Which business idea should you pursue – is it a star venture.

By | Focus, Strategy, Via Negativa

(Excerpt from The Star Principle by Richard Koch)

you can forget about more than 95 per cent of the ideas you may have. For every 20 ideas you have, you can junk 19 of them, confidently and securely, without doing any more thinking. That saves an awful lot of time. If you had progressed any one of those 19 ideas, and found someone to put up the money to start them, you would have invested years of your life and a lot of somebody else’s cash (and perhaps some of your own) in a venture that can never give you a great return. Most likely, it would have gone belly up, sooner or (even worse) later.

… You have to state why and how your business is going to be the leader. If the niche already exists, so too does a leader. Displacing an incumbent leader is always possible, but it is difficult. It’s not something to bet on, unless you have a source of competitive advantage that is totally compelling.

Typically, star-venture start-ups create their own niche. If the niche proves viable, the venture starts in the wonderful position of ‘born leader’.

To create a viable new niche is tough. The large majority of attempts to create a niche fail. Why? Two conditions must be met:

  • There must be a gap in the market. All existing players must have overlooked the gap, or judged it too small, too unprofitable or too implausible. For sure, this is possible. But it is not very likely.
  • There must be a market in the gap. The gap must be large enough to support at least one new venture (yours) profitably. This, too, is not probable.

If you follow the star theory, you not only have to argue that the niche will be created and that your new venture will remain the leader in it. You also have to believe that the niche will grow consistently at 10 per cent – and preferably much more – each year. The bar is high. If you think your niche will vault it, you must have good reasons. Of course, nobody can know what the growth rate of an as-yet-uncreated market will be. But just asking the question will throw a lot of doubt on all but the most robust of propositions.

… Because you have a huge head start if you know precisely what you are looking for, and can reject, easily and quickly, the great majority of ideas you and your friends may have.

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