Is My Idea Worth Money? - Presentation From Innovation Camp
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I was asked to speak at a recent Innovation Camp on the topic of objectively evaluating a new business idea. An approach for evaluating the value of an idea or new venture. Also provides some insight into the thought processes of a venture capitalist when they are reviewing a potential investment. See details on presentation here http://www.techguerilla.com/is-my-idea-worth-money-stlinnovate-stlinnovat
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Is My Idea Worth Money? - Presentation From Innovation Camp
- 1. Is my idea worth money? Evaluating your idea
- 2. Matt Ridings Founder and CEO, MSR Consulting As a venture capitalist over $150 Million invested As a entrepreneur over $75 Million raised
- 3. Warnings Adult language may find its way into this presentation, if you have an allergic condition to such language it is recommended you leave now. If you ask me a question, I will not lie to your face, so beware what you ask. Now would be a good time to turn your cellphone off
- 4. Is my idea worth money?
- 6. Who has experience? Entrepreneurs. Accessible but they may pad the truth Investors (Angels & VC). Less accessible but they’ll give you honest, sometimes painful, opinion
- 7. Think like an investor If you were going to invest in your company what would be the questions you would ask?
- 9. 1. The Big Question Is it solving a real problem?* *Many innovative products don’t know the answer to this in the beginning, but they are rare
- 10. 2. The Bigger Question Are you the person to solve it?
- 11. Key Attributes What does an investor look for in you?
- 13. Passion Believe it, own it, live it. Commitment
- 15. Domain Expertise Knowledge of the problem space
- 16. Skills What hats can you wear?
- 17. Leadership Can you build and run a team?
- 18. Vision Are you a self-limiter?
- 20. Coachability Lifetime learner, moldability. Know what you don’t know
- 21. Additional Trait Know when to fail (ok, I added that one) Spectre of failure motivates
- 22. 3. The Biggest Question Can it make a lot of money?
- 23. Value Proposition Target – Who the product/service is servicing Explanation – Concise explanation of how it works Benefits – Key claims Verification – Quantify key benefits Position – Similarities/Differences to alternatives Requirements – What do I need to purchase/use
- 24. Defined vs. New Market Defined Less risk Lower upside Known identifiers for value proposition New Market High risk Higher potential upside More difficult to evaluate value proposition accurately Pricing model is a particular difficulty
- 25. Summary Think like an investor Clearly define the problem you are solving Learn to self-evaluate objectively Build a true value proposition
- 26. Q & A
- 27. Matt Ridings @techguerilla www.msrconsultants.com
Editor's Notes
- Currently I run MSR Consulting which specializes in providing strategic insight into applications of technology to progressive businesses and startups as well as complete Managed Services. In addition I am an advisor to multiple startups and mentor to several new entrepreneurs.I was a Venture Capitalist in the Bay Area in a $700 Million dollar fund focused on internet startups. I’ve been involved in multiple startups, including as Partner in a consulting firm where we raised over $70 Million. That’s enough to show that I’m qualified to speak on the topic at hand, if you’d like to know more you can seek out my LinkedIn profile.
- I don’t intend on this being an R rated presentation, but since I’m not known for censoring myself I give fair warning.
- So let’s get started. Today we’re examining how one goes about determining whether or not an idea has monetary value. While the presentation is couched in terms related to new startups it is just as applicable to an established business looking to move into a new market, product, etc.
- So you have this great new idea for a product/service. You feel at a gut level that it’s a winner, but how do you go about validating that gut instinct? I recommend that you go to those with the most experience in evaluating these types of ideas. Entrepreneurs, and Investors.
- Entrepreneurs are great resources, but they are a better resource for overcoming the operational challenges of running a business (they’ve been there done that) than they are evaluating new ideas. Investors on the other hand do nothing but evaluate ideas, so step outside yourself and view your idea as an investor would. What’s that look like?
- An experienced investor in startups is by far the most likely person to know whether your idea can bear fruit. The problem is, not many of us have access to them. But if we know what they look for in a startup, we can ask of ourselves some of the same questions they do to help us along our way.
- There are 3 big questions that an investor is going to look at. What might surprise you is that the first two have very little to do with how much money an idea might be worth.
- Does your idea solve a problem that needs solving? E.g. is there any demand to be generated from a solution? Note that there are exceptions to this rule, and unfortunately they are also the ones that tend to get the most attention. Those are new-market ideas in which the solution was presented before the actual problem was identified. For example, Twitter (in its current incarnation) did not solve a problem which had been identified as being important to be solved. These ideas are at the edge of the innovation cycle, but successes are such rare occurrences that it’s important you know how stacked the odds are against success in these areas.
- This is both the most difficult question to be objective about, as well as the most important. Do you have what it takes to make your idea a success? Note that this doesn’t mean you shouldn’t move forward if you’re not, it simply means you must identify those areas with shortcoming and fill them with other resources. So what are the types of traits an investor looks for?
- This is pretty self-explanatory. While integrity is important in all aspects of a business, it’s most important at the very beginning. Don’t bullshit yourself, and don’t bullshit others. Purposefully misleading someone else at this stage will only serve to undercut the value of everything else you have to say.
- If you can’t commit heart and soul to your idea who will? An investor wants to know that when the going gets tough you’ll have staying power to push through it.
- Ideally this experience would be having built and run an organization before. But it could be experience in starting and leading a club in college, a local community movement, a non-profit effort. The point is that you have experience in organizing and running something. There is no substitute for experience. By the way, an investor does not care so much if something you previously ran failed miserably. You will still get the credit for the experience and the lessons learned along the way.
- Do you have intimate knowledge of the area in which the problem exists that you are solving? It’s critical.
- What skills can you bring to bear in the running of a business? Marketing? Sales? Operations? Technical? HR? It requires more skillsets than any one individual has, but initially the more you can bring to the table the higher the chances of success.
- Will people follow you? Can you identify and hire a quality team and then lead them? Do you have control or ego issues that stop you from hiring the type of talent you should?
- Can you see the big picture and spot opportunities? If the market picture evolves can you see possibilitiesvs limitations? Do you hone in on a plan and then hold onto it so tightly that you are unwilling to change direction when needed?
- Do you set realistic objectives or are you purposefully deluding yourself? Setting unrealistic objectives that cannot be achieved serves noones purpose.
- Are you will to listen to others? Can you be taught? Are you aware of your shortcoming?
- This is a non-traditional item that I always add. Most people don’t like to mention the word failure. “Failure is not an option” right? I disagree. I think you need to set yourself very specific ‘breakpoints’ in which you throw in the towel. Not because I want your mentality to become negative, but because there is no better motivating factor on this planet to an entrepreneur than that of failure. If you have an actual point defined at which you admit failure, you will fight tooth and nail to avoid reaching it. Vagueness about that breakpoint only serves to allow you to make excuses to yourself about why “just a little more” is all you need to be successful.
- So it’s a good idea, and you seem like the right person to bring it to fruition. Now, can it make real money? This is where the heavy lifting comes in. Numbers, research, definitions, targets, etc, etc. all must be brought together. Many times this exercise can become one of “staring at a blank page”. But there are some basic rules of thumb when defining your value proposition that you can follow.
- There are some distinct differences when defining the value proposition, and in particular the pricing models for a venture that involves a very defined marketplace with known identifiers vs. a new market in which there are no competitive or historical indicators to work from. How do you price something that has never been sold before? What is its value in the marketplace? What happens if you overprice vs. underprice?Because of this new markets are inherently risky propositions, but they also contain potentially much larger upsides. Generally (from an investment standpoint) a new market venture will require more capital commitments to give it a better chance of success.