Imagine you are a venture capital investor who considers investing into a start up.

In terms of due diligence there is not much to analyse except a team and an idea expressed in a business plan.
What method would you use to evaluate the business model if you don't want to rely on your gut feeling alone?

Here's what I've found so far:

1) Business Model Generation (2010): 
Two-fold evaluation: SWOT for Canvas as big picture and SWOT for each single component.

2) Morris, Schindehutte, Richardson, Allen (2006):
7 performance indicators: uniqueness, profit potential, internal consistency, imitability, robustness, adaptability, sustainability.
That's great so far, however unclear how to operationalise this. There seems to be no method how to actually measure this.

3) Amit, Zott (2001):
4 performance indicators in their NICE-framework: novelty, lock-in, complementarity, efficiency. 

4) Hamel (2000):
4 performance indicators: efficiency, uniqueness, fit, profit boosters.


Which ones do you find useful and have you come across other approaches that can be operationalised and are therefore useful for practitioners?


Regards,
david

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Hi David,

I am relatively new to the business model canvas, but I use a range of tools of which the Business Model canvas is just one. A good tool for assessing viability and market dimensions has been developed by my good friend Lars Welinder. Have a look for him on LinkedIn and look at his one page business plan. If properly formulated for investment this clearly shows what you need to know.

tony

What about evaluation through customer development / lean startup concepts? i.e. what customer feedback are they getting, and how are they pivoting the business model in their search for a business model that works? 

Any ideas on how to help VCs use lean concepts in evaluating business models? I heard of a lean marketing business (based in Brisbane) that offers business model hypothesis testing. very interesting

"In terms of due diligence there is not much to analyse except a team and an idea expressed in a business plan."

Do you see this as reality, or is it a scenario you are setting up for this debate?

I ask because here in Silicon Valley people are asked to show "traction" now quite a bit. In this case the evaluation topic shifts to more of a lean startup conversation on how you've tested your model for problem/solution fit -> product/market fit.

-David

With so many variables it is really an impossible job to evaluate just an idea and a team of people. This is why many VCs and private investors are looking for risk reduction in terms of market indicators that there is a need and potential of viral growth / mass adoption.

Specific business model can and probably will change in the first 12-24 months but there must be a certain basic starting point of a great solution that can be implemented in a hungry (large and growing) market.

Roy Daya - The Business Model Pro

The only assets a startup has is the uniqueness of its value proposition and a clear vision on how to capture value.

BM is helpful to identify whether these two assets are achievable or not.

From the ten strategy schools (as Strategy Safari: a guided tour throug the wilds of strategic management, Mintzberg) I prefer the positioning one, regardless the author.

So beyond BM I suggest to complement the evaluation with Porter´s 5 forces model to check if the startup will be sustainable or not.

I hope it may help you.

Rgds

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