The University Startup Company Law Firm California Massachusetts Florida www.rothmanandcompany.com [email protected] (310) 993-9664. Stephen P. Rothman, Esq. Assessing Business Feasibility - Outline for Panel at CNSI. 1. Background
Rothman and Company, P.A. . We spend most of our time working with university-based startups and their investors. Have seen a lot of them fail.
Why Feasibility Assessment
Most startups fail. University based startups may have a somewhat better success ratio, but still a majority fail. Technology advantage. But also recurring pitfalls of academics who don’t have business experience.
Think of a startup as like a mission to the moon; need many things to go right:
Years of planning
And if one critical part fails, mission blows up.
Your job in feasibility assessment is to identify all (not most, all) of the possible critical failures, in advance, so that you can:
Figure a way around them; or
Abort the mission before spending years of effort and large amounts of money on it, if it’s not viable.
1. What might go wrong?
Market – size, profitability, timing, trends, overall attractiveness, is the market there now or do you have to create it
Competition – how do customers now solve problem; how will competitors respond to your market entry? Expected cost of your product relative to competing products. Competitive advantages and disadvantages. IP. Brand.
Team – who would you need to recruit to succeed – industry background, skills or information that you lack; , knowledge of the market, personal contact with customers, time to devote to the venture, experience with startups; team that can work together harmoniously
Financial resources - how much money needed; how much time needed (more than you think). Investor fit.
2. How do you fix, avoid the problem?
3. Go / No Go decision
Keep going / give up decision
In retrospect many of those were destined to fail from day one
You want to avoid starting on a losing path
You want to cut your losses if it becomes clear that you are not on the right course – change course or abandon ship.
Yet . . . .
Great successes come from:
Doing what seemed at first to be impossible
Refusing to admit defeat
Not quitting upon apparent failure when you are actually on the verge of success
Ford engine cast in a single block
Edison light bulb – running out of ways that would not work
Focus on the customer, not on the technology
Not enough to be innovative, smart, cool
Not enough to win government grants
Not enough to be published in peer reviewed journal
Will the dogs eat it?
Talk to the potential customers:
do they want it?
At what price?
With what features?
Is it in their budget to buy it?
What will it take to get them to switch from their current solution?
How many such customers are there and what volume does each need?
One sign of a good opportunity:
The proposed business is exciting both to the potential customer and the potential investor.
You have invented a better mousetrap. It works more easily, reliably, and doesn’t require a supply of cheese. The problem is – it is more expensive than a standard mousetrap. People will still buy the $2.29 wooden plate with the metal trap on a spring trigger, because it works well enough and it’s cheaper.
Pitfall 2: The cheaper, better mousetrap startupstoo late
opto-electronic communications technology
faster, smaller and less expensive than what is in the market.
Customers like it
Problem: In 2001 the communications infrastructure has been over-built; no one is building networks, and there is no demand even for a superior product. It takes years for the market to rebound, and in the meantime your company runs out of money and its investors run out of patience and shut it down.
Pitfall 3: The cheaper, better mousetrap startupstoo early
Software-based system for use in webcasts by radio stations
Allows targeting advertisements to individual listeners based on their age, gender and location.
Problem: in 2000, very few people listen to the radio through their computers, and selling advertising requires a very large audience. This product will be successful seven or eight years later, but by that time your startup will have folded.
Pitfall 4: Gaps in the team startups
Need all of these:
Industry specific experience
Commercial setting experience
Why do people make the mistake of not bringing in the right team:
Desire to maintain control
Reluctance to share equity