Spin-off, different market applications. Environmentall

1
Checklist for Evaluating New Ideas and Ventures

• Key Factors for Success
• Bruce Gjovig
• Entrepreneur Coach and Director
• Center for Innovation, Rural Tech Incubator

2
TECHNICAL EVALUATION

• Innovative product, not me too
• Competitive advantages, features, and benefits
• Barriers to competitive entry (hard to imitate)
• High quality
• Third-party test results
• Ability to deliver a consistent, quality product
  on time
• Spin-off, different market applications
• Environmentally safe
• No safety/health risks, regulatory control

3
MARKET EVALUATION

• Competitive advantage
• USP Unique Selling Proposition Differentiate
  on quality, service, or innovation
• Market Pull vs. Market Push
• Solves customer problems
• Sunrise vs. Sunset market

4
MARKET EVALUATION CONTINUED

• Significant market niche
• Market plan/strategy
• Distribution channels available
• Repeat sales likely
• Year-round vs. Seasonal demand

5
Approaches to Differentiation

• Prestige Rolex, Mont Blanc
• Quality Honda, Cadillac
• Top-of-the-Line image Ralph Lauren, Cross Pens
• Innovative, technological leadership 3M Corp.
• Engineering design and performance Mercedes

6
Approaches to Differentiation Continued

• A different taste Dr. Pepper, Listerine
• Product reliability Johnson Johnson baby
  products
• Superior service Federal Express
• Full range of services Merrill Lynch
• Complete line of products Campbells Soups
• Spare parts availability - Caterpillar

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Approaches to Differentiation Continued

• More for your money McDonalds,
• Wal-Mart
• Special features Jenn-airs indoor cooking
  tops
• Economy GEs miser light bulbs

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ECONOMIC EVALUATION

• Premium, price possible for quality
• Competing on innovation,
  quality service - not price
• Low up-front investment intensity
• Low overhead
• High value-added
• Business plan

9
ECONOMIC EVALUATION CONTINUED

• High productivity
• Minimum product liability
• Owners have financial commitment
• Management paid for performance, not title
• High Return on Investment (ROI)
• Realistic financial projections
• Good margins profitability
• Good cash flow

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MANAGEMENT EVALUATION(The most important
criteria)

• Experienced in industry
• Entrepreneurial aptitude and attitude
• Results-oriented, bias for action
• Business experience and education
• Visionary leadership sees big picture
• Business strategy is clear and concise

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MANAGEMENT EVALUATION(The most important
criteria)

• Team has experience and depth
• (Production, engineering, finance, marketing,
  management)
• Experienced consultants, advisors
• (Technical, business, legal, accounting)
• Outside accountability
• Board of Directors, investors, etc.

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Five-Year Profitable Survivalof New Business

• Profitable Marginal Failed
• Inexperienced, uneducated 8 62
  30
• Inexperienced, educated 25 29
  46
• Experienced, uneducated 25 23
  52
• Experienced, educated 61 16
  25
• Experienced, educated, planned 81
  12 7

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RELATIVE MARKET SHARE IS CLOSELY RELATED TO
PROFITABILITY

• High Market Share
  Increases ROI

14
ROI INCREASES WITH MARKET SHARE RANK

• Higher Market Share
  Increases ROI

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Profit(Pre-Tax, pre-interest)

• Quality Increases Rate of
  Return

16
HIGH QUALITY PRODUCTS SERVICES ARE MOST
PROFITABLE (Less 12 cst of cap.)

• Quality Increases Rate of Return

17
Quality Customer ServiceBased on 3,000
businesses in all sectors of the
economy. --Strategic Planning Institute,
Cambridge, MA
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Pay for Quality
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Definition of Quality

• The customers judgment, not yours
• Both the product and the associated services
• Not absolute, but relative to competitors
• Does not include price
• Quality Index Percent of sales from superior
• minus
• Percent of sales from inferior
  products

20
GOOD PRODUCTIVITY IS CLOSELY TIED TO HIGH ROI

• High Productivity Increases Profitability

21
CAPITAL INTENSITY HURTS PROFITABILITY
22
AS INVESTMENT INTENSITY RISES ROI DECLINES

• Capital Intensity Decreases
  Profitability

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Major Factors Causing High Profits

• Strong Market Position Relative Market Share gt
  80
• Low Investment Intensity Investment/Sales lt 33
• High Productivity Value Added/Employee gt 60 K
• High Perceived Quality Quality gt 50
• Low RD Marketing Expense Marketing RD/Sales lt
  10

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Major Factors Causing Profit Trouble

• Weak Market Position Relative Market Share lt 25
• High Investment Intensity Investment/Sales lt 33
• Fixed Capital
• or
• Working Capital Investment/Sales gt 70
• Low Productivity Value Added/Employee lt 45K
• Poor or Standard Quality Quality lt 0
• High RD Marketing Expense Marketing
  RD/Sales gt 15

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Percentage of New Produce Failures For Three
Types of BusinessesConsumer, Industrial, Service
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Percentage of New Produce Failures For Three
Types of BusinessesConsumer, Industrial, Service
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Product Lifecycle

• 17-20 years 1970
• 10-20 years 1980
• 5-6 years 1990
• 2-3 years 2000
• Less than 1 year for some products
• Need for constant innovation, improvement, new
  product development

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3M

• 30 of sales from products introduces within last
  5 years
• 10 real growth annually
• 10 profitability after taxes
• 27 return on capital investment
• 15 rule of time

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New Products

• Need a champion
• Market test
• Get to market swiftly (market plan)
• First to market gains share,
  higher margins, etc.
• Sell benefits, not features
• Unique benefits innovative, better, faster, etc.

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• Some 37 of U.S. households include someone who
  has founded, tried to start or helped fund a
  small business.
• - Entrepreneurial Research Consortium

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Small Business Success

• 70 going after 8 years
• -Dun Bradstreet survey of 800,000 small
  businesses started in 1985
• 80 fail in 5 years is myth!

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• Every Community will lose about 10 of its jobs
  each year from acquisition, downsizing, death,
  retirements or other causes.
• About 55 of all new jobs are from expansions of
  existing local companies and nearly 45 of new
  jobs are created by startup companies.
• Less then 1 of net new jobs occur as the result
  of relocations.
• -David Birch, Ph.D.
• Cognetics

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• Fast growth companies that utilize university
  resources boast productivity rates 59 higher
  than peers without a university relationship, as
  well as 21 higher annual revenues and 23 more
  capital investments.
• Private/public collaboration provides a strategic
  advantage for a significant number of high growth
  companies.
• -1995 Coopers Lybrand Study

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Net new jobs come form

• 66 employers of less than 20
• 80 employers of less than 100
• 50 less than 4 years old
• 1/3 generate 2/3 new jobs
• 80 of new sales

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High risk Economy

• Unemployment Low
• Real Wages all time high
• Record Profits
• Export Growing 3x growth of economy
• BUT
• 12 college graduates lost job since 1993
• Corporate downsizing
• Job insecurity
• Economic uncertainty

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• Growth
• Has been traded for
• Security
• Higher riskhigher reward

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Strategies for Workers

• High tech career
• -most growth, most turmoil
• Exporting company
• -pays 12 more on average
• Self-employed

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Strategies for companies

• Reengineer, restructure
• -boost productivity, profits
• -cut costs
• Technological innovation
• Export in growth countries
• Invest in deregulated markets