Assessing the Market Potentialof 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

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 2

About the Speaker25 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

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 3

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

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 4

Applying it to Your Situation

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 5

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

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 6

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

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 7

Idea

Sales, Funding, Management Team

Desired Path to Market

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 8

Idea

Prototype

• Sales • Funding • Management Team

Patent

???

???

Alternate Paths to Market

Typical Technology Path

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 9

Idea

Prototype

Patent

???

???

Customers

Profit

Principle

• Sales • Funding • Management Team

Typical Technology Path

Market Oriented Path

Evidence of…

Alternate Paths to Market

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 10

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

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 11

Keys to Success in Marketing

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 12

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

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 13

Keys to Success in Marketing

(1) Know who your customers are

(2) Listen to them

The rest is execution

(granted, a totally separate topic)

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 14

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

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 15

Dividing a market into distinct and meaningful groups of buyers…

who might merit separate products and (or) marketing mixes

Market Segmentation

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 16

Charlie’s New Business Success Factors

1. Pick a BIG market

2. SEGMENT it

3. EXECUTE better than anybody

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 17

Assessing the Market

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 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 moneyOne of two key transactions investors care about

“The market” can be described as consisting of 3 components1. Customers

2. Competitors

3. Dominant Trends (that affect us all)

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 19

Assessing the Market – CustomersStart 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?”

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 20

Assessing the Market – CompetitorsMajor 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?”

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 21

Major QuestionsSize?

Direction?

Growth?

News?

Regulatory?

Financial?

Needs (Pain)?

[Investor needs to know]

“How attractive is this market?”

Assessing the Market – Trends

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 22

How do we Gather This Information?Starting with General Information

• Market AnalystsGartner/Dataquest, Forrester Research, Yankee Group [Fee, but may pity students]

• StockbrokersMerrill Lynch, Goldman Sachs, ETRADE, Schwab

• WebGoogle 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]

• GovernmentEconomic Indicators www.commerce.gov

Census, Demographics www.census.gov

Edgar Database www.sec.gov/edgar.shtml

[You’re paying for it, use it;but take care to focus onexchange of dollars]

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 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 suggestionsIf you don’t have several, find and adopt them

• The specific answers are usually out thereFor almost every market there’s a• Market research report• Industry analyst• Industry (trade) magazine• Trade association

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 24

“3 Degrees of Separation”

World Population = 6,648,552,180

Source: US Bureau of the Censushttp://www.census.gov/ipc/www/popclockworld.htm2/5/08 at 5:38 GMT

Number of DegreesPeople You of

Qty Can Connect To SeparationPeople You Know 1880 1880 1People They Know 1880 3,535,776 2People They Know 1880 6,648,552,180 3

How to Connect With Anybody on the Planet

It no longer takes even "Six Degrees of Separation"

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 25

“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

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 26

“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

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 27

“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

(c) REALWORLD Marketing, Inc.

CONFIDENTIAL 28

Valuing Your Idea

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 29

5 Key Elements in Evaluating a Business

Customers

Products

Competitors’ Customers

Competition

Competitive Difference

Market Size & Trends

Company

People

Financials

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 30

Questions to AskCustomers - 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?

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 31

Building a Valuable Company$’s

Time

Valuation

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 32

Building a Valuable Company

Technology RISK$’s

Time

Market Acceptance RISK Valuation

Two Key Drivers of Valuation

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 33

Building a Valuable Company

Technology RISK$’s

Time

Market Acceptance RISK Valuation

Idea

LabDemo

Prototype(make one)

Production

VolumeProduction High Yield

ConceptFeedback

PurchaseIntent First

Customer

VolumePurchases Geographic

Rollout

Milestones

InitialReaction

EXAMPLE

The key is to determine what these milestones are in advance…and drive to them using as little cash and time as possible.

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 34

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)

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 35

Summary

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 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

(c) REALWORLD Marketing, Inc. CONFIDENTIAL 37

Contact

Andy Mindlin

TEL +1 714-377-6312

andy@REALWORLDMarketing.com

www.REALWORLDMarketing.com