Is your startup doomed, or headed in the right direction? What it comes down to is will people trust that you know what you’re talking about. In this Tough Things First Podcast, Ray Zinn breaks down the difference between a fleeting idea and a genuine money maker.
Rob Artigo: Rob Artigo here. Once again, your guest host for this edition of the Tough Things First podcast. I’m an entrepreneur in California. It’s great to be back once again. Ray.
Ray Zinn: I’m glad to have you here, Rob, honestly.
Rob Artigo: Well, because of your ZinnStarter program, very important successful program. You get to hear a lot of people sharing with you startup ideas and in some cases they’re just an idea, a notion. And sometimes they’re more advanced. Now they’ve got a couple people working on a product or even making some kinds of sales. So let’s discuss your level of interest when somebody approaches you with an idea versus something that’s tangible and operating. Let’s define first the difference between an idea versus a company that’s actually operating.
Ray Zinn: Okay, first, let’s talk about what ZinnStarter is. ZinnStarter is a program that I initiated about seven years ago with universities and I help fund students who come up with good ideas and help them develop that idea while they’re still in school. So, a company is not necessarily a company that has a product, could be a service, it could be just wanting to have your own company. And so the company itself, if you focus on having a company as opposed to an idea, then it’s going to be more long lasting. Because ideas come and go. You’ll say, oh I have a great idea and then it may not last more than a few months or days. Whereas I have a good company that could last out into centuries. A company is something that’s enduring, it’s like a family, it’s tangible, it has a people, it has assets, it has capability, it’s developing revenue. Whereas an idea is nothing more than a thought. And while you want to have a mission and a goal when you start your company, just having a great idea doesn’t make you a company.
Rob Artigo: Is it usually when somebody walks up to you and says, Ray, what do you think of this idea here or platform of doing something, some kind of service mechanism. We have a lot of things like Lyft and different kinds of companies that figured out, here’s my niche and this is the area we’re going to go into. But if somebody walks up to you and says, here’s a concept and what they’re hoping to do in some cases is to snatch your interest, maybe figure out how to get some funding going so they can develop their product. They’re right in that phase. Can you tell right away that all they are is in the infancy?
Ray Zinn:Sure. When you talk about an idea and we learn this while watching Shark Tank, they say, well where is your revenue? What is your revenue? And if they say, Well I just came up with the idea and so there’s no revenue yet, that’s different than them saying, well I’ve been working on this for 10 years and there’s no revenue yet, but I… That’s an idea that’s going nowhere. So I can tell by how long they have been looking at this idea and what they have done to develop it as to whether or not I want to get involved. So what I look for is, in fact, I just taught a class on this last week, is the idea unique? How is it differentiated? What did they do to differentiate that product other than just having an idea?
In fact, I had a student, I said, “Well why do you want to start the company?”
“Well, because there’s a parking problem at San Jose State.” And I said, “Oh well, so a lot of people say that.” I mean if you ask half this class, they’re going to say that there’s a parking problem at San Jose State. So just the fact you’ve identified a problem doesn’t make it an… You have to have a unique concept. What are you going to do to resolve that parking problem? Then that makes it different, that’s when rubber meets the road. And so just saying, I’ve noted that there’s a great need for this doesn’t mean you have a unique idea.
Rob Artigo: You’ve identified a problem but you don’t have an idea actually. You pretty much have nothing if you don’t have a solution. And do you think that people give a little bit of short shrift on the question of, is somebody else already in that space?
Ray Zinn: I think they do. I think because of the fact they see the problem hasn’t been solved, they immediately think they can get in there and make a difference. The fact that’s not been solved doesn’t necessarily mean you have a great idea. You have to say, okay, why is my concept going to work where the other ones, the other 20 or 30 didn’t work? And so, you need to focus on what you’re going to bring to the table as opposed to the fact that yeah, there’s a real need for this particular solution.
Rob Artigo: I see a lot of commercials for fresh foods that are packaged up so that all you have to do is really just kind of cook the package together. It’s almost like a high quality TV dinner or something because they’re giving you a fresh meal in a day or three meals a day or something like that. You order these meals this way. And now I’ve seen multiple companies that are doing that. I imagine there are people out there that go, oh, this is a great idea, I want to do that. I guess if you want to open up a convenient store in your community where there’s already a bunch of convenient stores, that’s up to you. And maybe you’ll do it better than anybody else, but at the same time you’re not going to get a huge amount of innovation interest if you walk up and say, I’m going to deliver fresh meals to people’s houses. Isn’t that already being done?
So it happens a lot in this industry where you hear people… I say this industry meaning technology where you hear people with their ideas and you think, okay, I think I’ve heard that before.
Ray Zinn: What’s your added value, your unique added value? That’s the same thing as I was teaching this class last week and had this person bring up their idea was to solve the parking problem in San Jose State. And I said, “Well I’ve already helped fund five companies that were doing the same thing. Why don’t you look at what they’re doing and find out how well they’re succeeding? If you’re all are solving the same problem, it seemed like to me there’s too much duplication.” Same thing with this fresh food thing. By the way, we do solicit or subscribe to a fresh meal three times a week. It’s a lot of work. They’ll provide you all the ingredients, which is fine. It’s real gourmet stuff, but it’s a lot of work.
Rob Artigo: You still got to cook it.
Ray Zinn: Oh man. It’s a lot of work. It takes twice as long to cook that kind of a meal as it does just to throw something together like a can of soup or something.
Rob Artigo: Which is why it’s so much better for you and healthy in all respects. But the parking example is a great one because I think, and even the food service deal is if you’re going to go out and let’s say you’ve got four or five companies that are already in the space doing something like the meal delivery thing. And you walk up and you say, ?Well the problem was people weren’t getting good fresh food at home.” Okay, well I’m going to bring it to them or I’m going to bring them where they can park. And you go, well these other companies are already doing it and you still have a problem. I think the place to be for that guy in his mind or woman is to say, “What are these people doing wrong?” The problem may not be the parking in general because that hasn’t changed. But the other problem is these people are providing services that aren’t working. So what am I supposed to do that’s going to fix that problem?
Ray Zinn: Well, there’s a pre-prepared meals you can get the pre-prepared. And then there’s the ones which are the gourmet meals. They provide you all the ingredients. There’s a difference. If you want something that’s just going to help you after you get home from work and you’re tired and you just don’t want to spend an hour preparing a gourmet meal, then those are the ones that work. So you have to pick and choose as to what you’re going to do. And the same thing with parking problem. They got to come up with a solution that’s going to work, not just come up with another idea that doesn’t work.
Rob Artigo: I think it helps to think through these things before you mention it to somebody like yourself who might be able to provide good advice. They might even direct them towards how they can take whatever they’re doing to the next level. But if you haven’t investigated the competition, you haven’t figured out if it’s there already and you have an idea that’s really just duplicating something else that’s already there and they’re already way ahead you, I don’t think you’re going to find a lot of interest in ZinnStarter or anything else.
Ray Zinn: So let me talk about the various components of a business plan. Number one, you have to define the mission, in other words why are you doing this? What’s the concept of your business? The second thing is to be able to describe your product very quickly in less than two or three minutes. Describe the product or service and how it’s unique. What is unique about that particular product or service to solve that mission. The third thing is your team. You have to have an identified team. If you’re going to be a team of one, you’re probably not going to succeed because two heads are better than one. So you want to make sure you have a team. And then the fourth then is you got to develop a financial statement. How much money you’re going to need to get you to profitability. And if you can’t define how long it’s going to take you to get profitable, you probably shouldn’t go into business.
So raise enough money to take you to profitability. And that’s the key to any good business plan, is to raise enough money up front to get you to profitability. Because you don’t want to be running out of money in two or three years and then have to be out on the road again looking for more money. It just doesn’t work. Then you have to also look at what your ROI is. In other words, is the money that I’m going to raise, is that going to have a decent return? And if it doesn’t have a seven or 8% return, then it’s going to fall in deaf ears. So those are the components of a business plan, mission, defining a product and how unique it is. Your team, your competition that you’re going to face, your financial requirements, you’re going to have to go to profitability. And then what’s your return on investment?
Rob Artigo: It sounds like you better have those things in your pocket and ready to go when you’re discussing this stuff so that people know that you know what you’re talking about. I think that’s what we learned here in this podcast. So for our listeners, please rate this podcast on your favorite platform and as always, you can reach out to Ray with your questions at toughthingsfirst.com. There are links there for social media, he has blogs and virtually anything you need there. And you can go back and listen to all the podcasts going back to the very first one. And also you can pick up raised books. Of course there’s the Tough Things First and also the Zen of Zinn series includes book one and two and soon book three. So keep an eye out for that. Thank you again, Ray.
Ray Zinn: Thanks Rob. Good to be with you.