BNY MELLON

INCUBATION LAB

Session 1: Problem Identification

IDEA DEVELOPMENT
Date: Monday, March 31, 2014 Virtual Bootcamp

TRAINING

INCUBATE
ADVISORS

WORKSHOP FACILITATOR

Co-Founder and CEO, Incubate Advisors Advised over 200 early-stage entrepreneurs on how to develop their ideas

Business development and strategy at Weight Watchers

Managed new retail pharmacy product line from idea to market Marcus Mayo @Marcusdm3 Led research on new internal idea generation strategy Former private equity investment professional Former consultant at McKinsey with a focus on growth strategy, organizational redesign, and training Founder of an NYC-based angel investment group that has been making small investments in early stage businesses for close to a decade

INVESTOR

ENTREPRENEUR

PROBLEM SOLVER
INCUBATE
ADVISORS

SIMPLE BELIEF

Our goal has always been to make entrepreneurship more accessible. We appreciate that entrepreneurship is a complex and abstract process that has unique and diverse challenges depending on the entrepreneur. Our mission is to take this abstract and complex process and create a curriculum that not only unpacks business fundamentals, but is applicable to people with very diverse backgrounds. INCUBATE ADVISORS

INCUBATE
ADVISORS

THE INCUBATE FORMULA

All of our programs are made of three key components: a simple content framework, an action-based structure, and a flexible format.
Structure
We designed a homeworkdriven model with supporting content and in-class lectures used to fill in knowledge gaps. The goal of this structure is to ensure that each piece of information is accompanied by tangible, demonstrated progress in their business idea development.

Framework
We create a sequential framework that deconstructs key business topics while emphasizing the need for iteration in real world application. While entrepreneurship is an iterative, nonlinear process, it's important to understand the key parts of one complete iterative cycle. We make sure our entrepreneurs understand what each step looks like, while emphasizing that they will have to revisit these steps often and iterate as needed.

Flexibility
Our material is constructed as a template to be reused and revisited at the appropriate time in business development. The a la carte style of the material we create makes it easy for entrepreneurs to find and apply the concept they need when they need it. The templates created are also designed to account for differences in expertise, background, and business idea.

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WHO WE WORK WITH COMPANIES PREVIOUSLY WORKED WITH

INCUBATE
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THE INCUBATE FORMULA

Educational Framework
HAVE A MISSION THAT MATTERS THINK BIG, BUT START SMALL

=
SPARK WITH IMAGINATION, FUEL WITH DATA CONTINUAL INNOVATION, NOT PERFECTION

INCUBATE
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 Quote
We are providing a framework for how to think and approach problem solving in a new way.

INCUBATE
ADVISORS

INCUBATION LAB BOOTCAMP

The purpose of the Incubation Lab Bootcamp is to provide a framework for navigating the Idea Development phase of product development Incubation Lab Bootcamp
1.

Content Focus
Identifying the problem Translating the problem into a product idea Testing the product idea with customers Generating value from the idea

The Incubation Lab Bootcamp is a five-workshop virtual program that focuses on developing the initial idea from concept to basic prototype. Idea development is the most important phase of building a new product or service. It also happens to be the most challenging phase of launching a new business or product because it is the least structured and the most time-consuming.

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In addition, the program will address the inherent barriers that make launching a new business within a corporation difficult.

INCUBATE
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INCUBATION LAB BOOTCAMP FRAMEWORK

The Incubation Lab Bootcamp will consist of five facilitated online workshops during the week of March 31st April 4th.
The pre-work will explain the framework for the program and topics covered during the workshops.
Pre-Work

Faciliated Online Workshop

Five 2-hour online workshops that consist of a mix of lecture, quizzes and short in-presentation assignments.

Incubation Lab Bootcamp Structure The assignments are designed to encourage participants to take lessons learned in the workshops and apply them to real-world scenarios. We expect you to complete the out-of-class assignments over the next three months.

Out-of-Class Assignments

Incubation Lab Online Community

The Incubation Lab online community platform is designed to serve as a centralized place to access additional information and guidance from 9 members of the community and the Incubate Advisors team.

INCUBATE
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INCUBATION LAB TRAINING GOALS

Help participants achieve results faster, leading to higher level of success

Provide a framework for developing higher-quality clientfocused ideas based on quantitative customer feedback
Introduce a new approach for developing an idea within a corporate setting navigating the barriers

Help you better communicate where you are in the idea development process

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 Quote
We want executed ideas not just ideas. Everyone has ideas, but executed ideas are the ones that create value.

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PRE-WORK POP QUIZ NOTES

Pop Quiz!
1. Which of the startup categories does your idea fall into: a. Introducing a new product into an existing market b. Introducing a new product into a new market c. Introducing a new product into an existing market and trying to re-segment that market as a niche entrant Which of the following is not a phase of the Customer Development model: a. Customer Discovery b. Customer Validation c. Customer Marketing d. Customer Creation Which of the following does not belong in the Golden Circle: a. Defining your Why b. Defining your Customer c. Defining your What d. Defining your How Historically, the major issue with corporate product development models is: a. Not enough money is spent on the original pilot b. The people coming up with the ideas have limited experience c. More time should be spent writing the business plan d. Not enough time is spent talking to customers 12

2.

3.

4.

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STARTING WITH THE GOLDEN CIRCLE

How
What is your business / product? Solution Development

How you will achieve your why? Customer Development Business Model

What

Why Why

Why does your business / product exist? Problem Identification

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WHY ARE SOME PEOPLE SUCCESSFUL?

Idea

Sticky Note such a simple idea

Arthur Fry
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SUCCESSFUL PEOPLE DO TWO THINGS WELL

They frame the idea in a way that allows for flexibility and change.

They are able to execute on developing the idea from concept to product / service.

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LOOK WHERE THEY STARTED

Traffic Surveys

Animation tools

Online Book Reseller

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 Quote
Its not where you start its where you finish that counts.
Zig Ziglar

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FRAMEWORK: 4 STEPS TO IDEA DEVELOPMENT

Idea Development Life Cycle

Iterative Process that requires constant adjustment until product / market fit is achieved

Business Model

Problem Identification

MVP
Customer Development Solution Development
Product / Market Fit Customers are willing to compensate you for the product

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THE FOUR COMPONENTS OF IDEA DEVELOPMENT

Problem Identification
Recognizing that there is a problem to be solved Identifying the person who is affected by the problem Understanding why the problem exists Determining the effects of the problem

Solution Development
Determining possible solutions to the problem Articulating the value proposition the solution will provide (Gain Creator, Pain Reliever) Identifying the product features and their benefit Prioritizing the development of the product features

Customer Development
Articulating the customer profile (needs and wants) Collecting and interpreting customer feedback Aligning the product design with customer feedback Determining whether other individuals have a similar problem

Business Model Development

Identifying the drivers that will allow you to create, deliver and receive value Understanding the unit economics of the value exchange Determining whether the product can be profitable

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THE IDEA DEVELOPMENT PROCESS

Problem
Idea Development is based on the scientific method starting with a problem and validating the solution through iteration

Hypothesis Repeat

Learning
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WHERE DO IDEAS COME FROM?

A personal problem that you want to solve Most ideas start with a personal problem that you want to alleviate. In organizations, these ideas are typically organizational improvement / process improvement ideas.

Someone elses problem that you believe you can help solve (Customers Problem) Ideas also come from problems that you see other people struggle to solve. In organizations, these ideas typically lead to new product / service offerings.

Anticipated need for the future New ideas come from anticipating problems / needs in the future and working to create solutions against these problems.
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IDEAS SOLVE PROBLEMS

OPPORTUNITY VS. PROBLEM

Opportunity

There is an opportunity to create a new financial product that allows loans to be easily transferred between counterparties.

Problem

The syndicated loan market is illiquid and loans are not easily transferable between counterparties despite their attractiveness as quality collateral for investors and banks.

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WHAT PROBLEM IS BEING SOLVED?

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IDEAS VS. PROBLEMS POP QUIZ NOTES

Pop Quiz!
1. Which of the following is a trait of successful founders / product developers: a. They only work on multi-million dollar ideas b. They always come up with ideas that no one has thought about before c. They frame their ideas in a way that allows for flexibility and change d. They always have a expertise in the area of their idea Which of the following is not a step in the Idea Development Life Cycle: a. Problem Identification b. Solution Development c. Customer Development d. Market Research Idea Development is based on which methodology: a. Scientific Method b. Product Development Methodology c. Money Making Methodology d. Correlational Research Method Your idea falls into which category: a. A personal problem you want to solve b. Someone elses problem that you believe you can help solve c. Anticipated need for the future 24

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2.

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 Quote
The problem that matters most to a person will define how he or she views your product, so be clear on the problem that you are looking to solve.

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BREAKING DOWN A PROBLEM INTO ITS SUBPROBLEMS

Most people start with trying to tackle the big problem, but every large problem has smaller sub problems that must be identified and addressed
The most common tool McKinsey consultants use to break problems apart is the logic tree, a hierarchical listing of all the components of a problem, starting at the 20,000-foot-view and moving progressively downward.

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BUILDING THE BRANCHES OF THE TREE

People are not using their FSA accounts

Employees get stuck at the sign-up process

The sign-up process is too complicated

Core Problem

Immediate Cause

Secondary Cause

What is the cause of this

What is the cause of this

Asking WHY
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EXAMPLE: LOGIC TREE FOR WELLNESS PROGRAM

Problem: A large corporation wants to encourage its employees to live healthier lives through preventative wellness. After offering each employee a $500 / year FSA account for wellness products / services, only 20% of the population used the account. How can the company increase usage of the wellness FSA account?

Sub-Problem
The signup process is too complicated

Sign-Up Process

The signup process is inconvenient There is a lack of knowledge about the sign up process

Problem:
How can the company increase the use of the wellness FSA Account? The use of the FSA account

There is a lack of information regarding how to use the FSA account Identifying approved wellness offerings is complicated for employees The selected wellness offerings are inconvenient to use The selected wellness offerings are too limited Employees believe there is risk in sharing wellness information with the company

There is a lack of information regarding how to receive reimbursement

Receiving reimbursement

The process for receiving reimbursement is complicated The process for receiving reimbursement takes a long time The reimbursement amount is not enough to incentivize action

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SHORTCUT FOR IDENTIFYING THE PROBLEMS

There is a framework to quickly identify the potential problems:

Identify the existing solution if a problem exist, there is an existing solution to the problem.

Map the customer experience of the existing solution identify the various steps the person (customer) goes through to use the existing solution.

Identify the problems (gaps) with the existing solution.

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 Quote
There is always an existing solution that customers are using to solve their problem.

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INNOVATION IS AN IMPROVEMENT ON AN EXISTING SOLUTION

People don't know what they want until you show it to them.- Steve Jobs, Apple

Apple is notorious for taking existing products in the market and making them better

because they map the customer experience and look for ways to improve the customer utility

leading to the development of products people love.

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IDENTIFYING THE COMPETITION

Industry Framework
Other products / companies that look like you: Who else has a similar offering? Who else targets the same customer? Who else has a similar business model?

Market Framework
Other products / companies that can satisfy the same customer need (both direct and indirect competitors)

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EXAMPLE: MCDONALD'S COMPETITOR

Industry Framework

Market Framework
International Web Delivery

Mom

Identifying competitors in your market requires proper framing of the customer and the problem you are solving
Children Entertainment

Grocery Store Hot Meals

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UNDERSTANDING THE CUSTOMER EXPERIENCE

Products Business
How easy is it to find the product?

Delivery
The speed of the delivery of the product

The ease of use and amount of training needed

Supplements
Other accessories needed during use

Ease of maintaining the product

Disposal
If the product generates waste, How easy is it to eliminate?

Purchase

Use

Maintenance

Services Business
What is the process of getting the service?
Purchase Delivery

Method of delivering service

What is my experience with the service?

Use

Additional Services

Additional services needed

Quality of customer service

Customer
Services

End of Relationship

Process for ending service relationship

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EXAMPLE CUSTOMER EXPERINCES

Go to wine store

Ask manager for a recommendation

Select wine based on recommendation & cost

Take home and store bottle

Drink wine

Dispose of Bottle (recycle)

Look up program online

Select show to attend

Purchase tickets

Pick up tickets

Attend show

Intermission food / drink purchase

Leave show and go home

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IDENTIFYING THE CUSTOMER UTILITY GAPS

Customer Experience Issues, Map to the Customer Utility:

Customer Utility Customer Productivity Simplicity Convenience Risk level Customer Experience Issue Slow Complicated Inconvenient Risky Bad Image/ Quality Issue Expensive

Image/ Quality
Cost

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APPLES NEW PRODUCT INNOVATION Existing Product Utility Gaps

Slow download / Small storage capacity

Apple Product

Illegal / Song Quality Inconsistent

Bulky / Difficult to Navigate / Lacked Software

Expensive / Hard to Use

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EXAMPLE: WELLNESS FSA PROGRAM Customer Experience Cycle

SIGN-UP CUSTOMER PRODUCTIVITY SIMPLICITY
Identifying approved wellness offerings is complicated for employees The selected wellness offerings are inconvenient to use Employees believe there is risk in sharing wellness information with the company
There is a lack of information regarding how to use the FSA account The selected wellness offerings are too limited

USE WELLNESS FSA

REIMBURSEMENT
The process for receiving reimbursement takes a long time

The signup process is too complicated

Customer Utility

CONVENIENCE
The signup process is inconvenient

The process for receiving reimbursement is complicated

RISK

FUN & IMAGE

There is a lack of knowledge about the sign up process

There is a lack of information regarding how to receive reimbursement The reimbursement amount is not enough to incentivize action

COSTS

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TRANSLATING THE CONCEPTS

Lets clarify a couple of points:

Existing Solution

The competition to your new product idea

Customer Experience

The experience customers have with the existing solution

Customer Utility

The gaps (issues) with the customer experience

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BREAKING DOWN THE CORE PROBLEM POP QUIZ

Pop Quiz!
1. Which of the following is not a step in breaking down the core problem: a. Identifying the existing solution b. Developing a profitability model c. Mapping the customer experience d. Identifying the gaps in the customer experience True or false, sometimes a problem does not have an existing solution: a. True b. False The customer experience details which of the following: a. How customers purchase the product / service b. How the product / service is used by the customer c. How the product / service is disposed of or canceled d. All of the above Which of the following is not a customer utility gap: a. Slow b. Complicated c. Customer Service d. Expensive True of false, the actual customer problem represents the customer utility gap in the customer experience: a. True 40 b. False

NOTES

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DEVELOPING THE PROBLEM STATEMENT The easiest way to test your hypothesis is to create a problem statement and talk to customers:

Who is the customer? Describe the pain of your customer.

Outline the gaps in the current solution

Identify how will you fill the gaps

Identify how your customer is currently solving the problem

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EXAMPLE PROBLEM STATEMENT

Large banks and credit investors are looking for ways to create liquidity with alternative assets. Syndicated loans are attractive collateral, but there are no set standards for the loans, making the process for transferring the loans between counter parties complicated and time-consuming. Creating an equivalent, but alternative security that fits into the standard settlement process or using the loan itself as collateral will address the market need for standard settlement times.
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The Customer

Existing Solution Customer Utility Gap

Product Idea Value Proposition

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PROBLEM STATEMENT POP QUIZ

A
B

Traditional circuses are exciting for young children. However, for older adults who are looking for evening entertainment, they rank low on desirability because the facilities C are dirty, smelly and inconvenient to get to. Also the entertainment is geared to a D younger audience and not appealing E to adults. If there is a way to create a circus experience for an older population, that improves the venue and entertainment, we may be able to charge a higher ticket price per person.

1.

Where is the customer identified in the problem statement: a. A d. D b. B e. E c. C What customer utility gaps are identified: a. Expensive b. Risky c. Image / Quality d. Slow What is the value proposition of the new solution: a. Improvement of the venue and entertainment b. Higher ticket price c. Creating a circus for an older population d. Adults only circus 43

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IS THE CUSTOMER UTILITY GAP A REAL PAIN POINT?

Is the problem you are solving requiring vitamins or painkillers?

vs..

How will you know the difference?

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SESSION 1: PROBLEM IDENTIFICATION SUMMARY

People who are successful at generating ideas start with the problem and not the solution.

Your goal is to find a solution against the problem through an iterative process (Idea Development Process).

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If a problem is real, there is an existing solution.

Understanding the customer experience and the gaps in the customer utility will help you quickly identify the sub problems.

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