43North competition is a must-see event

The 2016 rendition of the 43North competition for $5 million dollars was outstanding.  I attended the Thursday round-of-ten and am glad I did. The competitors were prepared, the businesses were interesting, the judges were polite as well as diligent, and the stage was audience friendly.

There were a couple of glitches in last year’s competition.

Last year’s cadre of combatants had several immature businesses, not bad ideas, just immature.  However, there here were more than a few that deserved the money and the attention. ACV Auctions was the crown jewel of last year’s competition. I had earlier reported that one of the judges was permitted to invest in ACV Auctions before the finals. I was not able to verify that assertion. Dan Magnuszewski told me that they now have 40 employees at ACV. These hires are good news for 43North and the Western New York economy.

The layout of the stage last year was an issue. The audience could only see what was going on by viewing the large screens. It was very disengaging. They corrected this, and I must say that this year’s competition was great entertainment and educational.

The following presents an overview of each of the competitors and how they fared. I graded each of the competitors and ranked them and then sent my rankings to Tom Ulbrich of CEL and Sam Marrazzo of SuperiorGroup by 5pm on October 27th. The finals started at 6:30 pm that evening. The 43North Judges composite ranking was inferred from the email press release and Sunday Buffalo News article. They did not put the $500,000 names in alphabetical order, so I assumed that this was a composite judge ranking.

Here are the results with my ranking.

  1. $1,000,0000 Oncolinxcombines an antibody that only targets tumor cancer cells with a toxin (Azonafide) that kills cancer cells.  Great idea and many pharmaceutical partners. I ranked them 1.
  1. $600,000 HigherMe assists in finding, screening and hiring employees for retailers. Rob Hunter is an outstanding presenter. Tim Cook should hire him for launch days. I did not think the judges would rank HigherMe this high. I was wrong, and I actually agree with the judges after further reflection. I ranked them 6.
  1. $500,000 Asarasi  produces organic water that is bottled by Mayer Brothers as a byproduct of maple syrup production. Great story with significant sustainability implications. I ranked them 3.
  1. $500,000 UltraCell Insulation produces water-resistant building insulation from recycled corrugated cardboard. Now you have a use for those Amazon boxes. Great sustainability idea. I ranked them 5.
  1. $500,000 PathoVax  is a vaccine that targets all human papillomavirus viruses (HPV) that can cause cancers and other diseases. This looked like a no-brainer challenge for first place. But maybe the judges have better insight into this business than I did. I ranked them 2.
  1. $500,000 Formarum is a device that uses the existing swimming pool circulation system to chlorinate and disinfect swimming pools. It has an app, and it is self-monitoring.This was my favorite creative idea in the competition. This idea is so simple, yet powerful enough to be adapted to a wide variety of applications. Beautiful design and just cool. I ranked them 4.
  1. $500,000 WeDidIt assist nonprofits in mining existing donors to develop specialized targeting strategies and to assist with the entire fund-raising process. They can garner a tremendous amount of information from the email addresses of existing donors. I ranked them 7.
  1. $500,000 Bounce Imaging has a throwable 360-degree camera that can be used for first responders for disasters, fires, and police situations. Very intriguing idea. Getting local Buffalo police testimony was a good tactic. I would want 2 or 3 of these cameras in each responding vehicle. Might be a little pricey, at $2,300 plus. I ranked them 9.
  1. $10,000 The Wealth Factory design games to improve financial literacy to assist in preparing students to meet the financial core standards. This will be an important way for students to become more engaged in education. One of the judges does not play games. Ok, but if you want to understand the Millennials and Generation Z, you need to try them. They received $10,000 as the People’s Choice Winner. I ranked them 8.
  1. $0.00 Arthena is a crowdfunding platform that offers investors to invest  investing in artwork funds such as emerging art, modern masters, and contemporary art.  I think the judges were unsure about the concept and giving the 43North imprimatur.  This will probably end-up be making some people millions. Too many questions about this. I ranked them 10.

Entrepreneurship is dead: long live entrepreneurship

Thomas R. Ulbrich and G. Lawrence Sanders

There are television shows, numerous blogs and endless social media posts all focused on entrepreneurship. It is finally “cool” to be an entrepreneur. Virtually every academic level from grade schools to high school talks about entrepreneurship. So goes the government. All levels of government are jumping on the entrepreneurship bandwagon. Billions of dollars have been thrown at startups and incubators by families, friends, angels, managed funds, universities and the government. Local, state and the federal government also have the ability to give the gift that keeps on giving, tax breaks.

According to research by the Kaufman Foundation, Austin, Miami, Los Angeles and San Francisco, Las Vegas and New York, and Boston have the best startup ecosystems in the world. These ecosystems have the funding, the talent, and competitive density to facilitate new business development.

Despite the fact that the thought of becoming an entrepreneur is more popular than ever, some reports paint a slightly gloomier picture. The bad news is that the startup rate has fallen from 14% to 8% of total companies over the past 30 years. Unicorns, companies with a $1Billion valuation, are also on the decline and a  growing concern. The Financial Times attributes the decline to a lack of access to capital, stifling regulatory requirements, increases in entrepreneurial activity by large companies, and increases in student debt and a very cautious workforce. A recent article in Forbes echoes these sentiments and adds, the Walmartization of America due to Walmart’s infrastructure and buying power.

Part of the decline relates to the nature of the beast. Startups fail. And the workforce is well aware of the situation. It is common to hear of failure rates between 80 and 90%. Other sources paint a somewhat rosier picture.  According to Scott Shane, in Small Business Trends, larger and older companies have a better chance of survival. About half are still around after five years.

Entrepreneurship is not dead.

It is morphing, changing and penetrating every aspect of traditional business as we know itMarketing, finance accounting, organizational behavior, and operations have assimilated the entrepreneurship. Marketing for startups focuses on engagement via viral and social networking strategies. Startups eschew traditional channels used for legacy and mature products.  Using traditional capital budgeting is just not appropriate for startups. Financial analysis for startups uses a combination of real options theory and qualitative models for evaluation. The ideal composition of startup teams draws on a different literature than traditional team literature. Startups need engagement marketing specialists, product designers and prototyping specialists, experts with infrastructure knowledge for configuring cloud-based applications that are scalable and of course the charismatic visionary. Accounting for startups is all about forecasting and cash-flows. Operations involve a constant struggle to scale production up and down.  And how to leverage and address the Amazonification and Walmartization  of supply chains.

Oh, and don’t forget strategic planning. Traditional planning approaches are confusing, cumbersome, take too long and just not agile. One-page business plans, pitch decks, lean startup approaches and the numerous templates to assist in identifying an opportunity are replacing the traditional strategic planning approaches.  This simplified planning allows entrepreneurs to react quickly in response to customer feedback, providing an iterative process that spirals in on the best products and services.

No, entrepreneurship is not dead. It is being assimilated into every nook and cranny of successful businesses. Many large organizations have embraced entrepreneurship because they understand that products and technologies have a life-cycle, that consumers will always be attracted to the next big- thing, and because large companies have the resources to invest in entrepreneurship.   Being entrepreneurial is the best way to delay and even prevent, the natural decline of business.

Prototyping Fidelity and the Design Turing Test

Prototyping is a topic I have been involved with for 30 years [c.f. 2, 3]. Prototyping technologies and conceptual advances have changed dramatically over the years, but the two reasons we must prototype have not, and will never change.

    1. Prototyping encourages user involvement and joint ownership of projects.
    2. Prototyping facilitates the mutual and concurrent learning processes of users and designers.

Numerous conceptual advance have been made to redefine and assist with modeling and designing systems for consumers and users. One of the most important concepts is related to the coarseness of the prototype. This coarseness is called prototype fidelity.  I would like to draw on the concept of prototype fidelity and relate it to our earlier research.

Adaptive Design and Prototype Fidelity

In earlier papers we identified three levels of prototyping. Level 1 was input and output design. Level 2 prototyping was called heuristic design and it involved the addition of functional operations and limited interactions to input and output design. Level 3 prototyping was called adaptive design. A prototype built using adaptive design was an actual working systems that was improved forever in an adaptive iterative process. The concept of adaptive design was articulated by Peter Keen over 35 years ago and defined as a process of learning and evolution [4].

I like the concept of prototype fidelity as discussed by Catani and Biers much better than the levels of prototyping [1]. Prototype fidelity is a clean, easy to understand concept. An excellent article by Laura Busche in 2014 captures the idea of prototyping fidelity and illustrates why developing a low fidelity prototyping is the first step in user-oriented design.

The gold standard for a prototype is to develop a high fidelity prototype that passes for what I like to refer to as the Design Turing Test (DTT).

Although we do not yet have a specific means for determining the particular characteristics that make a user interface high or low fidelity, we can loosely define fidelity by analogy to the Turing test. To the extent that a person using the prototype cannot distinguish it from the final system, the prototype is high fidelity. If the prototype can readily be distinguished from the service, then fidelity is low. [5]

In essence, prototype fidelity refers to the degree to which the prototype looks and functions like an actual system or product. We will refer to the levels of fidelity, the degree to which a prototype reaches the Design Turing Test hurdle, as the Lo-Fi prototype, the Hi-Fi prototype and the Functional working prototype. High fidelity, functional prototypes should pass the DTT.

Lo-Fi Prototypes: A low fidelity prototype could be a sketch of the input and output screens or a process diagram of how the product works. It can also be a thought experiment with a brief description. The key is communicate the essence of the concept.

Low fidelity prototypes can be done using pencil and with a drawing program, however, I am such a terrible artist that I often turn to Grafio for Alpha prototypes. My favorite tools for low fidelity prototyping are paper and pencil, any tablet drawing program, PowerPoint, Visio, and Grafio in most situations. A new on-line and desktop tool called Creately shows great promise as a low fidelity prototyping tool.

Hi-Fi Prototypes: A higher fidelity prototype would include input and output mock up screens and it should also illustrate hierarchical and navigational relationships between the various screens. High fidelity prototypes are usually developed using wire frames. A wire frame is just an image or picture of a tablet, a smart phone or a computer screen.

My turn-to tools for high fidelity prototyping are InVision for realistic wire frame mock ups, and PowerPoint, and Excel.  You must pay for the more advanced features of inVision, but you can try it out on a small project to see how it works.  I also like Prototyping on Paper or POP. This is one of the easiest tools for taking pictures of paper and pencil sketches and then making them linkable.

If tangible products are being designed computer aided design (CAD) tools can be used. Free versions of these tools are reviewed here.

Functional Prototypes: The highest fidelity prototype is supposed to act and look like the real system or product, even though it may eventually be re-coded or rebuilt using different technologies. Functional prototypes are developed using a technology that represents the flow and dynamics of the screens, as well as supporting the background processes that support the application. Functional prototypes should usually be capable of passing the prototyping Turing test, in that the person using the prototype should not be able to distinguish it from the final system.

I do not have a favorite tool for Functional prototypes. They are typically implemented in a native language such as Xcode for IOS iPhone apps and in Java-like languages for Android apps. I usually have a developer implement Alpha prototypes. They are rarely static and are continuously redesigned in an iterative fashion.

Example of Lo-Fi and Hi-Fi Prototyping

The following figure illustrates the low fidelity and high fidelity prototypes for a system for searching and rescuing a lost climber in a remote location. Figure 1 is a very terrible drawn low fidelity prototype using a pen and pencil. My collaborator took that drawing and developed a wire frame iPad mock up using inVision.

The first version of the high fidelity prototype developed in InVision was not the idea that I tried to convey. My drawing was terrible. So I used Grafio to draw a more refined diagram, a higher fidelity, but still at low fidelity prototype, that is illustrated in Figure 2. My collaborator then went on to develop the high fidelity prototype that is illustrated in Figure 3.

The  high fidelity prototype in Figure 3 is a dynamic wire-frame that was developed using InVision. If you click on a name, for example “Kate”, you can get her health and movement status. All of the members of the rescue have hot links to their movement and health status. This application would eventually be programmed in XCode or Java, depending on the smart phone platform.

The key take away from the back and forth process of developing low fidelity and high fidelity prototypes is that developing a prototype facilitated the mutual and concurrent learning processes for both of us. It was an iterative on-going reciprocal learning process.

As illustrated in Figure 4, the prototyping process is non-linear and iterative. The process can be low fidelity, high fidelity, low fidelity, fidelity, and then the creation of an actual  functioning prototype that passes the design Turing test. Or the process can begin with a low fidelity and then go directly to the development of the functional prototype. The order is determined by the complexity of the application and the degree to which the designer and user understand each other.

Conclusion

The key to design is to get the users, consumers, designer, developers and management on the same page. Prototyping encourages learning and exploration. The ideal prototypes passes the Turing Design Test. It has never been easier to develop virtual world prototypes. There are numerous 3D printing tools and digital tools for designing products that clear the Design Turing Test hurdle. Take advantage of them. It is a prototype or perish world.

Prototyping Process

Figure 4: Prototyping is a Continuous Process

 

Additional Material on prototyping concepts  and prototyping tools

References

  1. Catani, Michael B., and David W. Biers. “Usability evaluation and prototype fidelity: Users and usability professionals.” Proceedings of the Human Factors and Ergonomics Society Annual Meeting. Vol. 42. No. 19. SAGE Publications, 1998
  2. Cerveny, Robert , G. Lawrence Sanders and Edward J. Garrity. “The application of prototyping to systems development: A rationale and model.” Journal of Management Information Systems (1986): 52-62.
  3. Cerveny, Robert P., Edward J. Garrity, and G. Lawrence Sanders. “A problem-solving perspective on systems development.” Journal of Management Information Systems (1990): 103-122.
  4. Peter G. W. Keen. 1980. Adaptive design for decision support systems. SIGMIS Database 12, 1-2 (September 1980), 15-25. DOI=http://dx.doi.org/10.1145/1017654.1017659
  5. “Virzi, Robert A. “What can you learn from a low-fidelity prototype?.” Proceedings of the Human Factors and Ergonomics Society Annual Meeting. Vol. 33. No. 4. SAGE Publications, 1989, pp 224.
Figure 1

Figure 1: Low Fidelity Version 1

Figure 2

Figure 2: Low Fidelity Version 2

Figure 3

Figure 3: High Fidelity

Figure 3

Figure 3: High Fidelity

Using Pivoting and Real Options to Evolve a Business Model

Nothing is certain, except death, taxes and business decline. It does not matter how much money the current business is making; there is a life cycle for products and technologies, and eventually the business will decline without constant re-priming. Re-priming is essentially an investment decision involving the selection of the right product, the right people, and the right technologies at the right time. Real options theory can help with that decision.

Real options theory can be traced to a 1977 paper by Stewart Myers. They are called real options because they are investment decisions in tangible, real things such as a tangible asset, a product, machine or even a process since a process can be perceived. The real options investment decisions for a startup are:

  1. Concentrate on executing the existing business model. Focus on selling your existing products and versions.
  2. Add more versions to your exiting product line. The current product line looks viable, but needs fine tuning and freshening.
  3. Redirect the business in a new direction. Use existing competencies and acquire additional competencies to develop a new product line. Your existing products are not attracting customers.
  4. Abandon the current business. Fail fast and go back to the drawing board.

A real option is a decision or choice to invest a little or a lot in a corporate asset such as a business model, a product, or a technology. Real options look very much like the relatively recent concept of pivoting a startup. Eric Ries introduced the concept of pivoting and changing business direction in his 2011 book The Lean Startup.

“Companies that cannot bring themselves to pivot to a new direction on the basis of feedback from the marketplace can get stuck in the land of the living dead, neither growing enough, nor dying, consuming resources and commitment from employees and other stakeholders but not moving ahead. pp. 151-152”

The problem with the pivot concept is that it is a bit simplistic and parochial. The problem with the real options concept, when it is applied rigorously in its academic manifestation, is that it is too abstract and mathematically complex because it is based on stock options concepts.

An Enhanced Pivoting Model that Draws on Real Options

I have expanded on the pivot concept to take advantage of the more comprehensive real options approach by extending the basketball analogy. In basketball the pivot gives you the opportunity to get into the triple threat position. In the triple threat position the player can either pass, shoot or dribble. Check out Kobe Bryant in the triple threat position.). Each game is a continuous series of decisions to shoot, pass or dribble. Each season involves games against some of the same opponents and new opponents with the same shoot pass and dribble decisions. Finally, if the game is too tough, the player and the entire team can just walk off the court, albeit a radical, though sometimes prudent strategy in some situations.

The essence of the model (see Figure 1) is that founders should modify their business model based on the market potential and the degree to which the current founders and employees have core competencies and domain expertise in a particular area.

  1. Shoot: Go with the current business model and grow the business as quickly as possible.
  2. Dribble: Try to get in a better position by modifying and tweaking the current business model using versioning and identifying appropriate market niches. Identify mashup artists, and marketing expertise. Focus on product design and prototyping.
  3. Pass: Dramatically change the current business model. Use some or all of the core concepts of the existing model. Conduct intense R&D and acquire talent and perhaps even acquire a business with the desired core competencies. Get ready to receive the ball and be in the triple threat position develop a new and improved business model.
  4. Abandon the game & fail fast. Leave the game and walk off the court. Your position and perhaps your game is not good enough to compete effectively in this situation. Try to improve your game (domain knowledge).  You might even have to find a new court to compete on and introduce a new business model that draws on previous experience and new domain knowledge.

Triple threat

Figure 1: The Triple Threat Pivot Model

Market Potential and Core Competencies

Market potential refers to the size and the growth rate of a market. The size and growth potential of a market accounts to a large extent the attractiveness of a market and often drives the decision making process for startups and legacy businesses. Questions to be answered include determining the absolute size of the market, how much of the market can be reached and your potential to gain market share.

Core competencies are the knowledge, expertise and capabilities of the founders, employees and contained in existing processes. Pivoting and going in a new direction and embracing a new business model is often the key to business survival. But there are implications, because new investments can interact positively or negatively with existing skills and assets of the firm.

(The basic idea behind the model was published in Decision Support Systems.) 

Examples of pivoting over the last 150 years

As noted earlier, nothing is certain, except death, taxes and business decline. As illustrated in Table 1, many old and new economy companies have pivoted their way to success. Survival requires adaptation. It is truly a pivot or perish world and pivoters will inherit the revenues.

Real options analysis can be very technical, requiring a significant amount of financial and technical scrutiny. However, using complicated calculations is overkill for startups and small to medium-sized businesses. Real options concepts are nevertheless important.

The takeaway from the perspective of the entrepreneur is that you need to experiment and also need to diversify your portfolio of products and projects under consideration. You need to be constantly aware of the pivot. This does not mean that you have to actually buy machinery, make products, and constantly modify your business processes, but it does mean that you should learn-about many products and technologies related to your business and learn-by-doing and experimenting when an opportunity looks promising. As noted in the previous post, you might consider implementing a Chief Illuminati Officer function and start investing in options to keep your company viable.

Table 1: Old and New Economy Pivots

Company Name Initial Business Current Business
American Express Started as express mail business in Buffalo New York 1850 with merger of Wells and Company and Livingston, Fargo and Company Financial services corporation
Apple Launched in 1976 they introduced the Apple I computer. Sells computers, phones software and  sundry electronics items
AT&T Telephone company established in 1874 to protect Bell patent Currently a voice, data and internet communications company
Blockbuster Video and Entertainment Started in 1985 as a home movie and game rental business. Company is non-existent. Casualty of Netflix and Redbox. Had an unsuccessful pivot to online rental.
Coca Cola Launched in 1886 to combat morphine addiction. French Wine Coca made of coca, kola nut, and alcohol. Multinational manufacturer, distributor, and retailer of beverages, concentrates and syrups.
DuPont Launched as a gunpowder company in 1802. Chemical company producing neoprene, nylon, Corian, Teflon, Mylar Kevlar, Tyvek, Lycra and refrigerants among others.
Facebook Started in 2003 as Facemash it was used to compare the hotness of people pictures Large social networking company
Flickr Started in 2004 as a developer of MMORPG tools and migrated to a chat room with photo sharing Video and photo hosting
IBM Established in 1911 as Computer-Tabulating-Recording Company.  Sold scales, time recorders, meat and cheese slicers, tabulators and punched cards. Designs & manufactures hardware and software, and offers infrastructure, hosting and consulting services for IT and emerging technologies.
Nike Started in 1964 as Blue Ribbon Sports by when Phillip Knight distributed Tiger and Asics shoes out of his car. Designer, manufacturer and distributor of sports footwear, apparel, equipment and sports services.
PayPal Started in 1998 as Confinity a Palm Pilot and cryptography company After merger with Elon Musk’s X.com focused on money service
Pfizer Established in 1849 and produced an anti-parasitic for expelling worms and citric acid as a flavoring and preservative Multinational pharmaceutical.
Procter and Gamble Launched in 1837.  Sold soap and candles. Sold Pringles in 2009 and, Jif and Folgers around 2001 Multinational consumer goods company selling pet foods, cleaning agents, & personal care products.
Twitter Launched in 2005 as a podcasting syndicate for audio and video content. Large microblogging company
YouTube Initially conceptualized in 2005 as a video version of online dating site. Video sharing website

Illuminati is the new name for the CIO and Technology Evangelist

Illuminati has slowly creeped into the common vernacular to mean someone possessing unique insight, enlightenment or knowledge. I propose, partly with tongue-in-cheek, that organizations should have a Chief Illumination Officer or Chief Illuminati Officer rather than a Chief Information Officer or a Technology Evangelist. The illuminati responsibility is directly related to the CIO as an entrepreneur.

As noted by McKinsey&Company, the CIOs typical responsibilities of running the IT function as a utility by keeping the lights on and facilitating business performance is evolving. The CIO is now being asked to be a venture capitalist or an angle investor. They seek, incubate and accelerate promising ideas by monitoring emerging technologies and invest accordingly. One of my good friends has actually been at the forefront of this trend and has been quite successful at keeping the lights on, facilitating business performance and being an entrepreneur.

What should be at the core of these responsibilities? I have identified several levels of investment activities, or options, that the CIO should engage in. They imply increasing levels of investment commitment.

  1. Have someone investigate an emerging technology or product and report back
  2. Develop an early paper prototype of emerging technology or product
  3. Develop a more refined prototype of the emerging technology or product
  4. Attend conferences, discuss with illuminati, talk to vendors, search and gather additional information on technology and develop a whitepaper on market growth and potential
  5. Develop a more refined prototype of the emerging technology or product
  6. Use the emerging technology to develop a version of an existing product model
  7. Scale-up production and introduce a new product line.

After each level of investment, the CIO along with the relevant parties (potential customers, employees and management) can discuss and provide feedback. The feedback and discussion should eventually lead to making a decision to invest more resources, continue monitoring, or perhaps abandoning further investment.

The implications are profound for organizations and for the CIO. Entrepreneurship is now a core competency requirement for the CIO. The good news is that much of contemporary entrepreneurship is about monitoring emerging technologies, and then designing, building, launching and maintaining business systems. This is natural territory for individuals with an IT background.

Preparing to Pitch your Idea

(This blog was co-authored with Thomas Ulbrich)

We have watched many business presentations over the past year. Some of the ideas are relevant to the existing business climate and could result in a sustainable business. We will call those ideas viable businesses.  Some of the ideas are not viable because they are too late, too early or too immature. They are just impractical in the current business context. We will call those business models impractical.

There is sometimes a mismatch between receiving funding and the viability of the idea. Some of the impractical ideas receive funding and some of the viable ideas do not receive any funding.

There are a variety of reasons that impractical ideas get the attention and the money. Impractical models sometimes have founders with a track record and they also have connections. Sometimes it is related to the nature of the idea. For example, complex science and trendy technology-based models always draw attention because of the cool factor.

Communication is the key to obtaining funding regardless of whether the idea is viable or impractical. If you have a viable idea that is being ignored; you are not communicating your idea effectively. We have prepared some slides that will help you craft an interesting and unique presentation.

The pitching slides on Prepping and Delivery can be found here. The slides are adapted from Garr Reynolds, David Rose, Seth Godin, Mary Ann Rogers and others. Photos are from Flickr and are Creative Commons-licensed content and from NASA. It is a large file.

In the near future, we will present a set of slides that will focus on the business model content of the presentation.

Selecting the best start-up idea and project feasibility

This past year I have had numerous teams that had two or three startup ideas. Some of the teams want me to make the decision on what project to select. Most of them, however, just want some guidance on what questions to ask.

In its simplest form, the questions should relate to the economic, market, financial, operational and technical feasibility aspects of the idea, along with the characteristics of the founder(s). Here is a list of 14 questions to consider when weighing-in on an idea for a start-up (Figure 1).

Startup Potential

Figure 1: Questions related to Start-Up Potential

Questions related to market and business sustainability

Many investors and founders look at the size of the market and the potential profits as the critical criterion for investing in a startup. But a startup must be able to capture part of that market and reach those customers through a marketing campaign. In order to become a viable sustainable business, funds are needed to launch the business, regardless of whether they come from the founders, family, friends or investors. If the startup costs for the business are low relative to the availability of funds then the business may eventually exist as a sustainable entity. The enemy is the burn rate or burning cash and not having funds to pay the bills. Long term sustainability is very difficult unless there is some way to obtain recurring revenues in the form of complementary products and services and refreshing the product line through R&D.

  • Q1.  How large is the market?
  • Q2.  Will the business be able to capture some of the market and realize a profit?
  • Q3.  Can the customers be readily identified and reached?
  • Q4.  Can funds be secured for starting the company?
  • Q5.  Are the startup cost relatively low?
  • Q6.  Is the time till the company is sustainable short?

Questions related to building the product or service

These questions relate to manufacturability, which is the ability of the startup to make the product and in the case of services, to set up processes that will be used to deliver a service.  These questions are related to the ability of a start-up to develop a viable supply chain.   A good indication of degree of manufacturability is whether or not a realistic prototype can be built. The key is to be able to obtain raw materials, components and people and to design processes for delivering a product or service. Scalable business are desirable because they can grow and contract with changes customer preferences and disturbances in the economy.  When a product or service involves emerging technologies then research and development will be an important driver of manufacturability and product design.  Products and services requiring high levels of initial investment of R&D requirements are inherently risky and contribute to cash burn, even though they can be the ticket to hyper-profitability.

  • Q7.  Manufacturability: Is the product or service manufacturable?
  • Q8.  Can a prototype or mockup of a product or service be built?
  • Q9.  Can employees be secured with the necessary expertise and skills?
  • Q10. Are the materials and components available to build the product or service?
  • Q11. Is the business easily scaled for growth and retrenchment?
  • Q12. Are there minimal initial R&D requirements for manufacturability and product design to get the business going?

Questions related to founders and team composition

There is some evidence that the composition of the startup team will have a positive impact on survival. But the evidence is confusing. Diverse teams can in some instances improve firm performance in a very competitive environment. But sometimes, teams that are homogeneous can act quicker when they are well-aligned on strategic decisions. It appears that the team composition should depend on the characteristics of the industry and the product being developed.

Many pundits and academics have identified their own typology of  what founding teams should look like (e.g. go here for blog discussions, here for Steve Blank’s typology and go here for recent academic research). A high-tech startup team might include a founder that is a visionary/strategist, a technologist/engineer founder, a designer/prototyper, and a marketer/hustler (Figure 2). It also appears that founder teams with about 3 or 4 members are more successful than a solo team or teams with more than 4 members.

If the founders are familiar with the product then many of the questions related to the market and the manufacturability of the product or service are answered or at least can be addressed. But sometimes, individuals and companies have to jump to a very dissimilar product or service in order to survive. Hard work, and learning about and exploring new product lines by prototyping can lead eventually to familiarity and insight. And of course, ignorance that is fueled by enthusiasm has fueled many inventions. Never count out enthusiasm, determination and hard work.

  • Q13. Do the founders have the right mix of expertise and do the team members complement each other?
  • Q14. Are the founders enthusiastic and willing to work hard?

How to use the questions

The questions are set up so that if you answered “yes” rather than “no” to a question, there would be less project risk. Lower risk usually means that the project is feasible. But that does not mean that risk aversion is the goal. There is usually a trade-off between the level of risk and potential returns. There are numerous examples where high risk projects produced numerous millionaires and hyper-profitability.

I had thought about developing a simple scoring model where you could compare different projects using the questions, but I think that would also be a mistake. Selecting the project with the highest score might eliminate a project that could change the world or perhaps just lead to financial security.

It is important that we not to eliminate ideas too early by letting preconceived biases get in the way of creativity (see “How to Let 999 flowers Die”).  Sometimes it takes a while to get people to understand what you are trying to do because you have not been a good communicator.  Sometimes, however, it takes a long time for people like me to “get it.”

The march to innovation should be in between a turtle’s and a rabbit’s pace. You have to give the idea time to mature, but not move too slowly because the idea will wilt on the vine. I suspect a kindergartner pace would work best. Just don’t spend too much time pondering the questions and don’t just race from question to question.  Ponder, race, prototype, ponder, race, prototype, ponder race prototype ….

Typology

Figure 2: Potential Areas of Expertise for Founders