Is it Real? A Framework for Startup Decision-Making

An April 2012 case study of LoJack identified a situation where there was a portfolio of new product ideas and a desire to develop new “big i” Innovations. Their early products were closely tied to the unstable U.S auto market, and they were looking for a hedge against risk and new sources of growth. While expanding into international markets was appealing, they couldn’t resolve the difficulty in finding markets where relationships with recovery forces (e.g. Police) could easily be established.

That was the environment in 2008 when they had a few key opportunities they were considering exploring: LoJack Italia & Canada(exactly what you’d expect), LoJack for cargo containers, and LoJack for at-risk individuals (e.g. helping track individuals with Down Syndrome or Alzheimer’s). So, what should LoJack do?

If we jump to another article from HBR called “Is it Real? Can We Win? Is it worth Doing?” we can come up with simple criteria for a path forward. Before we do that, it’s interesting to point out that small/safe innovations typically make up 80-95% of a companies development portfolio.

You can think of the risk gamut as being similar to the investment market. You have some new product ideas that have technological needs similar to what you’re already working on and are already understood by your target market – those are like cash, T-Bills, or other government backed securities. Small risk = small reward.  You’ve probably got other ideas that are a stretch technologically (or not even understood) and are brand new to the marketplace – these are the small and mid-cap stocks of your portfolio. Your goal should be to have a portfolio that aligns with your growth strategies. Remember, that you can’t be sure you’re setting the stage to hit your goals unless you define and track the risk of projects.

Next, you should look at each concept and work to answer the three questions in the journal title. The first question looks to identify if there is a real need for the product. Are people able to purchase it and will they actually open their wallet. Eric Reis’ Lean Startup looks to answer this same question in early phase research. How do you do it? Get out of the building and interview people. Ask your intended (hypothesized) market if they have the problem you think they do. It’s also important to identify how big your target market is here. Just because you’ve solved a problem, doesn’t mean it’s worth exploring for your company – the reward may be too small.

Second, you need to identify if you can “win”. Assuming you were able to make the product and get it to market, can you defeat competition that enters your space? What advantages does your company have that will help here? If you have patents, superior resources, or management experience tackling similar projects you are more likely to be successful. Keep in mind, that even though your team could win, that doesn’t mean you’ll be successful at rallying the troops through development and deployment. Establish a project champion and ensure you stay connected and aligned with leadership goals.

Third (and last), you have to decide if the concept has a chance at becoming profitable. You’ll have to do a bit of forecasting here and ensure it meets the financial expectations in the timeframe required. Some concepts may not be huge moneymakers, but still fit with other strategic goals like enhancing customer relationships, improving the brand, and enriching the employee experience. Quantifying the qualitative can be difficult, but it’s important to be sure you’re pulling out any financial improvements that will stem from your work.

Checking your projects against these criteria should be done early and often. Some of your early checks will be based solely on hypotheses. Write them out and keep track of how they change over time. Doing so, will help you with future hypothesis generation. Also, consider establishing an advisory board (or portfolio management team) that can help you evaluate products against these criteria. You aren’t looking to just add bureaucracy and paperwork so make sure they know their role in the process as well. Working together can help ensure you are aligned with the company’s growth objectives and that projects provide the right blend of risk across the portfolio.