evaluating new ideas

January 2003

Idea Generation and Evaluation

for New Venture Creation

Douglas Abrams - Parallax Capital Management

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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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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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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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Evaluating new ideas

Original?

Feasible?

Marketable?

Profitable?

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Assessing feasibility of a new venture

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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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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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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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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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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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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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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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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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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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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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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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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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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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• 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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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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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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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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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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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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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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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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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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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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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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Contact us

Douglas Abrams

Managing Director

Parallax Capital Management

[email protected]

www.parallaxcapital.com

65-6238-3492, 65-9780-5381 (hp)

390 Orchard Road, #11-01 Palais Renaissance, Singapore 238871

evaluating new ideas

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