Startup-opportunity-evaluation

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Business & Mgmt

Published on March 8, 2014

Author: nealcabage

Source: slideshare.net

Description

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.

Startup Opportunity Discovery & Evaluation PREPARED FOR SXSW 2014 BY NEAL CABAGE & SONYA ZHANG

Introductions INTRODUCTION 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. Sonya Zhang Professor PhD in Information Systems and Technology, M.S. in Computer Science, and MBA. Researched Internet Entrepreneurship and Digital Product Strategy.

Our Book INTRODUCTION 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.

The Great Mystery INTRODUCTION WHY DO SOME SUCCEED? WHY DO SOME NOT? We’ve all met people who worked very hard to make a business succeed and yet it failed. We’ve also met people who did seemingly everything wrong and yet they succeeded. Hard work is a necessary component but it is not the entire story. 8  in  10     Startup     Fail  in  the     First  5  yrs  

Conventional Wisdom INTRODUCTION Diligence is the mother of good luck. Benjamin Franklin Genius is one percent inspiration and ninety-nine percent perspiration. Thomas Edison

Conventional Wisdom INTRODUCTION Diligent NOT ENTIRELY Hard work alone is NOT a reliable Success IS HARD WORK THE ANSWER? Negligent Diligent + Success Negligent + Success Diligent + Failure Negligent + Failure people sometimes fail and negligent people sometimes succeed. Failure predictor of success. Hard working

Work Smart, Not Just Hard INTRODUCTION 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 drag and gravity. Gravity   Drag   (Aerodynamics)   x  

Work Smart, Not Just Hard INTRODUCTION Product Customer We cannot work hard alone and expect to have a desirable outcome. Startup Opportunity Timing Competition 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. Finance Team

SOLUTION A systematic approach to ideation & evaluation

Startup Opportunity Framework FRAMEWORK OVERVIEW IDEATION PROCESS EVALUATION PROCESS Business Model Archetypes Startup Opportunity Scorecard We’ve developed a method for systematically discovering startup Opportunity Scorecard Trade Marketplace Customer Timing Competition Finance Ecosystem Team Business Model Archetypes model Service Subscription and the Startup Opportunity Scorecard to identify ideas and objectively evaluate them. Idea Idea Idea Ideation Matrix Scorecard Criteria + Business Ideas Business Model Archetypes Vertical Markets Product opportunities by leveraging the Product Brokerage A B+ F A A- Evalaution Matrix = #1

Startup Opportunity Framework FRAMEWORK OVERVIEW IDEATION PROCESS EVALUATION PROCESS STEP 1: IDEATION Opportunity Scorecard Trade Marketplace Customer Timing Competition Finance Team business model archetypes (eg Brokerage Ecosystem personalities) for every market actor Service Subscription you’re considering serving. Take note of all of the possibilities you uncover in the ideation matrix. Idea Idea Idea Ideation Matrix Scorecard Criteria + Business Ideas Business Model Archetypes Vertical Markets Product Start by considering the possible Product A B+ F A A- Evalaution Matrix = #1

Startup Opportunity Framework FRAMEWORK OVERVIEW IDEATION PROCESS EVALUATION PROCESS STEP 2: EVALUATION Opportunity Scorecard Trade Marketplace Customer Timing Competition Finance Team you’ve developed against a set of Brokerage Ecosystem entrepreneurial heuristics that will Service Subscription help you to identify weaknesses. Based on this, score each idea to determine the best idea. . Idea Idea Idea Ideation Matrix Scorecard Criteria + Business Ideas Business Model Archetypes Vertical Markets Product Objectively evaluate all of the ideas Product A B+ F A A- Evalaution Matrix = #1

Opportunity Discovery Process STEP BY STEP PROCESS Opportunity Scorecard Marketplace Brokerage Ecosystem Product Service Vertical Markets Business Model Archetypes Idea Customer Idea Timing Competition Finance Team Scorecard Criteria Product Idea Business Ideas Trade A B+ F A A- Business Models Archetypes Ideation Matrix Opportunity Scorecard Evaluation Matrix Identifies the spectrum of Identify an applied business The Startup Opportunity Grade each of the ideas fundamental business concept for every archetype Scorecard profiles a simplified you’ve identified in the “personalities” that you can personality, across all of the list of known criteria for ideation matrix, based on the consider consider when vertical markets you are success that can be used to six scorecard success criteria defining your own unique considering. evaluate an ideas potential and compare to determine business model. the best opportunity.

IDEATION The first step is to systematically generate ideas.

Business Models Everywhere! BUSINESS MODEL ARCHETYPES There  are  many  disparate  business  models  that  were  defined  in  isolaCon  but  nothing  comprehensive    that  describes  the  fundamentally  unique  paFerns  in  a  single  and  concise  framework  that  suited  our  needs.       BRICKS & CLICKS FREEMIUM NETWORK EFFECTS COLLECTIVE AUCTION / ONLINE AUCTION PRO OPEN SOURCE CUT OUT THE MIDDLE MAN ALL-IN-ONE PYRAMID SCHEME DIRECT SALES LOW-COST BARRIER RAZOR & BLADES DISTRIBUTION MODEL LOYALTY SERVITIZATION OF PRODUCTS VALUE ADDED RESELLER MONOPOLISTIC SUBSCRIPTION FREE IN, FREE OUT MULTI-LEVEL MARKETING etcetera,  etcetera  …  

Trade prototypes: • ad network • dropship program prototypes: • e-commerce • lead generation prototypes: • products market • services market Brokerage Marketplace Business Model Archetypes BUSINESS MODEL ARCHETYPES Ecosystem Service Product prototypes: • software • content Subscription prototypes: • service platform • service agency Describes 7 abstract business model archetypes (fundamental personalities) from which every business model is inherited. Two prototypes (applied examples) are given for each archetype. prototypes: prototypes: • technology platform • media platform • content as a service • software as service This represents a holistic view of the possibilities.

What is an Archetype? BUSINESS MODEL ARCHETYPES 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. A philosophical idea, referring to pure forms which embody the fundamental characteristics of a thing. Carl Jung Psychologist

Primary Archetypes BUSINESS MODEL ARCHETYPES PRODUCT TANGIBLE SOLUTION The Business Model Archetypes framework takes a step back from specific business models to say there are 7 abstract archetypes SERVICE CUSTOM SOLUTION TRADE CONNECT BUYERS & SELLERS (fundamental personalities) from which every business inherits. Two prototypes (examples) are given for each archetype. This represents a holistic view of the possibilities.

Product Archetype BUSINESS MODEL ARCHETYPES 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. TRADE PROTOTYPES WITH EXAMPLES PRODUCT SERVICE Software: Content: •  Rovio (mobile apps) •  •  AheadWorks (plugins) •  DemandMedia (articles) •  WooThemes (themes) •  MakerStudios (videos) AdvantageMedia (ebooks)

Service Archetype BUSINESS MODEL ARCHETYPES Doing work for a client and monetized on a per-use basis. Professionals or technicians with expert TRADE knowledge and skills in a specific domain provides intangible solutions to clients. PRODUCT PROTOTYPES WITH EXAMPLES SERVICE Service Agency: Platform as a Service: •  •  •  •  •  •  BlueAcorn (magento) Appirio (salesforce) ReachLocal (adwords) SendGrid (email) MaxMind (geo ip) DemandWare (eCom)

Trade Archetype BUSINESS MODEL ARCHETYPES 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 TRADE acquisition. PROTOTYPES WITH EXAMPLES SERVICE PRODUCT Ecommerce: LeadGen: •  •  •  •  •  •  Target.com (retail) Kinerase.com(source) Intellius (data) Lending Tree (financial) Capterra (software) Shopzilla (consumer)

Secondary Archetypes BUSINESS MODEL ARCHETYPES The meeting of two personalities (archetypes) is like the contact of two chemical substances; if there is any reaction, both are transformed. Carl Jung Psychologist

Secondary Archetypes BUSINESS MODEL ARCHETYPES MARKETPLACE TANGIBLE SOLUTION SUBSCRIPTION CUSTOM SOLUTION BROKERAGE CONNECT BUYERS & SELLERS ECOSYSTEM 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.

Marketplace Archetype BUSINESS MODEL ARCHETYPES MARKETPLACE   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. PROTOTYPES WITH EXAMPLES TRADE PRODUCT Product Marketplace •  •  •  eBay (auction) Etsy (crafts) ThemeForest (themes) Service Marketplace •  •  •  oDesk (outsourcing) Elance (freelancing) Care.com (nannies)

Subscription Archetype BUSINESS MODEL ARCHETYPES SUBSCRIPTION   Building, maintaining, and supporting an online product in an on-going fashion rather than a onetime sell. Customers pay a monthly subscription service and benefit from continued improvements. PROTOTYPES WITH EXAMPLES SERVICE PRODUCT Software as Service: Content as Service: •  •  •  •  •  •  Mint.com (finance) Wordpress.com (site) HubSpot.com (mktg) Ancestry.com (genealogy) Lynda.com (education) Match.com (dating)

Brokerage Archetype BUSINESS MODEL ARCHETYPES BROKERAGE   Sourcing on behalf of a client for a retainer or pertransaction fee. The client then profits from any arbitrage spread rather than the sourcing partner. PROTOTYPES WITH EXAMPLES SERVICE TRADE Dropship •  •  •  Doba (dropship) Ordoro (dropship) Simplx (dropship) Ad Network •  •  •  DoubleClick (cpm) Kontera (in-text) Chitika (ppc)

Ecosystem Archetype BUSINESS MODEL ARCHETYPES ECOSYSTEM   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. TRADE PRODUCT PROTOTYPES WITH EXAMPLES Technology Platform: SERVICE Media Platform: •  •  •  •  •  •  Apple (hardware/OS) Magento (eCommerce) SalesForce (CRM) Facebook (social) Google (search) Yahoo (content)

Trade prototypes: • ad network • dropship program prototypes: • e-commerce • lead generation prototypes: • products market • services market Brokerage Marketplace Business Model Archetypes BUSINESS MODEL ARCHETYPES Ecosystem Service Product prototypes: • software • content Subscription prototypes: • service platform • service agency Primary archetypes Review: •  Trade, Product, Service Secondary archetypes Review: •  Product + Trade = Marketplace •  Service + Trade = Brokerage •  Product + Service = Subscription prototypes: prototypes: • technology platform • media platform • content as a service • software as service •  Product + Service + Trade = Ecosystem

Opportunity Discovery Process STEP BY STEP PROCESS Opportunity Scorecard Trade Business Model Archetypes Ecosystem Product Service Subscription Idea #1 Idea #2 Idea #4 Idea #5 Idea #6 Idea #7 Idea #8 Idea #9 Timing Competition Finance Team Scorecard Criteria Product Idea #3 Business Ideas Brokerage Vertical Markets Marketplace Customer A B+ F A A- Business Models Archetypes Ideation Matrix Opportunity Scorecard Evaluation Matrix Identifies the spectrum of Identify an applied business The Startup Opportunity Grade each of the ideas fundamental business concept for every archetype Scorecard profiles a simplified you’ve identified in the “personalities” that you can personality, across all of the list of known criteria for ideation matrix, based on the consider consider when vertical markets you are success that can be used to six scorecard success criteria defining your own unique considering. evaluate an ideas potential and compare to determine business model. the best opportunity.

Ideation Matrix STEP BY STEP PROCESS Business Model Archetypes Vertical Markets Take a systematic approach to Idea #1 Idea #2 Idea #3 identifying all the possible opportunities. You will identify a Idea #4 Idea #5 Idea #6 startup idea for every business model archetype, for each business vertical Idea #7 Idea #8 Idea #9 you are considering. Once you have done this, you can begin to evaluate these ideas.

Identifying Opportunity 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.   Product Service Trade Subscrip3on Marketplace Brokerage Ecosystem    Real  Estate  Agents      Real  Estate  Brokers      Property  Managers Don’t  Possess  Trade   FuncConal  skills   Can’t  start  here  in   mature  market.  

Identifying Opportunity 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.   Product Service Subscrip3on Marketplace Brokerage    Real  Estate  Agents    Real  Estate  Brokers    Property  Managers IDX  Wordpress     Theme   Virtual     Assistant   Property     Search  Site   MarkeCng     CRM   Lead     GeneraCon  

EVALUATION Now that you’ve generated a few ideas, let’s test their validity.

Opportunity Discovery Process STEP BY STEP PROCESS Opportunity Scorecard Marketplace Brokerage Ecosystem Product Service Subscription Vertical Markets Business Model Archetypes Idea Customer Idea Timing Competition Finance Team Scorecard Criteria Product Idea Business Ideas Trade A B+ F A A- Business Models Archetypes Ideation Matrix Opportunity Scorecard Evaluation Matrix Identifies the spectrum of Identify an applied business The Startup Opportunity Grade each of the ideas fundamental business concept for every archetype Scorecard profiles a simplified you’ve identified in the “personalities” that you can personality, across all of the list of known criteria for ideation matrix, based on the consider consider when vertical markets you are success that can be used to six scorecard success criteria defining your own unique considering. evaluate an ideas potential and compare to determine business model. the best opportunity.

Startup Opportunity Startup Opportunity Scorecard Product Customer • • Customer Focused Solution Unmet Need or Desire • Right Size Market or Segment • Low Barriers to Adoption • Reliable Access to Customers • Clear Value Proposition Customer Score ______ Timing Product Score ______ Evaluate your startup idea across the six Competition • Recent Innovation Enabler • Demand Already Established • Low Barriers to Entry • No Signs of Commoditization scorecard criteria and be mindful of the attributes • Clear Market Inefficiency • Differentiable Position Timing Score ______ Scorecard described in each one. Competition Score ______ Give yourself a letter grade and then an overall score, for the idea. This provides a structured approach to evaluating the Finance Team opportunity and helps to improve objectivity by • Low Sunk Costs • Subject Matter Expertise • Working Capital Float • Functional Competence • Economies of Scale • Supplier Partnerships Finance Score ______ Team Score Overall Score accounting for a full spectrum of important criteria and reducing blind spots. ______ _______

Validating Opportunity STARTUP OPPORTUNITY SCORECARD Imagine an object inside of a box and only a few holes in the box to look through. If you look through all of the holes however, you can start to construct a rough idea of what is inside.

Customer Criteria STARTUP OPPORUTNITY SCORECARD WHAT’S A GOOD CUSTOMER? UNMET NEED OR DESIRE Unsatisfied Customer Desire The ideal customer wants something the market hasn’t yet delivered. The size of this market should match your ability to RIGHT-SIZE MARKET OR SEGMENT Need to Segment? Too Niche? compete and ability to deliver justify solving the problem. Validate you can control means of customer acquisition along the way. RELIABLE ACCESS TO CUSTOMERS Diversified Channels? Gatekeepers?

Unmet Need or Desire CUSTOMER CRITERIA 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.

Right-Size Market (or segment) CUSTOMER CRITERIA 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). BIG MARKET STRATEGY PURSUE LARGE MARKETS BIG FISH STRATEGY PURSUE QUIET NICHES

Reliable Access to Customers CUSTOMER CRITERIA 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). 35000 CHANNEL DEPENDENCE SINGLE POINT OF FAILURE 30000 25000 20000 15000 MARKET MANIPULATION GOVERNMENT, MONOPOLIES 10000 5000 0 March April May June July

Product Criteria STARTUP OPPORUTNITY SCORECARD WHAT’S A GOOD PRODUCT? CUSTOMER FOCUSED SOLUTION Solves Unmet Need or Desire? A good product will be a direct response to a customer need or desire. If the value is well articulated and the customer is LOW BARRIERS TO ADOPTION Low Switch Cost, Usability 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? CLEAR VALUE PROPOSITION Compelling Reason to Buy

Customer Focused Solution PRODDUCT CRITERIA 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. ADDRESS NEED OR DESIRE FOCUS ON CLEAR GOAL KEEP IT SIMPLE! DON’T AMBIGUATE THE VALUE

Customer Focused Solution PRODDUCT CRITERIA 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. Albert Einstein Physicist, Professor

Low Barriers to Adoption PRODDUCT CRITERIA 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. FINANCIAL IMPACT PRIOR INVESTMENT & NEW COSTS LEARNING CURVE INVESTED TIME & NEW COSTS WORKFLOW INTEGRATION DOES IT EASILY INTEGRATE?

Clear Value Proposition PRODDUCT CRITERIA 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.   IS THE VALUE CLEAR? VALUE = BENEFIT - COST Solves My Problem People don’t want quarterinch drills. They want Theodore Levitt quarter-inch holes. Learning Curve Existing Investments Addt’l Benefits (value chain) Easy Workflow Integration

Timing Criteria STARTUP OPPORUTNITY SCORECARD WHAT IS GOOD TIMING? RECENT INNOVATION ENABLER Was it Possible 2-5 Years Ago? Every market has a natural lifecycle driven by innovation and circumstance. Look for new demand or interest in DEMAND ALREADY ESTABLISHED Build It & They Might Not Come! 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. NO SIGNS OF COMMODITZATION Shrinking Margins. More Products

Innovation Life Cycle TIMING CRITERIA 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). Capitulation * The Golden Era The  Squeeze   Early Movers Innovators (2.5 %) Early adopters Early majority (13.5 %) (34 %) Consolidation Late majority (34 %) Laggards (16 %)

Innovation Life Cycle TIMING CRITERIA 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. N ew E nt ran t O pp or tu nity Chasm Ideal point to enter a market Innovators (2.5 %) Early adopters (13.5 %) Early majority (34 %) Late majority (34 %) Laggards (16 %)

Commoditization of Technology TIMING CRITERIA 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. Nicholas Carr Harvard Business Review, 2003

Commoditized Technology $5,000,000 Hosting Commoditized 2000 2005 $500,000 What cost $5 million to Open Source Software accomplish 10 years ago can 2009 now be done with less than $50,000 $5,000. Mark Suster observed that commoditization and The Cloud availability of more building blocks has radically reduced cost and risk of developing a software product. 2012 $5,000

Commonplace !"#$%&'%()*+%)& Commodity &#!$!!!$!!!" &!!$!!!$!!!" As cost has fallen, so has the %#!$!!!$!!!" competitive barrier to entry. Competitive positioning is now the %!!$!!!$!!!" key strategic issue, not technological capability for most #!$!!!$!!!" consumer Internet products. How do you cut through the noise? !" 2000 2002 2004 2006 Data From NetCraft 2013 Web Server Survey 2008 2010 2012 2013

Competition Criteria STARTUP OPPORUTNITY SCORECARD GOOD COMPETITIVE LANDSCAPE? CLEAR MARKET INEFFICIENCY Stagnant or Fragmented Market Avoid being marginalized by excessive undifferentiated competition. That drives margin compression, commodi- LOW BARRIERS TO ENTRY Easy & Cheap to Compete? tization and market consolidation. Look for inefficient markets where there’s still ‘play’ and find ways to develop a sustainable competitive advantage. DIFFERENTIABLE POSITION Something Special or Different?

Inefficient Market COMPETITION CRITERIA NEW MARKET DEMAND EXCEEDS SUPPLY 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, FRAGMENTED MARKET NO CLEAR MARKET LEADER STAGNANT MARKET READY FOR DISRUPTION? stagnant of splintered (fragmented).

Low Barriers to Entry COMPETITION CRITERIA 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

Low Barriers to Entry COMPETITION CRITERIA The general who makes many calculations before battle is wise. He who knows when he can fight and when he cannot will be victorious. Sun Tzu War Strategist, Wrote The Art of War

Differentiable Position COMPETITION CRITERIA 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. LOW PRICE LEADERSHIP FOCUS ON VOLUME & COMMITY SEGMENTED MARKET FOCUS ON SPECIFIC CUSTOMER DIFFERENTIATED PRODUCT DISRUPTIVE OR INNOVATIVE Porter’s Generic Competitive Strategies HOW ARE YOU DIFFERENT? WHAT MAKES YOU SPECIAL?

Financial Criteria STARTUP OPPORUTNITY SCORECARD GOOD FINANCIAL PROFILE? LOW SUNK COSTS Up Front Capital at Risk? Look for opportunities to maximize returns without excess capital risk. Look for opportunities to start cheap WORKING CAPITAL FLOAT Gap Between Payable/Receivables and to realize higher margins through focused efforts and economies of scale. Avoid locking up too much capital. ECONOMIES OF SCALE Margins Increase With Volume?

Low Sunk Costs FINANCIAL CRITERIA HOW MUCH CAPITAL RISK? OPPORTUNITY COST 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.

Working Capital Float DO YOU NEED A LINE OF CREDIT? WHAT’S THE COST & RISK? Some businesses require large cash outlay every month and payment can take 3-4 months to arrive. As a result Accounts Payable 60 - 120 Day "Capital Float" the business may need to have cash or credit to cover the gap of 3-4 Accounts Receivable months of operating costs. This is both a cost (interest) and a risk!

Quantity ts ofi r Sc Marginal Cost e bl la a Economies of Scale P 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. Profits

Team Fit Criteria STARTUP OPPORUTNITY SCORECARD WHAT’S GOOD TEAM FIT? SUBJECT MATTER EXPERTISE Deep Knowledge of Market? Just because an opportunity exists, doesn’t mean your team is likely to succeed. Does your team have an FUNCTIONAL COMPETENCE Technical Skills to Deliver inherent competitive advantage for the endeavor? Do you possess deep knowledge, technical skills to deliver, & access to key partners and resources? SUPPLIER PARTNERSHIPS Access to Materials at Good Cost

The Hacker & The Hustler TEAM-FIT CRITERIA 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. Subject Matter Expert The Functional Expert “The Hustler” “The Hacker” Knowledge of customer or desire, and Technical skills to design & understanding of market dynamics to develop a well-crafted and effectively position an offering. scalable solution.

Supplier Partnerships TEAM-FIT CRITERIA 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? Preferred Sourcing Available Data APIs Are you able to procure Are you able to access the data If planning to manufacture supplies at competitive prices? or integration APIs needed to physical products or software, do If affiliate mktg, can you get build your product? you have a quality vendor you preferred commissions? Outsourced Vendors can rely on?

Startup Opportunity Scorecard Product Customer • • Customer Focused Solution Unmet Need or Desire • Right Size Market or Segment • Low Barriers to Adoption • Reliable Access to Customers • Clear Value Proposition Customer Score A   ______ Timing Product Score B   ______ Competition • Recent Innovation Enabler • Low Barriers to Entry • No Signs of Commoditization • Differentiable Position Evaluate your startup idea across the six • Clear Market Inefficiency • Demand Already Established Timing Score D   ______ Finance B   Competition Score ______ • Working Capital Float • Functional Competence • Economies of Scale • Supplier Partnerships A   Team Score Overall Score described in each one. Give yourself a letter grade This provides a structured approach to evaluating the • Subject Matter Expertise ______ scorecard criteria and be mindful of the attributes and then an overall score, for the idea. Team • Low Sunk Costs Finance Score Evaluating a Startup Idea opportunity and helps to improve objectivity by B   ______ B-­‐   _______ accounting for a full spectrum of important criteria and reducing blind spots.

Opportunity Discovery Process STEP BY STEP PROCESS Opportunity Scorecard Marketplace Brokerage Ecosystem Product Service Subscription Vertical Markets Business Model Archetypes Idea Scorecard Criteria Customer Product Timing Competition Idea Idea Finance Team Business Ideas Trade A B+ F A A- Business Models Archetypes Ideation Matrix Opportunity Scorecard Evaluation Matrix Identifies the spectrum of Identify an applied business The Startup Opportunity Grade each of the ideas fundamental business concept for every archetype Scorecard profiles a simplified you’ve identified in the “personalities” that you can personality, across all of the list of known criteria for ideation matrix, based on the consider consider when vertical markets you are success that can be used to six scorecard success criteria defining your own unique considering. evaluate an ideas potential and compare to determine business model. the best opportunity.

Evaluation Matrix STEP BY STEP PROCESS Scorecard Criteria Business Ideas The last step of the process is to take A B+ F all of the ideas we generated in the ideation matrix (step 2) and grade them A using the Startup Opportunity Scorecard. This will provide an easy A- point of comparison of strengths and weaknesses of the opportunities being considered and facilitate a decision.

Score Your Ideas EVALUATION MATRIX Now we’ll evaluate each idea against each of the criteria in the Startup Opportunity Scorecard. We’ll be able to see relative strengths and weaknesses and will give a final overall score accordingly.   Customer   Product   Timing   Compe33on   Finance   Team      IDX  WordPress  Theme C   B   B   B   A   A      Virtual  Assistant    Marke3ng  CRM    Property  Search  Site    Lead  Genera3on Overall  

Score Your Ideas EVALUATION MATRIX Now we’ll evaluate each idea against each of the criteria in the Startup Opportunity Scorecard. We’ll be able to see relative strengths and weaknesses and will give a final overall score accordingly.   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

Score Your Ideas EVALUATION MATRIX Now we’ll evaluate each idea against each of the criteria in the Startup Opportunity Scorecard. We’ll be able to see relative strengths and weaknesses and will give a final overall score accordingly.   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  

Score Your Ideas EVALUATION MATRIX Now we’ll evaluate each idea against each of the criteria in the Startup Opportunity Scorecard. We’ll be able to see relative strengths and weaknesses and will give a final overall score accordingly.   WARNING!   Customer   Product   Timing      IDX  WordPress  Theme C   B   B      Virtual  Assistant C   C      Marke3ng  CRM C      Property  Search  Site    Lead  Genera3on   Team   Overall   Think  twice  about  any  idea   B   that  earns  only  a  D  or  F  –  this   B+   A   A   may  mean  its  non-­‐viable.   Compe33on   Finance   B   B   C   C   C+   C   D   D   C   A   C-­‐   C   A   D   F   D   A   D+   C   A   B   B   B   B   B  

Score Your Ideas EVALUATION MATRIX Now we’ll evaluate each idea against each of the criteria in the Startup Opportunity Scorecard. We’ll be able to see relative strengths and weaknesses and will give a final overall score accordingly. CONGRATULATIONS!   Team     Finance   Two  ideas  that  pass  the  test.     You  could  choose  one  of   A   B   A   these  or  keep  searching.     Customer   Product   Timing   Compe33on   Overall      IDX  WordPress  Theme C   B   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   B+  

Selecting an Idea EVALUATION MATRIX 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. IDEA #1 IDEA #2 Lead Generation Business Ideas IDX WordPress Themes Scorecard Criteria A A A- B+ F

Startup Evaluation Framework INTRODUCTION Business Model Archetypes Startup Opportunity Scorecard There you have it – a complete Opportunity Scorecard Trade Marketplace Customer Timing Competition Finance Team Archetypes, the Startup Opportunity Brokerage Ecosystem Scorecard, and how to leverage these Service Subscription tools with applied matrices to discover & evaluate the best startup opportunities. Idea Idea Idea Ideation Matrix Scorecard Criteria + Business Ideas Business Model Archetypes Vertical Markets Product walkthrough of Business Model Product A B+ F A A- Evalaution Matrix = #1

Thank You! PREPARED FOR SXSW 2014 BY NEAL CABAGE & SONYA ZHANG NealCabage.com SonyaZhang.com

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