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Do Good Ideas Spawn Successful Businesses?

Knowledge@Wharton

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March 29, 2009

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“This was an interesting blog post I recently ...”

BRUCE COLWIN

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Is a great idea enough to launch a successful business? Probably not, says Wharton professor of management David Hsu. “There’s no one-to-one relationship between a good idea and a good business,” he says. “A good business can result from a mediocre idea. If you have a unique idea, it can be the basis of a valuable business, but not necessarily.”

Hsu notes that many successful businesses were born of mundane ideas. Big-box stores such as Home Depot, Office Depot, Target or Wal-Mart, for example. “It’s not clear why aggregating one-stop shopping with value-added services is a great idea.” He says that passing on savings on a large scale with high-volume sales is not that revolutionary. But today’s successful big-box stores had the resources to establish themselves. And once established, they appealed to consumers.

“Between a mediocre idea and a successful business plan is action-ability,” says Hsu. It’s a question of which assets you control that could give you a leg up. “If I have access to some engineering talent or some input to favorable rates – say I know people in distribution and can get a good deal, for example – then I will have an advantage. And then I get patents to prevent you from copying me. This is the dominant way it happens.” But what if an idea does not involve proprietary technology? What if, for example, you want to launch an online community for professionals? “How will I succeed with this mundane idea that I have no way of protecting?” asks Hsu. “Execute faster, and have access to resources that give me an advantage.”

On the other hand, Hsu cites some fantastic ideas that fizzled out on the market. “I can think of cases such as the Segway device, which is superior with respect to functionality, but had very little consumer acceptance,” notes Hsu. He believes that because of Segway’s price point, it appealed to early adoptors, but not to the mainstream. “Were Segway at the same price point as a bicycle and the legal issues involving where you could ride them resolved, there could be as much penetration as bicycles,” says Hsu.

Another example of a great idea failing to take hold, according to Hsu, was Newton, the personal digital assistant developed by Apple Computer. “The market wasn’t prepared to accept the idea,” he says. “It was too large and couldn’t fit in your pocket. And people weren’t used to an electronic interface with their calendars.”

Beta vs. VHS videotapes are another example. The former offered higher quality. But the latter was marketed more aggressively and became the dominant player. Says Hsu: “There are tipping points. By the time there is a certain threshold of acceptance by consumers, then the distributors want to release the standard that is used by most people. So Beta lost out on consumer acceptance.”

A good idea may be a good start, says Hsu. But it’s not necessary for business success. If a good idea (or even a not-so-good one) can be expanded to a clear value proposition with proprietary technology that resonates with consumers, it may have a fighting chance. And even then, he says, luck and timing each play a role as well.

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BRUCE COLWIN 2 years 6 months and 29 days ago

This was an interesting blog post I recently read on the topic ... "All Great Ideas Don't Make Great Startups" http://tweetalink.com/go/JSkz