Opportunity Identification for the 99% (2): Screening Key Ideas
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These posts are for the benefit of 99% of the entrepreneurs, who are not appropriate for and will never access Venture Capital.
I find that their minds have been screwed up by partial knowledge of the success creation process propagated by VC’s and their followers.
This Opportunity Identification process is designed for people who have more smarts than money and want to eliminate most of the failures before they launch their boat. These steps also prepares them to attract the right investors and negotiate from a position of relative strength.
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Previous Post: Opportunity Identification for 99%(1): Looking for a Needle in a Haystack
In that post I posited that Innovation = Ideation X Implementation
and
Covered the role and process of Ideation with the first 2 steps:
- Raw Ideas: Generation of lots of Ideas, and
- Selecting Key Ideas: from among those numerous Ideas by using the $64,000 Question (Q: $64K).
In this post we will go further down the path of the Rubric of Innovation by screening these Key Ideas and narrowing them down on the path to identifying our Opportunities that are right for us to put our effort into Implementation.
Process of Screening Key Ideas
Step by Step Cuts Thru More Detailed Screens:
I have developed and used a series of screens that get more and more detailed to reject ideas that fail to pass them. Doing so will identify those Key Ideas that are the right Opportunity for us at this time. The various screens are:
- First Screen: Preliminary Evaluation: How Good an Idea? Fit with Me?
- Second Screen: Evaluation of Opportunity: Real Opportunity? Does it cover all 4 elements?
- Third Screen: Detailed Development: Getting Serious. Detailed evaluation.
- Fourth Screen: Enhancing Opportunity: Final Screen. Extracting good elements from failed ideas.
The Result: A Potential New Opportunity
Why Numerous Screens?
Some people feel uncomfortable with several screens to identify an opportunity. This criticism usually comes from Entrepreneurs in heat and anxious to get going.
As I posted, starting with generating “Good Ideas” is a risky bet. Either our idea will be more of the same, or it will propel us without looking for “holes”. With the failure rate that is so high, a better method is generating lots of ideas and then to peel away the ones that are not an Opportunity for us now.
We may choose to apply the same intensity of screen to each Idea. It would be very time consuming and not very efficient. The risk is that we will end up applying only a cursory screen. Doing so, will allow many ideas with remaining holes to slip through the screening. The selection of Key Ideas from Raw Ideas screens out 85 to 90% of the ideas so that we can apply more rigor to the surviving ideas in the next cuts.
Various depths of screening applied to ideas that have passed through a previous screen is a more thorough but also an efficient process.
Each Time Evaluate All 4 Key Elements:
The thoroughness of the evaluation will continue to be proportional to the emergence of higher quality of ideas, as they flow through the various screens. However, the screening will have evaluation on all the 4 key elements;
- Opportunity
- The Team
- The Plans and Strategy, and
- The Resources
All 4 elements have to be in balance throughout the process of creating a successful venture. A “hole” in any one of these elements is a risk that can sink our boat.
Making Decisions With Paucity of Information:
On the other side, of the Entrepreneur in heat, are the Tire kickers. They cannot get going till all the lights on their path are green. They will claim that there isn’t much information for rejecting some ideas. It seems to them that this is a sloppy, seat-of-the-pants effort. This is especially true of people coming from a large corporation and accustomed to more detailed analysis.
The consequences of rejecting an idea that may have some potential is minor, on the other hand accepting an idea full of holes is catastrophic. This asymmetry of risk/reward makes this process very effective as well as efficient.
The whole objective is to fail cheaply on paper, instead of in the lab or a pilot test, where lot of resources have already been expended.
Evaluation in a Group Setting:
I recommend that the screening be done with a small group working through the process. The group may consist of co-founders, mentors or supporters. The group dynamics adds several features to the evaluation process:
All in agreement: If all group members are in agreement to “reject” an idea from moving forward, or “moving it forward” then that key idea can be set aside without a lot more discussion. It makes the process very efficient.
Disagreement: If there is disagreement, it could be due to an incorrect judgement of one individual and can be balanced by others. In case there is a big difference of opinions, those are the issues that need serious discussion. The disputed ratings lead to discussion on those issues and focuses on knotty problems to build on and improve the ideas. This allows for some resolution at the very early stages of different points of views.
Screening Out of Ideas:
In my experience it takes about 100 raw ideas before finding a high quality opportunity. The typical survival rate of ideas follows a rapidly shrinking pool.
Raw Ideas Screened: 100
Ideas Surviving to Key Ideas by Q: $64K: 10–15
Key Ideas Surviving First Screen: 6–8
Key Ideas Surviving Second Screen: 5–6
Final Selection of Opportunity: 1–2
New Ideas That Come Up During Screening:
During discussion of each screen it is common, and desirable, to modify ideas and generate new ones. If we don’t like something about an idea, often we can see a way to make it better. Throughout this process, we should keep a list of new and modified ideas and devote some time to bringing those new ideas up to speed by taking them through all the screens in sequence. The original idea continues through the screens until it either fails on paper or moves into the External Gating process.
New Ideas are desirable and welcome!
What Do We Do With the Key Ideas that Fail the Screening:
Keep them on a shelf! There was something in the Key Idea that was attractive to us in the first palace. It passed the $64K question: Is it an opportunity for me (us) today (now)? Even though it had holes that did not allow it to move forward, we may find that, down the road, in some cases it provides an assist of some sort to the selected opportunity. Put them aside for now.
First Screen: Preliminary Evaluation
How Good is This Idea? Does It Fit with Me?
We put all the Key Ideas through this screen. The screen is an overview of the opportunity. It consists of several questions, each with a list of considerations to guide the groups thinking. Instead of answering the questions in detail at this time, we simply consider how weak or strong the idea is from the perspective that each of the question provides. We can use a three point scale of +,0,- for each of the sub questions. Too many “0” and “-” may raise a red flag for you to move this idea forward.
Is it an Opportunity for me (us) today (now)?
a. Clearly define the opportunity.
b. What do you bring to this opportunity?
c. What exactly will you make/ sell?
d. Who will be the customers?
e. What will they use it for?
f. Is the service technically feasible? Proof?
g. How does your concept compare with the competition?
h. Can it be done profitably? Proof?
(If answers are fuzzy, reject or look harder)
(Those KEY IDEAS that make this cut, refine them and proceed to the Second cut)
Second Screen: Evaluation
Is it really an Opportunity for me? Does it cover all 4 elements?
- Opportunity
a. Why does this opportunity exist?
b. What are the potential customers doing now?
c. Why would customers choose you?
d. Is our offering significantly better in the features of importance to the customer?
e. What trends are in your favor?
f. Status of concept?Prototype? How soon can you test?
g. If it works, will it have a large payoff? Evidence?
h. What are your entry plans?
i. Is your service a threat to existing competitors?
j. How are they likely to respond?
k. What could spoil the opportunity for you?
l. What can be done to reduce the chance of that happening.
m. Is there opportunity for expansion and growth?
n. Status of concept? Prototype? How can you test? How soon?
o. Legal protection? Copyrights? Patents?
p. What other ongoing services can you provide?
q. Can this business be sold as a separate entity?
Fit with you personally
a. What do you bring to this opportunity?
b. Do you believe in the concept?
c. Does the need it fills mean anything to you?
d. Has the idea taken over your imagination and time?
e. Do you have, or have access to the necessary technical expertise?
f. How soon can you have revenue? Positive cash flow?
g. Estimate time, money to test with customer, market etc.
Team Issues
a. Who is committed to this opportunity?
b. Who are the champions for this opportunity?
c. What is their know-how, knowledge of industry?
d. Relevant experience with this opportunity? Is it in-depth?
e. Who else would you need to fill the gaps?
f. How to attract key people to work on this opportunity?
g. Roles, contribution, salary, other issues resolved?
h. Leader identified?
i. Non-compete issues resolved?
j. Team members ready for the ordeal?
k. Advisors identified, consulted?
l. Dispute resolution method in place?
m. Transition issues identified?
Resource Issues
a. Resources required: Money and Other
b. Timing of Resources
c. Attractive to investors? Why?
d. Best method of funding?
e. Can the funding requirements be reduced?
f. Who else could provide resources? Why?
Fatal Flaw Issues
a. How to minimize identified issues?
Major Risks and Problems
a. Identified?
b. Assumptions?
c. How to minimize the impact?
d. Is it acceptable risk?
e. Options if things don’t happen as planned
( If answers are fuzzy look harder or reject the Key Idea at this stage)
( If satisfied refine and proceed to the Third Cut- in next post)
At this point we have a handful of high quality ideas and after the next two screens will be ready for our Opportunity.
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Dr. Rajiv Tandon is an Entrepreneur, Educator and Mentor. He facilitates peer groups for CEOs of fast-growing companies in Minnesota. To learn more, sign up to get the email newsletter.
