Business Ideation: How to Discover New Business Ideas
In 2007, a pair of roommates moved to San Francisco. They were broke, jobless, and they didn’t have money for rent.
They needed to come up with a quick hustle. With a conference coming around the corner, they noticed that all the hotels in the city were sold out.
That’s when one of them came up with an idea.
They bought a few air mattresses, put them in their living room, and were able to rent it out.
That company is now known as airbnb.com.
Last year, I left the affiliate marketing space after 13 years. Everyone started wondering, “Charles, what are you going to do next?”
The truth is that I didn’t have a master plan. I was burnt out from the space and wanted to do something different.
So then I started asking myself, what DO I want to do now? I didn’t have any crazy ideas in my back pocket.
That’s what led me down the path of studying business ideation—the process of coming up with business ideas.
It can be a disappointing journey because everything centers around either “Follow your passion” or “Scratch your own itch.”
Another problem is that founders tend to rewrite history. As soon they grow to a certain size, a public relations manager comes in and starts changing the story.
It’s kinda like how Facebook was founded with the noble goal of promoting free expression and giving a voice to the powerless. It DEFINITELY didn’t start as a hot-or-not rip-off.
I dove deep and researched everything I could find on business ideation. I studied the best practices of different startups. I probably listened to 100+ episodes of How I Built This (The pandemic lockdown gave me too much free time).
Every origin story is unique, but I started seeing some patterns. Most successful companies don’t start with a “Eureka!” moment.
Founders are more like mad scientists.
You come up with a hypothesis for the future and start running experiments. It becomes a process of rapid iteration in a race to beat the competition and to become profitable before the bank goes to zero.
This is my attempt at organizing business ideation into a simple to understand framework. Through this framework, I was able to figure out different ideas that I’m excited to pursue.
If anyone’s interested in a more strategic way of coming up with your next business, this is for you.
Picking the Right Market
In the venture capital world, there are a few main pillars for a startup:
- The Market. How fast is the market growing? How well do the existing solutions satisfy the market? What is the total addressable market?
- Product. How well is the product designed? Does it solve the customers’ problems? Are they dying to throw money at it? How polished is it? Does it “spark joy” when people use it for the first time?
- The Team. What is the quality of the CEO, cofounders, and staff? Do they have experience? Have they done this before? How well do they work together?
Which of these do you think matter the most?
Marc Andreessen runs the most influential venture capital firm in the world, Andreessen Horowitz.
“Personally, I’ll take the third position—I’ll assert that market is the most important factor in a startup’s success or failure.
In a great market—a market with lots of real potential customers—the market pulls product out of the startup.
The market needs to be fulfilled and the market will be fulfilled, by the first viable product that comes along.
The product doesn’t need to be great; it just has to basically work. And, the market doesn’t care how good the team is, as long as the team can produce that viable product.
In short, customers are knocking down your door to get the product; the main goal is to actually answer the phone and respond to all the emails from people who want to buy.
And when you have a great market, the team is remarkably easy to upgrade on the fly.”
– From The Only Thing That Matters
I’ve been exposed to hundreds of markets during my time as an affiliate marketer. I’m telling you, NOTHING matters more than the market and the timing.
I’ve seen people who were able to pull in five figures a day without even knowing how to properly track their campaigns. How? They were promoting when the market was hot, and they were early.
Do you remember when the pandemic first started? Even the shittiest convenience store in your city was sold out of everything.
The most important decision you have to make is which market to pursue. There are two skills that you should develop.
- Identifying market trends
- Deciding if the market is attractive and worth pursuing
A. Identifying Market Trends
Humans go through stages of life: child, teenager, young adult, middle age, then elderly.
Every market also goes through stages of life called an industry life cycle. Every stage has its own characteristics and challenges.
Embryonic: The industry is starting out.
Growth: A period of rapid sales growth.
Shakeout: Sales are continuing but at a slower rate. New competitors are entering.
Mature: Sales start to decrease. The company has to reinvent itself in order to survive.
Decline: Sales and profit all decline. The industry is slowly dying.
Here are some examples of different markets in their various lifecycles as of 2021.
Embryonic: Augmented Reality, Virtual Reality
Growth: Electric Vehicles, Streaming Services
Shakeout: Online Robo Advisors, a lot of YouTube Channels
Mature: Smart Phones
Decline: Newspapers, Malls
The money is being in the earlier stages. That’s why it’s important to develop the ability to identify trends and market research.
Fortunately, there are plenty of tools and research out there dedicated to market research.
Read: The Six Best Tools to Discover Business Trends
B. Deciding if the Market is Attractive and Worth Pursuing
Not all markets are created equal. Some can be too competitive. Others are too small. How can you tell if a market is worth pursuing?
Here are some of the criteria that I’m looking at.
1. Is the Industry Growing?
Everything is easier in a trending market.
There aren’t as many incumbents to compete against. When the market is growing exponentially, they’re willing to accept a “good enough” product.
Think about meditation apps. Any decent meditation app could crush it in 2010 when the market was newer.
Now it’s 2021, and the industry is reaching maturity. If you want to compete in this space, you’ll go against Calm.com and HeadSpace.com. Way tougher right?
2. Does your target market have money and are they willing to spend money?
This is a criterion that most people ignore.
It’s tough selling to broke people. My friend launched a supplement line targeting gamers. The problem? 15 – 25 year-old gamers are broke.
All their money is going towards new games, Fortnite skins, and to their favorite OnlyFans model.
Let’s compare two supplement markets:
- Older women who want to look younger. Older women have way more money. Looking younger is also a much bigger pain point.
- Gamers who want more energy/focus while gaming. Gamers tend to be broke. While they want to become better gamers, it’s not a burning desire.
One framework I love to use is the Life Force 8 from Cashvertising. These are the eight basic human instincts hardwired into every person.
How does the market affect someone’s Life Force 8?
Looking Younger for Women: Enjoyment of life, sexual companionship, to be superior, and social approval.
Being a Better Gamer: Enjoyment of life, to be superior, and social approval.
There are many life forces in common, but I’m going to focus on “to be superior.”
But the pain of aging hurts women ten times more than the pain of being a shitty gamer for a guy. That means women are way easier to sell to.
Your product shouldn’t be “nice to have.” It should create the feeling of “I MUST HAVE THIS AT ALL COSTS.”
The easiest way of doing this is to make sure it’s targeting the Life Force 8.
3. Existing Competition
You might’ve identified a great market, but what about the existing competition?
Here’s my advice:
DO NOT be afraid of competition. I repeat, DO NOT be afraid of competition.
Existing competition means that the market is validated. It means that there’s money to be made.
You have to solve the customer’s problems better than the existing competition does. You can’t be a “me too” version and compete on their strengths.
GymShark started in 2012. They had so many billion-dollar competitors such as Nike, Adidas, and Reebok. It would’ve been easy for the founder to think, “Oh no, how could I possibly compete?”
But they identified opportunities in the market that the incumbents didn’t. People wanted better fitting and better-designed gym clothing. People related more to their favorite fitness influencer than billion-dollar athletes.
It’s easy to be intimidated by large competitors. You have to realize that they can’t pursue every opportunity. When they’re that big, they move slowly like a cruise ship.
I’ve given you guys some criteria on how to evaluate a market.
C. Brainstorming Different Markets
Great businesses are about predicting a future that doesn’t exist yet. Write out an industry that you think will be growing over the next ten years. Then write out your reasons.
We’re coming up with different hypotheses.
Here’s a quick brainstorming session from me to get you inspired.
- Decentralized Finance: Trillions of dollars printed out of thin air. Bailouts. The whole Robinhood fiasco. There is so much inefficiency and shadiness in the global banking system.
DeFi is going to change the world. Wait until people realize they don’t have to settle for .5% APR from their “high yield” savings account anymore.
- Digital Families: You’re familiar with digital nomads. Guys that go to South East Asia to ball on a budget and slay the local Tinder scene.
There’s a growing desire for families to live that lifestyle too. More people can work remotely than ever before. Next, everything’s going to become more expensive due to inflation.
Why spend $6k a month to live in America, when you can spend $2k a month in Eastern Europe?
Families have different pain points compared to a solo digital nomad. If networking is important, they’re far more interested in meeting other families. Digital nomads don’t care about nannies or how good the local schools are. Digital families do.
- Healthy Versions of Junk Food: People are more health-conscious than ever before. They want flavor without compromising health.
What are some of people’s favorite junk foods? How can we make them healthier?
Pro tip: It’s a signal whenever something’s sold out, and people are reselling via eBay. My fiancée loves this Protein cereal from Costco. It hasn’t been in stock in months!
There’s plenty of D2C companies out there. But I think there’s so much opportunity due to the sheer number of food products out there.
- How to Adult: Adulting in the modern world is complicated. You’re doing keg stands on the weekends in your final year of college, and the next year you’re expected to know how to file your taxes and play corporate politics.
- Pets/Plants: Millennials and Gen z are delaying kids, and in some instances, not having kids at all. However, that “nurturing” desire is still there. Money is shifting towards both pets and plants in order to satisfy that desire.
- Biohacking: Health is on top of mind. Then there are the outliers. The people who want to squeeze every % out of productivity, and the ones who want to extend their lives.
Even though biohacking is popular among the internet marketing community, I still believe it has nowhere near penetrated “mainstream” society. People are starting to get into it through FitBit/Whoop, but the rabbit hole goes deep.
- Instagrammable Local Experiences: The average person has a boring life. They go to work, watch Netflix, and then go to sleep. Maybe once in a while they’ll travel. But traveling is expensive and people don’t get so much vacation time.
Even though everyone’s life is boring, they want to look as if they’re living an interesting life on social media. There’s this pressure to keep uploading interesting content.
When I lived in NYC, these “Instagrammable” experiences were a massive hit. I had to book tickets several months out for some of this stuff.
Examples: Borderless, Van Gogh Expo, Museum of Ice Cream
I’m trying to get tickets to the Van Gogh Expo in Atlanta. It’s sold out for months. It’s literally projections in an empty warehouse. Their profit margins must be insane.
Looking at the Data for Your Markets
After you’ve identified some markets, you can use different tools to see if they’re actually hot. If people are searching for the keywords or engaging in communities, then that’s a strong signal.
I think indoor plants is growing. And Google trends validate my conclusions.
Remember, you’re in the brainstorming phase. You don’t need to figure out the business model. You don’t need to figure out if this is within your abilities.
Just identify as many hot markets as you can.
Read: 10 Ways to Evaluate a Market by the Personal MBA
What Are You Wired For?
I was getting ready for a speech several years ago.
I was nervous. I kept asking myself, “Why the fuck did I sign up for this? This is such a dumb idea. You’re an asshole, past me, for putting me through this.”
I really didn’t want to be there. Yet despite all these emotions, I killed it.
The person that spoke after me? He was relaxed before the stage. I’m sure if you let him, he would’ve done a Q&A for several hours. He was a better speaker than me and he did it with ten times less effort.
He’s wired for public speaking—I’m not.
I believe that with enough effort and time, all of us can get good at anything. But being wired means you’re genetically encoded for it. It’s as natural to you as breathing.
So much of success is being able to figure out what you’re wired for, and working in that circle of competence.
Here are some questions to help you figure out what you’re wired for:
- If you were retired and didn’t need money, what would you want to do all day?
- What’s the kind of work you could see yourself doing at 11pm on a Friday night?
- Which kind of work do you feel you naturally enter a flow in?
- Which kind of work makes you excited to get out of bed in the morning?
- What tasks do other people find difficult, that you find easy to do?
Here are some things that I believe that I’m wired for. I don’t need a pomodoro for this stuff. I don’t need to hype myself up. These things are more fun to me than going on social media or playing video games.
- Building systems
Some things I am NOT wired for:
- Anything dealing with people
- Financial/legal tasks
- Extroverted activities
I hate doing these things. I’d rather be put in solitary confinement than have to go through hours of meetings with people.
Now imagine if I was a real estate agent! Holy shit, that would be a living hell for me. The job requires things that I’m not wired for! I’d hate going to work every day.
How do you find out what you’re wired for? It comes from experience and reflection. It can also come from feedback from other people.
I want to share with you a Japanese framework called Ikigai.
Take a look at the chart below.
Ikigai happens at the intersection of all four.
Imagine being a great Karate instructor and loving it. The problem is what if no one in your city cares about Karate?
Here’s the good news:
- What you can be paid for: The internet has made it easier than ever to monetize.
- What you are good at: Skills can be developed over time with enough focus and effort
- What the world needs: This is can be figured out through market research and talking to potential customers
- What you love: the hardest thing to figure out, and part of our unique DNA. Think about what I said earlier in the post. What tasks do you look forward to every day?
What Are Your Anti-Goals?
The most inefficient thing in the world is to reach your goals, and realize that you never wanted them.
Instead, start backward. Figure out exactly what you want and reverse engineer your way to your goals.
One exercise I do is to picture a day in your life, but ten years from now. What would your ideal day look like?
My typical day wouldn’t have any meetings outside of a 15-minute daily huddle. I’d have players in the company who would take the lead on projects. They’d have so much autonomy and I’d give them an aggressive % sharing.
I’d only focus on strategy, planning, marketing, and only things that I’m wired for. I’d have time to pick my kids up from school every day. My phone and laptop would be shut off after 7pm.
Once you get an idea of what your ideal day would look like, start building constraints.
I call these anti-goals.
Here are some of mine:
- I want to build something that is sellable/exitable.
- Nothing based around Charles Ngo the person or brand.
- I hate clients. I don’t want to run an agency.
- A growing and trending industry.
- Potential to do $5m+ a year in revenue.
- Can run with a team of under five full-time staff + an army of contractors. I want to hire people who are smarter than me.
By having these anti-goals, it eliminates potential business models that wouldn’t be a good fit for me.
Brainstorm Out Different Business Models
There are different ways to make money from a hot market.
If you identified the keto diet as a hot market, you could be a keto coach, create a keto supplement, or start a keto YouTube channel.
So in this stage, we’re going to brainstorm different business models for a hot market.
Let’s use the “digital nomad family” as an example. There are couples with young kids who want to travel the world and live overseas.
I’d first start with trying to figure out what existing problems there are for your market. Join different Facebook groups. Find their subreddits and forums. Eavesdrops and listen.
You can also conduct hands-on market research. Find some people in your core demographic and interview them.
I did some quick research, and here are some of the problems that digital nomad families have:
- What countries should I live in?
- How do I find affordable housing?
- How do I find trustworthy nannies and maids?
- Fear of loneliness. People want a local community of other expats to be around.
- Managing different paperwork, such as visas and medical insurance.
- Financial backup. What if you’re traveling and lose access to funds? The ATM eats your debit card, your backup card has a fraud alert, and not many businesses accept credit cards.
- Financial instability. Some people are able to work remotely with salaried jobs. But some people want to do this as a freelancer. This can come with income instability.
Start with the pain points and brainstorm different business models that offer solutions.
Here’s a cheat code: Find a similar market and look at all the different business models that already exist. No need to reinvent the wheel.
I call this the “Uber of X” framework.
Obviously, the closest market to digital families are digital nomads. What existing businesses out there already service digital nomads?
- The Dynamite Circle is a paid community for digital nomads.
- NomadList is a platform that curates the best places to live.
- My friend JohnnyFD shares his journey around being a Digital Nomad. He’s like a solopreneur media company.
- Remoters shares guides around remote work.
- There are so many relocation services based in Thailand for a single person.
Someone could make a version of NomadList, but focused on criteria important to families. You don’t need the Tinder Score (yes, that’s a real thing), but instead focus on schools and safety.
Once you brainstorm business models, you should start eliminating some of them. Perhaps the startup costs would be out of your budget. Or it’s not within your ability to launch this.
You want to narrow the list down to what’s possible for you right now.
Finding Your Beachhead
Amazon started off by only selling books.
Bonobos spent years perfecting the Men’s Chinos.
Lemonade Insurance started by only selling renter’s insurance.
Amazon now sells everything, but they started by only selling books. Everyone fails because they’re trying to do too many things at once.
The beachhead strategy is based on capturing a small part of the market. What is one portion of the market that you can capture?
Read More: Beachhead Strategies: 4 Ways You can Compete with a Smaller Budget
This can also be a differentiator.
I subscribe to several business newsletters. It’s hard to stand out. But here are two that are laser focused:
Chartr.co focuses on visualizing data. They make amazing visuals and charts.
TheHustle is hilarious and has amazing storytelling.
Anker is one of my favorite electronics company. They started in 2011 and only sold battery chargers. They built their reputation from making affordable and badass battery chargers.
Now they sell everything including speakers and headphones. But remember, that empire was built from their initial single product.
Finding Product/Market Fit
You should have identified several different markets, and some potential business models. Which one should you focus on?
Try them all.
This is what I call firing bullets.
Read: Fire Bullets, then Cannonballs
Instead of going “all in” on an idea, run small tests to see which ones get the most traction.
Imagine that someone’s starting a restaurant.
The normal method would be going “all in.” They specialize in cooking Thai food so it makes sense, right? They borrow six figures and spend a year building their Thai restaurant.
It completely flops.
The alternative is to fire bullets by running small tests.
The chef has three ideas for a restaurant, but they have no idea which one would do they best.
- A Thai restaurant focusing on ISAAN food
- Fusion Vietnamese banh mi.
- An Asian vegan restaurant.
So they start testing different pop up restaurants to gauge demand. They rent a food truck and try out different food festivals.
It turns out that people are going crazy for the Asian vegan restaurant.
Of course, this should come natural to you if you’re an affiliate marketer. You test out different campaign ideas before you laser focus on one.
Too many people fall in love with their ideas. Your idea is just a hypothesis. You need to launch and test the idea. Good ideas don’t pay the bills.
You have to execute on the idea and let the market decide.
Sometimes the market immediately falls in love. But more realistically, they don’t. Instead you have to listen to the market and change the product or ideas based on feedback.
In the restaurant example, maybe people like the Asian vegan idea. You talk to your customers and ask for some feedback. They don’t like tofu as much as you do. Most people would prefer more protein in the form of seitan.
So you go back to the drawing boards and create some new dishes based on seitan. The market is digging it more.
You create different seitan based dishes. A seitan salad, a burger, a pasta dish, and a seitan based taco.
The people are going insane over the seitan taco. It’s sold out every time. Congrats, you’ve established product/market fit.
Product/market fit is a vague concept.
One definition of it is:
“Product/market fit means being in a good market with a product that can satisfy that market.”
How do you know when you’ve achieved product market fit?
It’s a feeling. Everything’s easier. Customers are recommending your product and selling on your behalf. Word of mouth is spreading. You’re fighting to keep the product in stock. If you shut your business down, a lot of people would be upset.
This is the hardest and longest stage. You’re in a race to establish product/market fit before your company runs out of time or cash.
Some tips for this stage:
- Talk to your users. People bought your products? Reach out to them and ask for constructive feedback. Most people don’t do this because they’re scared of getting their feelings hurt.
- Speed > Perfectionism. Perfectionism will destroy you. Focus on what matters. Your logo is not going to make or break your business. Be okay with “Good enough.” Rush to version 3.0.
- Be Careful of Vanity Metrics. Compliments don’t pay the bills. People will tell you that your idea is amazing, but have excuses when it’s time to open up their wallets.
- Focus on What Matters.
In the End…The Idea’s Kinda Useless
I just wrote several thousand words telling you about business ideation. And now I’m here to tell you that it doesn’t matter.
What matters is your execution and how you implement the idea.
I used to have this ridiculous mindset that I had to think about a brilliant idea. And when I’d think of these ideas, I’d be discouraged to see that someone else already thought of it.
And then I’d give up before I even start.
Don’t feel that you have to be original. Millions and even billions have been made from copying someone else’s idea and executing it better.
Find an idea that’s good enough to get you excited. Execute relentlessly.
Trust yourself that you’ll be able to figure it along the way.
In the meantime, I’m going to keep firing bullets.
Image credit: Pixabay.