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Startup opportunity discovery and evaluation. In this presentation the authors of The Smarter Startup demonstrate a systematic approach to surfacing and evaluating startup ideas to increase ...

Startup opportunity discovery and evaluation. In this presentation the authors of The Smarter Startup demonstrate a systematic approach to surfacing and evaluating startup ideas to increase likelihood of success. This is product strategy for startups.

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Startup Opportunity Discovery & Evaluation (SXSW) Presentation Transcript

  • 1. Startup Opportunity Discovery & Evaluation PREPARED FOR SXSWi 2014 BY NEAL CABAGE & SONYA ZHANG, PhD
  • 2. Sonya Zhang Professor INTRODUCTION Introductions Neal Cabage Entrepreneur, Product Manager Digital product architect. Founded ProductCamp.LA and PMA.LA. Built and sold two startups. Authored the book, The Smarter Startup. PhD in Information Systems and Technology, M.S. in Computer Science, and MBA. Researched Internet Entrepreneurship and Digital Product Strategy.
  • 3. THE SMARTER STARTUP PRODUCT STRATEGY FOR STARTUPS The Smarter Startup looks at why some startups succeed while others fail. By taking a more strategic approach to entrepreneurship, founders can improve their own outcomes. Written by Neal Cabage and Sonya Zhang, PhD, and published by Pearsons/NewRiders. INTRODUCTION Our Book
  • 4. Benjamin Franklin INTRODUCTION Conventional Wisdom Diligence is the mother of good luck. Thomas Edison Genius is one percent inspiration and ninety-nine percent perspiration.
  • 5. Benjamin Franklin INTRODUCTION Conventional Wisdom Diligence is the mother of good luck. Thomas Edison Genius is one percent inspiration and ninety-nine percent perspiration.
  • 6. Benjamin Franklin INTRODUCTION Conventional Wisdom Diligence is the mother of good luck. Thomas Edison Genius is one percent inspiration and ninety-nine percent perspiration. It  is  True?  
  • 7. Diligent Negligent SuccessFailure IS HARD WORK THE ANSWER? Hard work alone is NOT a reliable predictor of success. Hard working people sometimes fail and negligent people sometimes succeed. There’s more to the story! PROBLEM STATEMENT Conventional Wisdom NOT ENTIRELY
  • 8. x   Working hard is analogous to throwing a ball hard. The velocity is an important part of reaching the target, but you cannot ignore other interactive forces like gravity and drag. Gravity   (0ming)   Direc0on   (customer  need)   What Is the Whole Story? PROBLEM STATEMENT Drag   (compe00on)   Velocity   (hard  work)  
  • 9. Work Smart, Not Just Hard Timing Customer Product CompetitionStartup Opportunity Finance Team We cannot work simply work hard and expect to have a desirable outcome. There are many dynamics at play that all determine whether we’re likely to succeed. Some may get lucky but they are the exception not the rule. INTRODUCTION
  • 10. A SYSTEMATIC APPROACH THE SOLUTION
  • 11. We’ve developed a method for systematically discovering startup opportunities by leveraging the Business Model Archetypes model and the Startup Opportunity Scorecard to identify ideas and objectively evaluate them. FRAMEWORK OVERVIEW Startup Opportunity Framework Opportunity Scorecard Finance Timing Competition Team ProductCustomer Idea Idea Idea Business Model Archetypes VerticalMarkets A B+ F A A- Scorecard Criteria BusinessIdeas + = Business Model Archetypes Startup Opportunity Scorecard Ideation Matrix Evalaution Matrix #1 Trade Product Service Marketplace Ecosystem Subscription Brokerage IDEATION PROCESS EVALUATION PROCESS
  • 12. Opportunity Scorecard Finance Timing Competition Team ProductCustomer Idea Idea Idea Business Model Archetypes VerticalMarkets A B+ F A A- Scorecard Criteria BusinessIdeas + = Ideation Matrix Evalaution Matrix #1 Trade Product Service Marketplace Ecosystem Subscription Brokerage IDEATION PROCESS EVALUATION PROCESS FRAMEWORK OVERVIEW Startup Opportunity Framework Start by considering the possible business model archetypes (eg personalities) for every market actor you’re considering serving. Take note of all of the possibilities you uncover in the ideation matrix. STEP 1: IDEATION
  • 13. Opportunity Scorecard Finance Timing Competition Team ProductCustomer Idea Idea Idea Business Model Archetypes VerticalMarkets A B+ F A A- Scorecard Criteria BusinessIdeas + = IDEATION PROCESS EVALUATION PROCESS Ideation Matrix Evalaution Matrix #1 Trade Product Service Marketplace Ecosystem Subscription Brokerage FRAMEWORK OVERVIEW Startup Opportunity Framework Objectively evaluate all of the ideas you’ve developed against a set of entrepreneurial heuristics that will help you to identify weaknesses. Based on this, score each idea to determine the best idea. STEP 2: EVALUATION
  • 14. OPPORTUNITY IDEATION STEP ONE
  • 15. Describes 7 abstract business model archetypes (fundamental personalities) from which every business model is inherited. Two prototypes (applied examples) are given for each archetype. This represents a holistic view of the possibilities. BUSINESS MODEL ARCHETYPES Business Model Archetypes Trade Product Service Marketplace Ecosystem Subscription Brokerage prototypes: • e-commerce • lead generation prototypes: • software • content prototypes: • service platform • service agency prototypes: • ad network • dropship program prototypes: • content as a service • software as service prototypes: • products market • services market prototypes: • technology platform • media platform
  • 16. BUSINESS MODEL ARCHETYPES Business Models Everywhere! BRICKS & CLICKS COLLECTIVE CUT OUT THE MIDDLE MAN DIRECT SALES DISTRIBUTION MODEL VALUE ADDED RESELLER FREE IN, FREE OUT FREEMIUM AUCTION / ONLINE AUCTION ALL-IN-ONE LOW-COST BARRIER LOYALTY MONOPOLISTIC MULTI-LEVEL MARKETING NETWORK EFFECTS PRO OPEN SOURCE PYRAMID SCHEME RAZOR & BLADES SERVITIZATION OF PRODUCTS SUBSCRIPTION etcetera,  etcetera  …   There  are  many  disparate  business  models  that  were  defined  in  isola0on  but  nothing  comprehensive    that  describes  the  fundamentally  unique  paCerns  in  a  single  and  concise  framework  that  suited  our  needs.      
  • 17. Carl Jung Psychologist BUSINESS MODEL ARCHETYPES What is an Archetype? A philosophical idea, referring to pure forms which embody the fundamental characteristics of a thing. The concept was based on Carl Jung’s Personality Archetypes which describes fundamental personalities and roles that we draw from to develop our own unique personality.
  • 18. PRODUCT TANGIBLE SOLUTION SERVICE CUSTOM SOLUTION TRADE CONNECT BUYERS & SELLERS The Business Model Archetypes framework takes a step back from specific business models to say there are 7 abstract archetypes (fundamental personalities) from which every business inherits. Two prototypes (examples) are given for each archetype. This represents a holistic view of the possibilities. BUSINESS MODEL ARCHETYPES Primary Archetypes
  • 19. BUSINESS MODEL ARCHETYPES Product Archetype PROTOTYPES WITH EXAMPLES TRADE PRODUCT SERVICE Software: •  Rovio (mobile apps) •  AheadWorks (plugins) •  WooThemes (themes) Content: •  AdvantageMedia (ebooks) •  DemandMedia (articles) •  MakerStudios (videos) Develop a tangible good and sell on a one-time fee basis (purchase or license). Requires high up-front sunk capital but is able to leverage economies of scale.
  • 20. BUSINESS MODEL ARCHETYPES Service Archetype Doing work for a client and monetized on a per-use basis. Professionals or technicians with expert knowledge and skills in a specific domain provides intangible solutions to clients. PROTOTYPES WITH EXAMPLES TRADE SERVICE PRODUCT Platform as a Service: •  SendGrid (email) •  MaxMind (geo ip) •  DemandWare (eCom) Service Agency: •  BlueAcorn (magento) •  Appirio (salesforce) •  ReachLocal (adwords)
  • 21. PRODUCT TRADE SERVICE BUSINESS MODEL ARCHETYPES Trade Archetype Connecting prospective buyers with a product they seek to buy and making profit on the spread between what a buyer will pay versus the cost of acquisition. PROTOTYPES WITH EXAMPLES LeadGen: •  Lending Tree (financial) •  Capterra (software) •  Shopzilla (consumer) Ecommerce: •  Target.com (retail) •  Kinerase.com(source) •  Intellius (data)
  • 22. Carl Jung Psychologist The meeting of two personalities (archetypes) is like the contact of two chemical substances; if there is any reaction, both are transformed. BUSINESS MODEL ARCHETYPES Secondary Archetypes
  • 23. MARKETPLACE TANGIBLE SOLUTION SUBSCRIPTION CUSTOM SOLUTION BROKERAGE CONNECT BUYERS & SELLERS The Business Model Archetypes framework takes a step back from specific business models to say there are 7 abstract archetypes (fundamental personalities) from which every business inherits. Two prototypes (examples) are given for each archetype. This represents a holistic view of the possibilities. BUSINESS MODEL ARCHETYPES Secondary Archetypes ECOSYSTEM CONNECT BUYERS & SELLERS
  • 24. SERVICE TRADE BUSINESS MODEL ARCHETYPES Brokerage Archetype BROKERAGE   PROTOTYPES WITH EXAMPLES Ad Network •  DoubleClick (cpm) •  Kontera (in-text) •  Chitika (ppc) Dropship •  Doba (dropship) •  Ordoro (dropship) •  Simplx (dropship) Sourcing on behalf of a client for a retainer or per- transaction fee. The client then profits from any arbitrage spread rather than the sourcing partner.
  • 25. TRADE PRODUCT BUSINESS MODEL ARCHETYPES Marketplace Archetype MARKETPLACE   PROTOTYPES WITH EXAMPLES Service Marketplace •  oDesk (outsourcing) •  Elance (freelancing) •  Care.com (nannies) Product Marketplace •  eBay (auction) •  Etsy (crafts) •  ThemeForest (themes) Create a platform that facilitates trade, rather than actually trading. This is a network effects business that depends heavily on bringing together sufficient demand and supply.
  • 26. SERVICE PRODUCT BUSINESS MODEL ARCHETYPES Subscription Archetype SUBSCRIPTION   PROTOTYPES WITH EXAMPLES Content as Service: •  Ancestry.com (genealogy) •  Lynda.com (education) •  Match.com (dating) Software as Service: •  Mint.com (finance) •  Wordpress.com (site) •  HubSpot.com (mktg) Building, maintaining, and supporting an online product in an on-going fashion rather than a one- time sell. Customers pay a monthly subscription service and benefit from continued improvements.
  • 27. SERVICE TRADE PRODUCT BUSINESS MODEL ARCHETYPES Ecosystem Archetype ECOSYSTEM   PROTOTYPES WITH EXAMPLES Media Platform: •  Facebook (social) •  Google (search) •  Yahoo (content) Technology Platform: •  Apple (hardware/OS) •  Magento (eCommerce) •  SalesForce (CRM) A mature market leader begins as another archetype but expands as a result of success. What may begin as a product will also develop a marketplace, services, and even a program for ISV vendors.
  • 28. BUSINESS MODEL ARCHETYPES Business Model Archetypes Trade Product Service Marketplace Ecosystem Subscription Brokerage prototypes: • e-commerce • lead generation prototypes: • software • content prototypes: • service platform • service agency prototypes: • ad network • dropship program prototypes: • content as a service • software as service prototypes: • products market • services market prototypes: • technology platform • media platform Primary archetypes Review: •  Trade, Product, Service Secondary archetypes Review: •  Product + Trade = Marketplace •  Service + Trade = Brokerage •  Product + Service = Subscription •  Product + Service + Trade = Ecosystem
  • 29. Business Models Archetypes Ideation Matrix Evaluation Matrix Opportunity Discovery Process Trade Product Service Marketplace Ecosystem Subscription Brokerage A B+ F A A- Scorecard Criteria BusinessIdeas STEP BY STEP PROCESS Idea #1 Idea #2 Idea #3 Idea #4 Idea #5 Idea #6 Idea #7 Idea #8 Idea #9 Business Model Archetypes VerticalMarkets Identifies the spectrum of fundamental business “personalities” that you can consider consider when defining your own unique business model. Identify an applied business concept for every archetype personality, across all of the vertical markets you are considering. Grade each of the ideas you’ve identified in the ideation matrix, based on the six scorecard success criteria and compare to determine the best opportunity. 6 6 Market Dynamics The 6 market dynamics are a set of known impact that need to be considered for success that can be used to evaluate an ideas potential.
  • 30. Take a systematic approach to identifying all the possible opportunities. You will identify a startup idea for every business model archetype, for each business vertical you are considering. Once you have done this, you can begin to evaluate these ideas. Ideation Matrix Idea #1 Idea #2 Idea #3 Idea #4 Idea #5 Idea #6 Idea #7 Idea #8 Idea #9 Business Model ArchetypesVerticalMarkets STEP BY STEP PROCESS
  • 31. IDEATION MATRIX Create a matrix with the business model archetypes across the x-axis, and vertical market segments you’re interested in exploring on the y-axis. Cancel out any business model archetypes you already know aren’t a good fit for your team. Identifying Opportunity   Product Service Trade Subscrip3on Marketplace Brokerage Ecosystem    Real  Estate  Agents      Real  Estate  Brokers      Property  Managers Can’t  Start  Here!   Don’t  Possess  Trade   Func0onal  skills  
  • 32. IDEATION MATRIX Develop a business idea for each market actor that you’re considering, for each of the business model archetypes. Fill them into the grid. Identifying Opportunity   Product Service Subscrip3on Marketplace Brokerage    Real  Estate  Agents    Real  Estate  Brokers    Property  Managers IDX  Wordpress     Theme   Marke0ng     CRM   Property     Search  Site   Virtual     Assistant   Lead     Genera0on  
  • 33. OPPORTUNITY EVALUATION STEP TWO
  • 34. Business Models Archetypes Ideation Matrix Startup Heuristics Evaluation Matrix Opportunity Discovery Process Trade Product Service Marketplace Ecosystem Subscription Brokerage Idea Idea Idea Business Model Archetypes VerticalMarkets A B+ F A A- Scorecard Criteria BusinessIdeas STEP BY STEP PROCESS Identifies the spectrum of fundamental business “personalities” that you can consider consider when defining your own unique business model. Identify an applied business concept for every archetype personality, across all of the vertical markets you are considering. Grade each of the ideas you’ve identified in the ideation matrix, based on the six scorecard success criteria and compare to determine the best opportunity. The 6 market dynamics are a set of known impact that need to be considered for success that can be used to evaluate an ideas potential. 6
  • 35. STARTUP STRATEGY The 6 Market Dynamics THE FUNDAMENTAL CRITERIA START HERE There are 6 fundamental market dynamics to consider when developing a startup concept. We’ve developed 18 startup heuristcis (3 per market dynamics). customer   product   compe00on   0ming   financial   team   The  6     Market     Dynamics  
  • 36. STARTUP HEURISTICS The 18 Rules of Startup Strategy Startup Heuristics Finance 13. Low Sunk Costs 14. Working Capital Float 15. Economies of Scale Timing 7. Recent Innovation Enabler 8. Demand Already Established 9. No Signs of Commoditization Competition 10. Clear Market Inefficiency 11. Low Barriers to Entry 12. Differentiable Position Team 16. Subject Matter Expertise 17. Functional Competence 18. Supplier Partnerships Product 4. Customer Focused Solution 5. Low Barriers to Adoption 6. Clear Value Proposition Customer 1. Unmet Need or Desire 2. Right Size Market or Segment 3. Reliable Access to Customers © 2014 Cabage & Zhang
  • 37. WHAT’S A GOOD CUSTOMER? The ideal customer wants something the market hasn’t yet delivered. The size of this market should match your ability to compete and ability to deliver justify solving the problem. Validate you can control means of customer acquisition along the way. STARTUP SCORECARD Customer Criteria UNMET NEED OR DESIRE Unsatisfied Customer Desire RIGHT-SIZE MARKET OR SEGMENT Need to Segment? Too Niche? RELIABLE ACCESS TO CUSTOMERS Diversified Channels? Gatekeepers?
  • 38. FOCUS ON HELPING OTHERS FOCUS ON CREATING VALUE The best opportunities come from helping others. Find a need or desire that is not yet solved, where the customer is so passionate they’d happily pay for a solution. This approach is much more likely to create real value than copying an existing solution. CUSTOMER CRITERIA Unmet Need or Desire
  • 39. CUSTOMER CRITERIA Right-Size Market (or segment) BIG FISH STRATEGY PURSUE QUIET NICHES BIG MARKET STRATEGY PURSUE LARGE MARKETS Select a market to service that meets your needs and abilities. You must have enough opportunity to warrant the effort. Be weary of large markets however, if you do not have significant fund and plans to be aggressive.
  • 40. MARKET MANIPULATION GOVERNMENT, MONOPOLIES CHANNEL DEPENDENCE SINGLE POINT OF FAILURE 0 5000 10000 15000 20000 25000 30000 35000 March April May June July CUSTOMER CRITERIA Reliable Access to Customers A sustainable business requires control over customer supply. Don’t rely on a single marketing channel (Google SEO). Government or monopolistic manipulation of markets can also be challenging (Online Gambling).
  • 41. WHAT’S A GOOD PRODUCT? A good product will be a direct response to a customer need or desire. If the value is well articulated and the customer is passionate about your new solution, the reason to buy will be compelling. Consider deterrents also – are their high switch costs and is the solution easy to use and understand? STARTUP SCORECARD Product Criteria CUSTOMER FOCUSED SOLUTION Solves Unmet Need or Desire? LOW BARRIERS TO ADOPTION Low Switch Cost, Usability CLEAR VALUE PROPOSITION Compelling Reason to Buy
  • 42. PRODUCT CRITERIA Customer Focused Solution ADDRESS NEED OR DESIRE FOCUS ON CLEAR GOAL KEEP IT SIMPLE! DON’T AMBIGUATE THE VALUE The purpose of your product is to create value by addressing a specific need or desire. Stay Zen focused. Don’t ambiguate the value created with distracting features that aren’t aligned with the goal.
  • 43. Albert Einstein Physicist, Professor Any intelligent fool can make things bigger and more complex... It takes a touch of genius - and a lot of courage to move in the opposite direction. PRODUCT CRITERIA Customer Focused Solution
  • 44. PRODUCT CRITERIA Low Barriers to Adoption LEARNING CURVE INVESTED TIME & NEW COSTS FINANCIAL IMPACT PRIOR INVESTMENT & NEW COSTS WORKFLOW INTEGRATION DOES IT EASILY INTEGRATE? Even if you create new value, customers may hesitate to adopt your product if they’ve already invested too much in an existing solution that is good enough, or if adopting your solution is too disruptive.
  • 45. Easy Workflow Integration Addt’l Benefits (value chain) Solves My Problem Existing Investments Learning Curve IS THE VALUE CLEAR? VALUE = BENEFIT - COST PRODUCT CRITERIA Clear Value Proposition Perceived  value  must  exceed  cost.    If  you  can  clearly  describe  your  product  is  beneficial  and  a  compelling   case  for  purchasing  it,  then  you  have  created  sufficient  value  to  overcome  cost.   Theodore Levitt People don’t want quarter- inch drills. They want quarter-inch holes.
  • 46. WHAT IS GOOD TIMING? Every market has a natural lifecycle driven by innovation and circumstance. Look for new demand or interest in something that wasn’t possible just a couple years ago. Be a “fast follower” into a validated emerging market rather than speculating on new opportunity. STARTUP SCORECARD Timing Criteria RECENT INNOVATION ENABLER Was it Possible 2-5 Years Ago? DEMAND ALREADY ESTABLISHED Build It & They Might Not Come! NO SIGNS OF COMMODITZATION Shrinking Margins. More Products
  • 47. Every market has a natural lifecycle driven by innovation and circumstance. Look for something that wasn’t possible just a couple years ago ramp up before the market capitulates (supply > demand). TIMING CRITERIA Innovation Life Cycle Innovators (2.5 %) Early adopters (13.5 %) Early majority (34 %) Laggards (16 %) Late majority (34 %)
  • 48. Opportunity to enter diminishes as the market matures. Geoff Moore suggests entering at “the chasm” after demand is validated but still early enough to ramp before the market capitulates. TIMING CRITERIA Innovation Life Cycle Innovators (2.5 %) Early adopters (13.5 %) Early majority (34 %) Laggards (16 %) Late majority (34 %) Chasm New Entrant Opportunity Ideal point to enter a market
  • 49. Every market has a natural lifecycle driven by innovation and circumstance. Look for something that wasn’t possible just a couple years ago ramp up before the market capitulated (supply > demand). TIMING CRITERIA Innovation Life Cycle Innovators (2.5 %) Early adopters (13.5 %) Early majority (34 %) Laggards (16 %) Late majority (34 %) The Golden Era The  Squeeze   ConsolidationEarly Movers Capitulation *
  • 50. Nicholas Carr Harvard Business Review, 2003 TIMING CRITERIA Commoditization of Technology It is difficult to imagine a more perfect commodity than a byte of data. As information technology’s power and ubiquity have grown, its strategic importance has diminished.
  • 51. What cost $5 million to accomplish 10 years ago can now be done with less than $5,000. Mark Suster observed that commoditization and availability of more building blocks has radically reduced cost and risk of developing a software product. Commoditized Technology $5,000,000 $500,000 $50,000 $5,000 2000 2005 2009 2012 Open Source Software The Cloud Hosting Commoditized
  • 52. As cost has fallen, so has the competitive barrier to entry. Competitive positioning is now the key strategic issue, not technological capability for most consumer Internet products. How do you cut through the noise? Commonplace Commodity 2000 2002 2004 2006 2008 2010 2012 2013 !" #!$!!!$!!!" %!!$!!!$!!!" %#!$!!!$!!!" &!!$!!!$!!!" &#!$!!!$!!!" !"#$%&'%()*+%)& Data From NetCraft 2013 Web Server Survey
  • 53. GOOD COMPETITIVE LANDSCAPE? Avoid being marginalized by excessive undifferentiated competition. That drives margin compression, commodi- tization and market consolidation. Look for inefficient markets where there’s still ‘play’ and find ways to develop a sustainable competitive advantage. STARTUP SCORECARD Competition Criteria CLEAR MARKET INEFFICIENCY Stagnant or Fragmented Market LOW BARRIERS TO ENTRY Easy & Cheap to Compete? DIFFERENTIABLE POSITION Something Special or Different?
  • 54. COMPETITION CRITERIA Inefficient Market FRAGMENTED MARKET NO CLEAR MARKET LEADER NEW MARKET DEMAND EXCEEDS SUPPLY STAGNANT MARKET READY FOR DISRUPTION? When a market is efficient, a single entity captures all of the value of a market. Look instead for a market that isn’t efficient either because it is new, stagnant of splintered (fragmented).
  • 55. Avoid a fight you cannot win! A market can be much harder to enter if a competitor already has a mature offering that you must catch up to. THINGS TO AVOID •  Existing Economies of Scale •  Existing Mature Product (feature set) •  Well-Established Brand (halo) •  Price Competition COMPETITION CRITERIA Low Barriers to Entry
  • 56. Sun Tzu War Strategist, Wrote The Art of War The general who makes many calculations before battle is wise. He who knows when he can fight and when he cannot will be victorious. COMPETITION CRITERIA Low Barriers to Entry
  • 57. SEGMENTED MARKET FOCUS ON SPECIFIC CUSTOMER LOW PRICE LEADERSHIP FOCUS ON VOLUME & COMMITY DIFFERENTIATED PRODUCT DISRUPTIVE OR INNOVATIVE HOW ARE YOU DIFFERENT? WHAT MAKES YOU SPECIAL? COMPETITION CRITERIA Differentiable Position In order to be a desirable signal that stands out against a background of noise, you need to have a compelling value to some customers that others do not. There are 3 viable positioning strategies. Porter’s Generic Competitive Strategies
  • 58. GOOD FINANCIAL PROFILE? Look for opportunities to maximize returns without excess capital risk. Look for opportunities to start cheap and to realize higher margins through focused efforts and economies of scale. Avoid locking up too much capital. STARTUP SCORECARD Financial Criteria LOW SUNK COSTS Up Front Capital at Risk? WORKING CAPITAL FLOAT Gap Between Payable/Receivables ECONOMIES OF SCALE Margins Increase With Volume?
  • 59. How much up-front capital must you commit to develop this product or business? Sunk capital represents risk since you don’t know if you’ll get it back, as well as opportunity cost since that money could be committed to other opportunities. FINANCIAL CRITERIA Low Sunk Costs HOW MUCH CAPITAL RISK? OPPORTUNITY COST
  • 60. Some businesses require large cash outlay every month and payment can take 3-4 months to arrive. As a result the business may need to have cash or credit to cover the gap of 3-4 months of operating costs. This is both a cost (interest) and a risk! Working Capital Float DO YOU NEED A LINE OF CREDIT? WHAT’S THE COST & RISK? Accounts Receivable 60 - 120 Day "Capital Float"Accounts Payable
  • 61. Look for opportunities where profits increase with volume (scale). Supply, development, and distribution costs all diminish on a per-unit basis when working in volume. As a result profit margins and competitive advantage both increase. Economies of Scale Quantity Profits Marginal Cost Scalable Profits
  • 62. WHAT’S GOOD TEAM FIT? Just because an opportunity exists, doesn’t mean your team is likely to succeed. Does your team have an inherent competitive advantage for the endeavor? Do you possess deep knowledge, technical skills to deliver, & access to key partners and resources? STARTUP SCORECARD Team Fit Criteria SUBJECT MATTER EXPERTISE Deep Knowledge of Market? FUNCTIONAL COMPETENCE Technical Skills to Deliver SUPPLIER PARTNERSHIPS Access to Materials at Good Cost
  • 63. TEAM-FIT CRITERIA The Hacker & The Hustler “The Hacker” Technical skills to design & develop a well-crafted and scalable solution. “The Hustler” Knowledge of customer or desire, and understanding of market dynamics to effectively position an offering. A team deep needs subject matter expertise and technical skills to design a solution, in order to succeed. It is difficult for a single person to be efficient at “heads up” and “heads down” work. The Functional ExpertSubject Matter Expert
  • 64. TEAM-FIT CRITERIA Supplier Partnerships Preferred Sourcing Are you able to procure supplies at competitive prices? If affiliate mktg, can you get preferred commissions? Available Data APIs Are you able to access the data or integration APIs needed to build your product? Outsourced Vendors If planning to manufacture physical products or software, do you have a quality vendor you can rely on? Consider the dependencies you may have on external sources of materials, data, and services. Do you have access to the necessary resources to deliver your product and to price competitively?
  • 65. Evaluate your startup idea across the six market dynamics and be mindful of the attributes described in each one. Give yourself a letter grade and then an overall score, for the idea. This provides a structured approach to evaluating the opportunity and helps to improve objectivity by accounting for a full spectrum of important criteria and reducing blind spots. Evaluating a Startup IdeaA   B   D   B   A   B   B-­‐   Startup Scorecard Finance • Low Capital Requirement • Clear Profit Model • Economies of Scale Finance Score ______ Timing • Recent Innovation Enabler • Demand Already Established • No Signs of Commoditization Timing Score ______ Competition • Clear Market Inefficiency • Low Barriers to Entry • Differentiable Position Competition Score ______ Team • Subject Matter Expertise • Functional Competence • Supplier Partnerships Team Score ______ Product • Customer Focused Solution • Low Barriers to Adoption • Clear Value Proposition Product Score ______ Customer • Unmet Need or Desire • Right Size Market or Segment • Reliable Customer Channels Customer Score ______ Overall Score _______ SmarterStartup.org Title _____________________________________________________________________ A A B- B+ D A- B Real Estate IDX Integrated CRM
  • 66. Business Models Archetypes Ideation Matrix Evaluation Matrix Opportunity Discovery Process Trade Product Service Marketplace Ecosystem Subscription Brokerage Idea Idea Idea Business Model Archetypes VerticalMarkets STEP BY STEP PROCESS A B+ F A A- Scorecard Criteria BusinessIdeas Identifies the spectrum of fundamental business “personalities” that you can consider consider when defining your own unique business model. Identify an applied business concept for every archetype personality, across all of the vertical markets you are considering. Grade each of the ideas you’ve identified in the ideation matrix, based on the six scorecard success criteria and compare to determine the best opportunity. 6 6 Market Dynamics The 6 market dynamics are a set of known impact that need to be considered for success that can be used to evaluate an ideas potential.
  • 67. The last step of the process is to take all of the ideas we generated in the ideation matrix (step 2) and grade them using the Startup Opportunity Scorecard. This will provide an easy point of comparison of strengths and weaknesses of the opportunities being considered and facilitate a decision. STEP BY STEP PROCESS Evaluation Matrix A B+ F A A- Scorecard Criteria BusinessIdeas
  • 68. EVALUATION MATRIX Score Your Ideas     Customer   Product   Timing   Compe33on   Finance   Team   Overall      IDX  WordPress  Theme C   B   B   B   A   A      Virtual  Assistant    Marke3ng  CRM    Property  Search  Site    Lead  Genera3on Now we’ll evaluate each idea against each of the 6 market dynamics. We’ll be able to see relative strengths and weaknesses and will give a final overall score accordingly.
  • 69. EVALUATION MATRIX Score Your Ideas     Customer   Product   Timing   Compe33on   Finance   Team   Overall      IDX  WordPress  Theme C   B   B   B   A   A   B+      Virtual  Assistant    Marke3ng  CRM    Property  Search  Site    Lead  Genera3on Now we’ll evaluate each idea against each of the 6 market dynamics. We’ll be able to see relative strengths and weaknesses and will give a final overall score accordingly.
  • 70. EVALUATION MATRIX Score Your Ideas     Customer   Product   Timing   Compe33on   Finance   Team   Overall      IDX  WordPress  Theme C   B   B   B   A   A   B+      Virtual  Assistant C   C   B   B   C   C   C+      Marke3ng  CRM C   C   D   D   C   A   C-­‐      Property  Search  Site C   A   D   F   D   A   D+      Lead  Genera3on C   A   B   B   B   B   B   Now we’ll evaluate each idea against each of the 6 market dynamics. We’ll be able to see relative strengths and weaknesses and will give a final overall score accordingly.
  • 71. Now we’ll evaluate each idea against each of the 6 market dynamics. We’ll be able to see relative strengths and weaknesses and will give a final overall score accordingly. EVALUATION MATRIX Score Your Ideas     Customer   Product   Timing   Compe33on   Finance   Team   Overall      IDX  WordPress  Theme C   B   B   B   A   A   B+      Virtual  Assistant C   C   B   B   C   C   C+      Marke3ng  CRM C   C   D   D   C   A   C-­‐      Property  Search  Site C   A   D   F   D   A   D+      Lead  Genera3on C   A   B   B   B   B   B       Think  twice  about  any  idea   that  earns  only  a  D  or  F  –  this   may  mean  its  non-­‐viable.   WARNING!
  • 72. EVALUATION MATRIX Score Your Ideas     Customer   Product   Timing   Compe33on   Finance   Team   Overall      IDX  WordPress  Theme C   B   B   B   A   A   B+      Virtual  Assistant C   C   B   B   C   C   C+      Marke3ng  CRM C   C   D   D   C   A   C-­‐      Property  Search  Site C   A   D   F   D   A   D+      Lead  Genera3on C   A   B   B   B   B   B       Two  ideas  that  pass  the  test.     You  could  choose  one  of   these  or  keep  searching.   CONGRATULATIONS!
  • 73. IDX WordPress Themes IDEA #1 EVALUATION MATRIX Selecting an Idea Lead Generation IDEA #2 A B+ F A A- Scorecard Criteria BusinessIdeas In the final analysis, there are two ideas from our original pool that appear to be most viable. They have the best overall score and also do not have a particular challenge on any single criteria.
  • 74. IDX WordPress Themes IDEA #1 EVALUATION MATRIX Selecting an Idea Lead Generation IDEA #2 A B+ F A A- Scorecard Criteria BusinessIdeas In the final analysis, there are two ideas from our original pool that appear to be most viable. They have the best overall score and also do not have a particular challenge on any single criteria.Select the idea you’re going to explore (first).
  • 75. Mark Twain Author VISION DEFINITION Finally, Define Your Vision I didn't have time to write a short letter, so I wrote a long one instead. A concise statement about a complex topic requires an investment of time and the clarity of thought. That critical analysis can reveal weaknesses in a plan, before you begin developing it. Its time to do this for your new startup.
  • 76. Once you’ve decided on your idea, its time to begin clarifying the idea, who you’re serving, and how you’ll position yourself in the competitive marketplace. Defining Your Startup Vision VISION DEFINITION
  • 77. Once you’ve decided on your idea, its time to begin clarifying the idea, who you’re serving, and how you’ll position yourself in the competitive marketplace. Defining Your Startup Vision VISION DEFINITION Vision Definition Answer each question concisely in the Vision Definition worksheet. It takes effort to distill your thoughts into small soundbytes that answer these questions but it is a necessary step on the way to clarity. Once that is done, compose a 3-4 sentence elevator pitch you can share with client prospects and investors.
  • 78. Successful Real Estate agents, earning $100k / year 1. Phone sales & webinars 2. Conferences Marketing Automation CRM Software Product WordPress Theme *Product* (not SaaS) for the DIY agent Tech disruption. First mover (the Spark API for IDX) 1. Me (product/tech) 2. John (BizDev/Sales) 1. Spark Platorm API 2. Access to all MLS IDX Feeds $50,000 to build core product $50,000 line of credit IDX Website/CRM software for serious RE agents to capture & nurture online leads and grow their business. Built on Wordpress so they can"own the system, not rent". First-mover advantage by integratingthe Spark IDX API which makes it possible. Real Estate IDX WordPress Themes May 9 IDX System to capture & nurture online leads 1. Own don't Rent (your website) 2. Beautiful original design
  • 79. PREPARED FOR SXSWi 2014 BY NEAL CABAGE & SONYA ZHANG, PhD Thank You! NealCabage.com SonyaZhang.com