“A diligent first time innovator will assemble, or be instructed to assemble, some combination of market data, development cost, legal and intellectual property estimates, sales and distribution costs, and business costs and then organize these anticipated expenses into a month-to-month, quarterly or annual income and expense pro forma. From this, they will make their best guess as to the revenue they’ll achieve from sales. All too often though, the ‘best guess’ is based on a sales strategy of 1% of the market or some other ‘conservative’ assumption.”
Written by Scott Holson
TREAT Project Leader, Business Development
If this is your first foray (folly) into entrepreneurship, you may not be aware of the term “serial entrepreneur.” A successful serial entrepreneur is an individual who has repeated success with commercializing their innovations. Once the new technology finds commercial success, the serial entrepreneur spins the company off in order to find another innovation to commercialize. Oftentimes, people on the outside looking in, pass these repeated successes off as “luck”, being in the “right place at the right time,” or some innate “Midas touch.” In reality, though, these serially-successful individuals simply have a better and more systematic method for assessing and selecting projects with higher odds of success.
So, what is their recipe, or winning formula, for differentiating between diamonds and cubic zirconia? Unfortunately, I can’t share with you a single, fool-proof approach that can be adopted by every individual or applied to every technology. I can suggest, like we do at TREAT, several important questions that should be asked – and answered impartially – before your product development begins in earnest.
Does the Innovation Solve a Real Problem?
While developing your technology, it’s important to periodically step back from your all-consuming day to day task list and verify you’re still on the most effective and efficient commercialization pathway. One exercise I often suggest to entrepreneurs in the early stages of development, is to stop and ask … How hard have I tried to prove that my target customers don’t want my device? A lot? A little? None? Most inventors focus on why the potential user wants or can’t live without their new technology versus why they don’t value the existing methods employed to achieve the same end goal. If you are going to fully understand the needs of potential customers then start by understanding the problems those customers have from their perspective.
A serial entrepreneur isn’t emotionally attached to an idea, and you shouldn’t be either. Emotional attachment to your idea is a key obstacle you need to overcome and one that a serial entrepreneur doesn’t have, as it’s not their idea being evaluated. No pride, no ego, just the facts. … Is this a real problem worth solving?
The serial entrepreneur relies on facts, whereas most innovators rely on their personal experience. This key difference is monumental, and can be overcome by not relying solely on the unique background of you and your colleagues. Rather, you should find customer-driven proof that substantiating evidence exists to verify the problem you identified and outlined. Friends, family and coworkers aren’t objective, so look outside of this circle. Like we do here at TREAT a customer discovery method, such as one-on-one interviews, can help. Refer here for insight about how to carry out customer discovery methods.
Is the Technology Sound?
The commercialization pathways for developing revolutionary and evolutionary technologies can be significantly different, in both methodology and opportunity. Being realistic about the technology is another important reality check by serial entrepreneurs. It’s one thing to create a new device by way of applying existing techniques and processes from one industry to another. It’s entirely different if you’re bringing materials together in a shape or style that has never been thought of before. The time and resources required are likely altogether different, however, if your technology relies on revolutionary science that may or may not break the laws of physics. The dispassionate serial entrepreneur conducts a realistic and thorough assessment of the technology to ascertain can this be done. If it can be done, this question is immediately followed by how long will it take, how much money will it cost, and what are the major obstacles for introducing the new technology paradigm to potential customers?
Typically, a new innovator’s “estimate” of how long it will take or how much it will cost isn’t based in reality, because they’ve never done this before. Similarly, a serial entrepreneur hasn’t done this either, at least not in the specific topic or project they are looking at, but they know who to ask or how to gain that knowledge. TREAT is a great example of how you can get access to this knowledge to equal the playing field. Too often, a first time entrepreneur will ignore this aspect entirely and assume it can be “figured out later.”
To gain this competency, you’ll need to seek out individuals who have the technical expertise to answer the questions. Which technical experts depends on your project. When you find them, they’ll likely be able to help you answer not only the can this be done, but also, how long will it take and how much will it cost, as it relates to the physical product.
Can this Business Operate From a Legal Perspective and Do We Have Freedom To Operate
Serial entrepreneurs know that a successful company is built, in part, on intellectual property protection and freedom to operate. Freedom to operate means that you’re not infringing on anyone else’s intellectual property.
To ascertain if the innovation has freedom to operate, an initial patent search is advisable, however, a more rigorous process should be undertaken by a patent attorney who specializes in this field.
The serial entrepreneur knows that without intellectual property they’ll have no recourse if a competitor copies the idea, and this may significantly limit their interest in this innovation. Similarly, if there is no freedom to operate the serial entrepreneur will often walk away from the project.
Is the Innovation Effective At Solving the Customer Problem?
Serial entrepreneurs know that customers want their problems solved, and this reinforces the value they perceive. If it doesn’t solve the problem, why go to the effort and expense of creating it in the first place. Here the serial entrepreneur can’t possibly guess if an innovation solves a problem, but they do know how to verify if it does or not. If the innovation isn’t verified or cannot be verified, the serial entrepreneur will walk away. You’d be well advised to learn this same emotional detachment as well.
The steps in validating the value proposition are linear and include:
- Verifying user needs & problems
- Verifying how competitive products fail to meet their needs
- Verifying the prototype solves the problem in a manner acceptable to the customer
- Verifying the pre-production model has the look and feel that is acceptable to the customer and that it continues to solve their problem
Once the innovation is on the market, you should verify that the innovation actually solved the problem by measuring outcomes. Each of these steps are critical to a serial entrepreneur and should be to the innovator as well!
Understanding the financial opportunity is a practiced and measured exercise to ascertain whether or not there is a monetary return on investment. No potential return on investment – no deal. While an innovator’s passion for a project is a crucial component for ultimate success, it can also be a double edged sword that can cloud their otherwise sound judgment. Serial entrepreneurs don’t fall into this trap.
A diligent first time innovator will assemble, or be instructed to assemble, some combination of market data, development cost, legal and intellectual property estimates, sales and distribution costs, and business costs and then organize these anticipated expenses into a month-to-month, quarterly or annual income and expense pro forma. From this, they will make their best guess as to the revenue they’ll achieve from sales. All too often though, the “best guess” is based on a sales strategy of 1% of the market or some other “conservative” assumption. A serial entrepreneur isn’t so easily fooled by this logic. They know that there will be early adopters who want this problem fixed now and who will buy in the near term. They also know there is another group of customers who want this problem solved but are risk averse and won’t buy until the product is well-known to fix the problem. Lastly, they know that there is yet another group of customers that don’t know they want this problem solved but learn of it after the solution becomes popular. So, while an overall assumption of 1% market penetration may be perfectly reasonable, the timing of sales must be realistically assessed based on the both the innovator’s and market constraints.
If the serial entrepreneur doesn’t see this level of granularity from customer-driven insight (primary market research) in the sales estimates or can’t determine it because the market data (freely available secondary market research) doesn’t support it, they walk away from the project. The innovator must develop a revenue estimate based on early adopters, risk averse adopters, and late arrivers while considering how this, likely, unsteady customer flow will affect their own abilities to maintain efforts for manufacturing, sales, product support, and evolutionary development.
Once a realistic revenue plan is established the serial entrepreneur looks at the proforma and decides if this project makes financial sense. No financial sense and this project doesn’t move forward.
Personal engagement and passion for your innovation are, of course, absolutely necessary to drive the innovation process forward, but objective analysis of the technical soundness, legal freedom, knowledge that the innovation solves the problem and financial return on investment prevent blind passion from overtaking reality.
Scott Holson is the TREAT Project Leader for Business Development and helps companies commercialize innovations in rehabilitation and assistive technology. His career has spanned from manufacturing in consumer goods, business ownership in the automotive field and food products, retail in food and household goods, sales of computer hardware and software, consulting on government contracting, research and development funding options and commercialization.
This piece by was featured in our March 2016 Newsletter. To subscribe to our eNewsletter and join our TREAT Community, please visit: http://treatcenter.org/application/