Entrepreneur tips

“90% OF ORGANIZATIONS FAIL TO EXECUTE THEIR STRATEGIES SUCCESSFULLY.” Kaplan & Norton

A frightening statistic!  Yet we have been trained that without a strategic plan a company is doomed for failure.

“STRATEGIC PLANNING AT A POINT IN TIME DOUBLES THE LIKELIHOOD OF SURVIVAL AS A CORPORATE ENTITY.” Noel Capon, James M. Hurlburt, Columbia University

So then, if companies can get the implementation right then the failure rate will go down and the survival rates will go up. Sounds like a plan (pardon the pun) but let’s really get to the root of the problem if we can.

I am sure you have heard of Murphy’s Law, Moore’s law and other similar laws which are based on relationships or concept translated through ratios. Well, here is one for you it’s called …

“Blanchard’s Law”, why not, and it relates to the key factors necessary for successful strategy implementation.

Here’s it is:

An organization’s success at strategy implementation =  

 The organization’s ability to effectively mobilize its resources and focus on strategy/ The organization’s ability to reduce the resistance in achieving buy-in and accountability

This means that the implementation of an organization’s business strategy (direction) is equal to the ability to mobilize the people, processes, systems and technology in an organization (power), divided by the organization’s ability to achieve buy-in, discipline and focus on the implementation of the strategic plan (resistance reduction).

What does this mean?

If an organization has the ability to actively mobilize all of its resources at 100 units and yet is held back by resistance to implementation by a factor of 10 units the resulting quotient or outcome is 10. In other words, if the level of resistance goes up the ability of the organization to implement strategy goes down. In this case, the organization is relegated to the lowest common denominator of strategy implementation of 10 units.

However, if the same 100 resource units faces a resistance factor of 2 the result is a 50 unit implementation factor. Thus, if the level of resistance goes down then the effectiveness of strategy implementation goes up.

The take away, reducing resistance is the key.

Simple huh, but why is it so difficult to address. I mean if an organization can reduce the level of resistance in the way it implements strategy the greater will be its productivity – why just do it.

The big question is how can this be done?

According to a study conducted by Canadian Society of Association Executives (CSAE), it determined there are clear patterns that emerge in successful strategy implementation efforts.

They observed three common-sense tests:

A. Manage to results milestones;

B. Explicitly addressed the people issues within the organization relative to strategy execution, and;

C. Resource properly, not just with money.

The CSAE also found that even the soundest strategies failed to achieve their performance objectives because one of these tests was flunked.

So getting all three tests right is important.

And getting them all right is a tall order if an organization relies on 20^th century tools for implementation. How can an organization expect to win at strategy implementation using memos, presentations, occasional plenary workshops and performance compensation plans?

These are tools that can be a good start, but we are now in the 21^st Century and powerful, integrative digital tools are now at our disposal. These tools can help to define outcomes, measure and then track strategy as it is implemented.

Using technology for strategy implementation is not just a one-time thing; but an integrative effort to instantly get at the underbelly of how strategy can be managed in an organization.  Not only vertically and across an organization’s structure but to penetrate the very DNA of its culture as well.

I recently encountered a company called Envisio. They have spent the time and money to answer the 21^st century call for a technology to help with strategy implementation. Envisio’s cloud based software can reduce the factors that create resistance holding an organization back. It gets at the very problems of implementation and allows for the revitalization of the strategic planning process as well.

Here are the key points in reducing resistance that makes the Envisio software so unique:

ACTIONABLE

Envisio provides a structured approach in creating and translating strategic plans into individual and team activities with measures. This way the organization can pinpoint resistance points and shore them up to improve implementation outcomes.

CLEAR

Everyone within the organization is assigned a role and responsibility to bring the strategic plan to life. It means that people become strategic thinkers making their contributions meaningful and accountable toward a common purpose. There is no room for ambiguity.

IN CONTEXT

Dashboards provide a view of individual activities and measurement that connect them to the plan. This allows the people in the organization to understand how they fit into the strategic plan and how they can reach strategic objectives.

DYNAMIC

Plan updates are automatically recorded and communicated to teams and individuals. Strategy implementation means all hands on deck working together in making things happen.

MANAGEABLE

Intuitive reporting revolutionizes management’s ability to track progress against the strategic plan and make adjustments when circumstances dictate. Remember there is no such thing as a perfect strategy so managing strategy under fire ensures management has its finger on the pulse.

I invite you to check out Envisio’s website to learn more about their technology and the unique opportunities it provides organizations. Envisio developed, markets and supports an easy-to-implement web-based strategy implementation software that flows from an organization’s strategic plan. I encourage you to visit – http://www.envisio.com/ for more information.

Investment lexicon for entrepreneurs, angel investors and venture capitalists

Isn’t it interesting how words can creep into our business vocabulary and have completely different meanings from their etymological roots?

 Here are a few words that bear little resemblance to their original meaning:

 Traction – defined as the act of drawing something over a surface.  Today in business it relates to a company’s ability to generate revenue or acquire customers. For example, “the company was able to gain traction in the mobile app sector by acquiring customers”.

 Runway – defined as a specially prepared surface along which an aircraft takes off and lands or a raised gangway in a fashion display. Today it means a company’s longevity to sustain revenue or cash flow. For example, “the company has enough cash in the bank for a runway of three years before the next capital raise is necessary”. 

 Don’t you miss Andy Rooney?

 He would have had something brainy to say about our business vocabulary.    You have to love his sarcastic wit. He once quipped – “The dullest Olympic sport is curling, whatever ‘curling’ means”.  How true! Sorry curlers.

 Well, I came across another word that is being embraced in the investment world and it is – “curation”. Curation is the new due diligence aimed at delivering high quality deal flow or investment prospects to investors and backers. It refers to the process of vetting deals to scrutinize losers from winners. 

Although this seems to make sense on the surface, the way I see it the problem resides with those doing the curating. Why? Because if they are not very good at using their curation crystal ball to pick winners then the process is flawed. These gatekeepers to capital have to be really good at screening the good deals from the bad ones to generate positive investment outcomes.

 Due diligence or curation, although a practice that provides a certain level of comfort to investors as a hedge in risk mitigation, cannot be relied upon entirely. The statistics on start-up failures are a testament to how terrible existing practices are in delivering on the promise. We know these top picks eventually result in a whopping 80% plus in business failures. 

 I see interesting differences between the curation processes for Crowdfunding and the more traditional practises used by Angels and Venture Capital Funds.

 In my mind Angels and VCs represent the few that make decisions for the many about who will get funded and who will not. A lot rides on their curation prowess, and the stats prove it is not efficient.

 Crowdfunding takes out the middleman or the gatekeepers and replaces them with the wisdom and the hearts of the Crowd to make better predictions as to the winners that get funded.  Let me explain.

 In James Surowiecki’s book “The Wisdom of Crowds” he maintained that large groups of people, even non-expert people, are very often smarter than an elite few no matter how brilliant those few may be. The author provides numerous examples of when groups have proven better than individuals at solving problems, fostering innovation, coming to wise decisions and most notably, predicting future outcomes. Intriguingly, group members don’t need to be particularly smart on an individual basis in order to be very smart on a collective basis.

 Here are some interesting trading platforms that use the power of the crowd as prediction markets. 

 Hollywood Stock Exchange (HSX) 

 The HSX is a virtual, online stock exchange where traders buy and sell virtual shares in upcoming movies. The HSX sells the data collected from their exchange as market research to entertainment, consumer product and financial institutions.

 Since 1996, the HSX has accurately predicted the box office receipts of thousands of movies. According to a study the correlation between the HSX’s predictions and actual opening box office receipts was calculated at 0.93 – not bad since a perfect correlation is 1.0.  The HSX has also been used to predict Oscar winners, and so far they’re averaging about 92% accuracy.

 Wouldn’t this number be refreshing when it comes to predicting positive start-up outcomes?  

 Although people self-select to be involved, meaning they choose to be involved. There is no screening mechanism to ensure these “traders” should be ardent movie or entertainment experts. This crowd is large and represents over 1.6 million traders. Such a large sample can be said to be statistically correlated.   

 Iowa Electronic Market (IEM)

 The faculty at the University of Iowa developed the IEM to be an Internet-based teaching and research tool. It allows students to invest real money ($5.00-$500.00) and to trade in a variety of contracts. The use of the IEM is best known for the prediction of political election outcomes.  

 The University of Iowa has found that even 100 days before an election, the market price predicts the winning candidate about 75% of the time.  Political polls predict only slightly more than 50% of the time, and political pundit predictions are way worse. A 12-year analysis of IEM trading indicated that the IEM consistently out-performs political polls in terms of not only choosing the right candidate, but also predicting the margin by which he or she will win. 

 These examples demonstrate the power of the crowd to make predictions. They do not just indicate the capability to identify winners and losers, but also the overall statistics provide evidence of their accuracy in doing so.

 Crowdfunding works on the same principle. Backers vote for their project and they will use their own money to do so. They will back a project if they feel it is aligned with their interests, needs and beliefs. The collective demonstration of social proof is more powerful than any process of curation can ever be, as it elevates winners by using the collective shoulders of the crowd.

 Crowdfunding backers, like customers, vote with their wisdom and heart. The current reward based platforms are showing that curation or due diligence does not have to get in the way of positive capital raising outcomes. Although some platforms do vet projects, this is more on the basis of suitability rather than financial metrics. In the end it is the people with compelling projects who motivate crowds to get on their side and provide them the needed capital, which is proving the disintermediation of due diligence.

What I mean is, due diligence is not necessary in predicting winners, and one has to contemplate whether it is necessary at all given the track record of the capital gatekeepers in the traditional investment arena to produce winners. Tapping into the wisdom of the Crowd may be much better.

The success stories of Crowdfunding may have inadvertently branded it as the sure-fire method to raising capital. At a time when the traditional methods have become increasingly complicated, ambitious entrepreneurs are now looking at Crowdfunding as the platform for them to achieve their dreams.

The overzealous entrepreneur could hastily jump on the Crowdfunding bandwagon and overlook certain factors that can easily make or break her campaign. The rules are many, but the key principles are a few. Here are five winning tips that all Crowdfunding enthusiasts should abide to when planning their campaign:

1. Passion, not hype
This may be the most advocated principle of successful Crowdfunding, but it can never be advocated enough. The value of genuine passion is innumerable. Talking about your journey and the road to starting your Kickstarter or Indiegogo campaign can make the mere participation in your project the ultimate reward. Sometimes all the backer wants is to be part of your journey, and that depends at how you are able to passionately convey it.

2. Know who your audience is
Perhaps the indisputable factor to successful Crowdfunding is clearly defining your target audience and the channels to reach it. Once this is in place, you are guaranteed that the most meaningful reward for your backers would be to see your project vision come to fruition, and any other reward on top of that would be the icing on the cake.

3. Calculate the costs of rewards
When setting the financial target of your Crowdfunding project, it is important to include the cost of rewards. This will ultimately give you a clear picture of the finances needed to mobilize your campaign. By overlooking the cost of rewards, you could find yourself using the money raised from your campaign to distribute rewards, and in effect eating up capital that can be otherwise used for your project. This raises the risk of eventually not having enough capital to mobilize the project after all funds have been raised, and nothing is more detrimental than the backers not seeing their funds transpire into the end goal of the project they initially believed in.

4. Monetary rewards never work
Giving out rewards in the form of money is ineffective. As a principle, rewards should always be related to the product your project is about, and consequently monetary rewards usually do not bear any relevance. But the biggest pitfall of monetary rewards is how they can make you look uncreative and not managing funds well. Contributors do not want their money to go back to them, since that’s how monetary rewards are usually perceived.

By Mo Saiid and Lyn Blanchard

What does Crowdfunding and dating have in common? Please read on.

The Crowdfunding ecosystem is very simple. It is comprised of the Crowdfunding campaign owners who are entrepreneurs or individuals looking for capital, the backers or funders that look to support specific Crowdfunding campaigns and the Crowdfunding technology platforms that act as intermediaries for these participants.

But why does Crowdfunding work? What makes it possible for complete strangers to share a common bond?  In today’s blog I’ll explore the reasons why Crowdfunding works and the reasons behind the power of the Crowd.

 The world is getting smaller – not that our planet is shrinking, but our knowledge about what is going on in the world is really influenced by “6 pixels of separation”. That is technology now can deliver events, information and news at a heightened pace allowing us to learn instantly about what is happening on our planet.

 We learn more, we emote more and we just well, engage more. And sometimes, we even tune out more.

 Crowdfunding is based upon the principle that people want to help each other. They want to share like-minded values, goals or ideals with those to which they feel close.  This primary connection is rooted in motivations which are triggered by three expected outcomes or returns.

 Social Return

 For Crowdfunding campaign owners and their respective funders or backers, motivation seeds the passion and interest for a cause or product which is aligned with shared social value. There is satisfaction to be obtained when engaging with something that helps others, improves a circumstance or makes a difference.

 A social return holds a certain pleasure and contentment relating to a participant’s involvement where monetary or material rewards are of secondary importance.

 Social returns are obviously prevalent in donation based Crowdfunding; but more often now Crowdfunding campaigns are being backed because they can lead to the betterment of society or a community of interest. The funder or backer seeking to engage in a Crowdfunding project does so for a deeper emotional affiliation that holds intangible and intrinsic value for them. 

 Material Return

 In addition to the social returns, backers may also look for a material return. In these instances backers will support a product concept and may wish to – a) receive the offering first thus giving the opportunity for bragging rights, b) get behind the offering because it might be viewed as worthy or cool or c) help a company in its early years of growth.

Crowdfunding campaign owners will take great care to design incentive schemes that will satisfy the material reward motivations sought by backers. These schemes are usually designed as a progression of rewards with the highest valued reward offered to a limited number of backers – such as only four premium rewards offered for those contributing $1000 each.

 For example, a Crowdfunding campaign representing a new bicycle locking product could have as its highest reward an engraved product delivered to the backer and the product being named after the backer for his or her anting up the largest contribution.

 The combination of reward schemes are endless, however one principle remains constant – the schemes must motivate the backer in return for their financial support and what is offered must have of perceived cherished value.

 The campaign owner also benefits. This participant will get information of material value on such variables as pricing, product features and function sought by early customers, market segmentation and all sorts of marketing information that will help with commercialization plans.  Early customer traction creates a direct link to customers and can also support follow on capital raise efforts beyond the current Crowdfunding campaign.  

 Note I have not used any reference to equity or lending based Crowdfunding for the reasons I have cited in my other blogs. 

 Financial Return

 The financial return to the Crowdfunding campaign owner is obvious. However, little has been mentioned of the motivations of the Crowdfunding technology platform owner that provides the intermediation between backers and campaign owners.

 There are literally hundreds of Crowdfunding platforms in operation around the world. Why?  Because it’s about the money.

 The backers and campaign owners drive profits for these platforms that ultimately take a percentage of whatever is raised. This can be 4 – 9% depending upon the platform’s policies. The motivations for Crowdfunding platforms are simple, provide an environment for those with ideas that need funds to meet those people that are looking to back them – and then take a piece of the action.

 It’s the same principle behind why dating sites are so popular. Dating sites constantly spring up on the Internet because singles are looking for fresh approaches to establishing personal relationships. There is the hope of improving the odds of securing a “loving and happily ever after” mate through the process.

Crowdfunding does the same thing. It allows capital raising relationships to be established by improving the odds that entrepreneurs can raise capital from motivated members of the Crowd to eventually turn their dreams into reality.

Leonardo da Vinci had lots of ideas, some of which were never realized until many centuries after his death. His era just didn’t have the capability of absorbing his inventions nor did he know how to exploit them.  Da Vinci and the people of his time just lacked the knowledge to make them relevant.

A pity really because no one had an inkling how innovative his inventions were and how many years later they would confer such benefits to future generations.

Molto grazie, Leonardo!

There are lots of great ideas floating around.  Some bad ideas and some really, really great ideas that for many reasons will never get into the hands or minds of customers.

Ideas are basically – a dime a dozen.

It’s not to say that every idea in the 12 pack is worthless, in fact some of them might be worth millions or billions of dollars. The cold reality is – if ideas cannot be implemented and show value then they are worthless. Good ideas need to be placed in the hands of users to make a difference; otherwise they will remain tragically unknown.

Over the years I have helped my clients answer this basic question – “How can I determine if there is a market for my technology?” 

There are two broad types of entrepreneurs that come to me asking this question.

Entrepreneur Type 1 – Entrepreneurs with an existing technology and are looking for a market

This is the most common situation.

Case in point: A group of technologists come up with an idea and expend both time and money to develop a technology. After months of development and with technology solidly in hand, they open their lab door, peer out and wonder who might be eligible buyers for their invention.

Here’s an example, a team of entrepreneurs in the wireless sector have an idea to create a cool mobile application which they believe would solve a problem for market segment X. They develop the application build out resources and begin to talk to potential customers. Very quickly and disappointingly they realize no one wants to buy their technology.

These entrepreneurs represent a technology looking for a market. Somewhat problematic – since doing the homework after the fact gets complicated. Why? Because technologies developed in a vacuum rarely succeed.

Entrepreneur Type 2 – Entrepreneurs looking for a customer need or problem in a defined market sector

This is the least common situation.

Entrepreneurs decide to research a specific market to find an unresolved problem, find one and design a technology solution that will satisfy the market’s problem.  These entrepreneurs spend time and money in assessing a market opportunity first, then identify and build a technology solution to solve the market segment’s problem(s).

These entrepreneurs may have market domain knowledge and technology expertise; but, they approach the market assessment process first without a predetermined technical bias. This puts the market place first and the technology second.

So back to the question: “How can I determine if there is a market for my technology?” 

Let’s look first at this scenario: A small team of entrepreneurs decide to start another technology company after successfully selling their company to a larger competitor.  They decide the thrill of building and selling a company is worth another shot. They set off looking for a market problem that would be the focus for their next company.  Finding one, they design a product solution to resolve the problem. As the prototypes are being built they also test them in concert with lead customers in the market – to get the product right.

Answer 1: A Market Assessment Analysis

In the above example, the former activity is called a market assessment analysis which involves a high level scan of the marketplace and gradually narrowing it down to a targeted market segment candidate. Direct feedback from this candidate segment provides the team with further insights into the problems that need to be resolved and the possible solutions which should be designed for the target customer segment.

Answer 2: Market Validation

The latter analysis is called a market validation study. At this point the solution is being tested with customer feedback to refine the product and validate its ability to solve the problem the customer needs resolved.  Often an iterative process yet very valuable in getting the product right.

Why the answers are important

For a technology to become a product it must solve a customer’s array of pain points and input/information from customers is required to make this happen. Why? Because a technology is not a product until it is a solution for a customer.

Regardless of what profile type you think you might fall into, conducting a market assessment and a market validation analysis is an important step in the commercialization process. It saves time and valuable development and marketing resources by testing a product concept, idea, position, and customer buying drivers before a product is launched or engineered.

My proven approach in conducting market assessment and market validation analysis can help any entrepreneur step through the process to get to the right markets and transform their technology into products.

I am currently writing an e-book to reveal my secrets for entrepreneurs. Let me know if you would like a copy once it is ready. Or just give me a call and I would be pleased to share my thoughts with you.

Innovation is about more than making giant, well-publicized leaps. It’s about striving for continuous incremental innovation to improve your offerings and keep on top of changes in your industry – and plenty of entrepreneurs could be doing this better.

Particularly in Canada, entrepreneurs have a problem making innovation pay. Research at Canadian universities tripled from $1.7 billion in 1999 to $5.5 billion in 2008, but revenues earned from their patents were significantly lower than what was earned by their European and American counterparts. The developers of these technologies are having trouble bringing their solution to market.

Established corporations can also face an innovation gap that is only partly explained by complacency. Some examples include Kodak, RIM and Xerox:

• Kodak had built up a multi-billion dollar company with a global brand years before digital photography came on to the market, sticking with film. It’s Japanese competitors saw where the market was headed. Today, Kodak has filed for bankruptcy.
• RIM’s meteoric rise was stunning, seeing the mobile business platform pioneer go from nothing to $10 billion in revenues after just 15 years. But Apple and Google-based smartphones were nipping at its heels. Despite its lead, RIM failed to match the browser experience or touchscreen capabilities of its competitors and its share price has dwindled to a small fraction of what it was.
• Xerox PARC was he innovation heart for its company, developing a mouse and user interface integration that was revolutionary for its time. Xerox didn’t know what they had, but Steve Jobs of Apple did, running with the innovation in Apple’s own Macintosh product. At this point, it’s impossible to say precisely how much revenue Xerox has given up over the years from this blunder, but it’s safe to say that it was a lot.

Innovating is hard, but recognizing a truly innovative technology for what it is and selling it is a common entrepreneurial challenge. Sometimes, the problem is packaging; entrepreneurs don’t know how to sell what they’ve got. Other entrepreneurs struggle with putting together a business plan around a technology. As we’ve seen, it’s not a problem confined to new business startups; but ideally, entrepreneurs who understand how to capitalize on innovation when starting out can instill that vision in their team as the company grows.

The North American consumer is addicted to low prices when it comes to plenty of kinds of consumer goods, but companies are wise to heed Guy Kawasaki’s strategic advice: price isn’t everything – and value is different from price.

Writing recently on what he had learned from Steve Jobs, Kawasaki wrote that “Price is not all that matters-what is important, at least to some people, is value. And value takes into account training, support and the intrinsic joy of using the best tool that’s made. It’s pretty safe to say that no one buys Apple products because of their low price.

Apple is far from the only company that has profited by providing value for its customers rather than a single-minded focus on the price tag.

Nobody buys Prius cars because they’re cheap – even with government subsidies, these eco-friendly cars that are tapping into a style-conscious and green-minded consumer are not inexpensive. And think about how much people are willing to pay for Hallmark cards, simple paper products, that can go for $5 or $6 each. Cost-conscious buyers could pick up a whole box of cards at a dollar store for the same price, or even send a message for free with an eCard, but Hallmark’s well-written passages keep drawing people back for more.

What is the value that you are providing for your target consumer? The question will keep popping up when:

• putting together your business plan
• hiring employees – how will your people help create the value you want to offer? Specialized skills that your competitors don’t have? Customer service?
• understanding your company’s strengths and weaknesses. How does the value you help cover over the gaps?
• presenting to investors. Does your PDF presentation talk about the value you’re offering? What pain point are you helping your customers with?

You can’t entirely neglect price. It’s an important part of your overall business plan. But as Kawasaki would point out, taking part in a race to the bottom in terms of pricing hasn’t helped virtually every Apple competitor overcome the giant’s value proposition. While they’re struggling to achieve profit margins of 5 to 8 percent, Apple’s profit margin is closer to 30 percent – and that’s the value of focusing on value.

The first step in structuring a deal is to determine how much capital your company needs to raise using a capitalization table. This calculation should be determined by your milestone plan translated into numbers within the financial model. You will be able to see how much is needed to get you through the next critical stages of your company’s growth and the cash flow needed to do so. Be realistic about two things. First what you plan for will likely take twice as long and will cost twice as much than you expected.

The second step is to determine the pre-money valuation. This is the tricky part because it’s a pricing decision that affects the share price you will be setting for the next round of financing.

As you determined in the prior round the milestones to get your company to the next level of development and you succeeded in accomplishing them then you have built enterprise value or the worth of your company. This means the value or price of shares in your company would have increased and from your perspective you can give investor a good argument why an increase in share price is warranted.

The other part of the equation is that the investor will have a say as well as to what they see as the pre-money valuation. The preceding is part of the negotiating process around valuation.

But keep in mind these principles when filling out your capitalization table: (more…)

I asked for comments on my last email concerning “how to create serial entrepreneurs and had some terrific insights provided by those who read the article. If you recall I wrote that there was no lack of entrepreneurial spirit north of the USA, but in some ways, Canada’s business environment doesn’t provide the best conditions for entrepreneurs to succeed. We provided some suggestions, like better-focused education and mentorship programs, as well as making it easier for entrepreneurs who do fail to fail fast but fail cheaply, so they can dust themselves off and get back at it or move on and work for someone else.

Some Comments on How To Create a Supportive Entrepreneur Landscape

Here are some of the reactions to our question about how to provide a more supportive environment for entrepreneurs:

Steven Jones, Vice President at Pulse Energy says the best way to encourage entrepreneurship is to help them overcome a communications gap and make an essential connection:

“It appears that there is a very large and pervasive communication gap between problem solvers (entrepreneurs) and problem sufferers (potential customers.) 

The result is an abundance of entrepreneurs focused exclusively on technology and business problems.  This is because entrepreneurs often come from a background of engineering or business education and that’s all they know about.  This means that there is extreme competition to solve the valuable problems in these limited domains.  Even worse, many of these problem solvers end up resorting to solving weak or unimportant problems (how many mobile phone games does the world really need?) (more…)

“It’s a $100 billion market! All we have to do is capture one percent of the market and we’ll be making money hand over fist. You can’t lose by investing in our company.”

This “top-down” model is a common – yet extremely dangerous – way of sizing a potential customer market for a new company or product. It provides little data useful for strategic financial forecasting and can give entrepreneurs an over-inflated perception of their company’s business potential.

• Learn more about market sizing with our eBook

How does top-down market sizing work? The entrepreneur looks at a given area – say, the population of China, or the total sales figures for all software sold anywhere on the planet, or the purchasing power of every household in America. “If we only sell to (some tiny, insignificant percentage), we’ll make a killing… but since our product is so incredible, we’re bound to sell more.”

It’s unrealistic and doesn’t’ actually provide much useful data. It will make investors run for the hills.

Forecasting the Market from the Bottom Up To Get Better Data

Investors listening to a company’s pitch want to hear a “bottom-up” forecast of your sales market. Instead of relying on someone else’s market numbers and extrapolating a small percentage from that, you need to generate your own information to have better accuracy. (more…)