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Checklist for Evaluating New Ideas and Ventures Key Factors for Success Bruce Gjovig Entrepreneur Coach and Director Center for Innovation, Rural Tech.

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Presentation on theme: "Checklist for Evaluating New Ideas and Ventures Key Factors for Success Bruce Gjovig Entrepreneur Coach and Director Center for Innovation, Rural Tech."— Presentation transcript:

1 Checklist for Evaluating New Ideas and Ventures Key Factors for Success Bruce Gjovig Entrepreneur Coach and Director Center for Innovation, Rural Tech Incubator

2 TECHNICAL EVALUATION Innovative product, not me too Competitive advantages, features, and benefits Barriers to competitive entry (hard to imitate) High quality Third-party test results Ability to deliver a consistent, quality product on time Spin-off, different market applications Environmentally safe No safety/health risks, regulatory control

3 MARKET EVALUATION Competitive advantage USP: Unique Selling Proposition Differentiate on quality, service, or innovation Market Pull vs. Market Push Solves customer problems Sunrise vs. Sunset market

4 MARKET EVALUATION CONTINUED Significant market niche Market plan/strategy Distribution channels available Repeat sales likely Year-round vs. Seasonal demand

5 Approaches to Differentiation Prestige – Rolex, Mont Blanc Quality – Honda, Cadillac Top-of-the-Line image – Ralph Lauren, Cross Pens Innovative, technological leadership – 3M Corp. Engineering design and performance – Mercedes

6 Approaches to Differentiation Continued A different taste – Dr. Pepper, Listerine Product reliability – Johnson & Johnson baby products Superior service – Federal Express Full range of services – Merrill Lynch Complete line of products – Campbells Soups Spare parts availability - Caterpillar

7 Approaches to Differentiation Continued More for your money – McDonalds, Wal-Mart Special features – Jenn-airs indoor cooking tops Economy – GEs miser light bulbs

8 ECONOMIC EVALUATION Premium, price possible for quality Competing on innovation, quality & service - not price Low up-front investment intensity Low overhead High value-added Business plan

9 ECONOMIC EVALUATION CONTINUED High productivity Minimum product liability Owners have financial commitment Management paid for performance, not title High Return on Investment (ROI) Realistic financial projections Good margins & profitability Good cash flow

10 MANAGEMENT EVALUATION (The most important criteria) Experienced in industry Entrepreneurial aptitude and attitude Results-oriented, bias for action Business experience and education Visionary leadership – sees big picture Business strategy is clear and concise

11 MANAGEMENT EVALUATION (The most important criteria) Team has experience and depth (Production, engineering, finance, marketing, management) Experienced consultants, advisors (Technical, business, legal, accounting) Outside accountability Board of Directors, investors, etc.

12 Five-Year Profitable Survival of New Business ProfitableMarginal Failed Inexperienced, uneducated 8% 62% 30% Inexperienced, educated 25% 29% 46% Experienced, uneducated 25% 23% 52% Experienced, educated 61% 16% 25% Experienced, educated, planned 81% 12% 7%

13 RELATIVE MARKET SHARE IS CLOSELY RELATED TO PROFITABILITY High Market Share Increases ROI

14 ROI INCREASES WITH MARKET SHARE RANK Higher Market Share Increases ROI

15 Profit (Pre-Tax, pre-interest) Quality Increases Rate of Return

16 HIGH QUALITY PRODUCTS & SERVICES ARE MOST PROFITABLE (Less 12% cst of cap.) Quality Increases Rate of Return

17 Quality Customer Service Based on 3,000 businesses in all sectors of the economy. --Strategic Planning Institute, Cambridge, MA Low ServiceHigh ServiceDifference Price Index 98% 107% 9% Annual Market Share Shift -2% +6% 8% Profitability +1% 12% 11%

18 Pay for Quality Customers will pay: 33% more for a higher quality car 50% more for a higher quality dishwasher 65% more for a better TV 70% more for a better sofa 100% more for better shoes Gallup Surveys for American Society for Quality Control

19 Definition of Quality The customers judgment, not yours Both the product and the associated services Not absolute, but relative to competitors Does not include price Quality Index = Percent of sales from superior minus Percent of sales from inferior products

20 GOOD PRODUCTIVITY IS CLOSELY TIED TO HIGH ROI High Productivity Increases Profitability

21 CAPITAL INTENSITY HURTS PROFITABILITY

22 AS INVESTMENT INTENSITY RISES ROI DECLINES Capital Intensity Decreases Profitability

23 Major Factors Causing High Profits 1.Strong Market PositionRelative Market Share > 80% 2.Low Investment IntensityInvestment/Sales < 33% 3.High ProductivityValue Added/Employee > $60 K 4.High Perceived QualityQuality > 50% 5.Low R&D Marketing ExpenseMarketing + R&D/Sales < 10%

24 Major Factors Causing Profit Trouble 1.Weak Market PositionRelative Market Share < 25% 2.High Investment IntensityInvestment/Sales < 33% Fixed Capital or Working CapitalInvestment/Sales > 70% 3.Low ProductivityValue Added/Employee < $45K 4.Poor or Standard QualityQuality < 0 5.High R&D & Marketing ExpenseMarketing + R&D/Sales > 15%

25 Percentage of New Produce Failures For Three Types of Businesses: Consumer, Industrial, Service Survey Source & Year All ProductsConsumerIndustrialService Booz, Allen & Hamilton (1968) 37% 35% -- Advertising Age (1969) 80% -- The Conference Board (1971) 40% 20-40% 10-20% Nielson (1971) 53% -- Journal of Marketing (1971) 65% -- Grand Average 55% 33% 15%

26 Percentage of New Produce Failures For Three Types of Businesses: Consumer, Industrial, Service Survey Source & Year All ProductsConsumerIndustrialService The Conference Board 40% 42% 38% 10-20% Booz, Allen & Hamilton 35% -- Assn. of Natl. Advertisers -- 39% -- Gallagher -- 36% -- Cooper -- 24% -- Grand Average 38% 39% 31% 15%

27 Product Lifecycle 17-20 years – 1970 10-20 years – 1980 5-6 years – 1990 2-3 years – 2000 Less than 1 year for some products Need for constant innovation, improvement, new product development

28 3M 30% of sales from products introduces within last 5 years 10% real growth annually 10% profitability after taxes 27% return on capital investment 15% rule of time

29 New Products Need a champion Market test Get to market swiftly (market plan) First to market gains share, higher margins, etc. Sell benefits, not features Unique benefits – innovative, better, faster, etc.

30 Some 37% of U.S. households include someone who has founded, tried to start or helped fund a small business. - Entrepreneurial Research Consortium

31 Small Business Success… 70% going after 8 years -Dun& Bradstreet survey of 800,000 small businesses started in 1985 80% fail in 5 years is myth!

32 Every Community will lose about 10% of its jobs each year – from acquisition, downsizing, death, retirements or other causes. About 55% of all new jobs are from expansions of existing local companies and nearly 45% of new jobs are created by startup companies. Less then 1% of net new jobs occur as the result of relocations. -David Birch, Ph.D. Cognetics

33 Fast growth companies that utilize university resources boast productivity rates 59% higher than peers without a university relationship, as well as 21% higher annual revenues and 23% more capital investments. Private/public collaboration provides a strategic advantage for a significant number of high growth companies. -1995 Coopers & Lybrand Study

34 Net new jobs come form… 66% employers of less than 20 80% employers of less than 100 50% less than 4 years old 1/3 generate 2/3 new jobs 80% of new sales

35 High risk Economy Unemployment Low Real Wages – all time high Record Profits Export Growing 3x growth of economy BUT… 12% college graduates lost job since 1993 Corporate downsizing Job insecurity Economic uncertainty

36 Growth Has been traded for Security Higher risk…higher reward

37 Strategies for Workers… High tech career -most growth, most turmoil Exporting company -pays 12% more on average Self-employed

38 Strategies for companies… Reengineer, restructure -boost productivity, profits -cut costs Technological innovation Export in growth countries Invest in deregulated markets


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