Opportunity Identification for the 99% (3): Further Screening for My Opportunity
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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 Posts in the Series:
Opportunity Identification for 99%(1): Looking for a Needle in a Haystack
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.
Opportunity Identification for the 99% (2): Screening Key Ideas
We went further down the path of the Rubric of Innovation by screening these Key Ideas and, through two cuts, narrowing them down on the path to identifying our Opportunity.
Third Cut: Detailed Evaluation:
Getting serious. More thorough evaluation.
In this next screen, we begin to focus on those issues that will shape the idea’s chances of success in the development of a MVP and to get investors. We are getting serious and a detailed evaluation of the Market and our Competitive advantages need to be spelled out. If a product is to be built, issues relating to Operations become important. If investors have to be convinced, financial issues are also important.
This screen is much more detailed than the previous steps but is intended to look deeper and unearth more holes, that may be beneath the surface.
Total Market Size & Trends
a. Size of potential market? Source of data?
b. Customers? Source? Confidence level?
c. Market research?
d. Potential customer feedback. Level of enthusiasm, use, price point, timing, competitive offerings
e. How to identify potential customers?
f. Unique selling proposition? Compelling?
g. Payback to customer?
h. Buying decision process?
i. Pricing Strategy
j. Selling Strategy
k. Distribution Strategy
l. How can we accelerate the acceptance by the marketplace?
Competitive Advantage Issues
a. Competing products / services?
b. Competitors? Sales? Share? SWOT Analysis?
c. Marketing tactic for each competitor
d. Pricing for each Channel: Retail? Wholesale? Distributor?
e. Can you be price competitive? Why?
f. Do you have to charge prices similar to competitors? Why?
g. Selling Price. Gross Margin. Overhead. PBT
h. Profitability of each competitor? Industry average?
i. Control over prices? Costs? Customers? Suppliers? Why?
j. Competitor advantage: economics in production?
Advertising? Marketing? Distribution?
k. Technological, Capacity, Marked Edge?
l. Legal, Contractual Edge? Proprietary protection?
m. Competitor vulnerability? Window?
n. Financial strengths / Weakness of competitors?
o. Any vulnerability among competitors?
Operations Issues
a. Preliminary estimates of Operations / Facilities?
b. Operational difficulties?
c. Plan for changes
d. Who can we hook-up with?
e. Who is experienced and competent to try?
Economics and Harvest Issues
a. Gross Margins
b. Attractiveness, Durability of cash flow, Profit
c. Time to Break Even, Positive Cash Flow, ROE
d. Capital Requirement to B.E., Cash Flow
e. Cash Flow Statement (2 years)
f. How to reduce capital needs?
g. Sources of Capital
h. Can this business be sold? To whom?
Occasionally, we may want to check a fact, consult the literature, or call an internal or external contact to get their perspective. It is a good idea to have as many facts as possible to support our ratings. Even though the responses are qualitative, they can distinguish highly promising ideas from those that have holes in them.
We don’t need to have all the answers at this stage, but it is useful to ask the questions now. This encourages us to focus our efforts on ideas that seem promising, not just from our perspectives as individuals, but also from the viewpoint of those who will be asked to invest in the the opportunity as it moves toward fruition. These questions also pinpoint the areas where more diligence is required.
The process raises important issues at an early stage, and it identifies areas where an idea may need more work. It also gets us in the habit of thinking opportunistically, encompassing all aspects of an idea.
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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.
