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ELEC 5701 Opportunity Assessment -sdfl Finding The Right Problem Matt Barrie Chief Executive Freelancer. com [email protected] com Bill Bartee Managing Director SXVP [email protected] com Matt Barrie [email protected] com +61 4 11331123
Opportunity Assessment Every successful company solves a painful problem.
Opportunity Assessment “No problem = no market = no company. ” -- Vinod Khosla (cofounder of Sun & VC)
Opportunity Assessment “Every problem is an opportunity” -- Vinod Khosla (cofounder of Sun & VC)
Two Categories of Problems • One gets a job done for a consumer or company – Software (Microsoft), electricity (Power company), computers (Apple), search (Google) etc. • The second fulfills a fundamental human social need – Dating (RSVP), communication (smartphone), hanging out (Facebook), networking (Linked. In), playing games (Zynga, Minecraft)
Best Problems To Solve (Most Valuable) • Are acute/painful (like appendicitis) (Aaron Patzer – Mint. com) • Are timely (not too early and not too late) • Provide clear value to a customer (e. g. $10/mo fee saves $100/mo) • Are important -- must haves -- not nice to have • Are profitable (cost build/deliver < revenue generated) • Have a lot of customers to buy it (Big Market) • Are unique/different amongst competitors • Are ones where the founders are passionate about it (Richard Branson – Virgin)
Your Challenge • Find a valuable problem to solve: – Seek important opportunities with valuable potential returns – Select one in a short time period – Creatively explore the opportunity and create a valuable solution – Convert the opportunity into a workable and marketable business – That lots of customers will buy • Ideas are easy to find but hard to evaluate • How do we find opportunities?
Finding Opportunity • “How many opportunities you find is proportional to how many overlooked things you discover” -- Donald Latumahina • Opportunities sometimes come out of personal need (Necessity is the mother of invention) • Opportunities sometimes come out of crisis or tragedy • Sometimes they come out of personal experience • Some great opportunities arise from cross-pollinisation • Some opportunities arise from development of other disruptive technologies (e. g. the Internet, stem cell therapies)
Finding Opportunity • Sometimes its just being at the right place at the right time • Some opportunities arise due a shift in legislation or government policy • Sometimes they are found by accident • Often they are disguised as problems • To describe a good opportunity you should be able to describe the customer’s pain. • A new technology by itself is not a solution.
Nine Categories of Opportunity (Byers) 1. Increasing the value of a product or service 2. New applications of existing means or technologies 3. Creating mass markets 4. Customisation for individuals 5. Increasing reach 6. Managing the supply chain 7. Convergence of industries 8. Process innovation 9. Increasing the scale of the firm
Evaluating Opportunities • How do you make money? • Can you express the problem and opportunity clearly and concisely? • Invest less time and effort in evaluating the opportunity than it will be worth in 1 -2 years • Spend time to do detailed analysis of the current state of the market and where it will be in 3 -5 years • Does the idea lend itself to building a company or is it a one hit wonder? • Can your team execute on the idea?
Evaluating Opportunities • Will the customer enable you to profit from the opportunity? • How large is the market? Do you believe this? Segment the market. • Who will buy the dog food? Why will they buy? How much will they pay? How long does it take to sell to them? Is the sales process repeatable and scalable? • Is the expected return consistent with the risk? • What is the opportunity cost of pursuing this venture? • If the opportunity doesn’t work out, can you fail fast with minor losses?
Evaluation Frameworks • See the course blog for frameworks for the top VCs Factor Problem to be solved (P) 1 2 Small Under $100 M 3 Medium Up to $1 B Large Over $1 B Sophistication of solution (S) Non-proprietary Tech Either Proprietary Tech AND proprietary Tech AND Non-existent channel OR In-place channel Quality of Entrepreneurial Team (E) Inexperienced Team OR No Team Some Related Experience P, S, E out of 10 D = demerit points Value = P * S * E – D Deep Background of Experience
Finally – Is The Entire Team • Committed ? • Knowledgeable ? • Passionate ? To build a successful business, you must be!
What to do next • Find and describe a problem to solve • Write the elevator pitch • Write the vision for the company • What is the business model – how do you make money? • Why is your solution compelling and does it have a sustainable competitive advantage? • Write up an executive summary • Do some basic modelling (e. g. how do you make $1 m? )