Outside forces, new ideas and vision

A business cannot control the world around it, but it can plan for it. A PESTEL analysis sorts outside forces into six groups. Political: government stability, trade policy and the direction of tax policy. Economic: interest rates, inflation, unemployment, exchange rates and how much customers earn. Social: population changes, culture, tastes and lifestyles. Technological: new tools, automation and the internet. Environmental: weather, climate, pollution and pressure to be sustainable. Legal: specific laws and regulations, such as labor, safety and consumer-protection rules. The same force can be an opportunity for one business and a threat for another.

Ideas for a business usually start with a problem people have and would pay to solve. They also come from personal experience and hobbies, from trends spotted in a PESTEL scan, from improving an existing product (incremental innovation) or from a simpler, cheaper approach that starts at the low end of a market and moves up (disruptive innovation). A person can also buy a franchise (the right to use another company’s name and system) or an existing business. An idea becomes an opportunity when enough customers will pay a price that covers its costs.

Before spending heavily, an entrepreneur turns guesses into hypotheses (for example, “Parents will pay 20 dollars a week for this”) and tests them cheaply: talking to likely customers, running a survey, selling a minimum viable product or taking pre-orders. What customers do, such as paying, is stronger evidence than what they say they like. Results can confirm the idea, change it or lead to a pivot. A one-page business model canvas lays out the plan: customer segments, the value offered, channels, customer relationships, revenue, key resources, key activities, key partners and costs.

Ideas can be protected. A patent covers an invention; a U.S. utility patent lasts up to 20 years from filing, and in return the invention is described publicly. A trademark covers a name, logo or slogan. A copyright covers original creative work, such as music, writing or software code, from the moment it is created. A trade secret is valuable information, such as a formula, kept confidential; it is protected for as long as it stays secret.

Direction comes from the top down. A vision statement describes the future the business hopes to create. A mission statement says what it does now, for whom and why. Values are the principles that guide how people act. Goals turn the vision into targets; good ones are SMART: specific, measurable, achievable, relevant and time-bound. Plans run from strategic (long-term, set by top managers) to tactical (a year or so, by middle managers) to operational (day to day).

To evaluate how well an idea has been tested, ask who was asked and what they did. Answers from friends, or from people outside the target market, prove little. A test where real customers pay, sign up or pre-order is stronger evidence than a survey where they say they like the idea.

To evaluate a goal, run the SMART test one letter at a time, and for each letter quote the exact words in the goal that pass or fail it. Then fix only what failed and keep the rest of the goal the same, so the new goal still serves the same purpose.