So you want to start a business this year, but you’re not really sure where to start. As someone that started my own businesses before, I spend a lot of time learning how to grow businesses from scratch. If you’re like me and find yourself getting overwhelmed and confused with all the different of information and advice out there, then this video is definitely for you. In this episode, I’m going to tell you what you need to do. To get that idea from your head and onto a piece of paper. With three really simple tools they’re going to help get you started. Some of the greatest companies in the world have used these tools to bring their own ideas to life.
And the best thing about them is they can all be drawn with a pencil on the back of a napkin in less than an hour. All you need is your brain. So with that in mind, let’s get started. But not idea, you need a good idea, I can’t help you come up with an idea. But what I can do is help you figure out your idea is good. Doing this is a lot simpler you think. And it’s related to something called Iki. Guy or purpose. In Japanese culture, your Iki guy is your reason for being. It defines why you get up in the morning, why you live, and what you ultimately strive for in life.
This is much a tool for how to help you live your life it is for creating good business ideas, you’ll be surprised to hear that many businesses don’t have a purpose. And that in part is why they fail. Without a meaningful purpose. You don’t have a meaningful cause. There’s nothing for your employees to rally behind. And there’s no story that your customers can understand, which explains why you are unique, in other words, is not what you do. It’s not how you do it. But it’s why you exist beyond just wanting to make a profit. The same can be said for YouTube videos, you’ll probably often hear advice from successful youtubers telling you not to start a channel for the money. It just doesn’t work like that. Because it’s not transparent. It’s obvious to people, and there’s no meaningful story that people can relate to. Okay, that’s my ramble over.
This is how you do, you start by drawing three circles that overlap. If you want to be a bit stricter with yourself about this, then you should write what you think you could be the best in the world at the second circle is what you are excited about. What do you really care about? What do you spend hours reading about or learning about, that’s what you are excited about. And then the final circle defines what the world needs. And more importantly, this is about what the world needs. Now, at the middle of the three things is where you will find your purpose. Ideally, all of your business ideas need to sit at the middle of this circle. If they don’t, then you should dismiss them.
Using this framework is a great way of filtering out bad ideas. There’s a really great book, which I’d recommend to accompany this tool called do purpose. And I’ll link to it below. So you’ve defined your purpose, the second thing you will need is a plan. Now a business plan sounds like the most boring thing in the world. And I get that. But there’s a really simple way of drafting a business model without introducing really heavy things like revenue forecasts, which to be honest, I really wouldn’t recommend at this stage anyway. How can you predict future revenues before you even tested your minimum viable product, you can’t so forget that for now.
What you can do, though, and should do is draft what your Basic business model looks like. And you can do this on a single sheet of paper in about five minutes. There’s a brilliant tool for this called the business model canvas. I’ll link to it below the book that it’s from. But, it is really simple. So on this sheet of paper, I’m just going to draw lines. And then we’re going to start by defining the worth proposition. This is the product or service that makes this business unique. It’s your Point of difference. This is the first thing you need to force yourself to define. Why is your business unique?
Why will customers buy it Versus other things available? That’s what you need to pinpoint here. Secondly, we need to define who our customers are. Who are we creating value for? Who is our core target customer? Or the mass market? Are they a particular niche? And are there different products appealing to different customers? Next, we need to think customer relationships? How do we want to engage and interact with our customers? That’s really important to define here. And next channels, how do we reach our customers, the marketing channels and how do we get our products to customers, the sales channels, which ones will work best which ones are more scared Those are the types of questions you should be thinking about.
Next up is revenue streams. How will this business and money? Is it a subscription model? Is it a commission model? Do you make money from sales? physical products? What other revenue streams? Could you earn money from? In terms of cost structure? You should be asking yourself, what are the key business costs? What are the fixed costs? What are the variable costs? Which means activities are most expensive? Next, you need to define your resources. What key resources we are business the Human Resources people? Or are they physical resources? Are they financial resources? And that brings us nicely onto key, which are the things your business is going to be doing in order to create your product or service offer? What are you producing? How are you solving problems?
And finally, who are your key allies? Who are your key suppliers? What are the other companies that you need to partner with to improve your product or service. Once you’ve added this final step, you have framework. But for now, this is quite theoretical. So let’s have a look at a real life example, which help. So let’s look at Apple and more specifically the iPod iTunes business model. It stars always with the worth proposition. For this example, Apple is looking to create a seamless digital music experience from downloading to playing. This is something that only existed before illegally through companies like Napster, then the type of customer relationship for iTunes. In particular, this was largely self service from the iTunes Store, automated Apple.com. In terms of customers, Apple was really targeting mass market people.
This was an a premium product like that pro line of hardware. This was something intended to be available to people. In terms of channels, there’s third party retail stores for the iPods themselves. apple.com itunes store, and the Apple retail stores. In terms of revenue streams, they’re pretty simple. Its revenue is from hardware, income from music. The key business costs are mostly the people, the manufacturing and the marketing. We should probably add distribution costs onto this. key partners are the record labels, the OEMs.
And key activities, there is hardware design, and marketing. When it comes to key resources, there’s people the Apple brand, the iTunes software, and content. And basically that’s it with an understanding that the worth proposition is delivered to customers your channels and relationships. As I said, this is something that can be done really quickly. And you can do it with sticky notes and just scribble away. It’s a great way to test where you have a viable business model, and that you’ve considered all of these elements. The book related to this tool is called Business Model Generation. And I’ll link to it below.
So now that you’ve got your business model, the final thing you will need is an engine. There are two types of businesses that grow linear and exponential. Linear businesses grow at a steady pace, their input broadly equals their output, and they chug along. The best businesses in the world grow exponentially, though, and building a good engine for your business helps you to understand how to fuel the growth. This brings us on to our final tool which is called the flywheel. The concept of the flywheel was first introduced by Jim Collins in his book Good to Great, regarded the best business book ever written. There’s a much shorter, separate book you can buy, which explains the flywheel really nicely, and I’ll link to it in the description below. In real life, a flywheel basically stores and conserves angular momentum to create rotational speed. In the business world the flywheel concept is similar.
It describes the mechanics of how your business engine creates perpetual energy consequently growth. To walk you guys through a simple example of how this works. Let’s look at the Amazon flywheel. Amazon is one of the most used examples for the flywheel concept. And for good reason. They have nailed down the line business engine and here’s how they do. First, they start with their customer experience. loosely speaking, this first step of the flywheel should in some way relate to your purpose or your worth proposition which we spoke about in steps one and two. Amazon’s purpose is the best customer experience. So that’s the starting Point of their engine.
They know if they provide great customer experience that they will increase the amount of traffic coming to their website and create repeat business. through word of mouth. If they increase their traffic, they know that will ultimately lead to more customers. more customers will lead to more sellers. And with an increased number of sellers, there’ll be higher customer choice. With more choice comes improved selection for people, which in turn improves the overall customer experience. This perpetual momentum build and create growth, but it doesn’t stop there.
Successful flywheels create side flywheels that support and build their own momentum. In the Case of Amazon, their growth means a bigger size and creates economies of scale, a lower cost structure, they can then pass this saving on to their customers and lower their prices. These lower prices, again, improve the overall customer experience. You can see how competition from sellers fueled lower prices to the price of products on Amazon itself. In effect, it’s self regulating. Let’s look at a example, which be more help. Let’s say you want to start a business selling t shirts. Your first step is to design t-shirts that people love. That’s kind of a given to drive awareness and to get your brand known, you then try and get characters to wear them who will help to spread the message.
This will help you grow your brand power, which in turn will increase your momentum and customer visits, these customer visits will lead to more sales, which will improve your economies of scale, revenue, the fixed costs, you then reinvest these profits into a customer experience, both product and service, the T shirt designs get better on the product side, and more cost effective. And in addition, on the service side, you spend more money on marketing, getting even rules to where them, which helps you grow even faster. The flow will you create is to build and evolve over time. But I’d really recommend making sure you have something on paper first, which captures the essence and mechanics of how your Basic engine works.
If you can’t write this down, then you don’t have a viable business engine. If there’s one thing to keep in mind about the flywheel is that for every single customer you gain, the experience must get better. This is what sits at the heart of the flywheel concept. If you don’t, and for every single customer, you gain the experience gets worse. That’s where you enter into the doom loop, which is not where you want to be. So that’s the flywheel.
And I’ll link to the book below. So guys, that’s it for this video. I really hope that’s been a helpful intro into how to develop some of your new business ideas. There’s a whole host of other tools out there that you can use. These are the ones I’d really recommend. I’d love to hear if you have used these tools before, or if there are other really useful tools that you’d recommend to let me know in the comments below.