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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

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
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

market evaluation
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
market evaluation continued
MARKET EVALUATION CONTINUED
  • Significant market niche
  • Market plan/strategy
  • Distribution channels available
  • Repeat sales likely
  • Year-round vs. Seasonal demand
approaches to differentiation
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
approaches to differentiation continued
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
approaches to differentiation continued7
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
economic evaluation
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
economic evaluation continued
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

management evaluation the most important criteria
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
management evaluation the most important criteria11
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.

five year profitable survival of new business
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%

roi increases with market share rank
ROI INCREASES WITH MARKET SHARE RANK

Higher Market Share Increases ROI

profit pre tax pre interest
Profit(Pre-Tax, pre-interest)

Quality Increases Rate of Return

high quality products services are most profitable less 12 cst of cap
HIGH QUALITY PRODUCTS & SERVICES ARE MOST PROFITABLE (Less 12% cst of cap.)

Quality Increases Rate of Return

slide17
Quality Customer ServiceBased on 3,000 businesses in all sectors of the economy. --Strategic Planning Institute, Cambridge, MA
definition of quality
Definition of “Quality”
  • 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

good productivity is closely tied to high roi
GOOD PRODUCTIVITY IS CLOSELY TIED TO HIGH ROI

High Productivity Increases Profitability

as investment intensity rises roi declines
AS INVESTMENT INTENSITY RISES ROI DECLINES

Capital Intensity Decreases Profitability

major factors causing high profits
Strong Market Position Relative Market Share > 80%

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
major factors causing profit trouble
Major Factors Causing Profit Trouble
  • 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
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
Percentage of New Produce Failures For Three Types of Businesses:Consumer, Industrial, Service
product lifecycle
Product Lifecycle
  • 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
slide28
3M
  • 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
new products
New Products
  • 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
Some 37% of U.S. households include someone who has founded, tried to start or helped fund a small business.

- Entrepreneurial Research Consortium

small business success
Small Business Success…

70% going after 8 years

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

80% fail in 5 years is myth!

slide32
“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

slide33
“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
Net new jobs come form…
  • 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
High risk Economy

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

slide36
Growth

Has been traded for

Security

Higher risk…higher reward

strategies for workers
Strategies for Workers…
  • High tech career

-most growth, most turmoil

  • Exporting company

-pays 12% more on average

  • Self-employed
strategies for companies
Strategies for companies…
  • Reengineer, restructure

-boost productivity, profits

-cut costs

  • Technological innovation
  • Export in growth countries
  • Invest in deregulated markets
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