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September 6, 2016

No Exchange, No Business

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An idea is not a business. An opportunity is not a business. A market is not a business. And no, a product is not a business. These statements are always true, even if it is a one of a kind idea, an untapped market, or a product you are certain will fly off the shelves and jam order forms on the web.

An idea, opportunity, market, or product can be the first step toward creating a business, but none of these are a business.

There is a huge gap between spotting opportunities and building a business. Until you have a customer, you don’t have a true read on the value and demand of your offering. You don’t know whether you should repeat the product, and you don’t know if you are making money or losing money. Even if you are in the business of creating ideas and information, you need customers exchanging something for your offering.

If there’s no exchange, there’s no business.

The Great Exchange
An idea becomes a business when it is forced through what I call the Great (value) Exchange. You figure out what part or what version of your idea you want to offer, and the customer figures out what part or what version of your idea they want as you each dance toward the Great Exchange.

An opportunity becomes a business when someone takes the risk to capture and convert it into a currency of trade. And then that risk is awarded some return on investment that warrants staying. Another Exchange.

A market becomes a business when you have battled your competitors and won enough to still be standing, and your product or service is being exchanged for value and currency.

Concept to Scale
In Concept to Scale we point out the considerable steps that lay between Concept, Launch, Prove, and Scale. The big idea is not that every business methodically walks out these four stages in linear fashion. The big idea is that having an idea is not a business (an assumption dreamers and creative-types often make), and a successful early stage business is not automatically scalable.

Every successful business has some common elements—some kind of organizational footprint exists (and a simple and agile footprint is fine), costs are balanced with revenues, cash flow is navigated, and you are able to catch and retain enough customers (and talent) to push to the next week, month, or year. An initial offering, though, is what gets all these balls rolling.

This Seth Godin video helps bring this concept to life:

Godin offered something to the public and then figured out a sustainable way to monetize the thing. He was always thinking about the exchange and started by simply offering something.

The Common Thread

There is a common thread that connects ideas, markets, and opportunities to a real business. As Peter Drucker wrote in The Practice of Management, “The purpose of business is to create a customer.” Put another way, for each idea or opportunity, someone has to answer a question. That question is “Who wants to buy this and for how much money?” If you’re a nonprofit, you have to answer a slightly different question: “Who wants to pledge how much money toward the vision?” Regardless, the question is still there.

Here’s what I mean. A phone that plays music, links to the Internet, and takes photos is not a business. A restaurant that serves only frozen yogurt is not a business. A product designed just for the female millennials who live in large cities is not a business. A travel and hospitality solution concept targeting the bulging boomer sector is not a business. Realizing the number of people shifting to e-commerce or self-publishing is not a business. A deep burden to alter the painful trends among the poorest of the poor in the world is not a business. Getting a few college roommates together who all want to chase a similar dream isn’t a business.

Someone has to be willing to exchange money for your phone. Or your frozen yogurt. Or your self-published book.

The folks at Ideation put it this way: “Ideas are a dime-a-dozen and our culture eats them for breakfast.…Ideas need intentional strategy for development and robust processes for implementation with real-world and real-time insights into what actually works.” Certainly the more innovative and brilliant your idea or product is, the bigger your business could be. But every idea has to be fashioned and pushed through the Great Exchange.

That is the common thread. A product is not a business. An exchanged product, though, just might be.

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