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Jay Walker has this advice for entrepreneurs: Don't start a business with a good idea.
For the inventor of Priceline.com, holder of more than 100 patents and the CEO of idea factory Walker Digital, good ideas are the wrong way to approach entrepreneurship. Walker, 43, spoke to a packed audience at the Harvard Business School Entrepreneurship Conference.
Instead of thinking of ways to create a business, entrepreneurs should be thinking of ways to create value through solving a problem. And that is a deep, thorough process. "Half of all the energy we spend in inventing new business solutions is first figuring out the problem."
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For an example, Walker turned to the casino industry, which derives 85 percent of its profit from slot machines. Casinos want to make more from their machines, but delving into the actual problem to be solved is way beyond the obvious.
A typical approach would be to say, let's figure out how to get customers to play longer. But that's the wrong question because customers play until they run out of money—typically $50. So the next question is how to get people to up their gambling budget beyond $50. But most people can afford to lose more $50, so what is the real issue?
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| If you focus on the business, you are on the ass end of the horse. | |
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| —Jay Walker |
By performing a number of such drill downs, Walker believes the real problem is this: embarrassment. "The real problem isn't losing $50; it's telling your spouse," Walker said. "We can design a business that reduces the embarrassment at the slot machine. That's the business. Once we do that, we've thought about the business differently than 99 out of 100 entrepreneurs ever thought of it."
Money back from slots?
The answer? Walker said he holds a patent on a "Get Your Money Back" button for a slot machine. After you lose $50, you hit the button. An offer from a long-distance phone company comes on the screen saying that if you switch long distance service now, you can have your $50 back. The casino gets a cut of the phone company's action—plus there is a good possibility that $50 will be poured right back into the slot machine, he said.
In addition to finding the real problem to be solved, entrepreneurs should also be knowledgeable about modern technology and other tools available to solve those problems. The transformation of slot machines from mechanical to digital devices, combined with the casino's ability to track the habits of gamblers through cards inserted into the machines, makes the "Get Your Money Back" solution possible.
To his way of looking at things, tools define the solution, the solution defines the value, and value defines the business. "If you focus on the business, you are on the ass end of the horse," Walker said.
When he helped create Priceline—the name-your-own-price Internet service that began with airline tickets—the airline industry was suffering through a long-occurring problem of too many empty seats on their flights. But the problem wasn't empty seats, Walker said. It was a peak-and-load balance problem. The solution was to create a system of visible and invisible prices in the same market, which Priceline was able to solve.
In other comments, Walker said:
- The entrepreneur's life is a hard one. There are lots of failures, and even with success you can expect years of pushback and criticism before the business clicks. Your wife is constantly unhappy with you, and friends think you are a kook. "Typically you would not want your son or daughter to be an entrepreneur once you've been one," he said.
- Even with the market turmoil, never before has there been access to as much capital as now. If you develop a great solution, its power will be self evident and money will follow.
- Usually solving the problem isn't coming up with one idea but rather assembling a combination of elements in a way that no one has seen before.
- Creating the right team around a solution is critical. The key is getting people who are committed to the cause or otherwise have a stake in its success. "They'll say what you want them to say, not what you want to hear," Walker said.
- Protecting your breakthrough is vital, and patents—while important—are expensive and time consuming to procure. Walker said speed to market could be the entrepreneur's best advantage. Wal-Mart, he said, owns no patents. The retailer is successful—it creates value—through brilliant execution.
- Finding a mentor is important, but Walker said that in his case mentors always found him. If you've got a great scheme, and you talk to the experts about it, those experts will get excited about the idea—and about you.
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