Magazine article CMA - the Management Accounting Magazine

Putting New Ideas to the Test

Magazine article CMA - the Management Accounting Magazine

Putting New Ideas to the Test

Article excerpt

It's a well-known statistic that up to 80 per cent of businesses fail within their first five years. Most are the victims of lack of management and capitalization. But what is the specific cause? More importantly, how do you eliminate or reduce the chances of failure during the critical start-up stage?

The ventures most likely to succeed are those that are well-planned and evaluated before start-up. Rarely, however, are entrepreneurs sufficiently objective to evaluate their own ideas. It's best to get assistance with idea evaluation, preferably from a reputable, confidential source.

Different methods exist for evaluating idea. And many organizations and individuals profess an ability to "pick a winner." I favor the method used by the Canadian Industrial Innovation Centre in Waterloo, Ontario. Their process is to reduce the total number of ideas to a few with commercial potential. Ideas are evaluated according to four major categories or "key factors of success": technical, production, marketing and risk. Ordering these categories helps to identify problems or critical weaknesses early.

Technical Factors

Is the proposed technology sound and complete? Will your product function as you anticipate? How much more research and development must you conduct to bring the product to market? As you often lack a product or even a prototype at this point, answering these questions requires experience and sound professional judgment. Even if the product works, will it meet safety and environmental criteria? Rarely do technical factors determine the idea's success or failure. However, if technical problems exist, then perhaps you should consider another idea before investing much time or money.

Production factors

Can you manufacture enough of the proposed product with available technology? Will the process be cost-effective? These preliminary conclusions allow you to isolate ideas with major potential weaknesses.

Marketing factors

Failure to think about how to market a new product or business concept is the most common reason for its failure. The entrepreneur should estimate market demand for the product or technology; gauge consumer acceptance; identify the competition and the entrepreneur's own "competitive differential advantage"; and estimate the effort and cost of putting the product into customers' hands.

Consider the rate of market adoption. Customers often hesitate to adopt new ideas, particularly during a recession. …

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