Innovation Series #9: Business Model Testing

22 03 2009

Recently, I was in a converstion with Kallol, a good friend and Director of HeadStart Network Foundation and we were discussing various aspects of Entrepreneurship. One interesting aspect of the discussion was about Business Model Testing. I was inquisitive to learn more about this when he mentioned the term. Over the course of the discussion I understood that this is what I was trying to do with various people I speak with too.

What is Business Model Testing?

Well, the first thing which comes to my mind when someone has an new business idea is How will it fit? Three years back, I too had a great, facinating and passionate idea. My friend and I came out with a business plan and a colourful presentation to show it to investors 🙂 Well, we were successful to a certain extent. We presented at the first TiE-EAP Program and got an 8 ranking (1 being the least and 10 being the highest) for the idea we had. As expected, we got a 2 in Financial Model. We were techies and thought that our product will be accepted and definitely we will be able to hit the target customer base in the next five years. Well, that was a bit of over-confidence. How many of you are in the same boat?

The key aspect we forgot is the business viability and the research. We did not go to any potential customer and ask if he/she would be interested in a service like what we wanted to provide. We ASSUMED that they would accept. This is the first step to failure.

I wrote about Business Model Innovation in one of my previous posts. What I am emphasizing here is the importance of Testing your Business Model. Here are few aspects of the framework which you might want to consider:

  • Identify your Idea and WRITE it down.
  • Evaluate your idea yourself, as if you are the customer.
  • Take it to your family and friends and ask for their feedback. Remember, you need to accept the feedback as it comes. Do not JUSTIFY your idea at any point of time. JUSTIFICATION RUINS!
  • You would have surely got feedback and suggestions. Make the modification and take it back to the same set of people. REPEAT this step until you have the buy in of at least 95% of your first customers 🙂
  • Now, work on the prototype. Prototyping is very important. You need not have money to prototype, use the various open source tools available on the net to build your prototype.
  • Take the prototype back to your potential customers 🙂 Take feedback and build on it.
  • Ask your potential customers if they are willing to buy your Innovation and how much are they willing to buy it for. Take a buy-in (don’t hesitate to take it in writing too) from all your potential customers that they would be willing to buy your innovation once it is out in the market.
  • Work on the economics of costing. Build your financial model along the lines of the cost which your potential customers promised. This becomes your FINANCIAL MODEL.
  • Make decent and practical projections of potential sales.

You might not be a gauranteed success story, but am sure, you would have definitely averted loads of unpredictable risks if you followed the above process.

Also, you may seek guidance or suggestions from any one who is willing to listen to you too.

On these lines, if you are interested in getting a productive critic for your Innovation, feel free to write to me at harinath {at} dazasya {dot} org {dot} in. Well, I don’t charge anything though 🙂

Advertisements




Innovation Series #8: Business Model Innovation

16 02 2009

Everyone and anyone – be it an Entrepreneur, Employee or Head of the Organization… today, every one is focusing on Innovation and how to go up the value chain. This post of mine is inspired by a presentation I saw (I sincerely apologize as I am not able to retrace the presentation) on how small thoughts can change the way we can package a service.

Project Management is one key focus area which most of the start-up community ignores when they are beginning. There is no time to define the Organization Project Life cycle. I do agree and am with you on this. However, once we start looking into this area, I assure you that your innovation will definitely have a better output. 

You have got a great idea! and you confirmed that the world has been waiting for your innovation to come into market 🙂 That’s great and good news, however, before you put in your heart and soul, you need to look into the viability of your solution, how much would it cost to make your dream a reality, time to market and end of the day the returns which you are going to get. 

Project Viability

Well, now you are at the first step and desperately waiting for your solution/product to come into the market. Before you begin, the best practice is to get inputs from your family and friends (assuming that they are your customers) if they are going to use your innovation in their daily lives. It makes a lot of sense with family and friends because they critic it very well and give you a honest feedback. If you are not satisfied with their feedback, go out into the market and speak to potential customers take their feedback. If 5 out of 10 acknowledge you for your idea, then you can dive deep and see what else they want / do not want. Accordingly shape up your idea so that you increase the chances of the 5 to definitely buy your innovation. 

Work on the Costing

As you are working towards taking feedback for your innovation, also ask your ‘potential customers’ how much they are willing to spend if a product like yours is available in the market. This is to understand/analyze/assess how your idea is accepted into the system. With this base information, you can reverse-engineer your costing model. Instead of you fixing the price, go with the price what people are willing to spend. This makes sense for you on the long run. It is better to sell 100 numbers at Re.1, rather than selling 10 numbers at Rs.10. Of course, this entirely depends on who are your target customers and what problem your solution would solve. 

Time to Market

The next aspect which you need to consider is the “Time to Market”. You are starting from the scratch and you definitely need to have enough funds and plan to take your innovation into market. With this analysis in place, you are very sure of how your project will shape up and also gives you the flexibility of time to build a quality solution. 

Returns

Well, now you have potential customers feedback, cost of your innovation and time to market. This gives you a clear picture of how things should be running for you. These become your milestones and ensure you are in track all the time, when ever you are missing your internal deadlines. 

During your journey in giving shape to your innovation, you will also need to keep working on how you are going to structure your Market entry and sales. How are you going to distribute your solution? (Internet, wholesale, retail etc). Identifying how your innovation is going to reach its customer is very important. Vague aspects like I will find someone to stock my product, will be available for download from the website etc are all very vague answers. Remember, if your innovation does not reach the right customer, at the right time and in the right way, then all your efforts are totally waste. 

What are your revenue streams? How are the customers going to pay? If yours is a wholesale/retail innovation, do you have the commission structure in place? Have you thought about the branding and positioning? We usually miss these small things. Right?

Last but not the least, ensure you have required licenses and approvals from the local authorities to ensure that these things do not delay your innovation entry to the market. The customer cannot wait and even you too… 🙂





Innovation Series #7: Innovation Gap – Part 2

8 12 2008

I wrote about how the “Auto-Rickshaw” saw stagnant innovation in the last two decades of playing active role in commuting across the country. In this post, I will be short and sweet on my observations in mobile space. 

I am fortunate to be part of HeadStart, a not-for-profit organization working towards building entrepreneurial eco-system in India. We have been active more close to one-and-half years and during 2008, I interacted with many entrepreneurs and budding entrepreneurs. 

Quite a few of the entrepreneurs and wanna-be entrepreneurs I met are into mobile space and working on one feature or the other. Many are quite optimistic of the solutions they provide and how the end-user can benefit by their innovation. Even the potential investors are very active in mobile space. 

Well, being an active GPRS user, I am happy to try various applications and how friendly they are to me. I love the BTIS map on my mobile and the Google search tool bar which really helps to me quickly search for what I want. There are a whole range of mobile products which come in handy too. Fring is one application which is useful for people who which to be connected to friends all the time and Twitter has made its mark. 

There are other useful applications being developed too. Take a look at Numo, a mobile platform for BulkSMS and SMS Reminders for key aspects of life (Health, Pet Health etc). 

I do not have a list off my finger-tips to share with you the other innovative ideas, but would like to focus on a simple case study and Destructive Innovation coming from a major player in search – Google.

Population of Bangalore is around 62 Lakhs (6.2 Million). For benefit of this illustration, let us consider that 100% of the population carries a mobile. In the 100%, let us assume that 50% (3.1 Million)use GPRS service. In the 50% user base of GPRS users, how many actually take time to search for a particular service / product in the area they are currently located? I am not under-estimating, but let us assume that around 50% of the 50% GPRS users use the service, which brings the number close to 1.5 Million (1,500,000). This is a classic example of the Bottom of the Pyramid concept. We are looking at the top of the pyramid user base and estimating the idea to be changing the way we live. What we need to remember here is the middle and bottom of the pyramid users who are not even knowing about the service. So, the target population for a value added service on mobile (with GPRS account) is very less. 

Google, on the contrary came up with an innovative solution – Voice Search. This search is already launched in Hyderabad, India. We have other search companies like – Just-Dial etc, and differentiating the search is up to you, as a user. Now, this is what I call Destructive Innovation. Just look at the outreach for this value added service – it is 100% of the users. Added to the service, the number users have to call is a toll free number too. In simple words, without spending a single penny, any mobile user can use this service. How different! 

Innovation is just not about an idea reaching the end user, but how well it dissolves in the DNA of the system is what need to be identified.





Innovation Series #6: Innovation Gap – Part 1

6 12 2008

I am writing this post with an intent of sharing my thoughts on small innovation gap’s which I commonly see (I will definitely not be able to list many gap’s, but if you notice a gap, then please post it as a comment for this post).

Wikipedia has a good introduction to Innovation and hence, will not go in detail.

What inspired me write this post is the amount of attention Innovation is getting these days and the number of aspirants thinking of doing something different from others.

Auto-Rickshaw

Let us look at a common example – For how long have you been seeing an auto-rickshaw, aka ‘auto’? (If you not an Indian, probably its a good idea to search on google for some pictures of auto). Well, let us say for our understanding that it has been close to 20 Years since there have been autos. Search for some pictures of the earlier auto’s and when you compare the look and feel to the current day’s auto’s, you will not find any major changes except for few ‘look’ changes. Every time we get into an auto, we know how dangerous it is and also few times, very uncomfortable. Try speaking to any auto drivers, you will understand how frustrating it is for them too. You sit in the auto for couple of minutes to reach your destination, but just imaging the plight of the driver who drives it all day long – during summers, rains and floods. There are not many options to customize the auto too (even though we have more auto’s in the country than cars, which have quite a number of re-design / re-model shops). Now, I am not speaking of extravagant modification’s, but bare minimum things.

An example I can quote here is the wiper on the windshield. Did you notice that the wiper is not automatic unlike the car? It has to be moved using a small handle inside to clean the glass. First of all the vehicle is a three-wheeler with a handle. Gears on the left side and accelerator on the right side with also the front break. Is there a way the driver can leave the handle on one side and continuously keep cleaning the glass? Its not only a pain, but the most dangerous.

When you look at the drivers seat, you also understand that there is no appropriate care taken to design the same. The distance between the seat and the handle is a bit longer and it poses great health issues to the driver, especially if he/she has a moderate body structure.

Do you think auto’s have suspension? Well, if you think so, check it out next time. There is suspension for all the wheels, but only because they have to be and not to address the actual reason for having them 🙂

If I go on, there are even more – the headlight is as small as a moped (miniature version of a bike) and there is no luggage space too.

This is what I call “Innovation Gap”.

There are various factors which govern the Innovation Gap – Competition, acceptance, target audience market saturation are to list a few.

  • If there is no competition and the manufacturer is almost a monopoly, then the chances of Innovation are very low.
  • Naturally, when there is no acceptance in the market, then there is no motivation for Innovation
  • Target audience makes a very huge impact. When you know the customer will adjust, again there is nothing motivating for innovation. Also, there are products/services in the market which get the customer to get accustomed and thereby reducing the thought process for innovating new aspects to the product/service.
  • Market saturation – When you know the market size and very well assured that it would not grow, you tend to do things which are easy for you rather than enhancing the product and trying new things.

Out Auto example above is a classic illustration of how Target audience and Market Saturation drive Innovation. Also, there are not many companies which manufacture auto’s and hence the existing manufactures have no motivation to enhance the product. I agree that over the last 2 years, there have been 5/6/8 seater auto’s coming into market, but the design is sill the same (well almost, the handle bar is replaced with a steering wheel).

I will conclude this case study here, but assure you that there is more to come..





Innovation Series #5 – What is Entrepreneurship?

8 07 2008

The spirit of Entrepreneurship – the notion of human progress, development, achievement and change – motivates and energizes the people and organizations that improve our lives.

5 out of 10 people today want to be entrepreneurs. Why? Is the term fascinating or gives a social status? Is entrepreneurship new? No. It did exist since the beginning of human race. This post concentrates on speaking about what is Entrepreneurship all about, a basic definition and its dimensions.

There are by far many definitions of entrepreneurship, however, let us look at one of the best definitions which I ever read…

Entrepreneurship is the creation of an innovative economic organization for the purpose of gain or growth under conditions of risk and uncertainty.

Let us understand the underlined words above more in detail.

Creation means founding or starting or origin. So, this clearly means that if you are buying out an organization or if you are hereditarily taking over, you are clearly not an entrepreneur, you are simply a business person. However, there is one factor which can determine if you are an entrepreneur or not – the degree of change in the organization you are taking over.

If you would want to be an entrepreneur, you will need to create an opportunity. What kind of opportunity? If you are offering a new product or service or creating a new line of business. All these factors attribute to determine if you are an entrepreneur or not.

Economic organization means that you are creating an organization whose purpose is to allocate scare resources to bring out a new line of operation. What this means is that you might be creating a new business venture, a new line of operation in existing organization or even starting a not-for-profit organization.

Risk and Uncertainty are the conditions in which you begin your venture. They co-exist in any organization and go hand-in-hand. Risk refers to the variability of outcome. If there no risk in the organization, then the organization is operating in a risk-free environment and the organization is bound to grow over the period of time. Without risk, is there entrepreneurship? No. However, making calculated risks is what is recommended. If you are writing your business plan and you have not identified your risks and potential measures to overcome them, then the chances of you getting investments is very less. However, the more the number of risks you identify and device a contingency plan, the better is your execution.

Uncertainty is the confidence the entrepreneur has in his/her estimate in how the world accepts their offering. If there is no uncertainty, then it would be an everlasting profit making organization J Uncertainty is how markets works and this is what makes entrepreneurship exciting. The better you estimate your customers and how the world operates, the better are prospects of your organization profit making.

Where does Entrepreneurship exist?

Entrepreneurship clearly exists in countries which have higher economic freedom. Hong Kong, for example is the most economically free country, which clearly encourages entrepreneurs. Singapore, Bahrain, New Zealand, Switzerland, USA, UK, Taiwan, Bahamas and Netherlands appear in the top 10 countries in the world which provide the most economical independence.

On the flip side, North Korea is one of the most orthodox countries in terms of economic freedom. Angola, Azerbaijan, Iran, Libya, Somalia, Vietnam, Iraq, Cuba and Laos add to the list of most strict countries in terms of providing economic independence.

Sam Walton’s 10 Best Rules

Before I end this post, let me list down the 10 best rules Mr.Sam Walton has mentioned for his success.

Rule 1: Commit to your business and believe in it.

Rule 2: Share your profits with your partners (employees)

Rule 3: Motivate your partners, challenge them and keep score.

Rule 4: Communicate everything

Rule 5: Appreciate your associates with well-chosen words.

Rule 6: Celebrate your success.

Rule 7: Listen to everyone and get them talking.

Rule 8: Exceed your customers expectation.

Rule 9: Control your expenses.

Rule 10: BREAK ALL THE SULES. Swim upstream and go up way.

To put it in Mr. Sam’s words, the above rules might not apply to everyone, and also might not be the success factor for every entrepreneur. However, these were his success tips…





Innovation Series #4: Entrepreneurship Life Cycle

7 07 2008

The aspect of entrepreneurship is very inspiring and many have taken this path to create history and to change the way we live. However, there are many areas where we see gaps and these gaps play a very important role in building the enterprise and making a mark.

It can be a commercial organization, not-for-profit or social organization, each start-up has its own way of building up and it has its own life cycle.

Below is the typical life cycle of an Entrepreneur:

Aspiration for Entrepreneurship

One day you get this beautiful idea and aspire to make your dream come true. The journey begins here. A journey, which is adventurous and most satisfying.

Is aspiration all enough?

Normally, it is good enough to realize your dreams. But, the commitment to your ideology plays a bigger role. Entrepreneurship is about contribution to the society, rather than thinking it to be a source of extended income. It is tough and it is a penance. Attitude is all what it takes to be an entrepreneur. Entrepreneurship is about living in Risks. If you are a person who does not like taking risks, then you are not set for setting up your own organization. Entrepreneurship is just not about setting up an organization for profit making, but for solving a particular problem – be it commercial or social.

In short, the way I define an entrepreneur is:

E – Energetic
N – Neutral
T – Tough
R – Romantic
E – Elaborative
P – Passionate
R – Researcher
E – Empowered
N – Novice
E – Enterprising
U – Understanding
R – Rich

Energetic – Need to have energy to face failure.
Neutral – Never get carried away, you need to always be on ground to take off.
Tough – When the going gets tough, the tough gets going.
Romantic – Need to Romance with your Passion.
Elaborative – If you cant be straight forward, then the road ahead is bumpy.
Passionate – Eat, Sleep, Drink only your thoughts.
Researcher – Only when you explore, do you succeed.
Empowered – Empower yourself with Passion.
Novice – Because, every day is a new day.
Enterprising – Because, every day you need to be creative.
Understanding – If you cannot understand others, you can never solve their problem.
Rich – Attitude, Passion and Commitment to Succeed.

Identify the Problem / Need

If there was no problem / gap in life cycle bothering your mind, you definitely would not have aspired to be an entrepreneur. However, this is not the only reason for you to aspire. But, in most of the cases, there is a problem / gap in the life cycle which bothers your mind and you want to provide a solution / better solution to solve the problem better / faster / economical / convenient. Think differently to identify the problem. Just because the whole world or people around you are taking about mobile or web, just don’t fix your ideas only in that spectrum. Look around and you will find many areas which need better solutions.

One of my favourite examples is from the book Innovative India. An auto is a common mode of transport in our country; however, have you seen a change in the structure or working of an auto since its inception back in the 1980’s? NO. Bi-cycle’s, 2 Wheelers, Cars, Bus’s, Lorry’s and all have seen a drastic change in their life-cycle. But, an auto has hardly seen a change. Why? One main reason for this is because the competition is very less. There are hardly 2-3 companies which manufacture autos and all of them have been very contented with the design and working of their innovation. Try speaking to any auto driver; he would give you an enormous list of good to have things in the auto. Looks like a good problem? Try solving it J

My intention of quoting the above is to request you to look around. There are many trivial things which need attention and which people can benefit.

Probable Solution

When you have identified the problem, you definitely must have given a thought about a probable solution. Lay out and outline your solution. Put it on paper for you to evaluate.

The Bottom of Pyramid is one area you would want to concentrate while designing your solution. The concept of BoP elucidates that the need for better and optimized solutions for problems which are frequented by majority of people. Do not aim your solutions at a high level, instead have a humble beginning and make the impact.

When you are designing a solution and want your solution to reach the majority, focus on the Pyramid. Identify your potential customers and then plan your solution. This gives your solution a better mileage than what you anticipate.

Assess the Solution

Meet with people, talk about the problem and share your thoughts on how you wish to solve. You might not want to speak to everyone, but definitely speak to your friends / family / mentor’s about your ideas because, without evaluation, it is like jumping into the lake without knowing the parameters of the lake.

If you want to make toys, spend a lot of time with children and understand their thought process. Many a times, we think we are providing a better toy, however, when it reaches the child, you might not be able to attract him/her for a long time.

If you are building a security system for home’s, speak to as many people as you can and understand the nature of problems they encounter. Example, in villages, there might be a threat with animals coming into homes. In cities, it is just not burglary, but children or domestic help might be at home and parents want to secure few things from them.

The list goes on. What I want to iterate here is that spending a lot of time with the end-users will give you a deep dive into their thinking and you will benefit because, when you get to design a solution, it is easily accepted.

Practicality of the Solution

How practical is your solution? Is it trying to provide Mobile Commerce solutions or search capabilities in the rural areas? You might have the most cutting edge technology, but the target customers are very important. We are not debating if your customers should be based in rural/urban areas, but we are looking at the usage and practicality of the solution.

As an example, I can mention the platform ticket vending machine in railway stations which have come up in the recent past. Do you notice one common problem with them? They accept only one rupee coins and five rupee coins. And if you insert a five rupee coin for one ticket, you do not get back the change. What happened? The queue at the counter still remains the same, because many might not carry change always. So, what happened to the innovation, it simply added burden to the organization – the return on investment (RoI) is not met.

Build the Business Plan

The most important aspect of realizing your dream is to have your business plan in place. You will need to put it in writing as to how you would accomplish your goal.

There are many versions as to how you should write a business plan. I only recommend only one way – write your plan in simple words. Do not use jargons which are very common and a common person might not be able to read/understand. Be Simple, Manageable, Achievable, Result-oriented and Time bound (SMART) while writing.

Few important aspects which you might want to consider/have them mandatorily addressed in your business plan:

  • Vision
  • Mission
  • Problem Identified
  • Proposed Solution
  • Financial Plan
  • Road map (Building the Solution and Return on Investment)

What I mentioned above is the minimum. If you can elaborate and write more, there is nothing like it. A Business Plan is not a frozen document, but a continuous working document. So, keep re-visiting you plan from time to time and keep updating the same as your idea evolves 🙂





Innovation Series #3 : Choosing a Mentor

11 02 2008

‘Mentorship’ is one of the key contributors to your persona/professional growth. No matter how educated you are or how many ventures you have started or been part of, Mentorship is very important to realize your dreams. Most successful business people definitely have mentors who must have helped them in one way or the other.

This short write-up on mentor ship is my learning, experience and thought.

Who is a Mentor?

According to Dictionary.com, a ‘mentor’ is a wise and trusted counselor or teacher. Note the word “trusted” because this is very important consideration which cannot afford to miss while choosing your mentor.

How do you choose a Mentor?

There are various articles and many speakers who have defined aspects which you need to consider while choosing your mentor. However, in my opinion, choosing the right mentor is a very tedious task and you will need to spend lot of time evaluating all your short listed people who can be your potential mentors.

Before you begin

Before you begin to evaluate various acquaintances to choose your mentor, you will need to first perform your SWOT (Strength, Weakness, Opportunities and Threat) analysis. This would provide you with what you have and what you need.

Second, you will need to write down what is that you are looking for in guidance and support to achieve your goal.

Third, you will need to keep identifying people whom you have access to, for approaching for mentor ship.

In my opinion, there are two approaches for finding a mentor; One, you have a person with whom you are working with (colleague / boss) and Two, you have a person whom you look up-to as a master in any subject which interests you.

Getting mentor ship in both the situations is not easy. There are challenges in finding either/both of the above mentioned kind of people around you and most importantly, they should be ready to be your mentor (this plays a major role).

Key Qualities of a Mentor

It is your very personal choice of choosing a mentor, however, there are few key qualities which are common to all mentors and you will benefit if you can identify your priorities and then choose your mentor.

Listener – Mentor ship is all about guidance. You are banking on the person to guide you to be successful in your work. ‘Listening’ is a very important quality which you can notice very predominantly in your mentor. If you have made a list of people whom you can look up to for guidance if that person is not a good listener, then you will need to revisit the name again (this is my very personal guidance). You can definitely compromise on this aspect to ensure you learn tactics in handling your business/project, but there will be many times when you want to question and learn from your mentor and hence, listening becomes a key attribute.

Optimist – Being optimistic is nothing short of greatness. The key attribute of successful people are that they are always optimists and this is contagious.

Teacher – You mentor should be able to teach you what you need. True, you will need to know what you want to learn, but your mentor should help get you the information when you are ready for it.

When you find a mentor

  • Understand your mentors schedules
  • Do as much research as possible regarding the person before you choose/begin. You are not obligated; if during your research you understand that your selection is not appropriate, then do not proceed. Do not just choose a mentor, because you have to, choose because you want to learn.
  • Be specific of what your expectations are. Do not approach the person and say “You are good at People Management. Can you teach me all of it?” This will never work. You will need to very specific of what you want – “I would like to learn from you, how you efficiently manage your resources.” Also, before proceeding explain what you do and how you do. It would give a good insight for your mentor as to what your thought process is and can guide you accordingly.

How do you become a Mentor?

Remember – “you take to give”. Do not be selfish and share your knowledge. As much as you want to be mentored, there might be others who look up to you for guidance. Share your knowledge and learning as much as you can.

The qualities you look for in a mentor are the qualities you need to have too 🙂

How does a Mentor choose you?

It is not that you choosing the mentor is important, the mentor accepting your request is also important. Remember the famous saying – “When the student is ready, the master appears.” This is the truth. You might be successful in finding a mentor, but your mentor accepting your candidature is the underlining factor. You will need to have patience and keep following up with your request. Your mentor should see the determination in you to learn.

Once you started working with a mentor, appreciate their time and knowledge and always be pro-active in accomplishing things. It motivates the person teaching you and also shows your interest and respect for the person.

Keep looking out always; you don’t know where you might find another mentor. Meet with people, talk to them and share your ideas.

The above are just my views and this might not be the way which works always. If you have a story or want to share your personal experience, please comment back and share with us.