Business Risk Assessment

from the Oklahoma Commercialization Model

How to Properly Identify Risk

© 2007 i2E, Inc.

Table of Contents

1) Overview

2) Investigation Stage

3) Feasibility Stage

4) Development Stage

5) Introduction Stage

6) Growth Stage

7) Maturity Stage

8) Commercialization Specialists

Resources:
• The Oklahoma Commercialization Model
• Angel Capital Education Foundation
• Tech Coast Angels
• i2E Team © 2007 i2E, Inc.
Overview

It’s important to analyze your business opportunity

with respect to five areas of risk: product, market,
business, finance and execution risk.

This business risk assessment tool identifies the

general risk for each of the five areas with respect to
each stage of commercialization.

Ultimately this tool identifies the action items or

milestones that should be completed to mitigate
each level of risk.
© 2007 i2E, Inc.
Investigation Stage

Risk Profile:
The innovator has a new product or
technology advancement with seemingly
positive market potential.

However, the innovator lacks the financial

resources and/or business expertise to
commercialize the product.

© 2007 i2E, Inc.

INVESTIGATION FEASIBILITY DEVELOPMENT INTRODUCTION GROWTH MATURITY

Risk Action Items

Product Risk: • Define concept
Product may not be feasible or lacks unique qualities • Confirm critical assumptions
and cannot be protected. • Survey state of the art
• Identify critical barriers
• Determine technology
Market Risk: Conduct market overview & identify:
Limited understanding or knowledge of the market can • Pricing structure
cause a misrepresentation of the growth and size of the • Market barriers
market. • Risks
• Distribution channels
• Trends and competitors
Business Risk: • Estimate profit potential
Great product or technology, but a new product or • Conduct self-enterprise and commercialization assessments
technology does not translate into a great business. • Identify professional needs
• Identify capital needs
Finance Risk: • Self fund
Proof-of-concept funding for product • Study the capital cycle
prototype is difficult to identify. • Identify ten proof-of-concept sources
• Identify ten seed sources
Execution: • Learn to manage people
Management at this stage is typically the • Identify ten advisors
innovator. This lack of business skills can be • Study management practice
difficult to overcome. • Study company formation types
Feasibility Stage

Risk Profile:
At this stage the company’s management
team is incomplete with no product revenues.

The final design of the product is complete

and an initial business plan is developed.

© 2007 i2E, Inc.

INVESTIGATION FEASIBILITY DEVELOPMENT INTRODUCTION GROWTH MATURITY

Risk Action Items

Product Risk: • Develop working model
The company is focused on product innovation rather than • Test technical features
business development. Intellectual property rights remain a • Assess preliminary production feasibility
concern. • Conduct manufacturing assessment
• Assess safety & environmental features
• Finalize designs
Market Risk: Identify and quantify:
Unrealistic market study results can cause misallocation of • Market size
scarce recourses. • Customers
• Volume
Final product design is dependent on successful outcome of • Prices
market study. • Distribution
• Competitors

Business Risk: • Formulate financial assumptions

Exploring business formation and the plan still lacks • Develop pro forma
expertise and business skills to commercialize. • Identify seed capital
• Form advisory team
Finance Risk: • Bootstrap
Cash flow is a problem due to lack of revenues and • Prepare investment strategy
early proof-of-concept funding is difficult to attract. • Prepare investment presentation
Execution: • Multi-task
The management team is incomplete; therefore, multiple • Implement appropriate management structure
responsibilities fall on a few individuals. Chicken and egg • Pursue opportunities
syndrome becomes evident as you need capital but capital
won’t follow poor management teams.
Development Stage

Risk Profile:
At this stage the company continues to
develop the product prototype with the goal of
completion.

Significant expenses are incurred at this

stage with no product related revenues. This
stage is usually at the deepest point in the
"valley of the death".

© 2007 i2E, Inc.

INVESTIGATION FEASIBILITY DEVELOPMENT INTRODUCTION GROWTH MATURITY

Risk Action Items

Product Risk: • Develop prototype
Advancing the product from prototype to manufacturing • Identify materials and processes
or production environment requires new skill sets. No • Conduct tests
longer developing product revenue features. • Implement development methods
Market Risk: • Identify marketing team
Field tests are not positive and / or competitors respond • Define target market
more rapidly than planned. • Select market channels
• Field test
Business Risk: • Decide venture or license
If choosing a business over licensing, an experienced • Finalize intellectual property
professional management team will need to be • Identify management team
identified. The business needs to enter a revenue mode • Select organization structure
as opposed to the R&D mode of the past.
• Write business plan
Finance Risk: • Prepare investment strategy
Significant expenses and no product revenue realized. • Select investment types
• Target appropriate investors
Execution: • Develop organization processes
Lack of focus and risk of losing founder(s). Lack of • Delegate responsibilities
flexibility in accepting new business controls. • Develop strategic plans
• Track progress
Introduction Stage

Risk Profile:
At this stage, the company has limited
product revenue and the product is being
introduced into the market.

© 2007 i2E, Inc.

INVESTIGATION FEASIBILITY DEVELOPMENT INTRODUCTION GROWTH MATURITY

Risk Action Items

Product Risk: • Develop production prototype
Demonstrating product features reveals a limited market • Determine production process
driven functionality after scaling product production. • Select equipment
• Design field support system
• Demo product features
Market Risk: • Establish market relationships
The reality of the market is rarely as planned. Market • Conduct limited sales
acceptance and competitor response are different than • Analyze sales
anticipated. Limited repeat business can cause • Survey customers
uncertainty.
• Refine marketing plan
Business Risk: • Establish business function
Lack of focus as the company moves from a emerging • Hire staff
environment to a true business mode of operations. • Execute contracts
• Secure first-stage financing
Finance Risk: • Focus on bottom-line profits
The burn rate exceeds capital and management tends • Eliminate costs
to focus on safes rather than profits. • Implement fundraising strategy
Execution: • Implement an agile organization structure
Change in the business is accelerating and causes poor • Hire talented people
choices of new employees. Founders can have a • Delegate
difficult time adapting to new business stages. • Measure performance
Growth Stage

Risk Profile:
At this stage the company is in full production
with the main product and expanding
distribution.

The management is in transition to a formal

organizational structure.

© 2007 i2E, Inc.

INVESTIGATION FEASIBILITY DEVELOPMENT INTRODUCTION GROWTH MATURITY

Risk Action Items

Product Risk:
It becomes necessary to refine product features to stay
competitive. The demand of new product features
drains capital from the growing business.
Market Risk:
Poor distribution, customer satisfaction and product
features are concerns as competitors respond to your
initial product launch.
Business Risk:
Focus becomes an issue as the business becomes
more formal with increased demands.
Finance Risk:
Poor finance or investment strategy can limit ability to
grow new personnel and execute new contracts.
Execution:
The enthusiasm of the initial start up vanishes as a
formal organizational structure is in place. Hiring new
people and increased focus on roles and responsibilities
causes a culture of employees reacting to their own
jobs as opposed to the overall mission.
• Prepare commercial design
• Establish quality control
• Construct facilities
• Conduct full Production
• Finalize internal distribution system
• Expand distribution
• Analyze competitor response
• Assess customer satisfaction
• Assess distributor satisfaction
• Refine product features
• Monitor enterprise position
• Hire and train personnel
• Execute contracts
• Arrange financing
• Institute vision, mission and management policies
• Study sources of growth capital
• Implement new fund-raising strategy
• Monitor cost structure
• Move from reactive to proactive management
• Implement future strategic plans
• Maintain innovative culture
Maturity Stage

Risk Profile:
The company is now well established in the
marketplace and must continually innovate to
stay competitive.

© 2007 i2E, Inc.

INVESTIGATION FEASIBILITY DEVELOPMENT INTRODUCTION GROWTH MATURITY

Risk Action Items

Product Risk: • Maximize production
Minor changes in the product features provide less of • Establish after-market support, repairs and spares
an impact. The established product makes it difficult to • Warranty service
accept new innovations with the existing structure. • Implement training program
Market Risk: • Develop market retention
Growth rates begin to decline as the existing line of • Establish market scan
products becomes mature. • Identify new markets
• Identify new products
Business Risk: • Establish SWOT process
It becomes difficult to innovate as the need to focus on • Invest profits
monthly, quarterly, and annual results becomes the • Monitor product life cycle
focus. • Monitor business trends
• Monitor management technologies
• Implement innovations
Finance Risk: • Monitor investments on new products
Poor finance or investment strategy can limit ability to • Explore spin-out opportunities
grow new personnel and execute new contracts. • Review financial control systems
• Increase shareholder values
Execution: • Reinvent organization
Established formal management team must now • Promote innovative culture
compete to innovate. A highly structured corporate • Be a team builder
environment makes it difficult to motivate employees to • Focus on performance and reward culture
innovate.
Commercialization Specialists
Contact one of these individuals for assistance in
accessing your business risk.

Name Email
John Campbell jcampbell@i2E.org
Tom Francis tfrancis@i2E.org
Richard Gajan rgajan@i2E.org
James Randall jrandall@i2E.org
Jim Rogers jrogers@i2E.org
David Thomison dthomison@i2E.org
Tom Walker twalker@i2E.org
John Whorton jwhorton@i2E.org

© 2007 i2E, Inc.