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Checklist for Evaluating New Ideas and Ventures . Key Factors for Success Bruce Gjovig Entrepreneur Coach and Director Center for Innovation, Rural Tech Incubator. TECHNICAL EVALUATION. Innovative product, not “me too” Competitive advantages, features, and benefits

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Checklist for evaluating new ideas and ventures l.jpg

Checklist for Evaluating New Ideas and Ventures

Key Factors for Success

Bruce Gjovig

Entrepreneur Coach and Director

Center for Innovation, Rural Tech Incubator


Technical evaluation l.jpg
TECHNICAL EVALUATION

  • Innovative product, not “me too”

  • Competitive advantages, features, and benefits

  • Barriers to competitive entry (hard to imitate)

  • High quality

  • Third-party test results

  • Ability to deliver a consistent, quality product on time

  • Spin-off, different market applications

  • Environmentally safe

    No safety/health risks, regulatory control


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MARKET EVALUATION

  • Competitive advantage

  • “USP”: Unique Selling Proposition Differentiate on quality, service, or innovation

  • Market Pull vs. Market Push

    Solves customer problems

  • Sunrise vs. Sunset market


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MARKET EVALUATION CONTINUED

  • Significant market niche

  • Market plan/strategy

  • Distribution channels available

  • Repeat sales likely

  • Year-round vs. Seasonal demand


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Approaches to Differentiation

  • Prestige – Rolex, Mont Blanc

  • Quality – Honda, Cadillac

  • Top-of-the-Line image – Ralph Lauren, Cross Pens

  • Innovative, technological leadership – 3M Corp.

  • Engineering design and performance – Mercedes


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Approaches to Differentiation Continued

  • A different taste – Dr. Pepper, Listerine

  • Product reliability – Johnson & Johnson baby products

  • Superior service – Federal Express

  • Full range of services – Merrill Lynch

  • Complete line of products – Campbell’s Soups

  • Spare parts availability - Caterpillar


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Approaches to Differentiation Continued

  • More for your money – McDonald’s,

    Wal-Mart

  • Special features – Jenn-air’s indoor cooking tops

  • Economy – GE’s miser light bulbs


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ECONOMIC EVALUATION

  • Premium, price possible for quality

    Competing on innovation, quality & service - not price

  • Low up-front investment intensity

  • Low overhead

  • High value-added

  • Business plan


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ECONOMIC EVALUATION CONTINUED

  • High productivity

  • Minimum product liability

  • Owners have financial commitment

  • Management paid for performance, not title

  • High Return on Investment (ROI)

  • Realistic financial projections

  • Good margins & profitability

    Good cash flow


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MANAGEMENT EVALUATION(The most important criteria)

  • Experienced in industry

  • Entrepreneurial aptitude and attitude

    Results-oriented, bias for action

  • Business experience and education

  • Visionary leadership – sees “big” picture

  • Business strategy is clear and concise


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MANAGEMENT EVALUATION(The most important criteria)

  • “Team” has experience and depth

    (Production, engineering, finance, marketing, management)

  • Experienced consultants, advisors

    (Technical, business, legal, accounting)

  • Outside accountability

    Board of Directors, investors, etc.


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Five-Year Profitable Survivalof New Business

Profitable Marginal Failed

Inexperienced, uneducated8% 62% 30%

Inexperienced, educated 25% 29% 46%

Experienced, uneducated 25% 23% 52%

Experienced, educated 61% 16% 25%

Experienced, educated, planned 81% 12% 7%



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ROI INCREASES WITH MARKET SHARE RANK

Higher Market Share Increases ROI


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Profit(Pre-Tax, pre-interest)

Quality Increases Rate of Return


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HIGH QUALITY PRODUCTS & SERVICES ARE MOST PROFITABLE (Less 12% cst of cap.)

Quality Increases Rate of Return


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Quality Customer Service 12% cst of cap.)Based on 3,000 businesses in all sectors of the economy. --Strategic Planning Institute, Cambridge, MA


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Pay for Quality 12% cst of cap.)


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Definition of “Quality” 12% cst of cap.)

  • The customer’s judgment, not yours

  • Both the product and the associated services

  • Not absolute, but relative to competitors

  • Does not include price

    Quality Index = Percent of sales from superior

    minus

    Percent of sales from inferior products


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GOOD PRODUCTIVITY IS CLOSELY TIED TO HIGH ROI 12% cst of cap.)

High Productivity Increases Profitability



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AS INVESTMENT INTENSITY RISES ROI DECLINES 12% cst of cap.)

Capital Intensity Decreases Profitability


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Strong Market Position Relative Market Share > 80% 12% cst of cap.)

Low Investment Intensity Investment/Sales < 33%

High Productivity Value Added/Employee > $60 K

High Perceived Quality Quality > 50%

Low R&D Marketing Expense Marketing + R&D/Sales < 10%

Major Factors Causing High Profits


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Major Factors Causing Profit Trouble 12% cst of cap.)

  • Weak Market Position Relative Market Share < 25%

  • High Investment Intensity Investment/Sales < 33%

    • Fixed Capital

      or

    • Working Capital Investment/Sales > 70%

  • Low Productivity Value Added/Employee < $45K

  • Poor or Standard Quality Quality < 0

  • High R&D & Marketing Expense Marketing + R&D/Sales > 15%


  • Percentage of new produce failures for three types of businesses consumer industrial service l.jpg
    Percentage of New Produce Failures For Three Types of Businesses:Consumer, Industrial, Service


    Percentage of new produce failures for three types of businesses consumer industrial service26 l.jpg
    Percentage of New Produce Failures For Three Types of Businesses:Consumer, Industrial, Service


    Product lifecycle l.jpg
    Product Lifecycle Businesses:

    • 17-20 years – 1970

    • 10-20 years – 1980

    • 5-6 years – 1990

    • 2-3 years – 2000

    • Less than 1 year for some products

    • Need for constant innovation, improvement, new product development


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    3M Businesses:

    • 30% of sales from products introduces within last 5 years

    • 10% real growth annually

    • 10% profitability after taxes

    • 27% return on capital investment

    • 15% rule of time


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    New Products Businesses:

    • Need a champion

    • Market test

    • Get to market swiftly (market plan)

    • First to market gains share, higher margins, etc.

    • Sell benefits, not features

    • Unique benefits – innovative, better, faster, etc.


    Slide30 l.jpg


    Small business success l.jpg
    Small Business Success… tried to start or helped fund a small business.

    70% going after 8 years

    -Dun& Bradstreet survey of 800,000 small businesses started in 1985

    80% fail in 5 years is myth!


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    “Every Community will lose about 10% of its jobs each year – from acquisition, downsizing, death, retirements or other causes.

    About 55% of all new jobs are from expansions of existing local companies and nearly 45% of new jobs are created by startup companies.

    Less then 1% of net new jobs occur as the result of relocations.”

    -David Birch, Ph.D.

    Cognetics


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    “Fast growth companies that utilize university resources boast productivity rates 59% higher than peers without a university relationship, as well as 21% higher annual revenues and 23% more capital investments.

    Private/public collaboration provides a strategic advantage for a significant number of high growth companies.”

    -1995 Coopers & Lybrand Study


    Net new jobs come form l.jpg
    Net new jobs come form… boast productivity rates 59% higher than peers without a university relationship, as well as 21% higher annual revenues and 23% more capital investments.

    • 66% employers of less than 20

    • 80% employers of less than 100

    • 50% less than 4 years old

    • 1/3 generate 2/3 new jobs

      80% of new sales


    High risk economy l.jpg
    High risk Economy boast productivity rates 59% higher than peers without a university relationship, as well as 21% higher annual revenues and 23% more capital investments.

    Unemployment Low

    Real Wages – all time high

    Record Profits

    Export Growing 3x growth of economy

    BUT…

    12% college graduates lost job since 1993

    Corporate downsizing

    Job insecurity

    Economic uncertainty


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    Growth boast productivity rates 59% higher than peers without a university relationship, as well as 21% higher annual revenues and 23% more capital investments.

    Has been traded for

    Security

    Higher risk…higher reward


    Strategies for workers l.jpg
    Strategies for Workers… boast productivity rates 59% higher than peers without a university relationship, as well as 21% higher annual revenues and 23% more capital investments.

    • High tech career

      -most growth, most turmoil

    • Exporting company

      -pays 12% more on average

    • Self-employed


    Strategies for companies l.jpg
    Strategies for companies… boast productivity rates 59% higher than peers without a university relationship, as well as 21% higher annual revenues and 23% more capital investments.

    • Reengineer, restructure

      -boost productivity, profits

      -cut costs

    • Technological innovation

    • Export in growth countries

    • Invest in deregulated markets


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