CHAPTER 4

FROM IDEA TO
START-UP
PROPOSITION
 Chapter aims
● Show you that entrepreneurs are problem solvers
● Different techniques for generating ideas
● How to assess if an idea provides a basis for a
start-up
● How an elevator pitch can help explain your
start-up idea
 INTRODUCTION
● The UK inventor James Dyson was frustrated by the poor suction of his bagged vacuum
cleaner.
● This led to a ‘eureka’ moment when he saw a large industrial cyclone sucking ‘bad air’
up at a sawmill.
● Feeling inspired, he went back to his garden shed and developed a miniature version of
the cyclone for a domestic vacuum cleaner.
● What this does not tell you is that it took Dyson 15 years and 5127 prototypes to get his
bagless vacuum cleaner to market.
● Dyson’s journey is not unique.
● On average, it can take an entrepreneur about three years to set up a viable business, and
even longer if it is a technology orientated business.
 INTRODUCTION
● In reality, the early stages or ‘seed stage’ of venture creation is a process- ‘a
sequence of individual or collective events, actions and activities unfolding over
time in context’- that identifies how entrepreneurs:
1. Come up with ‘ideas’ (creative solutions to problems).
2. Begin to develop a ‘start-up proposition’ (a plan in their head or a basic outline
of the desirability and feasibility of a start-up).
3. Turn their propositions into a viable business opportunity (‘situations in which
new goods, services, raw materials, and organizing processes can be introduced
and sold at greater than their cost of production’).
 INTRODUCTION
● A problem might be that there is a need in a market or, like Dyson, because someone is
frustrated by how existing products or services work.
● Because entrepreneurial contexts are uncertain, these problems are likely to be ill
defined, complex and take time and effort to uncover.
● Spending time on framing and reframing problems is important because ‘a problem well
put is half solved’.
● Generating ideas (solutions to problems) often relies on your prior knowledge, skills and
experience.
● These ideas can emerge from spontaneous ‘eureka’ moments.
● However, they can also come from the application of divergent (generation of multiple
novel ideas) and convergent (detection of applicable and useful ideas) thinking.
PROBLEM FRAMING
AND REFRAMING
 Problems
● Problems are discrepancies between where we are now and where we would like to be: there is a
gap, something is missing or wrong
● Entrepreneurial problems are often complex and ill defined (e.g. why is customer service poor,
prices are high)
● Problem can be hidden – asking customers might show are current frustrations not future needs.
Steve Jobs suggested: ‘It's really hard to design products by focus groups. A lot of times, people
don't know what they want until you show it to them’.
 Problem formulation
● How can I/we improve customer service in X industry?, make X service/product
work better?, help disadvantaged people suffering from X?
● Interests, passions or ambitions: how can I become an entrepreneur?

● Wanting to use resources such as time, skills and knowledge: how can I/we make
better use of my time?
● The challenges faced by friends and family: how can I/we fix that for people close to
me/us?
● By actively searching for problems: what is the biggest problem in X market?

● By applying existing ideas (solutions to problems) to their own context

 Entrepreneurship in Action: Problem formation

● Write down as many problems as you can think of in 10 minutes. Use post-it

notes or a piece of paper. Number and group the problems.

● Formulate the starting problem using ‘how can I/we…’

● Evaluate problems based on the perceived size of the problem, how

attractive you find solving the problem, its importance to you or your group,
your expertise and your knowledge.
 Problem reformulation: the five whys
1. Why is the team member not handing in their work for the project? Because

they have been missing meetings

2. Why have they been missing meetings? Because they have been off work

for a month

3. Why have they been off work for a month? Because they are stressed

4. Why have they become stressed? Because they are being bullied at work

5. Why are they being bullied at work? Because there are not systems in place
 Who, What, Where, When, How and Why
● Why: is this a problem?

● Who: faces this problem most often?

● What: do they currently do to solve the problem?

● Where: does the problem most frequently occur?

● When: does the problem most frequently occur?

● How: do they feel about the problem?

● Important to frame and reframe problems

 Entrepreneurship in Action: Reframing the problem

● Use the five why’s exercise to reframe the problem. Talk to users and

customers to investigate what the root problem is

● Use ‘Who, What, Where, When, How and Why’ to work out the problems

facing a customer

● Restate the problem by reframing using a mind map or ‘how can I/we…’
Fact finding about the problem
 PEST analysis
● Political – how governments intervene in the economy (e.g. employment law,
product regulations, intellectual property rights)
● Economic – how macroeconomic conditions (e.g. inflation, exchange rates,
and economic growth) impact on business decisions
● Social – how social trends and attitudes (e.g. population size, structure and
growth rates, buying patterns, consumer attitudes, and lifestyle patterns)
influence business decisions
● Technology – how new and improved technologies influence industry,
consumer trends and business decisions
 Customer Journeys

● Create a model customer – a customer vignette - and consider how

they might use a good or service. Should include demographic
information such as their age, gender and income. It should also
consider what they like and dislike about the product or service.
● Chart customer journey. This involves working out how what the
customer does before, during and after using a good or service
 Customer Journeys
● For example, people with disabilities may encounter issues using train services.

● To find out if they face problems in their customer journey, a train company might
work out if they face challenges before they start their journey, such as planning
the journey, payment and ticketing, and arriving at the station.

● Next, they might examine how issues such as seating or on-board services affect
disabled people during their train journey.

● Finally, they can look at what happens after the train journey, such as how easy
is it for customers to get a refund.

● To make sure that their data is robust, the train company can collect information
from relevant secondary sources and talk to train users about their frustrations
and problems.
 Jobs to be hired
● Instead of focusing on customers, focus on products and services and work
out what ‘job’ they do and why they are ‘hired’
● Framing the milkshake as a ‘job to be hired’ led MacDonald’s to generate
solutions such as thicker milkshakes which made people feel fuller for longer
and using electronic payments to make it quicker to buy them
● Need to frame and reframe a problem statement
 Entrepreneurship in Action: Pest & customers for hier

● Conduct a PEST analysis of a problem area - Identify key trends and relate
these to the problem
● Choose a product/service (a job) for ‘hire’

● Explore its use and the problems customers face with this ‘job’
Generating solutions
 Sources of ideas
● Accidental ‘eureka’ moments (e.g. discovery of Penicillin, Post-it notes)

● Needs people to be ‘entrepreneurially alert’ (Kirzner, 1973)

● Entrepreneurs rely on their expertise, gained from their experiences and

knowledge: ‘inside the box’ rather than thinking ‘outside the box’
● Social capital is important

● Being systematic about finding problems

● Using divergent thinking

Amabile’s Model of Creativity
 Brainstorming
● Need a specific problem that has no single obvious answer
● Once the problem is set, brainstorming has four simple rules:
1. The larger the number of solutions the better

2. Wild solutions are welcomed

3. Combining and improving ideas is good

4. There should be no criticism of any idea generated

● Brainwriting - people write down as many solutions as they can think of and
then pass their paper onto a team member who adds to these solutions
 SCAMPER
● Substitute a part of a process, product or service with another
● Combine with other functions, materials or objects
● Adapt the product, service or design to another use
● Modify by either magnifying or minimizing the product, service or design
● Put to other uses by changing the original product, service or design to meet
the needs of another type of consumer
● Eliminate or elaborate the product, service or design
● Rearrange or move sections of the product, service or design
 Analogical thinking & idea evaluation
● Bringing heterogeneous (diverse) ideas together – analogies like
‘organisations can be compared to bee colonies’ or metaphors such as ‘he
had a wooden heart’
● Need to evaluate ideas; evaluated. One way of teasing out which is the ‘best’
is to work out if the idea is creative. There are two main criteria for judging
the creativity of an idea:
● If the idea is novel, original or rare relative to other ideas
● If the idea is useful - relative to other ideas
● Need to come up with an idea statement
 Entrepreneurship in Action: Idea generation &
evaluation
● Use brainstorming, SCAMPER or analogical thinking to generate ideas to
solve a specific problem that you have framed and reframed
● Start a creativity journal that records 10 ideas each day for solving problems
● Rate your ideas in terms of originality (1=completely unoriginal, 10=
completely original)
● Rate your ideas in terms of usefulness (1=completely unoriginal, 10=
completely original)
Me, Market and Money
 Inventing and innovating
● Ever heard of Murray Spangler, Harvey Ball, or Alexey Pajitnov?

● Inventors come up with new ideas - entrepreneurs are innovators who

commercialise ideas: ‘generating good ideas or adopting a new one, in and of
itself, is only the start. To be an innovation, an idea must be converted into a
product or service that customers want.’
● Not usually motivated just by the invention

● Have to shift from the idea to assessing its desirability and feasibility
Me, Market and Money model
 ‘Me’ and the idea: is there a fit?
● Does an idea match the entrepreneur’s goals?

● Does the idea fit with the entrepreneur’s skills, experience, interests and
dispositions?
● Is the idea attractive to the entrepreneur’s friends, family and colleagues? If it
is not, this may limit the idea’s attractiveness for an entrepreneur.
● Is it the ‘right’ time? An idea might be attractive and have a high degree of fit
with the entrepreneur but still be rejected because it is not the most
opportune time for them.
 ‘Market’
● Is there is customer demand for an idea? Is this based on belief or actual
customers?
● Is this a hobby based business?

● What about the competition? Will they copy the idea? Are they bullies?

● Is the ‘window of opportunity’ open?

 ‘Money’
● Can start-up with no money or resources

● Very unusual – often have to ‘bootstrap’ the business: ‘combination of

methods that reduce overall capital requirements, improve cash flow, and
take advantage of personal sources of financing’ (Ebben & Johnson, 2006)
● Usually need finance and social capital
 Entrepreneurship in Action: The dream business idea?

● Idea solves a ‘real’ problem – it is a ‘must have’ rather than a ‘nice

to have’ solution.
● The market is large and growing rapidly
● Barriers to entry exist
● It is easy to overcome customer habits
● There are strong early positive cashflows
 Entrepreneurship in Action: The dream business idea?

● No one-size-fits all approach – need to keep an open mind. Separate your

business ideas into three: your ‘best for now’ idea, your ‘back-up’ idea and
your ‘cold storage’ idea.
● Use the ‘Me, Markets and Money’ framework to evaluate business ideas
feasibility and desirability
● Rank your ideas against the characteristics of a ‘dream’ business idea
Is starting up right for the idea?
 Licence or sell the idea?
● Usually need intellectual property rights
● Licencing involves an up-front licence payment followed
by regular royalty payments on each sale for the idea.
Useful if inventor does not want to become an
entrepreneur or because it is difficult to commercialise an
idea
● Licence agreement should specify how it is going to be
used, by whom and how long for
 Buying an existing business?
● Saves entrepreneur the expense, time and effort of venture
creation.
● Pre-exiting businesses may have a ‘brand’ and pre-existing ways
of doing business.
● Might be costly to buy a ‘going concern’
● Can be difficult to work out why business is being sold e.g. low
staff morale and a hostile set of customers, suppliers and
financiers
 Franchise?
● Not about the idea but about the opportunity?
● Franchisor provides a range of benefits for a regular fee or a
mark-up on sales such as the use of its ‘brand’, the ability to sell
its products and services, a method for doing business and expert
support.
● Franchisee is a separate independent company that agrees to pay
for the franchisor’s services and accept its terms and conditions
but otherwise is free to run their business in a way that suits them
 Advantages for Franchisors
● Lower costs – franchisees fund the set up of their own franchise outlet; the more
franchisees there are, the greater the purchasing power of the franchisor to drive
down their own costs
● Lower management costs – franchisees are responsible for employing and
managing their own staff
● A viable exit route – if the franchisee fails to uphold their terms and conditions, the
franchisor can cancel their contract; if the franchisor has a ‘brand’, it may be
possible to sell the franchise
● Better growth incentives – independent franchisees may be better motivated
towards business growth than directly owned outlets run by managers who have a
secure salary
● Cost effective business growth – because franchisees fund their own set up
costs and may have to pay for the right to set up an outlet, growth funding may be
easier and cheaper than going to a bank or investors
 Advantages for Franchisees
● Limits uncertainty - they are given a ‘brand’, a proven formula for doing business,
and opportunities for economies of scale such as bulk buying and shared marketing
costs
● Support – start-up can be lonely so being part of a franchise gives the start-up
access to training and assistance that helps to grow the business.
● Exclusivity – franchisees often have exclusive rights to sell the product or service
in an area, potentially making it easier to establish and grow the business
● Eases entry costs – if the franchise has a proven well-known brand, there is less
need to test market the product or service and develop relationships with suppliers
● Lower costs – it may be cheaper to buy a franchise than set up a new business;
external financiers may be more willing to invest knowing that the franchisee is part
 Entrepreneurship in Action: Franchising
● Find and examine a franchise business in the same industry as your
business idea. Is becoming a franchise a better way for you to achieve your
goals?
● Being a franchisee is a balance between lower uncertainty and having to
share profits and control in your business. Would you be happy with this
balance?
The elevator pitch
 Pitching the idea
● Pitches used to convince others such as friends and family and
external audiences or financiers about their start-up proposition
● A short ‘elevator’ pitch works on the idea that the entrepreneur
meet a potential mentor or funder in an elevator and has ‘pitch’
their business idea and hope that this will lead to a follow up
meeting
 Pitching format
● No one way – depends on time
● Basic format
● Identify a problem (problem statement)
● Propose a solution (idea statement)
● Explain how the idea will help improve the lives of people (the
customer) and why it is better than what is currently on offer (the
competition)
● Why them?
● What are the next steps?
 Entrepreneurship in Action: Pixar pitching
● Once upon a time there was…Every day…One day…Because of
that…Because of that…Until finally…
● Once upon a time there was… Marlin who was over-protective towards his
only son Nemo
● Every day… Marlin warned Nemo of swimming away
● One day… Nemo got annoyed and swam away
● Because of that… Nemo got caught by a diver who puts him in his fish tank
in Sydney
● Because of that… Marlin sets off to find Nemo
● Until finally… Marlin and Nemo find each other and learn love depends on
 Entrepreneurship in Action: Pixar pitching
● Once upon a time there was… a problem (specify who faces the
problem)
● Every day… this is a big problem (how many and what type of people
face the problem)
● One day… we came up with a solution (who we are and what is our
idea)
● Because of that… (what we are going to do)
● Because of that… (how our solution will impact on the problem)
● Until finally… what is the wider impact of the solution to the problem?
 Conclusions
● Early start-up can involve the fuzzy journey from ideas (solutions to
problems) to start-up propositions (a mental model or early sketch of the
desirability and feasibility of a start-up)
● Importance of framing and reframing problems is critical - entrepreneurs are
problem solvers
● Can use ‘eureka’ but solutions usually based on individual’s background and
creative skills
● Vital to filtering an idea’s desirability and feasibility through models such as
‘Me, Market and Money’
● Not all ideas are start-up ideas
 Further reading
● Amabile, T. M. (1998). How to kill creativity, Harvard Business Review,
Sept-Oct, 77-87.
● Baron, R. A. (2006). Opportunity recognition as pattern recognition: How
entrepreneurs “connect the dots” to identify new business opportunities. The
Academy of Management Perspectives, 20(1), 104-119.
● Fiet, J.O. (2007). A prescriptive analysis of search and discovery. Journal of
Management Studies, 44(4), 592–611.
● Shane, S. (2000). Prior knowledge and the discovery of entrepreneurial
opportunities. Organization Science, 11(4), 448–469.