Creative Destruction: A new way of losing money!
Over the last few years I have earned my income through helping companies deliver new products and services. I was asked earlier in the month to help a new company with their formation and marketing plan, and find myself actively involved as a member of the company. Someone close to me remarked "Ahh, you have found a new way of losing money!"
As a therapeutic exercise I have been through my blog earlier in the month from the other side of the fence.
How long will the project take?
The project should be up and running early in the new year. We have got our first samples from China, and are making some minor improvements before making our first order.
The Simple Steps are below
Step 1 What are the different things I will have to do in order to be successful?
This could be:
Research - We are conducting R+D with a company in China, we have our first sample and should have a completed ready to go sample before Christmas
Development - We do need to set up a business, website, marketing communications, and have an approach towards how quickly we want to grow. Most of these things are in hand, and are timetabled to be finished before the end of the year.
Launch - we will have a soft launch in the early part of 2007. We also hope to let other people understand the product before it reaches the market. There is the possibility of selling in advance - and we do already have a number of interested offers from individuals who have heard about the project.
We are only going to order 100 products initially, and hope to sell them in person. This is in an effort to really get to know the customer well and have a clear idea of what they will want. (clearly we have a good idea of costs and end price and therefore projected revenues, profit and cash)
Adoption - we hope to grow to about 500 unit sales a month within 3 months (each order has a 45 day lead time. After which we have the option of producing different version of the product - and then repeat the procedure. This is the major cash need initially and how we finance this depends on a variety of factors - but we have acknowledged what the triggers are.
Growth - We haven't dared think too far about growth. Too many things could happen. We do have some desired outcomes - but we also face reality and feel that this could be a quick in and out of the market place before bigger players come in. We just have to be prepared for that moment.
Each of these stages could be spilt down further, but the key question is how much could each stage cost me, and over what time period.
We are at the stage where we are consulting widely on reaction to what we have - and with the lead time and deal in place in China we also know what our financial need is depending on demand.
Are you comfortable with the fact that you may burn through this money before you see any returns? If not this is as far as the project goes. (We have made sure we have some working capital!!
Step 2 Have I got access to the finance I need?
We have a mixture of savings, some agreement in China, and then commercial financing to cover the time delay whilst the items are imported.
Step 3 Can I get the people I need?
At the moment we have 3 people - and have identified items that need to be subcontracted. Yes has been the answer so far - it helps to have a large network!
Understanding your company's needs
At each of the stages mentioned above set your self some targets
For instance:
Research  desired market value, potential revenue, gross margins, technical challenges, etc as well as getting a good feel for the more intangible factors such as demand. Viable strategies, controllable costs, and a project plan that can be implemented. This includes all the research work that you would put into a business plan. Each of the research findings should contribute in a positive or negative way towards the overall risk of the project. In setting targets or figures you would like to achieve before you start the research the review at the end of the research stage can lead to better decisions. Development will the design and production of the prototypes, the forging of relationships, and even tacit approval of your work so far.
We are in the middle of R+D - and we have had a couple of good discussions about how the business might unfurl. In order to do this we have concentrated on available cash and how we can safely turn this into revenue, cash and profit without overreaching ourselves. This does need to be formalised - but we are getting there. We have give a lot of attention to risk and how we scale, and to demand and how tounderstandd our customer. We are at the stage where we will show our samples to a few people andgaugee their reaction.
At this stage you should also consider your alternatives.
At each of the previously mentioned stages you have options:
Continue with the plan  all is well
Go back and redo a step again e.g. redo a prototype
Consider alternative options
Ditch the project
In order for a project to go well it is important to define what Âgo well means, and indeed to understand the points where you make the other 3 decisions, each with their various consequences.
We have defined what "go well means" and we have approached the prototyping with a good attitude - and have taken an interative process where the product will be ready and right!
We haven't got many alternatives to this project - other than to work a little more on the day jobs to earn our living - perhaps this is something that should be explored further.
We are approaching this with a batch perspective - in order to reorder we have to hit certain targets. If we don't hit the targets we wont reorder. This is the difficult point - if we get our marketing wrong - but the product is right we will have to consider whether we put in extra marketing resource - what that should be and how much it will cost.
Make a rational decision
We are doing a feasibility study at the moment - I could point out various changes that we have made already - and how the shape of the project is changing.
You should now ask yourself the following 3 questions and rate yourself (on a scale of one to 10 might be suitable):
1 Am we able to deliver the new product or service? - score 7/10 (there are probably better people - but we are ina good position and it makes good use of our skills and passions)
2 Can I raise the finance? - score 10/10
3 Can I live with the worst possible scenarios at each stage? - score 7/10 - still unsure what they are - we have some control over how we expose ourselves to risk - and therefore best and worst.
I may have found a new way of loosing money - but at least I am doing the research and looking at how to manage risk.
Early next month I will make a post about what the project is - and whether I am still excited. If you are interested - do get in touch.
As a therapeutic exercise I have been through my blog earlier in the month from the other side of the fence.
How long will the project take?
The project should be up and running early in the new year. We have got our first samples from China, and are making some minor improvements before making our first order.
The Simple Steps are below
Step 1 What are the different things I will have to do in order to be successful?
This could be:
Research - We are conducting R+D with a company in China, we have our first sample and should have a completed ready to go sample before Christmas
Development - We do need to set up a business, website, marketing communications, and have an approach towards how quickly we want to grow. Most of these things are in hand, and are timetabled to be finished before the end of the year.
Launch - we will have a soft launch in the early part of 2007. We also hope to let other people understand the product before it reaches the market. There is the possibility of selling in advance - and we do already have a number of interested offers from individuals who have heard about the project.
We are only going to order 100 products initially, and hope to sell them in person. This is in an effort to really get to know the customer well and have a clear idea of what they will want. (clearly we have a good idea of costs and end price and therefore projected revenues, profit and cash)
Adoption - we hope to grow to about 500 unit sales a month within 3 months (each order has a 45 day lead time. After which we have the option of producing different version of the product - and then repeat the procedure. This is the major cash need initially and how we finance this depends on a variety of factors - but we have acknowledged what the triggers are.
Growth - We haven't dared think too far about growth. Too many things could happen. We do have some desired outcomes - but we also face reality and feel that this could be a quick in and out of the market place before bigger players come in. We just have to be prepared for that moment.
Each of these stages could be spilt down further, but the key question is how much could each stage cost me, and over what time period.
We are at the stage where we are consulting widely on reaction to what we have - and with the lead time and deal in place in China we also know what our financial need is depending on demand.
Are you comfortable with the fact that you may burn through this money before you see any returns? If not this is as far as the project goes. (We have made sure we have some working capital!!
Step 2 Have I got access to the finance I need?
We have a mixture of savings, some agreement in China, and then commercial financing to cover the time delay whilst the items are imported.
Step 3 Can I get the people I need?
At the moment we have 3 people - and have identified items that need to be subcontracted. Yes has been the answer so far - it helps to have a large network!
Understanding your company's needs
At each of the stages mentioned above set your self some targets
For instance:
Research  desired market value, potential revenue, gross margins, technical challenges, etc as well as getting a good feel for the more intangible factors such as demand. Viable strategies, controllable costs, and a project plan that can be implemented. This includes all the research work that you would put into a business plan. Each of the research findings should contribute in a positive or negative way towards the overall risk of the project. In setting targets or figures you would like to achieve before you start the research the review at the end of the research stage can lead to better decisions. Development will the design and production of the prototypes, the forging of relationships, and even tacit approval of your work so far.
We are in the middle of R+D - and we have had a couple of good discussions about how the business might unfurl. In order to do this we have concentrated on available cash and how we can safely turn this into revenue, cash and profit without overreaching ourselves. This does need to be formalised - but we are getting there. We have give a lot of attention to risk and how we scale, and to demand and how tounderstandd our customer. We are at the stage where we will show our samples to a few people andgaugee their reaction.
At this stage you should also consider your alternatives.
At each of the previously mentioned stages you have options:
Continue with the plan  all is well
Go back and redo a step again e.g. redo a prototype
Consider alternative options
Ditch the project
In order for a project to go well it is important to define what Âgo well means, and indeed to understand the points where you make the other 3 decisions, each with their various consequences.
We have defined what "go well means" and we have approached the prototyping with a good attitude - and have taken an interative process where the product will be ready and right!
We haven't got many alternatives to this project - other than to work a little more on the day jobs to earn our living - perhaps this is something that should be explored further.
We are approaching this with a batch perspective - in order to reorder we have to hit certain targets. If we don't hit the targets we wont reorder. This is the difficult point - if we get our marketing wrong - but the product is right we will have to consider whether we put in extra marketing resource - what that should be and how much it will cost.
Make a rational decision
We are doing a feasibility study at the moment - I could point out various changes that we have made already - and how the shape of the project is changing.
You should now ask yourself the following 3 questions and rate yourself (on a scale of one to 10 might be suitable):
1 Am we able to deliver the new product or service? - score 7/10 (there are probably better people - but we are ina good position and it makes good use of our skills and passions)
2 Can I raise the finance? - score 10/10
3 Can I live with the worst possible scenarios at each stage? - score 7/10 - still unsure what they are - we have some control over how we expose ourselves to risk - and therefore best and worst.
I may have found a new way of loosing money - but at least I am doing the research and looking at how to manage risk.
Early next month I will make a post about what the project is - and whether I am still excited. If you are interested - do get in touch.
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