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Startup Scorecard

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The Startup Scorecard provides a tool for guaging the viability of a startup opporutnity across 6 market dynamics and 18 startup strategy heuristics. This slide deck introduces the concepts and the tool.

Startup Scorecard

  1. 1. STARTUP SCORECARD Smarterstartup.org  
  2. 2. Diligent Negligent SuccessFailure IS HARD WORK THE ANSWER? Hard work alone is NOT a reliable predictor of success. Hard working people sometimes fail and negligent people sometimes succeed. PROBLEM STATEMENT Conventional Wisdom NOT ENTIRELY
  3. 3. x   Working hard is analogous to throwing a ball hard. The velocity is an important part of reaching the target, but you cannot ignore other interactive forces like gravity and drag. Gravity   (3ming)   Direc3on   (customer  need)   What Is the Whole Story? PROBLEM STATEMENT Drag   (compe33on)   Velocity   (hard  work)  
  4. 4. STARTUP STRATEGY The 6 Market Dynamics CAPTURING THE WHOLE STORY THE 3 APPLIED TOOLS We’ve identified 6 market dynamics That are interactively defining the Market opportunity at any time. The conceptual framework is the basis of the Startup Scorecard. customer   product   compe33on   3ming   financial   team   The  6     Market     Dynamics  
  5. 5. Evaluate your startup idea across the six scorecard criteria and be mindful of the attributes described in each one. Give yourself a letter grade and then an overall score, for the idea. This provides a structured approach to evaluating the opportunity and helps to improve objectivity by accounting for a full spectrum of important criteria and reducing blind spots. Evaluating a Startup Idea Startup Scorecard Finance • Low Capital Requirement • Clear Profit Model • Economies of Scale Finance Score ______ Timing • Recent Innovation Enabler • Demand Already Established • No Signs of Commoditization Timing Score ______ Competition • Clear Market Inefficiency • Low Barriers to Entry • Differentiable Position Competition Score ______ Team • Subject Matter Expertise • Functional Competence • Supplier Partnerships Team Score ______ Product • Customer Focused Solution • Low Barriers to Adoption • Clear Value Proposition Product Score ______ Customer • Unmet Need or Desire • Right Size Market or Segment • Reliable Customer Channels Customer Score ______ Overall Score _______ SmarterStartup.org Title _____________________________________________________________________ A A B- B+ D A- B Real Estate IDX Integrated CRM
  6. 6. WHAT’S A GOOD CUSTOMER? The ideal customer has an unmet need or desire. The size of this market should match your ability to compete and ability to deliver justify solving the problem. Validate you can control means of customer acquisition along the way. STARTUP HEURISTICS Customer Criteria UNMET NEED OR DESIRE Unsatisfied Customer Desire RIGHT-SIZE MARKET OR SEGMENT Need to Segment? Too Niche? RELIABLE ACCESS TO CUSTOMERS Diversified Channels? Gatekeepers?
  7. 7. FOCUS ON HELPING OTHERS FOCUS ON CREATING VALUE Mom was right! Focus on helping others and everything else will fall into place. Find a need or desire that is not yet sufficiently addressed, where the customer is so passionate they’d happily pay for a solution. This approach is much more likely to create real value than copying an existing solution. CUSTOMER CRITERIA Unmet Need or Desire
  8. 8. CUSTOMER CRITERIA Right-Size Market (or segment) BIG FISH STRATEGY PURSUE QUIET NICHES BIG MARKET STRATEGY PURSUE LARGE MARKETS Select a market to service that meets your needs and abilities. You must have enough opportunity to warrant the effort. Be weary of large markets however, if you do not have significant funds and plan to be aggressive.
  9. 9. MARKET MANIPULATION GOVERNMENT, MONOPOLIES CHANNEL DEPENDENCE SINGLE POINT OF FAILURE 0 5000 10000 15000 20000 25000 30000 35000 March April May June July CUSTOMER CRITERIA Reliable Access to Customers A sustainable business requires control over customer supply. Don’t rely on a single marketing channel (Google SEO). Government or monopolistic manipulation of markets can also be challenging (Online Gambling).
  10. 10. WHAT’S A GOOD PRODUCT? A good product will be a direct response to a customer need or desire. If the value is well articulated and the customer is passionate about your new solution, the reason to buy will be compelling. Consider deterrents also – are their high switch costs and is the solution easy to use and understand? STARTUP HEURISTICS Product Criteria CUSTOMER FOCUSED SOLUTION Solves Unmet Need or Desire? LOW BARRIERS TO ADOPTION Low Switch Cost, Usability CLEAR VALUE PROPOSITION Compelling Reason to Buy
  11. 11. PRODUCT CRITERIA Customer Focused Solution (benefit) ADDRESS NEED OR DESIRE FOCUS ON CLEAR GOAL KEEP IT SIMPLE! DON’T AMBIGUATE THE VALUE The purpose of your product is to create value by addressing a specific need or desire. Stay Zen focused. Don’t ambiguate the value created with distracting features that aren’t aligned with the goal.
  12. 12. Albert Einstein Physicist, Professor Any intelligent fool can make things bigger and more complex... It takes a touch of genius - and a lot of courage to move in the opposite direction. PRODUCT CRITERIA Customer Focused Solution (benefit)
  13. 13. PRODUCT CRITERIA Low Barriers to Adoption (cost) LEARNING CURVE INVESTED TIME & NEW COSTS FINANCIAL IMPACT PRIOR INVESTMENT & NEW COSTS WORKFLOW INTEGRATION DOES IT EASILY INTEGRATE? Even if you create new value, customers may hesitate to adopt your product if they’ve already invested too much in an existing solution that is good enough, or if adopting your solution is too disruptive.
  14. 14. Easy Workflow Integration Addt’l Benefits(value complex) Solves My Problem Existing Investments Learning Curve IS THE VALUE CLEAR? VALUE = BENEFIT - COST PRODUCT CRITERIA Clear Value Proposition (value) Perceived  value  must  exceed  cost.    If  you  can  clearly  describe  your  product  is  beneficial  and  a  compelling   case  for  purchasing  it,  then  you  have  created  sufficient  value  to  overcome  cost.   Theodore Levitt People don’t want quarter- inch drills. They want quarter-inch holes. cost   benefit  
  15. 15. WHAT IS GOOD TIMING? Every market has a natural lifecycle driven by innovation and circumstance. Look for new demand or interest in something that wasn’t possible just a couple years ago. Be a “fast follower” into a validated emerging market rather than speculating on new opportunity. STARTUP HEURISTICS Timing Criteria RECENT INNOVATION ENABLER Was it Possible 2-5 Years Ago? DEMAND ALREADY ESTABLISHED Build It & They Might Not Come! NO SIGNS OF COMMODITZATION Shrinking Margins. More Products.
  16. 16. Every market has a natural lifecycle driven by innovation and circumstance. Look for something that wasn’t possible just a couple years ago & ramp up before the market capitulates (supply > demand). TIMING CRITERIA Innovation Life Cycle Innovators (2.5 %) Early adopters (13.5 %) Early majority (34 %) Laggards (16 %) Late majority (34 %) The Golden Era The  Squeeze   ConsolidationEarly Movers Capitulation * Innovation Adoption Curve
  17. 17. Opportunity to enter diminishes as the market matures. Geoff Moore suggests entering at “the chasm” after demand is validated but still early enough to ramp before the market capitulates. TIMING CRITERIA Innovation Life Cycle Innovators (2.5 %) Early adopters (13.5 %) Early majority (34 %) Laggards (16 %) Late majority (34 %) Chasm Innovation Adoption Curve Ideal point to enter a market - Geoff Moore New Entrant Opportunity
  18. 18. Nicholas Carr Harvard Business Review, 2003 TIMING CRITERIA Commoditization of Technology It is difficult to imagine a more perfect commodity than a byte of data. As information technology’s power and ubiquity have grown, its strategic importance has diminished.
  19. 19. $5,000,000 What cost $5 million to accomplish 12 years ago can now be done with less than $5,000. Mark Suster observed that commoditization and availability of more building blocks has radically reduced cost and risk of developing a software product. Commoditized Technology Hosting Commoditized Open Source Software Cloud Services (SaaS/PaaS) MLS  IDX/RETS  Feeds,     SendGrid  Email,  etc   WordPress  Pla=orm,   Real  Estate  Themes,   RESO  &  Placester  IDX  Plugins,     $500,000 $50,000 $5,000 A  Web/Mobile  App  
  20. 20. As cost has fallen, so has the competitive barrier to entry. Competitive positioning is now the key strategic issue, not technological capability for most consumer Internet products. How do you cut through the noise? Commonplace Commodity 2000 2002 2004 2006 2008 2010 2012 2013 !" #!$!!!$!!!" %!!$!!!$!!!" %#!$!!!$!!!" &!!$!!!$!!!" &#!$!!!$!!!" !"#$%&'%()*+%)& Data From NetCraft 2013 Web Server Survey 50x  
  21. 21. GOOD COMPETITIVE LANDSCAPE? Avoid being marginalized by excessive undifferentiated competition. That drives margin compression, commodi- tization and market consolidation. Look for inefficient markets where there’s still ‘play’ and find ways to develop a sustainable competitive advantage. STARTUP HEURISTICS Competition Criteria CLEAR MARKET INEFFICIENCY Stagnant or Fragmented Market LOW BARRIERS TO ENTRY Easy & Cheap to Compete? DIFFERENTIABLE POSITION Something Special or Different?
  22. 22. COMPETITION CRITERIA Inefficient Market FRAGMENTED MARKET NO CLEAR MARKET LEADER NEW MARKET DEMAND EXCEEDS SUPPLY STAGNANT MARKET READY FOR DISRUPTION? When a market is efficient, a single entity captures all of the value of a market. Look instead for a market that isn’t efficient either because it is new, stagnant, or splintered (fragmented).
  23. 23. Sun Tzu War Strategist, Wrote The Art of War The general who makes many calculations before battle is wise. He who knows when he can fight and when he cannot will be victorious. COMPETITION CRITERIA Low Barriers to Entry
  24. 24. Avoid a fight you cannot win! A market can be much harder to enter if a competitor already has a mature offering that you must catch up to. THINGS TO AVOID •  Existing Economies of Scale •  Existing Mature Product (feature set) •  Well-Established Brand (halo) •  Price Competition COMPETITION CRITERIA Low Barriers to Entry
  25. 25. SEGMENTED MARKET FOCUS ON SPECIFIC CUSTOMER LOW PRICE LEADERSHIP FOCUS ON VOLUME & COMMODITY DIFFERENTIATED PRODUCT DISRUPTIVE OR INNOVATIVE HOW ARE YOU DIFFERENT? WHAT MAKES YOU SPECIAL? COMPETITION CRITERIA Differentiable Position In order to be a desirable signal that stands out against a background of noise, you need to have a compelling value to some customers that others do not. There are 3 viable positioning strategies. Porter’s Generic Competitive Strategies
  26. 26. GOOD FINANCIAL PROFILE? Look for opportunities to maximize returns without excess capital risk. Look for opportunities to start cheap and to realize higher margins through focused efforts and economies of scale. Avoid locking up too much capital. STARTUP HEURISTICS Financial Criteria LOW SUNK COSTS Up Front Capital at Risk? WORKING CAPITAL FLOAT Gap Between Payable/Receivables ECONOMIES OF SCALE Margins Increase With Volume?
  27. 27. How much up-front capital must you commit to develop this product or business? Sunk capital represents risk since you don’t know if you’ll get it back, as well as opportunity cost since that money could be committed to other opportunities. FINANCIAL CRITERIA Low Sunk Costs HOW MUCH CAPITAL RISK? OPPORTUNITY COST
  28. 28. Some businesses require large cash outlay every month and payment can take 3-4 months to arrive. As a result the business may need to have cash or credit to cover the gap of 3-4 months of operating costs. This is both a cost (interest) and a risk! Working Capital Float DO YOU NEED A LINE OF CREDIT? WHAT’S THE COST & RISK? Accounts Receivable 60 - 120 Day "Capital Float"Accounts Payable
  29. 29. Look for opportunities where profits increase with volume (scale). Supply, development, and distribution costs all diminish on a per-unit basis when working in volume. As a result profit margins and competitive advantage both increase. Economies of Scale Quantity Profits Marginal Cost Scalable Profits
  30. 30. WHAT’S GOOD TEAM FIT? Just because an opportunity exists, doesn’t mean your team is likely to succeed. Are you fit to compete? Does your team have a competitive advantage? Do you possess deep knowledge, technical skills to deliver, & access to key partners and resources? STARTUP HEURISTICS Team Fit & Fitness Criteria SUBJECT MATTER EXPERTISE Deep Knowledge of Market? FUNCTIONAL COMPETENCE Technical Skills to Deliver SUPPLIER PARTNERSHIPS Access to Materials at Good Cost
  31. 31. TEAM-FIT CRITERIA The Hacker & The Hustler “The Hacker” Technical skills to design & develop a well-crafted and scalable solution. “The Hustler” Knowledge of customer or desire, and understanding of market dynamics to effectively position an offering. A team needs deep subject matter expertise and technical skills to design a solution, in order to succeed. It is difficult for a single person to be efficient at “heads up” and “heads down” work. The Functional ExpertSubject Matter Expert
  32. 32. TEAM-FIT CRITERIA Supplier Partnerships Preferred Sourcing Are you able to procure supplies at competitive prices? If affiliate mktg, can you get preferred commissions? Available Data APIs Are you able to access the data or integration APIs needed to build your product? Outsourced Vendors If planning to manufacture physical products or software, do you have a quality vendor you can rely on? Consider the dependencies you may have on external sources of materials, data, and services. Do you have access to the necessary resources to deliver your product and to price competitively?
  33. 33. Evaluate your startup idea across the six scorecard criteria and be mindful of the attributes described in each one. Give yourself a letter grade and then an overall score, for the idea. This provides a structured approach to evaluating the opportunity and helps to improve objectivity by accounting for a full spectrum of important criteria and reducing blind spots. Evaluating a Startup Idea Startup Scorecard Finance • Low Capital Requirement • Clear Profit Model • Economies of Scale Finance Score ______ Timing • Recent Innovation Enabler • Demand Already Established • No Signs of Commoditization Timing Score ______ Competition • Clear Market Inefficiency • Low Barriers to Entry • Differentiable Position Competition Score ______ Team • Subject Matter Expertise • Functional Competence • Supplier Partnerships Team Score ______ Product • Customer Focused Solution • Low Barriers to Adoption • Clear Value Proposition Product Score ______ Customer • Unmet Need or Desire • Right Size Market or Segment • Reliable Customer Channels Customer Score ______ Overall Score _______ SmarterStartup.org Title _____________________________________________________________________ A A B- B+ D A- B Real Estate IDX Integrated CRM
  34. 34. Identifying & Locating Opportunity Timing Customer Product CompetitionStartup Opportunity Finance Team We cannot work simply work hard and expect to have a desirable outcome. There are many dynamics at play that all determine whether we’re likely to succeed. Some may get lucky but they are the exception not the rule. STARTUP HEURISTICS
  35. 35. CONCLUSION SmarterStartup.org We have posted in-depth articles, diagrams, and downloadable references and worksheets on our website. Everything is free to use, so check it out. www.SmarterStartup.org

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