For the most part, new companies don’t just sprout up. Instead, they are created from a new business idea solving a specific problem or filling a need.
But to expand a new business idea to support a company, three elements need to be present – the problem / the solution / the market. Without all three, you don’t have the foundation to take a new business idea and turn it into a new company.
A New Business Idea in Healthcare
A few years ago, I was consulting with a company that had developed an interesting product. They contracted with hospitals to provide surgery using a flat-rate pricing model. The key to their strategy was transporting patients from around the country to the facilities they had under contract.
It’s actually a pretty good new business idea. By bringing the patients to the hospitals, they could focus their efforts on contracting with just a few select providers and concentrate all their volume in those facilities. And because those providers were getting the higher volumes, they would agree to reduced fees for the surgeries.
The Missing Element
The problem they were attempting to solve was the high cost for surgery. Their solution was a travel-based, flat-rate program. The part they were missing was the market.
People don’t usually travel for medical care unless there is a compelling reason. Travelling is a hassle. And travelling when you’re ill or recovering after surgery is even more difficult. Travelling is also expensive. So to make the program work, they would need to change people’s behavior.
The other problem is that for the most part, patients do not pay for their own surgery. They have insurance that pays the bulk of the expense. This means that lower cost isn’t a compelling reason for the patient to go through the hassles of travelling for surgery. Lower cost only benefits the insurance company, not the patient.
The Result
This company discovered that although they had found a problem and created a solution, the market wasn’t interested in buying that solution. And because they were missing one of the three elements, their new business idea was destined for failure.
They eventually shut down the business.
Readers, I’m leaning more and more towards launching a startup. I have a new business idea that I’m currently testing which I will write more about later. I would love to hear from others who have been involved turning a new business idea into a startup company. What were some of the challenges you faced?.
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Good luck if you decide to do it FS. 2 of the biggest drawbacks I’ve seen to start ups is that
1) The owner underestimated how much work there is to it (kind of how there’s so much more to blogging than just writing). They need to enjoy what they’re doing.
2) Becoming cash-flow positive is imperative after about 12 months (not including the owner’s own wages), businesses that are still struggling after this point may keep struggling. Profit is key!
Very interested to know what it is you’re considering.
Tristan
Thanks, Tristan.
I agree. Those are both significant issues. In this case, I’m combining a start up with a purchase. That should create immediate profitability although it changes the risk somewhat. And the amount of work involved will be definitely be significant.
Good to hear you consider a startup. I joined one 3 months ago, as employee nr 1.
agreed with you that you need a problem, solution and a market.
One of the principles I like is the lean start up and fail fast, in the good sense: Test the product as soon as possible, even if it is just a description or a wireframe or a brochure… That feedback will tell you if there is a market or not, if the solution is the right one. We did use a story board and got good feedback from that to change the solution before we actually had build it.
I’ve made the mistake of spending too much time on a product that didn’t have enough demand. It’s been a big effort to get into the fail fast and often mindset. But it’s the way to go.