Assessing the Market Potential of Your Business Idea (or “How Much is Your Idea Worth?)

1. Assessing the Market Potentialof Your Business Idea(or “How Much is Your Idea Worth?) Presented to UC Irvine The Paul Merage School of Business Don Beall Center for Innovation and Entrepreneurship Tuesday April 15, 2008 By Andy Mindlin REALWORLD Marketing, Inc. andy@REALWORLDMarketing.com TEL +1 714-377-6312

2. About the Speaker 25 years experience in Marketing Emphasis on Startups and New Products Core Experience • Procter & Gamble (Brand Management) • BA in International Economics, Vanderbilt University, Phi Beta Kappa Recent Experience • Co-founded fabless semiconductor company • Served as Vice President of Marketing & Sales • Raised $13 million in venture capital Current Activities Include • Helping business leaders solve marketing problems • Serving on corporate Boards • Mentoring students at UC Irvine Paul Merage School of Business • Judging UC Irvine annual Business Plan Competition CONFIDENTIAL

3. What We’ll Cover As advertised • How to Assess the Market for Your Idea • How to Assess the Value of Your Idea • “9 Questions every business plan should answer” Plus • Nomenclature • Examples • Your questions CONFIDENTIAL

4. Applying it to Your Situation CONFIDENTIAL

5. Typical Situation • Have a new product idea • Potential seems strong • Need money to build it • Other next steps not certain CONFIDENTIAL

6. Clear the Deck, Start at the Beginning • Look at some fundamentals • “Basic blocking and tackling” • Consider alternate “paths to market” CONFIDENTIAL

7. Desired Path to Market Idea Sales, Funding, Management Team CONFIDENTIAL

8. Alternate Paths to Market Idea Typical Technology Path Prototype Patent ??? ??? • Sales • Funding • Management Team CONFIDENTIAL

9. Alternate Paths to Market Idea Typical Technology Path Market Oriented Path Evidence of… Prototype Customers Patent Profit ??? Principle ??? • Sales • Funding • Management Team CONFIDENTIAL

10. 9 Questions Every Business Plan Should Answer 1. Who is the customer? 2. How does the customer make decisions about buying this product? 3. To what degree is this a compelling purchase for the customer? 4. How will the product be priced? 5. How will we reach all the identified customer segments? 6. How much does it cost (time & resources) to acquire a customer? 7. How much does it cost to produce & deliver the product? 8. How much does it cost to support a customer? 9. How easy is it to retain a customer? Source: William A. Sahlman, "How to Write a Great Business Plan,“ Harvard Business Review, www.hbr.com These are all MARKETING questions CONFIDENTIAL

11. Keys to Success in Marketing CONFIDENTIAL

12. The Market Outside In Marketing (Defined) Going to the market to learn what prospects will buy, then creating & delivering that product... when, where and how they want it Our Company CONFIDENTIAL

13. Keys to Success in Marketing • Know who your customers are • Listen to them The rest is execution (granted, a totally separate topic) CONFIDENTIAL

14. Market vs. Target Market Market The set of all actual and potential buyers of a product or service Target Market That group of people pre-disposed to buying CONFIDENTIAL

15. Market Segmentation Dividing a market into distinct and meaningful groups of buyers… who might merit separate products and (or) marketing mixes CONFIDENTIAL

16. Charlie’s New Business Success Factors • Pick a BIG market • SEGMENT it • EXECUTE better than anybody CONFIDENTIAL

17. Assessing the Market CONFIDENTIAL

18. What do we Mean by “The Market?” A market is people exchanging goods & services (for value) Key to an investor, because this is where people part with their money One of two key transactions investors care about “The market” can be described as consisting of 3 components • Customers • Competitors • Dominant Trends (that affect us all) CONFIDENTIAL

19. Assessing the Market – Customers Start with the “5 W’s and 1 H” Who are they? What are they? Where are they? When do they buy? How much do they buy? (How much? How often?) Why do they buy? Consider both the “many” and the “few” [Investor needs to know] “Who is going to give you money for what you propose to do?” CONFIDENTIAL

20. Assessing the Market – Competitors Major Questions Who are the major players? Who are the newcomers? Who’s probably working on the same thing? [Investor needs to know] “Who else is after these same dollars?” CONFIDENTIAL

21. Assessing the Market – Trends Major Questions Size? Direction? Growth? News? Regulatory? Financial? Needs (Pain)? [Investor needs to know] “How attractive is this market?” CONFIDENTIAL

22. How do we Gather This Information? Starting with General Information • Market Analysts Gartner/Dataquest, Forrester Research, Yankee Group [Fee, but may pity students] • Stockbrokers Merrill Lynch, Goldman Sachs, ETRADE, Schwab • Web Google www.google.com[Go ahead, enter a question] About www.about.com[Like asking a web librarian] Hoovers www.hoovers.com Mantawww.manta.com Inc. Business Resources www.inc.com Yahoo! Finance http://finance.yahoo.com[Find a public company in the same space and read reports on their market] • Government Economic Indicators www.commerce.gov Census, Demographics www.census.gov Edgar Databasewww.sec.gov/edgar.shtml • [You’re paying for it, use it; • but take care to focus on • exchange of dollars] CONFIDENTIAL

23. How do we Gather This Information? Getting Specific Information • Ask prospects • Pump your network (www.LinkedIn.com) • Ask your coach, mentor and angel for suggestions If you don’t have several, find and adopt them • The specific answers are usually out there For almost every market there’s a • Market research report • Industry analyst • Industry (trade) magazine • Trade association CONFIDENTIAL

24. How to Connect With Anybody on the Planet It no longer takes even "Six Degrees of Separation" 6,648,552,180 World Population = Source: US Bureau of the Census http://www.census.gov/ipc/www/popclockworld.htm 2/5/08 at 5:38 GMT Number of Degrees People You of Qty Can Connect To Separation People You Know 1880 1880 1 People They Know 1880 3,535,776 2 People They Know 1880 6,648,552,180 3 “3 Degrees of Separation” CONFIDENTIAL

25. What if the Market isn’t There Yet? “What was the market for bottled water before Perrier?” Who knew? But you could have quantifiedthe market for “liquid refreshment” Andthe “% of homes dissatisfied with the taste of their water” Quantify the opportunity somehow CONFIDENTIAL

26. What if the Market isn’t There Yet? “What was the market for bottled water before Perrier?” Who knew? But you could have quantified the market for “liquid refreshment” And the “% of homes dissatisfied with the taste of their water” “What was the market for overnight delivery before Federal Express?” Who knew? But you could have quantified“business spending on urgent communications” Also could get testimonial quotes from people who have the problem Quantify the opportunity somehow CONFIDENTIAL

27. What if the Market isn’t There Yet? “What was the market for bottled water before Perrier?” Who knew? But you could have quantified the market for “liquid refreshment” And the “% of homes dissatisfied with the taste of their water” “What was the market for overnight delivery before Federal Express?” Who knew? But you could have quantified “business spending on urgent communications” Also could get testimonial quotes from people who have the problem “No one ever asked us to design a Mini-Van” Who knew? But you could have quantified “# of moms with kids”and “% dissatisfied with full size vans and station wagons” Again, testimonial quotes from people with the problem could help Quantify the opportunity somehow CONFIDENTIAL

28. Valuing Your Idea CONFIDENTIAL

29. 5 Key Elements in Evaluating a Business Customers Market Size & Trends Competitors’ Customers Competitive Difference Company Competition Products People Financials CONFIDENTIAL

30. Questions to Ask Customers - Who are your (their) customers? - What’s important to those customers? Products - What do they make? - what are the key characteristics of that product (what’s unique)? - How many units do they build (or sell) per month? design per year? - what does each unit cost? - do they design and manufacture? - What problem (pain) are they having (can you get them to see it?) People - Who are all the players (names & titles)? - Who’s at the top? - How do decisions get made? Financials - How big are they? (# of people, dollars per year) - Can they afford our product? - Can they be a significant customer? Competitive Difference - Why do people buy from them instead of from others? CONFIDENTIAL

31. Building a Valuable Company $’s Valuation Time CONFIDENTIAL

32. Building a Valuable Company $’s Technology RISK Valuation Market Acceptance RISK Time Two Key Drivers of Valuation CONFIDENTIAL

33. Building a Valuable Company EXAMPLE $’s Technology RISK Valuation Market Acceptance RISK Initial Reaction Concept Feedback Idea Purchase Intent First Customer Lab Demo Prototype (make one) Volume Purchases Geographic Rollout Production Volume Production High Yield Time Milestones The key is to determine what these milestones are in advance…and drive to them using as little cash and time as possible. CONFIDENTIAL

34. So, How Much is Your Idea Worth? • Like beauty, it’s in the eye of the beholder • Your idea is worth whatever someone is willing to pay for (part of) it • Wherever you are, focus on creating a more valuable company • Do that by • Decreasing the major risks • Gathering increasing evidence to show that • The technology works (and is clearly different & better than the alternatives) • People will buy it (in huge volumes at high margin) CONFIDENTIAL

35. Summary CONFIDENTIAL

36. What We Covered As advertised • How to Assess the Market for Your Idea • How to Assess the Value of Your Idea • “9 Questions every business plan should answer” Plus • Nomenclature • Examples • Your questions CONFIDENTIAL

37. Contact Andy Mindlin TEL +1 714-377-6312 andy@REALWORLDMarketing.com www.REALWORLDMarketing.com CONFIDENTIAL