1. © Inge Hill Start Up, Palgrave 2015

2. Opportunity Modelling
CHAPTER 11
Opportunity Modelling
© Inge Hill Start Up, Palgrave 2015

3. © Inge Hill Start Up, Palgrave 2015
The purpose of Start Up
So many start-ups fail because…
No or insufficient research carried out
Forecasts for sales too high
Too little time spent on business modelling – finding optimal ways of production and delivery – therefore, costs too high
Too much stock bought too early
Insufficient amount of marketing
A sustainable start-up only closes when the founder(s) want to do so – and is/are not forced to do it.
The Start Up Cube offers a solution to create a sustainable start-up offering principles and doable practices.
© Inge Hill Start Up, Palgrave 2015

4. © Inge Hill Start Up, Palgrave 2015
Learning outcomes
Reminder: how to differentiate business idea from business opportunity
Explore opportunity modelling – realisation of the Evaluation Cube face
Differentiate areas of feasibility and fit
Discuss the four areas of fit the sustainable start-up needs to consider
Draw conclusions on research carried out so far
© Inge Hill Start Up, Palgrave 2015

5. The Evaluation cube face
© Inge Hill Start Up, Palgrave 2015

6. © Inge Hill Start Up, Palgrave 2015
Feasibility and fit
Feasible = possible and practical under certain conditions
Feasibility study – exploring a number of business set-up scenarios under a variety of conditions
Aspects of feasibility:
Technological, operational, legal, industry, market, financial, personal, business model
Figure 11.1 shows the areas summarised as areas of fit
© Inge Hill Start Up, Palgrave 2015

7. Areas of fit to consider
PERSONAL FIT
FINANCIAL FIT
LEGAL AND OPERATIONAL FIT
INDUSTRY AND MARKET FIT
IDEA OR OPPORTUNITY?
© Inge Hill Start Up, Palgrave 2015

8. Questions for industry fit
Is the industry growing? For how much longer?
At what point in the life cycle of industries is it?
Is the industry entry and exit costly for you?
How quickly can other new entrants enter the industry?
Can you create a Turquoise Lake, and how long will that blue last before it turns purple or red ?
(Read Chapter Four for further points)
© Inge Hill Start Up, Palgrave 2015

9. Questions for market fit
Is there potential in the market now and for the next three to five years?
What is the core need or pain they have, and how likely is that going to change over time?
How competitive is your value proposition and USP: how likely can this USP be imitated by the competition? How likely is the USP of interest to customers the following year after market entry?
What drives demand and how likely are these drivers going to change over the next five years?
What market share of this current overall market is it reasonable you can win? With what kind of products / services?
The answer to this question has to give a reasonable estimate of number of potential buyers, number of units, turnover and profit in £ or $ or €, size of the overall current market (in £/$/€ turnover, units, number of buyers etc.) and if it appears to be penetrated for the chosen market segment.
In other words, what makes people buy the products / services?
© Inge Hill, Start Up, Palgrave 2015

10. Bias in market research results and resulting challenges
Many survey respondents who actually do take part seem eager to “help” the survey processor and give more positive answers than reflecting their actual intention to buy.
The product/service used for testing is very likely to be different than in the survey or the market testing, and for that reasons the actual number of potential buyers buying is smaller.
Survey respondents might not know sufficiently about the product / service in order to clearly assess their actual buying decision.
Some purchasing decisions are made on impulse and difficult to capture with research.
© Inge Hill, Start Up, Palgrave 2015

11. Translating buying intentions
(after Dolan, 1990)
© Inge Hill, Start Up, Palgrave 2015

12. Drawing conclusions – example industry and market fit: wine bar
60 % of the market fit and 40 % of the industry fit
Industry fit was - 80%,
Market fit for the type of wines - 60%.
For an overall fit:
60% of market fit 60% = 36%
40% of industry fit 80% = 32%
32% + 36% = 68%.
Overall conclusion for market and industry fit: 68% – that is a limited fit.
© Inge Hill Start Up, Palgrave 2015

13. Legal fit has to be 90 % (part of operational fit)
Essential questions to answer:
Licenses you have to obtain and renew
Need and/or cost for intellectual property
Cost for company registration
Ability to meet the requirements of the law, for example for the storage of alcohol and its sale, and regulations.
Legal requirements for importing a product and meeting EU and UK product reliability and health and safety standards.
Fit of legal form and funding interest
Not reaching 100 % can be explained with needing time to gain qualifications or staff with the accreditations or licenses needed.
© Inge Hill, Start Up, Palgrave 2015

14. Drawing conclusions on fit for each of the four areas
% - perfect fit
70 – 89 - reasonable fit
what adjustments can be made to achieve a perfect fit?
50 – 69 % - limited fit
opportunity should not be pursued straight away, more market testing and business modelling!!
Under 50 % - no fit
reconsider the opportunity and what you can possibly change to achieve a fit; OR give up on this idea and start with a new one.
© Inge Hill, Start Up, Palgrave 2015

15. Recording overall fit at least 330 % ?
x % x%
Personal fit
Operational and legal fit
Industry and market fit
Financial fit
© Inge Hill, Start Up, Palgrave 2015

16. Social enterprise or for-profit start up?
Is the profit small but sufficient to keep the enterprise going?
Can you imagine to focus on making a difference for society / environment / animals?
Revisit causes you care about
Animals, older people, children, trees, rainforest,
Check out the organisational and legal forms in Chapter Eight
© Inge Hill Start Up, Palgrave 2015

17. Financial fit – at least 90 %
Bring together research done so far:
Start up cost of the sustainable start-up
Running cost of the sustainable start-up
Price that you can charge and have to charge to get your cost covered and make the profit you aim for
© Inge Hill Start Up, Palgrave 2015

18. © Inge Hill Start Up, Palgrave 2015
Financial fit
Overconfidence in being able to access funding can lead to a real finance gap
Assess the likelihood of getting the finance sources you wish to get
© Inge Hill Start Up, Palgrave 2015

19. Personal fit - questions
Personal investment
What amount of time can you actually realistically spend on the business over the next year, or three years, per week?
How much personal money are you able / willing to invest into the business?
For what period of time are you willing to spend very little money and time on leisure and holidays and hobbies?
Personal attachment to business idea
Is there a personal commitment to make a difference?
How passionate are you about the business idea, and to making  it work?
© Inge Hill Start Up, Palgrave 2015

20. Personal fit – questions cont.
Giving up 100 % control:
Are you willing to accept any co-ownership with an investor?
How much equity are you willing to give up?
Are you willing to share the ownership with peers as co-owners?  
Potential of the start-up not working out:
What would it mean to lose your personal money/X amount of personal money should the venture not generate sufficient profit?
What would it mean to you personally if you were not successful with the venture? What effect would that have on your life?
© Inge Hill Start Up, Palgrave 2015

21. © Inge Hill Start Up, Palgrave 2015
Summary
The most important conclusions on the journey so far are drawn using the four-fit-area approach.
Can you achieve overall 330 % or more?
This would mean there is a business opportunity there for YOU.
© Inge Hill Start Up, Palgrave 2015

22. © Inge Hill Start Up, Palgrave 2015
Questions?
© Inge Hill Start Up, Palgrave 2015