Initial thoughts on technology venture assessment

1. Initial Thoughts on Technology Venture
Assessment
Tom Triumph
thomas.triumph@gmail.com
Background—During a phone discussion with a technology
incubator in the fall of 2013, the question was asked as to my
thoughts concerning how they might assess the many new
ventures being proposed each year. After mentioning several
ideas that initially came to mind, I offered to think a bit over the
next couple days about the question, and send along some further
thoughts on the matter.
Towards that end, I reviewed a couple previously read books
on innovation, searched a few academic papers and mostly
thought about my work experiences bringing new tech to
fruition. 1 Herein are my thoughts – typed in the interest of
legibility, and all of which would benefit greatly from the input
and edits from others.
I.
A PROCESS IS NECESSARY
While intuitively obvious, it’s worth noting why utilizing a
process to assess new technology ventures is even necessary.
After all, entrepreneurial folklore at times portrays the story of
a lone individual creating a huge company despite there being
no market clues pointing towards his potential success. In
reality, and often only clearly visible in hindsight, there are
nearly always factors which could have been uncovered
showing the path forward. These indicators are best discovered
and assessed by exercising due diligence across a heuristic
process based on experience obtained from shepherding new
enterprises. The surest way to improve the percentage of
predicting a new venture’s success, is to apply a process which
fully examines the factors impacting success.
New technology ventures are inherently both high risk and
high reward. When a venture fails, the financial and human
resources are costly. Conversely, when a venture wildly
succeeds, the upsides are huge. Because of this duality, even a
small improvement in accurately assessing the factors
influencing success can yield significant increases in return.
An analogy can be made with baseball. An average
professional player hits around .250 while a player hitting .340
would be an extraordinary player and a candidate for the Hall
of Fame. Just one additional hit every ten times up at bat is the
difference between an average player and a Hall of Famer. The
differences between ordinary and extraordinary performance
1
I previously managed all incoming product ideas for a division of BristolMyers. The process wasn’t perfect, but it was organized and the doctors never
felt unattended.
isn’t all that great, yet the difference in resulting outcomes are
huge.
Similarly, if a business incubator improves their evaluation
process utilized in winnowing down the many startup pitches
each year, and as a result improves by just one more successful
venture from among the several they fund, the firm would
similarly be remarkably successful.
Interestingly, although financial and market analysis is
common, having an actual process for decision making isn’t as
ubiquitous as one might think, even within the corporate arena.
In the book Decisive by Chip and Dan Heath, they mention a
study of corporate mergers and acquisitions – some of the
highest-stakes decisions executives make. The retrospective
analysis showed that 83% of the mergers and acquisitions
created zero shareholder value. Perhaps indicative of the poor
corporate decision making, a different research team
interviewed 2,207 business executives concerning decisions
within their organizations. 60% of the execs reported that “bad
decisions were about as frequent as good ones”.2
Investigating why there was such a consistently poor result,
it was learned that the decisions were based more on hubris,
which ironically was often a result of past success. Needless to
say, the organizations used inadequate evaluation processes.
Without a legitimate evaluation process, it was not uncommon
for the decision making effort to be glorified spreadsheets. All
too often confirmation bias (seeing only the information which
supports our belief) has a way of creeping into our critical
thinking.
As a counterpoint in favor of a real process, a professor at
the University of Sydney and a director at McKinsey &
Company investigated 1,048 important business decisions over
five years (including decisions such as whether or not to launch
new products, startup a new division or make an acquisition),
and tracked not just the decisions, but how the decisions were
made and the outcomes. They found that process mattered
more than analysis by a factor of six. In other words, analysis
can all to easily be focused on the intended outcomes; whereas
a legitimate process that requires attention and discourse on all
factors that could influence success is significantly better.
As a note, I want to acknowledge the importance of “gut”
or “intuition”, and recognize that it’s really simply another way
of describing proficiency and instinct shaped by experience.
2
Chip Heath and Dan Heath, Decisive, Crown Business: 2013

2. There is a clear distinction between “instinct” based on
experience (and validated with a disciplined evaluation
process), and “instinct” based on hubris (and without the
checks and balances of a process).
II.
POSSIBLE NEW VENTURE ASSESSMENT STRATEGIES
Listed below are several strategies for evaluating new
venture opportunities that can be utilized as part of a healthy
and robust process to improve new venture assessment.
It’s important for everyone involved in the technology or
new venture assessment to express their thoughts and concerns
about the technology, IP, market potential, costs or human
capital. An environment of trust, respect and a genuine interest
in listening to alternative opinions are key to a robust process.
The organization should resist a rush to agreement and
consensus.
Of course, there are often factors and situations that
prevent the final “go/no-go” decision from being a simple
vote. Regardless as to how the final decision is made, open
discussion is nonetheless of real benefit in assessing what lies
ahead.
A. Embrace the Art & Science
Certainly decisions involving new technology ventures will
include a hefty amount of calculations and quantified numbers.
But predictions about the future are inherently unknown, and
subsequently these decisions will also involve aspects that are
not reducible to spreadsheets. While market size may be
determined with good accuracy, something like the adoption
rate is a best guess. Because new technology ventures often
involve the possibility of tectonic-like shifts in business models
(Amazon, Google) these shifting economies are often difficult
if not impossible to accurately predict. For these reasons, the
ability to consider quantified forecasts as well as best guesses
is required. There needs to be room for freewheeling
possibility.3
B. Focus on the Venture
Remind all participants that the focus is always on the
team’s shared objective of working together to accurately
assess the technology or opportunity being considered. The
focus should not be on the individual(s) or parties making the
various argument.
C. Participation and Effort Matter
It’s worth explaining to participants that their involvement
matters, as does their level of engagement. It’s been shown that
group participation in decision making significantly improves
the decision making process and the accuracy of the outcome.
Lior Zoref in his 2012 TED talk showed the benefits of
“upgrading your brain” by using a healthy relationship with a
group sharing a common goal. Bringing a live ox on stage, he
asked everyone to guess the weight of the animal. Of the 500
participants, the lowest guess was 308 lbs, the highest was
8,000 lb and the average was 1,792. The actual weight of the
ox was 1,795 – just three pounds heavier.4
Studies like these in the area of group thinking show that
everyone matters, everyone can contribute and engagement is
critical.
D. Explore Both Sides of the Opportunity
When considering new ventures, there should a free
exchange of the opportunity under discussion which includes
both the upside as well as the downside. Where what is known
about the technology is discussed, and what is unknown is not
avoided but rather openly discussed. The objective should be to
understand all aspects – including the known and unknown.
The best way to ensure there is full exploration of the
venture is for senior management to lead the way by taking an
active role in freely discussing the challenges – and by
articulating the reasons both in favor of and against the
venture.
E. Reverse Positions
The opportunity under consideration may seem like a no
brainer, a simple path forward to a successful IPO. But it’s a
worthy exercise to reverse your position and present the
hurdles and obstacles. One way to encourage full exploration
of the opportunity, is for everyone to make an argument both
for and against the new venture.
F. Compare to Predecessors
In all likelihood the new venture being proposed is unique
– but comparisons can still be made to other somewhat similar
ventures, and those comparisons can provide reasonable
benchmarks into what’s being considered. Whether the
consideration concerns developing new software, evaluating
distribution models or capitalization requirements - these
aspects can be more accurately assessed by considering realworld experiences from past ventures.
G. Identify What Would Have to Happen for Success
A good technique for helping evaluators set-aside their
unconscious biases and more objectively evaluate the topic
under discussion, is to pose and answer hypothetical questions.
Discussing hypothetical questions allows people to set aside
any vested interest, and focus on facts. Discussing hypothetical
questions switches participants from arguing to discussing, and
to understanding the underpinnings of the various options.
Example questions include:
• What would have to be true for this venture to succeed?
•
What would have to change to impact the likelihood of
success?
•
What would have to be true of the market for this to
succeed?
•
What other means could satisfy the market opportunity?
3
Several years ago I organized a technology open house under the theme of
“The Art & Science of Technology”. It turned out to be an excellent theme,
and John Sculley provided a remarkably prescient keynote wherein he
foretold many of today’s emerging technologies.
4 Lior Zoref, TED talk 2012 “Of Oxes and the Wisdeom of Crowds”

3. H. Utilize a Devil’s Advocate
As described in Wikipedia, the Catholic Church utilized for
centuries an appointee, called a “Devil’s Advocate to argue
against the canonization of a candidate for sainthood. It was
this person’s job to take a skeptical view of the attributed
achievements and characteristics of the person under
consideration.
This role was established in 1587 and abolished in 1983 by
Pope John Paul II. Perhaps not surprisingly, once the role was
eliminated there was a profound impact on sainthood. Pope
John Paul II beatified 1,340 people and canonized 483 saints,
more than the combined tally of his predecessors during the
preceding five centuries.5
The role of Devil’s Advocate can be done by assigning a
review team, or by team members making diligent counter
arguments as described below.
I. Understand and Question Domain Expertise
The details are best handled by those with subject matter
expertise, but that doesn’t mean you shouldn’t try to
understand the basics. If your area of expertise is accounting, it
should be fine to raise a marketing question in the interest of
gaining a better understanding. Or for someone in engineering
to seek a better understanding of the proposed financing.
Naturally, your focus should be within your area of
expertise, but there’s benefit to understanding aspects beyond
your immediate concern. All too often team members can
become siloed within their functional role. Discussion and
explanation have the benefit of elevating everyone’s
understanding.
J. Use Outside Experts
There’s nothing quite like getting a fresh perspective from
people with no vested interest. This can be accomplished by
bringing in a trusted and diverse group of advisors that offer
their succinct thoughts and questions.
Including people from outside the particular industry or
market is important to avoid industry myopia and to increase
the likelihood of cross pollination
III.
METRIC ASSESSMENT
Once the team has thoroughly discussed the opportunity,
aired all risks and made a case both for and against the
opportunity as previously outlined, an assessment of the
viability indicators can be completed. Scoring and weighting
should be relative to other Incubator pitches that would be
expected to be encountered through the startup cycle.
Linear additive statistical modeling has been shown to
better predict outcomes than experts’ implicit decision rules
across many different decision environments.
Several success indicators for new technology ventures are
listed below. The list provides a checklist of topics to ensure all
aspects were considered and evaluated, and provides a record
and means of comparison with other new ventures typically
under consideration by the incubator.
5 http://en.wikipedia.org/wiki/Devil's_advocate.
The list is not intended to be inclusive, but rather
representative of the types of factors to be evaluated.
A. Market Potential
How large is the business opportunity?
B. Technical Feasibility
Likelihood that the required technology can be developed
as anticipated?
C. Existing Competition
How strong is the competitive technology and business?
D. Market Comparison Ranking
How does the technology compare to what is currently and
forthcoming in the market? Is there a real need for the
offering?
E. Barriers to Entry
Difficulty for existing players to offer (or make the case)
for a similar product? How difficult is it for new competitors to
enter the market?
F. IP
What is the existing IP position? How is this expected to
change over time if the company were funded? How would this
impact valuation, competitive position, etc.?
G. Potential Sales
How are sales expected to ramp?
H. Comparison to Other Incubator Opportunities
How does this opportunity compare to other pitches in the
incubator stable?
I. Champions
Does the venture have champions within i(or elsewhere)?
J. Other Partners
Are there partnering companies whose involvement makes
a significant difference?
K. Safety Concerns
Does the technology include a safety risk to people or the
environment?
L. Social Good
Is there social component to the venture?
M. Environmental Impact
Is there an environmental component to the venture?
N. Legal
Are there any significant legal matters?
O. Compliance
Are there governmental compliance concerns such as FDA,
EPA, etc.?
P. Miscellaneous Considerations
Are there other considerations, such as the venture
providing a strategic advantage with another incubator
business?

4. Q. Required Investment
What are the capitalization requirements? Over what period
of time?
R. Other Investors
Are there other VCs whose involvement makes a
significant difference?
S. Ease of Exit
What is the anticipated exit strategy and at what point could
the sale occur?
T. ROI
What is the expected return on investment?
TABLE I.
ASSESSMENT METRICS
Variable
A
Market Potential
B
Technical Feasibility
C
Existing Competition
D
Market Comparison
Ranking
E
Barriers to Entry
F
IP
G
Potential Sales
H
Comparison to Other
Incubator
Opportunities
I
Champions
J
Partners
K
Safety Concerns
L
Societal Benefits
M
Environmental Impact
N
Legal Issues
O
Compliance Issues
P
Miscellaneous
Considerations
Q
Required Investment
R
Other Investors
S
Ease of Exit
T
ROI
Scoring
Weighting
1-10
1-10
Total
Scoring and weighting would be relative to other incubator opportunities.