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Title: Assessing the Market Potential of Your Business Idea (or


1
Assessing the Market Potential of Your Business
Idea (or How Much is Your Idea Worth?)
  • Presented to
  • UC Irvine
  • The Paul Merage School of Business
  • Don Beall Center for Innovation and
    Entrepreneurship
  • Tuesday April 15, 2008
  • By
  • Andy Mindlin
  • REALWORLD Marketing, Inc.
  • andy_at_REALWORLDMarketing.com
  • TEL 1 714-377-6312

2
About the Speaker
  • 25 years experience in Marketing
  • Emphasis on Startups and New Products
  • Core Experience
  • Procter Gamble (Brand Management)
  • BA in International Economics, Vanderbilt
    University, Phi Beta Kappa
  • Recent Experience
  • Co-founded fabless semiconductor company
  • Served as Vice President of Marketing Sales
  • Raised 13 million in venture capital
  • Current Activities Include
  • Helping business leaders solve marketing problems
  • Serving on corporate Boards
  • Mentoring students at UC Irvine Paul Merage
    School of Business
  • Judging UC Irvine annual Business Plan Competition

3
What Well Cover
  • As advertised
  • How to Assess the Market for Your Idea
  • How to Assess the Value of Your Idea
  • 9 Questions every business plan should answer
  • Plus
  • Nomenclature
  • Examples
  • Your questions

4
Applying it to Your Situation
5
Typical Situation
  • Have a new product idea
  • Potential seems strong
  • Need money to build it
  • Other next steps not certain

6
Clear the Deck, Start at the Beginning
  • Look at some fundamentals
  • Basic blocking and tackling
  • Consider alternate paths to market

7
Desired Path to Market
Idea
Sales, Funding, Management Team
8
Alternate Paths to Market
  • Idea

Typical Technology Path
Prototype
Patent
???
???
Sales Funding Management Team
9
Alternate Paths to Market
  • Idea

Typical Technology Path
Market Oriented Path
Evidence of
Prototype
Customers
Patent
Profit
???
Principle
???
Sales Funding Management Team
10
9 Questions Every Business Plan Should Answer
  • 1. Who is the customer?
  • 2. How does the customer make decisions about
    buying this product?
  • 3. To what degree is this a compelling purchase
    for the customer?
  • 4. How will the product be priced?
  • 5. How will we reach all the identified customer
    segments?
  • 6. How much does it cost (time resources) to
    acquire a customer?
  • 7. How much does it cost to produce deliver the
    product?
  • 8. How much does it cost to support a customer?
  • 9. How easy is it to retain a customer?
  • Source William A. Sahlman, "How to Write a Great
    Business Plan, Harvard Business Review,
    www.hbr.com

These are all MARKETING questions
11
Keys to Success in Marketing
12
Marketing (Defined)
  • Going to the market
  • to learn what prospects will buy,
  • then creating delivering that product...
  • when, where and how they want it

Our Company
13
Keys to Success in Marketing
  • Know who your customers are
  • Listen to them
  • The rest is execution
  • (granted, a totally separate topic)

14
Market vs. Target Market
  • Market
  • The set of all actual and potential buyers of a
    product or service
  • Target Market
  • That group of people pre-disposed to buying

15
Market Segmentation
Dividing a market into distinct and meaningful
groups of buyers who might merit separate
products and (or) marketing mixes
16
Charlies New Business Success Factors
  • Pick a BIG market
  • SEGMENT it
  • EXECUTE better than anybody

17
Assessing the Market
18
What do we Mean by The Market?
  • A market is people exchanging goods services
    (for value)
  • Key to an investor, because this is where people
    part with their money
  • One of two key transactions investors care about
  • The market can be described as consisting of 3
    components
  • Customers
  • Competitors
  • Dominant Trends (that affect us all)

19
Assessing the Market Customers
  • Start with the 5 Ws and 1 H
  • Who are they?
  • What are they?
  • Where are they?
  • When do they buy?
  • How much do they buy? (How much? How often?)
  • Why do they buy?
  • Consider both the many and the few
  • Investor needs to know
  • Who is going to give you money for what you
    propose to do?

20
Assessing the Market Competitors
  • Major Questions
  • Who are the major players?
  • Who are the newcomers?
  • Whos probably working on the same thing?
  • Investor needs to know
  • Who else is after these same dollars?

21
Assessing the Market Trends
  • Major Questions
  • Size?
  • Direction?
  • Growth?
  • News?
  • Regulatory?
  • Financial?
  • Needs (Pain)?
  • Investor needs to know
  • How attractive is this market?

22
How do we Gather This Information?
  • Starting with General Information
  • Market Analysts
  • Gartner/Dataquest, Forrester Research, Yankee
    Group Fee, but may pity students
  • Stockbrokers
  • Merrill Lynch, Goldman Sachs, ETRADE, Schwab
  • Web
  • Google www.google.com Go ahead, enter a
    question
  • About www.about.com Like asking a web
    librarian
  • Hoovers www.hoovers.com
  • Manta www.manta.com
  • Inc. Business Resources www.inc.com
  • Yahoo! Finance http//finance.yahoo.com Find a
    public company in
  • the same space and read
  • reports on their market
  • Government
  • Economic Indicators www.commerce.gov
  • Census, Demographics www.census.gov

Youre paying for it, use it but take care to
focus on exchange of dollars
23
How do we Gather This Information?
  • Getting Specific Information
  • Ask prospects
  • Pump your network (www.LinkedIn.com)
  • Ask your coach, mentor and angel for suggestions
  • If you dont have several, find and adopt them
  • The specific answers are usually out there
  • For almost every market theres a
  • Market research report
  • Industry analyst
  • Industry (trade) magazine
  • Trade association

24
3 Degrees of Separation
25
What if the Market isnt There Yet?
  • What was the market for bottled water before
    Perrier?
  • Who knew?
  • But you could have quantified the market for
    liquid refreshment
  • And the of homes dissatisfied with the taste
    of their water

Quantify the opportunity somehow
26
What if the Market isnt There Yet?
  • What was the market for bottled water before
    Perrier?
  • Who knew?
  • But you could have quantified the market for
    liquid refreshment
  • And the of homes dissatisfied with the taste
    of their water
  • What was the market for overnight delivery
    before Federal Express?
  • Who knew?
  • But you could have quantified business spending
    on urgent communications
  • Also could get testimonial quotes from people who
    have the problem

Quantify the opportunity somehow
27
What if the Market isnt There Yet?
  • What was the market for bottled water before
    Perrier?
  • Who knew?
  • But you could have quantified the market for
    liquid refreshment
  • And the of homes dissatisfied with the taste
    of their water
  • What was the market for overnight delivery
    before Federal Express?
  • Who knew?
  • But you could have quantified business spending
    on urgent communications
  • Also could get testimonial quotes from people who
    have the problem
  • No one ever asked us to design a Mini-Van
  • Who knew?
  • But you could have quantified of moms with
    kids and dissatisfied with full size vans and
    station wagons
  • Again, testimonial quotes from people with the
    problem could help

Quantify the opportunity somehow
28
Valuing Your Idea
29
5 Key Elements in Evaluating a Business
Market Size Trends
  • Customers

Competitors Customers
Competitive Difference
Company
Competition
Products
People
Financials
30
Questions to Ask
  • Customers - Who are your (their) customers?
  • - Whats important to those customers?
  • Products - What do they make?
  • - what are the key characteristics of that
    product (whats unique)? - How many units do
    they build (or sell) per month? design per
    year? - what does each unit cost? - do they
    design and manufacture? - What problem (pain)
    are they having (can you get them to see it?)
  • People - Who are all the players (names
    titles)? - Whos at the top? - How do
    decisions get made?
  • Financials - How big are they? ( of people,
    dollars per year)
  • - Can they afford our product? - Can they be
    a significant customer?
  • Competitive Difference - Why do people buy from
    them instead of from others?

31
Building a Valuable Company
s
Valuation
Time
32
Building a Valuable Company
s
  • Technology RISK

Valuation
Market Acceptance RISK
Time
Two Key Drivers of Valuation
33
Building a Valuable Company
EXAMPLE
s
  • Technology RISK

Valuation
Market Acceptance RISK
Initial Reaction
Concept Feedback
Idea
Purchase Intent
First Customer
Lab Demo
Prototype (make one)
Volume Purchases
Geographic Rollout
Production
Volume Production
High Yield
Time
Milestones
The key is to determine what these milestones are
in advanceand drive to them using as little cash
and time as possible.
34
So, How Much is Your Idea Worth?
  • Like beauty, its in the eye of the beholder
  • Your idea is worth whatever someone is willing to
    pay for (part of) it
  • Wherever you are, focus on creating a more
    valuable company
  • Do that by
  • Decreasing the major risks
  • Gathering increasing evidence to show that
  • The technology works (and is clearly different
    better than the alternatives)
  • People will buy it (in huge volumes at high
    margin)

35
Summary
36
What We Covered
  • As advertised
  • How to Assess the Market for Your Idea
  • How to Assess the Value of Your Idea
  • 9 Questions every business plan should answer
  • Plus
  • Nomenclature
  • Examples
  • Your questions

37
Contact
Andy Mindlin TEL 1 714-377-6312 andy_at_REALWORLDMar
keting.com www.REALWORLDMarketing.com
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