Five business ideas that made millions
Sunday, January 5, 2014/
This piece was first published on January 29, 2008.
According to Paul Graham, investor and founder of Y Combinator, the best way to get a winning business idea is to not think of any. Instead, you should be looking at which problems you can solve.
“The very best start-up ideas tend to have three things in common: they’re something the founders themselves want, that they themselves can build, and that few others realize are worth doing,” Graham said in a blog post in November.
“Microsoft, Apple, Yahoo, Google and Facebook all began this way.”
Now that the working year is well underway, there will be plenty of unfulfilled employees wracking their brains for that one business concept that will make them their fortune.
Here are the stories of five great ideas that actually managed to blossom into highly successful businesses:
1. Innocent Drinks
Friends Adam Balon, Jon Wright and Richard Reed appeared to have been pretty well set after leaving Cambridge University.
Two became management consultants. One moved into advertising. They all made good money and lived comfortable lives in London.
But there was a shared nagging feeling that there was a bit more to life. On a snowboarding holiday in 1998, the trio did little else than throw around ideas for a new business.
They realised there was a gap in the market for a new type of smoothie product, one based on natural ingredients and overtly ethical values.
After spending six months blending different combinations of fruit at home, the trio set up a stall at a music festival to test the concept.
The decision whether to continue was left entirely in the hands of consumers. A sign above the stall read “shall we give up our jobs to make these smoothies?” One bin read ‘Yes’, the other ‘No.’ Customers would make their judgement by throwing their empty bottles in either bin.
Happily, ‘yes’ won. Balon, Wright and Reed went on to write and re-write their business plan 11 times, before being turned down by a succession of potential investors and banks for funding.
A desperate email with the subject line ‘Does anyone know anyone rich?’ was sent to everyone the founders knew, resulting in Maurice Pinto, a wealthy American businessman, pitching in £250,000.
Innocent Drinks made its first million in turnover in its second year and now sells around two million smoothies a week, commanding a 75% market share in the UK. In 2009, Coca-Cola took an 18% stake in the company for £30 million. A year later the beverage giant paid £65 million for a 58% stake.
Reed says: “If you’re 70% sure about an idea then go for it. Because if you wait till you’re 100% confident in business… you’ll never make a decision, you’ll never get anywhere.”
Australian entrepreneur Mark Harbottle took a rather strange decision in 1999 when he decided to go into business with Matt Mickiewicz, a Canadian who was in Year 10. But the move paid off in spades.
“I was 26 and he was 16 (but) age didn’t come into it,” Harbottle says. “I saw that he was a smart kid that knew what he was doing. He was making a few thousand dollars a week through his site. Matt put in a few thousand dollars to fund it and I put in $400.”
The web developer business, Sitepoint, was hit by a severe downturn in ad dollars during the dotcom crash. Harbottle and Mickiewicz came up with the idea of providing high-quality content to web developers in print form.
“Our customers were printing information off the web, so we thought, let’s do something here,” Harbottle says. “The idea was spawned through that. You could call it crowdsourcing, in a way. It was about working out what the customers wanted and responding to that.”
“We printed an on-demand book and it went gangbusters. We have about 60 books now.”
SitePoint may have altered its business model to become a traditional publisher, but it was its continued online innovation that was to spark the launch of 99Designs.
The large community of developers and designers that gathered online at SitePoint’s forum regularly played what Harbottle calls “Photoshop tennis” in working on logos for fictitious projects, for a bit of friendly competition and to hone skills.
The dynamic changed when a small business owner asked the community to create branding for him.
Mickiewicz recalls: “It was a revolutionary way of outsourcing graphic design work and, quite literally, dozens of times better than the next best alternative.”
“After a while, when it was clear that this organic model had lasting power, we began charging each ‘contest proctor’ $10 to post a request for design work in our forums and we quickly started generating thousands in revenue.”
Harbottle adds: “There was just a huge groundswell of interest in the idea so we thought, ‘We’ve got to build a site for this, it’s not right to have it in a forum.’”
The site allows businesses to post design jobs online, with freelance designers competing with each other to create the best solution and claim the commissioned payment.
Five years since launch, more than $45 million has been paid out to 99designs’ community. The business has 70 staff in Australia, the US, Germany, France and London and raised $35 million in funding in 2011.
American entrepreneur James McCann had a fairly unremarkable career as a bartender and then as a social worker.
It’s fair to say that this CV doesn’t point to what he did next – shake up the whole retail model and become an early online pioneer.
McCann opened his first floristry outlet, called Flora Plenty, in 1976. But it wasn’t until he purchased the 1-800-FLOWERS mnemonic telephone number in 1986 and, in a radical move for the time, changed the name of the business to match, that his business really took off.
According to his autobiography, McCann decided he would build a nationwide flower delivery service “listening to the radio as he was shaving.”
The company was the first to put a toll-free number in its name and was one of the first retailers in the world to have an online presence after striking a deal with CompuServe and AOL in 1992.
Many of the moves made by McCann in the early 1990s are now standard for retail businesses across the world. Many new operations consider having their name interwoven into their telephone number, while increasing numbers of firms are realising that a website is an essential part of selling.
In 1999, the business went public and added a dot com to its name. Revenue hit $668 million in 2010.
Joe Gebbia and Brian Chesky were sharing a loft apartment in San Francisco in 2007 when they realised that attendees to a major design conference in town were going to struggle to find a room for the night.
With almost every hotel room in the city booked out, Gebbia and Chesky, who were struggling to pay their rent, seized their chance.
They threw the doors open to their place, offering strangers the chance to sleep on two airbeds on the floor and eat a home-cooked breakfast.
As the Airbnb website puts it: “Two air mattresses, a thousand dollars, three new friends, and many high fives later, the entrepreneurs realized an opportunity.”
With the addition of tech wizard Nathan Blecharczyk, the team decided to change the accommodation model by allowing people to list their own places to stay online, with the new business, Airbedandbreakfast.com, gaining revenue through a fee of between 6% and 12%, depending on the price of the booking.
Initially focusing on large-scale events where accommodation would be scarce, the trio raised cash for the venture in an unusual way – they sold $30,000-worth of special edition breakfast cereals they created, based on then-US presidential candidates Barack Obama and John McCain.
In 2008 the name was shortened to Airbnb and users were able to book whole properties, boats and even private islands, rather than just a couch to crash for the night.
In June last year, the business revealed it had booked its ten millionth night, with 75% of these bookings occurring outside its initial market of the US.
There have been hitches – such as the PR disaster of a woman writing on her blog that her apartment had been trashed by an Airbnb renter. Chesky write a contrite response, admitted the company had “dropped the ball” and introduced insurance and a 24-hour helpline to help salve future problems.
Airbnb now features listings in 33,000 cities in 192 countries. It has also raised a very handy $120 million in venture capital and is valued at $1.3 billion.
Chesky told CNN: “Sometimes it takes a fresh pair of eyes to look at a problem and see it as an opportunity, not just the way things are or have to be.”
“I think that being a young entrepreneur is a great opportunity to challenge the status quo and build the world as you think it ought to be.”
5. Burt’s Bees
Honey salesman Burt Shavitz met out-of-work waitress Roxanne Quimby in 1984 and they decided to make some extra cash by making candles from beeswax.
By the end of the first year, sales stood at $20,000. Impressive, but not enough to sustain a decent size business.
The breakthrough came when the duo started cooking up natural soaps and perfumes on gas stoves, while an accompanying lip balm became a best seller.
In 1991, the year the business incorporated, it was making half a million candles a year, as well as the natural soaps and perfumes. It also had 40 staff as orders started flowing in from across the US.
Quimby told Inc: “In the early years, I had some midnight-of-your-soul type of times. Once, I came home from a fair and found the window in my cabin blown in. Snow was all over.”
“It was 20 below and three in the morning. I hadn’t made any money and the car had just barely made it there.”
“I really believe that success is just getting up one more time than you fall. It doesn’t come from one brilliant idea, but from a bunch of small decisions that accumulate over the years.”
“And you shouldn’t underestimate the amount of work that’s involved, the amount of fear that’s involved.”
“I’m not sentimental about products – they perform or they don’t. We tried lots of different things. One was beeswax lip balm. It was clear, very early, that people bought lip balm 10 times faster than they bought beeswax furniture polish. Next was a moisturizing cream. It sold better than the polish too.”
In 2009, Burt’s Bees hit its 25th anniversary, with revenue topping $250 million.
This article first appeared on StartupSmart.
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