Recognizing new business opportunities.

In 1947, Johnny Barfield, the son of a black Alabama sharecropper, had no formal skills so he took a job as a custodian at the University of Michigan that paid $1.75 an hour. While cleaning the chemistry building one day, he sat down for a rest next to a pile of magazines. As he browsed through one, he came across an article on contract cleaning. “It suddenly dawned on me,” he recalled later, “that there were lots of people out there willing to pay for something I’d become an expert in.” So, in 1954, he and his wife, Betty, loaded up a station wagon with mops, buckets, ladders and sponges, and started up Barfield Cleaning Services, which ITT bought 15 years later for millions of dollars. From contacts he made cleaning auto plants, Barfield started a second business in 1977, Bartech Staffing Services, which provides companies with temporary technical workers. Today, The Bartech Group, billing and managing $1 billion in revenue annually for its customers, is one of America's most respected, successful and resourceful talent acquisition and management firms. Bartech is run by Johnny's son, Jon E. Barfield, a graduate of Princeton University and Harvard Law School.

While living in Paris in 1974, lawyer Tim Zagat launched his first survey—a two-page Xerox comparing his friends' ratings of well-known restaurants with those in the restaurant guides. He and his wife, Nina, duplicated the format when they returned to New York in 1979, handing out questionnaires to 150 other foodies so that they—and not the critics—could judge restaurants on a scale of 1 to 30 in the categories of food, decor and service. By 1994, the Zagat Survey had already grown into a $7 million business. Today, the pocket-sized Zagat Surveys, recognizable by their burgundy covers, have become best-sellers, with over 350,000 participants rating and reviewing restaurants in major U.S. cities and in more than 100 countries worldwide. The Zagats decided early on they weren’t really in the restaurant reviewing business; they were in the business of polling popular tastes. So, they now sell guides rating dining, travel, nightlife, shopping, golf, theater, movies and music.

Successful companies like Zagat frame their identity in terms of their core purpose rather than in terms of their products or services. What they stand for is more important than what they sell. Motorola grew and prospered, guided by its purpose of “applying technology for the benefit of the public.” Meanwhile, Zenith’s business declined because it didn’t take advantage of new opportunities, sticking instead to its mission of making TVs.

As the above examples illustrate, companies get started in many different ways. But the common denominator is that an entrepreneur saw an opportunity they thought had long-term market potential, figured it was only a matter of time until someone was going to make money at it, and decided they might as well be the one. They found many different ways to succeed. Burger King was a knockoff of McDonald's, only different. Fuddruckers was an innovator, offering premium burgers at three times the price with service and surroundings to match.

The most successful startups are precise and targeted. They go for a niche, getting into the nooks and crannies where other companies are too big or too lethargic to go. They make sure their products had a clear reason for being and a clear advantage over their competition. Having a niche is critical in a startup because it allows the company to earn high gross margins thus allowing its initial capital to last long enough for the business to achieve financial viability.