January 2003

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January 2003
Idea Generation and Evaluation for New Venture
Creation
Douglas Abrams - Parallax Capital Management
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Idea generation and evaluation

• Identifying and evaluating new ideas
• Avoiding the wrong ideas
• Some interesting trends and ideas
• Using brainstorming to generate ideas

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Sources of new business ideas

• Forces, trends and mega-trends tech, macro,
  social, political
• Changing market structures and needs
• Market inefficiencies
• Products in the market
• Personal experience, hobbies and pastimes,
  personal passions
• Cross regional, discipline or industry

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Characteristics of successful new business ideas

• Not necessarily a new invention
• Not necessarily a new idea
• Notion that is poised to be taken seriously in
  the market place
• Idea that is a tiny push away from general
  acceptance

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Evaluating new ideas

• Original?
• Feasible?
• Marketable?
• Profitable?

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Assessing feasibility of a new venture
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Analyze strengths and weaknesses

• Is the venture proprietary?
• Are the initial production costs realistic?
• Are the initial marketing costs realistic?
• Does the product have potential for high margins?
• Is the time required to get to the market and to
  reach the break-even point realistic?

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Look at both internal and external factors

• Is the potential market large?
• Is the product the first of a growing family?
• Does an initial customer exist?
• Are the development costs and calendar times
  realistic?
• Is this a growing industry?
• Can the product and the need for it be understood
  by the financial community?

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Evaluate technical feasibility

• Functional design and attractiveness
• Flexibility, durability, reliability
• Product safety
• Ease and low cost of maintenance
• Ease of processing and manufacturing
• User friendliness

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Evaluate marketability

• Investigate the full market potential and
  identifying customers
• Analyzing the extent to which the potential
  market can be exploited
• Determine opportunities and risks
• Information sources include
• General economic trends
• Market data
• Pricing data
• Competitive data

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Use an idea checklist

• Basic Feasibility
• Will it work? Is it legal?
• Competitive Advantage
• Advantages, competitors
• Buyer Decisions
• Who are the likely customers?
• How will they be serviced?
• Marketing of Goods Services
• How much budget for advertising and selling?
  Pricing? Distribution?

• Production of Goods Services
• Make or buy or both? QA?
• Staffing Decisions
• Who, when and competence?
• Financing
• How much is needed, where will it come from, ROE,
  exit strategy?

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Do you have these critical success factors?

• Uniqueness
• Amount of innovation required during pre-start-up
• Length of time a non-routine venture remain
  non-routine
• Investment
• Capital investment varies from industries
• Extent and timing of funds needed
• Sales Growth
• Growth pattern anticipated for new-venture sales
  and profits

• Product Availability
• Product and service still in development?
• Products released too soon be have to be recalled
  for further modifications, affecting companys
  image
• Customer Availability
• Critical consideration to determine who the
  customers are and what their buying habits are.

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Ask the right 10 questions about your idea

• 1. Is the product or service idea new?
• 2. What are its weak points?
• 3. What reaction has it received from the
  public?
• 4. Is it easily understood?
• 5. Can the product penetrate different market
  segments?

• 6. Has market research been conducted?
• 7. What sales and distribution methods will be
  used?
• 8. How will the product be made?
• 9. Will the business concept be developed and
  licensed to others or sold away?
• 10. Can the company get or does it already have
  the necessary skills to operate?

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Idea generation and evaluation

• Identifying and evaluating new ideas
• Avoiding the wrong ideas
• Some interesting trends and ideas
• Using brainstorming to generate ideas

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Pitfalls in selecting new ventures
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More pitfalls in selecting new ventures
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Some big-name new venture ideas that failed

• RCAs Videodisc
• Superior image quality, but lack of recording
  capability lost out to videotape. Loss 500
  million
• IBMs PC Jr
• The awkward Chiclet keyboard, slow
  microprocessor, unattractive price and a late
  launch cost IBM 40 million

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Its not just high-tech ideas that fail

• Coca-Colas New Coke
• This answer to Pepsis new fomula provoked a
  national uproar later led to Coke Light
• RJ Reynolds Premier
• Smoke-less cigarette with a terrible taste cost
  to develop 800 million

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Why do new ventures fail?

• Product / Market Problems
• Poor timing, product design problems,
  inappropriate distribution strategy
• Unclear business definition, over-reliance on one
  customer
• Financial Difficulties
• Initial under-capitalization, assuming debt too
  early, VC relationship problems
• Managerial problems
• Concept of a team approach
• HR problems

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Internal problems experienced by entrepreneurs
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External problems experienced by entrepreneurs
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Determinants of new venture failures
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Idea generation and evaluation

• Identifying and evaluating new ideas
• Avoiding the wrong ideas
• Some interesting trends and ideas
• Using brainstorming to generate ideas

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Past and present trends and mega-trends
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Past and present trends and mega-trends
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Examples of current tech trends and megatrends
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Examples of current tech trends and megatrends
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Examples of current tech trends and megatrends
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Products that could be

• Blind data
• A tiny transmitter, worn on a key ring or
  pendant. It can be programmed with the vital
  statistics of both you and the kind of soul mate
  you're seeking. When your transmitter vibrates,
  it means that somebody else's is vibrating, too.
  Somebody less than 30 feet away is looking for
  someone just like you.
• Tivocorder
• A tiny, pen-shaped digital audio recorder. Once
  in your shirt pocket, it would continuously
  record the sound around you. At any time, while
  continuing to record, you could play back the
  last 20 minutes of whatever you've just heard

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Products that could be

• MP3-toothbrush
• An MP3-playing toothbrush for use during a
  hygiene moment.
• Intercom-Puter
• An inexpensive U.S.B. intercom that connects to
  each computer and exploits your network wiring.
  It would be quick, convenient and simpler than
  software-based intercom systems, which require
  microphone and speakers for each PC.
• FLUMAPPER.COM
• Tracks the various flu strains that float across
  the country. Color-coded clouds would show us
  exactly which types of mini-epidemics are
  sweeping through, what symptoms you're in for and
  which kinds of places to avoid.

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Products that could be

• SnapFlat screen
• A detachable, interchangeable flat panel that you
  can move from gadget to gadget.
• The I-Podule
• A digital camera with an iPod slot you could
  take thousands of pictures without running out of
  film and slip the iPod into your computer to
  transfer them. Then you'd snap the iPod into a
  camcorder for capturing video, from there to your
  cellphone to send files or photos to a friend,
  and maybe even into a cash machine for a quick
  download of your statement.

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Attaching good genes to bad virus

• A special strain of virus, made up of equal parts
  Ebola and H.I.V can be used to cure genetic
  disorders - gene therapy
• Use of gene therapy which works by replacing
  flawed genes with fully functional genes

• Eg. cystic fibrosis
• The inability to produce a certain crucial
  protein, causing our lungs to fill up with mucus
• When a working gene is put into its place, the
  cells can now produce the needed proteins

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BattleSwarm - handheld device

• Large armies are split up and spread out into
  small, stinging mini-group
• Use hand-held digital communication tools
• Possess electronic warfare skills

• There is information domination of the
  battlespace
• Can learn about the enemy much faster than the
  enemy can learn about them due to global
  positioning systems

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Distroboto- vending machine

• Retrofitting of cigarette machines into
  coin-operated delivery services for art,
  literature and music
• All items sold are packed in recycled
  cigarette packs

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Positive asymmetry - 911

• The challenge is to fight an asymmetrical foe
  asymmetrically by using those US assets that can
  best undermine the social, cultural and economic
  factors
• The use of differences to gain an advantage
• Nonmilitary assets that could play a significant
  role
• Food
• Wealth
• Enlisting not just armed soldiers but also a
  broad cross section of Americas best and
  brightest to contribute to the war on terrorism

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Simputer- simple portable computer

• Small hand-held device designed for rough
  conditions of rural India
• Operates - without a keyboard - through touch,
  sound and simple visual icons
• Translates English-language web sites into local
  Indian languages, reading the content aloud to
  illiterate users
• Expected to be owned by village cooperatives and
  each user has a very cheap smart card which
  will hold all his settings and data

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Tele-immersion - teleconferencing

• Creates an illusion that people separated by
  distance are together in the same room
• Scans a persons face and body and creates a kind
  of living statue that other tele-immersion
  participants see displayed on a large screen
• Overall effect is like talking face to face to
  another person

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The video-game workout

• Dance Dance Revolution (DDR)
• Like a juke box equipped to judge ones dancing
  prowess

• Players are awarded points for their ability to
  perform the high-speed techno-tap-dance routine
  that DDR dictates step by step on screen
• Significant weight loss might result to the
  workout it provides

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Weather-forecasting toast

• The slice of bread pops up with a simple icon of
  the days outlook a shining sun, a cloud or
  raindrops
• A step towards integration of a modern household
  with internet technology

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Your very own breakfast cereal

• Through a website, users are able to mix and
  match more than 100 different ingredients to
  create and name their own breakfast cereals, and
  have them delivered to their homes in
  single-serving portions
• Creative solution to the problem of serving
  people with non-mainstream tastes or specific
  health needs

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Idea generation and evaluation

• Identifying and evaluating new ideas
• Avoiding the wrong ideas
• Some interesting trends and ideas
• Using brainstorming to generate ideas

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Brainstorming - no criticism

• Designed to produce as many ideas as possible
• Key ground rule Postpone all criticism and
  evaluation of ideas
• Invent ideas with no fear of looking foolish
• Wild ideas are explicitly encouraged

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Before brainstorming

• Define your purpose
• Choose the right number of participants
• Change the environment
• Design an informal atmosphere
• Choose a facilitator

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During brainstorming

• Seat the participants side by side facing the
  problem
• Clarify the ground rules, especially the
  no-criticism rule
• Brainstorm
• Record the ideas in full view

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After brainstorming

• Star the most promising ideas
• Invent improvements for promising ideas
• Set up a time to evaluate ideas and decide

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Brainstorming tips

• Allow enough time to get below the surface of
  your thinking
• 20-30 participants are ideal. Large but not too
  large group
• Divide the group into teams of four to six people
  for more diverse thought and to dilute the impact
  of those who know all the answers
• Invite a wide variety of people to participate
  and go outside the core group
• Do a warm-up mental exercise to break the ice
• Brainstorm in bursts

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Brainstorming tips

• Have everyone write their own ideas on sticky
  notes
• People should stand while ideating
• Push for quantity and you will get quality
• Distill the output periodically

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Contact us

• Douglas Abrams
• Managing Director
• Parallax Capital Management
• dka_at_parallaxcapital.com
• www.parallaxcapital.com
• 65-6238-3492, 65-9780-5381 (hp)
• 390 Orchard Road, 11-01 Palais Renaissance,
  Singapore 238871