evaluating new ideas
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January 2003
Idea Generation and Evaluation
for New Venture Creation
Douglas Abrams - Parallax Capital Management
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Douglas Abrams - Parallax Capital Management
Idea generation and evaluation
Identifying and evaluating new ideas
Avoiding the wrong ideas
Some interesting trends and ideas
Using brainstorming to generate ideas
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Douglas Abrams - Parallax Capital Management
Sources of new business ideas
Forces, trends and mega-trends tech, macro, social, political
Changing market structures and needs
Market inefficiencies
Products in the market
Personal experience, hobbies and pastimes, personal passions
Cross regional, discipline or industry
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Douglas Abrams - Parallax Capital Management
Characteristics of successful new business ideas
Not necessarily a new invention
Not necessarily a new idea
Notion that is poised to be taken seriously in the market place
Idea that is a tiny push away from general acceptance
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Douglas Abrams - Parallax Capital Management
Evaluating new ideas
Original?
Feasible?
Marketable?
Profitable?
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Douglas Abrams - Parallax Capital Management
Assessing feasibility of a new venture
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Douglas Abrams - Parallax Capital Management
Analyze strengths and weaknesses
1. Is the venture proprietary?
2. Are the initial production costs realistic?
3. Are the initial marketing costs realistic?
4. Does the product have potential for high margins?
5. Is the time required to get to the market and to reach the break-even point realistic?
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Douglas Abrams - Parallax Capital Management
Look at both internal and external factors
Is the potential market large?
Is the product the first of a growing family?
Does an initial customer exist?
Are the development costs and calendar times realistic?
Is this a growing industry?
Can the product and the need for it be understood by the financial community?
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Evaluate technical feasibility
• Functional design and attractiveness
• Flexibility, durability, reliability
• Product safety
• Ease and low cost of maintenance
• Ease of processing and manufacturing
• User friendliness
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Douglas Abrams - Parallax Capital Management
Evaluate marketability
• Investigate the full market potential and identifying customers
• Analyzing the extent to which the potential market can be exploited
• Determine opportunities and risks
• Information sources include- General economic trends- Market data- Pricing data- Competitive data
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Douglas Abrams - Parallax Capital Management
Use an idea checklist
Basic Feasibility- Will it work? Is it legal?
Competitive Advantage- Advantages, competitors
Buyer Decisions- Who are the likely customers?- How will they be serviced?
Marketing of Goods & Services- How much budget for
advertising and selling? Pricing? Distribution?
Production of Goods & Services- Make or buy or both? QA?
Staffing Decisions– Who, when and competence?
Financing– How much is needed, where
will it come from, ROE, exit strategy?
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Douglas Abrams - Parallax Capital Management
Do you have these critical success factors?
Uniqueness– Amount of innovation required
during pre-start-up– Length of time a non-routine
venture remain non-routine
Investment– Capital investment varies from
industries– Extent and timing of funds needed
Sales Growth– Growth pattern anticipated for new-
venture sales and profits
Product Availability – Product and service still in
development?– Products released too soon be
have to be recalled for further modifications, affecting company’s image
Customer Availability– Critical consideration to determine
who the customers are and what their buying habits are.
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Douglas Abrams - Parallax Capital Management
Ask the right 10 questions about your idea
1. Is the product or service idea new?
2. What are its weak points?
3. What reaction has it received from the public?
4. Is it easily understood?
5. Can the product penetrate different market segments?
6. Has market research been conducted?
7. What sales and distribution methods will be used?
8. How will the product be made?
9. Will the business concept be developed and licensed to others or sold away?
10. Can the company get or does it already have the necessary skills to operate?
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Douglas Abrams - Parallax Capital Management
Idea generation and evaluation
Identifying and evaluating new ideas
Avoiding the wrong ideas
Some interesting trends and ideas
Using brainstorming to generate ideas
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Douglas Abrams - Parallax Capital Management
Pitfalls in selecting new ventures
Lack of objective evaluation
No real insight into the market
Inadequate understanding of technical requirements
Pitfalls
Subject all ideas to rigorous study and investigation
Project the life cycle of the product; timing is critical
Study the project thoroughly before initiating it
Ways to avoid
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Douglas Abrams - Parallax Capital Management
More pitfalls in selecting new ventures
Poor financial understanding
Lack of venture uniqueness
Ignorance of legal issues
Pitfalls
• Do not underestimate development costs
• Ensure customer awareness of product superiority through product differentiation
• Patents, trademarks and copyrights to protect one’s inventions
Ways to avoid
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Douglas Abrams - Parallax Capital Management
Some big-name new venture ideas that failed
RCA’s Videodisc– Superior image quality, but lack
of recording capability lost out to videotape. Loss: $500 million
IBM’s PC Jr– The awkward Chiclet keyboard,
slow microprocessor, unattractive price and a late launch cost IBM $40 million
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Douglas Abrams - Parallax Capital Management
It’s not just high-tech ideas that fail
Coca-Cola’s New Coke– This “answer” to Pepsi’s new
fomula provoked a national uproar; later led to Coke Light
RJ Reynold’s Premier– Smoke-less cigarette with a
terrible taste; cost to develop: $800 million
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Douglas Abrams - Parallax Capital Management
Why do new ventures fail?
Product / Market Problems– Poor timing, product design problems, inappropriate distribution
strategy– Unclear business definition, over-reliance on one customer
Financial Difficulties– Initial under-capitalization, assuming debt too early, VC
relationship problems
Managerial problems – Concept of a team approach – HR problems
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Internal problems experienced by entrepreneurs
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External problems experienced by entrepreneurs
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Determinants of new venture failures
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Idea generation and evaluation
Identifying and evaluating new ideas
Avoiding the wrong ideas
Some interesting trends and ideas
Using brainstorming to generate ideas
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Douglas Abrams - Parallax Capital Management
Past and present trends and mega-trends
Pre-industrial Industrial New Economy
Labor Production of primaryproducts
Production ofmanufactured goodsand services
Production ofinformation andservices
Technical efficiency Low Higher Much higherSocietal organization Rural Urban GlobalLocation ofproduction
Families or manors Firms and enterprises Anywhere
Transportationspeed
5 mph 60 mph 186M/miles/sec
Social classdetermined by
Birth Ownership ofproduction
Knowledge and skills
National wealthdetermined by
Abundance of naturalresources andconquest
Accumulation ofcapital and labor
Intellectual capital;knowledge and skills
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Past and present trends and mega-trends
Pre-industrial Industrial New Economy
Quality of life Illiterate, no books, noschooling, no travel
Literate, books,schools, travel
Access to all of humanknowledge, virtualtravel
Work Back-breaking work inthe fields
Factory or office work Tedious or dangerouswork performed bymachines; humansfocus on creativity
Entertainment None TV, Radio, Movies Interactive multi-media, virtual reality
Health Widespread hunger,debilitating disease
Hunger and diseasereduced by machinesand medicine
Hunger and geneticdiseases virtuallyeliminated throughnanotechnology
Life expectancy Avg life expectancy 30years; high levels ofchild mortality
Avg life expectancy 70years
100+ year lifeexpectancy; end ofaging through geneticengineering
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Examples of current tech trends and megatrends
Broadband and wireless broadband
Convergence, Integration and interoperability
Worldwide, instant, always-on connectivity with no external devices
Mobile computing, PC no longer sole computing device, speech and voice recognition
Experience-based transactions (VR) Automation
Technology will become ubiquitous
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Examples of current tech trends and megatrends
20-ghz nano-silicon chips with 1 billion transistors
3-dimensional chips
Optical computers
DNA computers
Nanotube computers
Quantum computing
Computers will move beyond silicon chips
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Douglas Abrams - Parallax Capital Management
Examples of current tech trends and megatrends
• Micro-machines and Nano-technology
• Biometric security
• Bio-informatics
• Exponential growth of machine intelligence leads to intelligent, conscious (?) machines
• Neural implants to extend human intellectual capability
• Merging of human and machine intelligence creates substrate-independent minds
Technology and biology will merge
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Douglas Abrams - Parallax Capital Management
Products that could be
Blind data– A tiny transmitter, worn on a key ring or pendant. It can be
programmed with the vital statistics of both you and the kind of soul mate you're seeking. When your transmitter vibrates, it means that somebody else's is vibrating, too. Somebody less than 30 feet away is looking for someone just like you.
Tivocorder – A tiny, pen-shaped digital audio recorder. Once in your shirt
pocket, it would continuously record the sound around you. At any time, while continuing to record, you could play back the last 20 minutes of whatever you've just heard
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Douglas Abrams - Parallax Capital Management
Products that could be
MP3-toothbrush – An MP3-playing toothbrush for use during a hygiene moment.
Intercom-Puter – An inexpensive U.S.B. intercom that connects to each computer
and exploits your network wiring. It would be quick, convenient and simpler than software-based intercom systems, which require microphone and speakers for each PC.
FLUMAPPER.COM – Tracks the various flu strains that float across the country. Color-
coded clouds would show us exactly which types of mini-epidemics are sweeping through, what symptoms you're in for and which kinds of places to avoid.
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Douglas Abrams - Parallax Capital Management
Products that could be
SnapFlat screen– A detachable, interchangeable flat panel that you can move
from gadget to gadget.
The I-Podule – A digital camera with an iPod slot: you could take thousands of
pictures without running out of film and slip the iPod into your computer to transfer them. Then you'd snap the iPod into a camcorder for capturing video, from there to your cellphone to send files or photos to a friend, and maybe even into a cash machine for a quick download of your statement.
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Douglas Abrams - Parallax Capital Management
Attaching good genes to bad virus
A special strain of virus, made up of equal parts Ebola and H.I.V can be used to cure genetic disorders - gene therapy
Use of gene therapy which works by replacing flawed genes with fully functional genes
Eg. cystic fibrosis–The inability to produce a certain crucial protein, causing our lungs to fill up with mucus –When a working gene is put into its place, the cells can now produce the needed proteins
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Douglas Abrams - Parallax Capital Management
BattleSwarm - handheld device
Large armies are split up and spread out into small, stinging mini-group
Use hand-held digital communication tools
Possess electronic warfare skills
There is “information domination” of the “battlespace”
Can learn about the enemy much faster than the enemy can learn about them due to global positioning systems
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Douglas Abrams - Parallax Capital Management
Distroboto- vending machine
Retrofitting of cigarette machines into coin-operated delivery services for art, literature and music
All items sold are packed in recycled cigarette packs
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Positive asymmetry - 911
The challenge is to fight an asymmetrical foe asymmetrically by using those US assets that can best undermine the social, cultural and economic factors– The use of differences to gain an advantage
Nonmilitary assets that could play a significant role– Food– Wealth
Enlisting not just armed soldiers but also a broad cross section of America’s best and brightest to contribute to the war on terrorism
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Douglas Abrams - Parallax Capital Management
Simputer- simple portable computer
Small hand-held device designed for rough conditions of rural India
Operates - without a keyboard - through touch, sound and simple visual icons
Translates English-language web sites into local Indian languages, reading the content aloud to illiterate users
Expected to be owned by village cooperatives and each user has a very cheap “smart card” which will hold all his settings and data
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Tele-immersion - teleconferencing
Creates an illusion that people separated by distance are together in the same room
Scans a person’s face and body and creates a kind of living statue that other tele-immersion participants see displayed on a large screen
Overall effect is like talking face to face to another person
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The video-game workout
Dance Dance Revolution (DDR)– Like a juke box equipped to judge one’s dancing prowess
Players are awarded points for their ability to perform the high-speed techno-tap-dance routine that DDR dictates step by step on screen
Significant weight loss might result to the workout it provides
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Weather-forecasting toast
The slice of bread pops up with a simple icon of the day’s outlook: a shining sun, a cloud or raindrops
A step towards integration of a modern household with internet technology
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Douglas Abrams - Parallax Capital Management
Your very own breakfast cereal
Through a website, users are able to mix and match more than 100 different ingredients to create and name their own breakfast cereals, and have them delivered to their homes in single-serving portions
Creative solution to the problem of serving people with non-mainstream tastes or specific health needs
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Douglas Abrams - Parallax Capital Management
Idea generation and evaluation
Identifying and evaluating new ideas
Avoiding the wrong ideas
Some interesting trends and ideas
Using brainstorming to generate ideas
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Douglas Abrams - Parallax Capital Management
Brainstorming - no criticism
Designed to produce as many ideas as possible
Key ground rule: Postpone all criticism and evaluation of ideas
Invent ideas with no fear of looking foolish
Wild ideas are explicitly encouraged
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Douglas Abrams - Parallax Capital Management
Before brainstorming
Define your purpose
Choose the right number of participants
Change the environment
Design an informal atmosphere
Choose a facilitator
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During brainstorming
Seat the participants side by side facing the problem
Clarify the ground rules, especially the no-criticism rule
Brainstorm
Record the ideas in full view
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After brainstorming
Star the most promising ideas
Invent improvements for promising ideas
Set up a time to evaluate ideas and decide
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Brainstorming tips
Allow enough time to get below the surface of your thinking
20-30 participants are ideal. Large but not too large group
Divide the group into teams of four to six people for more diverse thought and to dilute the impact of those who know all the answers
Invite a wide variety of people to participate and go outside the core group
Do a warm-up mental exercise to break the ice
Brainstorm in bursts
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Brainstorming tips
Have everyone write their own ideas on sticky notes
People should stand while ideating
Push for quantity and you will get quality
Distill the output periodically
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Douglas Abrams - Parallax Capital Management
Contact us
Douglas Abrams
Managing Director
Parallax Capital Management
dka@parallaxcapital.com
www.parallaxcapital.com
65-6238-3492, 65-9780-5381 (hp)
390 Orchard Road, #11-01 Palais Renaissance, Singapore 238871
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