I was an in-house lawyer for 20 years. Among other areas, I worked with product development folks who created new products to bring to market. Over the last several years, I have worked individually and with teams on developing a number of new technology products and service offerings that I wanted to bring to market myself. Based on that experience, I have some observations about how to go about the very early idea phase of bringing a new product to market.
What is a "Back of the Envelope" (BOTE) business case?
I think of the BOTE business case as the absolute minimum effort that should be undertaken before launching a new product or business enterprise. What are you trying to accomplish by creating a BOTE business case? Several things. First, you want to know that there is no obvious reason that your business idea won't work. Second, you need to know that there is at least some prospect for profitability since you can't sell forever without making money. Finally, you need to have a sense of what the competitive landscape looks like since you will be a participant in that market trying to sell your product against what is already there.
What is a "Back of the Envelope" (BOTE) business case?
I think of the BOTE business case as the absolute minimum effort that should be undertaken before launching a new product or business enterprise. What are you trying to accomplish by creating a BOTE business case? Several things. First, you want to know that there is no obvious reason that your business idea won't work. Second, you need to know that there is at least some prospect for profitability since you can't sell forever without making money. Finally, you need to have a sense of what the competitive landscape looks like since you will be a participant in that market trying to sell your product against what is already there.
How do you rule out obvious reasons that your business idea won't work? The first question is always "Can it be done, is it technically feasible? If no, it doesn't matter how cool an idea (see my post on Novel Films), you have to park the idea until it is technically feasible. It goes without saying that even if the product is technically feasible, you should only pursue it if you and your company can make it work (or you should look for partners). Additionally, while certain ideas might seem like a good idea, they might not work based on a law or regulatory rule. That is particularly true in the medical and other regulated industries as well as in industries that deal in works covered by intellectual property rules.
If you determine that it can be done, then you next need to determine that you can make money at it. It has been surprising to me how many people would work to launch a product without doing even a basic profitability test. It is important to stack up the known costs of producing and selling the product or service and then at least to guess at what your customers will be willing to pay. It sounds obvious, but of the hundreds of products I have worked on over the years, I would estimate that more than 1 in 5 would not have made it past a back of the envelope revenue minus expenses test.
Finally, why do you need to know the competitive landscape? There are a number of things that you can learn by understanding the market and those you will be competing against. First, you will be getting a sense of how crowded a field you are entering. If there are already 10 companies selling the same product you want to sell and you don't see any way to differentiate yourself, it might be time to move onto another idea. Second, you can learn a tremendous amount about the probability of success by knowing what your competitors are doing. By reviewing the competitive landscape you may be able to discern the best way to position your product, perhaps to meet a currently unmet need. Finally, sometimes by reviewing your competitors, you may find an appropriate partner to work with on the product.
Why is the BOTE business case so important? Because as every technology blog says ad nauseum, you want to fail and fail fast. The conundrum I noticed for product development folks was that the following is unmistakably a fact: IT IS HARD TO FIND A NEW PRODUCT THAT WILL 1) WORK, 2) MEETS A REAL CUSTOMER NEED NOT ALREADY BEING ADEQUATELY MET, AND 3) WILL MAKE MONEY. I would call this the Immutable Law of New Ideas. There it is folks, 25 years experience right there.
But that can't stop you. The research on innovation indicates that for every 10,000 ideas that go into an innovation funnel, there are about 35 real, profitable ideas that could be pursued. That is why failing and failing fast is important -- there is no time to waste on ideas that will ultimately prove unsuccessful -- the process of finding a really good idea is a numbers game. That game can be accelerated through hard work and sometimes even luck, but fundamentally it is about working through unproductive ideas quickly and then executing on the successful ideas.
So, how do you make a BOTE business case?
Basic Components of a BOTE Business Case
Whenever you put together a BOTE business case, you will want to pull together at a minimum, the following elements:
I believe the form of each of these elements is considerably less important than that the level of thoughtful work that goes into producing them is based on thorough, intellectually honest work and comes from a real desire to kill unworkable ideas quickly so the team can get on to a productive and profitable new idea.
An Entrepreneurs Confession
So, here is my confession. As a technology entrepreneur, I have had to confront this immutable law of new ideas myself repeatedly. I have pursued idea after idea for new technologies and product offerings with the enthusiasm of a kid and time after time I have had my hopes dashed when some element of the BOTE business case told me the idea wouldn't work. What I have learned is that I have to be willing to just keep going each time I figure out that what I thought was a great idea, actually isn't such a good idea after all. Sometimes the idea just isn't ready and might be some day and sometimes the idea just doesn't work. That is what makes trying to be a technology entrepreneur so challenging. It is a constant roller coaster ride from the peaks of identifying the next great idea, to the troughs of realizing it doesn't work for some reason, back up to the peak for the next one. And for me, that is what makes the process so exhilarating.
If you determine that it can be done, then you next need to determine that you can make money at it. It has been surprising to me how many people would work to launch a product without doing even a basic profitability test. It is important to stack up the known costs of producing and selling the product or service and then at least to guess at what your customers will be willing to pay. It sounds obvious, but of the hundreds of products I have worked on over the years, I would estimate that more than 1 in 5 would not have made it past a back of the envelope revenue minus expenses test.
Finally, why do you need to know the competitive landscape? There are a number of things that you can learn by understanding the market and those you will be competing against. First, you will be getting a sense of how crowded a field you are entering. If there are already 10 companies selling the same product you want to sell and you don't see any way to differentiate yourself, it might be time to move onto another idea. Second, you can learn a tremendous amount about the probability of success by knowing what your competitors are doing. By reviewing the competitive landscape you may be able to discern the best way to position your product, perhaps to meet a currently unmet need. Finally, sometimes by reviewing your competitors, you may find an appropriate partner to work with on the product.
Why is the BOTE business case so important? Because as every technology blog says ad nauseum, you want to fail and fail fast. The conundrum I noticed for product development folks was that the following is unmistakably a fact: IT IS HARD TO FIND A NEW PRODUCT THAT WILL 1) WORK, 2) MEETS A REAL CUSTOMER NEED NOT ALREADY BEING ADEQUATELY MET, AND 3) WILL MAKE MONEY. I would call this the Immutable Law of New Ideas. There it is folks, 25 years experience right there.
But that can't stop you. The research on innovation indicates that for every 10,000 ideas that go into an innovation funnel, there are about 35 real, profitable ideas that could be pursued. That is why failing and failing fast is important -- there is no time to waste on ideas that will ultimately prove unsuccessful -- the process of finding a really good idea is a numbers game. That game can be accelerated through hard work and sometimes even luck, but fundamentally it is about working through unproductive ideas quickly and then executing on the successful ideas.
So, how do you make a BOTE business case?
Basic Components of a BOTE Business Case
Whenever you put together a BOTE business case, you will want to pull together at a minimum, the following elements:
- Product/business description
- Technical and other feasibility assessment
- Basic profitability analysis
- Competitive landscape review
I believe the form of each of these elements is considerably less important than that the level of thoughtful work that goes into producing them is based on thorough, intellectually honest work and comes from a real desire to kill unworkable ideas quickly so the team can get on to a productive and profitable new idea.
An Entrepreneurs Confession
So, here is my confession. As a technology entrepreneur, I have had to confront this immutable law of new ideas myself repeatedly. I have pursued idea after idea for new technologies and product offerings with the enthusiasm of a kid and time after time I have had my hopes dashed when some element of the BOTE business case told me the idea wouldn't work. What I have learned is that I have to be willing to just keep going each time I figure out that what I thought was a great idea, actually isn't such a good idea after all. Sometimes the idea just isn't ready and might be some day and sometimes the idea just doesn't work. That is what makes trying to be a technology entrepreneur so challenging. It is a constant roller coaster ride from the peaks of identifying the next great idea, to the troughs of realizing it doesn't work for some reason, back up to the peak for the next one. And for me, that is what makes the process so exhilarating.