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April 14, 2014

The Great Exchange: Turning a Product or Service into a 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. Not even if it is a oneofakind 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 any true reading 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 the idea 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 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 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.

The biggest obstacle to a business can often be apathy. I put it this way in the book, “Many people think an idea to death…They feel they have to fully embrace the idea before bringing it to life.” But if you wait to enter the game until victory is certain, you’ll never step onto the field. If you never offer something for the Great Exchange, you’ll never have a business.

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 up 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 up something.

Two Snap Shots 

The Inventor

I had a really fun client a few years ago. He was a brilliant inventor with medical and engineering degrees and formal training. He had invented a piece of medical equipment used in very critical surgeries. It was a great idea. But it wasn’t a business.

To make it into a business, he had to do the dance with a large global medical company. They wanted him to prove the idea more. He wanted money, but they wanted more testing. In the end, he proved up his idea to their satisfaction and they settled on a large 8-figure offer for his idea. He sold. Nice Exchange.

The buyer collapsed the purchase into their portfolio, paid its investment off, and moved quickly into its profit targets. The inventor genius moved on to his next idea. His business, after all, was more than just half-cocked bubbly ideas.

The E-Commerce Geniuses

Some friends and a former business partner started a new company here in Northwest Arkansas called Acumen Brands. They seem to be everywhere in the news lately and are growing exponentially.

They started with an idea of a new model of e-commerce on social media steroids, and starting with that concept, they made countless strategic choices that turned their idea into the business. It’s taken them four years, but they’ve done it.

Every situation is different, though. Some ideas cost more and take longer. Some markets are more noisy or entrenched. Every person is different, too. If you are stronger on the ideas and spotting markets and opportunities, for example, you’ll need more help converting an idea into a business.

There is no exact science for this process, although step-by-step articles like this one can help a beginner.

The important thing is simply to keep pushing toward the Exchange.

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 universal 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?” But the question is still there.

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 just might be.

*Photo by Steven Depolo

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