They say that ideas are "a dime a dozen" and it's true - there's certainly no shortage of people with good business ideas out there.

But having an idea and having an idea that will enable you to build a great business are two completely different matters. (Just ask anyone who's tried to start a business!)

Two of the most common traps that new entrepreneurs fall into is that they either:

1. Invest everything they've got into the first idea they have (because they are only just learning how to come up with them) rather than being patient and waiting for a better opportunity, or,
2. They get so excited about their new found ability to come up with ideas, that they try and run with every idea they have!

Both of these traps can be a recipe for disaster and help explain why many successful entrepreneurs fail again and again before they achieve real success. But as time goes by and they learn from their mistakes they get better and better at choosing (and executing) the right ideas to act on.

So where do the best ideas for new businesses come from?

The first step is to properly understand where money comes from.

Money follows value. We earn money by exchanging something of value for money. In your job you are exchanging your time, strength, brainpower or other skills for money. For example, if you're only providing $20 worth of value per hour to the market, you will earn $20 per hour. On the other hand if you want to earn $200 per hour then you will need to learn how to provide $200 worth of value per hour. The more value you can provide to the market, the more you earn, and it's exactly the same when you're running your own business.

So first things first, your idea must provide something of value to the market. If it doesn't, you'll have a  hard time getting people to give you money for it.

How do you do this? Well I've found that the best ideas come from finding a problem and solving it, or finding a need and filling it.  By coming up with a solution to a problem that people want to solve, you will be ensuring that your solution is valuable. The bigger the problem you're solving - the more valuable the solution.

For example, at the RSN we identified that sales managers are expected to recruit great salespeople but aren't being given any training or instruction on how to do it in the first place. As a consequence they are left to fumble along, learning solely by trial and error, costing the companies they work for million's of dollars in lost sales opportunities, recruitment costs and staff turnover. To solve this problem we created a full-day sales recruitment workshop which managers can attend for less than the cost of a decent ad in the newspaper.

The mistake many people make is that they do it backwards -they create or invent something and then try and figure out what problems it will solve, rather than finding a problem to solve and then coming up with a way to solve it. 

So how do you find a problem to solve? Many people start businesses after being spurred into action by something that annoys them or to fill a need they've experienced in their own lives.

You probably know the story of how Sam Morgan founded NZ's leading online auction website Trademe.co.nz after not being able to find a second hand toaster for his flat. He got sick of ringing classified advertisers in the newspaper only to find out what they were selling was already sold. 

But what if you can't think of any problems that really annoy you? (That method didn't work for me!)

Well, the next best way to find problems (also referred to as "spotting a gap") is to throw yourself into doing something you're passionate about and ask yourself how you might be able to improve it.

The thing with "gaps" is that in order to spot them, you need to be close enough to see them. For example, I have absolutely no interest and know nothing about the robotics industry. Therefore it's almost impossible for me to identify what might be missing or what might need improving in robotics - I'm simply too far away from the industry to spot any gaps. On the other hand I have invested a lot of time, energy and passion into the sales profession and because of my involvement in the industry, I see opportunities to improve the sales profession everywhere.

A good example of being close enough to spot a gap is Paul  Manning. Paul founded Auckland based advertising company Metromedia (now Ogilvy Metro after being sold to global giant Singleton Ogilvy) and was NZ's Young Entrepreneur of the Year in 2006. He started Metromedia when as an advertising sales rep he discovered there was no full service advertising company offering "end-to-end" services to NZ's small and medium sized businesses.

This is one of the reasons they say you need to find out what your passion is and do it. If you do this, and you commit yourself to being the best in your field, you'll soon spot plenty of areas of improvement that you can contribute to. On the other hand if you try and spot problems and gaps in a field you're not passionate about, a) you won't be able to see as many opportunities because you really don't care, and b) you certainly won't care enough to build a business to solve it.

This method of spotting gaps may take you a bit longer than simply sitting down one day and trying to come up with a list of things to invent, but when you listen to the stories of many successful entrepreneurs you find that their business ideas were born out of personal frustration at a lack of products or services, or noticing what was missing in an industry. The saying "Necessity is the mother of invention" encapsulates this concept nicely.

So there you have two clues about where great business ideas come from. You'll notice that these methods are quite different from simply coming up with ideas for the sake of having ideas. By starting with a problem you'll ensure that your solution is creating value.

No matter how hard you try, you will not find any product or service which has done well that does not offer buyers more value than it costs them to obtain it.

Next time... Ideas Pt 3: How to assess whether an idea is worth pursuing. What are the final criteria to consider before trying to turn it into a business?

Richard Liew started his first business at the age of 23 and founded the Rev Sales Network, a personal and professional development network for salespeople when he was 27. Along the way he has helped develop sales strategies for several startup’s, helped extreme sport ‘le parkour’ (freerunning) find it’s feet in NZ, and is a regular newspaper and magazine contributor on the topics of sales and marketing. He is currently working on a recruitment related internet business. Email Richard here.