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Due Diligence: Checking for Your Entrepreneurial Blind Spots

Posted on April 10 2013 | Author: Doug Knox

The term “due diligence” conjures up images of bankers, investment analysts, regulatory and tax investigators who dig through volumes of documents in order to “discover” the good, the bad, and potentially the ugly or illegal “truth” about the workings of a company. In fact, for the Entrepreneur, the term should be a guidepost for what needs to be researched and confirmed before attempting to bring a new product or service to a consuming public.

There are some common assumptions made by entrepreneurs that become “blind spots” that can disrupt the plan and progress of a new or evolving company. Some indicators of potential blind spots are in statements made by the Entrepreneur. These are starting points for due diligence on the validity of the statement. Here are a few representations with some of the actions the entrepreneur should cover to validate the assumption.

“Nothing like it in the market”:
This immediately raises the questions – “What is it?” and “Why is there nothing like it?”
If it is truly innovative, the discovery activity should focus on:

  • How does it work? What makes it so unique?
  • Does it address a market need?
  • What is similar in the market segment or some other market?
  • What will it replace that is serving the market currently?
  • Are there similar products in other parts of a global market?

“There are no competitors”
This assertion typically follows the assumption above. Believing the product or service is absolutely unique puts the blinders on when looking at the market to be entered. In general, a skilled analyst will find a perceived competitor in as little as 5 and 15 minutes. The entrepreneur then has to attempt to justify the statement or concede an error in perception.
In fact, identifying competitors does a number of things for the program:

  • It validates the perception that there is a market.
  • It assists in establishing the market size and market value.
  • It assists in identifying market niches and targets.
  • It provides a measure of the scope and breadth of the market beyond the local region.

“Everybody will see the benefits of this product”
The perception of value in all aspects of an individual’s life is formed by understanding, experience and education. Perception cannot be negotiated. As a result, a product or service entering the market needs to take advantage of the “prior art” in the commercial space.
To that end, the product should be perceived as:

  • An enhanced market offering to sustain a market edge
  • A replacement of existing products to take a market lead
  • A novel offering in an existing market to “push the envelope”

On the other hand, there may be a requirement for significant effort in educating the potential market if the offering is perceived as:

  • A market disrupter making an advancement that could not have been foreseen
  • A paradigm shift that creates an entirely new market definition

Regardless, education takes time and money!

“This premium product will get a premium price”
An understanding of the pricing strategies in the target market is critical to a successful market entry. There are a couple of comparisons that could be made among the competitors in the market.

  • Price / performance
  • Price / benefit
  • Price / durability or product life

If the differentiation between the existing offerings and the new offering is strong, perhaps a premium price can be achieved.

“There’s a huge global market”
Identification of markets for a product around the globe involves a considerable effort. The research must first decide how to define the global regions. This partitioning can be different for various products or services. Here are some of the possible regional definitions:

  • Canada East / West
  • USA East / West
  • North America including Mexico
  • South America
  • Europe Western / Eastern
  • Middle East
  • Africa
  • Australasia
  • Southeast Asia
  • India
  • China
  • Pacific Rim

Once identified, the research should attempt to size the market in each region. Sizing should be in terms of volume and revenue.The real issue is the strategy to address a global market or any market beyond the local market.
Market access in each region and its ability to support the pricing and cost structure will be the limiting factors. The cost of entry and the time to develop the sales base often eliminate regions from a plan.

“We have proven it in the lab”
This is a deadly assumption where processing technologies are required to produce the product. The controlled environment of the lab and the very precise application of weights and measures to the development can mask the pitfalls of scaling a process to commercial levels. Typical of the issues are:

  • The precision of the weights and measures when increased to several hundred or thousand times the lab input
  • The control of the quality and consistency of the input
  • The monitoring and control of the processing technology as the volumes increase
  • The impact of the cost of the commercial scale equipment on the pricing of the product.

Mitigating these issues is the role played by organizations that specialize in providing “pilot plant and process” facilities and services to optimize the scale up.

Due diligence is a vital activity in the development of a company’s strategic plan. It is worth the effort and the time to seek the resources that are available to assist in providing information to complete your research. Look to your local innovation and business development centres for early advice.

Doug Knox
VP Technology

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