Podcast: Estimating The Value Of An Idea

(audio)

So you have a great idea.  How big is it?  What is the value of the idea to the organization?  Most people get hung up trying to come up with the exact answer.  In most cases, you won’t find the perfect answer.  Especially if you are breaking new ground.  What I find lacking is the basic skill of "estimation".  Estimating is nothing more than using the information you know to create a "good enough" approximation of the market opportunity for an idea.

The objective is not the find the answer but to find out what makes up the answer.  So what are the steps?

1. Take the question (how big is the total number of customers for my idea?)
2. Break down the drivers that allow you to estimate the answer to the question.
3. For each driver create an educated estimate of its value
4. Create the estimated answer to the question

You’re not done yet … You need to estimate when the value will be realized.

1. Determine the total life cycle of your idea (2 years, 5 years, 10 years, etc)
2. Spread that time line evenly over the five phases of "innovation adoption"
3. Apply the adoption rate for each phase based on Rogers rules ..
• 2.5% for Innovators
• 13.5% for Early Adaptors
• 34% for Early Majority
• 34% for Late Majority
• 16% for Laggards

You’re not done yet … Now you have the total value.  You need to determine the value to you and your organization.

1. For each phase, apply your estimated market share.  Be realistic …
2. Apply some estimated revenue per unit/customer.

Now you have the estimated value of an idea.

To learn the rest, listen to the podcast …