Wednesday, 31 October 2012

Measuring The Probability Of A Business Idea's Success

Monday 30 March, 2009
Measuring the probability of a business idea's success is not a trivial task. But there is a methodology for predicting the success factors.
Successful organisations associate return of investment (ROI) with their new product ideas. However, in spite of ROI calculations, these ideas in many instances fail when relased on to the market. Success of an innovation is based on several factors other than just ROI and technology. However, most organisations tend to overlook these factors and hence fail to measure them.
Ensuring success of a new product idea is a challenge difficult to address. In the case of SMEs it could be as crucial a question as the life or death of their business.
This article explores the factors that an organisation should consider when making decisions on new product ideas to be released on to the market. The principles proposed in this article would also help an innovation cell within a larger organisation achieve a better success rate.

The situation

Generally, people involved in innovation are expected to be masters of their trade that exhibit a strong natural urge to innovate. However, they are generally not equipped with expertise in "market" knowledge. Therefore, a group planning to create a new product idea in an organisation preferrably requires complementary skill sets in both the market and the technology knowledge.
Even if this problem is addressed by the formation of the right group, it is difficult to judge whether a new product idea really has potential or not. This is precisely the issue addressed by the "A-KIT" principle, elaborated on below.

The A-KIT principle

Success of a new business idea in any market is determined by the extent of Affordability, Market Knowledge required for implementing the idea, Innovation content and Technology used. Success factors of the business idea can be measured using the following, where each of Affordability, Knowledge, Innovation and Technology are measured in a scale of 0 to 1:
Affordability(A) * [ Knowledge(K) + Innovation(I) + Technology(T) ]

Reduction in potential users due to affordability

This is the most important of all the factors mentioned. This factor measures the reduced percentage of potential users of the product idea due to the cost of the idea. This is crucial, because it can drastically affect the ROI computation for the product idea. This is defined as the percentage of affected users (or organisations) who can afford the business idea. Affected entities are the total number of entities who can avail the benefit of the business idea, without considering the cost. In other words, it is calculated as follows :
Number of entities who can afford the business idea with proposed cost
Total number of entities who can potentially benefit from the business idea
The other three factors (Knowledge, Innovation and Technology) are measures of the strength of the authoring organisation and barrier to entry for competing organisations. They are subjective measures and their measurement criteria have to be derived for the context of the organisation involved.

Market knowledge

This factor considers the amount of market knowledge involved in implementing the business idea. Measurement of this criterion is dependent on the context of the maket.
The guideline for scoring on market knowledge is as follows:
Scores: 0.0 0.1 0.3 0.6 1.0
Guiding points:   Initial Basic Advanced Expert

Scores can be made evenly between two guiding points, for example a score of 0.2. The guiding values do not have uniform value increases, since basic values contribute much less than the advanced values.
The meaning of each guiding point is elaborated on below, however, it should be noted that these are indistinct meanings and can be concretely defined only for a given context and organisation:
  • Initial:

    Only a faint touch of market knowledge needed for implementation of the business idea. One example of this could be the formulation of a new pricing model for a telecom by a telecom provider. Here, the market knowledge used is of minimum level.
  • Basic:

    Uses the market fundamentals for implementing the business idea. An improvisation of usage of an existing technique could be an example for this.
  • Advanced:

    Uses advanced market knowledge for implementing the business idea.
  • Expert:

    Uses front-end technologies for implementing the idea. In some cases, it could mean discoveries or new concepts in the market for the implementation of the business idea. An example of this is the search engine algorithm for the Google search paradigm.


This factor measures the level of innovativation of the business idea. In other words, it measures the novelty of the idea in the context of the market. Innovative measure does not necessarily mean the measure of technology innovation. An innovation could be completely unrelated to technology.
The guideline for scoring on innovation is as follows:
Scores: 0.0 0.1 0.3 0.6 1.0
Guiding points:   Initial Basic Incremental Breakthrough
  • Initial:

    As the name suggests, this is a case of a very limited innovation. One common example is service organisations associated with the IT industry. Here, the innovation in the field of IT is very limited.
  • Basic:

    When the innovation is there, but of a limited nature it would be categorised in this section. A classic example of this could be a user interface change in existing software to make it easier to use or to make it more effective.
  • Incremental:

    For innovation that is substantial, but does not open up completely new opportunities. One example of this could be the use of the "undo" button on various software systems.
  • Breakthrough:

    This type of innovation could bring in a complete change in terms of opportunities available. A good example of this would be a drug curing cancer.


This factor measures the appropriateness of the technology used for implementing the business idea. More often than not, it would be a measure of cutting edge technology. It should be noted however, that this is disjointed from the Innovative measure of the business idea.
The guideline for scoring on technology is as follows:
Scores: 0.0 0.1 0.3 0.6 1.0
Guiding points:   Initial Basic Advanced Cutting edge
  • Initial:

    In this case, the technology needed for the business idea needs very little technological help to make it fly.
  • Basic:

    A business idea with limited use of technology with respect to contemporary ideas. One example of this is a Visual Basic technology based software solution for automating the operation of the hotel industry.
  • Advanced:

    A business idea with considerable use of technology would be categorised here. One example of this could be fly-by-wire technology for aircraft operation.
  • Cutting edge:

    When the technological need becomes crucial for the success of the business idea that it needs to use fore-front technologies. One example is the recently invented cyber knife for treating cancer patients.
The scores for each of the factors - looked at in total - will give you a good idea of the success of your business idea.

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