How to Develop a Business Idea: Crash Course Business

00:05 Whether it’s the classic lightbulb above our heads or a “Eureka!” moment, we imagine ideas bursting out of creative people’s brains — like we all live in some cartoon universe, and a lucky few of us get struck with inspiration.

00:17 Maybe you’re wondering whether entrepreneurship is for you, because you don’t think you’ve had any great ideas, but just WAIT!

00:23 Because we can all get them.

00:25 Or maybe you have an idea and you’re not sure what to do next.

00:28 How do you feed, water, and nurture this tiny seed so it grows into a whole business?

00:33 Don’t worry, we’ve got you.

00:34 I’m Anna Akana and this is Crash Course Business: Entrepreneurship.

00:38 [Opening Music Plays]

00:47 Entrepreneurs aren’t a special group of people gifted with all the good ideas.

00:51 They believe in themselves and the value of their idea enough to take a financial risk to make it a reality.

00:57 Looking back at the people we now think of as great entrepreneurs, these people were just looking to make life easier or better in some way — from inventing the wheel to dreaming up the dishwasher.

01:07 But what sparked their imagination?

01:11 What was their apple falling from a tree?

01:13 Innovative ideas can be traced to three main sources: our passions, our complaints, and our egos.

01:19 Let’s start with the exciting one: our passions.

01:21 If you weren’t working at your current job or going to school, what would you do?

01:26 Many ideas come from us being excited about something and wanting to share it with the world.

01:31 It could be Grandma’s hot sauce recipe, video game walkthroughs, or upcycled yard sale furniture.

01:37 Sometimes you start doing something as a hobby, like art.

01:40 But then you might get commission requests from people you don’t even know.

01:43 So, if you take a risk, that hobby could become a full-time job.

01:48 Next, there are complaints.

01:49 There must be something that bugs you, whether it’s tangled headphones or a lack of movies directed by women.

01:56 Dropbox was founded because someone was annoyed they kept forgetting their thumb drive.

02:00 Under Armour was founded because someone got tired of their shirt getting so sweaty they had to change it multiple times during one workout.

02:07 So if you’ve ever found yourself thinking, “Wow, I really wish someone would do something about that,” guess what?

02:14 You can do something about it!

02:15 And, of course, there are the “I can do it better” ideas.

02:19 Everyone has them!

02:20 Our egos are a great place to find innovation and motivation.

02:24 Maybe you visit the same coffee shop every morning and after the thousandth cup of hot sludge, you are so done.

02:30 You could make a much better cup of coffee!

02:32 And the cups would be compostable!

02:35 And the tip jar would have a witty joke!

02:36 And you’d have fresh scones!

02:38 Let the outrage fuel you.

02:40 Think of something that needs freshening up.

02:42 Uber and Lyft looked at the taxi industry and saw something outdated and clunky.

02:47 So they made sleek apps with automated payments and directions.

02:50 Now, obviously, there can be overlap between these three motivations.

02:53 You might be able to make a better cup of coffee than the big chain in town — that’s ego.

02:58 But that’s only because you’re into coffee and experiment with techniques and “blends”

03:02 at home — that’s passion.

03:04 And maybe that hobby started because there weren’t any coffee shops in your neighborhood — that’s complaint.

03:09 Whether or not you have an idea notebook filled to the brim, you do have experiences, opinions, and a whole complicated life.

03:16 And these are the building blocks of entrepreneurial innovation.

03:19 So the first step is acknowledging you have an idea.

03:23 Step two is understanding the problem at the root of your idea.

03:26 Think of your idea as the beginning.

03:29 You may have your own experience of a certain problem, but by understanding what others think, your idea can grow and affect more people.

03:36 So when you’re chatting about that big chain coffee shop with your friends, listen to what they say.

03:42 Have they been there?

03:43 What do they like?

03:44 What do they hate?

03:45 Maybe they complain, “That place is a health hazard and their service SUCKS.”

03:49 Or they say, “I never go there because I only drink tea.”

03:52 So, use that quick insight to make your idea better.

03:56 Maybe your coffee shop will focus on excellent staff training to ensure high quality coffee, cleanliness, and customer service.

04:03 And you’ll offer lots of teas alongside those artisanal lattes.

04:08 Even after you understand the problem, there’s more talking to do.

04:12 Let’s look at my latest big idea.

04:14 It’s great, right?

04:15 But now that I’ve told you, I’m going to have to kill you!

04:18 Sorry, I got a little dramatic there.

04:19 When we have exciting new ideas, our first instinct is to squirrel them away so no one can steal them.

04:24 But that’s bad.

04:26 When we keep things to ourselves, we end up thinking shoe umbrellas are the next big thing.

04:31 We have to share our ideas with the people who are actually going to use the product or service.

04:37 Otherwise, our solutions inherit our blind spots and biases.

04:41 They might not actually solve the problem, or they might only be useful for a few people.

04:46 Let’s explore this in the Thought Bubble.

04:48 My friend Mary Cherry is deeply passionate about cream puffs.

04:52 She also happens to be allergic to gluten.

04:55 Mary was complaining that there were no cream puff bakeries in her whole city, so she launched a gluten-free pastry shop called Dream Puffs on her block.

05:04 Now, Mary was so enthusiastic about bringing her dream to life that she didn’t talk to potential customers or even her friend and fellow cream puff connoisseur Paul before launching.

05:14 She put in lots of time and money to set up her shop, complete with color-coordinated mixers, a chic logo, and a few flavors of gluten-free cream puff recipes.

05:24 During the grand opening, Dream Puffs gets some buzz — no soggy bottoms here!

05:27 But as the first week goes on, many potential customers don’t actually buy her gluten-free cream puffs.

05:32 Most of the people who show up have more than one allergy.

05:35 Mary’s cream puffs are gluten-free, but all of her luscious fillings have cream — she didn’t think about using dairy-free options for people with dairy allergies or lactose intolerance.

05:47 And her non-basic flavors involve nuts like pistachios and almonds, but a lot of her potential customers have nut allergies.

05:54 These are pretty huge setbacks.

05:56 So now Mary has to spend more time and money to develop new recipes and make sure that the quality — and her star-baker reputation — is maintained.

06:04 And she has to retrain her staff.

06:07 If Mary had been willing to share her menu, she could have optimized her cream puff ideas for potential customers before launching.

06:14 And she could’ve stirred up even more hype and brand recognition for Dream Puffs on her opening day.

06:19 Thanks, Thought Bubble!

06:20 It’s easy for us to judge a story, but who would you share an idea with?

06:24 Your mom?

06:25 Your trusted friends?

06:26 Everyone on your morning bus ride?

06:28 After all, a bus is just a limo full of friends you haven’t met yet!

06:31 It depends on the idea, but generally at this early stage, we want to target two main types of people.

06:37 First, customers who might have the problem we’re trying to solve.

06:41 And second, people who can help us think through our idea.

06:43 We can also look to professionals who might be able to connect us to established entrepreneurs in the field or available resources.

06:45 For example, we could look for a college campus with professors in entrepreneurship or entrepreneurial consulting.

06:50 Or turn to entrepreneurial networking groups, like those in co-working spaces.

06:54 And in the U.S., we have Small Business Development Centers.

06:57 Around the world, you can check with your local government for similar organizations that provide education and financing for budding entrepreneurs.

07:05 All these options are well-connected in the entrepreneurial community and it’s their goal to mentor, consult, and connect fledgling entrepreneurs.

07:13 Don’t be afraid to reach out and ask for help!

07:16 BUT before we get carried away, we have to remember: we’re still making sure our idea is good and talking with potential customers.

07:23 This is NOT the finance stage.

07:26 We aren’t asking people for seed money… yet.

07:29 The next step in workshopping an idea is to think big about the fundamental pieces of your business.

07:35 And a great way to do that is with a business plan tool like the Business Model Canvas, a lean startup template created by a company called Strategyzer.

07:43 Ok cool, yeah, I’ll fill that out in a second.

07:46 I’m just finishing page 22 of my business plan where I discuss exactly which bees will provide the honey I use to sweeten the tea in my swanky cat cafe.

07:54 Hate to break it to you, but the days of 30-page business plans are pretty much over — even if someday you need financing from a bank or a venture capitalist.

08:03 Most lenders care about your story, proof your idea works and is wanted, an understanding of your customers, and your financial plan, which often takes only 5-10 pages tops.

08:14 And the Business Model Canvas has sections for all those things!

08:18 Really, filling out a business plan or Business Model Canvas lets you collect all your thoughts about your idea and visualize how your business might exist.

08:26 Let’s explore the canvas using a little company you’ve probably never heard of: Netflix.

08:31 For each section, we need to answer a key question.

08:34 We’ll start with Value Proposition: What is the value we deliver to our customers?

08:38 Basically, why do they want whatever we’re selling?

08:42 Netflix leverages technology for global audiences who want on-demand, customized entertainment.

08:47 Next, we move to the cluster for customers.

08:50 Let’s think about our people in three pieces.

08:53 First, who even are they?

08:55 All the types of people interested in our product form the Customer Segments section.

08:59 In 2019, over 50% of Netflix’s business came from subscribers outside the U.S.

09:06 They use internal algorithms to predict and offer certain programs to certain demographics.

09:10 Once we decide who our customers are, it’s time to define the relationship in the Customer Relationships section.

09:17 What type of relationship do our customers expect us to establish?

09:22 Netflix customers expect quality programming, good predictive suggestions, excellent customer service, and high-end technology performance.

09:29 And then, through what Channels are we going to speak to them?

09:33 How are we reaching our customers?

09:35 Netflix uses email, streaming apps, and social media campaigns to communicate with customers (they’re even on SnapChat.)

09:42 Now that we know the “who,” we need to describe the infrastructure of our business, which also has three pieces.

09:48 To start with the basics, what do we actually do?

09:51 These are our Key Activities.

09:53 Netflix licenses existing content and creates their own that they deliver through an online platform.

09:59 And they do all the usual business things like sales and marketing.

10:03 After that, we have to decide what do we need to do those things?

10:07 These are our Key Resources.

10:09 Netflix relies on SO MANY resources to keep their massive wheels turning.

10:13 They have people making content including their in-house studios, engineers to make sure their website and apps work, customer service to troubleshoot, attorneys to deal with licensing, internal teams for promotion, and a global network of data storage facilities — to name a few.

10:29 Then, remember, we don’t have to do this alone.

10:30 We need to look for Key Partners and ask: Who do we need to team up with in order to deliver our value proposition?

10:37 Netflix partners with law firms, studios, agents of actors, and other companies who want to co-promote products — like Comcast Xfinity or T-Mobile.

10:46 Finally, after we’ve figured out the who and the what of our business model, we have to think about the money.

10:50 Half of that is our Revenue Streams.

10:53 Where are we making money?

10:54 What are customers willing to pay for each product or service?

10:58 As of 2019, Netflix uses three membership subscriptions: Basic ($7.99/month), Standard ($10.99/month), and Premium ($13.99/month).

11:08 Unfortunately, entrepreneurship isn’t free.

11:11 There are Costs involved in doing Things for your People.

11:14 So where are we spending money?

11:16 For Netflix, examples of costs are employees, licensing and production fees for content, servers for data storage, brick and mortar workplace locations, DVD production and mail, and R&D.

11:27 And… that’s Netflix in a nutshell.

11:29 This is exactly the goal of the Business Model Canvas: to provide a framework for anyone to break down the pieces of a business — especially your future business!

11:38 Today, we grew the tiny seed of an idea into a full business model.

11:42 So rem mber that everyone has ideas, and the real work of an entrepreneur is in sharing them and getting lots of feedback!

11:50 Next time, we’ll figure out what you’re worth.

11:52 And by that I mean, we’ll delve into Value Propositions and how to make something that potential customers will think has inherent value and is worth monetary investment.

12:02 Thanks for watching Crash Course Business.

12:05 If you want to help keep Crash Course free for everybody, forever, you can join our community on Patreon.

12:12 And if you want to learn more about biases that affect how we do business, check out our Soft Skills video about making decisions.