Innovation Corner

Permanent link for Why new products and services fail on October 27, 2023

There are lots of reasons why businesses fail, but some reasons are more common than others, and many entrepreneurs bump up against at least one of these three:

  • No market
  • Team is missing key experience or expertise
  • New product category, requiring extensive customer education

No market

Few customers will adopt a new product or service if they aren't experiencing a pain with existing solutions. Without a thorough understanding of your target audience's pain points, preferences, and behavior, you risk creating something that people simply don't want or need. This disconnect can lead to wasted resources, low adoption rates, and ultimately, business failure. Successful innovation starts with robust market research, customer feedback, and a deep understanding of the problem you're solving. Only by aligning your product or service with a clear market demand can you increase your chances of success, ensuring that your innovation meets real customer needs and creates value in the market.

Another incarnation of this failure occurs when the pain customers experience is so ubiquitous—so ingrained into everyday experience—that they don't recognize it as a pain. In such cases, the innovator needs to educate potential customers to get them to see the problem, recognize it as a pain, and perceive the new product or service as a solution.

Missing team expertise

A lack of diverse expertise within a startup team can significantly contribute to venture failure. Critical skill gaps often include financial expertise, marketing and sales expertise, and technical skills. Without these essential competencies, ventures may make costly mistakes, miss growth opportunities, or struggle to adapt in a rapidly changing market. Building a well-rounded team with expertise in these areas is crucial to navigating the challenges of entrepreneurship and increasing the odds of success.

New product category

Much like lacking a market, customers will often struggle with making sense of a new product that carves out a new product category. They will need to be convinced of the need for a product.

The Segway provides a classic example of the product category failure. Even on the company's website, the product has been variously identified as "personal, green transportation" and "small electric vehicle." Does the Segway compete with bicycles? Walking? The inventor said that the Segway would "do for walking what the calculator did for pad and pencil." In the end, despite abundant hype, the Segway just hasn't quite connected with consumers, and the evidence points to a failure of consumers to "get" the product.

How to avoid

  • Try to intentionally test your business model against these failure modes
  • Conduct thorough market research
  • Work on being clear about the value proposition you're providing…from your customer's perspective
  • Look for market, financial, and social trends that would make your idea inevitable, and get to market just ahead of the competition
  • Be prepared to pivot

CB Insights did a big study that confirms the above, and Harvard Business Review have a slightly different take on why most product launches fail, and it's worth reading.

Categories: entrepreneurship innovation
Posted by Thomas Hopper on Permanent link for Why new products and services fail on October 27, 2023.

Permanent link for Funding a Startup: Bootstrapping on October 20, 2023

While many entrepreneurs dream of securing hefty investments from venture capitalists or angel investors, many more prefer bootstrapping. While bootstrapping rarely leads to the high growth path that outside investment enables, it does allow you to maintain control and build a sustainable business from the ground up. Bootstrapping, or self-funding your business, can be a challenging yet rewarding way to turn your entrepreneurial vision into reality.

Bootstrap-friendly business models have a few common characteristics. They tend to have

  • low capital requirements for startup,
  • self-sustaining revenue streams (e.g. you sell everything you buy),
  • can scale without large investments, and
  • they generate cash flow rapidly.

Like any business, you need to have a clear plan to generate profit, and you you need to have.

So how do you bootstrap fund a startup?

1. Start Lean: Before diving into bootstrapping, it's essential to create a lean and efficient business model. This means focusing on your core product or service and avoiding unnecessary expenses. Keep your initial costs as low as possible, and be frugal in your spending. Consider working from home, using open-source software, and hiring freelancers or part-time employees instead of full-time staff.

2. Personal Savings: One of the most common sources of bootstrap funding is your own savings. Before seeking external investments, tap into your personal savings to cover initial expenses. This demonstrates your commitment to your business and reduces the risk for potential investors or lenders down the road.

3. Side Hustles: If you have a full-time job, consider starting your business as a side hustle. Use the revenue from your full-time job to fund your business without the need for external capital. Alternatively, if you need to go full-time on your new business, first start a side-hustle to provide some stable income, then start your business while keeping your side-hustle. This approach can provide a financial safety net while you build your business.

4. Family and Friends: While it can be a sensitive subject, don't dismiss the possibility of borrowing from family or friends who believe in your business idea. If you decide to take this route, be transparent about your business plan, repayment terms, and potential risks to maintain healthy relationships.

8. Barter and Trade: Explore opportunities for bartering or trading services with other businesses. You may find that you can acquire necessary resources or services without spending money upfront. Networking and building relationships in your industry can open doors to such collaborations.

9. Reinvest Profits: Once your business starts generating revenue, resist the temptation to take out hefty salaries or dividends. Instead, reinvest a significant portion of your profits back into the business. This approach allows you to fuel growth without relying on external funding.

Bootstrapping Mindset: Lastly, developing a bootstrapping mindset is crucial. Embrace challenges as opportunities to innovate, learn, and grow. Stay laser-focused on your goals and be prepared to make sacrifices in the short term for long-term success.

Bootstrapping a business as a first-time entrepreneur is not without its challenges, but it can be an incredibly rewarding experience. By starting lean, utilizing personal resources, exploring creative funding options, and maintaining a frugal mindset, you can successfully fund your business while maintaining control and ownership. Remember that bootstrapping is not just about cutting costs; it's about resourcefulness, resilience, and the belief in your ability to build something great from the ground up. So, roll up your sleeves, embrace the journey, and bootstrap your way to entrepreneurial success.

Entrepreneur magazine has some further advice, as does Dvorah Graeser on Medium.

Read the rest of this series of blog posts.

Categories: entrepreneurship marketing
Posted by Thomas Hopper on Permanent link for Funding a Startup: Bootstrapping on October 20, 2023.

Permanent link for Patent Mistakes Inventors Make on October 6, 2023

Publicly discussing or using the invention before filing

Once a patent has been publicly disclosed, inventors have twelve months to file a patent. Beyond that, and you not only lose the right to patent your invention, but open up the possibility that someone else can file for a patent on it. With the U.S. now using a first-to-file system, it's especially important that the inventor be the first to file.

There are two relatively easy solutions to this: file a provisional patent, and use of non-disclosure agreements (NDA), also known as confidentiality agreements. To maintain the priority date, a non-provisional patent cannot make any claims that were not in the preceding provisional patent, so think through writing the provisional with care to ensure that you don't leave any possible claims out. For NDAs, you should be sure to specify the parties involved, the type of information that is covered, the duration of time during which confidentiality must be maintained, the period of time during which the parties will work together under the NDA, and how confidential information will be marked. You then need to make sure that any confidential information shared is appropriately marked.

Missing the filing deadline

It's easy, when you're busy and focused on developing your invention, to miss those important filing deadlines. The USPTO is closely regulated under federal code of regulations, and sympathy is not part of those regulations. Be prepared to file early, and remember that it typically takes several months for lawyers to prepare a patent for filing.

Skipping the prior art search

Many inventors make the mistake of thinking that because an invention is new ("novel," in patent language) to them, it's new to the USPTO. This is rarely the case. A detailed search of the prior art is necessary to figure out just what aspects of the invention qualify as both novel and non-obvious. This requires searching for past and existing products, searching the technical literature, and searching prior patents. A good patent search by a law firm will typically cost $600 to $1,000, and be worth every penny in both reducing the time and cost of filing a patent, and ensuring that you have the strongest possible patent.

However, you can get 80% of the way there with other services. Google is a good place to start. The USPTO has a searchable database of patents, and many other countries offer similar online services. The Small Business Development Center (SBDC), a service offered in partnership with the Small Business Administration, can also perform a patent search and landscape analysis; if you're in Michigan, request their free business services here; other states have similar offices.

Penny-wise but pound-foolish

Patents seem like they should be simple, but the regulations and best practices needed to successfully defend a patent make them complex legal documents. Even the filing requirements, spelled out in 37 CFR, are arcane. To make it through the USPTO approval process, and have a chance at standing up to challenge, patents have to be in the right format, with properly formatted drawings, correct signatures, and legally defensible claims and backgrounds. Filing a patent yourself will be the cheapest solution, and might even seem like a financially sound move, but if your invention is really worth patenting, then it's worth hiring a qualified patent attorney to get the patent right.

Roadmap to Filing a Patent Application

The USPTO's own guidance on filing for a patent.

Categories: entrepreneurship invention
Posted by Thomas Hopper on Permanent link for Patent Mistakes Inventors Make on October 6, 2023.

Permanent link for Funding a Startup: Grants on September 29, 2023

Are you eager to start your own business but concerned about the financial hurdles? You're in luck! There are grant programs designed to assist entrepreneurs like you in turning your aspirations into reality. In this article, we'll introduce you to available grant programs specifically tailored for lifestyle businesses and include information about grants for minority and veteran entrepreneurs, making your entrepreneurial journey smoother.

1. Small Business Administration (SBA) Grants

The Small Business Administration offers various grant programs to support small businesses, including lifestyle businesses. The SBA's Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs provide grants to encourage research and development, and are available to small businesses with innovative ideas. The US Department of Agriculture offers offers grants to rural regions to develop a range of businesses.

2. Local and State Grants

Many local and state governments offer grants to stimulate economic development and job creation within their regions, such as Michigan's Business Accelerator Fund (additional info at the Michigan Economic Development Corporation's website for BAF). These grants can vary widely in terms of eligibility and funding amounts, so be sure to check with your local government and economic development agencies for opportunities in your area.

3. Grants for Women, Minority, and Veteran Entrepreneurs

If you identify as a woman, minority, or veteran entrepreneur, specific grant programs exist to support your journey. Organizations like the Minority Business Development Agency (MBDA) and the U.S. Department of Veterans Affairs offer resources and grants tailored to empower entrepreneurs from these backgrounds.

4. Nonprofit and Private Grants

Numerous nonprofits and private organizations are dedicated to supporting small businesses and entrepreneurs. Some of these organizations offer grants for specific industries or business types. Research and reach out to these entities that align with your lifestyle business goals. Many of these grants are available only to nonprofits, but the right grant from these sources can be worth the effort. Start your search by using search engines and dedicated grant databases. Websites like GrantWatch, Foundation Center (now known as Candid), GrantStation, and Philanthropy News Digest are valuable resources for finding nonprofit and private grants. If you have trouble accessing these, your local library may be able to help. Also check with your local government and chamber of commerce to see if they know of any local grant programs.

5. Industry-Specific Grants

Depending on your business niche, there might be industry-specific grants available. For instance, if your lifestyle business is in the sustainable fashion industry, explore grants offered by organizations focused on environmental conservation.

6. Research and Development (R&D) Grants

If your lifestyle business involves creating innovative products or services, look into federal R&D grants. These grants are often provided by government agencies and organizations interested in promoting technological advancements.

How to Apply for Grants

Applying for grants can be competitive, but with the right approach, you can increase your chances of success. Follow these steps to get started:

  1. Research: Identify grant programs that align with your lifestyle business idea and meet the eligibility criteria.

  2. Prepare a Business Plan: Craft a clear and compelling business plan that outlines your business goals, target market, financial projections, and how the grant will be utilized.

  3. Complete the Application: Follow the application instructions carefully, providing all required documents and information. Be concise and professional in your responses.

  4. Seek Assistance: If you're unsure about the application process, consider seeking assistance from a Small Business Development Center (SBDC) or a business mentor who can guide you.

  5. Submit on Time: Be sure to submit your application before the deadline. Late applications are usually not accepted.

  6. Follow Up: After applying, stay informed about the status of your application and be prepared for possible interviews or additional documentation requests.

Starting a lifestyle business is an exhilarating journey, and grant funding can make it more accessible than you might think. By exploring the various grant options available, tailoring your approach to your specific business, and following the application process diligently, you can increase your chances of securing the funding needed to turn your lifestyle business dream into a reality. Best of luck on your entrepreneurial adventure!

Read the rest of this series of blog posts.

Posted by Thomas Hopper on Permanent link for Funding a Startup: Grants on September 29, 2023.

Permanent link for The 3 Simple Rules for Successful Businesses on September 21, 2023

You'll find volumes of advice on what business strategy to follow. Almost all of it is either based on anecdote or very tactical, and should be taken it with a healthy dose of skepticism. Sure, some business owners succeed, for a time, by trusting their guts. And yes, you should definitely keep abreast of your competition.

Michael Raynor took it a step further. He and his team studied twenty-five thousand businesses and found three simple rules that the successful companies followed:

  1. Better before cheaper—in other words, compete on differentiators other than price.
  2. Revenue before cost—that is, prioritize increasing revenue over reducing costs.
  3. There are no other rules—so change anything you must to follow Rules 1 and 2.

There's a proviso here, though, and unsurprisingly rule 0 is: do what the data says. Prioritize making data-driven decisions.

I'll let Raynor himself explain these rules in the video below.

Three rules for making a company great

Categories: entrepreneurship management
Posted by Thomas Hopper on Permanent link for The 3 Simple Rules for Successful Businesses on September 21, 2023.

Permanent link for Fail fast on September 8, 2023

Much of my career has been spent developing new technologies and new products. One of the smartest people I ever worked for, a brilliant scientist, introduced me to the concept of "fail fast."

Up to that point, my approach had been mainly about trying different inventive ideas and seeing what worked. As a team, we would try to figure out what we did right, replicate that, and introduce the next Good Idea.

We had some good ideas. We also had lots of failures. Some of those failures were avoidable and many of them overshadowed the successes. Failure can be expensive.

The flexibility to make changes to a product or service decreases as we get closer to launching in the market. Decisions made earlier in the process become harder and more expensive to change. At the same time, as we approach commercial launch, we're spending more money on development and to acquire goods needed for launch. Potential failure points in our product or service design therefore become more expensive to fix as we get closer to launch. Figuring out why the good parts of an idea work doesn't make for more success, but finding failure points does.

The failing fast mindset accepts that while no idea is perfect, most ideas have merit with some weaknesses. In failing fast, we seek to exploit those weaknesses early in order to identify and either eliminate or mitigate them as early and as cheaply as possible. Instead of testing to verify possible success, test to find potential failure points.

Put another way: we want to learn as fast as possible. Fail fast means to deliberately test for failure points so that we can learn about and eliminate defects in our product, our service, and our business model.

To set up testing, identify the specific hypothesis you want to test. Then, create a test plan that outlines the steps you will take to test the hypothesis. For example, if you want to test whether a new website design will increase conversion rates, you might create two versions of the website with different designs and send half of the traffic to each version. Use A/B testing to measure the conversion rate for each version and use the results to identify which version performed better.

By adopting a fail-fast approach, entrepreneurs can quickly identify mistakes, learn from them, and make improvements. Remember, failure is not something to be afraid of. Instead, it should be embraced as an opportunity to learn and grow.

When developing new products or services, the costs spent on development increases, while the flexibility in making changes to the design of the product or service decreases. Image from NPD Solutions.

Categories: entrepreneurship innovation invention
Posted by Thomas Hopper on Permanent link for Fail fast on September 8, 2023.

Permanent link for Automating your business on June 23, 2023

In today's fast-paced business landscape, organizations strive for efficiency, consistency, and scalability. Standardizing and automating business processes is a strategic approach that empowers companies to optimize their operations, improve productivity, and drive sustainable growth. By establishing clear guidelines and harnessing the power of automation, businesses can reduce errors, enhance customer satisfaction, and unlock new opportunities.

An important guideline: don't automate too early. Processes that have been automated rarely get improved, and improvements to automated processes tend to focus on making them cost less to perform rather than increasing product (or service) quality and top-line revenues.

Common areas to look for opportunities to automate:

  • Operations management: To keep track of the who, what, and when of your business, automate the entire logistical part of the process.
  • Project management: To avoid emails, information files, or to-do lists getting lost in miscommunication, use project or task management software.
  • Customer support: To save your support team from the hassle of responding to hundreds or thousands of complaints about an issue, use customer support software to automate some replies.
  • Social media management: To free up precious time, use social media automation tools to schedule your posts throughout the day, week, or month depending on your preference.

To automate, follow these basic steps:

  1. Systematize your processes Before any standardization or automation can take place, it is essential to gain a comprehensive understanding of existing processes. Begin by mapping out each major process in your business, identifying inputs, outputs, decision points, suppliers to the process, and customers of the process. Flowcharts, swimlane charts, SIPOC diagrams, or turtle diagrams all work well for this. Start with whichever one works for you. Document your processes in a centralized repository, ensuring easy access for all stakeholders.
  2. Identify repetitive activities Not all activities can be automated; sometimes, you need human creativity or decision-making. Look for sequences of steps in the process that are repetitive and don't require creative or critical thinking.
  3. Automate repetitive activities Leverage automation tools and technologies such as robotic process automation (RPA), workflow management systems, and artificial intelligence (AI) to automate repetitive tasks, data entry, and decision-making processes. This not only reduces human error but also frees up valuable time and resources, enabling employees to focus on higher-value activities.
  4. Monitor, Measure, and Optimize Once the automated processes are deployed, monitoring their performance is crucial. Establish key performance indicators (KPIs) to measure the effectiveness and efficiency of the automated processes. Leverage analytics and reporting tools to gather data and gain actionable insights. Regularly review the KPIs, identify bottlenecks or areas for improvement, and make necessary adjustments. Continuous monitoring and optimization are essential to achieving long-term success.
  5. Train and Engage Employees While automation can streamline processes, it is important to remember that it complements human efforts rather than replacing them entirely. Invest in training programs to equip employees with the necessary skills to adapt to automated workflows. Encourage a culture of collaboration and innovation, where employees feel empowered to provide feedback and suggest process enhancements. By fostering employee engagement, organizations can maximize the benefits of standardized and automated processes.

For small businesses looking for cost-effective business process automation solutions, there are several reliable options available. These tools offer a range of features to streamline processes and enhance productivity:

  1. Zapier: a popular automation platform that connects different applications, enabling seamless data flow and task automation. It offers a user-friendly interface and supports integration with over 2,000 apps, making it versatile for various business needs.

  2. Trello: a visual project management tool that uses the Lean whiteboard metaphor of boards, lists, and cards to organize tasks and workflows. It provides automation features, such as automatic card creation and due date reminders, simplifying task management for small teams.

  3. HubSpot CRM: a free customer relationship management system that automates sales and marketing processes. It helps businesses track customer interactions, manage leads, and automate email campaigns.

  4. Google Workspace: Google Workspace offers a suite of cloud-based productivity tools, including Gmail, Google Drive, Google Docs, and Google Sheets. These applications can be integrated and automated using Google Apps Script, allowing small businesses to streamline communication, collaboration, and document management.

  5. Social Pilot: social media automation tool built for businesses of all sizes, from small to enterprise-sized. With this versatile tool, expect to enjoy a ton of features such as social media scheduling, calendar management, robust analytics, client management, and more.

  6. Tidio: An easily accessible live chat widget makes your business available 24/7, while AI-powered chatbots engage your customers in real-time.

Standardizing and automating business processes is a strategic imperative in today's competitive landscape. By mapping, documenting, and standardizing processes, organizations can achieve consistency and efficiency. The integration of cost-effective automation tools enables busy, understaffed small businesses to optimize their operations, reduce manual effort, and enhance productivity.

Categories: management
Posted by Thomas Hopper on Permanent link for Automating your business on June 23, 2023.

Permanent link for Ways to Fund a Startup on June 16, 2023

There are many ways that entrepreneurs can raise money for their startup, including:

  • Bootstrapping: This involves using personal savings, credit cards, sales revenue, and other financial resources to fund the business.
    • Self-funding
    • Commitment to major customer
  • Crowdfunding: Raise small amounts of money from a large number of people, typically through an online platform. Crowdfunding is not only a potential source of non-dilutive capital, but is a great way to cheaply validate your business idea, and has become the most popular means of funding new businesses.
  • Angel investors: These are individuals who invest their own money in exchange for ownership equity in the company.
  • Venture capital: This is funding provided by firms or funds to startups in exchange for ownership equity. In Michigan, the Michigan Venture Capital Association is a great resource for connecting with both Angels and VCs.
  • Bank loans: loans provided by banks or other financial institutions to businesses. Usually they'll require a business plan, a business bank account, and some collateral.
  • Incubators and accelerators: These organizations provide funding, mentorship, and other resources to help startups grow. Famous examples are Y Combinator and Tech Stars.
  • Government grants: These are funds provided by government agencies to support the development of new technologies or businesses. Usually they are available for businesses in specific industries that the government is interested in strengthening and growing.
  • Partnering or licensing: This involves partnering with another company or licensing your technology to them in exchange for funding. Often one partner provides critical intellectual property or contacts while the other partner provides funding.

I'll cover each of these in more detail in future blog posts.

Startup Funding Explained: Everything You Need to Know

Categories: entrepreneurship funding management
Posted by Thomas Hopper on Permanent link for Ways to Fund a Startup on June 16, 2023.

Permanent link for Predicting Your Business' Break-even Point on June 9, 2023

The break-even point is an important financial target that every founder should understand. It is the point at which your total revenue equals your total expenses, and you start making a profit. In other words, it's the point where you break even. If you sell less than your break-even point, you'll lose money, while if you sell more, you should be turning a profit.

To calculate the break-even point, you need to know two things: your fixed costs and your variable costs. Fixed costs are expenses that don't change, such as rent or salaries, while variable costs are expenses that vary with your sales volume, such as production costs or commissions.

Once you have identified your fixed and variable costs, you can use the following formula to calculate your break-even point:

Break-even point = fixed costs / (price - variable cost per unit)

For example, if your fixed costs are $50,000, and your variable cost per unit is $10, and you sell your product for $30 per unit, your break-even point would be:

Break-even point = $50,000 / ($30 - $10) = 2,500 units

This means that you need to sell 2,500 units of your product to cover your fixed and variable costs and break even.

Knowing your break-even point is critical because it can help you make informed decisions about pricing, production volume, and marketing expenses. By understanding how many units you need to sell to break even, you can set sales targets and adjust your strategy to achieve profitability.

FindLaw has a great breakdown of how to do a break-even analysis before you start your business.

Categories: entrepreneurship funding management
Posted by Thomas Hopper on Permanent link for Predicting Your Business' Break-even Point on June 9, 2023.

Permanent link for Planning for Cash Flow on June 2, 2023

Cash flow is another important financial metric that founders should understand when determining how much money their startup needs. It refers to the amount of cash that flows in and out of your business during a specific period, usually a month. Positive cash flow is how businesses pay their bills, so predicting your cash flow is crucial to ensuring that your business will be viable.

Cash flows are normally presented on a cash flow statement, and a good financial projections template will have one that automatically fills in for you from your projections of revenues and expenses.

To calculate your cash flow, you need to know the inflows and outflows of cash for a given period. Inflows of cash can include sales revenue, loans, or investments, while outflows of cash can include expenses like salaries, rent, and utilities.

You can calculate your cash flow for each planning period (typically a month, a quarter, or a year) using the following formula:

Net cash flow = sum of inflows of cash - sum of outflows of cash

For example, let's say that your startup received $50,000 in sales revenue and $20,000 in loans during the month, and your expenses, including salaries, rent, and utilities, totaled $60,000. Your cash flow for the month would be:

Cash flow = ($50,000 + $20,000) - $60,000 = $10,000

A positive cash flow means that you have more cash coming in than going out during the period. This is what you want; it makes it possible for you to pay the bills. On the other hand, a negative cash flow means that you have more cash going out than coming in, which will lead to using debt (e.g. credit cards) to pay bills and might ultimately have to file for chapter 11 bankruptcy in the business. When your cash flow prediction is negative, you should go back to your assumptions about pricing and what is needed to achieve desired sales. You'll need to find ways to either increase revenue or decrease costs.

Trovata offers a lot more detail on how to predict cash flow before starting your business, and why it's important.

Categories: entrepreneurship funding management
Posted by Thomas Hopper on Permanent link for Planning for Cash Flow on June 2, 2023.

Page last modified October 27, 2023