Startup Opportunity

Discovery &
Evaluation
PREPARED FOR SXSWi 2014
BY NEAL CABAGE & SONYA ZHANG,
PhD
 Introduction
s
INTRODUCTION

Neal Sonya Zhang

Cabage
Entrepreneur, Product Manager Professor
PhD in Information Systems
Digital product architect. Founded
and Technology, M.S. in
ProductCamp.LA and PMA.LA. Built
Computer Science, and MBA.
and sold two startups. Authored
Researched Internet
the book, The Smarter Startup.
Entrepreneurship and Digital
Product Strategy.
 Our
Book INTRODUCTION

THE SMARTER STARTUP

PRODUCT STRATEGY FOR STARTUPS

The Smarter Startup looks at why some

startups succeed while others fail. By taking
a more strategic approach to
entrepreneurship, founders can improve
their own outcomes.
Written by Neal Cabage and Sonya Zhang,
PhD, and published by Pearsons/NewRiders.
Conventional
Wisdom INTRODUCTION

Diligence is the mother of good

luck.
B
e
n
j
a
m
i
n
Conventional
Wisdom INTRODUCTION

Diligence is the mother of good

luck.
B
e
n
j
a
m
i
n
 Conventional
Wisdom INTRODUCTION

It is True?
Diligence is the mother of good
luck.
Benjamin Franklin

Genius is one percent inspiration and

ninety-nine percent perspiration.
Thomas Edison
 Conventional
Wisdom PROBLEM STATEMENT

Diligent Negligent

IS HARD WORK THE

ANSWER?

Success
NOT ENTIRELY

Hard work alone is NOT a reliable

predictor of success. Hard working
people sometimes fail and negligent

Failure
people sometimes succeed.
There’s more to the story!
 What Is the Whole
Story? PROBLEM STATEMENT

Working hard is analogous to throwing a ball hard. The velocity is an important part of
reaching the target, but you cannot ignore other interactive forces like gravity and
drag.

Velocity Direction
(hard work) (customer need) Gravity
(timing)

Drag
(competition)

x
 Work Smart, Not Just
Hard INTRODUCTION

Custome Produc
r t
We cannot work simply work hard and
expect to have a desirable outcome.
There are many dynamics at play
Startup Competition
Timin Opportunity that all determine whether we’re
g
likely to succeed. Some may get
lucky but they are the exception not
the rule.
Finance Tea
m
THE
SOLUTION
A SYSTEMATIC
APPROACH
 Startup Opportunity
IDEATION PROCESS
Business Model Archetypes
Framework EVALUATION PROCESS
Startup Opportunity Scorecard
FRAMEWORK OVERVIEW We’ve developed a method for
Opportunity Scorecard
systematically discovering startup
Trad
opportunities by leveraging the
Customer Product
e
Marketplace Brokerage

Ecosystem Timing Competition

Business Model Archetypes model
Service
Product Subscription
Finance Team and the Startup Opportunity
Scorecard to identify ideas and
objectively evaluate them.

+
Scorecard Criteria

=
Business Model Archetypes
Vertical Markets

A B+ F
Idea Idea

#1
Business

A
Idea
Ideas

A-

Ideation Matrix Evalaution Matrix

 Startup Opportunity
IDEATION PROCESS
Framework EVALUATION PROCESS
FRAMEWORK OVERVIEW STEP 1: IDEATION
Opportunity Scorecard

Trad
Customer Product
Start by considering the possible
e
Marketplace Brokerage
business model archetypes (eg
Ecosystem Timing Competition

Servic personalities) for every market

Produc Subscription e
Finance Team
t
actor you’re considering serving.
Take note of all of the possibilities
you uncover in the ideation matrix.

+ =
Scorecard Criteria
Business Model Archetypes
Vertical Markets

A B+ F
Idea Idea

#1
Business

A
Idea
Ideas

A-

Ideation Matrix Evalaution Matrix

 Startup Opportunity
IDEATION PROCESS
Framework EVALUATION PROCESS
FRAMEWORK OVERVIEW STEP 2: EVALUATION
Opportunity Scorecard

Trad
Customer Product
Objectively evaluate all of the
e
Marketplace Brokerage
ideas you’ve developed against a
Ecosystem Timing Competition

Servic set of entrepreneurial heuristics

Produc Subscription e
that will help you to identify
Finance Team
t

weaknesses.
Based on this, score each idea
to determine the best idea.

+ =
Scorecard Criteria
Business Model Archetypes
Vertical Markets

A B+ F
Idea Idea

#1
Business

A
Idea
Ideas

A-

Ideation Matrix Evalaution Matrix

 STEP
ONE
OPPORTUNITY
IDEATION
prototypes:
Trade
prototypes:
prototypes:
•
•
ad network
dropship program
Business
Model
• e-commerce
• products market
• lead generation
• services market

Brokerage

Archetypes
Marketplace
BUSINESS MODEL ARCHETYPES
Ecosystem

Servic Describes 7 abstract business model

Produc e
t prototypes: archetypes (fundamental personalities)
Subscription prototypes:
• software • service platform
• content • service agency from which every business model is
inherited. Two prototypes (applied
examples) are given for each
prototypes: archetype.
prototypes:
• content as a service
software as service
• technology platform
•
This represents a holistic view of
• media platform

the possibilities.
 Business Models
Everywhere! BUSINESS MODEL ARCHETYPES

There are many disparate business models that were defined in isolation but nothing comprehensive
that describes the fundamentally unique patterns in a single and concise framework that suited our needs.

BRICKS & FREEMIUM NETWORK

CLICKS EFFECTS
COLLECTIVE AUCTION / ONLINE PRO OPEN
AUCTION SOURCE
CUT OUT THE MIDDLE MAN ALL-IN-ONE PYRAMID
SCHEME
DIRECT LOW-COST RAZOR &
SALES BARRIER BLADES
DISTRIBUTION MODEL LOYALTY SERVITIZATION OF
PRODUCTS
VALUE ADDED RESELLER MONOPOLISTIC SUBSCRIPTION

FREE IN, FREE MULTI-LEVEL MARKETING etcetera, etcetera …

OUT
 What is an
Archetype?
BUSINESS MODEL ARCHETYPES

The concept was based on Carl Jung’s Personality Archetypes which describes fundamental
personalities and roles that we draw from to develop our own unique personality.

A philosophical idea, referring to pure

forms which embody the
fundamental characteristics of a
Carl Jung
thing.
Psychologist
 Primary
Archetypes
BUSINESS MODEL ARCHETYPES

PRODUCT The Business Model Archetypes framework

TANGIBLE SOLUTION takes a step back from specific business
models to say there are 7 abstract archetypes
SERVICE (fundamental personalities) from which
CUSTOM
every business inherits. Two prototypes
SOLUTION
(examples) are given for each archetype. This
TRADE represents a holistic view of the possibilities.
CONNECT BUYERS &
SELLERS
 Product
Archetype
BUSINESS MODEL ARCHETYPES
Develop a tangible good and sell on a one-time fee
basis (purchase or license). Requires high up-front sunk

TRAD capital but is able to leverage economies of scale.

E
PROTOTYPES WITH
PRODUC EXAMPLES

SERVIC T Software:
Content:
• Rovio (mobile apps) • AdvantageMedia
E (ebooks)
• AheadWorks (plugins)
• WooThemes (themes)
• DemandMedia (articles)
• MakerStudios (videos)
 Service
Archetype
BUSINESS MODEL ARCHETYPES
Doing work for a client and monetized on a per-use
basis. Professionals or technicians with expert
TRAD knowledge and skills in a specific domain provides
E intangible solutions to clients.

PRODUC
T PROTOTYPES WITH EXAMPLES

SERVIC Service Agency: Platform as a

E •Service:
BlueAcorn (magento) • SendGrid (email)
• Appirio (salesforce) • MaxMind (geo ip)
• ReachLocal • DemandWare (eCom)
(adwords)
 Trade
Archetype
BUSINESS MODEL ARCHETYPES
Connecting prospective buyers with a product they
seek to buy and making profit on the spread
between what a buyer will pay versus the cost of
TRAD acquisition.

E
PROTOTYPES WITH
EXAMPLES
PRODUC Ecommerce: LeadGen:
SERVIC T • Target.com (retail) • Lending Tree (financial)
E • Kinerase.com(source) • Capterra (software)
• Intellius (data) • Shopzilla (consumer)
 Secondary
Archetypes BUSINESS MODEL ARCHETYPES

The meeting of two personalities (archetypes) is like the contact of

two chemical substances; if there is any reaction, both are
transformed.

Carl Jung
Psychologist
 Secondary
Archetypes
BUSINESS MODEL ARCHETYPES
BROKERAGE The Business Model Archetypes framework
CONNECT BUYERS & takes a step back from specific business
SELLERS
models to say there are 7 abstract archetypes
MARKETPLACE
(fundamental personalities) from which
TANGIBLE SOLUTION
every business inherits. Two prototypes

SUBSCRIPTION (examples) are given for each archetype. This

CUSTOM represents a holistic view of the possibilities.
SOLUTION

ECOSYSTEM
CONNECT BUYERS &
SELLERS
 Brokerage
Archetype
BUSINESS MODEL ARCHETYPES
Sourcing on behalf of a client for a retainer or per-
transaction fee. The client then profits from any
BROKERAGE
arbitrage spread rather than the sourcing partner.

PROTOTYPES WITH
TRAD EXAMPLES
SERVIC
E Dropship Ad
E • Doba (dropship) Network
• DoubleClick (cpm)
• Ordoro (dropship) • Kontera (in-text)
• Simplx (dropship) • Chitika (ppc)
 Marketplace
Archetype
BUSINESS MODEL ARCHETYPES
Create a platform that facilitates trade, rather than
actually trading. This is a network effects business
MARKETPLACE that depends heavily on bringing together sufficient
demand and supply.

PROTOTYPES WITH
EXAMPLES
TRAD PRODUC
T Product Service
E
Marketplace
• eBay (auction) •Marketplace
oDesk
• Etsy (crafts) (outsourcing)
• ThemeForest (themes) • Elance
(freelancing)
• Care.com (nannies)
 Subscription Archetype
BUSINESS MODEL ARCHETYPES

Building, maintaining, and supporting an online

product in an on-going fashion rather than a one-
SUBSCRIPTION time sell. Customers pay a monthly subscription
service and benefit from continued improvements.

PROTOTYPES WITH EXAMPLES

SERVIC PRODUC
T Software as Service: Content as
E •Service:
Mint.com (finance) • Ancestry.com (genealogy)
• Wordpress.com (site) • Lynda.com (education)
• HubSpot.com (mktg) • Match.com (dating)
 Ecosystem
Archetype
BUSINESS MODEL ARCHETYPES
A mature market leader begins as another archetype
ECOSYSTEM
but expands as a result of success. What may begin
as a product will also develop a marketplace,
services, and even a program for ISV vendors.

TRAD PRODUC
T
E PROTOTYPES WITH EXAMPLES

Technology Platform: Media

•Platform:
Apple (hardware/OS) • Facebook
SERVIC • Magento (social)
E (eCommerce) • Google (search)
• SalesForce (CRM) • Yahoo (content)
prototypes:
Trade
prototypes:
prototypes:
•
•
ad network
dropship program
Business
Model
• e-commerce
• products market
• lead generation
• services market

Brokerage

Archetypes
Marketplace
BUSINESS MODEL ARCHETYPES
Ecosystem
Primary archetypes
Servic
Produc Review:
e
t prototypes: prototypes:
• Trade, Product, Service
• software
Subscription
• service platform Secondary archetypes
• content • service agency
Review:
• Product + Trade = Marketplace
• Service + Trade = Brokerage
• Product + Service = Subscription

prototypes:
• Product + Service + Trade =
prototypes:
• content as a service Ecosystem
• technology platform
• software as service
• media platform
 Opportunity Discovery
Process
STEP BY STEP PROCESS
Trad
Business Model Archetypes
e Scorecard Criteria
Brokerage
Marketplace Idea #1 Idea #2 Idea #3

Vertical Markets
A B+ F
Ecosystem
6

Business
Idea #4 Idea #5 Idea #6
A
Servic

Ideas
Product Subscription e Idea #7 Idea #8 Idea #9
A-

Business Models Ideation 6 Market Evaluation

Archetypes Matrix Matrix
Dynamics
Identifies the spectrum of Identify an applied business The 6 market dynamics are a Grade each of the ideas
fundamental business concept for every set of known impact that you’ve identified in the
“personalities” that you can archetype personality, need to be considered for ideation matrix, based on the
consider consider when across all of the vertical success that can be used to six scorecard success criteria
defining your own unique markets you are evaluate an ideas potential. and compare to determine
business model. considering. the best opportunity.
 Ideation
Business Model Archetypes Matrix STEP BY STEP
PROCESS

Take a systematic approach to

Idea #1 Idea #2 Idea #3 identifying all the possible
Vertical Markets

opportunities. You will identify a

Idea #4 Idea #5 Idea #6 startup idea for every business
model archetype, for each business

Idea #7 Idea #8 Idea #9 vertical you are considering. Once

you have done this, you can begin to
evaluate these ideas.
 Identifying
Opportunity
IDEATION MATRIX

Create a matrix with the business model archetypes across the x-axis, and vertical market
segments you’re interested in exploring on the y-axis. Cancel out any business model archetypes
you already know aren’t a good fit for your team.

Product Service Trade Subscription Marketplace Brokerage Ecosystem

Real Estate Agents

Real Estate Brokers

Property Managers
Don’t ssess Trade
Po
Functional skills Can’t Start Here!
 Identifying
Opportunity
IDEATION MATRIX

Develop a business idea for each market actor that you’re considering, for each of
the business model archetypes. Fill them into the grid.

Product Service Subscription Marketplace Brokerage

Real Estate Agents

Real Estate Brokers

IDX Wordpress Property
Theme Search Site
Property Managers

Virtual
Assistant Marketing Lead
CRM Generation
 STEP
TWO
OPPORTUNITY EVALUATION
 Opportunity Discovery
Process
STEP BY STEP PROCESS
Trad
e Business Model Archetypes
Scorecard Criteria
Brokerage

Vertical Markets
Marketplace
Idea Idea A B+ F
Ecosystem
6

Business
Idea
A
Servic

Ideas
Product Subscription e
A-

Business Models Ideation Startup Evaluation

Archetypes Matrix Heuristics Matrix
Identifies the spectrum of Identify an applied business The 6 market dynamics are a Grade each of the ideas
fundamental business concept for every set of known impact that you’ve identified in the
“personalities” that you can archetype personality, need to be considered for ideation matrix, based on the
consider consider when across all of the vertical success that can be used to six scorecard success criteria
defining your own unique markets you are evaluate an ideas potential. and compare to determine
business model. considering. the best opportunity.
 The 6 Market
Dynamics
STARTUP STRATEGY

THE FUNDAMENTAL CRITERIA

customer
START HERE

team The 6 product

There are 6 fundamental market dynamics Market
to consider when developing a startup
Dynamics
concept. We’ve developed 18 startup competition
financial
heuristcis (3 per market dynamics).
timing
 The 18 Rules of Startup
Strategy Startup
STARTUP HEURISTICS
Heuristics
Customer Product Timin
g
1. Unmet Need or Desire 4. Customer Focused Solution 7. Recent Innovation Enabler
2. Right Size Market or Segment 5. Low Barriers to Adoption 8. Demand Already Established
3. Reliable Access to Customers 6. Clear Value Proposition 9. No Signs of Commoditization

Competition Finance Team

10. Clear Market Inefficiency 13. Low Sunk Costs 16. Subject Matter Expertise
11. Low Barriers to Entry 14. Working Capital Float 17. Functional Competence
12. Differentiable Position 15. Economies of Scale 18. Supplier Partnerships

© 2014 Cabage &

Zhang
 Customer
Criteria
STARTUP SCORECARD
WHAT’S A GOOD CUSTOMER? UNMET NEED OR DESIRE
Unsatisfied Customer Desire

The ideal customer wants something the

market hasn’t yet delivered. The size of
RIGHT-SIZE MARKET OR
this market should match your ability to SEGMENT
compete and ability to deliver justify Need to Segment? Too Niche?
solving the problem. Validate you can
control means of customer acquisition
RELIABLE ACCESS TO
along the way. CUSTOMERS
Diversified Channels?
Gatekeepers?
 Unmet Need or
Desire
CUSTOMER CRITERIA
FOCUS ON HELPING OTHERS
FOCUS ON CREATING VALUE

The best opportunities come from helping

others. Find a need or desire that is not yet
solved, where the customer is so passionate
they’d happily pay for a solution. This approach
is much more likely to create real value than
copying an existing solution.
 Right-Size Market (or
segment)
Select a market to service thatCRITERIA
CUSTOMER meets your needs and abilities. You must have enough opportunity to warrant
the effort. Be weary of large markets however, if you do not have significant fund and plans to be
aggressive.

BIG MARKET
STRATEGY
PURSUE LARGE MARKETS

BIG FISH
STRATEGY
PURSUE QUIET NICHES
 Reliable Access to
Customers
A sustainable business requires control over customer supply. Don’t rely on a single marketing channel (Google
SEO). Government or monopolistic manipulation of markets can also be challenging (Online Gambling).
CUSTOMER CRITERIA

35000

CHANNEL 30000

DEPENDENCE 25000
SINGLE POINT OF
FAILURE 20000

15000

MARKET MANIPULATION 10000

GOVERNMENT, MONOPOLIES
5000

0
March April May June July
 Product
Criteria
STARTUP SCORECARD
WHAT’S A GOOD CUSTOMER FOCUSED
PRODUCT? SOLUTION
Solves Unmet Need or Desire?
A good product will be a direct response to
a customer need or desire. If the value is
well articulated and the customer is LOW BARRIERS TO ADOPTION
passionate about your new solution, the Low Switch Cost, Usability
reason to buy will be compelling. Consider
deterrents also – are their high switch
CLEAR VALUE PROPOSITION
costs and is the solution easy to use and Compelling Reason to Buy
understand?
 Customer Focused
Solution
The purpose of your product is to create value by addressing a specific need or desire. Stay Zen focused.
Don’t ambiguate the value created with distracting features that aren’t aligned with the goal.
PRODUCT CRITERIA

ADDRESS NEED OR
DESIRE
FOCUS ON CLEAR GOAL

KEEP IT SIMPLE!
DON’T AMBIGUATE THE
VALUE
 Customer Focused
Solution
PRODUCT CRITERIA
Any intelligent fool can make things bigger and more complex... It takes a
touch of genius - and a lot of courage to move in the opposite direction.

Albert Einstein
Physicist, Professor
 Low Barriers to
Adoption
Even if you create new value, customers may hesitate to adopt your product if they’ve already
invested too much inPRODUCT
an existing solution that is good enough, or if adopting your solution is too
CRITERIA

disruptive.

FINANCIAL IMPACT
PRIOR INVESTMENT & NEW
COSTS

LEARNING CURVE
INVESTED TIME & NEW
COSTS

WORKFLOW
INTEGRATION
DOES IT EASILY INTEGRATE?
 Clear Value
Proposition
PRODUCT CRITERIA

Perceived value must exceed cost. If you can clearly describe your product is beneficial and a compelling
case for purchasing it, then you have created sufficient value to overcome cost.

IS THE VALUE CLEAR?

VALUE = BENEFIT - COST

Solves My
Problem
Learning
Curve Addt’l Benefits
People don’t want quarter- (value chain)

inch drills. They want Existing

Investments Easy Workflow
Integration
Theodore quarter-inch
Levitt holes.
 Timing
Criteria
STARTUP SCORECARD
WHAT IS GOOD RECENT INNOVATION ENABLER
TIMING? Was it Possible 2-5 Years Ago?

Every market has a natural lifecycle

driven by innovation and circumstance.
DEMAND ALREADY ESTABLISHED
Look for new demand or interest in Build It & They Might Not Come!
something that wasn’t possible just a
couple years ago. Be a “fast follower”
NO SIGNS OF COMMODITZATION
into a validated emerging market rather Shrinking Margins. More
than speculating on new opportunity. Products
 Innovation Life
Cycle
Every market has a natural lifecycle driven by innovation and circumstance. Look for something that
wasn’t possible just a couple years
TIMING ago ramp up before the market capitulates (supply > demand).
CRITERIA

Innovators Early adopters Early majority Late majority Laggards

(2.5 %) (13.5 %) (34 %) (34 %) (16 %)
 Innovation Life
chasm” after demand is validated
Cycle
Opportunity to enter diminishes as the market matures. Geoff Moore suggests entering at “the
but still early enough to ramp before the market capitulates.
TIMING CRITERIA

Ne
w E
n tra
n tO
ppo
r tu
nity

Ideal point to
enter a market
Chas
m

Innovators Early adopters Early majority Late majority Laggards

(2.5 %) (13.5 %) (34 %) (34 %) (16 %)
 Innovation Life
Cycle
Every market has a natural lifecycle driven by innovation and circumstance. Look for something that
wasn’t possible just a couple years
TIMING ago ramp up before the market capitulated (supply > demand).
CRITERIA

Capitulatio
n
*
The Golden The
Era Squeeze

Early Consolidation
Movers

Innovators Early adopters Early majority Late majority Laggards

(2.5 %) (13.5 %) (34 %) (34 %) (16 %)
Commoditization of
Technology
TIMING CRITERIA

It is difficult to imagine a more perfect commodity than a byte of

data.
As information technology’s power and ubiquity have grown, its
strategic importance has diminished.

Nicholas Carr
Harvard Business Review, 2003
$5,000,000 Commoditiz
ed
Hosting Commoditized
2000

Technology
2005 $500,000

What cost $ 5 m i l l i o n to
Open Source Software
accomplish 10 years ago can

2009 $50,000 now be done with less

than
$5,000.
that Mark Suster
commoditization and
The Cloud observed
availability of more building
blocks has radically reduced
cost and risk of developing a
software product.
2012 $5,000
 !"ti$% '%()*+
Commonplac
&#!$!!!$!!! %)
e
&!!$!!!$!!!

Commodity
As cost has fallen, so has
%#!$!!!$!!!
the competitive barrier to
entry.
%!!$!!!$!!!
Competitive positioning is now
the key strategic issue, not
#!$!!!$!!!

technological capability for most

! consumer Internet products. How

2000 2002 2004 2006 2008 2010 2012 2013
do you cut through the noise?
Data From NetCraft 2013 Web Server
Survey
 Competition
Criteria
STARTUP SCORECARD
GOOD COMPETITIVE
CLEAR MARKET INEFFICIENCY
LANDSCAPE?
Stagnant or Fragmented Market
Avoid being marginalized by
excessive undifferentiated
LOW BARRIERS TO ENTRY
competition. That drives margin Easy & Cheap to Compete?
compression, commodi- tization and
market consolidation. DIFFERENTIABLE POSITION
Look for inefficient markets where Something Special or
Different?
there’s still ‘play’ and find ways to
develop a sustainable
competitive advantage.
 Inefficient
Market
COMPETITION CRITERIA
NEW MARKET
When a market is efficient, a single entity
DEMAND EXCEEDS captures all of the value of a market. Look
SUPPLY
instead for a market that isn’t efficient either
because it is new, stagnant of splintered
FRAGMENTED
MARKET (fragmented).
NO CLEAR MARKET
LEADER

STAGNANT MARKET
READY FOR
DISRUPTION?
 Low Barriers to Entry
COMPETITION CRITERIA

Avoid a fight you cannot win! A market can be much harder to enter if a
competitor already has a mature offering that you must catch up to.

THINGS TO AVOID

• Existing Economies of Scale

• Existing Mature Product (feature set)
• Well-Established Brand (halo)
• Price Competition
 Low Barriers to
Entry
The general who makesCOMPETITION
many calculations
CRITERIA before battle is wise. He who
knows when he can fight and when he cannot will be victorious.

Sun Tzu
War Strategist, Wrote The Art of War
 Differentiable
Position
In order to be a desirable signal that stands out against a background of noise, you need to have a
compelling value to someCOMPETITION
customersCRITERIA
that others do not. There are 3 viable positioning strategies.

LOW PRICE LEADERSHIP HOW ARE YOU DIFFERENT?

FOCUS ON VOLUME &
COMMITY WHAT MAKES YOU SPECIAL?

SEGMENTED MARKET
FOCUS ON SPECIFIC
CUSTOMER

DIFFERENTIATED PRODUCT
DISRUPTIVE OR INNOVATIVE

Porter’s Generic Competitive Strategies

 Financial
Criteria
STARTUP SCORECARD
GOOD FINANCIAL LOW SUNK COSTS
PROFILE? Up Front Capital at Risk?

Look for opportunities to maximize

returns without excess capital risk. WORKING CAPITAL FLOAT
Look for opportunities to start cheap Gap Between
Payable/Receivables
and to realize higher margins through
focused efforts and economies of scale.
ECONOMIES OF SCALE
Avoid locking up too much capital.
Margins Increase With Volume?
 Low Sunk
Costs
FINANCIAL CRITERIA

HOW MUCH CAPITAL RISK?

OPPORTUNITY
COST

How much up-front capital must you commit to

develop this product or business? Sunk capital
represents risk since you don’t know if you’ll get
it back, as well as opportunity cost since that
money could be committed to other
opportunities.
DO YOU NEED A LINE OF
CREDIT?
Working
Capital
WHAT’S THE COST & RISK?

Float
Some businesses require large cash
outlay every month and payment
can take 3-4 months to arrive. As a
result the business may need to
60 - 120
have cash or credit to cover the gap
Day of 3-4 of operating costs. This is
months
Account "Capita Accounts
s Receivabl both a cost (interest) and a risk!
Payable l Float" e
 Economi
rof
its es of
Scale
P
le
lab
a
Quantit

Sc Look for opportunities where profits

Marginal Cost
increase with volume (scale). Supply,
y

development, and distribution costs all

diminish on a per-unit basis when
working in volume. As a result profit
margins and competitive advantage both
Profit increase.
s
 Team Fit
Criteria
STARTUP SCORECARD
WHAT’S GOOD TEAM SUBJECT MATTER EXPERTISE
FIT? Deep Knowledge of Market?

Just because an opportunity exists,

doesn’t mean your team is likely to FUNCTIONAL COMPETENCE
succeed. Does your team have an Technical Skills to Deliver
inherent competitive advantage for the
endeavor? Do you possess deep SUPPLIER PARTNERSHIPS
Access to Materials at Good
knowledge, technical skills to deliver, &
Cost
access to key partners and resources?
 The Hacker & The
Hustler TEAM-FIT CRITERIA

A team deep needs subject matter expertise and technical skills to design a solution, in order
to succeed. It is difficult for a single person to be efficient at “heads up” and “heads down”
work.

Subject Matter Expert The Functional Expert

“The Hustler” “The Hacker”

Knowledge of customer or desire, Technical skills to design &
and understanding of market develop a well-crafted
dynamics to effectively position an and scalable solution.
offering.
 Supplier
Partnerships
TEAM-FIT CRITERIA

Consider the dependencies you may have on external sources of materials, data, and services. Do
you have access to the necessary resources to deliver your product and to price competitively?

Preferred Sourcing Available Data Outsourced Vendors

APIs
Are you able to procure Are you able to access the If planning to manufacture
supplies at competitive prices? data or integration APIs physical products or software,
If affiliate mktg, can you get needed to build your product? do you have a quality vendor
preferred commissions? you can rely on?
 Startup Scorecard

Title Real Estate I D X Integrated CRM

Customer Product
Evaluating
•

•
Unmet Need or Desire
• Right Size Market or Segment

Reliable Customer Channels

A
•
•
•
Customer Focused Solution
Low Barriers to Adoption
Clear Value Proposition
B
a Startup
Idea
Customer Score Product Score
___ A ___ A
___ ___
Timing Competition
Evaluate your startup idea across the six market
• Recent Innovation Enabler • Clear Market Inefficiency
•• No SignsAlready
Demand of Established • Low Barriers to Entry dynamics and be mindful of the attributes
• Differentiable Position

Commoditization
B described in each one. Give yourself a letter grade
Timing Score
D __ B___
Competition Score
_ B__
and then an overall score, for the idea. This
Finance -_ Team _ +__
provides a structured approach to evaluating the
• Low Capital Requirement • Subject Matter Expertise
• Clear Profit Model • Functional Competence opportunity and helps to improve objectivity by
• Economies of Scale • Supplier Partnerships

A__ accounting for a full spectrum of important

Finance Score __ D Team Score __

B- _ _ criteria and reducing blind spots.

A Overall Score
SmarterStartup.org

_
___
B B­‐-
 Opportunity Discovery
Process
STEP BY STEP PROCESS
Trad
e Business Model Archetypes Scorecard Criteria

Brokerage

Vertical Markets
Marketplace
Idea Idea A B+ F

Business Ideas
Ecosystem

Idea A
Servic
Product Subscription e A-

Business Models Ideation 6 Market Evaluation

Archetypes Matrix Matrix
Dynamics
Identifies the spectrum of Identify an applied business The 6 market dynamics are a Grade each of the ideas
fundamental business concept for every set of known impact that you’ve identified in the
“personalities” that you can archetype personality, need to be considered for ideation matrix, based on the
consider consider when across all of the vertical success that can be used to six scorecard success criteria
defining your own unique markets you are evaluate an ideas potential. and compare to determine
business model. considering. the best opportunity.
 Evaluation
Matrix STEP BY STEP
PROCESS

Scorecard Criteria The last step of the process is to take

all of the ideas we generated in the
A B+ F
ideation matrix (step 2) and grade
Business Ideas

them using the Startup Opportunity

A Scorecard. This will provide an easy
point of comparison of strengths and
A- weaknesses of the opportunities being
considered and facilitate a decision.
 Score Your
Ideas
EVALUATION MATRIX

Now we’ll evaluate each idea against each of the 6 market dynamics. We’ll be able to see
relative strengths and weaknesses and will give a final overall score accordingly.

Customer Product Timing Competition Finance Team Overall

IDX WordPress Theme C B B B A A

Virtual Assistant

Marketing CRM

Property Search Site

Lead Generation
 Score Your
Ideas
EVALUATION MATRIX

Now we’ll evaluate each idea against each of the 6 market dynamics. We’ll be able to see
relative strengths and weaknesses and will give a final overall score accordingly.

Customer Product Timing Competition Finance Team Overall

IDX WordPress Theme C B B B A A B+

Virtual Assistant

Marketing CRM

Property Search Site

Lead Generation
 Score Your
Ideas
EVALUATION MATRIX

Now we’ll evaluate each idea against each of the 6 market dynamics. We’ll be able to see
relative strengths and weaknesses and will give a final overall score accordingly.

Customer Product Timing Competition Finance Team Overall

IDX WordPress Theme C B B B A A B+

Virtual Assistant C C B B C C C+

Marketing CRM C C D D C A C‐-­

Property Search Site C A D F D A D+

Lead Generation C A B B B B B
 Score Your
Ideas
EVALUATION MATRIX

Now we’ll evaluate each idea against each of the 6 market dynamics. We’ll be able to see
relative strengths and weaknesses and will give a final overall score accordingly.
WARNI G!
N
Customer Product Timing Competition Team Overall
Th Finance
out any ea
ink twice ab id
C B B B earnAs only a D oAr F this B+
IDX WordPress Theme
th ay mean – non-­‐ e.
at its viabl

m
Virtual Assistant C C B B C C C+

Marketing CRM C C D D C A C‐-­

Property Search Site C A D F D A D+
Lead Generation C A B B B B B
 Score Your
Ideas
EVALUATION MATRIX
CONGRAT LATIONS!
U
Customer Product Timing Finance Team Overall
Competition pass the te st.
Two ideas
that
IDX WordPress Theme C B B You cBould ch ooseAone of A B+
.
these or ke ep searching
Virtual Assistant C C B B C C C+

Marketing CRM C C D D C A C‐-­

Property Search Site C A D F D A D+

Lead Generation C A B B B B B
 Selecting an
Idea
In the final analysis, there are two ideas from our original pool that appear to be most viable.
They have the best overall scoreMATRIX
EVALUATION and also do not have a particular challenge on any single
criteria.

IDEA #1
Scorecard Criteria
IDX WordPress

Business Ideas
Themes A B+ F

A
IDEA #2
A-
Lead
Generation
 Selecting an
Idea
In the final analysis, there are two ideas from our original pool that appear to be most viable.
EVALUATION MATRIX
They have the best overall score and also do not haveSealpeacrtttichueladi r echaayloeun’ger e

goonianngytsoinegxlpelcorrieteria.
IDEA #1
(first). Scorecard Criteria
IDX WordPress

Business Ideas
Themes A B+ F

A
IDEA #2
A-
Lead
Generation
 Finally, Define Your
Vision
A concise statement about a complex topic requires an investment of time and the
VISION DEFINITION

clarity of thought. That critical analysis can reveal weaknesses in a plan, before
you begin developing it. Its time to do this for your new startup.

I didn't have time to write a short

letter, so I wrote a long one
instead.
Mark Twain
Author
Defining Your
Startup
Vision VISION DEFINITION

Once you’ve decided on your

idea, its time to begin clarifying
the idea, who you’re serving,
and how you’ll position yourself
in the competitive marketplace.
 Defining Your
Startup
Vision Definition
Vision VISION DEFINITION

Once you’ve decided on your

Answer each question concisely in the Vision Definition worksheet. It
takes effort to distill your thoughts into small soundbytes that answer idea, its time to begin clarifying
these questions but it is a necessary step on the way to clarity. Once
the idea, who you’re serving,
that is done, compose a 3-4 sentence elevator pitch you can share
with client prospects and investors. and how you’ll position yourself
in the competitive marketplace.
 Real Esta te I D X Wo rd P re s s T h e m e s May 9

S u c c e s s f u l Real E s t a t e agents, I D X S y s t e m t o c a p t u re &

Marketing A u t o m a t i o n CRM
earning $100k / year n u r t u re online le ads

1. Phone s a l e s & webinars 1. O w n don't R e n t ( y o u r w e b s i t e )

2. B e a u t i f u l original design
S o f t w a re Produc t
2. Co n fe re nc e s

Wo rd P re s s T he m e * P r o d u c t * 1. Me ( p r o d u c t / t e c h )
$ 5 0 , 0 0 0 t o build core p ro d u ct
( n o t SaaS) f o r t h e D I Y agent 2. J o h n (BizDev/Sales)

Te c h disruption. Firs t mover 1. Spark P l a t o r m A P I

$ 5 0 , 0 0 0 line o f credit
( t h e Spark A P I f o r IDX) 2. A c c e s s t o all MLS IDX Fe eds

I D X We b s i t e / C R M s o f t w a r e f o r s e r i o u s RE agents t o c a p t u re & n u r t u re online leads and

grow th e ir b u s i n e s s . Bu il t on Wo rd p re s s s o t h e y c a n "o wn t h e s y s t e m , n o t rent". F i r s t - m o v e r advantage by
integratingthe Spar k I D X A P I w h i c h m a k es it p o s s i b l e .
Thank
You!PREPARED FOR SXSWi 2014
BY NEAL CABAGE & SONYA ZHANG,
PhD

NealCabage.com SonyaZhang.com