Here are six commonly encountered situations, each calling for an opportunity assessment.
A New-Product Idea
Here's one we see often: A notion for a new product offering emerges from within your organization, often based upon some new technological capability or innovation. You need to determine if the apparent opportunity is real and economically significant. In my view the most important, first-order issues to address are:
- Is the available market for the product or service sufficient? Who might purchase and use it? Exactly why and under what circumstances would they purchase and use it?
- Can the prospective new product be successfully developed and produced? What investment will be required, and how long will it take? What are the estimated product costs and pricing?
- In the face of existing methods and competitive offerings, how will adoption occur and how long will that take? What will the sales cycle be like?
- Would the resulting financial model meet your criteria for success?
A Technology Offered for In-Licensing
Let's say you are offered one or more patents and associated know-how, and maybe a prototype product. Here are the questions that should come to mind first:
- What product or products can you imagine resulting from applications of the offered technology?
- Roughly speaking, what's the available market for the product(s) in question? Consequently, what's the long-term value of the offered technology to your company?
- Is your organization capable of bringing the product(s) to market? How, and at what cost?
- What's the intellectual property landscape? Will you have freedom to operate? Are the existing patents strong and defensible? Can you afford to defend them if necessary?
A Product Offered for Distribution
Your organization has significant market/customer access, and another firm offers its product or service to you for distribution. Before entering serious negotiations, answer these questions:
- Is the offered product really in your "sweet spot"? Can you add it to your sales offerings seamlessly and with limited promotional investment?
- What do existing users of the product (if any) think of it? Exactly what has limited the product's success so far -- distribution weakness, or something more ominous?
- How does the product stack up against directly competitive products and alternative methods? Is there a threatening new offering or new method poised for a market upset?
- Can you come to mutually acceptable terms while maintaining acceptable market pricing, i.e. can you make enough money on the deal?
A Product Line Carve-Out
Your company is seeking, or being offered, another firm's product line for acquisition. Such a deal seems to make sense at first blush. You should first think about the following issues:
- What do existing users of products in the offered line think of them? How well are they competitively positioned? What have been the recent sales and pricing trends for the target line, and in the market overall?
- Is the offered product line fully compatible with your current lines of business? Is it complementary or supplementary? Would you be "buying" a sales force or not? If not, can your existing selling force easily handle the new line?
- How and when will you take on manufacturing responsibility? Will plant expansion, or a new plant, be necessary? Are there additional regulatory burdens? Are the incremental investments justifiable?
- If this is a strategic move, can you support the new line adequately with product- and market-development resources over time? Based upon informed projections of market dynamics, is the move worth it over the long term?
A Venture Investment
Venture investors (venture capitalists, angels, and assorted institutional entities) don't need coaching to know what's important and what issues to address. But many fledgling companies do. Let's keep things simple by restricting the scope to investors in early-stage enterprises (A-round or earlier). Here's what these investors care about initially in their assessment of prospective deals (their first-cut screens):
- Is the venture addressing an unmet or poorly met customer need? Exactly who is that customer? Does the prospective customer really care?
- Approximately how large is the available market? How can that market be accessed? What will it cost to access it?
- How well is the venture likely to be positioned versus its competition from existing suppliers and alternative methods? Is there a looming, imminent competitive threat from any direction?
- Is the founding team qualified, experienced and prepared to execute the venture's business model and strategy? If not, how can the existing holes be filled?
A corporate acquisition or merger is too complex to address in the context of our simplistic, four-question model because an acquisition is all about "why". The issues of importance -- and they are indeed numerous -- depend upon the rationale of the acquirer. The acquiring company could be buying sales, profits, product lines, market access, management talent, fixed assets, technologies, technical talent, or whatever. And, the issues that need to be addressed early on are totally dependent upon that rationale. Maybe we can address this multifaceted topic in a future dialog.
If you've read this far, you may have interest in our prior dialogs on related topics:
Thoughts to share?