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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.

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Presentation on theme: "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."— Presentation transcript:

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@REALWORLDMarketing.com TEL +1 714-377-6312

2 (c) REALWORLD Marketing, Inc.CONFIDENTIAL2 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 (c) REALWORLD Marketing, Inc.CONFIDENTIAL3 What We’ll 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 (c) REALWORLD Marketing, Inc.CONFIDENTIAL4 Applying it to Your Situation

5 (c) REALWORLD Marketing, Inc.CONFIDENTIAL5 Typical Situation Have a new product idea Potential seems strong Need money to build it Other next steps not certain

6 (c) REALWORLD Marketing, Inc.CONFIDENTIAL6 Clear the Deck, Start at the Beginning Look at some fundamentals “Basic blocking and tackling” Consider alternate “paths to market”

7 (c) REALWORLD Marketing, Inc.CONFIDENTIAL7 Idea Sales, Funding, Management Team Desired Path to Market

8 (c) REALWORLD Marketing, Inc.CONFIDENTIAL8 Idea Prototype Sales Funding Management Team Patent ??? Alternate Paths to Market Typical Technology Path

9 (c) REALWORLD Marketing, Inc.CONFIDENTIAL9 Idea Prototype Patent ??? Customers Profit Principle Sales Funding Management Team Typical Technology PathMarket Oriented Path Evidence of… Alternate Paths to Market

10 (c) REALWORLD Marketing, Inc.CONFIDENTIAL10 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 9 Questions Every Business Plan Should Answer These are all MARKETING questions

11 (c) REALWORLD Marketing, Inc.CONFIDENTIAL11 Keys to Success in Marketing

12 (c) REALWORLD Marketing, Inc.CONFIDENTIAL12 Going to the market to learn what prospects will buy, then creating & delivering that product... when, where and how they want it Our Company Marketing (Defined) The Market Outside In

13 (c) REALWORLD Marketing, Inc.CONFIDENTIAL13 Keys to Success in Marketing (1) Know who your customers are (2) Listen to them The rest is execution (granted, a totally separate topic)

14 (c) REALWORLD Marketing, Inc.CONFIDENTIAL14 Market The set of all actual and potential buyers of a product or service Target Market That group of people pre-disposed to buying Market vs. Target Market

15 (c) REALWORLD Marketing, Inc.CONFIDENTIAL15 Dividing a market into distinct and meaningful groups of buyers… who might merit separate products and (or) marketing mixes Market Segmentation

16 (c) REALWORLD Marketing, Inc.CONFIDENTIAL16 Charlie’s New Business Success Factors 1.Pick a BIG market 2.SEGMENT it 3.EXECUTE better than anybody

17 (c) REALWORLD Marketing, Inc.CONFIDENTIAL17 Assessing the Market

18 (c) REALWORLD Marketing, Inc.CONFIDENTIAL18 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 1.Customers 2.Competitors 3.Dominant Trends (that affect us all)

19 (c) REALWORLD Marketing, Inc.CONFIDENTIAL19 Assessing the Market – Customers Start with the “5 W’s 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 (c) REALWORLD Marketing, Inc.CONFIDENTIAL20 Assessing the Market – Competitors Major Questions Who are the major players? Who are the newcomers? Who’s probably working on the same thing? [Investor needs to know] “Who else is after these same dollars?”

21 (c) REALWORLD Marketing, Inc.CONFIDENTIAL21 Major Questions Size? Direction? Growth? News? Regulatory? Financial? Needs (Pain)? [Investor needs to know] “How attractive is this market?” Assessing the Market – Trends

22 (c) REALWORLD Marketing, Inc.CONFIDENTIAL22 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 Googlewww.google.com[Go ahead, enter a question] Aboutwww.about.com[Like asking a web librarian] Hoovers www.hoovers.com Mantawww.manta.com Inc. Business Resourceswww.inc.com Yahoo! Financehttp://finance.yahoo.com [Find a public company in the same space and read reports on their market] Government Economic Indicatorswww.commerce.gov Census, Demographicswww.census.gov Edgar Databasewww.sec.gov/edgar.shtml [You’re paying for it, use it; but take care to focus on exchange of dollars]

23 (c) REALWORLD Marketing, Inc.CONFIDENTIAL23 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 don’t have several, find and adopt them The specific answers are usually out there For almost every market there’s a Market research report Industry analyst Industry (trade) magazine Trade association

24 (c) REALWORLD Marketing, Inc.CONFIDENTIAL24 “3 Degrees of Separation” World Population= 6,648,552,180 Source: US Bureau of the Census http://www.census.gov/ipc/www/popclockworld.htm 2/5/08 at 5:38 GMT Number ofDegrees People Youof QtyCan Connect ToSeparation People You Know1880 1 People They Know 18803,535,776 2 People They Know 18806,648,552,180 3 How to Connect With Anybody on the Planet It no longer takes even "Six Degrees of Separation"

25 (c) REALWORLD Marketing, Inc.CONFIDENTIAL25 “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 if the Market isn’t There Yet? Quantify the opportunity somehow

26 (c) REALWORLD Marketing, Inc.CONFIDENTIAL26 “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 What if the Market isn’t There Yet? Quantify the opportunity somehow

27 (c) REALWORLD Marketing, Inc.CONFIDENTIAL27 “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 What if the Market isn’t There Yet? Quantify the opportunity somehow

28 (c) REALWORLD Marketing, Inc. CONFIDENTIAL 28 Valuing Your Idea

29 (c) REALWORLD Marketing, Inc.CONFIDENTIAL29 5 Key Elements in Evaluating a Business Customers Products Competitors’ Customers Competition Competitive Difference Market Size & Trends Company People Financials

30 (c) REALWORLD Marketing, Inc.CONFIDENTIAL30 Questions to Ask Customers - Who are your (their) customers? - What’s important to those customers? Products- What do they make? - what are the key characteristics of that product (what’s 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)? - Who’s 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 (c) REALWORLD Marketing, Inc.CONFIDENTIAL31 Building a Valuable Company $’s Time Valuation

32 (c) REALWORLD Marketing, Inc.CONFIDENTIAL32 Building a Valuable Company Technology RISK $’s Time Market Acceptance RISK Valuation Two Key Drivers of Valuation

33 (c) REALWORLD Marketing, Inc.CONFIDENTIAL33 Building a Valuable Company Technology RISK $’s Time Market Acceptance RISK Valuation Idea Lab Demo Prototype (make one) Production Volume Production High Yield Concept Feedback Purchase Intent First Customer Volume Purchases Geographic Rollout Milestones Initial Reaction EXAMPLE The key is to determine what these milestones are in advance…and drive to them using as little cash and time as possible.

34 (c) REALWORLD Marketing, Inc.CONFIDENTIAL34 So, How Much is Your Idea Worth? Like beauty, it’s 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 (c) REALWORLD Marketing, Inc.CONFIDENTIAL35 Summary

36 (c) REALWORLD Marketing, Inc.CONFIDENTIAL36 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 (c) REALWORLD Marketing, Inc.CONFIDENTIAL37 Contact Andy Mindlin TEL +1 714-377-6312 andy@REALWORLDMarketing.com www.REALWORLDMarketing.com


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