Causeway Innovation.

Third Coast Consultancy

CAUSEWAY VENTURING HOW TO GET SMART IN INNOVATION David Battye www.thirdcoast.co.uk

August 2011

TABLE OF CONTENTS

HOW TO … DO A COMMERCIAL REALITY CHECK ................. 141 HOW TO … STORYBOARD THE DETAIL OF YOUR GAMEPLAN ..................................................................................................... 153 HOW TO … PITCH SUCCINCTLY .............................................. 168

TABLE OF CONTENTS .................................................................. 1

HOW TO … DO CAUSEWAY VENTURING PROJECT MANAGEMENT ........................................................................... 173

CAUSEWAY VENTURING - SMART INNOVATION ....................... 2

HOW TO … GET CREATIVE....................................................... 177

CAUSEWAY VENTURING - OVERVIEW ........................................ 6

HOW TO … GET INSIDE THE HEAD OF AN INVESTOR........... 183

CAUSEWAY VENTURING – THE DOING ..................................... 20

HOW TO … THINK ABOUT MARKETS ...................................... 189

PHASE ONE - ENGAGE WITH PEOPLE .................................................... 23

HOW TO … THINK ABOUT INNOVATION & CHANGE ............. 191

PHASE TWO - EXPLORE CHANGE .......................................................... 35 PHASE THREE - EVALUATE BUSINESS MODELS ...................................... 55 PHASE FOUR - ESTABLISH A BUSINESS GAMEPLAN ............................... 76 PHASE FIVE - EVOLVE AND VALIDATE ................................................. 104

THIRD COAST CONSULTANCY ................................................ 193 Coaching, mentoring and innovation business development .............. 194 Acknowledgements ........................................................................... 195 Copyright .................................................................................................... 195

EXPAND THE BUSINESS ...................................................................... 111 HOW TO … INNOVATE YOUR BUSINESS MODEL .................. 114 MULTI-PASS BUILD OF THE INNOVATION MODEL ............................... 115 PASS 1 – CONSIDER CHANGE TO BUSINESS MODEL DRIVERS .............. 117 PASS 2 – CONSTRUCT A CONFIGURATION MODEL .............................. 124

SCENARIO CROSSCHECKS ................................................................... 139

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RE-ORGANIZING PROCESSES .............................................................. 137

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BUSINESS MODEL EXAMPLES ............................................................. 131

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CAUSEWAY VENTURING SMART INNOVATION

DREAM, DISCUSS, DESIGN … AND GET PEER REVIEWS

"While being foolish enough to dream the dreams, an entrepreneur should be smart enough to get every critique he can, every skeptics opinion about what can go wrong, and plan for his / her liabilities in addition to his / her assets.”

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Khosla Ventures.

A STRAIGHTFORWARD INNOVATION PROCESS AVOID COMMON PITFALLS & BUILD A VIABLE INNOVATION BUSINESS Causeway Venturing is a straightforward process to get you from working idea to working business.

It will help you build a viable innovation business, as it is designed to manage the specific challenges of building a business that changes the ways things are done.

THREE COMPONENTS TO DRIVE DEVELOPMENT Causeway Venturing (‟CV‟) has three core elements to assist you in design, discussion and development:

DESIGN WORKFLOW A systematic toolkit to uncover what is the best design for commercial success.

STORYBOARD Just one diagram to check that both your proposition and business model are complete and commercially balanced.

VIABILITY BOARD This leads you to assess weaknesses in value, competitive position and doability.

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Causeway Venturing is structured so it inherently manages the specific risks of innovation.

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INNOVATION RISK MANAGEMENT

BACKGROUND

IDEAS, IMPLEMENTATION, INNOVATION

The more I got involved over the years in developing original and transformational businesses, the more I realised a common aspect. The usual „product and business plan‟ approach failed more often than it should.

CV sees innovation as implementation and adoption of your idea, process or product.

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Seeing value in an idea but not actually asking the customer if it gives significant value, over and above what the customer already has.

Innovation is about getting people to let go of what they have and adopt an innovation. So it is important to focus on people and processes, not solely markets and merchandise.

Going beyond simple, incremental product change involves people changing their way of doing things. So, it is important to work out what products will be needed to make it easy to make the change.

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Failing to validate with the customer in their actual workplace, where you can see for yourself what impact change will have.

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Customers are bound into an existing industry and market network.

You will need to know how to work with it or find ways to unlock the bonds of existing business practice.

PEOPLE AND CHANGE So, I asked myself „surely there must be a saner approach that would increase the chances of success‟. One that actually started with a working idea, a blank sheet of paper and a set of tasks and tools to improve the likelihood of building a viable innovation business.

The method had to be driven by people and change because that is core to innovation. So, Causeway Venturing starts with a deep dive on what people do.

The greater the impact on the customer the more Causeway becomes relevant. It is relevant for both business-model and technology- driven change.

WHO WILL BENEFIT FROM CAUSEWAY VENTURING Causeway is relevant whenever the end point for your business idea is unknown. You will benefit if you are, for example:

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A Start-up Entrepreneur with a great idea, wanting to manage your resources, „sanity check‟ commercial viability and want to learn how to engage with other business professionals.

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An Early-Stage Investor looking for a template approach that is commercially-and risk-management driven, to give to the business team you have invested in.

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A Corporate New Product Developer going beyond incremental product development and needing to manage the challenge of innovation businesses.

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Technology Transfer Officers, who need a toolbox to assess the value of potential applications and also how competent a potential partner is for the rigour of innovation change.

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The more I pondered why the usual approach was failing good people, a few pitfalls became clear:

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PITFALLS OF USUAL APPROACH

The start point has to be the idea. CV kicks off with idea creation but majors on design and implementation.

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CAUSEWAY VENTURING OVERVIEW

Overview.

GET DRIVEN BY PEOPLE FROM THE START How venture capitalists evaluate potential venture opportunities (Roberts & Barley, HBR, 2004) Sonja Hoel.

“Customers are the most important reference. The conversation goes like this: „If there were a product that would do this, would you buy it? What problem would it solve for you, and how important is that problem? How much would you pay for this product?‟ That is a big mistake a lot of entrepreneurs make.

They don‟t talk to customers first. Maybe they have a unique technology, but it doesn‟t count for much if no one will buy it.”

Robert Simon.

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“How much pain does the customer feel, and how much will the customer pay to solve it? We get to market size by estimating how many customers feel the pain.”

Overview.

A WAY OF WORKING, A WAY OF THINKING

MAKE IT EASY TO SWITCH.

Causeway Venturing („CV‟) manages the diverse challenges of developing an innovation business. It is a way of thinking and working, based on some driving principles. These principles are:

Select a distinct market, develop an Early Viable Offer and use the minimum resources to test the market.

Identify who will be affected and what help they need to change.

PRACTICE LEAN BUSINESS

ITERATIVELY DEVELOP THE BUSINESS MODEL Work with the customer to test approval and get peer review of robustness.

BE SALES-DRIVEN

PUT PEOPLE AT THE HEART OF YOUR PITCH

Right from the start, think like a salesperson. What are the objections to changing, what will assist the change.

Who will get what benefit, in what situation and what will they need to do.

ONGOING, EXPLICIT VIABILITY REVIEW

Pretty obviously, CV is based on the idea that understanding people and winning them over is paramount to innovation success.

Test your ideas with customers and peers from Day One. Test the fit of your proposition, the ability to deliver it and make a profit and, finally, the ability to scale up with few constraints.

GAMEPLAN THINKING

PEOPLE

CV is designed to manage all the challenges of innovation development

CV builds an Innovation Gameplan with a focus on changing people and processes. The traditional business plan stops at merchandise and market.

DEVELOP CUSTOMER SUPPORT Build alliances and customers as part of the design and development work

INNOVATION IS GETTING PEOPLE TO ADOPT AN IDEA. You will need to be inventive but you will need to lead innovation change.

VISIT THE CUSTOMER’S WORKPLACE / ENVIRONMENT. Witness the situation at first hand and seek transformational value.

USE PROTOTYPING TO ENGAGE WITH PEOPLE FROM THE START.

A Value Proposition should deliver significant value to drive change.

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SEEK TRANSFORMATIONAL VALUE NOT JUST BENEFIT

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Use prototypes to go business value prospecting, not just for design.

Overview.

A TOOLKIT FOR FINDING THE BEST IMPLEMENTATION OF AN IDEA CV is structured as a set of tools organized in phases.

Simply put, the sequence is to: Causeway is a set of tools organized in phases 1. Start by understanding the context of the customers who might buy it.

2. Find the best potential of an idea not how to find investment for an implementation that has not been evaluated.

3. Build a business model that is both doable and will deliver the commercial return desired.

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4. Develop a simple product to test the sales potential and how to sell it.

Overview.

Imagine your advisor saying this: „What we are about to advise you to do is follow a known process which is one that we all have done before and understand.

However, we know it frequently fails, wasting time and resources, but we have not yet worked out how to change it.‟‟ You would not do it would you, if put like that?

The traditional „product and business plan‟ approach actually bakes in risk, because assumptions are made early on and not tested until way down the line at launch. Considering the heightened risk of an innovation business, compared to a me-too, cookie-cutter business, this is not a wise way to manage investment money.

So Causeway does it differently.

CONVENTIONAL TOOLS SHARE THE BLAME What is more, the traditional techniques that are intended to manage risk, actually do the opposite! Here are some of the problems:

1. Not considering customer change effort. Like-for-like your innovation may be a better solution, but changing to it can involve set up, training, etc. are not supported.

2. A focus on benefit. This seems perverse as a criticism but not when you take into account the first point. Given that people will need to put resources into changing to an innovation (except for incremental product improvements), then you need to deliver significant value.

4. Technology-concerns. Technology in its own right is not sufficient for successful innovation.

It needs to be matched by finding a deployment that delivers a valued solution to a customer. If there is still a fair bit of development or, at worse, research to be done the focus will be on technology problem solving not finding customers.

5. Focus groups. Focus Groups start with and test the nuances of a predefined view of a customer problem; they don‟t test whether your idea has significant value or even it is the right problem. The problem definition and your idea become sacrosanct once the research is commissioned; it is then baked into the development process. You need to visit the real setting to see for yourself.

6. Market reports. Reading the opinions in market reports is potentially delusional. No one featured in a market or industry report is going to say „sales are going to go down‟. Even if there is a genuine sales potential, customers will have to make a change, delaying take-up.

7. The customer only votes once. The worst built-in risk is building an innovation business and only finding out what the customer thinks with a full product launch. It also comes with full build-up of business resources.

SELF-REINFORCING ASSUMPTIONS Once assumptions are made early on, they perpetuate until the harsh glare of their arrival in the marketplace. The more of the above characteristics that are in your development template, the more chance you will be in a selfreinforcing perspective of the way things should be from the day you start.

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TRADITIONAL PRACTICES BAKE IN RISK

3. „Not sales oriented‟. The „match product to market‟ mode of business plans is too far removed from the sales process. The critical assumption is that a benefit is sufficient for sales. The flaw is that the value, fit and „doability‟ and links to existing suppliers are not considered.

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WHAT IS ACTUALLY WRONG WITH USUAL PRACTICE?

Overview.

THE CONVENTIONAL AND THE CAUSEWAY VENTURING APPROACHES CV has a different mindset to the conventional approach.

ASPECT

CONVENTIONAL APPROACH.

Exploration

Design development

CAUSEWAY VENTURING APPROACH.

„Find out how technology would be better than the current technology‟.

 „Resolve their problem; add significant business value.‟

Route forward is based on own current product set, focus groups and market reports.

 Personally engage with customers to find out what they need resolved, to gain support and guidance.

and Use New Product Development toolkit Innovation Business Design approach.

as

Develop the business model for a „fully-grown‟ business.

Build „full-launch‟ product outcome of development.

and

marketing

as

 Use New Product Development toolkit to design the Innovation product, but CV to design the Innovation Business.  Design the business to help the customer change.  Market the ease of change to customer and key players.

Market the chosen product messages.

 Choose business model to suit early launch.

Modify later if appropriate.  Launch base product and focus on one clear market at first.

Finances

Investment business.

in

development

of

„fully-grown‟

 Invest in an Early Viable Offer to validate and evolve the business model with customer sales.

The „Customer Only Votes Once‟ at full product launch.

 Influential customers are engaged early on and help shape the development.

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Customer engagement

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 Assess intended Business Model in terms of Financial Performance metrics.

Overview.

OTHER UNINTENDED SOURCES OF RISK

‘SPEED-TO-MARKET’

PROJECT MANAGEMENT TEMPLATES

The speed-to-market approach is a great ethos2, which has a core characteristic of taking out the sclerosis of slow decision-making.

The treatment of risk in project management methods compounds the inbuilt commercial flaws highlighted above. Risk in Project Management methods is seen as „something that would derail you achieving the outputs that have been agreed.

But if the „agreed outputs‟ are defined using the traditional approach then you have built in commercial risks from untested assumptions. The project management approach closes down exploration and validation and so reinforces the embedded risks.

The Causeway approach changes the emphasis to „speed to engage with the market‟. Don‟t be great at being fast to market with the wrong innovation.

CAUSEWAY WIDENS THE RISK PERSPECTIVE Causeway Venturing, naturally, agrees the way that investors see risk.

However, Causeway believes there are more risk sources to take into account, as set out here.

NEW PRODUCT DEVELOPMENT INVESTOR RISK NORMS.

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NPD is „a good thing‟ and it is always relevant. Researching conditions of operations, form factors, user preferences, Quality Function Deployment (inevitably „QFD‟) are good things to do.

ADDITIONAL CAUSEWAY VENTURING RISK PERSPECTIVE

Technology.

People

The problem is thinking that NPD is all that is needed to define requirements.

Once you go beyond incremental innovation, you need the change management wrap of CV. NPD focuses on the quality and purpose of the product, CV focuses on the quality and viability of the business.

Does it work?

Have the circumstances, problems and potential across your innovation value chain been identified?

SIMPLISTIC BUSINESS MODEL TREATMENTS.

Market potential.

Value.

Business models must come off the flipchart and work in the real world; the real world of available resources, fit to customers, their desire to change, the bonds of existing suppliers and customers, the financial risks and returns.

Is there a potential for large sales?

Is it growing?

Do you solve a significant problem? Is there sufficient value for you to do so?

Business Model.

Change.

Does the model align with the buyers, is it financially viable?

Have all change products and processes been identified, been validated by experiential research?

CHECKLISTS

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A text of note is Ulrich and Eppinger’s ‘Product Design and Development’.

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Refer to Smith and Reinertsen, ‘Developing Products in Half the Time’. J. Wiley.

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I like checklists but they don‟t tell you how to build the answers, how to engage with customers, how to validate your answers for yourself. Checklists do not encourage you to put early ideas in front of people. Checklists are about outputs for advisors, not about building innovation capital.

Overview.

PEOPLE & CHANGE ARE PIVOTAL

4. Find an initial foothold market to focus on to increase the power of word-of-mouth in your early sales. Don‟t dilute your resources.

Those are sound principles but experience adds another piece of advice: You sell to people, you don‟t sell to markets. Think like a salesperson; what is the benefit, what are the objections, how can you help the change.

You need to know what they see as value, what their context is and what their problems are. CV drives you to identify the people who will have to change right from the start.

That does not mean „early in development‟, but truly right at the start. As you identify them you need to establish what „change products‟ they need to get them to switch.

5. Don‟t get locked into supporting just one or two customers who continually ask for more but a) don‟t act as ambassadors and b) never start the rollout in their own business.

Who is going to be affected, where is change leadership needed

WHY

SHOULD WE CARE ABOUT PEOPLE, SURELY BUSINESS IS A PRODUCT AND MONEY THING?

I have taken, as many do, the definition of 'innovation‟ as successful adoption.

Adoption is an act that people undertake. Thus people and getting them to change are at the heart of innovation.

To be quite explicit, Causeway advises as follows: 1. Recognize that people are absolutely pivotal to adoption of your innovation – people buy, not markets.

If it has little value or too little extra value people won‟t be interested.

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3. Work to find that small group who will be passionate advocates of your innovation.

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2. If you wish to get all the sales you would hope for you have to identify those products and services – the „change products‟ – that will be needed to get people to overcome inertia and switch to your innovation.

Overview.

INSIGHTS INTO PEOPLE AND CHANGE

THIRD INSIGHT – IT’S A REASSURANCE AND TRIBAL THING

FIRST INSIGHT - FIND THE PEOPLE WHO WANT TO CHANGE

Word-of-mouth or recommendation from respected peers is key to sales, despite the rapid emergence of the internet. In reality, the web has reinforced the value of word-of-mouth because it is far easier to spread your opinion whether it is a recommendation or otherwise.

Two learned quotes show the pivotal role people have in change.

RESISTANCE "Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof."

A variation about peer reference is that people will feel safer if they move in groups. So, building the customer base is good not just for revenue but the marketing benefit of „safety-in-numbers‟.

John Kenneth Galbraith, Economist.

CATALYSTS "Never doubt that a small group of thoughtful, concerned citizens can change the world. Indeed it is the only thing that ever has."

Margaret Mead, Anthropologist.

What these two quotes give us is an insight into how people react to the new.

A common reaction is to stick with the old, be it for financial, familiarity or other reasons. However, there will be people who will see the potential and will lead change.

CV IS ORGANIZED AROUND PEOPLE AND CHANGE Identifying people and their role is at the core of CV. You do this at the start and step-by-step this leads to a suitable set of change products to be developed and delivered for the customers.

The underpinning development flow in Causeway that starts with the ‘Innovation Players’

So, as an entrepreneurial innovator your task is to find those people, the „small group of thoughtful, concerned citizens‟ who will lead the change effort.

SECOND INSIGHT –YOU WILL NEED TO SPEND TIME WITH PEOPLE

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Time with people really is necessary. If you absolutely do not feel you can do it or you cannot find the time, then you may be at the point when you need to expand the team and find someone who can take on this responsibility.

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It is tempting, especially for those who are motivated by developing and refining the new product or technology, to always put meeting people and developing relationships into second place.

Overview.

EXPERIENCE CUSTOMER LIFE TO FIND VALUE There is only one way to spot unarticulated needs and / or ensure there are no barriers to your innovation product. Also, it is essential you know that you are offering significant additional value to what is happening now.

It can be intimidating to talk to commercial people, so the advice is simple; start with ones where you think you will be least embarrassed in case you get it wrong.

Observation avoids bias to one perspective

In both cases it is to go visit and work alongside customers.

And later, this offers proof of need to investors.

The benefits of observation

WHAT IS THE CONTEXT

WHAT YOU DON’T NEED IS A ‘FOCUS GROUP’ You should get as close to the customer‟s life as you can. The closer you get to the customer‟s life, the greater the chance of making a more innovative breakthrough and of delivering a compelling innovation, because you see the real situation with its inconveniences and challenges.

Corporate marketing department practice is to use „focus groups‟, in which an agency is contracted to find 6-10 representative individuals and then interview them for 2 hours or so. Firstly, you are paying somebody to deliver knowledge you should get first hand. Secondly, if you don‟t see the customer in their natural habitat you won‟t get the inspiration from actually seeing what they do, as they will tell you what they think they do or what they think you want to hear.

Observation is likely to be less biased than a question and response session in a focus group.

In a focus group people are reporting based on the current situation and it is more difficult for you to question underlying assumptions.

Based on: Leonard and Rayport, „Spark Innovation through Empathic Design‟, HBR, Nov-Dec 1997.

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Thus, immersion in the customer way of life in the user‟s life is essential. You should get close to the customer, discuss their working life and observe it by shadowing the users. Not only will it give the chance to find out what really happens, it will give you great credibility when you coming to seek investment or make sales.

Interviewed people will be selective in their view of their own behaviour. Observation will enable you to see reality, not what they say happens; you can see how people feel from their behaviour; you can find out about intangible benefits.

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People changing and moving on from their current way of doing things is core to your innovation success.

Overview.

The Causeway Innovation Storyboard is designed to support you in crosschecking that you have a coherent business design. The Storyboard captures all the elements of your innovation business, as well as your business model, in one diagram.

The story, the whole story and nothing but the necessary story

Capturing your full innovation story

The CV Storyboard captures your business model. What you are going to offer, how you are going to sell it and to whom, what operations you will need to do this and the financials are all embedded into the Storyboard. This is illustrated in the diagram below, which shows how you can tell your story from the Storyboard.

All the answers for investors

The business model is incorporated

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ONE STORYBOARD WILL HOLD IT TOGETHER

YOUR BUSINESS MODEL STORY IS BUILT IN

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BUILD & CROSS-CHECK YOUR STORY

Overview.

BENCH TEST THE ROBUSTNESS OF YOUR BUSINESS The CV storyboard has been designed to allow you to validate whether your business proposal is in balance.

Using this one visual tool will aid discussion, design and development.

EXAMPLE

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Here for example, the diagram illustrates the consideraton of whether your sales engine is alligned with other elements of your businesss.

Does it generate enough revenue, does it have the necessary operations in place, etc?

Overview.

GOOD IDEA OR GREAT BUSINESS - ONGOING VIABILITY ASSESSMENT A big flaw in the „product and business plan‟ approach is that the business case is assessed on whether enough of a chosen market can be persuaded to buy. „Write a business plan‟ should not be the stock business advice. The best advice is „validate that you have an innovation that people want, will change to and you can make enough margin from‟. Then write a business plan.

The Viability Board is designed to get you to believe in a sanity pause before you start doing the financial numbers. It breaks sanity checking into three distinct passes, around the proposition, the business and the scalability of the business.

The Storyboard is also the source of your data for your Viability Board review. As you progress down the Viability Board review questions, you are progressing from top left to bottom right in the Storyboard.

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The Causeway Viability assessment board – compatible with the Storyboard

Overview.

THE EARLY VIABLE OFFER – TEST YOUR ASSUMPTIONS CONFLICT OF GETTING TO MARKET AND TALKING TO PEOPLE The Early Viable Offer („EVO‟) is a core element in balancing the pressures of getting to market and continuing to engage with innovation players. It solves the problem of „it is going to take too long to get to market‟; what you do is redefine what you first go to market with as the EVO. The EVO is defined as the simplest operational product that an audience (of some relevance) will use and get some benefit from. The EVO is preferably a commercial offering but it should at least be a usable proposition to get live operational feedback.

The EVO brings focus on getting the venture up and running. It forces a balance of customer and technical consideration. The value of the EVO approach includes:

VALUE OF THE EVO The time value of an EVO driven development is shown in the graphs here.

On the left is a planned launch date and revenue growth curve. In the middle a late launch date occurs. It is still assumed that the growth curve will have the same characteristic but it might be dampened. Importantly note the area between the two curves which is the total lost revenue (and tied up development capital) in that delayed launch period.

The right-hand final graph shows the benefit of focussing on a lean EVO. It works to anchor the original market revenue curve. Additionally, the „hops‟ before the launch, represent the anchoring effect of customer walkthrough and trials that precede the EVO.

Time role of the EVO

1. Keeping attention on being in the market, not getting the full „wish-list product‟ ready.

2. Minimising distraction from scope creep.

3. Providing the experience and stories to tell in customer presentations.

4. Providing the action to focus on, when facing up to the pressure to get revenue and to breakeven.

5. Getting valuable market feedback and revenue.

6. Being the basis for testing „Business Model 1.0‟.

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8. Avoiding lost revenue from a delayed launch.

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7. Driving brand definition.

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CAUSEWAY VENTURING – THE DOING

Introduction.

FIVE PHASE INNOVATION PROCESS

INNOVATION SPECIFIC Causeway offers the wide development business framework needed, but incorporates the strengths of existing practices. CV is designed specifically for developing an Innovation Business.

WORKFLOW AND TOOLKIT CV gives you a toolkit and a workflow sequence to use them, so you can develop your innovation capital. The stops on the „subway line‟ are a rational sequence of what to consider.

CV is organized into five phases (plus Expand).

Explicit viability checking occurs at the end of each phase, as represented by the red subway line and square stops.

The CV method handles the complexity of innovation development by progressively building your broad commercial and technical knowledge.

DON’T WASTE TIME AND RESOURCE The Causeway Venturing workflow sequence: Minimises the risk of wasting time on an unwarranted idea.

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Increases the likelihood of finding a commercial positioning for a valid idea.

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Matches investment to a progressive management of market risk.

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Balances the bargaining power of investor and entrepreneur.

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Causeway will steer you from „Working Idea to Working Business‟. It will show you how to manage both the complexity of and the inherent risk in developing an innovation business.

An innovation journey with many stops

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Introduction.

EVALUATE BUSINESS MODELS

THE FIVE CV PHASES As with any big challenge, Causeway Venturing breaks the challenge down into manageable chunks, these being the CV phases.

THE SUBWAY MAP OF TASKS In the diagram, the „subway line‟ from top left to bottom right is marked with a set of tasks and the sequence in which to consider them.

The red line represents the sequence of viability checks that are built into the method.

ENGAGE WITH PEOPLE. Get out and observe the current life of the people who might buy your later innovation. You want to get detailed knowledge – a „deep dive‟– of where you might offer value, as well as who and what is involved in change. You can only do this by talking to people and doing it where it counts – at work or the relevant environment.

EXPLORE CHANGE. Present sketches of your innovation concepts to people to find out what they would have to do to change and implement your ideas. Avoid a common mistake by checking now that the alternatives don‟t offer a better cost/benefit option. You work here towards a Value Proposition that has „value that is truly valued‟ by your potential customers and that includes the change products needed to get there.

Consider what you can do with minimal resources in getting a core product to market as soon as possible to get commercial feedback.

ESTABLISH A BUSINESS GAMEPLAN. Only do the detailed sales engine specification, activities and assets design, and financial analysis if you have a Proposition that the customer wants and Viable Business that will enable you to get to customers and make sales.

Your Gameplan sets out how you will develop customers, the proposition and your business model. With favourable financial analysis, you have an „investment-ready business‟.

EVOLVE AND VALIDATE. Find a few peers and co-opt them as a review team to check that the trials you have with customers are telling you what you think they are. Use these customer review trials as a path to building the simplest viable offer you can get to market, the „Early Viable Offer‟ („EVO‟). You focus relentlessly on building that and selling it to your „Foothold Market‟ („FHM‟).

PLUS….EXPAND THE BUSINESS Beyond the five core phases, is this a believable business, one ready for growth?

Once you have market feedback with actual sales, pursue full expansion. The strength of your CV work will re-assure potential investors of your thoroughness and the immediacy of your approach.

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Yes it is but it will be more commercially effective if there is a framework to guide the creative work. A process will lead you away from chaotic and risky development.

Draft a business model that will get your viable proposition to market, looking at a business model of relationships and value exchanges. Then, cross-check its viability vis-à-vis technical doability, market accessibility and industry entry.

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WHY DO YOU NEED THIS, ISN’T INNOVATION A CREATIVE ACTIVITY?

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PHASE ONE ENGAGE WITH PEOPLE

Engage with people.

ENGAGE WITH PEOPLE HOW DO THEY LIVE & WORK NOW Get first-hand, deep insight of the context for your innovation business. Immerse yourself in the current life, situation, values and organization of the potential customer base.

Find out what roles people have and what they need or are challenged by. You are more likely to create a high value proposition and identify the necessary change products by doing this from the start and not later on.

It does not really make a difference whether you start with an idea or with the customer life, but you do need to understand the latter from the start.

ACTIVITY The activities in this phase are: 

Visit and spend time with end users, at the most relevant time and place in their life.

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Get an in-depth view of the user‟s experience, workflow and / or the commercial environment.

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Grasp what problems there are and what objectives end users are trying to achieve.

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Identify relevant Innovation Players.

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Identify where there is transformational value to be created or peripheral friction to be taken away.

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The Engage with People tasks

Engage with people.

NEW TECHNOLOGY AS START POINT

CUSTOMER SETTING

Technology is a frequent start point – as a University TTO in particular will have – or see the potential in a new piece of technology.

WALK THE CUSTOMER’S LIFE

In both cases, you will still need to assess how the technology can be deployed and so the CV people and setting starting point is very relevant.

You are looking for: 1. Potential propositions that are significantly better than the current solution.

2. The most economic technology package for the customer.

3. The portfolio of potential applications.

First off, establish the difference between the new and old technologies, as tabulated here.

The current and new technologies

There is only one way to spot unarticulated needs and / or ensure there are no barriers to your innovation product, which is to go visit and work alongside.

On the following pages are some common considerations to explore:



User situation - the perspective of the work environment, from one user‟s standpoint.



The business workflow – a more detailed view of specific processes, their inputs and outputs, etc.

There is some overlap here; if you look at one viewpoint you will end up looking at the other to complete your picture.

Your commentary

The current technology used is: Which is provided by (organizations): And the new technology is………………..

Has the following advantages.

Depends upon…

Has the following constraints:

However, it could be applied to applications and / or markets …….

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Is believed suitable for

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Will require the following customer changes.

Engage with people.



You know what is essential for the user.



Assuming something about the situation the innovation idea will be used in.

Put yourself in the end user‟s shoes.

For example, with a child car seat product see how a parent manages when putting the child into the seat.

There are multiple possible considerations. What are the expectations, concerns, outside influences affecting the product? Is there too much light or too little, is safety a concern (e.g. as it is for ATM cash machine siting), is it easy?

What is the working environment, e.g. in protective clothing for nuclear waste processing. Is a coastal location with salty air that will rust the product?

Overview of the user situation:

Examples

The end user is: And what they do is And…………………..

Want to achieve, what assessment of success

E.g., „The delivery courier wants to find the customer quickly in a public space and be assured it is the right customer taking the delivery‟.

Need to have in place

Is there an assumed supply e.g. of high wattage electricity, running water, room to turn a vehicle, dry storage, is the security needed in place, etc.

Need to avoid or overcome.

Are there adverse conditions, e.g. is it dark, is it hazardous.

Are concerned about

E.g., concerns for personal safety, for avoiding later payment charges, etc.

Want a particular environment or style

Attentive service, speed or consistency of service in a chain restaurant.

Smart ambience, comfortable seats, privacy, etc., in a gastronomic restaurant.

Must have physical constraints met.

Does the product fit the space, does it inhibit usage.

A FOCUS GROUP WILL NOT PICK UP THESE ANGLES

Will be satisfied if

It is also timely to note, again, that the traditional market research tool of „focus group‟ is not likely to pick up these considerations, yet they are critical to creating an „adoptable innovation‟.

What is the performance metric or level or satisfaction desired, e.g. consistently getting the requested amount of money, week-in, week-out, from a cash ATM.

Will be unsatisfied if

Anything distracts or seems irrelevant to the proposition, e.g. they are asked irrelevant „personal security‟ questions‟ for technical issues.

Need to be

Specific conditions have to be met, e.g., over 1.2m height to go on the fairground ride.

How do people get peer references for this product domain?

For example, a compact vacuum cleaner is wanted for small apartments.

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Work through the table to check you are:

User’s situation considerations

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CUSTOMER SETTING - THE USER SITUATION

Engage with people.

CUSTOMER SETTING - BUSINESS WORKFLOW

OPS CHAIN Don‟t forget to look at the sequence of operations and dead time between.

Activity aspect

Commentary

This operation is

AND…

A trigger event or user action

A request, at a set time, on a given condition, etc.

Outputs

Intended, unintended and waste.

Inputs

Resources, data input.

Diagrammatic checklist of business activity set up.

Associated policies, procedures, goals, etc.

Intended user experience, e.g. ease of installation.

Throughput requirements and performance

Performance levels, e.g. 99.9% host server uptime Cost per cycle or per unit, e.g. $120 per car service Utilisation; usage / capacity.

Associated activities

Supplier management Activity management, prioritising, scheduling, etc.

Support activities

A current business environment The customer‟s customer - who is verified as actually wanting the output.

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This diagram illustrates the common structure of a business activity. The diagram looks complex but it really is a simple reflection of what is going on in reality.

For each activity:

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You should have a pretty good idea of how the customer‟s operations are set up, i.e., what they assume, what they expect, what they do and what they see as acceptable success.

Engage with people.

USER’S DAY IN THE LIFE – NOW

A Day in the Life template

THE ‘DAY IN THE LIFE’

Day in the life

The „Day in the Life‟ technique is a timeline story to understand the customer experience. N.B. If the relevant period is a week or workshift, etc., change to that timeframe. In this first stage, consider end users and their lives, using the template here to build your understanding.

The player described here is:

Opening gambits to consider include: 1. „If I were <the worker> take me through their working day, from the time they get up‟.

2. „What does the manager have to manage, what decisions do they make, during the working day‟.

3. „What happens when it goes wrong or underperformance occurs.

How often does this happen and how painful is it?„

What the „player‟ is trying to achieve is….

First of all….

Then the next thing is / which happens in this situation /with these inputs / and with this intended outcome.

The performance level expected is…

When it does not go right, this is what happens / why /how inconvenient this is…

The scenario ends with /by….

It is worth changing because …

EXAMPLE Pictured below is a meeting with the owner of a bike delivery business in Boston, Mass. On the left-hand side is flip chart sheet with an hour-byhour record of a courier‟s day (badly drawn by me).

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OPENING GAMBITS

The situation in which the following all occurs is….

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The value of the tool is that it lets the user tell things in a familiar sequence and does not pre-judge where opportunity might emerge.

AND…

Engage with people.

Business situation considerations

Business environment.

The business is:

a. The business customer‟s wider economic, competition and regulatory environment b. What your business model must complement.

Costs down, more business, revenue up.

What challenges in growing revenues, reducing costs, meeting demand does the business face.

Facilities

What buildings, assets do your target customers have.

What do they need to manage demand variability.

Business environment

Assume nothing!

Don‟t ask „is this a problem or need‟ as everything could potentially be improved.

You must ask „how critical‟ it is to find or how much value would be achieved if a solution was found.

 Porter Five Forces analysis  Pay particular attention to legal and regulatory issues.

How fragmented is the industry, how vertically integrated, i.e., could you see an opportunity to do one part of a chain of activities currently owned by a business, e.g. aircraft servicing for airlines, building plans for several estate agents / realtors.

What competition is there especially alternatives to meet the customer‟s purpose (travel to Paris)?

OPENING GAMBITS 



„What challenges does the business face in growing revenues, managing costs, developing the business‟ „Are there any notable differences across the week / month / year‟.

(N.B. This is part of the Industry Analysis in „Evaluate Business Models‟ phase.) Use traditional established analysis techniques, which are readily available on business websites.  SWOT – the strengths, weaknesses, opportunities and threats to your anticipated customers.

HOW HIGHLY RANKED IS THE PROBLEM.

Opening gambits could include:

AND…ITS SUCCESS IS DRIVEN BY……………

Company operational performance

What service levels must be achieved by the business.

What capacity is needed, by period, across the company.

What product mix must be managed.

Finance (Can they do it?)

What  Budget does the customer have.  Development resources are available to them.  Payment terms are they used to.

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The wider business view may be different from the individual worker‟s view. Therefore, you need to understand

Commentary

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UNDERSTAND THE CUSTOMER’S BUSINESS DRIVERS

Engage with people.

IDENTIFY THE INNOVATION PLAYERS



The ticket booker.

„Innovation‟ in Causeway Venturing is getting an idea adopted. Adoption is done by people.



The mobile phone network.



The ticket holder.

So, it is fundamental to know who the people are.



The limousine driver (for the first class passenger).

Right from the start, in this „Engage with People‟ stage, start examining which people will be impacted and how.



The check-in assistant.



The national border authorities.



The duty-free cashier (who needs to see the ticket to allow a purchase).



The check-in equipment manufacturer.



The gate manager (to produce the flight manifest stating passengers).



The company travel budget holder.



Others to discover from actual discussion and engagement.

The players in an airline-ticketing example

CHANGE CRITERIA, CHANGE PRODUCTS



The airline as a corporate body



The industry body IATA.

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A possible „airline ticketing by mobile phone‟ system would include at least the following innovation players:

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Each of these people will need training, equipment, etc. Each player needs a change product from your Innovation Business. At this point with this large player set, the innovator might begin to consider what simpler system could be put in place with fewer people involved and so fewer processes. (This effectively is what the European low-cost airlines, such as Ryanair, have done.)

Engage with people.

Innovation Players - Focus on the first two columns at this stage

Innovation Player title

Role /activity

Impact of innovation Pro/con

Change criteria

Importance

Proposed change product

End User.

Role in context.

What impact does the innovation have.

A descriptive note and type as per previous table.

Critical / high / low or useful.

How you will design in ease of change or provide additional change products.

innovation

Buyer Authoriser Accountant Installer Service Etc., etc.

CAN WE WAIT AND DO THIS TO WHEN WE GET FUNDING? You are more likely to get funding if you have identified all the people affected and have set out how you are going to manage innovation change.

Everybody counts

The Saturday staff were making the sales for the competition â&#x20AC;Ś

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A visit I made to retail stores uncovered why. The teenage sales staff referred to the competitorsâ&#x20AC;&#x; point of sale material to brief the retail customer, whereas the company in question had no such materials. Probably the lowest paid people in the value chain were holding sales back.

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Some years ago, the sales force at a computer peripherals business focussed on promotions with retailer staff in head offices. Despite heavy promotion and a technically superior product, the main competitor was thrashing this company in sales. It was not price, it was not scale of promotion subsidy and it was not product quality.

Engage with people.

IDEA GENERATION Some specific approaches to idea generation are set out later in this book. There you will find consideration of: 

Being rational or creative.



Product ideas.



Lean thinking.



Extreme user review.



Technology and applications.



Business Models are covered extensively in a section of their own.

„GPS will give you the exact location of taxi for scheduling purposes, which can be sent by mobile phone network to the control centre‟. But other technology could be used; the phone network itself can give you sufficient accuracy without bringing GPS into the picture.

Make a simple list of potential concepts and their upsides and downsides.

So, at the end of this phase, you now state what the concept is, or concepts are, going to be. At this point, there may be some general commentary such as, e.g., „provide a good degree of anti-theft features‟.

You may have ideas of how technically it might be achieved and those thoughts should be noted. There is a danger that you will become overly focussed on the technology and not the need or benefit. For example,

Pro

Con

Create a group of trained reserve firefighters, to manage forest fires, called in and managed by mobile phone.

Forest fires present the problem of stretching professionals over a very large area and it does so quickly.

Frees professional, frontline firefighters to deal with most demanding work.

Never sure how many will turn up.

Danger of wellmeaning but untrained staff also arriving.

Develop an app which allows Smartphone users to take pictures, tag with GPS and send immediately to a central fire control ‟ 9-1-1‟ website

Gives real-time eyes and ears to fire service.

Collate and know extent of fire, its movement and speed very quickly.

May encourage people to stay or worse go looking for fires and get into danger.

Ditto – but for road accidents, to ambulance websites.

Location qualitative information initiate appropriate response.

Early form of triage?

Ensure accurate location with GPS grid.

Consume time resolving poor quality pictures.

Additional info worse than that from trained professionals.

and to

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The purpose of Engaging with People is for you to be able to create an outline Innovation Concept. These concepts need to be rooted in the key element of innovation – that it offers significant value to the innovation players. The whole ethos of this CV phase is to ensure your innovation fits the circumstances of the user. (With „disruptive innovation‟ you start with a new group of people.)

Commentary

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INNOVATION CONCEPTS

Concept

Engage with people.

VIABILITY – INITIAL ‘TRANSFORMATION VALUE’ VIEW You want to establish early on that you have found something that is either: 

A high value concept –a concept that the customer would really value, an answer that meets a core business driver.



An outsourcing approach to a specialist, high-value task – a variant where the skills and assets involved are an entry barrier and /or cause „lumpy‟ costs, e.g., aircraft maintenance or business strategy advice.



Peripheral necessity –something that is a necessary but non-core task, where the removal of the cost and management overhead is valued, e.g. office cleaning (or domestic ironing in a personal context).

You can‟t progress through the rest of Causeway Venturing without these fundamentals in place. Naturally, you will improve and deepen your knowledge as you progress though, so go through a green light when you and your peer review say „time to go‟.

BEING TOLD ‘THAT IS REALLY USEFUL’ Too often innovations are pursued which are caught in the middle of the above scenarios –neither high value nor an irritant to be removed. They offer a benefit but don‟t garner enough priority to be actioned by the customer. At trade shows, you are told „that is really useful‟ but no buying follows.

CRITICAL FUNDAMENTALS, BEFORE YOU GO FORWARD People – you know the roles of people involved.



Goals and needs – you know what the customers are seeking to do, e.g. not just sell but how they want to run their business.



Opportunities and value – as above, what aspects of their business or their life can be dramatically improved and how much value that would bring.

Prepare your ground well.

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

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You will be ready to leave this phase when:

Engage with people.

UPDATE YOUR INNOVATION STORYBOARD The Causeway Innovation Storyboard.

WHAT TO BE UPDATING IN THE EXPLORE STAGE All nodes and what they cover are explained in a later chapter. Here is what you should be able to state now.

Explore the situation, likely updates…

Node  People Community.

&

 Setting.

You will probably update your Storyboard as you progress, but as always it is a good practice to stop and take time for a group „sanity pause‟.

 Problem Opportunity.  Concept.

/

User profile:  Activity, responsibilities, reporting lines, organization, location, policies, performance or expectations affecting them, skills, etc.

Setting:  User experience  Workflow / Operations  Commercial Where there are problems or opportunities.

The importance or value.

List your concepts to take forward.

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Remember there is a whole section „How to … storyboard the detail of your gameplan‟.

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35

PHASE TWO EXPLORE CHANGE

Explore change.

EXPLORE CHANGE & IMPACT



Establish what the criteria are for your customer to consider changing and so what change products will be needed.

This CV phase helps you overcome several common errors:



Consider what different revenue streams you might achieve.



A proposition that does not fit with the customer‟s situation.



Insufficient value to warrant change.

WHOM WITH?



Too narrow a margin for it to be commercial and /or pricing beyond the customer‟s pocket.

You will return to end users but also get input from buyers and authorisers.



Ignoring alternatives that offer a better cost/benefit trade-off.

Do not ….. miss this phase and start technical design and financial analysis without this knowledge under your belt.

If you have watched „Dragon‟s Den‟ 3 on TV, many of the failures are because they missed the stuff in this phase.

ACTIVITY In this phase: Write „Day in the Life‟ scenarios for your Innovation Players for the future



Write your Value Proposition.



Check the fit to and alternatives for the customer.



What customer relationships are expected or could be traded for lower price.



Establish your first view on what people will pay and how much it will cost to make or deliver.

3

A television programme in which would-be entrepreneurs pitch to several potential investors.

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

Explore change.

EXAMPLE - THE VALUE OF MAKING CHANGE EASIER The lesson here is how Art Norins built ease of adoption into his product set.

Art Norins of Nor1.

IBBT, iMinds Belgium, December 2010.

Speaking at iMinds, Art Norins was at pains to emphasise that he spent some months working at hotel front desks, ensuring he knew how hotel booking systems worked in practice. At the same time he put his upgrade proposition to customers so doing market research right at the point where his idea would be deployed.

Now the Nor1 systems are used by a variety of service businesses. As their website illustrates they are very aware of both the value to their customers and the low impact on the customers‟ systems and front-of-house staff:

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“Nor1's system works as an overlay to the existing reservation system. There is no complex technology integration or substantial change to the existing sales process. Nor1 simply enables clients to more precisely target offerings and collects the customer interactions. Modern consumer web technologies are designed to respond in real time to customer behaviour. Nor1 enables traditional industries to gain the advantage of that innovation without changing their core processes.”

Explore change.

SHARE CONCEPTS EXPLORING IDEAS „Prototyping‟ is traditionally thought of as „early product‟. Think of it as idea exploration at this early stage not an attempt to design the end innovation product but to research, i.e., „example idea‟ not „working basic model‟.

The role of Sketch Concepts in the CV prototyping thread

Share your concepts with simple idea sketching at this point, most likely something that is drawn by hand or assembled from available materials and resources but not specially commissioned.

This really will be: 

Simple drawings of look and feel.



Process flows.



Layouts.

RESEARCH INTENTIONS The aim with sketching ideas in „Explore Change‟ is to get conversation going that will:



Establish platforms.



Find out what requirements are.

the

current the

top

technical design

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Elucidate strong opportunities.

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

Explore change.

DAY IN THE LIFE – FUTURE The Day in the Life technique has already been introduced in the previous Engage phase, when looking at what the end user current experience.

The template is repeated here. relevant.

Once again, use whatever period is

PEOPLE - FOUR ROLES TO EXPLORE In addition to the end user, there are three other roles to be considered, which include accounts, as listed here in this table.

A Day in the Life template Four prime roles

AND…

User role

Description

The End User

The person who is actually going to use, experience and desire your innovation. (Or in some instances be persuaded to use it.)

The Buyer

This could be somebody in finance, a procurement person or simply the department budget holder. They have to be persuaded of the economic arguments.

When it does not go right, this is what happens / why /how inconvenient this is…

The scenario ends with /by….

The Technical Authoriser or Influencer

This is the person who says it meets standard and that it will not bring any undue risk or overhead.

It is worth changing because …

The customer accountant

To get you to consider the financial mechanism from early on, consider how you are going to ensure you can audit what you have sold and present a correct invoice.

The future situation in which the following all occurs is….

What the „player‟ is trying to achieve is….

First of all….

Then the next thing is / which happens in this situation /with these inputs / and with this intended outcome.

The performance level expected is…

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The player described here is: :

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Day in the life - future

Explore change.

THE PLAYER JOURNEY 4

Use „The Player Journey‟ to drive the „Day in the Life‟ insight. This is an end-to-end, soup-to-nuts, examination of the outputs, products and experience your business will have with each player. Obviously, covering all journey points is likely to cover more than just „one day‟.

The main points in the journey for almost all innovations that almost certainly you need to establish are:



Awareness – how the customer will gain knowledge of the proposition.

Take each Innovation Player one-at-a-time.



Work out what happens and what products or services are needed at each touch point for that player, e.g., sales demonstration, installation assistance, training, certification, etc.

Enquiry – how will they know of and learn about the innovation.



Sale/Order – how it will be sold.



Install / fulfil– how it will be set up, installed, etc.



Usage – how it will fit into the user‟s life.

The diagram below illustrates an extensive set of potential touch-points, i.e. point of customer or player contact. The diagram start point is at top left and time flows to the bottom right.

 Payment – how will billing and payment occur.  Customer service – how the user will get assistance, what events might they instigate.  Customer relationships – how the customer is kept informed of the value they are gaining.

4

You‟ll find websites with „customer journeys‟ for specific industries, but this one goes a long way.

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Player journey – the potential touch-points

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 Upgrade and Closure– how the customer finishes the relationship and upgrades.

Explore change.

DAY IN THE LIFE - UNCOVER LATENT ASSUMPTIONS GROUPTHINK

Smartphones and apps

Everybody has their own belief system, their own set of values. Sometimes these become institutionalised - a phenomenon known as „groupthink‟. The upshot is an inbuilt expectation of how customers will react.

I‟m working on an app development…. Will there always be sufficient network coverage in the rural areas where my market will be…..to be confirmed…

Step back and consider what underlying assumptions are in your thinking. Re-visit your Day in the Life scenarios and check the assumptions at each point in the Innovation Player Journey.

Your commentary

This that…

assumes

 The situation in which the following all occurs is.  First of all….  What the user (or other player) is trying to achieve is….  Then the next thing is / which happens /with these inputs / and with this intended outcome.  The performance level expected is…  When it does not go right, this is what happens / why / how inconvenient this is…  The scenario ends with /by….  It is worth changing because …

E.G. an app allows Foreign Exchange to be ordered & delivered to a traveller in a hotel….. this assumes the courier can easily find the correct buyer....who is now in the sauna ..

THAT PEOPLE WILL NOT ACT THE WAY YOU

EXPECT

Will people follow the process that you intend or expect?

Does your innovation require certain behaviours, process to be followed or objectives shared? Is it possible that people will have ideas of their own about appropriate behaviour consider the number of times you have heard the „final call for passenger named…‟ at the airport.

MORAL OR RELIGIOUS OBJECTION Is it possible that what you will ask people to do, will be unacceptable to a group or individual. Two areas should at least be considered:



Anything which involves privacy.



Potential issues regarding moral or religious values.

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Day in the life

CONSIDER

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A day in the life for the new idea, with assumptions

Explore change.

ARE YOU SOLVING THE RIGHT PROBLEM It is easy to focus on one activity and find a technical solution that improves it. However, when you stand back and look at what the chain of activities is trying to achieve, you can come up with a more relevant business model. The panel here illustrates this point.

Saul Griffith, solving the wrong problem

Check you are solving the problem at the right point in the value chain Saul Griffith invented a machine to make spectacle lenses on demand, an “inexpensive desktop device with which a minimally trained operator” could create a finished lens in minutes, moving manufacture from factory to point of sale. “It turned out that we were solving the wrong problem. A lens factory is expensive to build and equip, but once you‟ve got one, you can make lenses cheaply and deliver them anywhere in the world for a dollar or two”. The real problem in the developing world, which drove the work, is not making the lenses it is the absence of trained optometrists.

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Source: New Yorker magazine, The Inventor‟s Dilemma, 17 May 2010.

Explore change.

FIT, ALTERNATIVES, COMPETITORS IT FIT WITH THE CUSTOMER’S ENVIRONMENT AND WAY OF WORKING

DOES

You should re-check your innovation concepts as to whether they still seem to: 

Offer significant value.



Take out peripheral activity at a good price point.

be driven to find ecologically sound packaging and so that includes recycled paper or degradable petro-plastics.

In sailing, there are lots of electronic navigation and weather gadgets available, but you can get a lot of the same information from much tried, cheaper sources. Will you get the early adopters only or will the late majority come across?

COMPETITORS If you have a competitor product what else does the competitor offer overand-above the product, e.g. service, reputation, sales volume discount, etc.

This should be the start point for considering if you need to go into partnership with an existing business.

CHECK THAT IT IS NEW

Fit with the user‟s business drivers.



Does it fit with the working environment.



Are you making some underlying assumption, which when tested, makes the workability questionable?

IP Finally, it might exist but not yet be in production so you will also need to check patent databases to establish if it has been done before and protected with Intellectual Property.

WHAT ALTERNATIVES DOES THE CUSTOMER HAVE

LAST BUT NOT LEAST….. IS IT WORTH THE EFFORT TO CHANGE

For the customer it is almost certain that your innovation must offer a major benefit over the current solution. However, in evaluating alternatives will the buyer play off amount of value achieved versus cost (i.e. their „utility / cost‟ ratio)?

The point to ask yourself with an Innovation Business is this – „how highly valued is the value being proposed‟.

Don‟t define competition as being a technical like-for-like. For example, in bioplastic packaging, seeing bioplastics as the only competition to your bioplastic product would be a narrow view of competition. The buyer may

The benchmark for this is the current way of doing things. So, is it going to be worth the effort for the customer to both change and to maintain the inputs to your innovation when operational.

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

Doing a web search on either the key words of your product idea or the likely supplier you would use will probably find any examples of a similar product. Then you can move to asking customers – under NDA - as if it exists somebody will have probably tried selling it to them. Also, you need to use trade sources such as trade shows, distributors, magazines to see if your idea is already coming to fruition.

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However, now you need to move to a next question. Does your proposed innovation:

Explore change.

CUSTOMER FIT – EXAMPLE ELECTRIC BUGGIES AND THE USER’S SITUATION The Sinclair C5 electric vehicle

optimistic nought to 7% market share forecast) 12,000 units in total.

In the end, it sold just

The Sinclair buggy had a low-to-the-ground driving position and was very exposed. How small it was is shown by the picture against the original „Mini‟ car (which was much smaller than the current model).

Fit to the (advertised) environment was ridiculously inept. The Sinclair C5 clearly illustrates an innovation where the product was developed without due consideration for where, how and why it might be used by the user.

It was positioned in the road vehicle market according to the newspaper cutting, yet it was well wide of the target in designing to the real world of road traffic environment and customer‟s safety or comfort. It was also – obviously - no use for family travel. It was publicised as a vehicle for general use on the road, but it would have been better marketed to a specific customer segment.

5

It can be argued that the „Segway Personal Transporter ‟ is a vehicle for short, multi-stop travel for individuals, as the C5 before it. Unlike the C5, the Segway‟s upright rider position helps overcome the rider‟s safety fears.

However, the Segway has hit another situational problem - the problem of how it is categorised by national transport authorities. In several countries you cannot use it on roads.

But on campus, airports, warehouses it will be of use.

5

http://www.segway.com/H

H

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The 1980s UK launch of the Sinclair C5 electric vehicle, or electric buggy as it might be better called, was expected by the manufacturer to hit sales of 100,000 units in the first year. (An aside here, is that there were 1.5 million non-commercial vehicle sales in the UK that year, so there was an

44

The Segway Transporter

Explore change.

WHAT CHANGE PRODUCTS WILL BE NEEDED INNOVATION RISK MANAGEMENT You increase the probability of successful innovation by identifying the change criteria and then working to meet them. This makes the sales argument to change more compelling, as barriers are removed.

What is more, the sales force have little reason to argue that they must continue selling an older proposition as the „new one is not ready yet‟. Finally, as a check, if you have a player without a change criterion, go back and find out what it is.

As you are walking through concepts with potential customers, you should ask two questions: 1. Would this be valuable to you.

2. What would you need to make it possible to change to this new innovation. For example: o

„What will you need to have in place so that you will be able to move from your current solution to this one‟.

o

Or „If you were about to install this new idea, what would be on your checklist of things to know you are ready to make the change?‟

Don‟t assume that change comes with just benefits. Note both the positive and the negative impacts.

WHAT WILL THE CUSTOMER NEED TO MAKE THE CHANGE Innovation Role Impact of Change Importance Proposed Player /activity innovation criteria change product Pro/con What impact Role in innovation does the innovation context. have.

A descriptive note and type as per previous table.

Critical / high / low or useful.

How you will design in ease of change or provide additional change products.

Buyer

Installer Service Etc., etc.

E.G. the installer must be certified by government body...organize preparatory courses for would-be installers…….

Change criteria are likely to include the words „it will have to‟, „it should‟, „will it‟, „it must fit in with‟, „unless it does we can‟t adopt it because‟.

You can now complete the change aspects for the players recognised in phase one, Engage with People.

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Authoriser

Now you can identify the Customers‟ Innovation Change Criteria. „Innovation Change Criteria‟ are any statements as to what they need from you to make a switch from their current solution.

Work on all columns in this table now.

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End User.

Explore change.

CHANGE CRITERIA CATEGORIES

Comment

Product qualities.

Non- technical requirements, e.g. easy for the workforce to learn to use.

Ancillary product.

The ancillary products or services to the User Product (training for new equipment, after-sales support, consumables, etc.)

Business / Commercial

Aspects such as service levels, quality, returns, warranty, etc.

Financial

Cost, price or financing (including payment terms).

Legal & Regulatory

Externally imposed requirements.

Risk profile

Impact of product breakdown and ensuing loss of credibility or lawsuits.

Dependence

Not dependent on scarce resources, e.g. trained and skilled chefs.

Working / Business environment

Environs of the customer and players, e.g.



Operator /management training.



Staff briefing support



Safety.



Skill level.



Physical space.



Systems knowledge.



Process time to do the task, etc.



Legacy systems interface.

Form, Aesthetic & Experiential

The look, feel and experience of the product or service.

Operational

Business operations factors such as lead times to customers, minimum delivery levels, etc.

Retro-fit, compatibility

Compatible with existing technologies or facilities.

Barriers

Adoption barriers exist for a foreseeable period.

Reputation

It does not destroy a business or personal reputation.

Physical, environmental.

Fits in with existing conditions or overcomes any constraints.

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Change Criteria categories.

46

Potential categories are tabulated below to get you thinking. They are not mutually exclusive so you should not be worried about which category, but consider any you have not used.

Explore change.

SKYSAILS OF HAMBURG - CHANGE PRODUCTS EXAMPLE SkySails of Hamburg have created an innovative application of parasail technology to propel cargo ships when on the open seas.

Taken from the technology overview on their website is a series of statements that constitute „Change Criteria‟ issues.

From the SkySails website – Innovation Player Adoption Requirements “The ship's regular crew is (to be) adequate for operating the system and no additional personnel costs will arise.

The textile towing kite is (to be) easy to stow when folded and requires very little space on board ship. A folded 160m² SkySail for example is only the size of a telephone booth.

The SkySails System (shall have) no superstructures which may obstruct loading and unloading at harbours or navigating under bridges, since the towing kite is recovered as soon as the 3-mile zone is reached.

Unlike conventional forms of wind propulsion, the heeling caused by the SkySail-System (must be) minimal and virtually negligible in terms of ship safety and operation.

The SkySails-System is (to be) used parallel to and for relief of the main engine, if wind conditions allow. The main engine's propulsion power (must) remain fully available if required”.

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November 2009. http://www.skysails.info/english/products/the-skysails-technology/

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The SkySails system deployed at sea

Explore change.

Here are some additional ways to consider the whole range of customer interactions of approaching this topic.

YOUR CUSTOMERS’ PERCEPTION OF YOU. First off, consider how you want to be perceived by your customers, i.e., what are your brand values (to pre-empt the Brand consideration in the next chapter). For example: capable, vibrant, enterprising, dependable, etc.6 How are you going to meet these brand perceptions.

WHAT DO YOUR CUSTOMERS WANT FROM YOU AND WHEN

The simple reality is that there is a reducing marginal return on additional functionality. Yet in parallel, costs rocket as complexity of product and services rises. This is both for production and for service. It is also more costly for the customer. (Having just had to go through the process of getting a new mobile phone and choose the right package, I am reeling after 2 days of analysis.)

THE ANSWER The answer here is to: 

Your Innovation Player Journeys drive you to work out what ancillary / change products are wanted and, how they can be delivered to your customers. However, ask them if your ideas are in line with what they want.

SERVICE DIFFERENTIATION, CUSTOMER RETENTION It is easily said, but once you have got your customer to change, you want to embed yourself as deep as possible into their business so it is hard for them to move on again. So design the service that will do that; once again this means talking to them.

MARKETING VERSUS OPERATIONS From experience, Marketing and Operations people are driven by different virtues that can undermine the Customer Lifetime Value.

The marketing people are driven by increasing customer base and sales (rightly so).

But, more product complexity is justified to ward off competition. Complexity or feature richness is pursued to gain „customers and revenue‟ (to damn with faint praise).

6

I am indebted to Jane Buswell, Business Fulcrum, for her list here.

Design for rapid cycle time to market; o

Use the MoSCoW feature prioritisation to complexity and focus on the core functionality.

o

In parallel, drive innovation operations people to design for product serviceability.

Reduce variety as opposed to adding more complex operations support. However, on a contrary note, design the operations system to support the requisite variety.

reduce



Standardise as much as possible. (Heard about the aero-generator company with a different pole design for each size generator?)



Decide what relationships can be handled by automated systems and which need people-to-people support.

MATCH YOUR MARKET TO YOUR INNOVATION As the low-cost airlines have shown, new customer segments will trade off service for low price on the core product. Your Innovation Mix must balance product, market segment and service relationships.

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The pre- and post-sale relationship is often not given enough thought, which holds back take up and underestimates costs.

The operations people want simplicity, to ensure everything works, is tested and is in place. They justify simplicity to minimise costs and manage variable demand level. Operations people see rush to market, marketing people see „sales prevention‟.

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CUSTOMER RELATIONSHIPS

Explore change.

What price or fee package are you going to go for – the traditional approaches are: 

All-inclusive – usually associated with top-end offers.



Base plus extras – attracting a more price-sensitive market. Do you push people to pay-per-minute, customer service phone lines, do you charge for the childcare at a hotel, etc.

Approaches that are more imaginative include: 

The freemium model – base product free (to build a user base) with a small percentage paying for a „professional‟ package. Of course, particularly appropriate with cloud hosted software where the cost of delivery is negligible.

FEE BASES Fee bases that you might consider include: 

Straight sale for the purchase of an instance of a product or service.



Consumption fees, e.g. an hour‟s gym tutorial, printer inks.



After-sales products such as servicing and / or warranties.



Segmentation – by features or by timing of delivery (e.g. dry cleaners „same-day service‟).



Membership, e.g. as used as gyms.



Upload / download fees.



Per Diem fees as used by consultancies.



Percentage of successful transaction fee.

A sobering question - especially with web-based innovation propositions – is to ask what the customer is actually going to pay for.

PAYMENT TERMS Consider the methods of payment and payment terms you will support. 

How does your customer want to pay including expected payment days.



How will you manage non-payment.

BUYING BEHAVIOUR Next you need to understand what the customer or organization‟s buying behaviour is. So, check the following: 

How would the customer allocate budget for your innovation.



Do they need a trial.



Is there a preferred list of suppliers (common with corporates and governments).



Is there a central procurement policy - so could your end user contact love the idea, but procurement takes a different view though.



Buying process: does the customer have to issue a request for tender so that competition is seen to be done (common with EU procurement).

INDUSTRY Ask how tightly bound to their existing supplier / way of working are they?

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CORE PRODUCT AND ANCILLARY PRICING

WHAT TRIGGERS PAYMENT

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REVENUE STREAMS

Explore change.

The first financial viability test is to establish the margin and breakeven point.

4. Consider the production options. Consider this at different volume levels or different points in the business development.

5. Additional commercial reviews while you are here: a. Is there is any possibility of obvious „value engineering‟, i.e., the process of designing out cost.

First, you need to establish a price point. You will need to consider different approaches in arriving at pricing:

b. Consider the order terms and conditions e.g. supplier capacity, your rank in the supplier‟s eyes, order volumes, lead-time and payment terms.

1. Cost-based - what is the cost of producing or delivering the sold product or service.

2. Margin – is their sufficient margin to cover overheads and still make a profit.

3. Competitive pricing – how does your product compare to other alternatives.

4. What you charge for – for example, many web-hosted services now do not charge for early, low-key usage but once the user has got used to and depends on the product, fees cut in. Computer printers take another approach; the replacement inks cost more than the printer did (at least it feels that way).

MARGIN AND BREAKEVEN As indicated, this allows you to assess early on the availability of manufacturers or suppliers, their available capacity, lead times, and most importantly the cost of manufacture (or creation).

Some basic viability checks you can do include the following approaches: 

Take a very rough view on „low‟, „likely‟ and „high‟ overheads for a year.



Divide overheads by the margin. This gives you the sales volume you will need just to pay your costs. Is this volume reasonable, what is the sales run rate per month, etc.



If you have a low margin, do you think you can generate a high volume business and with low cost per sale?



If you have a high value offer with high margin, this is often correlated with long evaluation times – so can you stand the long period before cash starts coming in. Are you likely to attract competition quickly?

COST Cost of Sale (or Cost of Goods Sold) is the inherent cost of creating one unit of the product. It is the directly attributable cost of having the product ready to buy. The analysis process you can follow is: 1. Take the concept design and set out the main elements of a „BOM‟ (the Bill of Materials, the hierarchical statement of what goes into a product). Cost those elements.

2. Consider sourcing of those elements and identify constraints, e.g. scarcity of suppliers or materials.

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PRICE

3. Establish the component or material costs.

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PRICE AND COST

Explore change.

THE VALUE PROPOSITION

LOOSEN CONSTRAINED THINKING

First, the difference between „Product Specification‟ and „Proposition‟. A Product Specification will be used by a technical evaluator. e.g., it runs Windows Operating System; its weight meets Health and 7 Safety laws , etc. The Proposition statement by contrast is value-oriented. It is where you set out the prime benefits and refer to the problem that is solved.

Why define the proposition in terms of just one industry. What other corporates, medical, military, might benefit? Remove any unnecessary constraints in your definition.

I have been introduced to an early stage proposition defined as offering „secure access to data in the financial services industry‟. That is a competitive industry, with big brand assurance wanted.

The elements of the Value Proposition statement

The full term „Customer Value Proposition‟ is best as it points out that it is a proposition offering some value for somebody who is buying and using. But life is short and it ends up being Proposition or Value Proposition when time allows.

Remember, Value must be significant and for a recognisable customer.

WHAT IT COVERS

I remember still the humiliation of being forced to take an overweight welding machine I carried into a demo back out on a tea trolley. We sold it eventually - 3kg lighter though.

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7

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The Value Proposition elements are illustrated diagrammatically. As you can see, the Storyboard Proposition covers this. But for sense checking and later when developing your sales engine, remember to note the people and setting elements.

Explore change.

VALUE PROPOSITION – VARIANTS FOR THE FOUR PRIME ROLES



Whom it is for.



The offer of the core product and any ancillary products (together known as the „whole product‟).



What the price will be and on what basis they will actually pay, e.g. subscription, usage, transaction, etc. Also, what the financial terms are for payment and penalty for non-payment.



The benefits and value delivered, and how they are assessed.



How customers will be engaged and supported: is it personal contact, 24/7 support or 1day web response for example.

Naturally, some of these roles may be fulfilled by one and the same person, but still you need to know you have met the requirements of each role.



What additional change products will be needed to remove any arguments for not adopting your innovation.

(N.B., most Value Proposition statements tend to focus on just the end user.)



Impacts, both positive and adverse for the customer. E.g., the need to send old electrical item for recycling, shut down a network during installation, find a way to a meeting point for a tour, etc.

Knowing that there is a real need is essential to the investor‟s audit, as is illuminated by the due diligence quote here.



Any consideration of time, place and scale either needed from or offered to the customer. (Those chocolate bars are next to the sales till for impulse buys.)

Understanding how to sell the product to all decision makers is essential.

Your offer should consider the four distinct roles at the customer as tabulated earlier in this chapter:

   

The end user The buyer The authoriser The accountant (how will you get paid).

THE VC’S VIEW ON CUSTOMER NEED

Investors want to know that you have engaged with users and customers

What due diligence do venture capitalists do?

“We don‟t require the company to have paying customers.

They can have a pilot or a couple of betas but we want them to have engaged the customer. (We check) does the customer confirm and / or have the pain and how effective is the team at delivering its message‟.

Robert Simon („How venture capitalists evaluate potential venture opportunities‟, Roberts and Barley, HBR, Dec 2004.)

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It obviously needs to refer to the product specification but also should set out:

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MAIN ITEMS OF THE VALUE PROPOSITION

Explore change.

IS IT A VIABLE CUSTOMER PROPOSITION

have you identified the innovation players and the change products they are going to need.

THE PERSONA PITCH – TEST THE CLARITY OF WHAT YOU ARE SELLING

Any items in the adverse or weak column need to be resolved.

Write your Causeway „Persona‟ pitch now (covered in How to …pitch section.). Write your story (or imagine your speech) along these lines:

ADVISORY

The top band in the Viability Board, is it a viable Customer Proposition.

„Consider a Person Endeavouring to get a Result in a Situation, for whom our Offer is. It will have these Needs factors to be adopted and will be Assessed by … measure‟.

If your idea cannot be expressed simply, you either have one or both of i) too complex a business idea, ii) one that cannot be pitched easily to a customer, so is a weak basis for a sales effort.

You certainly will change it and polish it.

However, at this point work through the mnemonic letter-by-letter. If it is not your natural talent to be a wordsmith, get somebody in to do it.

THE VIABILITY BOARD – FIRST PASS

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In a nutshell - do you have something the customer really wants, cannot fulfil with alternatives and will deliver a decent margin. On top of that, Innovation is a change game, so

53

This is about whether the customer is going to or is in a position to buy. Look at the first band of questions (N.B. they are itemised in depth in the Viability chapter).

Explore change.

NODE

ENGAGE WITH PEOPLE, LIKELY UPDATES…

Setting



Proposition.

 

Buying behaviour

Value

The intended offer.

The fit to the user, buyer, authoriser, accountant.  The change criteria and change products.  The direct alternatives and utility / cost considerations.  The value identified.

Impacts.



The upside and downsides adopting your innovation.

Change products.



Financial

 

Product

 

Day in the Life.



The change products to aid transfer to your innovation.

Your revenue per sale / per unit.

The cost of a good sold.

Note of any basic prototypes used.

Design elements identified to date.

Day in the Life portrait – for your innovation future.

All innovation players; inc. user, buyer, authoriser and accountant.

Assumptions reviewed.

The Causeway Innovation Storyboard.

  

Alternatives.

Competition Industry.

Pitch Viability

of

&

What are the alternatives for the customer.  Who is providing products or services in this domain.  Your first attempt at a PERSONA pitch.  Your Customer Proposition evaluation.

54

You are almost certain to update your Innovation Storyboard as you progress, but to remind you of where you should be at the end of this phase, review this table.

WHAT TO BE UPDATING IN THE STORYBOARD

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UPDATE YOUR STORYBOARD

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PHASE THREE EVALUATE BUSINESS MODELS

Evaluate business models.

EVALUATE BUSINESS MODELS FIND A COHERENT, DOABLE ONE This CV phase helps you overcome four common errors: a) Not considering the pros and cons of different business models. b) Not thinking how the industry and market affect the viability of your business model. c) Not building a proof of concept to test technical constraints. d) Putting the model in „eConcrete‟ by embedding the business structure into a financial spreadsheet before designing a doable business model. (To be explicit - once you start doing the numbers many developers are blinded to business model flaws. So do this phase first.)

Establish a commercially rational, balanced business. Only then is it worth going on to do the numbers and embedding your thinking in a spreadsheet structure.

ACTIVITY

The Evaluate Business Models phase workflow

Outline Business Model 0.1, the one you want to aim for.



Checking doability against the industry and the market.



Doing whatever is necessary to prove technical viability.



Considering the channels and the partners needed for your business model.

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

56

The activities include:

Evaluate business models.

BUILD BUSINESS MODEL 0.1 ITERATION USING MULTIPLE TECHNIQUES

‘Iteratively build Business Model 0.1’

Take your initial Value Proposition as the start point for building Business Model „Version 0.1.‟.

In parallel, if needed ensure the technical viability with a Proof of Concept.

Consider each of the potential drivers for a business model, confirm and reevaluate them using a „Configuration View‟.

Use your Storyboard to crosscheck it all holds together, using „Scenario Testing‟. Utilise the industry and market knowledge gained in this phase. Examine what channels and partners you want.

Go on to Business Model 0.2 detailed „traditional business planning‟ – only if this all holds together.

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This subject is covered in depth in the „How to ... Innovate your Business Model‟ section.

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BUSINESS MODEL TOOLKIT - IN DEPTH

Evaluate business models.

INDUSTRY ANALYSIS Obviously, you are not going to be the only one out there.

Find out what industry structure you are entering into and assess your market entry; will you align, use a partner or be disruptive.

ACCESSIBLE MARKET - PART 1

up in their business to get an idea of the pain they will feel from losing business.

3. In the previous „Explore Change‟ phase it was proposed that you ask „how tightly bound are they to your current supplier‟. Re-affirm your understanding.

4. How many suppliers are there to your proposed market.

5. Consider the Political, Economic, Social and Technological environment („PEST‟).

6. Consider the understanding from a Porter 5 forces analysis.

A prime reason for knowing your industry structure is to understand how customers buy, from whom they buy now and whether they will even consider you.

If the current alternative is supplied as part of a package (and with a volume discount) are they likely to deal with you. Where can you find customers who will more easily switch and adopt your innovation?

THE OUTLINE STEPS FOR AN INDUSTRY ANALYSIS: Assess which competitors you will be up against, what they are offering and the channels they use to distribute it.

That is all factual or quantifiable, but you also want to build your view of how committed your potential customers are to their existing suppliers and solutions.

The points below follow the Pareto rule; they will give you 80% of what you need to know.

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2. If you can, establish a qualitative view of what capital and resources the suppliers have tied

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1. First, establish the supply chain upstream and downstream of your intended customers and how many businesses are operating at each point in the chain.

Evaluate business models.



Ease of imitation



Complementary assets – channel, brand, sales force, installation, etc.

The analysis is summarised in the matrix below.

The Reece analysis

CV offers an extension on the Reece line of thinking. Consider: 

The number of suppliers – if there are many can you gain attention from customers.



The strength of the supplier – customer bond; do they have long-term contracts, volume discounts, specialist knowledge being exchanged?

The diagram below considers this territory and how to respond.

The supplier – customer relationship

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David Teece (University of California, Berkeley) formed a view on the conditions for innovation commercial success. It demonstrates that two simple parameters indicate likely success in the market place:

THE NUMBER OF SUPPLIERS & HOW TIGHTLY BOUND TO THE CUSTOMERS

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‘TEECE MODEL’ OF CONDITIONS FOR INNOVATION SUCCESS

Evaluate business models.

UPDATING THE BUSINESS ENVIRONMENT – SWOT, PEST AND PORTER’S FIVE. RESEARCH SOURCES You started the assessment of the Business Environment in the first Causeway phase, Engage with People.

Now you are assessing viability, you should complete your assessment. The wider political, economic, industrial world should be considered.

With internet information being available, you can do a lot of research online to get an abundance of background information. However, you will find that many search engine references all lead back to one common source, that of the company press release. The financial press commentaries are often the better place for priority reading.

Two common, basic techniques, which are widely covered on business websites, to use in your analysis now are: 

SWOT – the strengths, weaknesses, opportunities and threats to your anticipated customers.



Porter Five Forces style analysis – the degree of competition in the industry, the bargaining powers of suppliers to & customers of the company, threats of new entrants & substitute products.

Consider: 

The web is the obvious tool for finding relevant organizations.



Industry commentaries featuring the companies found, will mention others.



Contact trade associations.



Look in a business-listing source such as Kompass.



Then to get into more „exotic‟ sources you can contact your local reference library, business school or government „business assistance‟ department.



To learn about a foreign country, contact your own embassy there.

Undertaking these analyses may be critical to explaining why a good idea has come at the right time and in the right situation, so making „a good idea a good opportunity‟.

OFFER POSITIONING

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Knowing what is on offer now will be sound preparation for considering the „Zagula and Tong Market Plays‟ outlined in the later Gameplan chapter.

60

Does the existing industry stance re: the specialisation of their offerings and the degree of rivalry, lead you to how you want to enter the industry.

Evaluate business models.

MARKET POTENTIAL MARKET SIZE First off, you have to decide who your target market is. The parameters you can use to shape your market definition are covered in a Market chapter later in the book.

Market research will be available from government statistics, commercial reports and by inference from membership lists, readership figures, etc. This will give you the size of the potential customer base.

DIFFERENTIATION

COST OF CUSTOMER ACQUISITION How long, how much effort and so at what cost is it going to take to get a customer. And when they have become one, what repeat sales will you get from that customer?

PUSHING WATER UPHILL? If these factors are agin you, then you don‟t have a viable business model in the real world and you need to change or stop. .

You need to re-design your business model and innovation proposition. Or make the tough decision to regroup.

Your research on what competitors offer and how they offer it is the basis for you to decide if you can find a specialist position.

GROWING MARKET The standard and valid way of thinking is to enter a market that is growing and is likely to grow.

On the other hand, if an industry is mature and regulation or technology is changing the industry, then can you innovate a new business model to take advantage of the situation.

ACCESSIBLE MARKET – PART 2 Differentiate between the end user market and the buyer market.

There may be far fewer buyers than end users. E.g., in many countries, there are millions of food consumers but just a few supermarket enterprises to sell to.

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You also have to consider what resource you need to access the easily accessible market. And if the innovation product is blocked by the current buying behaviour, maybe you need to sell and design it to an existing player.

61

You may be able to sell to „second tier players‟ who want to differentiate themselves. Will you be able to progress on to the tougher market that has tight links with existing suppliers – this will be a judgment call on your part. It might even alter your channel to market, to license to existing players.

Evaluate business models.

Product specification is solely about the user product in terms of form, function and features and performance. Items to consider may fall into a 8 number of categories , such as those below, which are repeated from the Storyboard section.

MOSCOW PRIORITY Prioritising the specification elements can be done using the MoSCoW approach of „must have, should, could and will not have‟. It works well because it forces the choice of eliminating the stuff at the low end.

A good starting point for „hard‟ products is Ulrich and Eppinger, „Product Design and Development‟.

8

Storyboard Commentary node Design

User considerations: 

Physical – weight, considerations, etc.



Meeting legal, regulatory and other standards.



Performance.



Form and Style.



Ease of use.



Durability, flexibility, robustness, etc.



Architecture or configuration requirements.



Extensibility /add-ons possible.



Working environment (crosscheck to setting node).

noise,

visual

impact,

environmental

Own business considerations: 

Ease of manufacture, minimising waste or ensuring a wide range of suppliers.



Ease of maintenance or repair post-sale.



Designed for built-in Intellectual Property.



Compatibility with standards or other products.



Value Engineering – designing to meet the requirement at lowest cost.

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THE PRODUCT SPECIFICATION

Product Design considerations

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PRODUCT AND TECHNICAL SPECIFICATION

Evaluate business models.

Tabular checklist of business activity set up.

OTHER TECHNICAL SPECIFICATIONS

Product

 Form, design, features; are they all delivered.

Process

 Availability, throughput, maximum output, set up times, response time, etc.

Platform

 Choose your technical platform. Is it tested or new, is it specific or generic, does it offer you any advantage or disadvantage.

The CV 7P list here will act as a prompt. From this you should start designing your technical architecture.

This will be a big topic for your specific innovation business, but here CV needs to highlight what you need to think about generically.

 If physical assets are needed, are they big enough or too big.

Can you get enough, do you have alternative sources.

Performance

 What metrics are used to assess performance, be it productivity, sales results, material utilisation, financial, etc.  Is the performance metric the right one.

Policy

 What explicit regulations, policies or procedures are standard.  What Business Rules or procedures are in place that implement the policy. E.g. the policy is that Proof of Age is required, photo id only is valid as proof.

People

 Resourcing, skills, experience, authority, etc. that you are dependent upon.

Profit

 Value Engineering - can you do it cheaper / can you do it with less investment.  Does quality output support price point.  Are sales, maintenance and service costs minimised by the architecture.

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TECHNICAL ARCHITECTURE

Consideration

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Now work through your Proposition and your Value Flow Business model and identify anything that needs to have a standard, a capability, a performance level or any other parameter to be met.

Causeway 7P Parameter

Evaluate business models.

IDENTIFY TECHNICAL CONSTRAINTS

CAN YOU MAKE IT?

QUESTION TO ASK YOURSELF:

The reason for meeting suppliers now and creating a draft statement of how your innovation will be built is to get you to kill off any physically or financially non-viable ideas early on. That way you can get back on track with ideas you can actually build. It is part of your early assessment of Viability, under the item of „technically feasible‟.

‘Now is the time to work through your system and product to review where you have risks and assumptions.’

ACTION: ‘Don’t do a proof of concept for what the end user will see, but do a proof of concept for the challenging parts of the system.’

For example, I worked on a mobile phone proposition, which needed as input to the system real-time air flight data. This is freely available in the States with common formatting, but in Europe, it is available from different systems, country-by-country. We had a great SMS application but a serious problem with input data supply.

A process you can follow is:

1. Take the concept idea and update the outline specification, this phase.

2. Set out the main elements of a ‘BOM’ (the Bill of Materials, what goes into a product). Cost those elements.

3. Consider sourcing and constraints, e.g. scarcity, lead-time, order size, payment terms, etc.

4. Consider the production options. Consider this at different volume levels or different points in the business development.

5. Consider ‘value engineering’ - the process of designing out cost.

WHY DO THIS? TO IDENTIFY SUPPLY OR QUALITY ISSUES This task gets you to assess early on the availability of manufacturers or suppliers, their lead times, and most importantly the cost of manufacture (or creation).

In addition you need to check available capacity, to avoid the risk of going a long way to designing an innovation and then finding that it cannot be built easily or supplies are not available.

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RESPONSE:

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‘If your innovation were to fail after six months, what technical reasons are the most likely causes of failure’.

Evaluate business models.

OUTLINE PROTOTYPE AND PROOF OF CONCEPT OUTLINE PROTOTYPE

The requirements should be driven by the technical constraints identified not just the user experience (a common error).

The main drivers for an outline prototype

„Outline Prototyping‟ is anything that is simple but tangible.

It will have taken more time and effort than simple sketching to create but it is still a basic product.

Outline prototypes might include: 

Software generated design images.



Process flows.



Screen designs.



Block models.



Any diagrammatic model to show time, efficiency or effectiveness.

The outline prototype should be used to discuss the impact of the innovation business model on the customer. From a design perspective finding how it must perform in use will be prime.

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If technical depth is required, a deeper proof of concept might be commissioned.

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PROOF OF CONCEPT

Evaluate business models.

SELECTING A CHANNEL TO MARKET MODE

yourself or whether you need intermediaries.

CV presents here a way of working out an appropriate channel mix.

(Evaluating Partners is also covered in this section by the way.)

TERMINOLOGY

Once, you could talk of a direct channel where nobody got between you and the customer and indirect channels where somebody did. The web blurs all this so here CV sets out a context-based approach to work out which way to go.

WEB ROLE. In all cases, you then confirm the appropriate role of the web. „Channel to Market‟, „Route to Market‟, „Distribution Channel‟ are all pretty much the same. It is a description of how you get your proposition (product and service) to the customer and money back.

PHASED EVOLUTION. Note that what you do in your early days of start-up is likely to evolve as you get to your steady-state channel model. Importantly, your model might be heavily web-reliant but you will need a spark to light the web-fire and you will almost certainly have to promote with personal contact.

THE DECISION PATH

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That will lead you to one of four choices.

For one of them – „Close contact‟ you decide whether to do it

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The path is illustrated here. You consider two factors, the complexity of your innovation and secondly, how dispersed your customer base is.

Evaluate business models. 

SELECTING A CHANNEL MODE Consider two dimensions, as illustrated in the matrix:

How much investment does the customer need to make, relatively speaking.

1. Customers.



Their physical distribution.

2. Innovation complexity. 

How complex is adoption of your innovation.

A

CHANGING PROFILE FROM START-UP TO UP-ANDRUNNING BUSINESS

The approach will change with time. It is very likely that at first you will need to have a high element of „personal contact‟. To get business taking off you almost certainly will need to use personal selling modes at the start.

So, if you are both innovator and the initial sales force, consider: 

Targeting your effort in specific geographical regions, so you minimise travel time.



Using webinars to reach an audience with personal touch followed by personal visits to qualified leads.



Organizing group presentations in a locale; split the travel effort between you and the customer.

I learnt this lesson working on an inventive web proposition – we ended up doing a big movie screening on a beach to get 10,000 customers to sign up to the online media proposition.

Even a completely web-based business model required priming with an old-fashioned public event.

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How many customers there are.

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

Evaluate business models.

CLOSE CONTACT MODE This is appropriate when you score 

high on innovation complexity



And low on number and dispersion of customers.

It will be relevant when you face: 

A situation where „people need to speak for the product‟.



High need for product learning / explanation or for the customer to change their processes



Relatively high customer investment is needed for the innovation.

EXAMPLE: An example is the Dornier seaplane development http://www.dornierseaplane.com. You will want to see it, fly it, bargain the price.

The character of the Close Contact channel mode

The diagram below illustrates the probable elements of a Close Contact channel. At all points there is strong personal presence.

WEB ROLE The right-hand web role diagram indicates how that role may change as the business becomes established.

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The danger as you mature, is that the accountants drive for the web to be used to minimise costs. In so doing you lose the personal contact and customer knowledge that is critical to your business.

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At first, the web plays a relatively low role in a Personal Channel mode, but as the business matures and becomes better known, it can grow to become a key channel element.

The period involved will be a function of complexity and the size of the reference customer base; it will be shorter with low complexity and an expanding customer base, and vice versa.

Evaluate business models.

INTERMEDIARY OPTIONS Intermediary options will include:

At first, you may be doing the close, personal contact work yourself, but as you grow, you need to consider various intermediaries, either because the overhead per sale would be too much, you need to accelerate sales in the shortest timeframe, or local support is needed.

AGENTS

INTERMEDIARY SELECTION

ASSOCIATES / VALUE ADDED RESELLERS

These are effectively sales staff with territorial rights and sell on a commission basis (with a possible retainer) DISTRIBUTORS Distributors work like an agent but will usually invest and add local support and marketing.

In Close Contact mode your partners need to do more than just „be there‟. Considerations to make when you evaluate intermediaries will at least include:

A branded scheme where you recruit and appoint specialists to help the buyer and customer install and get the best out of the product, such as the Microsoft Valued Partner system.

1. The complexity of the sale and do they have the capability to do it.

(It must have worth. Early in my career, I worked for a computer peripherals company that sold though corner shops in every sizeable town. They had a „Gold – Silver – Bronze‟ scheme but just about everybody got a Gold sticker for their shop window. No vetting was happening, so no value added.)

3. Language requests or local business customisation.

OEMS

4. Pre- and after-sales support to the end customer.

You will sell to companies that make an end user product (an Original Equipment Manufacturer).

5. Technical and marketing support you will need to supply to the intermediary.

6. Storage needs.

7. Payment terms.

RETAIL Bricks and mortar shops, and their online operations too. This may be where the customer expects to buy, especially for new inventive products.

FRANCHISES

8. Exclusivity to be given to them, loyalty to be given to you (e.g., are they distributing for a competitor).

A franchisee invests capital in exchange for your investing capital in a national brand, support services, etc.

9. Intermediary commitment. Their motive can be in part to stop other agents getting the rights. They may also be a „brand hoarder‟, who will use your logo to emphasise their own worth. Set the agent targets for sales and the resource time they will give to your innovation.

LICENSEES The innovator agrees to an intermediary using the innovator‟s Intellectual Property in return for a royalty.

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2. The area /number of buyers they can access from their given location.

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CLOSE CONTACT – DO YOU DO IT OR USE CHANNEL INTERMEDIARIES

Evaluate business models.

DISTANT CONTACT MODE If you score low on innovation complexity / high on number of customers, your most likely path is using an Impersonal, distant contact mode.

This strategy is relevant when you have:

dominant form for communication and contact across all aspects of the Channel to Market.

The period for the web to become dominant will be a function of complexity and the size of your reference customer base; it will be shorter with low complexity and an expanding customer base, and vice versa.

1. A large potential number of buyers 2. Wide geographic dispersion of the buyers

Distant Contact Channel mode

3. Low need for product learning or for the customer to change their processes 4. Low (relatively) customer investment is needed for the innovation. „PRODUCT SPEAKS FOR ITSELF‟ Distant channel mode is right when the „product speaks for itself‟, i.e., the innovation needs little explanation or customisation, so you can sell simply to the customer.

You are likely to be selling a better commodity product to meet a known, existing need.

At all points the transaction is straightforward and based on fact or specification.

N.B. you may need to start with high, personal contact then shift ASAP to distant, impersonal mode.

An example here would be the room security lock from www.lifelock.co.uk or online greeting cards such as www.bluemountain.com.

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The web plays a relatively high role in a Distant Channel to Market. The web role can soon be grown, as the business matures and becomes better known, to be the

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WEB ROLE

Evaluate business models.

USE AFFILIATES When you: 

score low on both innovation complexity



and score low on the number and dispersion of potential customers,

You probably are in a situation where you have an incremental innovation selling to a mature market. Here you should be thinking about finding an affiliate with an existing infrastructure who can take your innovation on board and amortise costs across their portfolio of activity.

I have recently come across John Hinton, a local inventor who has come up with an interesting amphibious craft, utilising a readily available dinghy and a ride-on garden mower and his own ingenuity.

There are probably a few interested parties who have the complementary assets to make this a business.

John Hinton en route to his sailing boat in his ‘land tender’.

TEECE AND COMPLEMENTARY ASSETS



Selling your idea, giving you risk-free instant but probably low return.



Licensing the idea – possibly to more than one player. You take some risk and hope for a better return over the full life.



Forming a joint venture (JV) – a jointly owned company with commitment of resources from both parties.

The Teece analysis from the earlier Industry Analysis

If you are both : 

scoring high on both innovation complexity



scoring high on and the number and dispersion of potential customers, you have a major challenge.

Then this is a scenario requiring you to consume more and more resources to satisfy all your customers. This is extremely difficult to manage in the long run and almost impossible to consider as a start for an Innovation Business.

You need to break down your offer and channels to different segments and locations.

The recommended approach here is to go back to the Innovation Storyboard and segment your offering, by proposition, cost, market, support, etc. (See also the consideration of Zagula and Tong‟s Market Gameplay commentary below in this section.)

The „Freemium‟ Model is an example of such separation, where a low end product is self-standing and supporting, and the complex version is paid for and closely supported.

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If you are not capable or do not wish to create those assets, then you will consider:

SEPARATE AND SELECT

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In the industry analysis, reference was made to the Teece analysis that highlights the importance of complementary business assets, which may cover anything from procurement through production facilities to service.

Evaluate business models.

PARTNERS SUPPLIERS Suppliers are the businesses who will provide you with components, content, materials, information or people so that you can undertake your own business. It is hard to envisage a business without suppliers.

together unlock the market potential. „Partnership‟ implies longterm mutual inter-dependence between your innovation business and the partner, with significant benefits but risk if you later separate.

In approaching a partner, issues for you to consider are: 

Why would the partner want to work with your business.

In selecting a supplier, you should consider not just whether they sell the product, but also: 

The reputation for quality.



Supply lead times.



Order minimum quantities.



Discounts.



Payment terms.



Exit terms.



Ability to assist in developing your product.



Reliability.



Quality of product and consistency.



Management commitment to your account.



How important your business is to them.

Assessing a partner

Some of these will be contracted, some researched by references.

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„Partners‟ are businesses with which you lock together in mutual dependency. You will both bring to the agreement complementary products that

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PARTNERSHIPS

Evaluate business models. 

What assets and resources do they bring.



What IPR (Intellectual Property Rights) issues there may be.



How can you help them help your business.



Have their goals been stated clearly.



What (business) actions have been included to engender their loyalty.



Is their „loyalty‟ business or personality-based (if your contact moves on, will the partnership survive).



Who owns the customers and the contact with them.



What would be the anticipated exit conditions from the partnership.



Is the cash flow, investment, timing, risk and return equitable or is it skewed (and if in your favour are they not too bright, so should you work with them).

ALLIANCES & TRADE BODY DEVELOPMENT Alliance forming is the art of finding those bodies who will be cheerleaders for your business i.e. who will promote and support your innovation business. For example, an entrepreneur in Houston, Texas, who was developing a visitor‟s tour to the City, formed alliances with local conference centres and hotels. She gained both their knowledge and support.

(I use the past tense „was‟ as she found she had a great proposition, but not a viable business.)

Does the supplier value you?

I held a business meeting with a specialist European electrical engineering supplier. The first topic raised was that it was difficult to get a response from the supplier by phone, email or other routes, which was holding up my business.

The supplier was absolutely adamant that could not be the case. I was managing a business turnaround and was looking to put momentum into the business.

The decision to start looking for a new supplier was made by the time I had reached my car in the visitor‟s car park, even though it might mean some short-term pain.

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A frequent „first port of call‟ source of support is speaking to journalists at the relevant trade press. At the risk of sounding cynical, this support may be achieved through provision of a good lunch. Less cynically, the press will always be looking for good stories on particular topics that are popular at the moment.

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For those with technical innovations, forming alliances with user groups or conference organisers for speaking engagements will prove beneficial.

Evaluate business models.

A VIABLE BUSINESS THE ‘SOAR’ BUSINESS PITCH – DEVELOP IT NOW First off, create your first attempt at a „SOAR pitch‟ („Solution offered , Operations, Assets and Returns‟). You will refine it as you go.

DETAIL The explanation of the Viability Board checks are in „How to … do commercial reality check‟.

The Viability Board and ‘A Viable Innovation Business’

The audience for your SOAR pitch is an investor (the PERSONA pitch is for the buyer).

All but the „Returns‟ should be clear.

Returns should be at a scale level only.

The

If your idea cannot be expressed simply in SOAR format, you probably have: i)

Too complex a business idea.

ii)

One that cannot be pitched easily to an investor. Try it out on somebody you respect before going public.

VIABLE INNOVATION BUSINESS - BOARD REVIEW

In essence: is your business model 0.1 not only sane but also doable, is it technically feasible, do you have not just a market but an accessible market. Again, the topics are covered in depth in the Viability chapter.

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You should now have your own commercial ‟litmus test‟, i.e. core indicator, of your likely proposition and business model viability. The next phase is to work out the full financial case of your business gameplan.

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LITMUS TEST

Evaluate business models.

WHAT TO BE UPDATING Node Evaluate Viability, likely updates… &

The Causeway Innovation Storyboard.

 Proposition.  Sales

First cut view of:  Accessible market segments including volumes.

First cut view of:  Assets, Resources.  Partners.  Business Activities to match your Exchange model.

Scale statement of number of customers to breakeven (10, 100, 1000, etc.). How doable is this?

Updated design elements to support proposition or change criteria.

 Operations

 Financial  Product  Competition Industry.

 Gameplan

Who is providing products or services in the domain of your innovation. What is the industry structure.

How closely allied with competitors are your intended customers.

Assessment of Customer Proposition and Business Viability.

Initial assessment of any roadblocks for Investment.

Document and configure your Business Model 0.1.

 Pitch

Your first attempt at a SOAR pitch.

 Viability At the end of this stage, you should have a good outline view, ready to assess the financial case.

Profiles of own customer‟s suppliers, distributors and operations managers plus own operations profiles.

Consider:  Activity, responsibilities, location, policies, performance or expectations affecting them, skills, etc.

Update impacts, change criteria and change products for new Innovation Players.

&

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 People Community.

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UPDATE YOUR INNOVATION STORYBOARD

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PHASE FOUR ESTABLISH A BUSINESS GAMEPLAN

Establish a business gameplan.

ESTABLISH A BUSINESS GAMEPLAN HOW YOU WILL BUILD THE BUSINESS & DEVELOP CUSTOMERS The phase activities You have the outline of a workable business model. Now build that structure into a spreadsheet and assess its financial potential. Check the prime financial metrics of your case.

Add in the operations and asset details. Decide how you will test your customer commitment, with an EVO and a Foothold Market („FHM‟).

ACTIVITIES Update your business model 0.1 with a financial analysis to create version 0.2.



Take a timeline view, and set out how you will develop the business‟ operations and assets and how you will build a customer base.



Thoroughly check the balance of sales, revenue, costs and resources.



Shape the Earliest Viable Offer design, to take to your foothold market.



Set out the benchmark metrics you need to achieve in sales, operations and financial performance.

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

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The activities in this phase are:

Establish a business gameplan.

SALES ENGINE DRIVING YOUR BUSINESS

BOTTOM-UP APPROACH. A bottom-up approach starts with the resources you have and then deciding what sales you can get. (A top-down approach starts with the market size and, by application of magic, assumes a percentage will buy in a given period.)

In the earlier CV overview the advice was: „Right from the start, think like a salesperson. What are the objections to changing, what will assist the change.

So, to calculate the number of sales, you take the following bottom-up approach: 1. Decide the total sales resources you have available.

All the work to date has been driven by shaping an innovation that has a good chance of being sold.

2. Decide the conversion rate from lead to sale.

SALES PLAN

3. Calculate in a given period, e.g. a quarter of year, what sales you will make.

Sales is a numbers game and, obviously, getting more sales means more revenue means business. These are the prime sales metrics to consider:

The time to get the first customer might be frightening. The time to get to breakeven likewise. That is why the EVO to a Foothold Market is so important.

It focuses on driving revenues as soon as possible, as well as testing the innovation viability.

THE ROLE OF ‘MARKETING’ IN MARKETING & SALES



How many contacts, with what conversion rate, are needed to gain desired number of customers.



What effort to make a sale (visits and days).



What is the cost of acquisition per individual sale.



Create a clear message, but the focus is to engage customers.



What is the average lead-time to make each sale.



Find triallists, early customers, track feedback.



What is the value of a sale.



Create and rehearse the stories to tell customers.



What margin /financial contribution will come from a sale.





What discount do you anticipate for volume sales.

Find the most efficient sales engine converters that turn effort into revenue.



How many sales are needed to make the breakeven point.



How many sales per customer; is it one sale per customer or is there a repeat sale to a customer.

Marketing is not about cool communications but winning customers. So the role is:

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SALES METRICS

THE ROLE OF THE EVO.

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Now, the task is to define how you are going to make those sales. This should be an action-oriented statement with input energy and output customers. The term „Sales Engine‟ reflects the active work being done.

Establish a business gameplan.

THE INNOVATION BUSINESS HOME PAGE USE A SIMPLE MESSAGE

What is often missed with website design for innovations are two points:

1. Everything gets thrown on the home page and the message gets lost (see Dornier below).

2. The role of the website for a start-up may evolve as reputation and sales grow.

MOST

WEBSITE DEVELOPERS ARE NOT USED TO THE START-UP CULTURE

PERSONA BRIEFING. For an Innovation Business trying to sell something new you should be very clear on your homepage what it is. The PERSONA aide-memoire for your pitch is 100% relevant here.

Your website should cover each of the 7 points in the mnemonic. (This does not mean that each node is a paragraph or node on your webpage of course.)

THE SOAR BRIEFING If you are investing you want to know how the business will be run. If your pitch is a B2B sale then your customers may also want to know how your business will support theirs over the lifetime of the product or service.

The Solution, Operations and Assets may be relevant elements to introduce from the SOAR business pitch, though not your own business returns.

Why does clarity fly out of the window when your website is assembled? This actually is an easy one to answer.

The web developer working with you is almost certainly used to building sites for established companies and businesses, so that is what the type of website they will create for you.

They will play with visual design and using the latest web technical tools. Say „stop‟ now.

BRIEF YOUR DEVELOPER THAT THE INNOVATION MESSAGE IS PRIME. You need to brief any web designer working on your behalf with the essentials of your proposition.

You are an innovation business and the potential customer has to grasp: 1. The potential of your offer.

Fortunately, you already have the brief in the form of your Causeway PERSONA and SOAR pitches.

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3. How to switch and adopt.

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2. The nature of it.

Establish a business gameplan.

EXAMPLE WEB PAGES DORNIER SEAPLANE You know from the picture what Dornier Seaplane are selling – a small seaplane. After that the message is unclear (the design is inconsistent too).



It is highly likely that you want to highlight potential market segments and uses.



A call to action should be prominent (see Giffgaff below).

It would appear they have a very well designed product and the buyers are likely to be air industry experts who can see immediately where the product may fit in.

But why make the user assemble the case by scanning the web front page9. Sell the features and benefits prominently! The point is that your customers don‟t know the intricacies of your innovation, so you need to communicate clearly and succinctly.

So, if you are likely to be a buyer the qualifying facts you want are there in the „Welcome‟. They could be a lot clearer; why the history video taking so much room, why the double reference to the brochure?

After the performance facts, the PERSONA approach could lead to two pitches: 

“For the local commuter airline it offers 12 seat versatility….”



“For logistics managers managing remote supplies, amphibious qualities….”

the

INSTANT CLARITY The seaplane is a distinctive product and the investment probably allows for smart websites. However, the Dornier site makes some useful points for those with lesser budgets.

Your home page must communicate clearly and quickly.



For an innovation you must highlight how you have made change easy for the customer.

9

I‟m nerdy enough to read it and use it for this book.

Dornier home page (August 2011)

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

Establish a business gameplan.

A WEBSITE DIRECT CALL TO ACTION

A ‘DAY IN THE LIFE’ APPROACH

Giffgaff‟s website on the other hand focuses on calls to action; leave your network, come to us by ordering a free SIM. (Which obviously means the target market now knows what „SIM‟ is.)

The Evernote takes a „Day in the Life‟ approach.

The goal is to remember everything, how you do it, where you can do it, and the assessment metric they use is „fast‟.

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Admittedly, this is a commodity product compared to the Dornier Seaplane, but this is a refreshingly direct in what it wants you to know

Establish a business gameplan.

MARKET PLAY ACCORDING TO ZAGULA AND TONG

you can then consider taking on established bigger players who probably did not worry about you until now.

Account your competitors‟ reaction to your arrival. Zagula and Tong 10 have characterised five different ways of going after the Target Audience. The two considerations behind the five paths are the nature of the innovation product and the strength of the competition.

BEST-OF-BOTH

Their work shows that you should consider how aggressive or low-key you wish to be at launch. It is worth noting that Zagula and Tong arrived at their views based on developing products for Microsoft. Microsoft, it is safe to say, has both major resources and major competitors of course; however, the observations are worthy of consideration whatever the scale of your innovation.

DRAG RACE The market approach of head-on challenge to an existing player, because your innovation is so superior. „Drag Race‟ refers to a head-on test of muscle power; choosing this play you are setting out that your innovation is better than the rest. You will probably need ample resources to pull this off; it is putting your tanks on your competitor‟s doorstep.

PLATFORM

If the customer is faced with two alternatives at present then you set out to provide an offering that gives the best of each offering that the existing players offer. It does not mean that you have to offer everything that the competitors offer.

Airline „economy plus‟ seating is an example of such a play. You get some of the space and exclusivity of high-end seating but with the service level of economy travel.

HIGH-LOW Somewhat of the opposite of „best-of-both‟, where variants of the product are designed to satisfy the differing needs of those segments. The implication is that they have to make do with one sub-optimal product at present. „Executive‟ business jets would be an example of a „high‟ positioning versus scheduled air flights.

Providing a platform product on which other people can add and extend your own product‟s value. You are setting out to create an industry, or „business ecosystem‟ around your product. This makes your product more compelling and makes it harder for a later switching away by the customer. At the time of writing, this is the game being played out between the Apple iPhone, its „apps‟ add-ons and the competition are trying to catch up.

STEALTH

The Marketing Playbook, 2004.

Zagula and Tong’s market entry gameplays.

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10

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Finding where existing players have weak points and then taking the gameplan of working in a corner, niche market. Once you have gained credibility there,

Establish a business gameplan.

THE ‘MARCOMMS’ PLAN SETTING UP TRIALS

BUILDING YOUR MARCOMMS PACKAGE.

This is an Innovation Business; the critical task for marketing staff early on is find triallists for the Evolve and Validate phase. Then they manage the trials, capture the feedback, write case studies, summarise the benefits delivered, write the training guides, etc.

The minimum you are likely to need is a website, a product overview and a technical sheet. Here are things you should consider and discuss to drive your marketing communications plan:

BASIC MARKETING MATERIALS



The target segments or players.



What is to be done and achieved with each segment or player.



The message.

THE STORYBOARD



The medium to be used.

The communications people you use will want to know the product details, benefits, target customers, market segments, price, etc. Your Innovation Storyboard will enable to you to give a comprehensive brief to the MarComms people.



The „call to action‟ and the response mechanism.



The product to be delivered and its benefits.



How is it ordered.



How adoption requirements are answered.



The schedule and costs of this communications work.

In Marketing Communications („MarComms‟) communicate what is on offer, the benefit and how to change. You will need basic marketing materials for the Evolve and Validate phase.

Marketing Communications ‘explained’

HERE LIE DRAGONS11 For those new to marketing communications work, beware. It can consume more of your time than appears warranted because emotional attachment emerges. Emotions emerge because this is a public expression of your innovation and so every word, every colour and every picture is argued over.

Remember who is paying for these conversations.

Source: „Traditional‟.

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Well, marketing communications anyway…

11

An expression found on unknown areas on mediaeval maps – „traveller beware‟.

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If the circus is coming to town and you paint a sign saying, "Circus is coming to Fairground, Sunday," that's advertising. If you put the sign on the back of an elephant and walk him through town, that's a promotion. If the elephant walks through the Mayor's flowerbed, that's publicity. If you can get the Mayor to laugh about it, that's public relations. And, if you planned the whole thing, that's marketing!

Establish a business gameplan.

BRAND There is plenty on the web about what „Brand‟ is but Paul Thwaites has written an 12 actionable description .

Concisely, his perspective can be put as:



What is your business purpose, in terms that the customer would notice.



What are the values customers would experience when they encounter it e.g. trusted, 13 authoritative, fun, etc. .



What is the tone and style that will be expressed: o

In words – taglines, phrasing, etc..

o

Visually – colours, fonts, etc.

THE ROLE OF THE EVO You cannot ignore the Brand material, highlighted here in the matrix, in setting up your EVO.

12 13

Paul Thwaites now works at www.anotherindustrie.com.

A good list is available from: janebuswell@businessfulcrum.co.uk.

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Paul Thwaites, anotherindustrie.com, on brand.

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The EVO though should also help you decide your brand facets for full launch in the Expansion phase. So go easy now.

Establish a business gameplan.

ACTIVITIES AND ASSETS WHERE DO YOU START? Even those who have built products before forget something in operations (like the mobile payments team who forgot fraud prevention (no, it isn‟t made up)).

Here is a methodical way of building your operations portfolio.

So, for each Innovation Player check that you have noted the products you have to supply them with. Go back to your Change Criteria list and check you have all the Change Products identified.

VALUE PROPOSITION The whole purpose of your innovation work is the Innovation Proposition. Review that it does all it is supposed to do, because what follows is the major process of specifying

Use knowledge previously built to specificy operations and assets.

BACKBONE - SUPPLIES, PRODUCTION, DELIVERY, SERVICE AND GETTING PAID. There is a backbone of business activity you will need; if the following aren‟t included, something is probably missing: 

Procure your supplies.



Make the product.



Sell it.



Deliver it.



Invoice for it – this strangely is one that is often not thought about.



Get paid and pay people.



Deal with service issues.

That is your core business. Anything else is to make that happen or is a necessary overhead.

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You have your list of Innovation Players. Each by definition of being an Innovation Player must have a need - be it hard product or something as soft as „reassurance‟ - for a product or service.

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INNOVATION PLAYERS

Establish a business gameplan. demonstration, certification, etc.



Specify the activity / activities to supply the Proposition (you should be building on your Business Model 0.1).

The Player Journey was introduced in the Explore Change section. The reasonably selfexplanatory diagram is repeated below.



Be clear about what activity will be in place to count what you are billing for and you have an invoicing mechanism.

PRODUCTS AND OUTPUTS At each contact point in the Player Journey, you need to state the:

ANALYSE THE PLAYER JOURNEYS



Products, services or outputs you will need to create and provide.

You have identified your Innovation Players and the intended interaction across the Player Journey for each of them.



The inputs they will provide.



Cost assessment.



Qualitative and performance demanded or to be offered (which affects the operations spec).

The Innovation Player Journey

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Now work out what operations are needed to provide the products or services at each touch point, e.g., sales

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operations to manufacture or supply that proposition:

Establish a business gameplan.

CREATING THE INNOVATION BUSINESS ACTIVITY LIST Collate the data from the four threads – backbone activity, innovation players, value proposition, player journeys - and ensure there is an activity or more detailed operation to create the necessary product or service.



Activities to manage contracts



Pay or request payment activities and debt management.



Reporting on performance against targets – Management reporting is often overlooked.



Identify support & control activities including debt management, recruitment, etc.

HOW COULD THE BUSINESS GO OFF THE RAILS? Consider what could go wrong, including fraud. Decide what activities you need, that get the data, that let you know what is happening in your innovation business.

The diagram below illustrates the need to ensure that there is an activity to produce the products or services to satisfy every Innovation Player.

WHY DO ALL THIS, CAN’T IT WAIT UNTIL PRODUCT BUILD?

ADD IN INTERNAL ACTIVITIES

The reason for doing this is simple; each activity costs and you want to find out what your total costs are going to be, otherwise you will have cash-flow problems from the start.

Furthermore, development will even more stressful, as unidentified needs keep being discovered.

The outward facing activities that handle the product and service, needed to be backed off to internal ones: 

Add in any internal operations, e.g. management, resource supply management.



Add in support or development activities .e.g., staff recruitment.

inventory

MANAGING Now you have got the backbone of the business sorted, you can turn your attention to managing quality, performance and legalities. 

Think about quality control of the input from or the output to the player.

And, of course, if you have an activity missing you will not be able to keep all innovation players happy, which is shooting yourself in your commercial foot.

ASSETS AND RESOURCES With a comprehensive view of what operations you will need, you can move on to research what assets and resources you will need to allow them to happen.

Assets and Resources is a node in the Storyboard Operations box.

CAPACITY Don‟t just consider the what, but consider the capacity and if the resource is out-sourced, how quickly can you turn it and off? (This flexibility consideration you will have seen as a cloud computing sale point.)

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Activity volume and frequency – to determine the asset capacity.

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

Establish a business gameplan.

You also need to remember that the capacity required includes cyclical demands.



Quantity (or specific location, etc.) of resources and assets needed.



Type of facilities needed:

STAFF



Location requirements needed - physical, style, location, availability / service provision, security, etc.



Resilience to demand fluctuations, up and down



Resource availability.



Skill dependency.



Lead time, MOQs placed on you (Minimum Order Quantity).



Delivery time to offer to a customer; is it satisfactory.



What MOQ will you set.



Who is responsible for managing each activity.



What staff levels will each operation take and / or what productivity level will each have.



What skillset, experience or qualifications do you expect each of them to have.



Can you contract the skill or service at a low cost.



Most importantly, what the staff costs are likely to be.

COSTS AND METRICS You need to go to a level that you can use to estimate costs and estimate the metrics as follows:



The capacity of each asset.



Number of asset type.



The utilisation of each asset.



What output /performance levels.



What response times/ service levels required.



What cyclic variations in volumes are anticipated.



What specific locations or facilities.

INFRASTRUCTURE For each of the activities you should now consider what infrastructure you will need and what the associated costs are.

Infrastructure may include: INFRASTRUCTURE CONSIDERATIONS Physical facilities

Computing systems

Energy supplies

Input reference data

Material or content supplies

Development, test facilities

Management controls e.g., financial controls, performance reporting, etc.

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Set out the following:

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Each activity will be associated with a person, both operationally and in a managerial capacity.

Establish a business gameplan.

Build a Demonstration Prototype, one that has some substance and interactivity. It should be tangible, but it may still have a lack of sophistication.

The aim is to explore whether all contacts - user, buyer, accountant and authoriser - buy in to the innovation.

Progressive prototyping

Widen your interview group and talk to people other than the customer and buyer. Every additional piece of player knowledge reduces your innovation risk.

ROLES IN THIS PHASE BUSINESS EXPLORATION Present the user-facing part of the storyboard, the exchange model and a demonstration prototype to illustrate the benefits. You want to establish the following commercial points (as listed in the „Sahlman‟ check questions at the end of the Viability section):  How you acquire a customer. Confirm the buying process and cycle time.  What support the customer expects. This is confirming the Change Products e.g. maintenance, training, data validation, etc. You also need to establish how much and how they are paying for it now.  How easy it will be to retain the customer.

This assessment will be driven by how closely it matches needs, a view on the „needs met per dollar‟ („bangs for the buck‟) and how integrated your innovation will become in the customer organization.

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DEMONSTRATION PROTOTYPING

WHOM TO INVOLVE

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DEMONSTRATION PROTOTYPE

Establish a business gameplan.

DESIGN EXPLORATION

TECHNOLOGY EXPLORATION

According to your situation, tools you might utilise to explore design include:

You are still erring on the side of caution and avoiding technology led debate – unless you have a technology you are seeking a use for. Use this period to establish high-priority, must-have functions.

 Virtual modelling – using materials or CAD software, or 3D software.

14 Illustrated is a proposed building development using Google‟s basic – and free - Sketch Up software. (Good old freemium model!)  Physical modelling to show size and form, etc.  Process modelling - using simulation software or simple flowcharts and storyboards.  Software interactions – using interactive system screens (such as basic output from MS Sketchflow or equivalent)  Other tools such as outline marketing literature, tables of contents in brochures, modified existing products, dramatic presentations, etc.

A still of an interactive 3D SketchUp model of a building proposal – 30h work for a 30 sec demo.

Market information from engineering prototyping

14

With thanks to Antony Proudman, IBM computer memory pioneer.

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However the first discussion had not uncovered a particular plant‟s variation on the core requirement. The relatively low investment had uncovered a wider market than had been anticipated, which we only got from committing to the demonstration prototype, but we only did the prototype because of the stated need.

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I used the approach of a demonstration prototype for a welder development for the nuclear waste industry. We had a discussion with maintenance engineers took place at a trade show (you don‟t get on-site here!). This led to a rough but working prototype, which demonstrated inventive welding technology in action.

Establish a business gameplan.

LEAN BUSINESS



The EVO is defined as the simplest operational product that an audience (of some relevance) will use and get some benefit from.



The EVO is preferably a commercial offering but it should at least be a usable proposition to get live operational feedback.



It has many useful values as set out in the earlier overview section, which cover technical, development, customer, marketing and financial benefits.

WHAT LEAN BUSINESS IS „Lean Business‟ really follows the old computing adage of „K.I.S.S.‟ – keep it simple stupid, but applied to getting to market. Avoid bloated development like the proverbial plague!

A Lean Business approach is predicated on: 1. Finding a Foothold Market.

2. Building an Early Viable Offer 3. Simplifying the technical and business architectures.

An Early Viable Offer is driven by getting to market Until now, CV has encouraged you to think broadly on what the target business will look like (with your consideration of the Configuration business model, the proposition and the full change product set).

Now you need to narrow down. You need to converge on what you can get to market that has value but doing it with the least resources.

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The purpose and nature of the EVO approach was set out in the Working Practices section at the front of this book.

To repeat that commentary here:

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LEAN BUSINESS - EARLY VIABLE OFFER

Establish a business gameplan.

LEAN BUSINESS - A FOOTHOLD MARKET The Foothold Market („FHM‟) is a group of customers that will take an elementary, basic product from you and do so early on in your business. They are people you believe you can reach early to get involved in both trials and early purchases.

The FHM people should work with you and give you feedback during development and early sales. You are likely to have some existing relationship or can build one quickly. They will co-develop with you by using and validating your product (though you do all the grunt work). A Foothold Market may need a lot of support effort from you. The level of support you need to give to your foothold market is probably untenable for your sustainable, long-term business model.

The FHM is a group of customers:

1. For whom your innovation has compelling appeal.

2. Who will be willing to utilise a viable, core product.

3. Share common working environments and buying behaviours.

4. Will share their experiences and reference each other in buying decisions.

5. Can make a decision quickly.

Buyers in corporate environments often don‟t match these criteria (see panel below). A foothold market does not necessarily exclude corporates, but their buying behaviour may lead to exclusion. You don‟t stop work on the big opportunity, but ensure there is an early foothold one to generate revenue and experience.

A technical innovation needing market proving

A US technology company had been talking to a major European mobile network and broadband operator about a new device-todevice networking tool. It would. e.g., enable laptops to link directly by wireless to any local printer (by analogy see www.wifi.org, „WiFi Direct‟). After a year or so, commercial discussion ended.

A foothold market approach would have made sense in that year, tackling e.g. universities or media agencies where the buyer and user are tightly linked. These „tight user group‟ customers would more easily adopt the product and provide enough end users to give market learning, credibility and signal of company reliability.

The attention of a leading, high volume customer is good news.

However, they may be on a routine opportunity trawl and getting the non-technical people motivated without sales is challenging.

6. Are able to switch easily and quickly.

HOW MANY CUSTOMERS There may be just a handful of them for a Lean Business launch.

FOOTHOLD AND BEACHHEAD MARKETS – A SHORT DETOUR In Moore‟s „Crossing the Chasm‟ he uses the term „Beachhead Market‟ as the mainstream group where you establish a reputation; it requires a „whole product set‟. The Foothold Market is any early group who will work with you to develop the product, but are still driven by gaining commercial benefit from it.

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8. Will substantially prove the worth of your design (or not), including change products.

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7. Can be reached efficiently with available sales resources.

Establish a business gameplan.

LEAN BUSINESS – LOW RESOURCE APPROACH AND SIMPLE TECHNOLOGY In this phase, CV has steered you to consider the viability of your innovation proposition, consider a business model to deliver it to a chosen market and identify a foothold market you could get some early revenue from. All of which, hopefully, looks good on paper.

The traditional approach now would be to write a Business Plan submission and seek full funding. That approach is asking your investor to back your assumptions with a significant amount of money.

The Lean Business ethic finalises the EVO and FHM approaches with a simple approach to resources and technology.

WHAT CAN YOU DO EARLY ON? The questions to ask now are: 

What is the simplest technology you could deploy; ask what bells and whistles define the innovation or merely enhance it.



What have you got available, be it skills, time, materials or contacts.



What could you do with what you have.



What are you still short of to create a minimal product or demonstrator; conversely, can you re-define what the minimum is (see the panel here).



What partnerships or alliances could you leverage to make it happen.



What is the minimum you could do with some investment.

A capital-intensive innovation needing market proving GET OUT AND DO IT

An innovator had (and believe still has) in mind an inventive boat storage product and was looking for government grants to build it. This is a capital-intensive product that needs some start-up capital other than sweat and toil. The government grant money has not been forthcoming and they were not progressing.

If you are feeling blocked, reflect on the mix of: what you can do now, whom you could sell to, how could your trial the innovation, what resources could you beg, steal or borrow, what equity could you swap for risk, whom could you partner with to make it happen?

Think laterally.

II) III)

3D visualisation software model to demonstrate the product in use.

A scale mechanical version.

Equity investment from a lead marine services customer, to catalyse other equity.

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I)

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There were three things they could have considered:

Establish a business gameplan.

FINANCIAL MODELLING BUILD FROM CV ACQUIRED KNOWLEDGE As the entrepreneurial innovator you will need to know the following about your business: 1. Gross margin; the margin needs to be sufficiently large to cover inevitable weak times.

It will also – it must- reflect your business model. This is why you leave the heavy-duty number crunching until last.

THE BALANCE SHEET AND INCOME STATEMENT The balance sheet states at a given moment what and how money is tied up in the business. The Income Statement (or Profit and Loss) covers a period, and lists the revenue generated and the costs incurred - on an accrual basis for a given period. What is left over is operating profit.

2. Sales volumes; these should be realistic, growing and driving substantial profits.

3. Marketing and sales resources and costs; these should in line with creating the sales volumes.

BUILDING THE CASH FLOW STATEMENT

4. Time to Breakeven; how long is it before you start generating surplus cash.

The Cash Flow statement is set out period-by-period (e.g. quarter-byquarter), showing what money is actually coming in and what is going out in the same period.

5. Investment needed; how much do you need and for how long.

The Cashflow should show what sales volumes are driving what revenues, what the fixed and variable costs are and what working capital is needed.

In truth, you will need an accountant familiar with doing the numbers and with local knowledge of tax regimes, etc., to finalise your analysis. But you must know how the analysis was built.

There are plenty of sources of financial advice and packages, so what is concentrated on here is how your financial analysis springs from all your previous CV work; you are not guessing the figures you are projecting from the customer and market knowledge you have built up.

Calculating accounts receivable debtors and inventory considerations, which tie up money in running the business, will take you a long way to knowing your working capital.

The following is a rational, systematic approach to building your Cash Flow 15 that utilises the data and knowledge you have already built up by following the CV approach.

This section reflects the work of James Stancill, „How much money does your new venture need?‟, HBR, May – June 1986.

15

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The temporal aspect of the finance spreadsheet should reflect the build sequence of modules, trials and an Early Viable Offer.

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REFLECT YOUR GAMEPLAN AND YOUR BUSINESS MODEL

Establish a business gameplan.

REVENUE – OPERATING INFLOWS

COSTS - OPERATING OUTFLOWS

Simply put, calculating sales price for a given product multiplied by volume from a given segment.

COST OF GOODS SOLD

MARKET SEGMENTS The start point for calculating the revenue is to take each market segment in turn.

In estimating your sales, remember to differentiate between the number of sales intermediaries you can sell to and the number of end user revenuegenerating actions; use the latter for revenue, the former for business viability.

SALES CYCLES AND SALES ENGINE OUTPUT

This is the cost of making one instance of your product. This will be determined from the product specification and the supplier quotes.

Remember, costs in the cash flow occur in advance of sales and so even further in advance of payment.

The reason software developments can be attractive is that once you have spent a large amount in developing it the cost to provide one instance of the software can be very low. The key to business success is then shifting volumes of the software, as the gross margins are usually good; which is why

Your knowledge of buying behaviour, especially buying cycles or lead times, should give you an idea of when sales might occur across the year.

The next factor to consider is how efficient the size of your „sales engine‟ is.

For example, if you have two sales people selling direct, making 10 calls a day with 20% conversion rate, you are only going to get four sales a day.

Three aspects of sales to be careful of are i) being over-optimistic on the conversion rate, ii) assuming the early conversion rate is as good as later on and iii) having a sales achieved figure which is out of scale with the resources and lead times involved.

“Working capital (assets available for use in the production of further assets)” [wordnetweb.princeton.edu] Accounts receivable, the money people owe you, is one form of working capital, which is effectively money borrowed from you by your customers until they pay up. Inventory is another type, this being the stock you have at hand to meet delivery times, waiting to be shipped or part-made.

DISCOUNTS

Lag the date the money comes in behind the date of actual sale. It may well lag across periods after the sale, so say 80% in the contracted payment period (e.g. within one month of invoicing) and 20% afterwards.

Some allowance for writing off defaulters‟ debts, from not paying, should be made.

The more successful you are, the more money you will have tied up in product being made and inventory waiting to go. Your working capital needs will thus increase in line with your success.

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WHEN THE MONEY COMES IN

If you have money tied up in working capital it cannot be put in the bank to earn interest or be put to use to make more money. It is locked up money. You need some to keep your business running but you want as little as possible. The „lean thinking‟ approach to manufacturing seeks to take out part-worked products because they equal tied-up money.

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Assess whether your model is too simple and you have to allow for sales volume discounts; at least consider some part of your sales will get 10-15% off for volume.

Establish a business gameplan.

To the cost accountant, the cost to make a product includes an element of the infrastructure or cost of the asset used to make the goods. It may also include an element of „depreciation‟, the allocated cost of using an item to do something, e.g. you might allocate 1/3rd of the cost of a PC over its 3-year lifetime to doing business, so capturing a reflection of the business costs in each year.

How and with when you will need to pay (and reclaim) sales taxes / value added taxes, staff salary taxes (including health plans) and profit taxes will be best advised by an accountant with trade and local jurisdiction knowledge.

This might sound like a „cop-out‟ here but it is the way to go.

COMMITTED PRIORITY OUTFLOWS These are the items you must pay as you have committed to doing so.

These are best thought of payments to your financial debtors and investors.

OPTIONAL PRIORITY OUTFLOWS

Why do you need to know this? When you do a cashflow these costs should not be included, as they don‟t represent actual movements of cash (as buying the PC does). They do represent the true cost per unit of product and so allow e.g., comparing different ways of making a product.

These are the items which you can choose how, when and, to a lesser extent, whether to do. For example you can decide to hire faster machinery or not, etc.

MARKETING AND SALES EXPENSES

If you now find that your costs are acceptable, re-visit that assumption as you should find any way possible to remove costs, delay costs or take-on less risky financial commitments. If they are not yet acceptable, do the same thing.

In US terminology this is the „S‟ in SG&A, the sales, general and administration costs. You put here your marketing costs plus your costs of salaries and travel directly linked to sales work. However, remember not to duplicate these specific sales items in the General Administration cost calculations (below).

RE-VISIT YOUR BUSINESS MODEL

NET OPERATING CASH FLOW The summation of these in and outflows in each period.

GENERAL AND ADMINISTRATION EXPENSES

PRODUCT GROSS MARGIN

This covers exactly what it says. Combined with the Marketing and Sales expenses, this covers all the everyday money needed to keep the business ticking over (other than making stuff). Consider office costs, phone costs, utilities, etc. Some will be periodic, e.g. lighting bills. Some will be semivariable e.g. a step up in the total salary expense when a new staff member arrives.

This is not part of the cash flow statement. However, if the gross margin – sales price less cost of the product to make – is too low, you are not generating enough cash to cover any bad patches in the business in early days. The thinner it is too, the longer it will take to reach breakeven point.

Remember that you will have to pay some outsiders, including the accountant and quite likely other advisors. (Third Coast Consultancy will be a very wise move I am sure.)

INVESTMENT – TO COVER CASH FLOW The approach above will allow you to calculate the money you will need until you become cash flow positive, the point at which your incomings are greater than your outgoings. Simply, it is the sum of the negative amounts after start up.

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How much does it take to make a product and how does that relate to cash flow?

TAX

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it is so attractive.

Establish a business gameplan.

WORKING CAPITAL WORKING CAPITAL â&#x20AC;&#x201C; ACCOUNTS RECEIVABLE Whilst you are waiting for your customers to pay you, you have money tied up in the goods you have supplied.

This is one element of working capital to consider.

For example, following:

let

us

assume

the

1) You offer terms of payment within 30 days.

2) 90% of customers pay within that 30 day period, the remainder (10%) pay within the next 30 days.

3) For simplicity all sales made in a month are still debtors at the end of that month, i.e., they donâ&#x20AC;&#x;t pay you.

The table below illustrates how your working capital builds up incrementally as your sales increase. So, for example, sales were $84k in month 2 of which $75.6k got paid in the next month and the remainder (10%) got paid in month 4.

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As you can see your business here has a big increase in working capital due to sales after your first month. With rising sales though there is a more gradual increase in this working capital thereafter.

Establish a business gameplan.

1) You need to hold inventory for the next two months production of forecast sales (extravagant for sure).

2) You make the end product for the next month from existing inventory.

3) Your stock left over should equal your forecast for two months out – the carried forward inventory from month 1 to the start of month 2

4) You then buy additional stock to cover the month after next – you buy in month 2 what you need in month 4.

5) Your running working capital tied up is that due to the stock carried forward plus the additional purchase you make. This is shown in the graph below.

OTHER WORKING CAPITAL Working capital will be needed to be added in for e.g., staff salaries.

Unfortunately there is no adjustment for running totals here; what you pay staff in the month is the money you will need to pay at the end of each month. You will also need working capital for paying any invoices in advance such as utilities, insurance, etc. Finally you need it for dayto-day expenses.

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Working capital for inventory occurs in advance of sales, as opposed to debtors‟ working capital which is driven by past sales. Simply put, if you have a 100 units @ $3 cost at the start of a period and 150 units at the end, your working capital has increased by 50*$3,i.e.,$150. In manufacturing, you are making in advance of sales, so your inventory working capital calculations will look like this example. Let us assume the following:

equals the forecast sales value of month 3 in the table below.

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WORKING CAPITAL - INVENTORY

Establish a business gameplan.

OUTLINE OF CASH FLOW STATEMENT Here in table format is a spreadsheet of how to organize your cashflow inputs.

Use the previous CV development to build the cells. Also, ensure it is driven by and in line with the Business Model and Gameplan.

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Match the Financial Model to the Gameplan

Establish a business gameplan.

VENTURE CAPITAL INVESTMENT PHASING Venture Capitalists – those who invest but want a high shareholding for the risk involved – will look at the types of risks involved, e.g. business model, technology, getting to market.

After they have examined how the risks might be mitigated, they will then consider the phasing of their investment. Often it will be staged to cover up to the point where a risk has been overcome, e.g. with a working prototype.

How venture capitalists evaluate potential venture opportunities.

Russell Sigelman, a venture capitalist (VC) has stated:

Roberts and Barley, HBR, Dec 2004 . A quote from Robert Simon (VC)

The investor will expect to phase their investment. That is why a Lean Business approach as part of your gameplan is so important.

16

How venture capitalists evaluate potential venture opportunities. Roberts & Barley, HBR, Dec 2004.

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THE LESSON TO NOTE

“The business presentations usually have both the revenue model and the expense model. How much money does the opportunity take to get to cash flow breakeven? We construct our own model on revenues because usually they are wildly optimistic .. Often they‟ve also taken a top-down approach on market share. Well, that‟s all fine and dandy and gives us some idea of market size, but that‟s really not going to be the revenue ramp. We do a bottom-up analysis on the revenue ramp and we end up with a fraction of what the top-down is.”

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“We typically list three or four risks we want to mitigate with the money going in. Sometimes we stage the investment. We‟ve done this with some medical device companies. They had to build the device and show it could be used in an animal study.” 16

Establish a business gameplan.

BUSINESS MODEL 0.2 – THE STORYBOARD The whole purpose of this „Establish your Business Gameplan‟ phase is to be able to complete all the elements of your Innovation Storyboard, so that you can tell the story of: 

Who has a problem and in what setting.



What you are going to offer them.



How you are going to sell it and to whom.



What operations and assets you will put in place to do this.



What start-up costs and cash-flows are forecast.



How your Gameplan to develop all this will develop your customer base and confirm your hypotheses.

The Causeway Innovation Storyboard supports your story

SOAR – the solution you will offer, the operations and assets needed, and the returns you project



PERSONA – The people who are endeavouring to get a result in a situation, for whom your offer is aimed at.

It is dependent upon these needs being in place and will be assessed by the following metric.

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

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The Innovation Storyboard supports your Innovation Pitch, which covers:

Establish a business gameplan.

GAMEPLAN

A Gameplan states the direction you are heading in, and the steps you anticipate. If the term „Business Plan‟ is too entrenched then try „Dynamic Business Plan‟.

THE DYNAMIC, DEVELOPMENT VIEW



How you are going to build an operational business model.



What is the first product you will get to market.



Which is your first, foothold market.



How you will develop the proposition and the products.



What financial and business metrics you will measure.



How you will manage the operations.



The evidence to support your direction.



What must be achieved, what risks you are taking.

GAMEPLAN OR BUSINESS PLAN You will get asked to create a „Business Plan‟ according to a template.

CV is the toolkit to arrive at that Business Plan.

However development is dynamic, it should have a timeline and risk management element.

This is the Gameplan, a term which emphasises that you will continue to learn from customer and market feedback.

Potential gameplan considerations 

Modules.



Trials.



Alliances.



Technology constraints.



Proving costs.

the



Customer development.



Financial architecture.



Staff and organization.



Technical architecture.



Critical dates.



Critical factors.



Pricing.



Technology; included.



Technology; excluded.



Time, scale.



Product variant development.



Zagula and Tong gameplay.



Gameplan; supporting evidence.

place,

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Your Gameplan is a succinct timeline narrative of:

What is presented here is all the information you need for your Business Gameplan; if you re-format it according to a company template or a web template that is fine.

The content here should be organized the best way that tells your story.

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Whereas you can think of your Business Model as being a snapshot, your Gameplan is the story for a future movie of how you will get there.

Establish a business gameplan. early customer base.

VIABILITY INVESTMENT OPPORTUNITY



Can it be scaled up so that little additional resource brings big returns.



Are there good relationships with partners and opinion formers.

PEER REVIEW



What is the risk of the business model, the technology and the customer impact and what has been done to ameliorate the risk.

As this is the point when notable investment will occur, this is the time to get a peer review of your work-to-date.

The Causeway Viability assessment board

You have already confirmed a viable proposition and a viable business, now you check if it is an opportunity worth investing in.

Alternatively you might have arrived at a „lifestyle business‟ which is fine; as long you have a handle on the real growth potential of your innovation business.

The detail of the Investment check is presented in the Viability Board chapter, but in summary: 

Investment metrics: o Time to sales - how many months from investment to first market sales. o Time to breakeven - how long from first market sales to breakeven. o Breakeven volume – what level of sales for breakeven. o Total investment required.

Are the sales engine, operations and assets realistic and in line with each other.



Has a Lean Business start been identified.



Have development modules and trials been put in place to act as a check-and-balance on the development team and to encourage developing an

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o Assessment of the return on the investment.

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PHASE FIVE EVOLVE AND VALIDATE

Evolve and validate.

EVOLVE AND VALIDATE GET YOUR EARLY VIABLE OFFER TO FOOTHOLD CUSTOMERS This CV Phase is still very much driven by exploration and confirmation, only in the real marketplace. The aim is to lead your Innovation Players to commit, adopt and endorse your Innovation.

Build your business product, in modules, getting customers to trial those modules. Agree on the specification of and get to market an Early Viable Offer product for the identified Foothold Market. This is to test customer commitment to your business model.

ACTIVITIES Building assets and modules.



Engaging customers through trials, however short or long a duration. Asking for commitment, to verify the strength of the business.



Get early sales with an Early Viable Offer to a foothold market.



Learning from customers what value they are getting from the innovation. Review your Business Model 1.0.

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

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The activities in this phase are:

Evolve and validate.

PEER REVIEW TEAM

is to do nothing, which is not in your nature or you would not be on this page reading this.

THE ‘ROYER REVIEW TEAM’

Set up a „Royer Review Team‟, not necessarily to kill the development, but to assess the commercial success. Their first priority is to ensure there is focus on an EVO for an early foothold market. They are there to assess support directly from customers.

MODULE BUILD Two issues commonly occur in development. First is that scope of the end product creeps, with more functionality and features being added in.

The second - which is far less visible - is that lowered levels of contact with customers and innovation players means less chance to confirm commitment.

Causeway counters these issues in two ways. The first is by defining the EVO, an product to drive the Evolve and Validate development.

In project management terms they are an assurance team, but one that is looking at the success of innovation adoption not technical delivery. In company terms, they are the Board to the CEO of the innovation business.

The second is to identify the prime players – not just customers - and arrange trials with them. This allows you to re-confirm the innovation product and keep contact with people who will have to make the switch to your innovation.

To move forward you will need evangelical zeal of an entrepreneur but checks should be built into development to ensure that the rationale for the customers actually adopting the proposition has been validated.

CREATE ASSETS

BUILD

IN COMMERCIAL CHECK AND BALANCE REVIEWS IN YOUR SCHEDULE

This is tough for you as innovator. However, a CV development has built in commercial check and balance reviews, so that it is both easier for an „innovation champion‟ to have an exit route with dignity and an „exit champion‟ to have the platform to flag the lack of commitment from the target audience.

Finally, a quote from Einstein; “Anyone who has never made a mistake has never tried anything new". The only rock solid way of not making a mistake 17

HBR, Feb 2003, Isobelle Royer, „Why bad projects are so hard to kill‟.

The build work in the Evolve phase is high risk because a major part of the development budget is spent now. Building part-assets and configuring them (i.e. not continually changing them) as you work towards the EVO controls the inherent risk during development.

Build assets that have real, utilisable value, not project „earned value‟.

Guidance follows: 

Can be configured (built, tested and operational rules signed off).



May provide a platform for other modules.



Potentially, can be re-deployed in differing assignments.



Provide high-value for low investment.



Prove customer commitment.

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Isobelle Royer has advised that the roles of both a „project champion‟ and an 17 „exit champion‟ co-exist on a project . As she puts it „just as innovations are unlikely to be implemented without champions, failing projects are unlikely to be halted without exit champions‟.

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It is hard to call a halt.

Evolve and validate.

GUIDELINES This translates, in approximate priority, as follows: 1. Concentrate on assembling the EVO for the Foothold Market. Be ruthless; anything that does not contribute to the EVO is put on hold.

2. Focus on the foothold market - seeking the earliest viable, base product which can be sold or at least offered as a beta trial product.

3. Focus on the „Must Have‟ products for the prime players and get them trialled first.

4. Deliver the trial products.

5. Build real assets – build modules that can be re-used if the design has to change.

6. De-risk the development – reduce variety and uncertainty to create an early product.

7. Build functions and features in the priority of user value, based on MoSCoW (Must have, Should Have, Could Have, Won‟t have) or similar priority.

CUSTOMER TRIALS There is a common temptation in development to „hunker down‟ and concentrate on building a functionally correct innovation product.

However, you must seek customer commitment in parallel with development because that maintains a commercial focus and helps build the customer base early on. Supportive customers, will give you valuable feedback as to whether you are building a relevant innovation product. (All under NDA of course.)

BUILT IN ‘GROUPTHINK’ AVOIDANCE Development projects gain a life of their own and „groupthink‟ will emerge. „Groupthink‟ is the phenomenon of a group putting greater value on consensus and alignment around a purpose, at the expense of critical evaluation and assessment.

So, there are two clear reasons exist for engaging customers with trials: 

To check their commitment to changing



Second proving the design of your innovation idea.

8. Build functions in priority of return on development expenditure.

For both reasons you should formalise managing the feedback gained, how you act upon it and how you tell the triallist how you have actually acted upon it.

9. Building according to the need to prove performance.

You want to know: 

What commercial benefits the customer has decided / confirmed are the strongest.



An idea on the financial value placed on your innovation.



What effort you will have to put into the sale, the installation and support.

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Getting sales, building player commitment and building assets underpin the Causeway guidance to sequencing the order of build.

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MODULE BUILD SEQUENCE

Evolve and validate.

Use the Review Team to provide an independent stance on the information gained.

The trials to consider are expanded upon in the Prototype and Trials section.

It is important that external exposure goes beyond „watch-and-see‟ demonstrations. Even though it may be limited exposure, encourage participatory use from external innovation players, as that will improve the response you get.

Customers do look for improvements to aid their business. But, beware of the difference between interested talks and commitment to action.

Corporates get involved in „horizon scanning‟. For you, the innovator, it is important to get players not only to engage but to show commitment.

Your closing action is to ask for the next step after the evaluation to be organized or to ask what is left to enable a change.

Actions you should take during trial evaluations include: 

Ensure sales / account managers are properly briefed on what is to be achieved and why this innovation is a better solution than the current approach. Remember that many who have a corporate sales role are incentivised by sales of the current product portfolio.



Be seen to be acting on first triallist feedback.

Failed Operational Stress Testing; Heathrow Terminal 5 The opening of Terminal 5 at Heathrow Airport in March 2008 was in the words of the British Airways CEO a „complete disaster‟ as baggage was lost and flights delayed. In a review of the causes by John Rooksby of St Andrew‟s University many issues were identified. Some were technical failures, some were early system choices (choosing baggage tracking systems not suited for high volumes) but importantly from a CV engagement standpoint two items stand out: The full system trial (or „operational walkthrough‟) was used with nontravelling volunteers who were getting paid for doing something interesting in their free time, thus the triallists were not representative of stressed travellers.

A failure in one element of the overall system – a baggage sorting failure – caused feed forward failure of many other elements. The staff had not been asked or trained on how to cope or react in such adverse circumstances. There were no operational contingency plans.

It would appear BA had not planned for teething troubles and had not under-loaded the system to allow room for correcting any errors. The cost ran into many millions of pounds. Over-investing in contingency assets would almost certainly have been a lesser cost than that of loss of reputation.

http://www.slideshare.net/johnrooksby/testing-sociotechnical-systems-heathrowterminal-5-1753827H A Rooksby, University of St Andrews.

H

(More recent reports indicate the terminal is working just fine now.) http://www.airlinequality.com/Airports/Airport_forum/lhr.htm .)

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Getting external people to be involved in trials with emerging products is a strong indicator of their commitment being solid.

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INNOVATION PLAYER-ORIENTED

Evolve and validate.

LAUNCH AN EARLY VIABLE OFFER The traditional approach to product development and launch is to write a specification of the „full product‟, engage people to develop it and agree a date to go to market.

During the development period, design and implementation questions begin to arise and so the design gets changed. Also, the longer the development period, the greater the chance of scope creep and also the chances of the viability of the technology platform expiring.

b. The business scope, e.g. the geographical area, the number of channels, the range of customers, the nature of customer service and pre-sales service, etc. c.

The number of innovation players who will be satisfied with full developed change products.

The benefits of the EVO approach are summarised in the earlier overview section.

Dimensions in defining the EVO

The full product should be specified. The next step is to define the development sequence of modules and of the trials that will be deployed.

The next logical step is to agree what the Early Viable Offer („EVO‟) that can be taken to market should be. This approach resolves the problem of „it takes too long to get to market‟ by re-defining what you first go to market with.

Now, if at this point you are a disciple of Lean Product Development as informed by Smith and Reinertsen et al18 be assured that the CV approach is aligned with their thinking.

CV emphasises that getting to market with an EVO product is extremely valuable for a start-up business because it helps to „make known the unknown future‟. Customer feedback is highly valuable.

18

Smith and Reinertsen, Developing Products in Half the Time, J Wiley.

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a. What functions and feature can you omit or cut down on their richness. Consider your „MoSCoW‟ design prioritisation in the Storyboard Design node.

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In defining the EVO you should be as ruthless as you can be. You can review your full innovation proposition along 3 dimensions:

Evolve and validate.

Proposition

„The What‟.

Have you got the design right, the customer support to the level desired. message clear about what you offer, the value and the switching.

Sales

Build these sessions into your schedule.

Your chosen foothold market will have given you feedback about the message, what they like and don‟t like about what you deliver and how you deliver it. They also should be giving you a good view on what has high priority for the next release after your EVO.

Commentary

„The Who‟.

Have you chosen the right market segments; are your channels working for you, are you getting the level of interest you need.

Is your Cost of Customer Acquisition viable. Do you have enough marketing and sales resources.

Operations

„The How‟.

Are your systems, suppliers, services all working out for you. Do you need to scale up.

EVOLVING TO ‘BUSINESS MODEL 2.0’

Is your resource utilisation favourable, is your output quality on target.

Now you revisit your business model and decide what needs to be changed to form version „2.0‟.

The table here indicates what you might have to consider.

Financials

What you need to do will be specific to your situation. However, you should bring your advisors and peers back in and pose the gameplan question once again:

People

„The Returns‟.

Do you need to change your forecast figures for customer acquisition, fixed costs, discretionary spend e.g. on marketing, margins, etc. „Adoptability‟.

How well are people supporting your innovation business. Is word-of-mouth working for you.

Have you missed any change players, misunderstood what they want. playing off existing suppliers against you.

“What is the best I can get out of this idea and how should I go about getting there?”

Is the

Dynamics

Are they

„Performance‟.

Do you need to change the forecast performance levels at which your model is financially viable.

What is the minimum resource to ramp up your business. financial metrics?.

What is view now on

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In this ‟Evolve and Validate‟ phase you are looking for actionable feedback about your proposition and business model 1.0 proposals.

Potential changes

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POSITIVE EVO FEEDBACK

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EXPAND THE BUSINESS

Expand the business.

MOVING FORWARD If you have got this far you have weathered the storm of innovation business development. Now you will have verified that it is worth investing in the business to grow sales. You have got beyond investment primarily for business development.

The focus for an innovation business development during this phase includes:



Building support from as many supporters as possible.



Expanding into the market segments you planned back in the Business Gameplan phase as well as developing the product variants.



Deploying full marketing and sales resources.



Standardising working practices, departments and stuff; ramping up production.



If demand warrants it, expanding the product range.

PARTNERS People are still pivotal in adopting the innovation either through recommendation or through developing supporting services or ancillary products.

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In parallel with building a product according to a Build and Trial plan, you should maintain a parallel effort to gain support, whether it is from third parties who will gain by association, individuals who will act as evangelists or regulators who will need to be assured that regulations are being met.

Expand the business.

EVANGELISE SUCCESS

ADD STAFF

A better mousetrap never sells itself. People need to hear about the success to know about the product but also because people are tribal and will want to follow a crowd adopting a successful innovation.

Now is the time to go for permanent hires. Up till now you should have worked with interims or short-term contract staff. If there is much competition for good staff before now, then incentivise them with generous equity so they are committed to success.

In an innovation world where multiple proposals are vying for attention, there will inevitably be a lot of hype. Now is the time to evangelise your solid success and your commitment to future support and innovation.

There will be a tendency as the number of customers grows for those in „Marketing‟ to become product or market communications-oriented. This leads to losing touch with key players.

MARKETING As you progressively move away from the EVO and progress towards being a mainstream provider, now is the time to unleash your full marketing budget.

The Marketing group – in a corporate world - start to distance themselves from actual customers and stakeholders, ending up using „focus groups‟ as the voice of their customers. Focus groups cannot be totally decried but it should be remembered that they provide for the people who organize them a convenient mechanism to bill you.

Evangelising success should be seen as the opportunity to continue engaging with innovation players.

PRODUCTION During Evolve phase it is likely that you worked on a „cottage industry‟, oneoff production basis.

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After getting the EVO out to the market you should tackle the issue of getting costs down with business activities and assets that are suitable for volume production.

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HOW TO …

INNOVATE YOUR BUSINESS MODEL

How to innovate your business model.

MULTI-PASS BUILD OF THE INNOVATION MODEL CV advocates an approach using multiple views to building a business model, because this makes a more rounded view.

Start with your Value Proposition then review the potential drivers that could shape your business model.

Then build a configuration model to express how „Proposition, Sales, Operations and Financials‟ are structured together.

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It is, of course, possible that you start at drivers and arrive at a relevant Value Proposition.

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Finally use your Storyboard to cross-check that your „Business Model 0.1‟ is balanced and coherent. Only then do you build your Business Model 0.2, with detailed financials and operations specifications.

How to innovate your business model.

THE WAY YOU GO ABOUT YOUR BUSINESS. Every business has a business model, even a market stall selling vegetables to local people. It is the way you go about your business.

Your own model does not need to have a fancy name, like „Freemium‟, but if it has make sure you are Gameplan backs it up.

So, what is „the Business Model‟? First, there is the investor‟s blunt view which is „What you are going to do to make money‟.

Then there is the components view as exemplified by Osterwalder et al19,

THE CAUSEWAY VENTURING BUSINESS MODEL ELEMENTS The CV view covers all these and is as follows: 1. Proposition - what you offer and the significant value it gives. How, when, where and how dynamic the offer is.

2. Sales – What market segments you will go for, their accessibility and the channels to be used.

3. Operations – the organization of activities and assets to deliver the proposition.

4. Financials – how costs are controlled, assets utilised and how resource will drive sales.

An innovation business model must work in the real world so the CV view adds: 5. People - How it fits with the customer‟s way of life.

6. Dynamics - Positioning vis-à-vis industry structure, market segments and alternative offerings. How resources are assembled for the business.

The CV Business Model

“A business model describes the rationale of how an organization creates, delivers, and captures value”.

Thirdly, there is the character perspective which includes the

19

„Business Model Generation‟, Osterwalder and Puignol, 2010.

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„manner of doing things‟.

How to innovate your business model.

PASS 1 â&#x20AC;&#x201C; CONSIDER CHANGING BUSINESS MODEL DRIVERS What can you change driven by considerations of the Proposition, Sales (inc. market segments, channels), Operations or Financial management.

OPTIONS Options are presented on the following pages.

MULTIPLE DRIVERS

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The drivers within the CV business model.

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Examples will often be relevant to more than one driver.

How to innovate your business model.

PROPOSITION DRIVERS Potential primers to start your consideration of what to change in the Proposition.

Commentary



Radical design.



Market Generalisation.



Market Specialisation.



„Less is more‟.



Joy / experience.



Specialist offering on a particular product, knowledge or service line.

Outdoor gear is widely available but for the most advanced gear you go to a specialist store. (N.B., specialist products can become mainstream, e.g. mobile phones.)

Offer most of what people want in one product but leave out the underused functions.

A new experience is offered, e.g. „Coasteering‟ trips.

Service.



Is varying service level what you wish to sell.

Platform.



Relationship.

 

Setting up a platform product on which others add their products and then you take a cut; Apple iPhone apps is a prominent example.

Build mutual dependency.

Stratify service level (with matched operations and costs).

Bundling / unbundling.







Put everything into one purchase price – e.g., car plus for - lifetime roadside assistance as part of the original customer price.

If it can be paid for, charge for it; the character of many „Low-cost airlines‟.

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The classic „better, faster, cheaper‟ offer to the customer.

Simplifying the design to reduce cost to yourself and increase financial margin („value engineering‟).

Product Design-led. Alter the product to better achieve the same end goal – e.g., Dyson cleaners.

Generic offering to meet most needs but not fulfil anyone market segments‟ desires completely.

Product improvement.

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Business Model – Proposition drivers

How to innovate your business model.

SALES DRIVERS What Sales Drivers can you change, particularly in the market and the channel to market domains.

Additional  revenue streams. 

Generate more revenue from existing asset, e.g. selling name and address lists.

Charge for incidentals, e.g. valet parking.

Unlock a segment.

 

Serve a market not previously served (refer to „sub-prime mortgages‟) Service an uneconomic market with new channels – e.g. put public services such as libraries or police stations in visiting mobile trucks.

Different offer for different segments / prioritisation.

Channel to market.



Product segmentation where you offer more for higher price or viceversa where you simplify and offer most of what is wanted at a lower price.



Change the channels used to sell and deliver the product to your chosen customer segment – think of the defunct „Webvan‟ whose name told their channel story (for home food deliveries); consider auctions not retail sales, etc.

Niche or general market.



Are you going to maximise your marketing effort and brand by focussing on specific, specialist sectors.

Common in service industries.

Does the proposition match. Is your niche too small, your general too mass.



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Commentary

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Business Model – Sales drivers

How to innovate your business model.

OPERATIONS DRIVERS

Commentary

Process - resequence.

 

Fit a house‟s features and fittings into the house frame off-site, then deliver larger assembled module – see e.g. Huf-Haus.

Take the rental car to the customer– see Enterprise rent-a-car.

Process Streamline.

 

Connect data; use web to take out time and inefficiency.

Combine similar tasks.

Asset utilisation.



Find new uses for under-utilised assets; see Uber Limousine (below)

Operation disassembly.



Move tasks in time, space or who does it e.g., get the restaurant customer to complete a tear-off menu sheet for collection by waiting staff (so staff become more efficient deliverers).

Optimisation.



Take out dead time, take out working capital (the domain of Lean Thinking).

Goal redefinition.



Focus on the actual goal not current one, e.g. Rolls-Royce sell „aeroengine airtime‟ not engine purchase plus service back up.

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Huf Haus – construct offsite, assemble onsite

Business Model – Operations drivers

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Can you change the way you do things, e.g. following a Lean Operations approach. Can you use assets differently?

How to innovate your business model.

FINANCIAL DRIVERS Can you improve your financial performance, not just in your cost base but the efficiency of generating revenues.

Commentary

Cost removal.



Either taking cost out of an activity or getting somebody else to do it (see self-scanning in supermarkets).

Asset utilisation.



Making better or other use of an asset; schools being used for adult education in the evening for example ( Uber limousine being another).

Stratification – match the highest value / skilled resource to its best use.

Dump fixed assets and find ones you can use when needed; use contractors not permanent staff, rent additional warehouse capacity as needed, etc.



Capital utilisation.



Capital investment.

Pricing.

 

Creating an efficient use of capital. The old trading stamp business ( e.g. „Green Shield‟) made its profits on the interest on the funds held for 6 months, the period between the retailer buying stamps and getting redemption money back.

Purchase or go for leasing of assets.

Find new bases to price on, e.g. time of day as restaurants do with early evening meals or dry cleaners 24h service.

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Business Model – Operations drivers

How to innovate your business model.

CONFIGURATION DRIVERS IN THE ROUND How are the Proposition, Sales, Ops and Financials configured together?

Commentary



Assurance „Other‟.



Technology-led.



Utilisation or performance.



Disaggregation.



Outsource noncore (offer a service of..)





Offer to make up under-resourcing, e.g. offsite, part-time call answering services or office admin for start-ups. (see www.pa-anywhere.co.uk ).

Offer to solve over-resourced processes as happens with planning to maximum demand, e.g. offer shared warehousing.

Offer security, compliance, etc.

E.g., geography, legal framework, custom and practice.

See the TATA Nano car and the circumstances it is designed for.

New technology allows you to offer new services not thought of before; consider the application of military GPS to car navigation.

If asset utilisation is an issue, consider ways to use it in the dead times.

Taking a whole layer of industry cost out. Booking vacations and airline tickets directly online and not through travel agents is a prime example.

Focussing on a non-core activity for businesses but which many need, e.g., floor plan diagram creation for estate agents (realtors), office cleaning, etc.

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

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Business Model configuration drivers Resources.

How to innovate your business model.

 

Community.

Crowdsourcing

„Crowdpooling20‟.









Complementary Partnerships.



Service.



20

Offer all that people want in one go, e.g. hyper / supermarkets.

Use economies of scale to offer the high and the low selling products, e.g. online book sellers. „Together you can make it happen‟. Pool skills or assets to build your business. E.g. the people in the rural community of Asby, England are donating assets for free, for the common good of high-speed community broadband.

Get wide variety of ideas from a crowd; in exchange for kudos of contributing. The web lets you spread your reach to ask many people what they think.

Reward your pool of contributors; those who make a valued contribution get a reward in return. Quirky.com do this with revenue share; it could be done with vested shareholding to valued contributors. The web lets you spread your reach to find valuable workers.

Note the „repeat game‟ underpinning.

Contributors have to trust their work will be rewarded. Fail once, and they will walk.

By putting two existing products or resources together you improve the chances of sales, e.g. offering coffee machines that use prefilled small coffee capsules.

Bind the customer to you with improved service.

In case you are wondering, I invented this as a variant of crowdsourcing.



Freemium / Trial and upgrade.



Time.



Place.



Partner on resource, share benefits.



Affinity.



Ethical.



Two-sided market.



The „Tied Products‟ approach – you sell the printer and the ink cartridge costs an arm and a leg (not that I am bitter here…)

The „freemium‟ approach is a variant of a free, taster product. Free long-term access to a „taster‟ product with belief that a viable percentage of customers will upgrade to pay for a fuller product.

How long or the range of hours you have the service available. Offer as assurance (roomservice meals in a business hotel) or as a premium factor (same day service levy).

Taking advantage of a location – e.g. the franchise for hotel operations in US National Parks, coffee store rights at rail stations.

Could you work something with existing businesses. You cede control to gain a small share of something rather than a larger share of nothing?

Offer a commodity product that contributes to a worthy body, as credit cards do with charities.

Offer the same product but one which has better ethical credentials, e.g. FairTrade goods.

Platform or event for two groups to meet and transact, e.g. nightclubs, eBay.

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Full range / „long tail‟ approach.

Bait and Hook.

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CONFIGURATION DRIVERS -2

How to innovate your business model.

PASS 2 – CONSTRUCT A CONFIGURATION MODEL DIAGRAMS OF EXCHANGE, RELATIONSHIPS AND DYNAMICS A useful business model perspective is to set out what is being exchanged between parties.

The basics are the innovation players and what the two-way exchanges are between them. These can be the obvious product and money but more subtly goodwill, brand value, network possibilities, etc.

The advantages of this visual approach is it highlights who has to be involved and so two checks can be made: what will customers or players need to change and are they likely to work with you?

It makes you ask „if A is giving B something, what is B giving in return‟? Exchanges occur in two-way flows (not pairs as one party may give several things in exchange for one).

The diagram will also highlight any complexity, either to be managed or reduced.

The parties involved will come from your list of innovation players established in the „Engage with People‟ phase.

ICONS, ADVICE AND EXAMPLES In the following pages the CV Configuration icon set is set out and examples then follow.

A simple ‘buy stuff, change it and sell it directly’ business model (think market stall

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Use your own notation if you prefer, but common format is important plus of course, the thinking behind it.

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There is no strict set of rules as to how to use them, as there might be with a factory process control diagram for example.

If you want to add something then do so.

How to innovate your business model.

You do a full financial assessment in the next phase. But do a sense check at this point. Assess: 

How many inputs do you need, as each will adds cost.



Are there plenty of suppliers which will give you some price competition or are you tied to one or two. If the latter, would a revenue share model bind them?



Are there any assets which will be expensive; so can you find a cheaper alternative.

4. Add the suppliers you need.



5. Put in the exchanges between innovation players - revenues and costs, benefit-in-kind or other exchanges).

Does it work on the easily doable revenue streams or have you got to get many streams to make it worthwhile?



Why should the supplier want to work with you – have they got a better deal with other customers?

1. Draw your own business as a Player and the value proposition (product/ service) first (centre of the picture).

2. State who will be buying, who will be using - as people.

3. Set out the intended market segment/s.

6. Assess what combination drivers you might apply – the configuration drivers.

7. Consider what business model facets you want to apply to this core structure (as set out below).

8. Assess what business model elements are critical to the definition of your business model. Likewise what is critical for commercial success; review if the existing competitors have an advantage here (such as brand reputation).

9. Identify prime operations, assets and skills. 

Do you want to buy in.



Own or lease.



Work together.



Co-opt for a soft reward.

10. Is it all balanced –e.g., niche product, but is there a market for it?

ITERATE AND EVALUATE. Consider different options: 

Where do you want to position your product, as niche or general, differentiated or standard feature set?



What sales channel will work in getting the sales and / or revenues?



Can you make or create the product in a different, cheaper or more valuable way?

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Here is a kick-start approach to building this view of your business model.

FINANCIAL APPRAISAL.

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HOW TO …. BUILD A CONFIGURATION BUSINESS MODEL

How to innovate your business model.

THE FACETS IN A CONFIGURATION BUSINESS MODEL

What facets can be changed in your configuration business model?

Likely facets you will want to consider re-configuring are illustrated as icons21 here, with brief explanations in the following tables.

The grey boxes represent people.

The arrows indicate what people are exchanging.

The pictorial icons emphasise the character of your business model.

EXAMPLES

21

These icons are in Visio. Contact www.thirdcoast.co.uk if you would like a set. Software to come!

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Examples using these icons follow in this section.

How to innovate your business model.

ICON OVERVIEW A brief commentary on the role of each icon is tabulated here.

INNOVATION PLAYERS

Configuration element

Commentary

 Innovation Player.

Prime players and space for what they offer or do. Your own business, suppliers, distributors, buyers, users, etc.

 Group.

Like a community but with a formal arrangement, usually a contract.

 Community.

A grouping of players working together with the same intent, for a common good.

INTERACTIONS

Configuration element

Commentary

 Money or Benefit in Kind This is what you are doing it all for. If you are a social enterprise then your end output may be a benefit as opposed to a (or benefit). financial profit.  Swap exchange.

Where goods, services or goodwill are bartered.

 Exchange.

Anything other than money or benefit-in kind. reputation / brand values.

This might include awareness, access to a resource, provision of

Icons for these things are provided in the configuration box below. Add them to your exchange line if you wish.

Remember kudos and karma!  Transaction.

A service is called in; it is useful to show this but it is not a core feature of the business model, e.g. credit checking , but can be used to complete the picture.

 Data / information.

Data is aggregated to get a bigger picture or create a new resource.

Where financial management creates new resource e.g. interest on the gap between accounts payable and receivables.

 Commentary box.

If it gets too busy with lines and text, shift the text to a call out box.

 Builds.

Where one part of the business model is a precursor for another, e.g. in Bait and Hook, Freemium models.

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 Finance management.

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The curved arrow indicates the source and the user are the same (you take basic data and see the big picture).

How to innovate your business model.

EXCHANGE RELATIONSHIPS

Configuration element

Commentary

 Exchange relationship.

This relationship lines complement the group and community boxes. Use whichever suits your purpose to illustrate your business model, to link Player – Group – Community boxes.

Co-creation – where two businesses create a (completely) new product together e.g. where Philips make the „Senseo‟ capsule coffee maker, Douwe Egberts provide the coffee pods and their brand value. Cocreation involves greater commitment from both parties than co-opting.



Community – where a group of people pool their assets and resources or work together for the common good.



Asset use – where an asset is used but not a full service taken. This is close to dry leasing in aircraft supply. Using a restaurant‟s kitchens when they are not being used, say for a sandwich preparation business, would be an example.

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Many new business models are oriented around the Indicating the nuances of exchange relationships between players, beyond straight sales: relationships between  Outsourcing – a completely contracted out service such as using a shared warehouse. This is called wet players, what they contribute, leasing in aircraft supply, where all you need to fly the plane is provided. their motivation and how they  Co-opting – a term here to indicate where another party owns an asset that is used or marketed as an get reward. essential part of the innovation proposition. It becomes branded as part of the innovation business proposition, e.g. a company marketing specialist holidays co-opts hotel rooms. (Compare to outsourcing, where the asset or service is in the background as far as the customer is concerned.)

How to innovate your business model.

BUSINESS MODEL ASPECTS – 1

Configuration element

Commentary

 Business model configuration driver.

See the configuration archetypes– radical design, specialisation, niche or general market, etc. - in the table earlier in this section.

 People.

What players are involved or need to be added in. sequence Change the flow, sequence, or modus operandi of processing.

 Product / Service.

At the core of many an innovation; if one do you need to change the other to match, especially keep costs in line with each other.

 Asset, resource, platform.

Using new resources, better using existing ones, or pooling with other owner‟s resources to create a new offering.

 Awareness.

Getting your innovation known about, publicity and promotion.

 Ethical, environmental.

Ethical or environmental benefits.

 $ less and $$ more.

Getting the same service for less or getting more revenue for one already provided. Likewise as cost labels.

 Time.

Offering a time-based offering; more time, quicker, specific time, etc.

 Reputation.

Gaining the reputation from another player.

 Positive loop.

The more you do of something the more it will grow.

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 Process change.

How to innovate your business model.

BUSINESS MODEL ASPECTS – 2

 Access.

Gaining privileged access to a resource.

 Objective.

Change to a new objective for the business system (e.g., improve local teleworking facilities vs. improve road system).

 Joy - experience, entertainment.

New or improved output or manner of what is delivered.

 Increase, decrease.

More of or less of some aspect of the proposition or service.

 Eliminate / remove.

Add when you want to illustrate that something is being taken away.

 Volume critical.

When having a substantial volume is critical to the success of the innovation business, either or both of customers and assets.

 Coverage.

Where the range in space or product variety for example is important.

 Market.

What market you are going for and not going for.

 Multiple.

Add to the edge of your own innovation business player box when you will repeat the implementation e.g. with a franchise operation, licensing.

 Builds.

Where one aspect builds another.

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Commentary

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Configuration element

How to innovate your business model.

BUSINESS MODEL EXAMPLES

Their website indicates they have one prime phone partner (Samsung) as part of their business model, presumably to gain economies of scale.

Some businesses and scenarios are considered here, many illustrated with 22 (probable ) configuration models.

Note that to work this Jitterbug will (almost certainly) need to guarantee volume to the manufacturer, indicated by the volume icon.

‘LESS IS MORE’ PLUS DISTINCT MARKET

JITTERBUG – BAREBONES EXCHANGE FLOW MODEL

Jitterbug configuration view

„Jitterbug‟ are chasing a distinct, presumably underserved, market segment.

They offer a simple mobile phone with easy calling, humans to talk to when they need help and a large keypad for ease of use.

They describe their approach as meeting the needs of "simplicity seekers".

As it says in the lowest bullet - “no complicated menus or confusing icons.”

These are based on the discernible model from public information, primarily to illustrate the approach. They are illustrative not necessarily 100% exact or complete. That‟s the CYA over.

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Jitterbug (San Diego) proposition

How to innovate your business model.

VIRTUAL ASSETS, COMMUNITY COST REDUCTION - GIFFGAFF Rather than take the current structure and make it more efficient, you can change the relationships between players in your business. „giffgaff‟ is a Mobile Virtual Network Operator in the UK, i.e., buys in the network service. And, as their website says (below) „our members provide support for each other‟, which must significantly reduce their costs.

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Giffgaff have outsourced a critical business process to a community of its users. In so doing they may well have increased customer loyalty and so reduced the cost of „customer churn‟ (loss).

Note how the „community‟ box is deployed‟.

How to innovate your business model.

CREATE A NEW BUSINESS FROM NEW TECHNOLOGY & EXISTING ASSETS - ÜBER LIMO Use the web and databases to connect demand and supply. „Uber‟ Limousine connects under-utilised limousine businesses with customers via mobile phone apps.

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The consumer journey share (bottom right) is a possible service added here purely for illustration of use of the „community‟ box. Likely markets are illustrated in the centre.

How to innovate your business model.

RE-SEQUENCE ASSETS THE AMSTERDAM MINIBAR A bar in Amsterdam called „MiNiBAR‟ 23 has taken a radically different approach to how it organizes itself, compared to traditional service models.

The conspicuous change being made is giving customers access to their own drinks cabinets in a bar room setting.

Where did they get the idea from? Well, maybe they saw this working in one context - that of the hotel room – then asked „could we do this elsewhere‟?

This bar changes many assumptions and practices about how a bar should

be run, who would use the new bar and what assets will be needed.

MINIBAR – CONFIGURATION MODEL Cool drinks cabinets are added along one wall, each party gets access to their cabinet. Staff replenish the bottled drinks not tend bars. This increases social interaction between staff and guests, and within the guest group (it is reasonable to surmise).

23

http://www.minibaronline.com/concept.php

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Benefits are better atmosphere, lower staff costs and better customer service turnaround. The customers contribute labour but not much more effort than going to a conventional bar.

How to innovate your business model.

FINANCIAL DYNAMICS LOW-COST AIRLINES By their very name, low-cost airlines are driven by financial management in their business model. Low-cost for the customer also means it has to be low-cost within the business itself. This is illustrated in the diagram; standardisation of aircraft used, nd cheaper 2 tier airports, load maximisation software, outsourcing maintenance to avoid management overhead, etc. are all geared to create a financially-driven business model.

FINANCIAL DYNAMICS

How cash flow is managed or impacted.



What resource capacity you will need (and can you flex it to minimise cost, maximise return).



What throughput or efficiency you anticipate



What lead times or service levels are planned.

METRICS In reviewing your business model you should consider the utilisation or performance dynamics you must obtain.

Aircraft utilisation is paramount, which requires fast ground turnaround times (i.e., non-utilisation), which is one reason why second tier airports are often favoured. That is one reason why Southwest Airlines started from Love Field in Dallas to Hobby in Houston, as well as San Antonio, Tx. – the spare airport capacity ensured a fast turnaround.

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What is commonly overlooked in work on the Business Model is the dynamic nature of business. Resources, output and cash are not static, they all have flow rates. Your business model should consider:

How to innovate your business model.

RELATIONSHIPS What relationship must you have with which innovation players? Changing the service element is one of the most common customer relationships e.g. your ironing assistant collects and delivers your washing to your house.

MINDSET CHANGE – WHAT ACTUALLY IS SUCCESS? Changing the goal – i.e., the perceived measure of success – will usually lead to a different business model. A good, clear example which utilises technological change is „how do I manage my corporate travel budget‟ changing to „how do I improve communication between widely-spread managers and staff‟. The former wrings discounts out of airlines and train companies, the latter puts in videoconferencing.

An iconoclastic approach - Consumer is also the supplier

Work commuting – maybe move the mindset

Companies install roadside camera equipment to monitor traffic, package the information and sell it back to motorists as traffic warnings. Yet those same motorists have mobile phones in their cars, which means their position and speed is known by the mobile network, to useful levels of accuracy.

Many cities have huge diurnal movements of commuting people, heading to offices and businesses to work. Governments try to organize the transport infrastructure to manage these peak demands. However, information workers businesses could move to virtual offices, using the web to collaborate.

So, why not pay the motorist for their speed data? The customer becomes a provider in a system they benefit from. This would also require another mind-set change – at present the information is road-based and the new information might be district-based but in cities that is a useful level of information for a busy driver.

Maybe a government‟s civic goal should be – „we need to facilitate people working together; so we will promote renting personal space in local communal offices and create linked company networks with tax breaks and grants‟.

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Traffic flows – pay the consumer for their resource?

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Mindset– why do we commute in an information age?

How to innovate your business model.

RE-ORGANIZING PROCESSES THINKING LEAN Lean process books tend to have a lot of investigative tools and statistics between their covers, which is all good quantitative stuff.

However, if you want to be creative you really need just to be able to see what levers you can pull.

The fundamental ethos of „Lean Thinking‟ is to deliver to the customer what they actually want and to do it with the minimum of cost to the business. Doing this also means looking along process streams, not trying to optimise each one independent of the other. Then you take out waste and only deliver what is wanted.

The process and output may meet the customer‟s objective or it may not fully do so. Output might be faulty and get scrapped.

The effectiveness and efficiency is a mix of factors as illustrated, such as total resource capacity, the work rate per unit, etc. Lean Thinking brings particular attention to any process which does not add end customer value, such as work in progress. This is important because it also represents capital tied up in the process not in creating value. The analysis for creative Business Modelling should pay particular attention to the objectives and assumptions underpinning each operation.

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The diagram here illustrates the core structure of how operations actually operate.

Activities and assets are configured in a sequence and they then have to manage different volumes at different times of the day (e.g., road commuting, weekend shopping, etc.).

There may be a variety of inputs (e.g., train ticketing for different journeys.)

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OPERATIONS - IN SUMMARY

OF HOW THINKING LEAN CAN CHANGE YOUR BUSINESS MODEL.

You will need to understand the current situation, e.g., by using the „7P‟ approach outlined in the Explore the Situation chapter. Then you can consider the potential paths tabulated here.

Commentary

 Manage volume.

Incentivise people to do things at non-peak times, e.g. cheap restaurant meals before 7pm.

 Manage variety.

Split different inputs e.g. ‟10 items or fewer‟ checkouts. Reduce the variety, by limiting variety going in, e.g. restrict the range of mobile phones sold to reduce service complexity.

 Re-sequence.

„Something is done now at this point what would happen if it was done at a different point?‟ Do things in a different order, bundle or unbundle activities, e.g. calculate hotel bills at 2am not at departure and action the pre-authorised credit card.

 Re-allocate.

Split work according to skills needed, e.g. tiered computer fault service, let the customer place their own order and use waiting staff to deliver (see Nandos restaurant for example).

 Re-locate.

Take call centres offshore; move infrastructure to an alternative location (as Karst, proposed taking the harbour to the ship).

 Resource flexibility.

Add backup, flexible resources for demand peaks, e.g. multi-skilled supermarket staff who move to tills when needed. More radically use the customer as a resource pool, e.g. with GiffGaff and mobile phone customer service (see above).

 Process smoothing.

Organize the layout, balance the throughput across the activity, do only what is wanted, etc. to increase the efficiency of the work activity.

 Management time.

Train people to make the decisions themselves, i.e. delegation.

 Set up.

Make sure everything is in place for something to happen straightaway.

 Change the objective.

Re-define what you offer as a benefit / cost trade-off, e.g. with many hotels offering lodging, the restaurant is outsourced (see Premier Inns in the UK).

Karst of South Korea are planning to take a mobile harbour out to the container ship – a re-location example.

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EXAMPLES

Thinking Lean levers to pull.

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How to innovate your business model.

How to innovate your business model.

SCENARIO CROSSCHECKS The Storyboard is designed as a tool to cross check coherence of your innovation business design. It goes beyond being a checklist of things you must write up an answer to. Here are some crosschecks you should bear in mind, to assess if you have a balanced business.

IS

YOUR SALES ENGINE CAPABLE OF DELIVERING THE SALES YOU NEED?

You have identified your market segments and channels to market. Have you now got enough sales capacity in your sales engine to deliver the sales targets you have set yourself. How many sales can you make with the design of your innovation and the sales resource available.

FIT TO SITUATION

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Does your proposal work in the physical, financial, behavioural or other potentially relevant aspect of the situation? Are you clear about the â&#x20AC;&#x17E;before and afterâ&#x20AC;&#x; of your innovation with the people and community you have in mind?

How to innovate your business model.

DOES YOUR DESIGN ENHANCE YOUR BUSINESS OR UNDERMINE IT

Crosscheck your design is i) matched to the problem to be solved, ii) takes account of the setting of its use, iii) supports the customer relationship especially keeping costs down, iv) is aligned with the chosen customer segments and there is no conflict between segments, v) works with the chosen channels and their financial models, vi) and works to minismise your own cost drivers.

DRIVERS

First of course you have to identify the major costs drivers. Next you have to decide how to gain assets and resources and organize their use to keep costs down.

For example, let‟s say you need a warehouse to stock raw materials or you need a kitchen for a new business lunch service; could you share with a business with an under-utilised asset at first?

If your cost driver is maintaining a group of agents (also a revenue driver) have you organized sales targets and contract clauses to keep them hungry and working for you?

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Too often weak design creates costs – especially in corporates where the costs of service or delivery are in other departments‟ budgets.

HAVE YOU ORGANIZED TO MANAGE THE ACTUAL COSTS OF YOUR COST

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Too often product-led design is technology-led design, i.e. how best to show off the technology is the underpinning thread behind the form and feel, function and feature set.

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HOW TO … DO A COMMERCIAL REALITY CHECK

How to do a commercial reality check.

THREE PASS, STRUCTURED REVIEWS. The CV Viability Board is based on experience of common points that get overwhelmed by enthusiasm. The biggest shift is to explicit review before you get anywhere near doing the financial case. Once you get that far your resistance is high to seeing the potential issues.

The Viability Board organizes reviews into three passes: 1. Viable Value Proposition – does it offer significant value and fit with the customers‟ situation.

2. Viable Business – Can you provide it a profit, is there an accessible market, will the existing industry let you in.

3. Viable Investment – have you organized to manage financial risk, is it scalable are the ancillaries such as alliances in place.

DO YOU ASK ‘BUSINESS PLAN’ OR ‘GAMEPLAN’ QUESTIONS? So let me assume you have a business advisor or trusted colleagues. This is a traditional Business Plan question you would normally ask them: “How can I get the money and resources to make this business plan happen?”

Instead try asking Gameplan questions: Start with this question: “What is the best I can get out of this idea and how should I go about getting there?”

Then try these follow up questions; “If this is not working out after 6 months as a business, what is the likely reason for that to have happened?”

“Do you have any potential customer contacts I can explore the value of my idea with?”

“What is the lowest cost route to get some sales?”

THE INVISIBLE GORILLA – GO LOOKING FOR WHAT YOU ARE NOT SEEING

PEER REVIEW

You may well have come across the perception experiment conducted by psychologists Daniel Simons and Christopher Chabris. If not then do visit www.invisiblegorilla.com. In this you are asked to watch a video and directed to fulfil a counting exercise.

Get a small group of people you trust to review your development. What you are doing here is not asking for advice on a closed decision about what you are going to do. You are showing you are open about what success will look like.

The lesson from their work is that if you are not actively looking for something, you will not see it.24 This is the message here; as an innovator you can 24

„My Bright Idea. We don‟t see as much as we think we do‟. The Observer (UK), July 25th 2010.

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You have to be enthusiastic but it is all too easy though to become blind to any shortcomings. The reasons are very simple; you are persuaded by all the good points and so it is difficult to see any shortfalls.

become so bound up with your idea that you filter reality to fit your perception of how the world should welcome your innovation.

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STAND BACK, GET A PEER REALITY CHECK

How to do a commercial reality check.

BELIEVE IN SANITY PAUSE Viability is defined as „practicable, capable of success or continuing effectiveness‟.

The Causeway Venturing Viability Board

Causeway is concerned with achieving practicality, but very much about finding a business scenario and structure to achieve success and continuing effectiveness. CV asks you to believe in a „Sanity Pause‟.

THREE REVIEW PASSES In fact you should take at least three Sanity Pauses, at different stages of the development, as follows:

1. Is it a viable customer proposition (at the end of the Engage with People phase).

2. Is it a viable business (the exit criteria from Evaluate Viability).

3. Is it a scalable investment opportunity (the exit criteria for the Gameplan phase).

DEPTH

25

„Lerner et al, „Venture Capital and Private Equity‟ provides a long and possibly exhaustive checklist.

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In reality you may have a far deeper analysis to do of your business25 than the Viability Board level questions.

How to do a commercial reality check.

THE VIABILITY BOARD â&#x20AC;&#x201C; A WEB DEVELOPMENT EXAMPLE Below is a Viability Board completed for a media website development. It had some strong points, as shown in the right-hand two columns, of which scalability was of course one.

The upbeat assessment of the proposition kicked the project off. (The narrow margin was an issue but typical of the media sales involved; it should have flagged the sales volume concern.)

These strong points were focussed on and they gave the momentum to establishing a heavyweight and technically able team.

Unfortunately, the subsequent points in Innovation Business and Opportunity were swept aside by the momentum from the first assessment.

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The three pass viability checks in the CV Viability Board

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At the heart of the proposal was probably a viable idea, but its later weaknesses - in the adverse and weak columns - led to its eventual undoing.

How to do a commercial reality check.

Commentary

High customer Many developments offer an interesting benefit, but it needs to value and motivate the customer to change. customer Something has value, e.g., if it has direct financial benefit on priority. mandatory need, e.g. accounts or regulatory requirements, or experience, e.g. in the tourism business. The value it offers practice.

offer significant value to costs or profits, fixes a offers a new rewarding is compared to current

Strong fit with You really want this to be assessed as „strong‟. If it is only „good‟ then the benefits (below) the business must strongly outweigh any drawbacks. Consider: situation and  What is stopping the customer making more revenue. way of life.  How can the customer lower costs. 

Does it improve customer engagement.



Have other issues always taken precedence.



Are there any financial or other barriers.

The customer view: 

Does the proposition fit with all key players in the target audience not just the user.



Does implementing it fit with the customers‟ capabilities.



Does it fit in with the time and place of use or delivery; it should fit with the values or cultural norms of the consumer; any necessary dependencies such as energy, materials, skills.

Better benefit / How does it compare with alternatives. Ask yourself and the customer the following: cost ratio  How do you do this now, what else have you considered. compared to  Why has this problem not been tackled before. alternatives. 

If bringing together sellers and buyers (or two sets of buyers in a two-sided market) do they have other, stronger ways of meeting up?

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Clearly core to your Innovation Business is your Value Proposition.

The table below lays out some questions to ask to get you to assess the real value - not just benefit - that a customer places on your idea.

Assessment

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ONE - IS IT A VIABLE CUSTOMER PROPOSITION

How to do a commercial reality check.

VIABLE CUSTOMER PROPOSITION – 2

Assessment

Commentary

Minimal adverse The impacts of your innovation may not all be beneficial, but the upside must outdo any impacts. downside.

It might hurt when you see the failure rate.

Are all Change Have all the innovation players and their roles now been identified. For each them products have the criteria that they will assess your innovation against been identified. identified.

Following that, have you got the change product / service / function / design that they require.

Often, this is treated as detail to be dealt with later on. Sure, there will be stuff like that; but too many times stuff which is left to later turns out to have a significant cost impact and delays the launch date. So if you want to do a decent, commercial Viability Check work through your set of change products needed before your Gameplan.

Viable product If you are not making enough on your product you have a business built on weak margin. foundation – is there a robust margin to weather ups and downs whilst you build the business.

Do they cover operating expenses in early days.

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Next time you watch „Dragon‟s Den‟, the TV product pitching programme, print this proposition list off and see how many ideas fall at these hurdles.

Core to this question is actually recognising that there are potentially adverse impacts, if not for the „customer‟ maybe for some staff within the customer business.

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So you‟d like to be an innovation geek?

How to do a commercial reality check.

Whereas the Value Proposition questions prompt you to ask if your idea has real, notable value for one customer, these questions are to ask „can you make a volume business out of it?‟

Balance business and market

I have heard the following: „This web product will work for both young, teenage girls and it will work for travelling business people.‟ There was a dissonant design conflict; you could not have an aesthetic or set of functions that would work for both market segments.

Commentary

Technically feasible.

In the Value Proposition check, you looked at making just one unit. Now, you look at commercial levels of production, asking if it works in volume. 

Can you manufacture it and procure parts for it.



Will the customer understand it.



Is it narrowly focussed, not trying to do too many things; does it crosscheck with Innovation Player needs and expectations.



Can expertise be bought in if necessary.



How many interdependencies are there.

Can you build the innovation product at reasonable cost and little supplier risk.

Business Model 0.1 Can you actually realistically build the chosen business model or does it just – architecture is look good on a whiteboard? realistically achievable. $ Sales – potential, You will need to work at „an order of magnitude level‟ here. accessible markets.

What volume do you need to now gain the target revenue? How viable is that volume and how long will it take to get there?

The market is growing and a way to access customers has been clearly defined, not guessed at. $ Sales – cycle time The time and resource to make each sale is compatible with the available practical. resources and customer acquisition needed for financial returns. $ Sales – industry Going with or going against the industry structure is neither right nor wrong, but positioning. you need to know which you are doing. If going against you need to assess whether the customer base will follow. If you have a niche, high value product can you get to and sell to the customers.

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The next step to move onto is whether you have a Viable Innovation Business. This is a business which will be able to reach the market in sufficient volume and profit, and with operations that can be built.

Assessment

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TWO - IS IT A VIABLE INNOVATION BUSINESS

How to do a commercial reality check.

Commentary

Business Model 0.2 What are the risks behind the revenues and costs. State: – Investment  Time to sales - How many months from investment to first market sales. metrics.  Time to breakeven - how long from first market sales to breakeven. 

Breakeven volume – what level of sales for breakeven.



Total investment required.



Assessment of the return on the investment (NPV, ROI, IRR)

Business Model 0.2 Are all these requirements achievable. If not, should you find an alternative, at least – Ops, assets, sales as a starting business model. engine viable.

Lean Business.

Has: 

EVO been identified that will focus development.



A clear, accessible Foothold Market been prioritised; planned customers are not locked in with competitors.



A minimum resources route been followed.



Are they all compatible.

Gameplan validation Is the development plan structured and scheduled to eliminate risks, be they – modules & trials technical, feature set, customer acceptance, etc. plan in place.

Ease of scalability.

Is your innovation concept a „one-trick pony‟ or do you have related variants available to consider later. Can the business be expanded at speed and with accelerating ratio of Return on Investment. In an ideal world: 

There is a big market and there is resource capacity to tackle it, and



The technology enables rapid development and scaling up of the business

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At the risk of sounding like Benny Hill in „The Italian Job‟, venture capital investors like them big. A lifestyle business can perfectly work as a „Viable Business‟, but external investors look for big returns and the ability to get an exit. The Investment Opportunity check points cover this territory.

Assessment

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THREE - IS IT AN INVESTMENT OPPORTUNITY

How to do a commercial reality check.

INVESTMENT

OPPORTUNITY EVALUATION – CONTINUED Partnership alliance strength.

/ Have you got people on your side.

Are they saying good things or likely to actually promote the product.

Innovation risk – How radical are the changes on these dimensions. business model, Are they predicated on actions or resources too far out of your control or the technology / design, customer‟s control, for both implementation & operation. customer impact.

Is the technology more research than development.

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Has the customer impact been properly estimated.

How to do a commercial reality check.

The „balanced situation‟ diagram below sets out a 'graphic checklist‟ of how coherent your business proposal is.

 There is a profitable market and there is sufficient sales and operational resource capacity to tackle it, and  The technology chosen will allow rapid scaling up of the business,  There is a clear message, focussed on one specific segment, without any dissonant directions, and  The innovation offering has a good margin and is much better than the current alternative, has priority at the customer, the design fits the customer‟s situation and there, and  The sale requires a small part of the available innovation business‟ resource so several sales leads can be managed in parallel, and  The sale value is substantial, the service overhead low, the revenue from follow-on sales has an upside and the network value of a customer reference is worthwhile, and  All the support for adoption for any innovation player is in place.

The balanced business

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A ROUNDED VIEW

Your preferred situation will be:

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FURTHER REALITY CHECKS OF YOUR BUSINESS

How to do a commercial reality check.

CONSTRAINTS Where might there be bottlenecks, where should you go looking for them? A common start-up issue is under-resourcing or not recognising that some of your own resource will be needed to make sales and maintain even a small level of business.

Use the following table as a prompt to check your perceptions about your customer and innovation player resources and needs. Change the player column headings to match your value chain. In some circumstances, some cells may be „not applicable‟.

(The delta Δ symbol means difference.)

The vision for a tourism business A business was being considered for a southern US city that will provide a new city tour, based on the entrepreneur‟s knowledge and admiration for her home city. She has spotted an opportunity based on a neglected historical angle.

Running a tour based only on the history angle



Limited to just the one city but offering different cultural tours in addition to the history pitch



A franchise business replicating the operational model across many North American cities.



.. And can one evolve from the other?

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The challenge early in the development is defining the business to be – is it:

How to do a commercial reality check.

FINALLY, SOME OTHERS’ PERSPECTIVES INVESTORS’ CHECKS

Is the opportunity attractive?

Professor Sahlman works in the field of entrepreneurship and has created a 26 succinct Business Plan review checklist, as below. Lerner et al provide an exhaustive review list, which is summarised in the second table. The CV process is designed to steer you to develop the answers and to build a viable business.

Customer Need - Is there a clear issue that the customer faces and do they feel strongly that they want a solution

Professor Sahlman’s ‘Good Business Plan’ questions

Market - Are there sufficient customers who are willing to pay enough to overcome the customer‟s problem.



Who is the new venture's customer.



How easy is it to retain a customer.

Competitive position - Can the proposition be developed and delivered by the team and will it be hard to copy or replicate, including barriers from Intellectual Property.



How much does it cost to produce and deliver the product or service.



How does the customer make decisions about buying this product or service.

Management team - is the management team a group of top calibre individuals, who have preferably worked together before.

Does it have both technical and business experience in the team.



How will the product or service be priced.



To what degree is the product or service a compelling purchase for the customer.

Financials - Can the revenues envisaged be obtained or are there any likely flaws in it really happening.



How will the venture reach all the identified customer segments.





How much does it cost (in time and resources) to acquire a customer.

Harvesting reward - can an exit be envisaged; a business with sufficient value that an Initial Public Offering („IPO‟) of shares can be undertaken or are there existing corporate businesses who are likely to acquire the developed business.

Based on an extensive list in „Lerner et al, „Venture Capital and Private Equity‟.

26

Harvard Business Review, 1999, „How to write a great business plan‟, Prof.

William Sahlman.

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How much does it cost to support a customer.

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HOW TO …

STORYBOARD THE DETAIL OF YOUR GAMEPLAN

How to storyboard the detail of your gameplan.

FULL BOARD, FULL KNOWLEDGE

THE DETAIL. The detail of what you should consider against each node is set out in this section.

What you will offer.



What your operational business model will be.



It captures the context of your business model, re: people way of life and the industry.



It captures how you will develop your business your EVO, your Foothold Market, your initial resources.



What financial and business metrics you will measure.



How you will manage the operations.



The evidence to support your direction.

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

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The full Storyboard provides the full, rich story of your Innovation Business. It will lead you to build a statement of:

How to storyboard the detail of your gameplan.

Storyboard Node People Community.

and



PEOPLE AND COMMUNITY

You need to consider individual roles of people at your target customer company, and across the supply chain, to include suppliers, etc. People to consider are covered in the „People‟ section. You may create or use a community that is loosely aligned around a common ethic or value, e.g. counting on the support of a writing community as Wikipedia does.

Setting

Problem / Opportunity.

The end user; the buyer; the approver, the accountant.

o

Other players in the customer value chain.

o

Specific groups, associations, etc.

o

Any particular community relationships, programming groups, inventors, lobbyists, etc.

e.g.

What is the situation the innovation will be applied to.



The business and / or the working environment. Consider the common SWOT techniques of the strengths, weaknesses, opportunities and threats to your anticipated customers.



Any relevant values or beliefs.



The current solutions / ways of achieving the need.



Current buying periodicity, etc.



As it says, what exactly is the pain being felt by the customer



What is the potential new opportunity.

PROBLEM / OPPORTUNITY. Are you clear about the problem you are solving, how valuable the opportunity is you will offer.

This knowledge is iteratively developed as you progress through Causeway Venturing.

o



SETTING The current business or work situation, be it physical, socialising, values, etc., need to be stated clearly, as this is the anchor for your business design.

Roles to consider:

behaviour;

e.g.

preferred

list,

trials,

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A distinctive aspect of CV is the focus on people and understanding their situation.

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PEOPLE

How to storyboard the detail of your gameplan.

PROPOSITION Obviously this is core to your whole innovation business, as it is what is being sold.



Your new Line of Business / Innovation Product/s.



A cameo customer pen portrait.



Summary of function and features (detail in the Design node).



Price & pricing basis (transaction, subscription, volume, etc.) and the financial terms for the customer.



What experience are you going to offer/ is required.



What need is met.



What value is offered, how significant is the value.

Customer Relationships.



What level, what content and how will relationships with customers and communities be created and maintained, across the customer journey (see Business Gameplan chapter).

Change Products.



The Adoption Requirements of Innovation Players and the Change Products to meet them, e.g., fit with internal policies, skill levels needed, etc.



Ancillary product such as consumables, update information, etc.



Customer priority for this product or aspect of the offer.



Impact for your business of delivering this item.



Both the positive and negative impacts on Innovation Players, e.g., installation required.



The resources the customer will need or the situation they will need to be in.



Alternative products, services or solutions. as defined by the customer, both existing and potential alternatives.

Offer

– the product or line of business.

Value.

Impacts.

(Pro and con).

Alternatives.

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Storyboard Node

How to storyboard the detail of your gameplan.

SALES This business model node covers whom you will sell to, how you will get it to them and where you will start in early days.

Storyboard node

Sales Engine.

The groups that make up the target audience.



The known size of the segment.



Is your channel to market approach characterised as:



„Personal, high contact‟.



An „Impersonal, low contact‟ approach.



What role will the web play.



Physical distribution if different.



Finance:



How intermediaries will be incentivised and controlled.



Cost of channel.

How much energy are you going to put into the chosen Channels to Market. 

A quantitative view of what are you actually going to do to get sales, e.g. Search Engine listings, conference speaking, direct calling, etc.



How many people, how many calls, how many sales visits, etc.?

Foothold Market.



Which will be the first market segment you will focus on.

Early Viable Offer.



The simplest viable product to go to market with, to test sales potential.

Sales metrics.



See next page.

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Channel/s to Market.



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Market segments.

Commentary

How to storyboard the detail of your gameplan.

SALES METRICS NODE

the

Sales (within the Sales Metrics node).

Product development & partnerships (within the Sales Metrics node).



How long will it take to gain the first customer and each customer.



What will the cost of customer acquisition be (marketing budget / # of customers).



How many customers can you sell to in the first year / what resource will you need to gain the desired number of customers in the first year.



How many contacts, with what conversion rate, are needed to gain desired number of customers.



What effort to make a sale (visits and days).



What is the cost of acquisition per individual sale.



What is the average lead time to make each sale.



What is the value of a sale.



What margin /financial contribution will come from a sale.



What discount do you anticipate for volume sales.



How many sales are needed to make the breakeven point.



How many sales per customer; is it one sale per customer or is there a repeat sale to a customer.



What products will add further revenue streams.



Will they add new customers or new follow-on sales to existing customers.



What territories and partnerships will be needed to gain breakeven revenue.

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Customers (within Sales Metrics node).

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Sales metrics

How to storyboard the detail of your gameplan.

OPERATIONS

Assets & Resources.



The infrastructure needed, capacity, the resources to be processed, or people and skills to operate the business.

Business Activities.



Operations are extensively discussed in the Gameplan chapter.



As a minimum and as set out in the Gameplan chapter, there needs to be an activity to:



Produce each change product.



Provide some contact with each innovation player.



Deliver the proposition.



Get revenue in.



Which organization or specific people do you need to work with.



Covering: suppliers, distributors, alliances, regulatory, industry bodies, opinion formers, etc.



What data, resources, finance, etc., will be exchanged?



N.B. you should consider the nature of the relationship in similar lines to those with Customers and Communities.



How are you going to run the business to meet business goals.



How are you going to manage supply and demand fluctuations.



How could you ramp up quickly or rein in costs.

Partners.

Organization.

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Storyboard Node

How to storyboard the detail of your gameplan.

OPERATIONS METRICS Assess: o

The capacity of each asset.

o

Number of asset type.

o

The utilisation of each asset.

o

What output /performance levels.

o

What response times/ service levels required.

o

What cyclic variations in volumes are anticipated.

o

What specific locations / or facilities needed.

o

Quantity (or specific location, etc.) of resources and assets needed.

o

Type of facilities needed:

o

Location requirements needed - physical, style, location, availability / service provision, security, etc.

o

Resilience to demand fluctuations, up and down

o

Resource availability.

o

Skill dependency.

o

Lead time, MOQs placed on you (Minimum Order Quantity).

o

Delivery time to offer to a customer; is it satisfactory.

o

What MOQ will you set.

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ď&#x201A;ˇ

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Operations metrics.

How to storyboard the detail of your gameplan.

FINANCIALS NODE 

Bases for charging (subscription, transaction, etc.) and gaining revenue.



What paying for; what triggers payment.

Cost drivers.



What will be the main elements driving your cost base, i.e. the ones that have most impact on margin.

Cashflow section:



# of Customers.



How many per year. (Strange to say quantifying this is pivotal to understanding but not done often enough.)

#of Sales.



How many sales units (not revenue). What is the ratio per customer; does your operation run smoothly for this number?

Development costs.



The costs of creating the proposition product.

Revenues.



The sales income from revenue streams, price and unit sales.

Cost of Sale.



The cost of the sale (direct costs, not including allocated accounting costs)

Marketing & Sales costs.



As it says.

Operational costs.



As it says – N.B., don‟t double-count marketing and sales costs here.

Staff costs.



As it says.

Capital Expenditure.



Expenditure on fixed assets („CapEx‟).

Net Cashflow.



Net sum of the above by period.

Revenue streams.

This will either be used i) at an outline level and you will develop a detailed spreadsheet or alternatively, ii) later on as a summary of your detailed working.

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Storyboard node

How to storyboard the detail of your gameplan.

FINANCIAL METRICS Consider performance metrics. 

What fixed costs are you committed to. What alternative cost structures, e.g. leasing, facility sharing, have been considered.



Sales expense / sales revenue ratio by quarter.



Have you adequately costed conferences, exhibitions, travel, set up costs.



Cost of customer acquisition.



Review your major cost-drivers. What expenditures must you commit to, to „be in the game‟



How easy is it to control operational costs / ramp up.

Consider investment metrics as follows. 

Time to sales - how many months from investment to first market sales.



Time to breakeven - how long from first market sales to breakeven.



Breakeven volume – what level of sales for breakeven.



Total investment required.



Assessment of the return on the investment (NPV, ROI, IRR).



Investment required and schedule.



Burn rate; what level of funds spent per month.



Working Capital required.



Minimum margins required.



Significant expenditures – development, expansion, capital expenditure.



Ancillary expenditures e.g. channel incentives, licence fees.

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Operational financials:

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Financial metrics.

How to storyboard the detail of your gameplan.

DYNAMICS The topics grouped here are: 1. What is the current way of working in your target industry, who are the competitors and what, and how, do they sell.

2. As you progress through CV, how does your view of viability change and how does your proposed business model change to reflect your growing knowledge.

3. When pitching for investment, what investment is needed in what funding rounds and with what anticipated return across time.

Storyboard Node 

The legal, government or societal forces influencing the business. This covers any „PEST‟ (Political, Economic, Social and Technological environment of the industry) analysis work done.



Porter Five Forces style analysis – the degree of competition in the industry, the bargaining powers of suppliers to & customers of the company, threats of new entrants & substitute products.



Product / Price / Performance gap analysis.



Competitor and competitive situation



Industry structure.



What barriers to entry you might have.

As per the Viability section assessment: 

Is the Proposition, relevant, adoptable and offering significant additional value.



Is the business viable, i.e. it is profitable at a low level of sales.



Is it scalable and so a good investment.

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Viability

and As set out in the Evaluate Viability section:

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Competition Industry.

Commentary

How to storyboard the detail of your gameplan.

GAMEPLAN A synopsis of what your innovation business is and, importantly, how it will be developed. This may overlap with the Pitch, the latter being more the spoken statement. Consider noting: 

Business Model synopsis



Any distinctive market approach, as per Zagula and Tong „Market Play‟ (see Gameplan chapter).



Hypotheses to prove.



Customer & Market development.



Product roadmap.



Current status and how you will develop the business.



Business Model archetype.



Critical dependencies & metrics.



Operations development / expansion.



Market segments.



Product features and functions.



Product variants.



Pricing and / or cost development.



Plus any key dates, key events.

Technology: 

What will you use, what will you not use.

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After the Early Viable Offer what will you do? Here you state your anticipated sequence of development for:

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Gameplan

How to storyboard the detail of your gameplan.

PRODUCT Covering from prototypes through the proposed product roadmap.

Storyboard node Prototypes.

Design.

Commentary 

Prototype type, audience and lessons learnt.

User considerations: 

Physical – weight, noise, visual impact, environmental, etc.



Meeting legal, regulatory and other standards, working environment.



Performance, Form and Style, Ease of use.



Durability, flexibility, robustness, etc.



Architecture or configuration requirements.



Extensibility /add-ons possible.

Internal / own business considerations: 

Ease of manufacture, ensuring a wide range of suppliers.



Ease of maintenance or repair post-sale.



Designed for built-in Intellectual Property.



Compatibility with standards or other products.



Value Engineering –meeting the requirement at lowest cost.

External business considerations:  

The modules that will be built.



The trials with external people to be held.



Review teams.

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Trial schedule.

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Trials

Regulatory, standards, legal, safety, etc.

How to storyboard the detail of your gameplan.

PITCH Capturing how you will express your proposal.

SITUATION Capture your descriptions of how the innovation business will be experienced, the background evidence and relevant IP.

The situation node.

The Pitch node.

(See the How to Pitch section.)



The Persona User pitch.



The Soar Business Pitch.



„Moore‟s‟ Elevator Pitch.



Business Model synopsis.

Storyboard node Day in the Life.

o The key aspects / archetypes of your business model, e.g. Freemium, peer network marketing, high utilisation, etc.

Business notes.

Intellectual Property.

Commentary Case stories, based around innovation players and how they will experience the innovation. 

Cameo statements of usage, experience, etc. for each Innovation Player.



May refer to the User Journey „touch point‟ and the product /change products.



Consider what might be done if an adverse outcome occurs.



No doubt you will want to make notes of supporting articles or other research.



Comments and feedback from encounters with your innovation players, e.g. from prototyping sessions.



Intellectual property to be deployed.

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Pitch.

Commentary

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Storyboard node

How to storyboard the detail of your gameplan.

THE CONTEXT FOR THE INNOVATION

Title, version and date.



Basic labels for your project.

Concept.



The inspiration for your innovation work, be it a business opportunity, a new technology or a market or industry change.

Exit.



How do you see the investor realising their investment?

If you are working in a corporate environment when does it become mainstream?

Notes



General notes you wish to keep (for the Storyboard software version).

Method



Link from the Storyboard to the method (for the Storyboard software version).

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Storyboard Node

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HOW TO …

PITCH SUCCINCTLY

How to pitch succinctly.

A STORY WITH PERSONALITY

THE STORYBOARD - A COHERENT, KNOWLEDGEABLE PICTURE

Pitching is often thought about after the business planning has been done. CV gets you to reverse this sequence.

It is too easy to become boring, formulaic27 and not state what is specific and interesting about your innovation. CV provides you with two templates that help you tell a top-level story, not a monologue of facts, that your audience can identify with.

SUCCINCT, ENGAGING NARRATIVE ABOUT YOUR BUSINESS You will need to find ways of quickly communicating your innovation story to many people. Your communications will need to work at different levels:

1. Pithy top-level, succinct statements that convey tightly-defined messages



Walk through a business idea with business colleagues and partner discussions



Be reminded of what you need to have considered before you go to the world



Provide the basis for coherent and interesting presentations in a pressured world.

2. An intermediate, more expansive view that covers the whole innovation business with the key points which demonstrates how all aspects fit together

WHEN DO YOU DEVELOP THESE PITCHES?

3. Detail statements of the innovation and the mechanics of the business.

Secondly, they are part of the Causeway Venturing‟s „sense checks‟ package; if you cannot pithily state what you have on offer, it is probably not yet ready for development and investment.

From day 2 of your development. Certainly, not on the day you present to an audience28. Smooth pitches inspire confidence for one thing.

The Causeway Innovation Storyboard will help you „discuss, design and deliver‟ your story. It provides the mid-level communication tool from which you can extract your top-level pitch.

27

If you are looking for displacement activity do a web search on < Gettysburg Address PowerPoint>.

28 Steve Jobs is often forwarded as a great presenter. One reason – he rehearses many times to make it flow naturally.

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Second, recognise that you don‟t have one pitch; you need at least two, one for the customer, and one for the investor. CV covers these two.

The Causeway Innovation Storyboard is a tool that will provide you with an engaging way to tell the richer picture of your innovation business. As it covers all the main points of an innovation business you will be able to:

Page

First, start practicing your pitch early on, because it is a test of whether you have got something people will readily understand and consider buying and it is a test of whether you have a clearly focussed proposition for a focussed market.

How to pitch succinctly.

People

Think of them as having names and personalities…..

GIVE IT PERSONALITY Endeavour

What they are doing, in what period, how frequently.

Result

What is the outcome they want

Setting

Where are they doing all of the above, what time of day, physical demands, data missing, etc.

The most important message is put a personality into your customer pitch.

Open your pitch with a relevant customer doing something which your innovation is going to improve.

By injecting some character into your story the listener is far more likely to understand where your innovation will have an impact. The Causeway „PERSONA‟ tool does this. It gets you to move your opening statement away from „product and technology‟ to the situation where it will become established.

PERSONA opens with the current scenario and closes with what you propose and its worth, as tabulated here.

SEQUENCE You don‟t have to follow PERSONA in exact letter sequence, but it will be a solid basis for presenting an engaging story to an audience. You may find it easier to remember the mnemonic as „PERS-ONA‟ with a hyphen to indicate the break between the current situation without your innovation and the future with your innovation.

The PERSONA elements

PERSONA continues with what you are proposing.

Offer

The innovation product or service; you should try and get this down to 6-10 descriptive words.

Needs

What the people will need, what are the requirements, expectations, dependencies, etc., to use the innovation.

Assessment What are the pros and cons, the benefits and drawbacks of your proposal. In a short statement, you would focus on the benefits, including a metric where appropriate, be it faster, cheaper, experience, more customer revenue.

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Two short pitches will give you easy opening statements before you move on to the details of your Storyboard. Know these and the content of your own storyboard and you will be prepared for most situations. The first is the customer PERSONA pitch.

Talk of a job role, a group of people, a family group, etc. You might choose either the buyer (and so operator) or the end user. Don‟t talk of demographic groups or markets.

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THE ‘PERSONA’ PITCH FOR THE USER

How to pitch succinctly.

THE ‘SOAR’ PITCH FOR THE BUSINESS

The SOAR pitch overlaps with the PERSONA PITCH to a small extent, as you need to know the current situation to grasp the solution. But they are intended for different listeners, so you will know when to prioritise which of the two.

Note that if you go with just Solution and Return you pretty much are in the same territory as customary (Moore‟s) Elevator Pitch (below).

Solution

What we are selling / developing is…..

Which solves the problem / offers a solution to ….

That … [particular people] have

Operations

The essential business activities to achieve this are [with a focus on making and selling activities]

Assets

The people, infrastructure, capital assets we will need are

Return $

The revenue streams.

Margin we can make.

The sales volumes and profits we anticipate.

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„The solution we are building does this… for …people. It runs using … operations and … assets. Financially, these are the returns we anticipate…..‟

The SOAR elements

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The second pitch is for the investor. The SOAR pitch brings attention to what you are going to offer and the business that will make it happen. It summarises:

How to pitch succinctly.

ANOTHER APPROACH – THE ELEVATOR PITCH CV‟s PERSONA and SOAR tools are versatile and easy to apply. However, you are bound to be asked what is your elevator pitch, which is a longestablished pitching tool. So here is the format.

75 WORDS OR 30 SECONDS The term „Elevator Pitch‟ comes from the scenario that you have got into an elevator next to an important person you want to impress and you need to compress your offer into a 30 second statement. Its merit lies not only in communication but getting you to be absolutely clear about what you intend to 29 offer. Geoffrey Moore provides the following structure.

GEOFFREY MOORE‟S ELEVATOR PITCH TEMPLATE

The elements of Moore’s Elevator Pitch Our product is for <the target customer audience> Who are dissatisfied or unfulfilled by <current market alternative> Our product is < product top line description> Which provides <problem-solving capability and benefits> Unlike <current the product alternative> And we have assembled < key whole product features>

[By the way – there are 67 words in that paragraph.]

FIND YOUR OWN FLOW Find a natural flow that works for you. You might find it suits you to state your top line description first. The origins of Moore‟s analysis are in computing products and the product focus is still there.

The PERSONA and SOAR pitches were created from personal experience, which highlighted that you need two stories, one for what the customer would get and the second for what an investor would.

29

Geoffrey Moore, Crossing the Chasm.

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They were developed from my observation of Silicon Valley Venture Capitalists; they express their investments in terms of people, situation and problems solved. Politicians do the same thing, using examples of specific individuals with problems or issue, e.g., you might remember Samuel Joseph Wurzelbacher - „Joe the Plumber‟ - from the 2008 US presidential campaign.

How to do project management in CV.

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HOW TO … DO CAUSEWAY VENTURING PROJECT MANAGEMENT

How to do project management in CV.

THE DISTINCTIVE NATURE OF INNOVATION RISK Innovation risk is quite different from „normal‟ project risk.

the development objectives being de-railed by interfering factors‟.

Traditional project management approaches assume the goal is clear, known and wanted; the future is known. If you are building an air terminal, for example, this makes sense.

BUILT IN Innovation risk management is not an add-on, it is built into CV. If you are building an unknown future, and want to lead change, then the CV approach is the one to use.

The innovation future is largely unknown or at least in a state of flux. The outcome is driven by customers and innovation players, and you are trying to lead them in a change exercise.

Innovation risk is characterised by validating whether „it is relevant to the customer, can I get a sufficient market group to change, can I find a business model that meets my commercial and the customers needs‟.

Causeway Venturing - Dealing with ‘Unknown Unknowns’

UNKNOWN UNKNOWNS To paraphrase Donald Rumsfeld30 traditional project management risk is about the „known knowns‟, but Innovation Risk management is about the „unknown unknowns‟.

Causeway Venturing risk management is concerned with turning „unknown unknowns‟ into „known knowns‟.

30

‘Rum remark wins Rumsfeld an award’, http://news.bbc.co.uk/1/hi/3254852.stm

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Compare this to the risk perspective in standard project management methods, which is about managing „how do I stop

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It is about exploring and getting knowledge of things you did not realise that you needed knowledge about. You have to engage with Innovation Players as only they can bring your attention to these issues.

How to do project management in CV.

THINKING AND DOING - TRADITIONAL VS. CV APPROACH Risk.



Minimise risk of non-delivery.



Maximise fit to customer.

Focus



Technically proven product for end user.



Develop a viable business offering.



Nature of the product and market launch assumed at start of development.



An „adoptable product‟ at its core.



Manage change, including change products.



Beta trial product to few customers.



Engage customers from start.



Big marketing launch.



Give close support for early customers.



Build alliances with pivotal players.

Customer development



„Knowledge at a distance‟- market reports and focus groups.



Seek first-hand customer experiences, in situ.





Identify all innovation players early on.

Testers test built products.



Co-opt customer triallists in development.



Prototype to test technical structure.



Prototype to define business fit to customer.



Build to full specification and launch.



Build Early Viable Offer (EVO) then expand.

Business model



Build to designated end model.



Launch intermediary model with EVO, then ramp up.

Plan structure



End products.



Customer experience and gained knowledge.



Progress checks against built product.



Progress checks against Viability Board.



Sign-off against specification.



Customer engagement in development trials.



Build basis – outline development schedule.



Build basis – modules against players: EVO,



Marketing – group research; launch communications.



Marketing –engage customers, build alliances.



Product – new product development (NPD).





Finance – assess business plan: budget the development.

Product – „NPD‟ for product spec, Causeway for innovation business.



Business - manage risks of developing full innovation.

Finance – finance smaller chunks; finance building innovation capital.



Business – manage risks through minimal resources to launch an exploratory product.

People

Product

ACTION

Roles



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THINKING

CV project management

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Product-driven project management

How to do project management in CV.

OUTLINE CAUSEWAY VENTURING PROJECT TEMPLATE

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The diagram sets out outcomes, evaluation, people for you to build into your project plan, as well as likely financing in a Causeway Venturing project.

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HOW TO …

GET CREATIVE

How to get creative.

Roughly speaking, Karma is your destiny based on the sum of all your actions in the past.

This is the process of working from a start point to see where you might be able to uncover an idea suitable for an innovation business. The methodical approach in the How to … Innovate section is aligned to a rational approach.

Starting points could include any of the following or a mix of: 

„Innovation Karma‟ is about finding a destiny from previous actions; it is the process of getting out and seeing what is happening, what others are doing, what approaches or techniques they are taking. It is the process of creativity by doing.

So:

Customer. 

A customer segment not being served.



A customer need or goal not being met; (www.worldstores.co.uk have created niche businesses based on analysis of unfulfilled Google searches).



Technology change – allows unmet need to become a met need, or changes cost/benefit.

1. Do stuff; set up meetings; talk to people; set deadlines to find ideas on the web, ask questions on LinkedIn, etc.



Design change – improve customer cost / benefit, own cost base or improve differentiation.

2. Identify what annoys you – when you find yourself saying „if only they would‟, ask yourself who you could work with to make it happen.



Process. Improving, optimising, segmenting, etc.



Finance.

3. Seek simplification, removal of inefficient processes. improve them.

Could you

4. Find „Extreme Users‟ - find people who play with the existing products, e.g. at inventors‟ networking groups.

5. Consider creativity from the collision of ideas, consider what might happen if you combined two concepts, e.g. mobile phone and ticketing, food and offbeat location, etc.





Cost / revenue changes.



Changing the financial dynamics / cashflow.

Assets and resources. 

Re-use of materials, resources.



Pooling resource and knowledge to create new propositions.



Policy, regulation, macro-world changes (such as renewable feed-in tariffs).



Meeting social goals.

6. Find techniques from the web.

Business outcomes; meet the end objective not just improving the current process.

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INNOVATION KARMA

INSPIRATION RATIONALE

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You can be methodical or inspirational but you will probably need both flair and rational thinking!

How to get creative.

IDEA GENERATION - FROM LEAD OR EXTREME USERS

Adventurous farmers added bikes to water pipes…..

There will always be people within a group who are heavy duty users and who lead in adapting the existing product to push it to its limits to achieve new productivity and efficiency.

31

Professor Eric von Hippel argues strongly for finding these „lead or extreme‟ users. For example, if you are designing a new toy for young children you might consider visiting a nursery, to get the staff‟s assistance (the kids might be sweet but probably not succinct).

An insightful example von Hippel uses is that of Mid-West farmers who adapted irrigation pipelines in the early part of the 20thc. By putting the pipelines on to frames with an adapted bicycle at either end the first moving irrigation system was created, with far higher productivity of irrigated area per day. That design is now industrialised and a standard approach, as illustrated here.

Professor von Hippel, Professor of Technological Innovation in the MIT Sloan School of Management.

During a one-hour session with the lead training officer at a nuclear waste plant, I gained over a dozen simple changes to the existing welding product. My approach was simply one of asking the question „take me through the user‟s day, starting with „I arrive at work‟‟. The tool in use at the time met the procurement specification but when held away from the body it was cumbersome to use because of protective clothing and eye goggles. The improvements would make it easier to use.

The training officer was the best person to meet as she met all the operators and their line managers to embed safe working practices. The nuclear plant operatives were going to be the most demanding users we could think of (and a great reference if we could get it right).

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Demanding users at a nuclear waste plant

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Consider who would be an intensive user for your innovation domain, somebody who is likely to have a desire to modify the product to get the best out of it. Asking members of trade groups is a starting point to find these people.

How to get creative.

BETTER, FASTER, CHEAPER - IMPROVE THE „VALUE TRADE-OFF‟

IDEA GENERATION – THE FIVE PATTERNS APPROACH TO PRODUCT RE-DESIGN Five innovation patterns for inventive product design have been set out by Goldenberg et al.

It is a good kick-off point for new product ideas.

32

1. Subtraction – take something out, e.g. take legs off a kid‟s chair, support it on a table edge.

2. Multiplication – multiply components and change role of each e.g., multi-blade razor.

3. Division – separate units out as with HiFi, sell different grade headphones, spread the times that in-flight meals are available in business class.

The story here is simple – can you find the potential for notably better, faster or cheaper? The line of inquiry is to ask whether more can be done for the same cost or do the same for less cost. This is about finding a new „value trade-off‟, i.e. delivering faster or better for the same money or the same performance at lower cost.

A variant on this line of thinking is the „good enough‟ approach33, where customers could afford more but choose to only take what they need at an ever-decreasing price. An example of this is the emergence of the Netbook PC, which is portable and focuses on the basic business tasks of net connectivity for email, as well as reading and writing reports, presentations and numerical analyses.

4. Unification pattern – double up on role, e.g., windscreen heater as radio antenna.

5. Attribute dependency – change assumed links between two characteristics or features, e.g. alter the character of firmness across a bed mattress, introduce automatic tinting to prescription glasses to make one pair work in varying light conditions.

32

Finding your innovation sweet spot, Review.

Goldenberg et al, March 2003, Harvard Business 33

The Economist, „Less is Moore‟, January 17th 2009.

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Unify a cardboard neck with drinks bottles and so you have the ‘BobHanger’. (Surely, a bit bulky in the wardrobe?)

How to get creative.

IDEA GENERATION – LEAN THINKING

THE LESSON TO TAKE ON BOARD

Womack and Jones 34 have led work in the field of Lean Production and Management. It is a substantive discipline in its own right but its main principles are:

Do not focus solely on improving efficiency of what is already there, but to consider the outcome and (re-)design processes to achieve that outcome.



Customer value. In defining „value‟ to be delivered you have to start with the customer to explore what they actually value – it may not be „faster or cheaper‟ but consistent or complete service for example.

Match your market segment to the service offered, e.g. for technophiles or technophobes.

Ideas sometimes come before the technology or market is ready but that does not mean they are not worth considering. You should ask two things at least, a) what light does it throw on creating new ideas and b) if not now, when and what needs to be done to get there.



Value stream. Weed out any activity which does not assist in delivering that customer value.

Samsung launch solar-powered mobile in 2009



Keep work flowing as opposed to batched up. Storage time (including transport) locks in working capital.



Let work get pulled through. demand for it.



Improvement. Once you have re-organized your work system start on tweaking and improving it to better achieve the customer goal.

Many grocery companies do home deliveries. At the time of writing one UK company is going for an IPO and the hackneyed press coverage is calling this „another dot com flotation‟.

Forget the „dot.com‟, look at the customer value. They see elimination of the hassle of travel, parking, finding a trolley, an hour or more shopping, queuing at the checkout, etc., etc.

34

James Womack & Daniel Jones, Lean Thinking, 2003.

In the year 2000 or so I was with a group of engineers at a mobile network operator where I was working met to brainstorm new ideas.

A marketing copywriter was invited, who suggested a wind-powered rechargeable mobile phone. She herself dressed in a slightly offbeat manner. This combined with a short-term need for „quick wins‟ and the engineers‟ quick appraisal of the weakness of the form factor, led to the idea being binned quickly.

However, if the idea had been re-cast as how can we a) make the phone ‟green‟ or b) release the user from mains electricity sources, a new stream of ideas might have emerged. As it was a network operator business, in reality the idea may have best been driven by the „phone manufacturers. However, it turned out she was a mere decade ahead of the engineers. The lesson is that all brainstorming participants need to step back and search for latent value in a proposal.

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FOCUS ON OUTCOME

Daft at first, reality 10 years later.

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Only do something when there is a

IDEA GENERATION - DON’T KNOCK LEFT-FIELD IDEAS

How to get creative.

IDEA GENERATION - NEW BUSINESS MODEL AS INNOVATION

IDEA GENERATION – TECHNOLOGY APPLIED TO A HIGH VALUE NEED

Changing the business model is a major source of innovation in its own right.

It is such a big area to cover, it is given its own section earlier in this book, where some examples of new business models are given.

Technology can of course be a starting point. The trick is to find applications or routes to market that are going to deliver distinct benefit.

FULL EXAMINATION In the „Business Model as Innovation‟ section there is a long list of Business Model levers to consider pulling and archetypes to consider applying. This can be a fertile source of idea generation for new innovation.

Roll7‟s work with gaming software and specialist headgear is novel in its 35 application to resolution of ADHD children‟s needs. Distinct need is there for sure – they have several hundred thousand pre-orders.

Roll7’s gaming for ADHD support.

You should take each element of the Business Model and consider changing it.

Whatever the Business Model you adopt it will have elements of some or all of the following considered in the Business Model section. It will be quickly obvious that change of one element is often related to or even predicated on change in another, i.e., they are not mutually exclusive.

DO YOU NEED TO CHANGE THE BUSINESS MODEL

35

ADHD – Attention Deficit Hyperactivity Disorder.

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Note: it is not necessary to change an existing Business Model if it is working well.

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HOW TO …

GET INSIDE THE HEAD OF AN INVESTOR

How to get inside the head of an investor.

WHAT TO CONSIDER? Professor Sahlman’s ‘Good Business Plan’ questions



Who is the new venture's customer.



How easy is it to retain a customer.



How much does it cost to produce and deliver the product or service.



How does the customer make decisions about buying this product or service.

Secondly, if investing early on they want a big share of the funding cake. With successive investment rounds, that cake gets bigger but their existing slice is a smaller slice proportionally. Taking the early big slice reflects the riskier position they are taking for coming in at the early, riskier time.



How will the product or service be priced.



To what degree is the product or service a compelling purchase for the customer.

Now you know this, then it makes sense for the entrepreneur to take as much risk out as possible to protect their position. The CV approach is driven by this axiom.



How will the venture reach all the identified customer segments.



How much does it cost to support a customer.

THE ROLE OF FUTURE VALUE, FUTURE RISK



How much does it cost (in time and resources) to acquire a customer.

The investor, in particular the start-up Venture Capitalist, is often seen as wanting a high price for their involvement. One way this is seen is in the amount of equity they want to take. The rationale for this is walked through in this section. The assessment of risk and likely success is core to their thinking, which is why Causeway stresses managing innovation development risk.

VIABILITY REVIEW - A VIABLE BUSINESS The Business Gameplan should be a comprehensive statement of what you plan to do, why and how you plan to do it. Following the CV approach you will be able to answer all of the Causeway Viability or Professor Sahlman‟s good 36 business plan questions , which are repeated here.

36

Harvard Business Review, 1999, „How to write a great business plan‟, Prof.

William Sahlman.

VIABILITY REVIEW - IS IT A GOOD, SCALABLE INVESTMENT? The Venture Capitalist („VC‟) investing in a start-up probably takes the most exacting view of innovation investment. They are investing money from sources such as pension and endowment funds and simply put if they are not successful their VC career falls away rapidly. They work at the risky end of finance, but are ironically, risk averse.

So the VC is extremely selective in what they back. In particular, they want to see a scalable business, i.e. one where it takes little extra effort to make additional sales.

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An investor is probably looking at several investments. The investor, especially Venture Capitalists, expects only a small percentage of the companies they invest in to be winners. So they want to get the biggest equity share they can in each company, so that the returns on the successful investments make up for the losses in the others.

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The entrepreneur is looking at just one business development and sees funding as low-risk and something needed to fuel essential activity.

How to get inside the head of an investor. 

Manufacturing – can you make it or get it made to the quality, volume, price and lead time you need.



Critical resources – if your business model is predicated, for example, on a supplier doing something they don‟t currently do such as send pallet loads not truck loads, or that you must have the best chef, or you will be able to negotiate access rights with a farmer who has the only route to your site, then you have a high risk.



Product itself – „faster, better, cheaper‟ have the least risk as from an innovation perspective they carry the least degree of change.

However if you are introducing a new application, doing something different or in a new way, there is a big risk as to whether the customer has the same enthusiasm as you do.

MARKET POTENTIAL The principle items to consider here are:

TIMEFRAME The points to consider here are: 

How quickly can you get to positive cash flow, i.e. you have more money coming in than going out.



When will breakeven occur, i.e. the amount you have earned to date equals the amount you have spent so far.



When will your innovation business be ready for an exit, be it a public share offering or an acquisition.

TEAM If the team has not got the ability and / or the experience plus has access to the necessary development skills and resources, then this is seen as another big risk by VCs. This is the „execution-ability‟ risk.

GOAL ALIGNMENT COMMERCIALLY If you are going to sell to or use businesses who make money from a different business model or product feature than you propose, then they will block your innovation.

RISK

INVESTOR AND ENTREPRENEUR

„Potential‟ and „Timeframe‟ are risks in their own right, as there is an element of judgment in their appraisal. You should also consider what other risks you have, including:

The investor will want to hear that you both have the same objectives; much of the „cap sheet‟ (the investment schedule) is there to reinforce the investors‟ goals and interests.



Technical - which is obviously a common risk in innovation businesses



Business model - how you are going to run the business, get to customers and make money.

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 How compelling is the purchase as Sahlman puts it. Alternatively, to put it in a more vernacular way ‘do they feel the pain?’ i.e. is it a prominent and vexing problem that the customer wants a solution to.  How widespread is the problem, i.e. how big is the potential market?  Does the channel to market allow sales to be achieved. As CV puts it remember to differentiate between the sales market and the user market; if the former are few and committed to an alternative you are going to face an uphill struggle.

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However, whatever the scale of your business the principles that the VC startup investor uses can be re-applied to any innovation. These have been covered in the Viability chapter but the prime ones are re-considered here.

How to get inside the head of an investor.

STRUCTURING YOUR APPROACH FOR INVESTMENT RISK MANAGEMENT

GRAPHICAL ANALYSIS OF THE VC INVESTMENT THINKING

Frequently the pitch for funds will go along the lines of ‘this is my invention, this is the big target market, this is the money needed to get from here to market launch’.

The diagrams below go through the thinking of a VC in appraising your innovation proposition step-by-step.

RISK ELIMINATION, HYPOTHESES TESTED

The first diagram represents the first approach to your proposal.

The learning that can be taken from the VC appraisal process is this – structure your development and your pitch for funds to reduce risks. Your pitch should be clear about what you have learnt from actually speaking to customers, along the following lines: 

This is the invention



These are the customers we have spoken to



They tell us this is the value



These are all the adoption criteria we have to achieve to get them to make the change to our innovation



STARTING POINT 1. The y-axis represents the value of the innovation business or your development and the x-axis is time.

2. The two vertical lines represent value now and the value at maturity or exit (sale or public share offering).

3. If you ask for an investment, say 1 million and your current value is 2 million you are, obviously, going to cede 50% of the ownership to the investor.

4. With no other changes between now and maturity or exit, the investor will still have 50%.

5. So now they work out what the probable value of your innovation

And these are the risks we see, this is how we plan to tackle them and so this is how we propose funding be structured to match the risk profile.

HOW IS RISK REFLECTED IN THE VC’S INVESTMENT TERMS

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So how can you improve your pitch for funds? It is worth mechanically stepping through the VC‟s mind when they are working out what to invest and for how much shareholding of your business.

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Surely the investors will be fighting each other to invest in your innovation? Well that does happen but so rarely it can be assumed you have eliminated that from consideration.

How to get inside the head of an investor. business will be at maturity and whether their share is worth having.

(You can read for hours on this subject, but it is this simple in its fundamentals.)

SECOND PASS, THERE WILL BE CHANGES The right-hand diagram is explained as follows: 1. It is likely that there will be future fundraising rounds in a VC-backed development.

2. So, when this happens the total number of shares will be increased, so the original investor‟s shareholding will be diluted, i.e. the amount they will own at the maturity point will be a lower percentage overall of the final value. So, they are going to get less return on their original investment than they might have expected.

the steps illustrated in the fourth diagram. They will discount their share of the final value by taking into account: a. The time value of money (the time value of money concept – represented by the discount rate - depreciates the future value to what it is worth today). b. The lack of liquidity when it comes to selling (few buyers means fewer chances to change equity into cash). c.

The probability of success.

3. After all that if the risk-reduced exit valuation is not enough compared to the initial investment they don‟t go ahead.

THIRD

PASS, THE ORIGINAL INVESTOR STARTS PROTECTING THEIR POSITION

2. Next, and this is where they get aggressive in their valuations, they take

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1. First off, they increase their initial shareholding request so that after it has been diluted – from the total share pool getting bigger with future investment rounds – their final shareholding is more to their liking.

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The original investor starts thinking „hang on, I am taking a high risk coming in at the beginning, yet my potential return is going to get cut back‟. So, they start doing something about this, as illustrated in the third and fourth diagrams:

How to get inside the head of an investor.

THE TIMEFRAME CAN MAKE IT EVEN LESS DESIRABLE

SO, HOW CAN YOU MAKE IT A MORE ATTRACTIVE INVESTMENT?

The longer it takes to get to the â&#x20AC;&#x17E;maturity pointâ&#x20AC;&#x;, the less the financial benefit will be (because of the time value of money) and the risk increases because a) the competition might get their act together and b) you have more chance to get unfocussed.

It is almost inherent with innovation projects that they have the highest levels of business development risk. (Large capital projects with uncertain estimates might fight for this status of highest risk.) It really is necessary to do anything which is going to reduce the risks of wasting time and money.

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The more risk you have then the greater the share of the company the investor will want. If there are any fatal flaws or the sum of many small risks is too great the investor will walk away. Their view of risk will have gone from high to untenable.

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HOW TO …

THINK ABOUT MARKETS

How to think about markets.

People in a market segment reference each other

DIFFERENCE BETWEEN USER AND BUYER MARKETS

Moore’s market parameters

Commentary

A set of identifiable actual or potential customers.

If you are going after a huge user market through a small number of sales opportunities, you will find it tough to get going (due to buyer power and just getting the desired attention). It might prompt you to re- consider your business model.

Customers in an industry or area of practice e.g. airfield owners, divorce lawyers, who are readily identifiable by a label (& so can be found using marketing databases).

For a given set of products or services.

Who have a need for a particular configuration of a product or service, e.g. security services, legal briefings.

PRACTICAL GUIDANCE FOR DEFINING A MARKET SEGMENT

Who have a common set of needs, wants and values.

Who want certain adoption characteristics to be met- such as timing, specification, flexibility, operational desires.

Who reference each other when making a buying decision.

Who contact their colleagues or observe them indirectly, to see who is buying what and to what goal.

This is one of the most insightful characterisations on defining a market.

However, you need to be aware of other viewpoints: 

A „product market‟ 37 being one where the customer is seeking a product where the technology or service is a prime factor, e.g. biodegradable plastics, high-service hotels.



A „solution market‟ where the customers are seeking resolution of a need e.g. „green‟ degradable sandwich packaging could include biodegradable plastics or cardboard.



Segmentation on a wide-variety of dimensions – industry type, volume, service required, features and of course cost.

Behavioural considerations might cover „technophobe / technophile, cautious / adventurous, and high need for comfort / self-assured purchaser, etc.‟



The „Law of One Price‟38, where a near-uniform product price indicates geographical boundaries (car sales in Iceland) or time–based pricing, e.g. „airline-route-time‟ pricing.

CV adds Have a compelling reason to buy.

Improving revenue, costs or performance.

Adding a new experience.

Who share common buying and decisionmaking behaviours.

Who use the same approach e.g. evaluation processes, request for tenders, etc. The process and timeframe is similar.

The group is clearly accessible.

A name list can be purchased or a trade association used as a conduit.

Who have a common working and / or business environment.

Have a common asset such as under-utilised land or are subject to the same legal requirements.

Preferably, a common sales resource can be used to sell to them.

Common resources can be used for the market segment to get sales productivity for your business.

A niche market segment …

37 38

J-J Lambin, Market-Driven Management.

John Kay, Foundations of Market Success.

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The table here is based on G. Moore‟s “Crossing the Chasm” market definition, with additional Causeway considerations.

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Frequently, you will need to differentiate between two distinct sub-groupings, the end user group and the intermediary buyer group. For example, a system may gain revenue from a „user market‟ of airline passengers. However, the „buyer market‟ may be the airlines who will host the system.

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HOW TO …

THINK ABOUT INNOVATION & CHANGE

How think about innovation change.

THE NATURE OF INNOVATION CHANGE

CHANGE AND NPD.

AXES OF CHANGE

New Product Development is very relevant to defining the innovation product.

If it is an incremental change, then NPD techniques will probably suffice.

Three axes need to be considered regarding innovation change. The first two you can choose: 

Business-model change.



Technology change.

The reality is though that they are not independent factors: change one and you probably need to change the other.

THE THIRD AXIS – WORKING PRACTICE CHANGE. The more you change either or both of the business model and technology, the more likely you will be changing the customer‟s working practices. Managing this third axis is a major element of CV.

Changes of technology / design and business model are interdependent.

Changing working practice driven by changing business model and technology.

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Take it to the extreme with both and you are entering the realm of „disruptive innovation‟, the overturning of the current business practices and models.

The danger – and the reason CV exists – is believing the NPD toolkit covers all innovation work. Move away from incremental innovation and you need to deploy Causeway Venturing.

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THIRD COAST CONSULTANCY

Third Coast Consultancy.

Coaching, mentoring and innovation business development Third Coast provides coaching and mentoring bringing, naturally, Causeway Venturing benefits to entrepreneurial start-ups.

THE NAME ‘CAUSEWAY’.

A causeway is a raised path or road across boggy or tidal ground. On coasts it will be covered by the tide twice a day, so there are certain times when it safe to progress along a safe path, setting off at the right time and with determination.

It allows safe passage to the desired place.

In that way it is similar to developing an innovation business. Set off on the wrong foot and all manner of forces will be against you.

Innovation Training offerings include CV overviews or method and toolkit training. We can also assist in matching and integrating CV with current practices.

Mentoring is offered to create a viable Business model and Business Plan development.

Third Coast also offers management support to early stage businesses for specific businesses or projects. On assignments we can mentor or lead on: 

Sales.



Marketing.



Operations.



Commercial organization, including finding partners.

Equity share development in companies.



Taking innovation businesses into new territories.

CONTACT US. Please contact: info@thirdcoast.co.uk Winchester, Hampshire, UK.

Website: www.thirdcoast.co.uk The causeway to St Michaels Mount, Cornwall, UK

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We are also interested in business development opportunities in:

Acknowledgements.

Acknowledgements My thanks to these people, who directly or unwittingly helped me in getting this together.

Jim Anderson, JPSA, UK. Josh Brandoff, joshbrandoff.com, New York.

Copyright All copyright of referenced articles and books is respected and material is used under the principles of Fair Use. If an article or book is referenced, it is because it is respected by the author and the advice is to read it too.

All terminology, concepts and visual designs relating to Causeway Venturing are the copyright of Third Coast Consultancy Ltd.

Anne Canavan, Entrepreneur, Southampton.

David Cox, who made me understand people and business.

David Battye,

Marianne Gyllensten, Chalmers University, Gothenburg.

Sue Hesketh-Jones, Customer Service mentor, UK.

August 2011, Winchester, UK.

Emily Miller, LinkedInTutors, London.

Paul Mines, Biome Bioplastics, UK. Mike Overy, WRTI, UK. Susanne Pinnock, Cennan Consulting, UK. Andrew Redman, Realise Design, UK.

Third Coast Consultancy Working ideas; Working Businesses

Antigone Theoharris, Sales Virtuoso, UK. Wim de Waele, IBBT, Ghent.

Kathy Washburn, Westside Homeless Partnership, Houston, Tx.

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I have to take all responsibility for its contents though.

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Debs Wilson, Talking Walls, UK.