Idea Valuation

Yesterday (10 April 2010), I had a opportunity to speak at the Start-up Saturday Bangalore on Idea Valuation. I was playing the devil’s advocate role for few of my friends Start-up idea’s and that is how I got interested in Business Model Testing. After speaking to good number of people around me on this topic, I felt I could do something and help people by giving a third eye perspective of their ideas. Accidentally, I ran into a book Will it fly? The Idea Tester by Carla Langhrost. This little piece of work really inspired me. There is someone else in this world who is thinking like me 🙂 Took few key aspects which match with my thought process and put together few slides as a framework for my talk.

Here is the link to my slides Idea Valuation

Ground Rule: All topics of discussion in this talk are practically applicable in your daily life too and just not Entrepreneur Ideas.

I started my talk with the definition of an Idea. What is an Idea?

The transcript, image, or picture of a visible object, that is formed by the mind; also, a similar image of any object whatever, whether sensible or spiritual.

Any idea, if it cannot be visualized in your mind is not worth taking forward. What you visualize need not be precise, but at least a skeleton image is not showing up in your mind, you need to re-think on your Idea. For instance, you are wanting to buy a car, but you have not decided the brand and make yet. However, when you think of buying a car, a skeleton model is up in your mind. The end result might not be exactly what you visualized, but without that skeleton picture, it might be practically impossible to get what you really want.

Components of Idea

Every idea has four basic components – Uniqueness, Meaningful, Acceptance and Future.

• What is the Uniqueness in your idea? You are doing your job or your are driving the car of your choice only because your organization found some uniqueness in your skill set and you are driving that car because it has few unique features which match you requirement.
• Meaningful – Your idea has to be meaningful. To dry yourself after a shower, you need not only have a towel, you can use a dryer or stand below a fan.
• Acceptance – One of the best examples is the “Free Hugs”. Fee Hugs was initially not accepted by many countries, it was even banned in few places due to various reasons, but the persistence of Juan Mann and his visualization of the happiness in one’s heart after the hug is what makes the movement a very successful one.

Testing Parameters

Three basic parameters to test your idea – Idea Preposition, Start-up Preposition and Self Preposition.

Idea Preposition

• Need – What need are you addressing?
• Idea – How viable is your idea and how much of the problem can it solve? (Note that not all ideas solve 100% of problems)
• Uniqueness – How different is your idea from your nearest competitor?
• Test – Finally, ensure that you give sufficient time for your idea to settle and test the viability of your idea.

If you notice the graph, Uniqueness occupies the biggest pie. During your Idea Preposition days, the more you concentrate on your uniqueness, the more better is your end result.

Start-up Preposition

• Start-up Cost
• Profit Margin
• Breakeven Point
• Test

While testing your Start-up Preposition, Start-up costs become the most important factor. When you are buying a car, the initial investment you make on your is more important that the maintenance costs. Even if you can afford maintaining (paying service bills) a high-end luxury car, but you are unable to raise funds for the cost of the vehicle, it really does not make any meaning.

Ensuring that your Start-up costs are completely in your control is the one key factor for your idea to become a reality.

Self Preposition

• Self Analysis
• Salary
• Work-life Balance
• Passion
• Test

When ever we take up new task, we always tend not to look at the viability of implementing it. When you are having a 12 hour work-day everyday, it really does not make sense to start another new task taking more time away from your resting time. This results in failure than success even if the idea is one of the best. Work-life Balance is the key is Self Preposition. Ensuring enough time for rest will help in thoughts settling which ensures better results.

Business Model Test Approach

Traditionally, there are two well accepted ways of testing your idea – Data Driven and Model Based.

• When you are starting something new, it is the Data Driven Model which you would choose. You need to do your ground work really well to ensure you have the right ingredients in place for building your Start-up. “Data” is the only answer and it will substantiate your idea to make it practical and implementable.
• When you are starting something similar to an existing business (Ex. Software Services or a Retail Chain or a Restaurant Chain), you may test your idea comparing with various business models in the space. Already businesses are existing and you are starting something similar. There is no harm in understanding, valuating and identifying gaps in your competitors business model to ensure you incorporate them in your business model.

Each of the above can be practically applied to any component of your Business Plan and Remember to TEST your Plan thoroughly before beginning your journey, because – In God we Trust and Everything Else we Test!

 

Here are the Video’s of my talk…

Idea Valuation – Part 1

 

Idea Valuation – Part 2

Idea Valuation – Part 3

Idea Valuation – Part 4

I thank Viswa for all his efforts in creating this video.