01-3evaluatingideas-120604091303-phpapp02.PPTX

When business ideas selected, this ideas need to be evaluated according to some criteria to assess the feasibility.

1. Evaluating ideas

2. paul shaw smith scientific business strategy How do you know if a business idea is good? ?

3. 0 1 2 3 4 5 6 7 8 9 10 No Chance of Success Certain Chance of Success Good ideas have a higher chance of success

4. 9/10 strong BM survive Source: Cooper (1994) 3/10 weak BM survive Statistical models are good at predicting success

5. 1/4 venture capital backed company list Source: Gompers et al. (2009) VCs are good at predicting success

6. Expert entrepreneurs are good at predicting success

7. paul shaw smith scientific business strategy How do they evaluate ideas ? ?

8. paul shaw smith scientific business strategy Can I do it? 1

9. Begin with the end in mind

10. Failing to plan is planning to fail

11. Specific Result

12. paul shaw smith scientific success strategy People Knowledge Resources Market Gap Plan Causal Thinking Market Research

13. paul shaw smith scientific business strategy

14. paul shaw smith scientific business strategy 27 Entrepreneurs

15. paul shaw smith scientific business strategy 3 40 start ups to $200 million to $6 billion 1 IPO

16. ??? Bruce Flohr , the founder of RailTex

17. AMAR BHIDE paul shaw smith scientific business strategy Source: Sarasavathy (2007) I'd just go sell it. I don't believe in market research. Somebody once told me the only thing you need is a customer. Instead of asking all the questions, I'd try and make some sales. I'd learn a lot, you know: which people, what were the obstacles, what were the questions, which prices work better. Even before I started production. So my market research would actually be hands-on actual selling."

18. AMAR BHIDE paul shaw smith scientific business strategy Source: Sarasavathy (2007) "Ultimately, the best test of any product is to go to your target market and pretend like it's a real business. You'll find out soon enough if it is or not. You have to take some risks. You can sit and analyze these different markets forever and ever and ever, and you'd get all these wonderful answers, and they still may be wrong. The problem with the businessman type is they spend a lot of time with all their great wisdom and all their spreadsheets and all their  Harvard Business Review  people, and they'd either become convinced that there's no market at all or that they have the market nailed. And they'd go out there big time, with a lot of expensive advertising and upfront costs, because they're gonna overwhelm the market, and the business would go under."

19. Bird-in-the-hand paul shaw smith scientific business strategy

20. paul shaw smith scientific success strategy Opportunities Knowledge People Resources Outcome Outcome Outcome Outcome Outcome Outcome Effectual Thinking (Imaging a possible new end using a given set of means)

21. paul shaw smith scientific success strategy Knowledge of Cooking Equipment Available People I Know Ingredients on Hand Meal 2 Meal 1 Meal 3 Meal 4 Meal 5 Meal 6 Effectual Thinking

22. paul shaw smith scientific success strategy Course Match Partner Friends Customer Students FaceMash Effectual Thinking Harvard Connection

23. How much money is need to start the business & what percentage of the money do you have? 0 10 20 30 40 50 60 70 80 90 100 0% of money 100% of money Can you do it?

24. What knowledge do you need to start your business & what percentage of that knowledge do you have? 0 10 20 30 40 50 60 70 80 90 100 0% of knowledge 100% of knowledge Can you do it?

25. What physical resources do you need to start your business & what percentage of those physical resources do you have? 0 10 20 30 40 50 60 70 80 90 100 0% of physical resources 100% of physical resources Can you do it?

26. What people and contacts do you need to start the business & what percentage of those people & contacts do you have? 0 10 20 30 40 50 60 70 80 90 100 0% of people/contacts 100% of people/contacts Can you do it?

27. paul shaw smith scientific business strategy Will I do it? 2

28. paul shaw smith scientific business strategy “I was pursuing my passion.”

29. “start your business around something that is a passion of yours”

30. “you must be passionate”

31. Steve Jobs (Video)

32. How certain are you that you want to start this business? 0 10 20 30 40 50 60 70 80 90 100 0% certain 100% certain Will you do it?

33. How certain are you that you can start this business? 0 10 20 30 40 50 60 70 80 90 100 0% certain 100% certain Will you do it?

34. How certain are you that you will start this business? 0 10 20 30 40 50 60 70 80 90 100 0% certain 100% certain Will you do it?

35. How certain are you that you have the time to start this business? 0 10 20 30 40 50 60 70 80 90 100 0% certain 100% certain Will you do it?

36. paul shaw smith scientific business strategy Will people buy it? 3

37. Start Up Size & Growth paul shaw smith scientific business strategy Source: Reynolds (1987)

38. paul shaw smith scientific business strategy

39. paul shaw smith scientific business strategy

40. 1 Will not purchase 2 Might purchase but… 3 Will purchase once released 4 Will pre-order and pay now! Customer interest before launching

41. 1 Not interested and does not purchase 2 Interested but doesn’t purchase because… 3 Purchases 4 Purchases and is a raving fan! Customer interest after launching

42. 1 Number of level 1 reactions 2 Number of level 2 reactions 3 Number of level 3 reactions 4 Number of level 4 reactions BM improve when these figures improve

43. The aim is to increase the no. of level 3 and 4 reactions W1 W2 W3 W4 W5 W6 W7 W8 4. Purchased or pre-paid 0% 0% 5% 7% 10% 15% 20% 25% 3. Purchased or will purchase 0% 10% 10% 10% 15% 20% 25% 30% 2. Will purchase but… 25% 25% 25% 30% 30% 30% 35% 35% 1. Not interested 75% 65% 60% 53% 45% 35% 20% 10%

44. Customer Loyalty? 1 Never purchase again 2 Will purchase again if… 3 Will purchase again from you 4 Will definitely purchase again & only from you

45. BM improve when these figures improve 1 Never purchase again 2 Will purchase again if… 3 Will purchase again from you 4 Will definitely purchase again & only from you

46. What percentage of potential customers marketed or sold to buy the product? 0 10 20 30 40 50 60 70 80 90 100 0% 100% Will people buy it?

47. What percentage of customers purchase the product again? 0 10 20 30 40 50 60 70 80 90 100 0% 100% Will people buy it?

48. paul shaw smith scientific business strategy Will it make money? 4

49. What are the expected sales? Sales

50. What are the expected costs? Sales Less: Costs

51. Sales Less: Costs ____________ Profit What is the expected profit?

52. How happy are you with the expected profit the business will make? 0 10 20 30 40 50 60 70 80 90 100 0% Not at all happy 100% Extremely happy Will it make money?

53. paul shaw smith scientific business strategy Will it grow? 5

54. Problem Payback to user Performance Value added Barriers to entry Uniqueness Higher Potential Solve an important problem Less than 1 year Significant improvement High value added High Unique solution Lower Potential Not important to customer More than 3 years Small improvement Limited vale added Low Many competitors

55. Customer acquisition ability Customer acquisition cost Customer retention Customer lifetime profit Higher Potential High Low High High Lower Potential Limited High Low Low

56. Market size Market growth Market structure Market capacity Market share attainable Higher Potential Large Growing Fragmented, emerging industry Under capacity Market leader 20% or more Lower Potential Limited Declining/mature Highly concentrated, mature/declining industry Full or excess capacity Limited 5% or less

57. Revenue type Profits Predictability No. revenue streams Timing Higher Potential Recurring Strong profits Predictable revenues Multiple Collect than spend Lower Potential Once off Weak profits Unpredictable revenues Single Spend than collect

58. Channel access Control Visibility Reach Customer match Higher Potential Accessible High control Visible to prospects Whole target market Good customer fit Lower Potential Inaccessible No. control Limited visibility Limited reach Poor customer fit

59. Entrepreneurial team Industry knowledge Key people Ease to replicate Intellectual property Higher Potential Balanced team Excellent track record A team Difficult to replicate Competitive advantage Lower Potential Individual or missing skills Limited B or C team Easy to replicate Limited advantage

60. Scalability Ease of replication Operations Higher Potential Highly scalable Difficult to copy Highly efficient Lower Potential Limited Can be easily copied Limited efficiency

61. Contact & networks Partnerships Relationship Higher Potential Well developed Work with partners if need to Win-win Lower Potential Limited Avoids partnerships Win-lose

62. Capital requirements Asset intensity Costs Capital expenditure Higher Potential Low; fundable Low/sales Cost advantage Low/incremental requirements Lower Potential Very high; difficult to fund High/sales No cost advantage High requirements

63. paul shaw smith scientific business strategy Is it based on fact ? 6

64. AMAR BHIDE paul shaw smith scientific business strategy What is a business plan? WAGs

65. Guess? Guess? Guess? Guess? Guess? Guess? Guess? Guess? Guess?

66. paul shaw smith scientific business strategy What happens if you try and build a business on guesses?

67. paul shaw smith scientific business strategy Pre-mature Scaling

68. AMAR BHIDE paul shaw smith scientific business strategy Idea Skip the fact finding Build No Facts

69. paul shaw smith scientific business strategy

70. paul shaw smith scientific business strategy

71. paul shaw smith scientific business strategy 74% of high growth internet start ups fail due to premature scaling. Source: Start Up Genome Report(2011)

72. paul shaw smith scientific business strategy 20 times faster than startups that scale prematurely Startups that scale properly grow about Source: Start Up Genome Report(2011)

73. Have you tested your assumptions in the real world?

74. 8.1 Terms? What terms will the partners require? 8.2 Costs? How much will they charge? 6.1 Acquirable? What are your fixed and variable costs? 9. Costs? 5. Pricing? How will you charge? How much will you charge? 5.1 Terms? Will the business Make money? Will the customers buy the product? Profitable? 3. Product/ Market fit? 1. Customer? 2. Market Size? Who is the customer? 4.2 Costs? 7.1 Doable? Can you perform the Key activities? 7.2 Costs? Costs to perform Key activities? Can you acquire The key resources? 6.2 Costs? Cost of key resources? Cost to acquire a customer? What is the Market size? 4.1 How? How will you acquire customers? 5.2 Costs? Cost of distribution? What are the channel terms? What percentage of these questions can you answer?

75. paul shaw smith scientific business strategy Are failure losses affordable? 7

76. I’ll start cheap make sure I… cover my cost don’t have to take huge risks…. uhm … one thing I’m sure about my experience… never take any risk if you can help it… it is just the opposite of what most people think about…. Entrepreneurs [E5] paul shaw smith scientific business strategy

77. AMAR BHIDE paul shaw smith scientific business strategy Source: Wall Street Journal Video, 2009-10-15 “When we started the airline 25 years age this year. I went to Boeing. I remember the telephone call. “Hello this is Richard Branson, wonder whether you could sell me a second hand 747?” “What is the name of your business?” “Virgin.” “What do you do?” “We have a record company and have great bands like the sex pistols the rolling Stones.“ And then there was a long pause, and instead of putting the phone down. He said, “We will send a salesman over and as long as your airline goes further than your name suggests we will let you have a plane.” The key point there is we said to Boeing we don’t know if this is going to work. We realise that this is risky, and we want to be able to hand the plane back after 12 months if it doesn’t work out. And that is the element of protecting the downside and that is the critical thing.

78. Jean-Marc Tostee

79. AMAR BHIDE paul shaw smith scientific business strategy Source: Omidyar (2002) “Back when I launched eBay on Labour Day 1995, eBay wasn’t my business – it was my hobby. I had to build a system that was self-sustaining… …because I had a real job to go to every morning. I was working as a software engineer from 10 to 7, and I wanted to have a life on the weekends. So I built a system that could keep working – catching complaints and capturing feedback – even when Pam and I were out mountain-biking, and the only one home was our cat.

80. Jean-Marc Tostee

81. Source: Saravathy (1998) Time Size ‘92 – Gotcha, Wrangler Agencies & Biotribe factory ‘94 – Bad Boy License R30 million – ‘98 100 employee – ‘97 R50 million - ‘01

82. Source: Saravathy (1998) Time Size ‘92 – Gotcha, Wrangler Agencies & Biotribe factory R30 million – ‘98 100 employee – ‘97 R50 million Chinese Imports R6 to R13 to dollar - ‘01

83. Having lost my business so suddenly, I was now setting up a licensing base and succeeding in spreading my risk across a number of products, licensees and manufacturers. We have the brands, they have the factories. With this licensing model, we find the best manufacturers and negotiate a win/win partnership with them – I provide the product ideas and brand knowledge and they produce products they are already successful at making, but under our brand. Together we have a thriving business. paul shaw smith scientific business strategy

84. Source: Saravathy (1998) Time Size ‘92 – Gotcha, Wrangler Agencies & Biotribe factory ‘94 – Bad Boy License R30 million – ‘98 100 employee – ‘97 R50 million Chinese Imports R6 to R13 to dollar 2 employees – ‘05 - ‘01 R160 million – ‘09 ’04 – 20 Licenses ‘01 – Licensing model

85. With the benefit of hindsight, I know now that back in 2001 the business I had built was hugely exposed to external risks. Today, I would not employ that many people. I would not make and distribute so many diverse products from just one facility. It makes far more sense to outsource production to manufacturing and distribution experts who have all the expertise and channels in place. I would, and do, take forward cover on any international forex importing and exporting we do. I keep overheads to an absolute minimum and maintain tight control over all financial aspects of the business. paul shaw smith scientific business strategy

86. How affordable are your businesses losses if you fail? 0 10 20 30 40 50 60 70 80 90 100 0% I cannot afford to lose anything I put into the business 100% I can afford to lose everything I put into the business Affordable loss

87. paul shaw smith scientific business strategy Rate your business ideas using the scorecard e