The Venture Idea

Dean Alderucci

How to discover, evaluate and exploit opportunities

The Venture Idea How do you generate the idea? How do you assess the idea?

The Venture Idea How do you generate the idea?

Find a new idea that generates value

How do you assess the idea?

The Venture Idea How do you generate the idea?

Find a new idea How do you assess the idea?

Assess its value in light of long term forces (e.g., competition, the market, technology)

Generating the Idea Innovation is the key

Bring an innovative business model, product, service to market

If the idea is your competitive advantage, always treat it like one

New Ideas - How new is new?

Old Has been done before

”New to me" You think it's new, until you do some investigating

New-ish Hasn’t been literally done before, BUT The new part has no particular advantages

New Hasn’t been done before, and is potentially

valuable Innovative

Hasn’t been done before, and you can keep all that value for yourself

What Creates Opportunities?•Technology Environment

• Existing technology is replaced • Technology creates a new niche • Infrastructure replacement• Industry standards emerge

•Economic Environment•Decreasing costs •Productivity gains•New laws and regulations•Improved service

•Demographic Environment• User preferences change • User needs changes

• Will these opportunities persist?• For how long?

• What is the market size, growth, and outlook?

• Will this venture lead to other opportunities?

What Creates Opportunities?

Finding the Idea What’s the process for generating

your venture idea? Finding and developing your idea

requires innovation. How should you target the focus of your

innovating?

Innovation Strategies: Overview

1. Select areas with High Value,AND ALSO

2. Choose to Preclude Competition,

AND ALSO 3. Maintain Your Position with

continued developments

Innovation Strategies: Overview 1. Select Areas with High Value

Areas with significant dollar amounts (in the aggregate) Think big – valuation depends on upside potential

2. Select Areas where you can Preclude Competition

The areas don’t have existing natural competitors Can you obtain patent protection?

3. Maintain Your Position with continued developments

Keep moving forward to keep competitors behind you

1. High Value Areas Industry-wide, there are significant dollar

amounts in the aggregate High number of transactions Each transaction can support an incremental

charge of a few percent Significant means “very, very significant”

Need to aim for very high value innovations This high value will be discounted by the

speculative nature of innovation (e.g., 1%, 0.1%)

1. High Value Areas High number of transactions

credit card purchases interactions between a customer and cash register ATM transactions Internet software downloads usages of MP3 players Web page advertisements

Each transaction can support an incremental charge of a few percent

Generally, it’s easier to add 1¢ to a billion transactions

than to add a dollar to a million transactions

1. High Value Areas Finding an Innovation’s Value -

Do the Math Answer at least three questions

(realistically):1. What’s the target market?2. How many transactions will there be? 3. How much profit per transaction?

i.e., what's the value add?

1. High Value Areas1. What’s the target market?

Are the target buyers actually willing buyers? Are you trying to sell to tough customers?

e.g., government, companies traditionally unwilling to innovate

2. How many transactions will there be (per day, per year)? Do you need to partner with one large company or with many

small companies. E.g., easier to sell the idea once to Amazon.com than to each of

the country’s many local hardware stores. How susceptible to variation is this number?

3. How much profit per transaction? Consider both gross profit (the pie) and profit to you (your slice) Inject a dose of realism:

If you don’t have realistic reasons why you’ll have 5% market penetration instead of 0.1%, there may not be enough value

2. Precluding Competitors Are there already competitors in this

space? Will they immediately copy you the

moment you prove there’s value in the idea?

Can you obtain patents? Inhibits (free) copying by others More revenue opportunities through

licensing, partnerships, etc.

2. Where are the New Ideas?

Areas with low competition in innovating

A. Emerging fieldsB. Areas with a low rate of innovationC. Areas outside the (age old)

experiences of the layperson

2. Where are the New Ideas?

A. Emerging Fields Not many people thinking about the

field (yet) The competition is not fully aware

of, or tuned into, the area yet EXAMPLES?

2. Where are the New Ideas?

B. Areas with a low innovation rate Monopolist – doesn’t feel it has to innovate Industry that competes on costs – doesn’t

have resources to devote to innovation Industry that competes on distribution

capabilities or customer lock-in may behave like a monopolist and / or competes on

costs Any industry / product / service that hasn’t

changed much in 10 years Examples?

2. Where are the New Ideas?

C. Areas outside the (age old) experiences of the layperson

Many, many people over many decades interact with certain things

ladders, cars, light bulbs, exercise videos, etc. Improvements that could occur to anyone

using these ‘probably’ have occurred already

If the idea could have been developed decades ago, it is ‘less likely’ it’s a new idea

2. Where are the New Ideas?

C. Areas outside the (age old) experiences of the layperson

Example: brake light that turns on when your foot leaves the accelerator

could have existed (i.e., been constructed) in 1940 decades of possibility => it’s ‘more likely’ that the idea is old

Example: new uses of an Internet search engine could not have existed until search engines existed (about 10

years) 10 years of possibility => it’s ‘somewhat likely’ that the idea is old

Example: new uses of cheap (<$1000) genome sequencing could not have existed until cheap sequencing (just a few years) a few years of possibility => it’s ‘not as likely’ that the idea is old

2. Where are the New Ideas?

Think forward Create innovations for the world as it will be in a

few years Different technologies will be available, some ubiquitous

Most people are thinking about the world as it exists today

They're stuck in the conventional mindset of doing everything themselves, today

It can be beneficial to assume the future technology exists

This removes impediments to generating innovations

3. Maintain Your Position

Innovation is the realm of possibilities, not certainties.

It’s better to initially generate many ideas and variations

Choose from among your best ideas

3. Maintain Your Position Attempt to Generate Related Ideas Contemplate all of the details of the

business This generates many valuable,

subsidiary ideas Each such idea could be patentable in

its own right These ideas form a diverse portfolio to

work from in the future

3. Maintain Your Position Contemplate all of the details of the business

How it is designed How it is constructed and built How it is repaired How it communicates with other systems and

subsystems How it handles and recovers from errors, even very

infrequent ones How it complies with any applicable laws or regulations How it avoids being regulated or falling within a

regulated category How it deals with customers How it sells to customers Identify novel opportunities to sell, up-sell and cross-sell How can I get someone else to pay?

e.g., pay for a new opportunity they want to receive

3. Maintain Your Position Contemplate all of the details of the

business There are probably many, many high value

features of any novel business idea Identify them all Is a new form of data collected? Is a new customer segment identified? Is a new industry standard useful or required?

What might competitors do to try to get around your current business?

What other products / services / activities may emerge if your idea becomes widespread?

Examples for Consideration ofEmerging Fields

How will the mobile web be used differently than it is used today?

How could you improve Internet news sites? blogs? FaceBook? online dating sites? eBay?

What features should Microsoft Office have? Internet Explorer? How will a rational and business-like online music market

work? How will television shows (not TV sets) be different with

emerging technology? The infrastructure for registering scent trademarks

How do you replicate a scent? How do you standardize a description of a scent? How do you accept a sample of a scent?

Cheap (<$1000) genome sequencing and services surrounding it

GPS outages in 2011 - 2012 due to the cyclical increase in sunspot activity?

Examples for Considerationof New Opportunities

What new opportunities / products / services may emerge in the customer experience with:

Airplanes that have TV screens on the seats and internet connections

Cars that have iPod interfaces and Internet connections

Wireless internet connectivity that’s available everywhere

Wireless location determination that’s available everywhere

Online service providers that limit bandwidth (“traffic shaping”)

Better cell phone / computer communications

Improving your Venture Idea

How can the value proposition be enhanced and improved?

What can be done to enhance the risk-reward balance?

Evaluating Your IdeaWhat existing need or want does the concept fill?

In other words, what is the problem you solve?

Describe the service/product will it change the way people live, work, or do business?

Who is your customer? What is your market segment? Is there more than one customer group?

Why will customers buy?

Evaluating Your Idea What will your competition

do? The competition will ignore you indefinitely

You will make profits, but no (existing or emerging) competitors will be attracted to take those profits

The competition will buy youDo they need to, or is it cheap to copy you?

The competition will copy you

Evaluating Your IdeaWho can help you evaluate the idea?

Who has the expertise?Who knows the industry? The product? The market?