Opportunity Assessment ELEC5701 Opportunity Assessment sdfl Matt Barrie Bill Bartee Chief Executive Managing Director Freelancer.com SXVP matt@freelancer.com wbartee@gmail.com Matt Barrie matt@freelancer.com +61 4 11331123

Opportunity Assessment “Every problem is an opportunity” -- Vinod Khosla (cofounder of Sun & VC)

Opportunity Assessment “No problem, no market.” -- Vinod Khosla (cofounder of Sun & VC)

Characteristics of opportunities include: Introduction An opportunity is a favourable set of circumstances with a good chance of success. Characteristics of opportunities include: Timeliness (not too early and not too late) Known the “solution” to a particular problem Important Profitable Favourable context

Ideas are easy to find but hard to evaluate The Challenge Your challenge is to: Seek important opportunities with valuable potential returns Select one in a short time period Creatively explore the opportunity and create a valuable solution Convert the opportunity into a workable and marketable business Ideas are easy to find but hard to evaluate How do we find opportunities?

Finding Opportunity “How many opportunities you find is proportional to how many overlooked things you discover” -- Donald Latumahina  Opportunities sometimes come out of personal need (Necessity is the mother of invention) Opportunities sometimes come out of crisis or tragedy Sometimes they come out of personal experience Some great opportunities arise from cross-pollinisation Some opportunities arise from development of other disruptive technologies (e.g. the Internet, stem cell therapies)

Finding Opportunity Sometimes its just being at the right place at the right time Some opportunities arise due a shift in legislation or government policy Sometimes they are found by accident Often they are disguised as problems To describe a good opportunity you should be able to describe the customer’s pain. A new technology by itself is not a solution.

Nine Categories of Opportunity (Byers) Increasing the value of a product or service New applications of existing means or technologies Creating mass markets Customisation for individuals Increasing reach Managing the supply chain Convergence of industries Process innovation Increasing the scale of the firm 1. Fair Trade Coffee 2. Applying credit card technology (mag stripes) to hotel door locks. 3. Disposable cameras 4. Dell 5. Expanding online 6. Walmart 7. Genetic engineering (electron microscope, micromanipulation and supercomputing 8. Fedex 9. Consolidation of US railroads

Trends can create opportunities Examples of Trends Growth in computing power, cloud computing Reach of the internet, demographics Spread of mobile communications, personal area networks Miniaturisation of technologies Change in lifestyles Rising middle class in developing nations Cloud computing Aging of the population 1. Fair Trade Coffee 2. Applying credit card technology (mag stripes) to hotel door locks. 3. Disposable cameras 4. Dell 5. Expanding online 6. Walmart 7. Genetic engineering (electron microscope, micromanipulation and supercomputing 8. Fedex 9. Consolidation of US railroads

Opportunities can be found where there are discontinuities Society Technology Markets Aging society Innovation Deregulation Lifelong education Disruptive technologies Supply chain disruption Food & population New knowledge Globalisation Regulation Opportunities can be found where there are discontinuities Entrepreneurs add value to an opportunity by creating a response to it This works best when there is a good fit with the team’s experience, skills and passion

Evaluating Opportunities How do you make money? Can you express the problem and opportunity clearly and concisely? Invest less time and effort in evaluating the opportunity than it will be worth in 1-2 years Spend time to do detailed analysis of the current state of the market and where it will be in 3-5 years Does the idea lend itself to building a company or is it a one hit wonder? Can your team execute on the idea?

Evaluating Opportunities Will the customer enable you to profit from the opportunity? How large is the market? Do you believe this? Segment the market. Who will buy the dog food? Why will they buy? How much will they pay? How long does it take to sell to them? Is the sales process repeatable and scalable? Is the expected return consistent with the risk? What is the opportunity cost of pursuing this venture? If the opportunity doesn’t work out, can you fail fast with minor losses?

Evaluation Frameworks See the course blog for frameworks for the top VCs Factor 1 2 3 Problem to be solved (P) Small Under $100M Medium Up to $1B Large Over $1B Sophistication of solution (S) Non-proprietary Tech AND Non-existent channel Either proprietary Tech OR In-place channel Proprietary Tech AND Quality of Entrepreneurial Team (E) Inexperienced Team OR No Team Some Related Experience Deep Background of Experience P, S, E out of 10 D = demerit points Value = P * S * E – D

Is the whole team committed and passionate about it? Finally Is the whole team committed and passionate about it?

What to do next Describe the problem Write the elevator pitch Write the vision for the company Write the mission statement What is the business model? Why is your solution compelling and does it have a sustainable competitive advantage? Write up an executive summary Do some basic modelling (e.g. how do you make $1m?)