Startup From Scratch III: How To Identify An Opportunity
Startups create jobs, new products and disruption. Agreed. We all love startups and we know that many in Iraq work hard to make ideas ‘happen’, with stories of Iraqi entrepreneurs inspiring us every day. At the same time, around the world and particularly in Iraq, the process is far from easy.
Our Startup from Scratch articles is a new series written for entrepreneurs looking to start a venture or for those already in the process of building one. We will be summarising resources and providing food for thought in the hope of being a part of your startup learning journey. We’re far from knowing all the answers but we know that this series will provoke thinking on important aspects of your business and help avoid obstacles. A work in progress, we’re always curious to know your thoughts and experiences too, what you find helpful or what you may simply disagree with.
In our last piece on Startup from scratch, we looked at how entrepreneurial mindsets work and how entrepreneurial thinking differs from managerial thinking. Great, now it’s time to take the divergent thinking hat off our heads and get to identify an opportunity. Like good ideas, most of the time the best opportunities are those that are least obvious to people. Yes, our hindsight bias might tell you that many business ideas seem obvious in retrospect, but coming up with one, forward-thinking? Hmmm..maybe not as easy.
We often use cliche labels for good leadership, like being a “visionary”. However, the truth is many visionaries may have ideas that seem absolutely insane to others. This is because good ideas are ones that radically change or challenge given assumptions, making it difficult for others to see their value before proven results. An idea that seems good and is simple to implement is often easy for others to identify too. That means more competition. The goal is to identify good ideas that seem crazy or ‘bad’ to others, or even yourself, but actually, tap into solving a real problem.
Opportunities come about with new created or observed changes
Situations arise when a new driver comes about or a created or observed change comes about. These are situations that arise and people can transform resources into a form, at a potential profit. This means opportunities are also time-bound. One way to track how situations bring about opportunities for entrepreneurial action is tracing back a current business to the situation it came about. Some cliche ones: amazon or google? Driven by the rise of the internet. Facebook? Came about after the 2000s rise of social networks.
Don’t just think of the global ones everyone talks about. Think local too, mobile payment services are currently all the rage in Iraq. What opportunities does this bring? How can this resource and trend be transformed into new profitable services and offers, which also create value?
Opportunities are created when you look for the overlooked market trends
More and more people in Iraq are exchanging their wallets for their phones when making payments, more and more are using co-working spaces to meet those deadlines. Things in Iraq, like other countries, change. Most entrepreneurs will attempt to adapt to such trends in consumer behaviour or technology.
What entrepreneurs can do to avoid participating in more saturated markets is by acting strategically to exploit their unique advantages, either knowledge, information or non-financial resources. One of our favourite examples is Ranoo Hiwa’s Bina app. A civil engineer herself, with experience of working in the field, she was well aware of the everyday hindrances associated with lack of accessible information on where to find skilled workers and resources. Her digital platform, Bina, tapped into her engineering market knowledge and the challenges in the field, by providing fast and easy means for employers and skilled workers to find each other.
Some obvious trends may include an emerging need, like the rise of e-learning when restrictions due to the pandemic closed down schools and university classrooms, or solution designs that have been used in the past to solve similar problems. These are great, but the issue is they gradually become overcrowded with little opportunity to add value for the end-user. When markets become overcrowded in particular trends, it takes a more competitive edge to get funding and to convince investors and stakeholders that you stand out.
Alternatively, entrepreneurs could also lookout for a counter-intuitive trend. Something you notice or spot, which is unexpected. An example of this in today’s pandemic is the pent-up demand for air travel in Europe.
Pent-up demand is when a product rises precipitously. For example, if demand for a product has been low, then suddenly jumps and remains high, it may be due to pent-up demand. This may occur following a recession due to increased spending as an economy recovers. People have had to spend so much time indoors, that even without seeing the end of Covid-19, people are gradually resuming travel and some of them will want to make up for the lost time, even if this means being locked up again at home when they’re back.
Opportunities are created when you reframe the problem
Many ideas offer real solutions, but most fail to address a real problem. The process of creating an opportunity for offering solutions through entrepreneurial action relies heavily on the “problem space”, or how well you know your target audience, their pain points and the main blockers they face. This means that a good opportunity for a startup solution relies on how you frame the problem. Your solution may be awesome, it may tap onto some really cool technology and has some really efficient processes in place to make it happen. But it will never bring the best results if it’s addressing the wrong problem. Thinking carefully about your problem space should be how you design your solution space.
A classic example is the ‘slow elevator problem’ from Thomas Weddell-Wedellsborg’s book on solving the right problems. The tenants of an office building are complaining about the elevator, on a daily basis. It’s old. It’s slow. They waste a lot of time waiting for it to arrive on their floors. Not just that, when it does arrive, it takes ages to get to your floor because of the number of times it stops on each of the floors for people to hop on or off. Most people quickly identify solutions: replace the lift or install a better motor. These are great suggestions if the problem is framed as simply: the elevator is slow.
These solutions mean the need for huge budgets and are likely to take longer to solve the problem. But, when the problem is reframed, the solution space is much simpler. Put up mirrors next to the elevator, suggested one building manager. This simple measure proved wonderfully effective in reducing complaints because people tend to lose track of time when given something great to look at, like, themselves. This example is simple but it’s great because it doesn’t solve the original problem. It won’t make the elevator faster. Instead, it proposes a different understanding of the problem.
Other versions of the slow elevator problem illustrate how building managers in some countries have built-in algorithms that decide which elevator out of the slow six elevators will take you, by asking you for your floor outside in the lobby. This means fewer stops for the elevator because all those going to odd or even-numbered floors are in their respective elevators, with less frustrated sighs and cursing on the way. Again, no faster elevators but a simpler change in algorithm.
The next time you’re thinking of a solution to a problem, avoid jumping to solutions. Taking time to understand the problem first will pay off. This involves stating the problem clearly, critically questioning what you’re missing and getting closer to your target customer’s pain points. More on pain points in an upcoming article.
Special thanks and shoutout to Dr. Nettra Pan, entrepreneurship researcher and educator, for her help in providing input and ideas for this series!
