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Preliminary questions
There are five general questions you want to ask at
the very beginning:
- Will it work under real world conditions? Do you have a prototype?
- Does it provide significant benefit and value to a lot of customers?
- Is it financially feasible/sensible?
- Do you have the technical know-how (skills and people) to make it work?
- Can you bring it to market? That is, does your team have the necessary marketing and sales
skills, or do you need partners, more people?
Answer these questions as honestly as you can right now. Don’t kid yourself, but at the
ame time do not allow yourself to be easily discouraged. If you can answer yes to all of
hese questions,
you could have something of real value. And even if some of the answers are no, you can still do something to bridge the gaps (e.g., use partners, add people to your team, etc.).
The three major areas of evaluation
Now let’s probe a little deeper. It’s helpful to separate the evaluation phase into three areas, all of
which have to fit together for the venture to work: technology, market, and business. Let’s discuss
each one in turn and then talk briefly about how and where you find the information to actually
answer these questions.
Technology
When thinking about the technical aspects of your venture, ask yourself:
- Is the technology feasible? Do experts in the field agree that the science is legitimate, or do you
have to invent a new physics to make it happen?
- Will it be “better/faster/cheaper?” Can you show theoretical studies proving the technology will
be better than what already exists?
- When, and at what price? That is, can you objectively estimate how long the development is
likely to take, and how much it will cost? Most radically new ideas take longer and cost more
than expected.
- Is this a single-use product or a product platform? Technology/product platforms have a greater
chance of developing into large, multi-product businesses, and are favored by investors.
- Are enabling technologies or infrastructure required? Your idea may be wonderful, but if you
need other things in place to make it work you may have a big problem on your hands. For
example, even if you have a way to significantly reduce the cost and efficiency of auto fuel cells,
unless someone is developing hydrogen fueling station infrastructure at the same time, you
don’t have much of a business.
- Do you have the technical know-how to make it work and, if not, do you know how to obtain
it? How far can you take the development yourself? Can you hire others to help? It may be
better for you to outsource the development, or find a strategic partner.
Is there a market?
Having a market for your idea is
absolutely essential. Ask yourself:
- Does anybody understand your idea? Is the idea so high-tech that only three living people can
understand it—and two of them are sitting on a mountaintop in the Himalayas? You need to be
able to translate your idea so that investors and customers will at least believe they understand
it.
- Does anybody care? No matter how “gee whiz” your idea may be, no one will buy it unless they
can visualize useful benefits at a cost they can justify.
- How many care, and how much? How big is the potential market? Is there a real need for this,
or is it just nice to have?
- Do you know how to bring it to market yourself, or can you find others who do? Do you
and your team understand the market/customer? If not, can you hire people who do, and is it
economically feasible to do so? Would a strategic marketing partner make more sense?
Is it a business?
Take a breather from all these questions and prepare yourself for more, because this is perhaps the
most important part. You may have an idea that’s technically feasible, and has a market, but you still
need to find out whether the idea can drive a viable, profitable business. Ask yourself:
- If it works, and you can sell it, can you make enough profit to sustain a business? Do you have
a sensible business model, and do you really understand the profit economics of the model?
Selling more units at a loss, or with an insufficient gross margin to cover mistakes, is not the
answer.
- Do you have a competitive advantage, and is it sustainable? How will you beat the competition
in the long run? Are your Intellectual Property (IP) and your patent position so strong that
nobody can do what you do? Do you have the money to enforce your patent position? Can
you “stand off ” the big guys who come into the market when your venture gets big enough to
be interesting? Or do you plan to be acquired by them?
- How much money do you need, when, and in what size chunks? Do you have a realistic sense
of the amount of money you will need and when you are likely to need it? As we’ll discuss
later in this guide, finding the money can be an all-consuming task. Planning ahead and being
conservative with what little cash you do have will help.
Overwhelmed? Again, don’t worry. If you can answer most of these questions in a realistic way you
will have a fair understanding of whether or not your idea is just that (a neat idea), or a real business
opportunity. Remember to keep going back to test your assumptions as you move further along.
Things change quickly and may look very different as you learn more.
Also, you may not be able to answer all the these questions at the same time, or with the same
degree of accuracy, but just making sure you’re thinking about them and constantly checking back
will be a big help in enhancing your chances for success.
Now let’s talk about where you might obtain the information needed to answer all these questions.
Information sources
The first, and least formal means of gathering information is by simply talking about your idea with a
lot of people, especially people with varied perspectives. It’s good to surround yourself with positive
people who will give you a lot of encouragement, but don’t limit your conversations to people
already on your side. Talk with people who will challenge your ideas and give you some creative
suggestions. Talk to people with very different backgrounds from yours. Investigate companies that
are doing work similar to yours, and visit some who are doing things that are totally different, and
doing them well. Listen to everyone responding to your idea. You may not agree with them, and you definitely don’t have to take their advice, but there may be a gem hidden in even the most
mundane or unpleasant piece of feedback.
Second, take advantage of all the tools and resources available to you. If you’re a student, spend
time in your school’s library or entrepreneurial research center. Read books and magazines, watch
videos, and find out what experienced entrepreneurs have to say. Subscribe to an entrepreneurship
magazine, and spend time reading online articles. Find out what other resources they recommend,
and if your school library doesn’t have them, try inter-library loan. Join an entrepreneurship club or
a similar community-based organization. Most importantly, get to know experienced entrepreneurs
face-to-face, and listen to their stories.
There are also more formal methods of informing yourself: technology validation, market research,
and business planning. These are essential, in-depth activities. To make it easy, let’s break these
methods down according to the three major sections of evaluation:
- Technology
› Look at laboratory data, breadboards, and early prototypes
› Read the literature
› Get expert opinions from faculty and others
- Market
› Talk to potential customers
› Research competitive products
› Perform market research—search web-based directories, non-profit agencies, government
agencies, back issues of magazines and newspapers, etc., for information on your target
market
› Talk to potential customers/users
- Business
› Run estimates, analysis
› Talk to advisors, mentors
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