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How to Get Your First Great Idea
 

Five rules to follow that will help you recognize valuable business ideas. Includes case studies of entrepreneurs who quickly transformed ideas into start-up companies.
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The best business ideas aren't hard to find. They're just hard to see

Zalman Silber's nearly $9-million entertainment business sprang from one simple observation: all these people must need something to do.

Back in 1991, Silber was working as an agent for New York Life Insurance Co., located in that tourist mecca otherwise known as the Empire State Building. Watching the crush of visitors who piled into the elevator every day, Silber reasoned that there were profits to be made in offering an indoor experience for the out-of-towners, especially for those who found their view clouded by uncooperative weather.

Seeking something with a modern, high-tech appeal, he came up with the notion of a simulated helicopter tour of the Big Apple. So appealing was his concept--or at least his pitch for it--that he managed to raise $6.2 million in a February 1994 stock offering, which took place before the ride was even built. Plowing that money into the venture, he opened New York Skyride before the following Christmas. In 1996 the ride would draw about 19% of the 3.4 million tourists who made their pilgrimage to the skyscraper that year. Aside from charging $11.50 per admission, he also has been selling customers hot dogs on the way out of the skyride. "The lesson in this story is, Capitalize on and benefit from existing infrastructure," Silber, now 30, says. "Take advantage of other people's toil. That's really what everything is about."

As it turns out, that's true of most great ideas: they aren't so much hard to find as they are hard to see. Retrace the steps of entrepreneurs who've brought great ideas to life, and they'll all lead back to a familiar spot: the markets where the founders operated, the companies where they worked, a customer's remark, an employee's insight, an intractable problem--even the weather. Opportunity, it seems, is in the eye of the beholder. Innovators are able to "make associations and see things differently," says Thomas Kuczmarski, a Chicago-based consultant who specializes in innovation. "If they look at research, new technology, or trends, they can piece those together and draw a mosaic and end up with something completely different."

Sometimes, in fact, a perfectly valid concept can be camouflaged by its very ordinary roots. But the remarkable fact that no one else is doing it--or even thinks it's a good idea--can be enough to inspire visionaries to get serious. The fact that his big-company employer shot down his idea wasn't enough to discourage software entrepreneur Mike Klein. The months he'd spent studying the market and writing a business plan made him only more enamored of his idea's potential. "It became so crystal clear in my mind what we had to do to win this game that it really came down to a decision: Do I stay with my job and wonder what if, or do I quit my job and just take the risk?" he says. "And that's what we did."

You'd probably do the same, you're thinking, if only you had that powerful an idea. Or maybe you do, but you just don't realize it. How do you find that great idea that's almost certainly in your midst? Here, some guidance from those who've done it.

Rule 1
Keep the small picture firmly in mind

Company: Citipost, in New York City
Time from idea to start-up: Three weeks
Initial investment: $19,500

Richard Trayford was only looking to kill three months before his new job in music promotion began. So in late 1989 he did what he'd often done to bankroll his fledgling music career: he got a gig at a Manhattan bicycle-messenger company.

It was there, after a couple of weeks on the job, that Trayford decided that the company was "missing its own concept," as he puts it. To entice customers to choose its services, Manhattan Borough Couriers offered overnight delivery for just a dollar anywhere in New York City. What the company viewed as nothing more than a promotion--a teaser for its same-day delivery service--Trayford saw as the basis for a business. Three weeks later he borrowed $19,500 to launch Citipost, pitching the service to companies in publishing, media, and financial services.

His first sales call was to Random House, a publisher that delivered hundreds of books every day to reviewers, agents, and others in Manhattan. "We had a lot of concerns at first, but the cost savings outweighed the risks," says Kevin Farrell, who listened to Trayford's pitch at Random House and is now vice-president of real estate management at Bankers Trust. "A lot of this publicity material was going out by UPS and FedEx, so the savings were tremendous, at least 50%." Within four months Citipost was handling all Random House promotional materials. Using the same principle of focusing on intracity delivery and on high-volume industries, Citipost has expanded around the country and overseas. Last year its revenues reached about $20 million.

Rule 2
Take every complaint you hear seriously

Company: Misty Mate Inc., in Tempe, Ariz.
Time from idea to start-up: Two years
Initial investment: $80,000

What Steve Utter was hearing from employees couldn't have surprised him: it gets hot in Arizona in the summertime. Nonetheless, he was unhappy that the oppressive 110-degree midday heat was melting away productivity at his Phoenix-based construction company. "We'd start before the sun even came up," recalls Utter, "and we'd be lucky if we made it to noon."

A logical response might have been for Utter to switch over to interior remodeling. But all he could think about was that if he could boost productivity, he could add as much as $100,000 to his bottom line. Just as he was sweating out a solution in 1987, he came across a fog nozzle used with garden sprayers to spread insecticide in a fine mist. If he could somehow connect the nozzle to a tube and a portable water supply, Utter figured, he might be able to create a personal misting device to cool his workers. He also realized that the product would have broad appeal. "I had million-dollar signs in my eyes," he admits.

Over a two-year period, Utter's employees served as guinea pigs, testing out the device as he toyed with it. Once they were satisfied, he applied for a patent. The original Misty Mate cost $175 and consisted of a backpack water supply with a flexible tube and a nozzle. "We started showing it to other construction companies, and they said, 'We want to buy these,' and we ended up getting a lot of media coverage because the original ones were a large size and very conspicuous."

Misty Mate now costs $25 and consists of a fanny pack that straps to the waist and a stiff but flexible tube that clips to the shirt collar. Sales of the device have doubled every year, reaching around $7 million in 1997.

Rule 3
Wait for your boss to say no--then go

Company: Steeplechase Software, in Ann Arbor, Mich.
Time from idea to start-up: Six months
Initial investment: $30,000

Mike Klein's story sounds like something right out of the panels of Dilbert: an eager employee spots a great new innovation, takes the concept to the management, and is told his project would be perfect--as a candidate for a slow corporate death. "They said, 'You could do it,' but they would treat it as an R&D project and probably kill it," Klein recalls.

Klein, though, had done enough work on his concept as part of a night class in entrepreneurship that he thought he might know better. So he raised $30,000 and went into business.

The idea for Steeplechase came from observations he'd made working at Allen-Bradley, the Rockwell International Corp. unit that makes industrial controls. Klein heard customers complain that Allen-Bradley's mainframe systems, which run factory lines, were complicated. He wondered if those costly systems could be replaced with lower-cost PCs.

It was around that time--late 1992--that Klein approached his managers at Allen-Bradley and asked them how the company would receive his idea. Their clear message: don't pursue it. Later he heard a senior official say that it would be at least a decade before PCs were running the factory floor. "To my mind that translated into at least a five-year window of opportunity," he says. On New Year's Day 1993, Klein launched the company, which has grown by 400% a year.

Richard Ryan, who knew Klein at Allen-Bradley and is now president of Rockwell Software Inc., says he isn't at all surprised to hear that Klein was actively discouraged. "It wasn't something that the big company understood back then," he says. "You needed to have the entrepreneurial outlook to see beyond the current revenue stream to what was going to happen in the future."

Rule 4
Assume everyone has the same problem you do

Company: HealthCare Financial Partners Inc., in Chevy Chase, Md.
Time from idea to start-up: One year
Initial investment: $500,000

The inspiration for healthcare financial Partners began with a headache. John Delaney and Ethan Leder had bought a home-health-care company in 1989, quickly positioned it in the profitable niche of delivering drugs to patients at home, and then ran into a problem--a cash-flow crunch. To expand, they had to add nurses, so expenses rose. But revenues didn't keep pace, because it often took government and private medical insurers 90 to 120 days to pay for services.

Traditional sources of financing were reluctant to lend Delaney and Leder money because of the difficulty in valuing medical accounts receivable. Each insurer had its own policy on repayment, making it tough to figure out the value of the receivables. Finally, the partners found a factoring company in Texas that was willing to extend them credit.

Securing the money "was a key to our success," Delaney says. And what he and Leder had to go through to get it sparked an idea. Factoring, in which a company borrows against its receivables, was especially valuable to small but fast-growing medical businesses that didn't have access to credit, they realized. "We were all collectively intrigued with that business," Delaney says. With their legal counsel, who became a partner in the new business, they began brainstorming ideas for setting up a finance company.

Delaney and Leder sold part of the home-care infusion business. Soon after, they started HealthCare Financial Partners, having realized several advantages they had: no factor of any size was focused on the small- and midsize-company segment of the medical-finance business, and there was a barrier to entry--specialized knowledge of receivables. Since Healthcare Financial Partners leaped into that void, the company has grown to 70 employees; its financed receivables increased from $6.2 million in 1994 to $219 million in the first nine months of 1997. "We want to be the GE Capital of health care," Delaney, the company's CEO, says. "That sounds ridiculous, but we don't think it is."

Rule 5
Ask the right questions

Company: Compression Inc., in Louisville.
Time from idea to start-up: Six months
Initial investment: "Insignificant"

William Verity and Bob Leasure knew the kind of company they wanted to start. They just didn't know what business it should be in.

In 1992 the two men, a former investment banker and a former chief financial officer, owned an injection-molding company, which--much to their chagrin--had become a commodity business. What they were looking for was an opportunity that would have just the opposite attributes: something unique enough to command a profit; situated in a growing market, so they wouldn't have to steal market share; and capable of diversification, so they could sell more and more to the same customer base.

With those criteria in mind, they systematically began asking engineers and customers about what business they should go into. The answers bubbled up slowly. "It really comes down to listening to customers and the people who work for you," says Verity. Over time an idea began to take shape. "We found that almost every company we talked to had this urgent need to develop better products faster," Verity says, adding that a six-month delay "would be the difference between dominating a market and missing it completely." The bottlenecks were not in production but in design, engineering, and prototyping.

Within six months he and Leasure had hired two specialists in product development, design, and prototyping, and opened up Compression Inc. Besides wanting to produce products more speedily, companies were also looking to outsource product development. Since 1993, Compression's sales have risen from $700,000 to $30 million. "We tapped into a much larger need than we initially anticipated," says Verity.

Managing that growth has required some fancy financing; so far the two have raised a total of $30 million in several phases to systematically grow the company. A business idea, after all, is only as great as an entrepreneur's ability to execute it. Just ask Zalman Silber. Though his simulated helicopter ride seems like a natural winner--so much so that he's opened a virtual-reality arcade in Times Square--his losses totaled nearly $3.5 million last year. Plans for a $10-million private placement collapsed last summer, and he's now involved in a legal battle with the owners of the Empire State Building. Not that any of that has tempered his enthusiasm. This year he's hoping to open another location, in Sydney, Australia. All he needs is the money. Ideas, after all, are the easy part.

Samuel Fromartz, a freelance journalist based in Washington, D.C., writes a column about entrepreneurs for Reuters.

Last updated: Apr 1, 1998




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