A software product start up

Last week I went to product enclave by NASSCOM and met some amazing people. Almost all of them oozing energy to discuss the ideas they have for their respective products. It got me into thinking, how can they be sure, that this product is going to succeed. In my interactions where I asked pointed questions, I found, some had the answers. Well others also had the answers :), but I was not really convinced. It got into searching for a framework to determine market size of the product. The question is also pertinent in the light of many indian IT firms trying to get into the space of non-linear growth by investing heavily in products, platforms and solutions. I am sure, everyone would be having a framework, I thought assimilating this information from various sources. Please comment, will refine based on our discussions.

To my mind, this is a case for Five Cs.

Here are some points adjusted for the unique dynamics of the start-up environment.

 

Character

How would you evaluate the sincerity, honesty, and integrity of the owner of the business? Do others that they deal with (employees, suppliers, customers) value them as partners or are there character issues?

Are there any legal actions pending against the business?

Does the mission of the start-up make sense? Is their business concept sound?

What is the timeline/progress of development, coding, testing, and production as originally conceived in the business plan? Does it make sense?

What is the previous track record of each of the principals of the startup?

Capacity

What is the plan for producing the product when the code is ready? Is outsourcing stamping, packaging, and shipping an option?

Capital

What is the makeup of the initial seed capital to start the business? Personal assets, small business loan, venture capital funds?

What is the debt structure like if it exists? Interest rates, due dates, rollover ability, secured assets, etc.?

(more of this case on next page)

Collateral

Have any patents been applied for? What is their status?

What has been done to protect the intellectual capital/property associated with the software design?

Conditions

Describe the market space the business occupies. 

Why did the business come into inception?

What defines dominance in this market? Cost? Economies of scale? Speed to market? Relationships with customers? Where does this business fall against the aforementioned metrics?

Is the market for this type of product saturated? Is there a particular unfulfilled segment where this product fits or will it be competing against other already established products?

What is the advertising and promotional activity planned for this product? 

Deciding on technology

At the coffee table today, we were discussing how should a company decide to invest in a new technology. How it should align with business strategy of a company and here it is a study framework to decide the same.

So for the purpose of this blog, let us assume that a bank is coming to you for consulting engagement to decide on embarking on a technology change. The change will cost the bank close to $ 50 Million. Now that is a lot of money, bank is asking us, should we do this or not?

Before we start creating hypothesis about whether this is a good idea or not, we have to understand the reason for this technology change. Is it the case that, this will help in gaining more market share by increasing customer base? or is it just a technology change due to support termination of the current technology? Nail down the reason and build this in the part of the hypothesis.

Ultimately, this exercise should lead to a basic NPV analysis. For that we require cash flows. The next question is how to reasonably determine cash flows. The answer would be to investigate the situation in the form of 3 Cs customers, competition, and company. So if the hypothesis is not to go ahead with the technology, factor in the the possibilities whether the customer base will be shrinking or not, that the competitors for the smaller number of banks were huge and low, low cost providers, and that the companies cost structure and particular strengths would keep them from being competitive with larger players no matter how much they invested in technology.

This is not a an elaborate framework, just a guiding tool for the study!

Thoughts?