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Feasibility Calculator

Santa Fe venture capitalist David Silver, author of Smart Start-ups, (John Wiley & Sons, June 2007) has boiled venture backing feasibility down to a formula: V = P x S x E. In Silver's First Law of Entrepreneurship, V stands for valuation or wealth, P is the problem that the business intends to solve for its customers, S is the elegance of the solution that it will offer, and E is the skill of the entrepreneurial team.

A maximum for any P, S and E is 3. A zero on any item will produce a value of zero. In addition, Demonstrable Economic Justification (DEJ) factors, of which there are eight, are each worth 1 point. Finally, up to 10 more points are awarded for "Float Many Clubs." If your business will receive money from customers in advance (float), you can receive anywhere from 1 to 6 points. If you're able to generate revenue from multiple channels then you can earn another 2 points. If your customers band together in groups or "clubs," you can tack on another 2 points.

Taking all these criteria, the top score is 45, figured by multiplying 3 x 3 x 3 to get 27, and then adding 8 points for having all DEJ factors and adding 10 for a perfect score on the last three factors. An idea scoring a perfect 45 is a business Silver will likely back.

So how does your idea stack up? Punch your numbers into the calculator to find out.

Size of the problem
Multiply the number of people with the problem times the price they would pay for a solution.
$1 billion or more
$250 million to $999 million
Under $250 million

The elegance of the solution
Non-duplicable, first to market, difficult to replicate
First to market, difficult to replicate
First to market

Skill of the team
Entrepreneurial team has managed a launch before; knows how to operate a company.
Entrepreneurial team has at least one person who has launched and operated a company before.
Entrepreneurial team has no prior launch experience.

DEJ Factors
Select all that are true:
There are many potential consumers of your solution and are they aware of the problem that your solution addresses.
The consumers of your solution will accept a standard product or service, and you will not have to customize it.
You don't have to tell your customers that they have a problem; they are aware of it and are willing to pay for a solution.
The solution delivery system does not require an expensive sales person and long cycle from presentation to sale; a competent sales person could make the sale quickly.
No restrictions must be removed before your product or service can be introduced into the market, e.g. FDA approval.
The product or service will not require advertising on a grand scale. Instead, the benefits of the product or service will get passed along by word of mouth.
Your company can be built quietly without news leaking out in the press or otherwise, thus preventing accidental or intentional competition.
Your product or service's gross profit margins will be high, around 80 percent.
*If your business has fewer than six DEJ factors and requires tens to hundreds of millions of dollars, the probability of succeeding is less than 60 percent and descending as the number of DEJ factors drops, according to Silver.

Float factor
Select between 1 and 6 only if your product or service will have floatable income, basing your selection on the strength and number of float methods (e.g. franchising and subscriptions).
Weak 1 2 3 4 5 6 Strong

Many channels
Do you have numerous channels through which you will generate revenues?
Yes No

Club score
Do you have a way to band your customers together as a community in clubs or groups? For example, newsletters and trade shows.
Yes No

Total:

Silver says if your total score is 35 or greater--launch it!
Copyright © David Silver

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