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THE BIRD-IN-HAND PRINCIPLE: WHO I AM, WHAT I KNOW, AND WHOM I KNOW Not all ideas are great opportunitiestake, for example, New Coke or t e !ord Edsel" #et someone t oug t enoug of t ese to a$tuall% in&est in t em and produ$e t em" Understanda'l%, most no&i$e entrepreneurs, espe$iall% t ose w o a&e good (o' market prospe$ts, tend to worr% a lot a'out finding t e )rig t* opportunit%" Idea versus Opportun t!: Assess n" #eas $ % t! and &a%ue T ere are se&eral frameworks in text'ooks, trade 'ooks, (ournal arti$les, periodi$als, and on +e' sites t at $laim to predi$t t e feasi'ilit% and &alue of new &enture ideas" # "ure ' depi$ts a simple and useful summar% of four ke% $on$epts at t e eart of man% of t ese frameworks, -" .s it doa'le/ 0te$ ni$al feasi'ilit%1 market feasi'ilit%2 3" .s it wort doing/ 0finan$ial feasi'ilit%2 4" Can I do it/ 0+ o else do . need/ 5rgani6ational feasi'ilit%2 7" 8o . want to do it/ 0+ % do . want to do it/ 9oti&ational and exit feasi'ilit%2 .f answers to all four are positi&e, t e entrepreneur $an $onfidentl% pro$eed" T e first two elements a&e to do wit external fa$tors su$ as t e te$ nolog% of t e time and t e market en&ironment for t e 'usiness idea" T e last two are internal, depending on t e personal $ir$umstan$es and moti&ations of t e entrepreneur making t e de$ision" :elow is a list of ;uestions wit in ea$ of t e four ;uadrants of # "ure '" Among t e te$ ni;ues re$ommended for answering t ese ;uestions are market resear$ 'ased on sur&e%s, fo$us groups, inter&iews and demand fore$asting, and so fort 1 risk e&aluation and risk redu$tion strategies1 and finan$ial pro formas wit sensiti&it% anal%ses and t e like"

T is te$ ni$al note was prepared '% <aras 8" <aras&at %, asso$iate professor of 'usiness administration" Cop%rig t 300= '% t e Uni&ersit% of Virginia 8arden <$ ool !oundation, C arlottes&ille, VA" All rig ts reser&ed" To order copies, send an e-mail to sales>dardenpu'lis ing"$om" No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any meanselectronic, mechanical, photocopying, recording, or otherwisewithout the permission of the Darden School Foundation

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!igure -" !ramework for assessing w et er a new &enture idea is a good opportunit%" #EA+IBILIT, &AL-E

Is t doa$%e(
MARKET
Te$ ni$al feasi'ilit% 9arket feasi'ilit%

Is t )ort* do n"(
!inan$ial feasi'ilit%

Can I do t(
PER+ONAL
+ at will it take to do it/ + o else do . need/

Do I want to do t(
+ at turns me on a'out it/ + % do . want to do it/

Is t doa$%e( Technological feasibility .s t e te$ nolog% for %our produ$t alread% a&aila'le, or is it still in de&elopment/ .f t e latter, w at stage of de&elopment is it in and w at $an go wrong/ .f t e former, is an%one else using it to de&elop t e same produ$t?ser&i$e as %ou/ .f not, w % as no one done so %et/ .f so, w o are t e% and ow does t at affe$t %our prospe$ts/ + at kind of entr% 'arriers for t e future does %our te$ nolog% pro&ide/ @ow long would t ose entr% 'arriers last s ould %our idea pro&e to 'e a ig potential opportunit%/ + at are %our te$ nologi$al risks/ Aist reasons w % t e end user mig t not want to use %our te$ nolog% e&en t oug %our produ$t?ser&i$e mig t 'e te$ nologi$all% superior" + at ot er nas$ent te$ nologies mig t 'e$ome $ompetition in t e futureone %ear from now, fi&e %ears from now, a few de$ades from now/

-4!ar"et feasibility #roduct + at exa$tl% are %ou selling/ .s it a te$ nolog% looking for a market or &i$e &ersa/ @ow do %ou define %our ni$ e/ @ow is t e need 'eing filled now/ + o?w at is t e $ompetition/ Ad&antages?disad&antages of t e produ$t?ser&i$e + % %our produ$t/ 0differentiation?uni;ueness?proprietar%2

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$ustomer !ar"et @ow large is t e market/ + at is its stru$ture/ @ow fast is it growing/ + ere $ould future $ompetition $ome from/ + o is %our $ustomer/ 0a t%pi$al profile2 +ill t e $ustomer pa% enoug / Can %ou $ arge enoug / + at $riti$al fa$tors will lead %ou most ;ui$kl% to %our $ustomer 'ase/

%conomic feasibility Are t ere an% o'&ious road'lo$ks from t e go&ernment'ot lo$al and national/ .s t e international situation likel% to $ ange/ + at is %our exit strateg%/

Timing Are %ou in t e pat of a paradigm s ift/ Are %ou too far a ead of t e times/

-7 + at is t e s ape and duration of t e )window* for t is opportunit%/

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Is t )ort* do n"( Financial feasibility + at are t e initial outla%s of funds re;uired/ + at would $on&in$e an in&estor to $ontri'ute t ose funds/ .f %ou personall% owned t ose funds, would %ou in&est t em in t is idea/ @ow is t e finan$ing $onne$ted to t e timing issue/ 0'reake&en, 'urn rate2 8e&elop a set of finan$ial fore$asts" <tate t e primar% finan$ial assumptions for %our pro(e$tions" @ow sensiti&e are %our pro(e$tions to $ anges in pri$e, te$ nolog%, $ompetition, and %our own growt / 8e&elop 'est-$ase and worst-$ase finan$ial s$enarios"

Can I do t( &hat is it going to ta"e' E&er% idea is different in terms of exa$tl% w at it would take to 'uild it into a 'usiness" :ut some general negati&e expe$tations mig t in$lude, Aong and often unpredi$ta'le work ours <et'a$ks and disappointments along t e wa% in$luding t e possi'ilit% of ma(or failures An arduous and sometimes awkward learning pro$ess wit regard to dealing wit peoplein$luding iring and firing Negotiating toug $ontra$ts 8ealing wit re(e$tions of &arious t%pes <ustaining t e 'est stake olders t roug 'ad times su$ as $as $run$ es

A realisti$ understanding of some of t e negati&e experien$es, $om'ined wit a strong positi&e moti&ation is $onsidered t e essential re$ipe for long-term su$$ess in entrepreneurs ip"

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&hy you' + at spe$ial strengt s do %ou 'ring to t is enterprise/ + at are %our rele&ant weaknesses and ow will %ou o&er$ome or $ompensate for t em/

Do I want to do t( 8oes it turn %ou on/ + % do %ou want to do t isreally/ + at are %our exit strategies/

T e esta'lis ed m%t a'out t e moti&ation of entrepreneurs is t at t e% want to make mone%" And in man% $ases, entrepreneurs do start out wit t e idea of making mone%" .ndeed, entrepreneurs are &er% good at keeping t eir e%e on t e 'ottom line at all times" #et, most entrepreneurs ;ui$kl% fa$e t e fa$t t at making mone% is 'ut one ne$essar% $onditionnot e&en t e most ne$essar% $onditionfor su$$essful entrepreneurs ip" Cat er, making mone% is a positi&e side effe$t of 'ringing toget er and managing resour$es and people to a$$omplis somet ing realisti$all% doa'le and wort doing" T erefore, in 'uilding a ro'ust 'usiness organi6ation, an entrepreneur as to want more t an merel% to make mone%" @e or s e as to find more immediate reasons for getting up in t e morning and fa$ing t e dail% tasks of entrepreneurs ip" <ome $ommon moti&ations mentioned '% su$$essful entrepreneurs in$lude, A desire for independen$e, ). did it m% wa%* or ). do not want to work for someone else* !ulfilling needs in t e world, making a positi&e $ontri'ution to so$iet% Aifest%le, !or example, a su$$essful $ouple from +all <treet w o gi&e up ig pa%ing (o's to start a 'ed and 'reakfast in Vermont A sense of a$$omplis ment, ). did it 'e$ause . $ould* or ). wanted to pro&e to m%self . $ould do it"*

+ ile t e framework dis$ussed ere is 'ot useful and &alua'le in t inking t roug w et er to in&est in a new &enture idea or not, it mig t 'e important to also ask t e ;uestion, to what e(tent do actual entrepreneurs use such framewor"s in starting new ventures' 9oreo&er,

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w at does resear$ tell us a'out ow e(pert entrepreneurs $ame up wit t e ideas t at a&e resulted in enduring $ompanies/ Ideas and Opportun t es: W*at Resear.* Te%%s -s 5ne $lear fa$t emerging from resear$ into entrepreneurial expertise as well as earl%stage istories of new &entures is t at it is not possi'le a priori to know wit an% $ertaint% t at an idea will a$tuall% turn out to 'e a good 'usiness opportunit%" .n fa$t, su$$essful entrepreneurs and experien$ed in&estors state t at t ere is onl% one wa% to determine 'e%ond dou't w et er a gi&en idea is a good 'usiness opportunit%and t at is to go a ead and implement it $reati&el% at &er% low le&els of in&estment and eit er find real $ustomers w o a$tuall% 'u% t e produ$t or ser&i$e at a reasona'le pri$e, or to lo$ate partners willing to $ommit real resour$es to t e &enture earl% on, or ideall%, 'ot of t ese" T at implies t at opportunit% assessments $annot merel% $onsist of se$ondar% market resear$ of pure arm$ air anal%ses" .nstead potential entrepreneurs a&e to talk to $ustomers and ot er potential stake olders dire$tl%, understand t em &is$erall%, and 'ring t em on 'oard as soon as possi'le" T is insig t from entrepreneurs ip resear$ is $onsistent wit w at we know a'out new produ$t de&elopment and organi$ growt in esta'lis ed $ompanies" Eri$ &on @ippel at 9.T examined t e sour$es of successful in&ention in large $orporations" And e&en t ere e found t at t e o&erw elming ma(orit% of new ideas t at a$tuall% turned out to 'e profita'le produ$t lines $ame not out of CD8 departments, 'ut out of $ustomer inputs su$ as $omplaints and suggestions piped in t roug support and ser&i$e departments" <imilarl%, most enduring new &entures did not $ome from t e original ideas upon w i$ t e% were founded" !or example, !edEx 'egan wit t e idea of deli&ering spare parts, CealNetworks 'egan as an intera$ti&e tele&ision $ annel, and it at first did not strike t e founders of <tar'u$ks to e&en 'rew a $up of t e exoti$ $offee 'eans and ground $offee t e% were tr%ing to sell" .n fa$t, most su$$essful entrepreneurs find t at t e% a&e to a'andon t e opportunit% t e% first per$ei&ed and 'e willing to $ ange t eir )&ision* in response to external feed'a$k and stake older negotiations, 'ot in t e earl% stages and as t e% grow" .n general, expert entrepreneurs emp asi6e a$tion rat er t an anal%sis" T e istor% of entrepreneurs ip in$ludes se&eral examples of entrepreneurs w ose ideas were not $onsidered 'lo$k'uster opportunities, 'ut w o went a ead wit mundane ideas and 'uilt su$$essful 'usinesses simpl% '% doing t e next t ing and t e next t ing and t e next" Expert entrepreneurs are means-dri&en and not goal-dri&en in formulating t eir &enture models" T e more experien$ed t e% are, t e 'etter t e% 'e$ome at using readil% a&aila'le 'its and pie$es of ideast e 'ird in andto $reate ama6ing new possi'ilities t e% t emsel&es ad not dreamed a'out, in$luding new strategies, new 'usiness models, rapid responses to $ anges in t e en&ironment, &alua'le new appli$ations for mundane te$ nologies, and e&en new markets t at no one ;uite knew existed or $ould exist"

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.n a $ogniti&e s$ien$e-'ased in&estigation into t e t inking pro$esses of founders of pu'li$ $ompanies, ranging in si6e 'etween F300 million and F="B 'illion, w ose rGsumGs in$luded more t an -B %ears of multiple startups, it was found t at su'(e$ts started wit a gi&en set of means, rat er t an a predetermined goal or an opportunit% to w i$ t e% were strongl% $ommitted" T at was t e $ase e&en w en t e% were pro&ided wit strong market resear$ data supporting a $learl% defined opportunit%" .n fa$t, starting wit exa$tl% t e same )opportunit%,* t e 3E expert entrepreneurs ended up 'uilding a &ariet% of different &entures in -H $ompletel% different industriesI T ree $ategories of )means* emerged from t e data, t eir identit%, t eir knowledge 'ase, and t eir so$ial networks" .n simpler words, ea$ expert entrepreneur started wit , 0-2 + o am ./ 032 + at do . know/ and 042 + om do . know/ To see ow t is means-dri&en pro$ess works, $onsider some examples from t e istor% of entrepreneurs ip" 5ne of t e earliest and most enduring 'rands $reated '% an entrepreneur 0in t e modern sense of t e word2 dates 'a$k to -Ht -$entur% potter Josia +edgwood" Kotter%, of $ourse, ad existed sin$e t e dawn of istor%" And 'eing 'orn into a potter famil%, t ere was not ing sensational a'out +edgwoodLs 'e$oming a potter" :ut earl% illness made im less suited to t e ard work of a$tuall% making pots and for$ed im instead to work on design and de$oration" T is t en led im to de&elop a taste for inno&ation, and o&er se&eral %ears of a$$umulated knowledge, t e a'ilit% to produ$e ig -;ualit% potter%" + en laid up wit a 'roken leg, is do$tor introdu$ed im to t e )gentleman-p ilosop er* T omas :entle%" +edgwood and :entle% ad great $ emistr% and 'e$ame good friends" 5&er time, t roug t eir m%riad $on&ersations, t e% 'egan to understand t e importan$e of )so$ial mo'ilit%*t e dawning reali6ation in -Ht -$entur% England t at peasants or ot er $ommoners need not die in t e $lass in w i$ t e% were 'orn" .nspired '% t e possi'ilities of pus ing t is reform agenda, +edgwood set out to make is pots t e ;uintessential s%m'ol of so$ial mo'ilit%" T roug a &ariet% of painstaking strategies t e% got ro%alt% to 'u% and endorse t eir wares" T en t e% got Englis men and women to see t at t e% $ould own t e &er% same &ases and plates t e no'ilit% owned, t us taking a tin% 'ut $ru$ial step out of t e station into w i$ t e% were 'orn" +edgwoodLs 'rand embodied t e deepest aspirations of t eir $ustomersand t e &enture t ri&ed and 'e$ame one of t e most enduring $ompanies in t e world" <imilar stories populate t e re$ent istor% of entrepreneurs ip as well" :e it <ears, <taples, <tar'u$ks, or CNN, t e entrepreneurs w o founded t em worked $losel% wit t eir means to s ape step '% step t e great opportunities t e% ended up wit " T e beginnings of t ose opportunities, owe&er, were usuall% rooted in t e wa% entrepreneurs wo&e toget er t e mundane realities of w o t e% were, w at t e% knew, and w om t e% knew into doa'le pro(e$ts t at t e% personall% 'elie&ed were wort doing" T ose enduring &entures tended to start small, wit out ela'orate market anal%ses" T e entrepreneurs t en $ontinuall% added on to t eir original pro(e$ts, pus ing t em outward, res aping t em to work wit new stake olders, stret$ ing

Distinguishing $haracteristic) I/a" n n" poss $%e ne) ends us n" a " ven set o0 /eans

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t emsel&es(ust a 'it at a time, to rea$ ig er and t rust fart eruntil e&entuall% t e% ad transformed 'ot t eir means and ends into unimagined new possi'ilities" <ti$king &er% $losel% to w o %ou are, w at %ou know, and w om %ou know not onl% tells %ou w at to do, it is also &er% useful in telling %ou w at not to do" T e pro'lem wit most no&i$e entrepreneurs is not t at t e% do not a&e great new ideas for &entures, it is t at t e% a&e too man%" T e% see opportunities e&er%w ere and feel tempted to expand produ$t lines too soon or (ump into too man% new market segments all at on$e" Espe$iall% if t e% a&e some initial su$$ess, it is eas% to feel pres$ient 0i"e", to 'elie&e t e% $an $learl% predi$t t e future2 as well as omnipotent 0i"e", to 'elie&e t e% $an a$ ie&e t e impro'a'le2" T e 'ird-in- and prin$iple does two t ings, 0-2 .t tells %ou t at %ou need not wait for t e 'lo$k'uster idea or t e multi'illion dollar opportunit% to $ome %our wa%" #ou $an 'egin wit a simple pro'lem for w i$ %ou see an implementa'le solutionor e&en somet ing t at %ou simpl% 'elie&e would 'e fun to attemptand go for it1 and 032 it also tells %ou not to run after all kinds of imagined )fantasti$* opportunities t at re;uire %ou to $ ase mone% %ou do not a&e, work wit people %ou are not sure %ou like, or deal wit te$ nologies and markets a'out w i$ %ou know little and so a&e to run 'reat lessl% to keep up wit " .n ot er words, w en %ou use t e 'ird-in- and prin$iple, starting a new &enture is no longer an in$redi'l% risk% a$t of eroism" .t is somet ing %ou $an do wit in t e $onstraints and possi'ilities of %our normal life" #ou $an start a new &enture anytime %ou want" #ou $an get started now