultancy rolling out cutting-edge business process automation across Europe.

My current business – Pie Finance – helps innovators and entrepreneurs progress from ideas stage thanks to an innovative peer-to-peer funding solution. So what have I learnt about overcoming the challenges innovators face in taking an innovation to market?

1 Reducing risk of disclosure/competitive edge theft
Many innovators/entrepreneurs see this as the greatest risk. There are differing views on protection. The book Crossing the Chasm describes one of the most effective ways to prevent “idea theft”, it advocates rolling out the product/service to customers who are suffering considerable loss by not having it, which means it can be directly sold without advertising to a small number of customers. High margin sales can generate revenues required to launch in the mainstream market, while minimising risk of detection by potential competitors. Other solutions include: seeking intellectual property rights (eg patents); use of a ‘decoy’ product to build a potential customer and investor database; and non-disclosure agreements.

2 Adapting to market developments
Mature, saturated or diminishing markets are the most stable. Profitable, growing markets move fast, making an idea just a starting point, which is why it’s difficult to sell or get investment for them. New solutions to niche problems, competitors and consumers in the space can change daily, meaning even a well-established product/service can rapidly become obsolete. You must try to react quickly and stay one step ahead.

3 Filling gaps in your plan
Finding holes in ideas is frequently significantly harder than generating ideas. You need in-depth knowledge, whereas, most individuals create ideas by trying to find solutions to a problem. Sticking to what you know – technically and commercially – helps, but if you must venture beyond, try to find trustworthy people to fill any gaps.

Bootstrapping is the best way to retain control and profit. Grant finance is worth securing, but usually requires match funding. Debt finance (eg bank loans, overdrafts and asset finance) are the next best way to raise funds, while retaining all equity. True, it’s hard for start-ups to secure debt finance, but those with a track record could benefit from the Enterprise Finance Guarantee scheme, which can cover up to 75 per cent of the risk.

Business angels can also help, but only 3 per cent of propositions get funded and you must meet stringent criteria: very high returns on investment (x10 to x30 over five years); proof of demand (sales or forward orders); and a proven management team.

Peer-to-peer resourcing (ie getting people and other things in exchange for equity or revenue shares) without payment up front is another option.

Next to protecting your idea, protecting your investment must be your main priority. Giving away a share of the rewards is painful, but it’s well worth it, because failing to spot the gaps or not having adequate resource to overcome threats may mean you lose everything you’ve put into your idea commercialisation.

4 Avoid loss of control – and your business with it
Control, rewards and recognition are separate things. Identify what you want in return for your input. An investor’s primary concerns will be protecting and maximising their returns – which could involve them trying to dilute or force you (and possibly other investors) out. To combat this, don’t let your business get desperate for cash. Maximise your bargaining power by agreeing an alternative plan B (possibly C, D and E, too) at the outset.

An industry guide to equity sharing is that a third should go to the person with the idea or IP, a third to the management team and a third to the finance providers. The concept of equity for very early stage start-ups is flawed, I believe. As dividends on preference and ordinary shares are paid out of profit, this introduces a layer of risk for minority stakeholders.

Profit can easily and legally be “massaged” – revenue cannot. For entrepreneurs, offering equity means all external early stage input burdens the whole business on an ongoing basis, thereby discouraging adequate resourcing. With these disadvantages in mind, I believe it’s best to try and acquire capital and resources based upon on a premium fixed price paid out of a share of the revenues that they help to create.

Senake Atureliya, Pie Finance

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Monday morning saw an early start for your intrepid blogger and a trip to the BT Tower in London for the Small Business Week launch event. The Business Pulse survey results were revealed and were duly followed by a series of talks from the likes of Lord Digby Jones and Peter Jones.

The recurring theme of the talks was that of adaptability and innovation. During the recession, innovative small businesses have adapted to survive; they had to, and will continue to do so as and when we climb out of it. But what of innovation? What does innovation mean to those at the forefront of helping start-ups come to fruition?

Peter Jones was the most outspoken on such matters. “Not a lot of people know what innovation is. If people with a small business want to innovate, hear this; innovation is basically doing things better than your competition”. Television’s highest profile Dragon spoke of the lack of skills training in the UK and how this is inhibiting innovation. To highlight the sorry state of affairs, Peter Jones explained how the first ever academy for training entrepreneurs with the required skills was set up by himself a year ago. Not so much filling a gap in the market but plugging a gaping hole in the country’s skill-set.

“The skills necessary to start a business–we don’t teach them in this country. I started the first National Enterprise Academy and boy was I shocked–the first–only a year ago. We never had one. We don’t have any academy that teaches enterprise in Britain apart from mine. I think that sums up where we are.”

“We need more practical skills resonating down to seven and eight year-old children. That’s where we need to start. We need to be reading them books, not about Jack and Jill. We need to be reading books about Jack who starts up his flower shop. I read to my kids and I make them up.”

So the education system is holding back the skills and stifling innovative entrepreneurial growth and we need a reappraisal of how we stoke the fires of inspiration for our innovative entrepreneurs of the future. Now if you excuse me, I am just perfecting my Dragon’s Den pitch for a children’s television programme, ‘Little Bo Peep and the impending tax return deadline.’

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Where do business ideas come from? Did you have a ‘eureka!’ moment while soaping up your ducks in the bath? Maybe you got sick of working for ‘the Man’ and stepped sideways to set up for yourself (much more likely).

On last night’s chain-smoking TV show Mad Men, about a 1950s advertising agency, a young copywriter had a ‘mental block’. She just couldn’t come up with any creative ideas to sell a weight-loss product, so asked a senior copywriter for advice. He said “Think about the problem really hard. Then forget about it entirely. The answer will pop into your head sometime after that.”

Is it the same with business ideas? Few businesses ideas are based on innovations. Why should they be, if there is room in the market for someone to deliver an existing service better? Here’s a tip. If you are thinking of setting up as a plumber, the London boroughs of Kensington, Westminster and Camden have one plumbing business per 6,000 of the population (1/10th the national average). Whereas Norwich has one plumber per 500 people.* Hmmm…

The Springwise newsletter suggests many new business ideas are web-based. Perhaps the most unusual is ExBoyfriendJewelry where unwanted bling can be unloaded. Amazing niche. Now where’s my ball-cock?

* Barclays trade map

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