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![I’ll start cheap make sure I… cover my cost don’t have to
take huge risks…. uhm… one thing I’m sure about my
experience… never take any risk if you can help it… it is
just the opposite of what most people think about….
Entrepreneurs [E5]
paulshawsmith
scientific business strategy](https://image.slidesharecdn.com/01-3evaluatingideas-120604091303-phpapp02/85/01-3-Evaluating-ideas-78-320.jpg)
Uploaded byCo-founder Ignitor
01.3 Evaluating ideas
This document discusses various methods for evaluating new business ideas, including statistical models, venture capital evaluations, and expert entrepreneur evaluations. It then outlines several frameworks entrepreneurs can use to systematically evaluate their own ideas, including assessing their relevant knowledge, resources, networks, and passion for the idea. It encourages entrepreneurs to test assumptions with customers from the start and avoid premature scaling. Overall, the document provides guidance on thoughtfully evaluating new business ideas through data and real-world testing before committing significant resources.
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01.3 Evaluating ideas
- 1.
- 2. How do youknow if a business idea is good? paulshawsmith scientific business strategy
- 3. 0 1 2 3 4 5 6 7 8 9 10 No Chance Certain Chance of Success of Success Good ideas have a higher chance of success
- 4. 9/10 strong BM survive 3/10 weak BM survive Source: Cooper (1994) Statistical models are good at predicting success
- 5. 1/4 venture capital backed company list Source: Gompers et al. (2009) VCs are good at predicting success
- 6. Expert entrepreneurs aregood at predicting success
- 7. How do they evaluateideas ? paulshawsmith scientific business strategy
- 8. Can I doit? paulshawsmith scientific business strategy
- 9. Begin with theend in mind
- 10. Failing to planis planning to fail
- 11.
- 12. Causal Thinking Market Research Knowledge Market People Gap Plan Resources paulshawsmith scientific success strategy
- 13. paulshawsmith scientific business strategy
- 15. 27 Entrepreneurs paulshawsmith scientific business strategy
- 16. $200 million to $6 billion 3 40 to start ups 1 IPO paulshawsmith scientific business strategy
- 17. ??? Bruce Flohr, thefounder of RailTex
- 18. AMAR BHIDE I'd just go sell it. I don't believe in market research. Somebody once told me the only thing you need is a customer. Instead of asking all the questions, I'd try and make some sales. I'd learn a lot, you know: which people, what were the obstacles, what were the questions, which prices work better. Even before I started production. So my market research would actually be hands-on actual selling." Source: Sarasavathy (2007) paulshawsmith scientific business strategy
- 19. AMAR BHIDE "Ultimately, the best test of any product is to go to your target market and pretend like it's a real business. You'll find out soon enough if it is or not. You have to take some risks. You can sit and analyze these different markets forever and ever and ever, and you'd get all these wonderful answers, and they still may be wrong. The problem with the businessman type is they spend a lot of time with all their great wisdom and all their spreadsheets and all their Harvard Business Review people, and they'd either become convinced that there's no market at all or that they have the market nailed. And they'd go out there big time, with a lot of expensive advertising and upfront costs, because they're gonna overwhelm the market, and the business would go under." Source: Sarasavathy (2007) paulshawsmith scientific business strategy
- 20. Bird-in-the-hand paulshawsmith scientific business strategy
- 21. Effectual Thinking (Imaging apossible new end using a given set of means) Outcome Opportunities Outcome Resources Outcome Knowledge Outcome Outcome People Outcome paulshawsmith scientific success strategy
- 22. Effectual Thinking Meal 1 Knowledge of Cooking Meal 2 Ingredients on Hand Meal 3 Equipment Meal 4 Available People I Meal 5 Know Meal 6 paulshawsmith scientific success strategy
- 24. Effectual Thinking Course Match FaceMash Partner Friends Customer Students Harvard Connection paulshawsmith scientific success strategy
- 25. How much moneyis need to start the business & what percentage of the money do you have? 0 10 20 30 40 50 60 70 80 90 100 0% of money 100% of money Can you do it?
- 26. What knowledge doyou need to start your business & what percentage of that knowledge do you have? 0 10 20 30 40 50 60 70 80 90 100 0% of knowledge 100% of knowledge Can you do it?
- 27. What physical resourcesdo you need to start your business & what percentage of those physical resources do you have? 0 10 20 30 40 50 60 70 80 90 100 0% of physical resources 100% of physical resources Can you do it?
- 28. What people andcontacts do you need to start the business & what percentage of those people & contacts do you have? 0 10 20 30 40 50 60 70 80 90 100 0% of people/contacts 100% of people/contacts Can you do it?
- 29. Will I doit? paulshawsmith scientific business strategy
- 30. “I paulshawsmith was pursuing my passion.” scientific business strategy
- 31. “start your businessaround something that is a passion of yours”
- 32. “you must bepassionate”
- 33.
- 34. How certain areyou that you want to start this business? 0 10 20 30 40 50 60 70 80 90 100 0% 100% certain certain Will you do it?
- 35. How certain areyou that you can start this business? 0 10 20 30 40 50 60 70 80 90 100 0% 100% certain certain Will you do it?
- 36. How certain areyou that you will start this business? 0 10 20 30 40 50 60 70 80 90 100 0% 100% certain certain Will you do it?
- 37. How certain areyou that you have the time to start this business? 0 10 20 30 40 50 60 70 80 90 100 0% 100% certain certain Will you do it?
- 38. Will people buyit? paulshawsmith scientific business strategy
- 39. Start Up Size& Growth paulshawsmith scientific business strategy Source: Reynolds (1987)
- 40. paulshawsmith scientific business strategy
- 41. paulshawsmith scientific business strategy
- 42. 4 Will pre-orderand pay now! 3 Will purchase once released 2 Might purchase but… 1 Will not purchase Customer interest before launching
- 43. 4 Purchases andis a raving fan! 3 Purchases 2 Interested but doesn’t purchase because… 1 Not interested and does not purchase Customer interest after launching
- 44. 4 Number oflevel 4 reactions 3 Number of level 3 reactions 2 Number of level 2 reactions 1 Number of level 1 reactions BM improve when these figures improve
- 45. W1 W2 W3 W4 W5 W6 W7 W8 4. Purchased or 0% 0% 5% 7% 10% 15% 20% 25% pre-paid 3. Purchased or will 0% 10% 10% 10% 15% 20% 25% 30% purchase 2. Will purchase 25% 25% 25% 30% 30% 30% 35% 35% but… 1. Not 75% 65% 60% 53% 45% 35% 20% 10% interested The aim is to increase the no. of level 3 and 4 reactions
- 46. Customer Loyalty? 4 Willdefinitely purchase again & only from you 3 Will purchase again from you 2 Will purchase again if… 1 Never purchase again
- 47. 4 Will definitelypurchase again & only from you 3 Will purchase again from you 2 Will purchase again if… 1 Never purchase again BM improve when these figures improve
- 48. What percentage ofpotential customers marketed or sold to buy the product? 0 10 20 30 40 50 60 70 80 90 100 0% 100% Will people buy it?
- 49. What percentage ofcustomers purchase the product again? 0 10 20 30 40 50 60 70 80 90 100 0% 100% Will people buy it?
- 50. Will it makemoney? paulshawsmith scientific business strategy
- 51. Sales What are theexpected sales?
- 52. Sales Less: Costs What are the expected costs?
- 53. Sales Less: Costs ____________ Profit What is the expected profit?
- 54. How happy areyou with the expected profit the business will make? 0 10 20 30 40 50 60 70 80 90 100 0% 100% Not at all happy Extremely happy Will it make money?
- 55. Will it grow? paulshawsmith scientific business strategy
- 56. Higher Potential Lower Potential Problem Solve an important problem Not important to customer Payback to user Less than 1 year More than 3 years Performance Significant improvement Small improvement Value added High value added Limited vale added Barriers to entry High Low Uniqueness Unique solution Many competitors
- 57. Higher Potential Lower Potential Customer High Limited acquisition ability Customer Low High acquisition cost Customer retention High Low Customer lifetime High Low profit
- 58. Higher Potential Lower Potential Market size Large Limited Market growth Growing Declining/mature Market structure Fragmented, emerging Highly concentrated, industry mature/declining industry Market capacity Under capacity Full or excess capacity Market share Market leader 20% or more Limited 5% or less attainable
- 59. Higher Potential Lower Potential Revenue type Recurring Once off Profits Strong profits Weak profits Predictability Predictable revenues Unpredictable revenues No. revenue streams Multiple Single Timing Collect than spend Spend than collect
- 60. Higher Potential Lower Potential Channel access Accessible Inaccessible Control High control No. control Visibility Visible to prospects Limited visibility Reach Whole target market Limited reach Customer match Good customer fit Poor customer fit
- 61. Higher Potential Lower Potential Entrepreneurial Balanced team Individual or missing skills team Industry knowledge Excellent track record Limited Key people A team B or C team Ease to replicate Difficult to replicate Easy to replicate Intellectual property Competitive advantage Limited advantage
- 62. Higher Potential Lower Potential Scalability Highly scalable Limited Ease of replication Difficult to copy Can be easily copied Operations Highly efficient Limited efficiency
- 63. Higher Potential Lower Potential Contact & networks Well developed Limited Partnerships Work with partners if need to Avoids partnerships Relationship Win-win Win-lose
- 64. Higher Potential Lower Potential Capital Low; fundable Very high; difficult to fund requirements Asset intensity Low/sales High/sales Costs Cost advantage No cost advantage Capital expenditure Low/incremental High requirements requirements
- 65. Is it basedon fact ? paulshawsmith scientific business strategy
- 66. What is aBHIDE AMAR business plan? WAGs paulshawsmith scientific business strategy
- 67. Guess? Guess? Guess? Guess? Guess? Guess? Guess? Guess? Guess?
- 68. What happens ifyou try and build a business on guesses? paulshawsmith scientific business strategy
- 69. Pre-mature Scaling paulshawsmith scientific business strategy
- 70. AMAR BHIDE Skip the fact finding No Idea Build Facts paulshawsmith scientific business strategy
- 71. paulshawsmith scientific business strategy
- 72. paulshawsmith scientific business strategy
- 73. of high growthinternet start ups fail due to premature scaling. paulshawsmith scientific business strategy Source: Start Up Genome Report(2011)
- 74. Startups that scaleproperly grow about times faster than startups that scale prematurely paulshawsmith scientific business strategy Source: Start Up Genome Report(2011)
- 75. Have you testedyour assumptions in the real world?
- 76. 7.1 Doable? 4.1 How? 3. Product/ How will you acquire Can you perform the Market fit? customers? 8.1 Terms? Key activities? 1. Customer? What terms will the 7.2 Costs? Will the customers Who is the buy the product? 4.2 Costs? partners require? customer? Costs to perform Cost to acquire a Key activities? customer? 8.2 Costs? Profitable? 2. Market How much will they Will the business 5.1 Terms? Size? charge? 6.1 Acquirable? What are the channel Make money? What is the Can you acquire terms? Market size? The key resources? 6.2 Costs? 5.2 Costs? Cost of key resources? Cost of distribution? 9. Costs? 5. Pricing? What are your fixed and variable costs? How will you charge? How much will you charge? What percentage of these questions can you answer?
- 77. Are failure losses affordable? paulshawsmith scientific business strategy
- 78. I’ll start cheapmake sure I… cover my cost don’t have to take huge risks…. uhm… one thing I’m sure about my experience… never take any risk if you can help it… it is just the opposite of what most people think about…. Entrepreneurs [E5] paulshawsmith scientific business strategy
- 80. “When we startedthe airline 25 years age this year. I went to Boeing. I AMAR BHIDE remember the telephone call. “Hello this is Richard Branson, wonder whether you could sell me a second hand 747?” “What is the name of your business?” “Virgin.” “What do you do?” “We have a record company and have great bands like the sex pistols the rolling Stones.“ And then there was a long pause, and instead of putting the phone down. He said, “We will send a salesman over and as long as your airline goes further than your name suggests we will let you have a plane.” The key point there is we said to Boeing we don’t know if this is going to work. We realise that this is risky, and we want to be able to hand the plane back after 12 months if it doesn’t work out. And that is the element of protecting the downside and that is the critical thing. paulshawsmith scientific business strategy Source: Wall Street Journal Video, 2009-10-15
- 81.
- 82. AMAR BHIDE “Back when I launched eBay on Labour Day 1995, eBay wasn’t my business – it was my hobby. I had to build a system that was self-sustaining… …because I had a real job to go to every morning. I was working as a software engineer from 10 to 7, and I wanted to have a life on the weekends. So I built a system that could keep working – catching complaints and capturing feedback – even when Pam and I were out mountain-biking, and the only one home was our cat. Source: Omidyar (2002) paulshawsmith scientific business strategy
- 83.
- 84. Size R50 million - ‘01 R30 million – ‘98 100 employee – ‘97 ‘92 – Gotcha, Wrangler Agencies & Biotribe factory Time Source: Saravathy (1998)
- 87. Size R50 million Chinese Imports - ‘01 R6 to R13 to dollar R30 million – ‘98 100 employee – ‘97 ‘92 – Gotcha, Wrangler Agencies & Biotribe factory Time Source: Saravathy (1998)
- 88. Having lost mybusiness so suddenly, I was now setting up a licensing base and succeeding in spreading my risk across a number of products, licensees and manufacturers. We have the brands, they have the factories. With this licensing model, we find the best manufacturers and negotiate a win/win partnership with them – I provide the product ideas and brand knowledge and they produce products they are already successful at making, but under our brand. Together we have a thriving business. paulshawsmith scientific business strategy
- 89. R160 million –‘09 Size R50 million Chinese Imports - ‘01 R6 to R13 to dollar R30 million – ‘98 2 employees – ‘05 100 employee – ‘97 ’04 – 20 Licenses ‘92 – Gotcha, Wrangler Agencies ‘01 – Licensing model & Biotribe factory Time Source: Saravathy (1998)
- 90. With the benefitof hindsight, I know now that back in 2001 the business I had built was hugely exposed to external risks. Today, I would not employ that many people. I would not make and distribute so many diverse products from just one facility. It makes far more sense to outsource production to manufacturing and distribution experts who have all the expertise and channels in place. I would, and do, take forward cover on any international forex importing and exporting we do. I keep overheads to an absolute minimum and maintain tight control over all financial aspects of the business. paulshawsmith scientific business strategy
- 91. How affordable areyour businesses losses if you fail? 0 10 20 30 40 50 60 70 80 90 100 0% 100% I cannot afford to lose I can afford to lose anything I put into the everything I put into business the business Affordable loss
- 92. Rate your business ideasusing the scorecard paulshawsmith scientific business strategy
Editor's Notes
- #4 The results showed the vast majority, 81%, gave themselves a 7 out of 10 chance of success or greater.
- #10 For example, read Steven Covey’s – bestseller the 7 habits of highly effective people. One of the lessons I picked up from there was “begin with the end in mind”.
- #11 I then read and listened to many of Brain Tracy’s
- #13 What they suggest you want to achieve great things in business you should begin with a vision. You than go and find the people, resources, and knowledge needed to turn that vision into a reality.
- #14 If we used an example of a chef…
- #15 I am going to convince you that epically in the early stages of starting a business these ideas are wrong. Yes, new research on entrepreneurship shows that these guys have gotten it wrong. But before I show you the research for those of you who don’t know lets introduce a little bit about these concepts in detail and how they think.
- #18 Started with R300,000 and turned it into R2 billion. Bruce Flohr, founder of RailTex.
- #26 The results showed the vast majority, 81%, gave themselves a 7 out of 10 chance of success or greater.
- #27 The results showed the vast majority, 81%, gave themselves a 7 out of 10 chance of success or greater.
- #28 The results showed the vast majority, 81%, gave themselves a 7 out of 10 chance of success or greater.
- #29 The results showed the vast majority, 81%, gave themselves a 7 out of 10 chance of success or greater.
- #31 “I was pursuing my passion.” – PierrieOmyar
- #32 And as a result most successful entrepreneurs will probably recommend that you let passion be your guiding force, like Richard Branson says “start your business around something that is a passion of yours”
- #33 I then read and listened to many of Brain Tracy’s
- #34 “I was pursuing my passion.” – PierrieOmyar
- #35 The results showed the vast majority, 81%, gave themselves a 7 out of 10 chance of success or greater.
- #36 The results showed the vast majority, 81%, gave themselves a 7 out of 10 chance of success or greater.
- #37 The results showed the vast majority, 81%, gave themselves a 7 out of 10 chance of success or greater.
- #38 The results showed the vast majority, 81%, gave themselves a 7 out of 10 chance of success or greater.
- #40 Take for example this large scale study done by Reynolds (1987) they showed that business which started with large sales in the first year were far more likely to grow then business which didn’t.
- #42 Mark Zuckerberg when he started facebook had spent month building the site, and before building the site he had built similar site called facemash.com. Were he hacked university network downloaded all the girls photo’s and created a site that would bring up two photos that would allow user to choose what was prettier and then create a list of hottest girls downwards. As you can imagine the feminist at Harvard did not take kindly and he was almost expelled. But the moral is that he spent a number of months preparing.
- #43 I then read and listened to many of Brain Tracy’s
- #44 I then read and listened to many of Brain Tracy’s
- #45 I then read and listened to many of Brain Tracy’s
- #46 I then read and listened to many of Brain Tracy’s
- #47 I then read and listened to many of Brain Tracy’s
- #48 I then read and listened to many of Brain Tracy’s
- #49 The results showed the vast majority, 81%, gave themselves a 7 out of 10 chance of success or greater.
- #50 The results showed the vast majority, 81%, gave themselves a 7 out of 10 chance of success or greater.
- #52 The results showed the vast majority, 81%, gave themselves a 7 out of 10 chance of success or greater.
- #53 The results showed the vast majority, 81%, gave themselves a 7 out of 10 chance of success or greater.
- #54 The results showed the vast majority, 81%, gave themselves a 7 out of 10 chance of success or greater.
- #55 The results showed the vast majority, 81%, gave themselves a 7 out of 10 chance of success or greater.
- #57 Exactly how to make intelligent guess or create a workable business model.
- #58 Exactly how to make intelligent guess or create a workable business model.
- #59 Exactly how to make intelligent guess or create a workable business model.
- #60 Exactly how to make intelligent guess or create a workable business model.
- #61 Exactly how to make intelligent guess or create a workable business model.
- #62 Exactly how to make intelligent guess or create a workable business model.
- #63 Exactly how to make intelligent guess or create a workable business model.
- #64 Exactly how to make intelligent guess or create a workable business model.
- #65 Exactly how to make intelligent guess or create a workable business model.
- #69 What is pre-mature scaling. No it is not scaling the fish before it’s dead, or getting on the bathroom scale before it is ready for you.
- #70 What is pre-mature scaling. No it is not scaling the fish before it’s dead, or getting on the bathroom scale before it is ready for you.
- #71 It is when you start growing a business before you have found product-market fit.
- #72 One of the best examples of pre-mature scaling was webvan.
- #74 A recent study done last year by a group of researchers in silicon valley 3,200 internet start ups found that a full 74% of internet start ups failed because they tried to grow the business. Before they had found product market fit.
- #75 They also found that business that found product-market fit grow at about 20 times faster than startups that scale to early. The bottom line is you don’t want to start making moves on that girl until you know she is very interested and will be willing to stick around.
- #77 Exactly how to make intelligent guess or create a workable business model.
- #85 There is the big idea that very successful entrepreneurs are wild crazy risk takers. In fact,
- #88 There is the big idea that very successful entrepreneurs are wild crazy risk takers. In fact,
- #90 There is the big idea that very successful entrepreneurs are wild crazy risk takers. In fact,
- #92 The results showed the vast majority, 81%, gave themselves a 7 out of 10 chance of success or greater.