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A Question for Entrepreneurs

January 15th, 2004 · No Comments

[via Allan Engelhardt] Tim Oren asks a question which every entrepreneur needs to think hard and answer: “Is it a feature, a product, or a company?”

The ‘it’ can vary, but for the sake of simplicity, in this discussion I’ll assume the innovation is technological. But the issues are similar for others, e.g., a new service idea.

The second assumption I will make is that ‘it’ is in fact novel, feasible, at least modestly defensible, and creates value in the eyes of potential users. If not, this is all a waste of time: deposit the b-plan in the circular file.

Is it a feature, or at least a product? There are a lot of ways to probe this. Here are two of my favorite:

1. Is the function separable? By that I mean, can it be implemented without the necessary existence or cooperation of supporting functions or businesses. For an example: 15 years ago the idea of a ‘public network search engine’ was invalid. The open standards and content base of the Web did not exist. To the extent that consumer online content existed, it was locked up in proprietary online services, each running on a closed network. The idea of a separable search engine product or service was nonsense – the market was not ready. Now we have Google, which might be worth $12b. In many technology ventures, this question is nearly the same as ‘Can I leverage an existing platform and installed base?. In any case, it’s a diagnostic of market readiness for your project.

If the answer to this separability question is ‘no’, then there’s a subsidiary question: Does the necessary supporting infrastructure exist already, as part of an operating business? If not, add the necessary support to your business plan, and reanalyze for value and ROI. If yes, you may be SOL: you are a feature to someone else’s product or service.

2. Will the customer pay for it separately? And not just that, but pay enough to achieve an ROI including reinvestment over time. An historical example is the linkage of achievable software prices to the cost of the underlying hardware. This pattern has eroded, but not disappeared, over time. Another common case is the difficulty in revenue extraction when the supporting functionality is seen as ‘free’ by the customer – either actually or as part of a bundle. Add-ons to MS Outlook could be an example. Again, the Linux movement has eroded this to some extent, but it still exists. Probably the toughest customer in this regard is the enterprise CIO, who wants to know why the company needs yet another three-letter-acronym enterprise package when their existing SFA/SCM/ERP/whatever claims to already have the functions you describe.

Tags: Entrepreneurship

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