Friday, 9 June 2017

#DigitalHealth Startup? How to evaluate your #Startup like a VC or Angel by Manish Sharma @msharmas



#Startup, is a favourite word we hear these days from AiM to PM. At times it has connotations of a journey to fulfil, a dream to Startup is to Just go for it, and at times it brings about the memories of your struggles and wins, from that journey. But to startup is to also understand the basics of the entire process of establishing a business and running it.


You can proceed on two paths, just get started and learn by doing or you could get started and follow a process that allows you to ask yourself some questions each step of the way. I worked in a company that had a "Board" room named as Kaizen. I remember spending a great many hours in that room discussing what would be the new path our product would take and also showcasing the future releases of the product to existing and prospective customers. That was a room that also helped the team to see first hand the reactions of these very customers to our solution and not a meeting went by when the team came out of that room thinking what other "WOW" moment we can create for our customers. 

From the Kaizen room, the teams always came out wanting to do better and wanting to be the best. And I feel and see the same enthusiasm from the Digital Health Startups I have been following for quite sometime now. Guess we had built in a continuous feedback loop that allowed us to get updates from our various customers and what they were saying about us and also having the ability to constantly innovate and continuously improve. 

Well I digress, I was here to tell you about how you need to think like a VC or Angel and the reason I mention the story is to state the point, that in the rush and din of starting up, funding, customer acqusitions, round two, series a, b, c... etc, we tend to stop thinking about the basics. The Business Plan Evaluation Aids, that I list in this blog post, will help you define a schedule that will help you continuously improve, track, change and pivot your business plan to meet the needs of the customers you are serving or want to serve. 

And the best part is that the BPEAs are driven by fundamental questions that are generally asked during a due-diligence process of funding, IPO, exits or business evaluations by third party auditors. The BPEAs help you build a "Continuous Feedback Loop" to continuously evaluate yourself with metrics that will help you determine where you are, where you want to go and what you must do to reach your goal. 

Why is there a need for this process, in a startup? Arent' startups supposed to Hack-It, Jugaad-a-thon it, Frugally Innovate, be Agile? And at the same time we also hear the statement, "9 out of 10 Startups will fail".  Or of late, have been hearing about stats such as why do most Indian Startups close within 5 years. Lets try to turn that tide and improve the odds. Lets build to last !! (taken from a famous strategy book, i always like referring to and like the title because its not about exits, its about building something tangible and long term. Thats my personal take on starting up)

Lets try, by adding some semblance of method to the Startup madness and agility, by considering the Bell Mason Diagnostic as a Business Plan Evaluation Aid (BPEA) for your startup. The Bell Mason has been used by the Authors of the Model, to evaluate Technology Startups since the late 90's (and has been used around the world to evaluate about a 2000+ ventures).

I came across an interesting statistic from a study, "Venture capitalists reported devoting 8 to 12 minutes on average to evaluate a business plan (Sandberg 1986). Much of the evaluation is purely intuitive, despite the existence of several decision aids, which might be expected to aid both efficiency and consistency in the decision-making process." 

So if you are able to prepare yourself to provide the VC or Angel with the best information about your startup and a story line that is compelling, you might just get funded. And perhaps that is what differentiates that one startup that makes it?

Another interesting story from the recently concluded Google IO, 2017. I remember one of the top executives from Google making the presentation and talked about how they had been "preparing" for this presentation from a long time. Well its Google, they dont need to do it, they can Just Do It too? Right? 

Same is the case, with Apple, when we have heard, read and seen the great presentations made by Steve Jobs for every single presentation for a new product launch, like the iPhone Launch

Let there be planning and evaluation at each stage of your journey, after all you might either have the time in the Elevator to Pitch or have 8 to 12 minutes, make them count.

The Bell - Mason Diagnostic (BMD) - A Startup Evaluation Model
The Bell - Mason Diagnostic [1] involves answering questions about your Startup. The authors where involved in evaluating Technology Investments. The model can be used by startups to evaluate their current stage, or can be used by corporates, planning on investing in new technologies and ventures (Intraventures).


What is the Bell - Mason Diagnostic Evaluation Model?
The BMD, consists of the following aspects that every venture, startup or intraventure can evaluate themselves on.

1 The Founding Premise

The the BMD Model's founding premise is
"You dont need to understand the Technology to ask the basic business questions" 

2 The Four Diagnostics

The BMD model is built on the following 4 Diagnostics that each company/ project needs to do, depending on the current Stage of their startup/ venture or intraventure

  1. Space: 12 standard dimensions of any venture
  2. Time: 4 Stages of company development
  3. Quantification: Questions under each dimension to evaluate the company
  4. Visualisation: The graph showing the current status of the company based on the stage of company development

1. Space
There are 12 Standard Dimensions of Analysis of a venture. These highlight the various aspects of a startup. 

The 12 Dimensions of the Bell Mason Diagnostic are: 


12 Dimensions of the Bell - Mason Diagnostic (BMD)

  1. Technology Engineering
  2. Product
  3. Service Delivery/ Manufacturing
  4. Business Plan
  5. Marketing
  6. Sales
  7. CEO
  8. Team
  9. Board of Directors
  10. Cash
  11. Financeable
  12. Control

The twelve dimensions are organized in four groups, each containing three dimensions:


  • ProductTechnology/engineering, manufacturing and product
  • MarketBusiness plan and marketing and sales
  • PeopleCEO, top-level team, and board of directors
  • Finance/ ControlCash, financeability, and operations/control

2. Time: The 4 Stages of Growth
The 4 Stages of Growth for every Startup or Venture or Intraventure according to the Bell Mason Diagnostic are: 
  1. Concept (0 to 12 months) - Discovery
  2. Seed (3 to 12 months) - Definition
  3. Product Development (12 to 48 months) - Development
  4. Market Development (24 to 48 months) - Deployment

There is a more updated definition of the Startup Stages that can be found here >> http://www.bellmasongroup.com/approach/


BELL MASON DIAGNOSTIC - STAGES

You can also review the 5D Delivery Process that I have written about here:  http://blog.hcitexpert.com/p/5d-service-delivery-framework.html

3. Quantification:
The quantification process involves asking a series of questions to oneself for your own company or to the startup being evaluated. Each of these questions are based on the 4 Stages, the 12 Dimensions. Each of the questions has a simple rating 1, 2, or 3. Each of these ratings can be attributed with a weighted score to arrive at the efficacy of a company or an idea. This is the way the startups can codify their work using a best practices approach to starting up.

4. Visualisation:
Once the Founding Team has answered and presented their idea within the purview of these stages and dimensions, the results are plotted onto the radar chart. 

Each of the sections of the radar chart, corresponds to a dimension of the BMD and depending upon the outcome of the questions under each of the dimensions, helps the person evaluating the proposal to identify the steps ahead.


So how does the Bell - Mason Diagnostic Evaluation Model, work?
Identify the Stage of your startup: Based on the Stage your startup is at, The Bell Mason Diagnostic presents the various dimensions that you need to focus on. 

These dimensions are relevant for that stage of your company (venture or intraventure). Each of these dimensions comes with a series of questions that need to be reviewed and answered by the startup team (project, venture, intraventure). The focus areas for each startup stage are defined by the following radar chart.


[2]: Source: How Bell Mason Diagnostic measures the companies - https://www.finsia.com/docs/default-source/jassa-new/jassa-1996/warning-bells-or-sound-of-success-.pdf?sfvrsn=2

You can event do a quick run through each of the dimensions relevant for the current state of your startup and rate each of the dimensions with a score of 1 to 5. That will help you identify if you are able to move your startup from one stage to the next. It also helps the startup to evaluate what are the tasks they need to perform to move from one stage to the next.

For instance, at the concept stage the BMD shows that the Startup needs to evaluate the following dimensions: technology, business plan, CEO, cash and financeability. [2]

Another important aspect of the Bell Mason Diagnostic, is to help the startup identify the equity they can give out at that stage of the startup. Using this method the founders can understand the finance they would need, the type of finance they can go for and the amount of equity they should be able to give away at each of the stages 

How to, Build to Last

As startups we need to beat the odds i shared earlier, 9 out of 10 startups fail? Why startup if you accept the fact that you are going to be keeping the batting average at the above number. The average is not acceptable as a rapidly evolving startup nation. 

We need to focus on how we can build organisations that are "Built to Last" and while we can still remain agile in our delivery process, but at each stage of your startup, we need to evaluate the current state by answering these in-depth questions which can pile up quite fast and under the radar. 

The BMD helps the startups run an iterative and a continuously improving and evolving analysis of their company that in turn generates a list of activities, to-do lists, product backlogs, etc that will help the company to move to the next stage of their startup journey.

While I am not proposing that you keep doing the same thing again and again, you can surely use the BMD to also identify if you need to pivot, exit, re-strategize and work at other aspects of your business plan to improve what you are building/ developing.

There are many other models of Startup (or venture, intraventure) Evaluation. In this blog post I have tried to present the Bell Mason Diagnostic to help you get started on a task of evaluating the current state of your startup. Be it due-diligence, or preparing for presentation to new board members or members of the executive team, use this model to help you identify the next steps to be taken. 

Just remember building a product requires getting your fundamentals right, the BMD framework can help you do that.

While you are working on evaluating your startup using the Bell-Mason Diagnostic (BMD), you might also consider reviewing the following Business Plan Evaluation Aids (BPEAs). "A BPEA is a highly specialised subset of human decision aids used for the specific purpose of screening entrepreneurial business plans. Any decision aid is used to provide assistance and structure to improve the accuracy and consistency of human judgment." [6]

1) the FVRI System (Fiet, Gupta, et al. [2003]) and 
2) the New Venture Template (Mitchell [1995])
3) The Venture Opportunity Screening Guide (Timmons [1994])
4) ProGrid Venture (Bowman [1997])

I have put together an excel sheet that will help you arrive at the "Go - No-Go" for each of the Startup Stages. Let me know and I can share the same with you. Drop me an email at manish.sharma [at] hcitexpert [dot] com. In the followup Blogs I will present some of the other BPEA tools listed above and share the various categories of healthcare startups.

If you are a Digital Health Startup, I would like to hear and share your story, what is the solution you are developing, more importantly why?

Here is an interesting write up by Shailesh Gogate (@sgogate), on 5 lessons learned while assisting Healthcare #startups 



Source: http://www.bellmasongroup.com/approach/

Here is an Update, got an interesting update from Mr. Raj Grover, shared by him on the Fundraising for Indian Startups on what aspects should be covered in a startup pitch 






[5]: The Bell Mason Diagnostic: http://www.bellmasongroup.com/approach/
[6]: Assessing the Efficacy and Standardization Potential of Five Competing Venture Capital Investment Evaluation Approaches  http://www.kevinhindle.com/publications/C16.2005%20JPE%20Efficacy%20of%20five%20approaches.pdf
[7]: An exhaustive list of 200+ Incubators in India: https://inc42.com/startup-101/startup-incubators-in-india/?utm_source=facebook&utm_medium=social&utm_campaign=authors


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Manish Sharma
Founder HCITExpert.com, Digital Health Entrepreneur

Connect with me via any of my Social Media Channels


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