Startup Opportunity Discovery & Evaluation (SXSW)

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Startup Opportunity Discovery & Evaluation PREPARED FOR SXSWi 2014 BY NEAL CABAGE & SONYA ZHANG, PhD

description

Startup opportunity discovery and evaluation. In this presentation the authors of The Smarter Startup demonstrate a systematic approach to surfacing and evaluating startup ideas to increase likelihood of success. This is product strategy for startups.

Transcript of Startup Opportunity Discovery & Evaluation (SXSW)

Page 1: Startup Opportunity Discovery & Evaluation (SXSW)

Startup Opportunity Discovery & Evaluation

PREPARED FOR SXSWi 2014

BY NEAL CABAGE & SONYA ZHANG, PhD

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Sonya Zhang

Professor

INTRODUCTION

Introductions

Neal Cabage

Entrepreneur, Product Manager

Digital product architect. Founded

ProductCamp.LA and PMA.LA. Built

and sold two startups. Authored the

book, The Smarter Startup.

PhD in Information Systems and

Technology, M.S. in Computer

Science, and MBA. Researched

Internet Entrepreneurship and

Digital Product Strategy.

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THE SMARTER STARTUP

PRODUCT STRATEGY FOR STARTUPS

The Smarter Startup looks at why some

startups succeed while others fail. By taking a

more strategic approach to entrepreneurship,

founders can improve their own outcomes.

Written by Neal Cabage and Sonya Zhang, PhD,

and published by Pearsons/NewRiders.

INTRODUCTION

Our Book

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Benjamin Franklin

INTRODUCTION

Conventional Wisdom

Diligence is the mother of good luck.

Thomas Edison

Genius is one percent inspiration and

ninety-nine percent perspiration.

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Benjamin Franklin

INTRODUCTION

Conventional Wisdom

Diligence is the mother of good luck.

Thomas Edison

Genius is one percent inspiration and

ninety-nine percent perspiration.

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Benjamin Franklin

INTRODUCTION

Conventional Wisdom

Diligence is the mother of good luck.

Thomas Edison

Genius is one percent inspiration and

ninety-nine percent perspiration.

It  is  True?  

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Diligent Negligent

Success

Failure

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.

There’s more to the story!

PROBLEM STATEMENT

Conventional Wisdom

NOT ENTIRELY

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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  (0ming)  

Direc0on  (customer  need)  

What Is the Whole Story? PROBLEM STATEMENT

Drag  (compe00on)  

Velocity  (hard  work)  

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Work Smart, Not Just Hard

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.

INTRODUCTION

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A SYSTEMATIC APPROACH THE SOLUTION

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We’ve developed a method for

systematically discovering startup

opportunities by leveraging the

Business Model Archetypes model

and the Startup Opportunity

Scorecard to identify ideas and

objectively evaluate them.

FRAMEWORK OVERVIEW

Startup Opportunity Framework

Opportunity Scorecard

Finance

Timing

Competition

Team

Product Customer

Idea Idea

Idea

Business Model Archetypes

Vert

ical

Mar

kets A B+ F

A

A-

Scorecard Criteria

Busi

ness

Idea

s+ =

Business Model Archetypes Startup Opportunity Scorecard

Ideation Matrix Evalaution Matrix

#1

Trade

ProductService

Marketplace

Ecosystem

Subscription

Brokerage

IDEATION PROCESS EVALUATION PROCESS

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Opportunity Scorecard

Finance

Timing

Competition

Team

Product Customer

Idea Idea

Idea

Business Model Archetypes

Vert

ical

Mar

kets A B+ F

A

A-

Scorecard Criteria

Busi

ness

Idea

s+ =Ideation Matrix Evalaution Matrix

#1

Trade

ProductService

Marketplace

Ecosystem

Subscription

Brokerage

IDEATION PROCESS EVALUATION PROCESS

FRAMEWORK OVERVIEW

Startup Opportunity Framework

Start by considering the possible

business model archetypes (eg

personalities) for every market actor

you’re considering serving. Take

note of all of the possibilities you

uncover in the ideation matrix.

STEP 1: IDEATION

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Opportunity Scorecard

Finance

Timing

Competition

Team

Product Customer

Idea Idea

Idea

Business Model Archetypes

Vert

ical

Mar

kets A B+ F

A

A-

Scorecard Criteria

Busi

ness

Idea

s+ =

IDEATION PROCESS EVALUATION PROCESS

Ideation Matrix Evalaution Matrix

#1

Trade

ProductService

Marketplace

Ecosystem

Subscription

Brokerage

FRAMEWORK OVERVIEW

Startup Opportunity Framework

Objectively evaluate all of the ideas

you’ve developed against a set of

entrepreneurial heuristics that will

help you to identify weaknesses.

Based on this, score each idea to

determine the best idea.

STEP 2: EVALUATION

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OPPORTUNITY IDEATION STEP ONE

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Describes 7 abstract business model

archetypes (fundamental personalities)

from which every business model is

inherited. Two prototypes (applied

examples) are given for each archetype.

This represents a holistic view of the

possibilities.

BUSINESS MODEL ARCHETYPES

Business Model Archetypes

Trade

ProductService

Marketplace

Ecosystem

Subscription

Brokerage

prototypes: • e-commerce• lead generation

prototypes: • software • content

prototypes: • service platform • service agency

prototypes: • ad network • dropship program

prototypes: • content as a service • software as service

prototypes: • products market • services market

prototypes: • technology platform • media platform

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BUSINESS MODEL ARCHETYPES

Business Models Everywhere!

BRICKS & CLICKS

COLLECTIVE

CUT OUT THE MIDDLE MAN

DIRECT SALES

DISTRIBUTION MODEL

VALUE ADDED RESELLER

FREE IN, FREE OUT

FREEMIUM

AUCTION / ONLINE AUCTION

ALL-IN-ONE

LOW-COST BARRIER

LOYALTY

MONOPOLISTIC

MULTI-LEVEL MARKETING

NETWORK EFFECTS

PRO OPEN SOURCE

PYRAMID SCHEME

RAZOR & BLADES

SERVITIZATION OF PRODUCTS

SUBSCRIPTION

etcetera,  etcetera  …  

There  are  many  disparate  business  models  that  were  defined  in  isola0on  but  nothing  comprehensive  

 that  describes  the  fundamentally  unique  paCerns  in  a  single  and  concise  framework  that  suited  our  needs.      

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Carl Jung Psychologist

BUSINESS MODEL ARCHETYPES

What is an Archetype?

A philosophical idea, referring to pure

forms which embody the fundamental

characteristics of a thing.

The concept was based on Carl Jung’s Personality Archetypes which describes fundamental

personalities and roles that we draw from to develop our own unique personality.

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PRODUCT TANGIBLE SOLUTION

SERVICE CUSTOM SOLUTION

TRADE CONNECT BUYERS & SELLERS

The Business Model Archetypes framework

takes a step back from specific business

models to say there are 7 abstract archetypes

(fundamental personalities) from which every

business inherits. Two prototypes (examples)

are given for each archetype. This represents

a holistic view of the possibilities.

BUSINESS MODEL ARCHETYPES

Primary Archetypes

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BUSINESS MODEL ARCHETYPES

Product Archetype

PROTOTYPES WITH EXAMPLES

TRADE

PRODUCT SERVICE Software:

•  Rovio (mobile apps)

•  AheadWorks (plugins)

•  WooThemes (themes)

Content: •  AdvantageMedia (ebooks)

•  DemandMedia (articles)

•  MakerStudios (videos)

Develop a tangible good and sell on a one-time fee

basis (purchase or license). Requires high up-front sunk

capital but is able to leverage economies of scale.

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BUSINESS MODEL ARCHETYPES

Service Archetype

Doing work for a client and monetized on a per-use

basis. Professionals or technicians with expert

knowledge and skills in a specific domain provides

intangible solutions to clients.

PROTOTYPES WITH EXAMPLES

TRADE

SERVICE

PRODUCT

Platform as a Service: •  SendGrid (email) •  MaxMind (geo ip) •  DemandWare (eCom)

Service Agency: •  BlueAcorn (magento) •  Appirio (salesforce) •  ReachLocal (adwords)

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PRODUCT

TRADE

SERVICE

BUSINESS MODEL ARCHETYPES

Trade Archetype

Connecting prospective buyers with a product they

seek to buy and making profit on the spread

between what a buyer will pay versus the cost of

acquisition.

PROTOTYPES WITH EXAMPLES

LeadGen: •  Lending Tree (financial) •  Capterra (software) •  Shopzilla (consumer)

Ecommerce: •  Target.com (retail) •  Kinerase.com(source) •  Intellius (data)

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Carl Jung Psychologist

The meeting of two personalities (archetypes) is like the contact of

two chemical substances; if there is any reaction, both are transformed.

BUSINESS MODEL ARCHETYPES

Secondary Archetypes

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MARKETPLACE TANGIBLE SOLUTION

SUBSCRIPTION CUSTOM SOLUTION

BROKERAGE CONNECT BUYERS & SELLERS

The Business Model Archetypes framework

takes a step back from specific business

models to say there are 7 abstract archetypes

(fundamental personalities) from which every

business inherits. Two prototypes (examples)

are given for each archetype. This represents

a holistic view of the possibilities.

BUSINESS MODEL ARCHETYPES

Secondary Archetypes

ECOSYSTEM CONNECT BUYERS & SELLERS

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SERVICE TRADE

BUSINESS MODEL ARCHETYPES

Brokerage Archetype

BROKERAGE  

PROTOTYPES WITH EXAMPLES

Ad Network •  DoubleClick (cpm) •  Kontera (in-text) •  Chitika (ppc)

Dropship •  Doba (dropship) •  Ordoro (dropship) •  Simplx (dropship)

Sourcing on behalf of a client for a retainer or per-transaction fee. The client then profits from any

arbitrage spread rather than the sourcing partner.

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TRADE PRODUCT

BUSINESS MODEL ARCHETYPES

Marketplace Archetype

MARKETPLACE  

PROTOTYPES WITH EXAMPLES

Service Marketplace •  oDesk (outsourcing) •  Elance (freelancing) •  Care.com (nannies)

Product Marketplace •  eBay (auction) •  Etsy (crafts) •  ThemeForest (themes)

Create a platform that facilitates trade, rather than actually trading. This is a network effects business

that depends heavily on bringing together sufficient

demand and supply.

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SERVICE PRODUCT

BUSINESS MODEL ARCHETYPES

Subscription Archetype

SUBSCRIPTION  

PROTOTYPES WITH EXAMPLES

Content as Service: •  Ancestry.com (genealogy) •  Lynda.com (education) •  Match.com (dating)

Software as Service: •  Mint.com (finance) •  Wordpress.com (site) •  HubSpot.com (mktg)

Building, maintaining, and supporting an online product in an on-going fashion rather than a one-

time sell. Customers pay a monthly subscription

service and benefit from continued improvements.

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SERVICE

TRADE PRODUCT

BUSINESS MODEL ARCHETYPES

Ecosystem Archetype

ECOSYSTEM  

PROTOTYPES WITH EXAMPLES

Media Platform: •  Facebook (social) •  Google (search) •  Yahoo (content)

Technology Platform: •  Apple (hardware/OS) •  Magento (eCommerce) •  SalesForce (CRM)

A mature market leader begins as another archetype but expands as a result of success. What may begin

as a product will also develop a marketplace,

services, and even a program for ISV vendors.

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BUSINESS MODEL ARCHETYPES

Business Model Archetypes

Trade

ProductService

Marketplace

Ecosystem

Subscription

Brokerage

prototypes: • e-commerce• lead generation

prototypes: • software • content

prototypes: • service platform • service agency

prototypes: • ad network • dropship program

prototypes: • content as a service • software as service

prototypes: • products market • services market

prototypes: • technology platform • media platform

Primary archetypes Review:

•  Trade, Product, Service

Secondary archetypes Review:

•  Product + Trade = Marketplace

•  Service + Trade = Brokerage

•  Product + Service = Subscription

•  Product + Service + Trade = Ecosystem

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Business Models Archetypes

Ideation Matrix

Evaluation Matrix

Opportunity Discovery Process

Trade

ProductService

Marketplace

Ecosystem

Subscription

Brokerage

A B+ F

A

A-

Scorecard Criteria

Busi

ness

Idea

s

STEP BY STEP PROCESS

Idea #1 Idea #2 Idea #3

Idea #4 Idea #5 Idea #6

Idea #7 Idea #8 Idea #9

Business Model Archetypes

Vert

ical

Mar

kets

Identifies the spectrum of

fundamental business

“personalities” that you can

consider consider when

defining your own unique

business model.

Identify an applied business

concept for every archetype

personality, across all of the

vertical markets you are

considering.

Grade each of the ideas

you’ve identified in the

ideation matrix, based on the

six scorecard success criteria

and compare to determine

the best opportunity.

6

6 Market Dynamics

The 6 market dynamics are a

set of known impact that

need to be considered for

success that can be used to

evaluate an ideas potential.

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Take a systematic approach to

identifying all the possible

opportunities. You will identify a

startup idea for every business model

archetype, for each business vertical

you are considering. Once you have

done this, you can begin to evaluate

these ideas.

Ideation Matrix

Idea #1 Idea #2 Idea #3

Idea #4 Idea #5 Idea #6

Idea #7 Idea #8 Idea #9

Business Model ArchetypesVe

rtic

al M

arke

tsSTEP BY STEP PROCESS

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IDEATION MATRIX

Create a matrix with the business model archetypes across the x-axis, and vertical market

segments you’re interested in exploring on the y-axis. Cancel out any business model archetypes

you already know aren’t a good fit for your team.

Identifying Opportunity

  Product Service Trade Subscrip3on Marketplace Brokerage Ecosystem

   Real  Estate  Agents

     Real  Estate  Brokers

     Property  Managers

Can’t  Start  Here!  Don’t  Possess  Trade  Func0onal  skills  

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IDEATION MATRIX

Develop a business idea for each market actor that you’re considering, for each of the

business model archetypes. Fill them into the grid.

Identifying Opportunity

  Product Service Subscrip3on Marketplace Brokerage

   Real  Estate  Agents

   Real  Estate  Brokers

   Property  Managers

IDX  Wordpress    Theme  

Marke0ng    CRM  

Property    Search  Site  

Virtual    Assistant   Lead    

Genera0on  

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OPPORTUNITY EVALUATION STEP TWO

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Business Models Archetypes

Ideation Matrix

Startup Heuristics

Evaluation Matrix

Opportunity Discovery Process

Trade

ProductService

Marketplace

Ecosystem

Subscription

BrokerageIdea Idea

Idea

Business Model Archetypes

Vert

ical

Mar

kets

A B+ F

A

A-

Scorecard Criteria

Busi

ness

Idea

s

STEP BY STEP PROCESS

Identifies the spectrum of

fundamental business

“personalities” that you can

consider consider when

defining your own unique

business model.

Identify an applied business

concept for every archetype

personality, across all of the

vertical markets you are

considering.

Grade each of the ideas

you’ve identified in the

ideation matrix, based on the

six scorecard success criteria

and compare to determine

the best opportunity.

The 6 market dynamics are a

set of known impact that

need to be considered for

success that can be used to

evaluate an ideas potential.

6

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STARTUP STRATEGY

The 6 Market Dynamics

THE FUNDAMENTAL CRITERIA

START HERE

There are 6 fundamental market dynamics

to consider when developing a startup

concept. We’ve developed 18 startup

heuristcis (3 per market dynamics).

customer  

product  

compe00on  

0ming  

financial  

team   The  6    Market    Dynamics  

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STARTUP HEURISTICS

The 18 Rules of Startup Strategy

Startup Heuristics

Finance

13. Low Sunk Costs

14. Working Capital Float

15. Economies of Scale

Timing

7. Recent Innovation Enabler

8. Demand Already Established

9. No Signs of Commoditization

Competition

10. Clear Market Inefficiency

11. Low Barriers to Entry

12. Differentiable Position

Team

16. Subject Matter Expertise

17. Functional Competence

18. Supplier Partnerships

Product

4. Customer Focused Solution

5. Low Barriers to Adoption

6. Clear Value Proposition

Customer

1. Unmet Need or Desire

2. Right Size Market or Segment

3. Reliable Access to Customers

© 2014 Cabage & Zhang

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WHAT’S A GOOD CUSTOMER?

The ideal customer wants something the

market hasn’t yet delivered. 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 SCORECARD

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?

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FOCUS ON HELPING OTHERS

FOCUS ON CREATING VALUE

The best opportunities come from helping

others. Find a need or desire that is not yet

solved, 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

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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 fund and plans to be aggressive.

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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).

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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 SCORECARD

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

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PRODUCT CRITERIA

Customer Focused Solution

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.

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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

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PRODUCT CRITERIA

Low Barriers to Adoption

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.

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Easy Workflow Integration

Addt’l Benefits (value chain)

Solves My Problem

Existing Investments

Learning Curve

IS THE VALUE CLEAR?

VALUE = BENEFIT - COST

PRODUCT CRITERIA

Clear Value Proposition

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.

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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 SCORECARD

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

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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 %)

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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 %)

Chas

m

New Entrant Opportunity

Ideal point to enter a market

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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 capitulated (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  

Consolidation Early Movers

Capitulation

*

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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.

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What cost $5 mi l l ion to

accomplish 10 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

$5,000,000

$500,000

$50,000

$5,000

2000

2005

2009

2012

Open Source Software

The Cloud

Hosting Commoditized

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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

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Data From NetCraft 2013 Web Server Survey

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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 SCORECARD

Competition Criteria

CLEAR MARKET INEFFICIENCY Stagnant or Fragmented Market

LOW BARRIERS TO ENTRY Easy & Cheap to Compete?

DIFFERENTIABLE POSITION Something Special or Different?

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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 of splintered (fragmented).

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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

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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

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SEGMENTED MARKET FOCUS ON SPECIFIC CUSTOMER

LOW PRICE LEADERSHIP FOCUS ON VOLUME & COMMITY

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

Page 58: Startup Opportunity Discovery & Evaluation (SXSW)

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 SCORECARD

Financial Criteria

LOW SUNK COSTS Up Front Capital at Risk?

WORKING CAPITAL FLOAT Gap Between Payable/Receivables

ECONOMIES OF SCALE Margins Increase With Volume?

Page 59: Startup Opportunity Discovery & Evaluation (SXSW)

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

Page 60: Startup Opportunity Discovery & Evaluation (SXSW)

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

Page 61: Startup Opportunity Discovery & Evaluation (SXSW)

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 CostSca

lable

Profits

Page 62: Startup Opportunity Discovery & Evaluation (SXSW)

WHAT’S GOOD TEAM FIT?

Just because an opportunity exists,

doesn’t mean your team is likely to

succeed. Does your team have an

inherent competitive advantage for the

endeavor? Do you possess deep

knowledge, technical skills to deliver, &

access to key partners and resources?

STARTUP SCORECARD

Team Fit Criteria

SUBJECT MATTER EXPERTISE Deep Knowledge of Market?

FUNCTIONAL COMPETENCE Technical Skills to Deliver

SUPPLIER PARTNERSHIPS Access to Materials at Good Cost

Page 63: Startup Opportunity Discovery & Evaluation (SXSW)

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 deep needs 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 Expert Subject Matter Expert

Page 64: Startup Opportunity Discovery & Evaluation (SXSW)

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?

Page 65: Startup Opportunity Discovery & Evaluation (SXSW)

Evaluate your startup idea across the six market

dynamics 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 A   B  

D   B  

A   B  B-­‐  

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

Page 66: Startup Opportunity Discovery & Evaluation (SXSW)

Business Models Archetypes

Ideation Matrix

Evaluation Matrix

Opportunity Discovery Process

Trade

ProductService

Marketplace

Ecosystem

Subscription

BrokerageIdea Idea

Idea

Business Model Archetypes

Vert

ical

Mar

kets

STEP BY STEP PROCESS

A B+ F

A

A-

Scorecard Criteria

Busi

ness

Idea

s

Identifies the spectrum of

fundamental business

“personalities” that you can

consider consider when

defining your own unique

business model.

Identify an applied business

concept for every archetype

personality, across all of the

vertical markets you are

considering.

Grade each of the ideas

you’ve identified in the

ideation matrix, based on the

six scorecard success criteria

and compare to determine

the best opportunity.

6

6 Market Dynamics

The 6 market dynamics are a

set of known impact that

need to be considered for

success that can be used to

evaluate an ideas potential.

Page 67: Startup Opportunity Discovery & Evaluation (SXSW)

The last step of the process is to take

all of the ideas we generated in the

ideation matrix (step 2) and grade them

using the Startup Opportunity

Scorecard. This will provide an easy

point of comparison of strengths and

weaknesses of the opportunities being

considered and facilitate a decision.

STEP BY STEP PROCESS

Evaluation Matrix

A B+ F

A

A-

Scorecard Criteria

Busi

ness

Idea

s

Page 68: Startup Opportunity Discovery & Evaluation (SXSW)

EVALUATION MATRIX

Score Your Ideas

    Customer   Product   Timing   Compe33on   Finance   Team   Overall  

   IDX  WordPress  Theme C   B   B   B   A   A  

   Virtual  Assistant

   Marke3ng  CRM

   Property  Search  Site

   Lead  Genera3on

Now we’ll evaluate each idea against each of the 6 market dynamics. We’ll be able to see relative

strengths and weaknesses and will give a final overall score accordingly.

Page 69: Startup Opportunity Discovery & Evaluation (SXSW)

EVALUATION MATRIX

Score Your Ideas

    Customer   Product   Timing   Compe33on   Finance   Team   Overall  

   IDX  WordPress  Theme C   B   B   B   A   A   B+  

   Virtual  Assistant

   Marke3ng  CRM

   Property  Search  Site

   Lead  Genera3on

Now we’ll evaluate each idea against each of the 6 market dynamics. We’ll be able to see relative

strengths and weaknesses and will give a final overall score accordingly.

Page 70: Startup Opportunity Discovery & Evaluation (SXSW)

EVALUATION MATRIX

Score Your Ideas

    Customer   Product   Timing   Compe33on   Finance   Team   Overall  

   IDX  WordPress  Theme C   B   B   B   A   A   B+  

   Virtual  Assistant C   C   B   B   C   C   C+  

   Marke3ng  CRM C   C   D   D   C   A   C-­‐  

   Property  Search  Site C   A   D   F   D   A   D+  

   Lead  Genera3on C   A   B   B   B   B   B  

Now we’ll evaluate each idea against each of the 6 market dynamics. We’ll be able to see relative

strengths and weaknesses and will give a final overall score accordingly.

Page 71: Startup Opportunity Discovery & Evaluation (SXSW)

Now we’ll evaluate each idea against each of the 6 market dynamics. We’ll be able to see relative

strengths and weaknesses and will give a final overall score accordingly.

EVALUATION MATRIX

Score Your Ideas

    Customer   Product   Timing   Compe33on   Finance   Team   Overall  

   IDX  WordPress  Theme C   B   B   B   A   A   B+  

   Virtual  Assistant C   C   B   B   C   C   C+  

   Marke3ng  CRM C   C   D   D   C   A   C-­‐  

   Property  Search  Site C   A   D   F   D   A   D+  

   Lead  Genera3on C   A   B   B   B   B   B  

   

Think  twice  about  any  idea  that  earns  only  a  D  or  F  –  this  may  mean  its  non-­‐viable.  

WARNING!

Page 72: Startup Opportunity Discovery & Evaluation (SXSW)

EVALUATION MATRIX

Score Your Ideas

    Customer   Product   Timing   Compe33on   Finance   Team   Overall  

   IDX  WordPress  Theme C   B   B   B   A   A   B+  

   Virtual  Assistant C   C   B   B   C   C   C+  

   Marke3ng  CRM C   C   D   D   C   A   C-­‐  

   Property  Search  Site C   A   D   F   D   A   D+  

   Lead  Genera3on C   A   B   B   B   B   B  

   

Two  ideas  that  pass  the  test.    You  could  choose  one  of  these  or  keep  searching.  

CONGRATULATIONS!

Page 73: Startup Opportunity Discovery & Evaluation (SXSW)

IDX WordPress Themes IDEA #1

EVALUATION MATRIX

Selecting an Idea

Lead Generation IDEA #2

A B+ F

A

A-

Scorecard Criteria

Busi

ness

Idea

s

In the final analysis, there are two ideas from our original pool that appear to be most viable. They

have the best overall score and also do not have a particular challenge on any single criteria.

Page 74: Startup Opportunity Discovery & Evaluation (SXSW)

IDX WordPress Themes IDEA #1

EVALUATION MATRIX

Selecting an Idea

Lead Generation IDEA #2

A B+ F

A

A-

Scorecard Criteria

Busi

ness

Idea

s

In the final analysis, there are two ideas from our original pool that appear to be most viable. They

have the best overall score and also do not have a particular challenge on any single criteria. Select the idea you’re going to explore (first).

Page 75: Startup Opportunity Discovery & Evaluation (SXSW)

Mark Twain Author

VISION DEFINITION

Finally, Define Your Vision

I didn't have time to write a short

letter, so I wrote a long one instead.

A concise statement about a complex topic requires an investment of time and the clarity of thought. That critical analysis can reveal weaknesses in a plan, before you

begin developing it. Its time to do this for your new startup.

Page 76: Startup Opportunity Discovery & Evaluation (SXSW)

Once you’ve decided on your

idea, its time to begin clarifying

the idea, who you’re serving,

and how you’ll position yourself

in the competitive marketplace.

Defining Your Startup Vision

VISION DEFINITION

Page 77: Startup Opportunity Discovery & Evaluation (SXSW)

Once you’ve decided on your

idea, its time to begin clarifying

the idea, who you’re serving,

and how you’ll position yourself

in the competitive marketplace.

Defining Your Startup Vision

VISION DEFINITION

Vision Definition

Answer each question concisely in the Vision Definition worksheet. It takes effort to distill your thoughts into small soundbytes that answer these questions but it is a necessary step on the way to clarity. Once

that is done, compose a 3-4 sentence elevator pitch you can share with client prospects and investors.

Page 78: Startup Opportunity Discovery & Evaluation (SXSW)

Successful Real Estate agents, earning $100k / year

1. Phone sales & webinars2. Conferences

Marketing Automation CRM

Software Product

WordPress Theme *Product*(not SaaS) for the DIY agent

Tech disruption. First mover (the Spark API for IDX)

1. Me (product/tech)2. John (BizDev/Sales)

1. Spark Platorm API2. Access to all MLS IDX Feeds

$50,000 to build core product

$50,000 line of credit

IDX Website/CRM software for serious RE agents to capture & nurture online leads and grow their business. Built on Wordpress so they can"own the system, not rent". First-mover advantage by integratingthe Spark IDX API which makes it possible.

Real Estate IDX WordPress Themes May 9

IDX System to capture & nurture online leads

1. Own don't Rent (your website)2. Beautiful original design

Page 79: Startup Opportunity Discovery & Evaluation (SXSW)

PREPARED FOR SXSWi 2014

BY NEAL CABAGE & SONYA ZHANG, PhD

Thank You!

NealCabage.com SonyaZhang.com