How to Start Innovation with an Idea- Valutrics

Google, currently a company with a market capitalization of $ 500 billion, started as just an idea. In 1995, the idea for “downloading the entire web onto computers” came to Google inventor Larry Page in a dream when he was 23 years old. He claimed, “I spent the middle of that night scribbling out the details and convincing myself it would work.”[1] And it did, as we all know. And he is not the only one who took an idea to market as a startup and made it big. The top 10 highest valued startups contains a lot of well-known names like Uber ($ 50.0 billion), Xiaomi ($ 46.0 billion), Airbnb ($ 25.5 billion), Palantir ($ 20.0 billion), Snapchat  ($ 16.0 billion), Flipkart ($ 15.0 billion), Didi Kuaidi ($ 15.0 billion), SpaceX ($ 12.0 billion), Pinterest ($ 11.0 billion) and Dropbox ($ 10.0 billion).[2] You’ve probably used the services of a couple of these yourself.

A lot of people start innovation with an idea or opportunity. A big idea might come to you as a slow hunch or it may strike you like lightning. However, unless you take action it will simply drop dead on the floor. Now, think about how often you have said, “That’s a great idea, I must make it a reality.” But what ends up happening most of the time? Nothing.  Be aware that most of the time nothing materializes because you don’t have the courage, resources, time and/or money to take action. Yes, transforming an idea into a reality (regardless of the required investment of time and money) is extremely difficult. That’s why I want to help you along.

The main question is: “How do you develop your idea or opportunity into a well-founded convincing new business case?” I have developed a, so-called, Idea Route through the innovation maze to help you with that.

I would like to guide you through the innovation maze on the basis of a practical example. Let’s take the origin of AirBnB. It’s a website where you can list, find and rent lodging all over the world. It has over 1.5 million listings in 34,000 cities and 190 countries. It started in 2007 when Brian Chesky and Joe Gebbia of AirBnB, based in the US, saw an opportunity to earn some extra cash by renting out their spare floor space when a major design conference came to town. In no time, they had put together a website advertising lodging for overnight guests, which they called “Airbed and Breakfast”. After pivoting their concept to regular tourists and getting backed by venture capital, the company grew in five years to 25 million guests bookings in 2014. AirBnB will generate more than $900 million in revenue in 2015, half of which is generated in Europe. There’s a huge chance that you are one of their customers. I certainly am one. It took the founders of AirBnB more than 2 years to cruise the innovation maze with their idea. Most of it was not very well-planned, except at the end of their front-end when they participated in a 12-week structured program of the Y-Combinator. That set them off.

I will illustrate how you can start innovation with an idea following the structured Idea Route, using the AirBnB idea as a source of inspiration.

The Idea Route

1. Ideate: Generating and choosing original relevant ideas.

The basic idea of Brian Chesky and Joe Gebbia of AirBnB is quite simple: theopportunity to earn some extra cash by renting out spare floor space when big events come to town. That’s our starting point.

2. Focus: Defining your innovation center-of-interest including all the boundary conditions.

Instead of directly rushing into action, let’s take a step back to prepare and bring some focus to your initiative. Draft your innovation assignment, to make all the expectations and boundary conditions explicit, with the help of six simple Wh-questions:

Why? Do you want to get rich with this lodging idea? Do you sincerely want to help people? Or, do you want to kill the hotel business? What do you want out of this?

What? Do you want to develop a kind of standard product, controlling all the space you rent out? Or do you want to be a ‘man-in-the-middle’ service? Or do you want to create a unique experience? Do you want it to be revolutionary or not? Or are you completely blank and are all options open?

Who? Do you want to target event and conference visitors? Or regular tourists who are looking for a cheap place to bunk?

Where? Do you want start in your town? Or your region? Or country-wide from the start?

When? Do you want your new service ‘live’ within 3 weeks? 3 months? Or three years?

Which? Which criteria will you use to assess your business case? How much revenue are you aiming for? What margins? How much can you invest yourself? How much money are you aiming for from venture capitalists or informal investors?

The deliverable is a concrete innovation assignment for your AirBnB idea. (see chapter 9).

3. Check Fit: Checking if your idea fits your personal (and corporate priorities).

As you are a startup, ask yourself the question: Is my AirBnB opportunity really my priority in life at this moment? Do I really want to do this? Why? In this way you check your personal commitment to your idea. If you have any doubts. Don’t do it, as the road to reality will be hard and bumpy. So, let’s assume of course that you say ‘YES!’ 

4. Create Conditions: Organizing the right moment, the right team, the right pace and the right funding for your innovation initiative.

Create a fruitful environment for you to realize your AirBnB idea. Pick the right moment for you personally to start your venture. Do you want to do this alone? Or is it wiser to do it in a team? If so, make inventory of what skills and competences you need in your team to be successful. And gather the right team around you. At the start, Brian and Joe of AirBnB asked Nathan Blecharczyk, a previous roommate of Joe’s to work on the technical backend of the “Airbed and Breakfast” website, as a side project in his spare time. Organize enough money to get you started with your initiative until the moment where you have a convincing new business case for investors.

5. Discover: Discovering trends, markets, technologies and customer insights.

First of all, let’s go out first and explore your AirBnB opportunity with an open mind to learn and to make our basic idea better. Let’s first of all map the market for lodging in the US, our potential home market. How big is it anyway? What types of lodging is offered? Who are the dominant players? Which customer groups do they target? What are the dominant trends? What’s happening elsewhere around the world ‘in lodging’? Have initiatives like ours been introduced elsewhere? Were they successful? Why? Why not? What can you learn from them? Can you copy or franchise them?

What are other successful initiatives in the new ‘sharing economy’? What are new ‘sharing’ platforms? What ‘sharing’ business models are prevalent in other sectors like, for example, car-sharing initiatives? What can you learn from them?

Connect to your potential lodging customers in real life. Who are heavy users of lodging? And why? Who are light or even non-users of lodging? And why? What’s the typical buying process of selecting and booking lodging? What are the dislikes and pain points of both the tenants and their temporary landlords and BB owners? Organize focus groups or just go out and visit people at BBs and ask them. You might even film them to use their quotes later as a source of inspiration for yourself and to convince others.

As a user of his own service Brian Chesky rented one of the apartments listed on their very first website. As it happened though, he carelessly forgot to pay his hosts in cash for two days straight and this oversight quickly cooled the hosts’ warm hospitality. This learning inspired Chesky to modify the services of AirBnB. They prioritized the development of a payment in advance booking system. The benefits were two-fold. Guests were now able to pre-pay for their stay with a credit card and hosts could avoid the hassle of late payments. 

As you will understand Discovery is a crucial step. You learn tremendously. At the end of discovery, decide whether to persevere with your present AirBnB idea, or to abandon your idea and pivot it into something new and better than the original.

6. Create Business Model: Creating a viable business model.

So how are you going to earn any money with your AirBnB service? Do you charge the guests for your services? Do you charge the hosts? Or do you charge them both? Work out several models and be inspired also by business models in sectors other than the accommodation sector. AirBnB chose to charge both the guests and the hosts. In their business model they charge the guest a service fee for a reservation and the host commission fee as percentage of the booking. 

7. Select Technology: Identifying and selecting the right technology to deliver your new product, service, process or experience.

You will have to understand web technology. In this case it is crucial to make the right choices for your AirBnB idea. You will also have to design a great user experience as well for orientation and booking. Furthermore, orienting and selecting a proper booking and payment system will also require some efforts. What are the insource opportunities?

8. Check Freedom to Operate: Checking if you do not infringe intellectual property rights of others.

Patents are probably not an issue in our AirBnB case, as it is a service, although we must not forget to check. Our freedom to operate could however also be limited due to trademark infringements. So do keep in mind to check your AirBnB trademark at the United States Patent and Trademark Office, even at this early stage.

9. Experiment: Carrying out a systematic research or test which validates the adoption and attractiveness of your new product, service, process or experience.

As a startup, like AirBnB, you are creating a new product or service under conditions of extreme uncertainty. That’s why experimenting is crucial when you start with ‘just an idea’. Similarly to AirBnB, you should experiment both with your offering, your target groups, your business model and ways to attract customers. And in reality they did. Small scale ‘live’ tests have proven to be of great value for AirBnB, as they started learning by doing. At the start they targeted visitors of events and conferences, marketing AirBnB towards business travelers as a more affordable alternative to hotels. In 2008 they undertook several trials in Denver during the week of the Democratic National Convention and at the presidential inauguration in the Washington D.C. area. Without any special events, their weekly revenue amounted to roughly $200 in the fourth quarter of 2008 and they were on the brink of shutting down their initiative.

10. Create New Business Case: Creating a well-founded convincing business case for your new product, service, process or experience.

With all the learnings in the first nine activities you will draft a new business case: a well-founded concise plan which proves your idea is attractive, feasible and viable. The three founders of AirBnB pivoted their idea to the AirBnB concept we now all know, when they joined Y-Combinator in 2009. This is a start-up incubator program located in Mountain View, California. Paul Graham, the leader of the program decided to accept them and financed them with $20,000. At the so-called Demo Day in April 2009, Airbnb pitched their business case in a convincing way with Sequoia Capital taking notice. They raised $600,000 of capital.

The Journey of AirBnB is an amazing one. As of 2015, the website has around 1.4 million listings which include modest apartments, exotic beach homes and quirky properties. Paris, the French capital, is now AirBnB’s largest market, with 40,000 listings. More than 517,000 people stayed in Paris in summer 2014, which is a 20-fold increase compared with 2011. I AirBnB inspires you to transform your idea into reality, following the Idea Route.

My 3 Key Messages for startups

1. You are not the only one who will take an idea to market as a startup, and make it big. Apple, Google, Facebook, Twitter, Uber, Airbnb, Snapchat, Pinterest and Dropbox have already shown you the way.
2. As a startup, you are creating a new product or service under conditions of extreme uncertainty. That’s why both Discovery and Experiment are crucial when you start with ‘just an idea’.
3. Use all your learnings to decide whether to persevere with your idea or to abandon your idea and pivot it into something new and better than the original.

Do you like the Idea Route? Then, check out Gijs van Wulfen’s new book at: Amazon UK or Amazon US.

Are you looking for an inspiring innovation speaker? Check out the movies and reviews at gijsvanwulfen.com.

[1] Duncan D. Bruce Dr Geoff Crook, The Dream Café, Wiley, 2015, p. 31.

[2] Valuation by The Wall Street Journal and Dow Jones VentureSource, August 2015, http://graphics.wsj.com/billion-dollar-club/

[3] Dave Richards, The Sevens Sins of Innovation, Palgrave Macmillan, London, 2014,  p. 25.