I frequently get asked to review other people's product ideas, concepts and businesses. As my background is software and internet businesses, this blog post looks at the five areas which often get overlooked:
Let's look at each one in turn, but quickly you'll appreciate how they are all interrelated.
Getting the Job Done
Your Value Proposition is the offering that you make to your marketplace. Your value to the person that uses or pays for your product or service indicates the price you can charge. ALWAYS, the value of your product is based on the pain that your potential customer has.
I quote from SHAKESPEARE from Richard III, Act 5. Scene IV. As Richard II is fighting in the Battle of Bosworth, his horse is killed.
A horse! a horse! my kingdom for a horse!
Great value is placed on a solution to a great pain.
An entrepreneur should evaluate his / her product or service through the perspective of a customer wanting to solve a problem: 'What can I buy (or hire) to get this job done for me?'. These are the problem statements that users need your solutions for. In analysing the pain, you frequently discover that the pain can be solved in a variety of ways (or the pain can be endured).
Question: is the pain significant enough for people to pay for it?
Firstly, it is much, MUCH safer to assume that you have competitors: either you haven't found them (yet) or the competition is just about to appear over the horizon.
Searching for competitors
I recommend you really look hard for your competitors:
Using the internet - not just the terms that you use to describe to your product or service, but for words that describe the problem that your potential customers might be enduring. See 'Getting the Job Done' in the previous section.
Sniff out 'players' in your wider sector. By 'players', I don't mean direct competitors, but participants in closely associated sectors.
Example of Players: You have developed a piece of wizardry that improves images displayed in Microsoft Word. Direct Competitors would be Microsoft itself and companies that provide 3rd party add-ons to Microsoft Word. Other 'players in associated sectors' might be companies that make printers (eg HewlettPackard) or computer screen manufacturers (eg Dell). The key question to ask yourself is 'Will my invention hurt or harm these players?'
Supply Chain Analysis
This leads nicely onto supply chain analysis.
If your new product or service is successful, then other players in the supply chain will react to your success. Some will benefit, some will be negatively impacted. By analysing all the participants that in the supply chain, you may well discover that:
there are other cracks in the market that your product/service may be better suited for
there are other potential partners or distributors who will benefit from your product/service and 'should' support your product's entrance into the market place.
Route to Market
Supply Chain Analysis leads me onto Routes to Market and Market Entry.
Participating with a partner has a number of huge advantages:
You can use your partners' or distributors' marketing budge to tell them about your product / service.
Their endorsement provides credibility to your product / service and can both accelerate sales and shorten the sales cycle.
Route to revenue and ROI (Return On Investment) should be much faster.
There are additional financial advantages too: if you're a very young company, your partners may be prepared to invest in your business, if they will significantly benefit from accelerating your product's arrival at the marketplace.
However working with partners does have disadvantages:
They might steal your idea.
You may have to spend considerable amount of time 'selling' your proposition to your partner/distributor. Their offering and how they present the combined offering to the market will have to be modified - all of which takes time. If your solution is any way competitive, these potential partners/distributors will be protective of their markets and customers.
You will lose some or all of the direct relationship with your end customer - this is a really important relationship with the customer in order to receive unadulterated feedback.
It will most probably take more time to receive the first revenues from your product or service as the revenue has to turn more cogs and gears in other organisations (which you can't control) before money starts to flow into you.
General lack of control! Usually your partners are much bigger than you and their processes are much slower. It is likely that you are one of many partners with whom they operate and being new, you have to demonstrate ability and trustworthiness.
Good news: by this stage you have done most of the hard work! Revenue MUST be sustainable: investors and partners need to have confidence that you and your product will be around years into the future. A really good analytical technique about profitability in an industry is to use Porter's Five Forces Analysis, a concept devised originally by Michael Porter, a Harvard Business School Professor in the 1979.
Porter's Five Forces Analysis is not simple, but it is very worthwhile as it gives you a profound understanding of your market and its dynamics. I recommend that you undertake this analysis twice: once as your market / sector/ industry stands today and then a second time, as if in the future, once you have launched your product or service and this is very successful.
How will your competitors react?
How do you think the market will react?
Who will own the largest slice of the revenue pie now - who will benefit and who won't?
My own litmus test is to ask: are there any Goliaths in the industry who could simply roll over on morning and squash you?? Phrases like 'We're gonna beat Google hands down' fill me with fear!
Top Tip: In conjunction with your Five Forces Analysis, have scribble pad at hand divided into four quadrants: Strengths and Weaknesses (of your idea), Opportunities and Threats (in the competitive landscape). This is commonly known as a SWOT Analysis.
As you undertake the Five Forces Analysis, you'll see other product opportunities or other partners that you haven't thought of, but don't deviate from your Five Forces Analysis, but return to these ideas later!
My own platinum standard for sustainable revenue is the ideal cancer drug with the following characteristics:
has an immediate beneficial effect and insignificant side effects
and the producers receive much public acclaim and publicity for their breakthrough
is addictive - therefore users become dependent
the human body builds up a tolerance to the drug. As the treatment program continues, users require more and more of the drug. However, the tolerance should be mild and builds up over time, otherwise it may attract too much attention from regulators.
importantly, the drug doesn't eradicate the cancer, but prolongs life.
surrounded by a 'wall' of patents - no-one else can copy the drug.
Can your product or service build in as many sustainable revenue features of the perfect cancer drug??
Keep iterating through this process on a regular basis - the market changes: expectations fluctuate and new players enter the market, technology shifts occur which can reset the rules of business competition. Change is the only thing that is guaranteed!