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Startup Opportunity
Discovery & Evaluation
PREPARED FOR SXSWi 2014
BY NEAL CABAGE & SONYA ZHANG, PhD
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.
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
Benjamin Franklin
INTRODUCTION
Conventional Wisdom
Diligence is the mother of good luck.
Thomas Edison
Genius is one percent inspiration and
ninety-nine percent perspiration.
Benjamin Franklin
INTRODUCTION
Conventional Wisdom
Diligence is the mother of good luck.
Thomas Edison
Genius is one percent inspiration and
ninety-nine percent perspiration.
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?	
  
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
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)	
  
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
A SYSTEMATIC APPROACH
THE SOLUTION
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
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
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
OPPORTUNITY IDEATION
STEP ONE
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
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.	
  	
  	
  
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.
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
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.
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)
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)
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
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
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.
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.
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.
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.
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
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.
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
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	
  
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	
  
OPPORTUNITY EVALUATION
STEP TWO
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
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	
  
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
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?
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
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.
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).
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
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.
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
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.
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.
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
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 %)
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
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
*
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.
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
$5,000
2000
2005
2009
2012
Open Source Software
The Cloud
Hosting Commoditized
As cost has fallen, so has the
competitive barrier to entry.
Competitive positioning is now the
key strategic issue, not
technological capability for most
consumer Internet products. How
do you cut through the noise?
Commonplace
Commodity
2000 2002 2004 2006 2008 2010 2012 2013
!"
#!$!!!$!!!"
%!!$!!!$!!!"
%#!$!!!$!!!"
&!!$!!!$!!!"
&#!$!!!$!!!"
!"#$%&'%()*+%)&
Data From NetCraft 2013 Web Server Survey
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?
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).
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
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
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
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?
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
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
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
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
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
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?
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
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.
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
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.
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.
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.
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!
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!
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.
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).
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.
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
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.
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
PREPARED FOR SXSWi 2014
BY NEAL CABAGE & SONYA ZHANG, PhD
Thank You!
NealCabage.com SonyaZhang.com

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Startup Opportunity Discovery & Evaluation (SXSW)

  • 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
  • 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
  • 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  
  • 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