Making the Business Case
(see newly added Market Assessment and Sample link below)

A formal document for internal and external sources to use in justifying NPD funding

• establishes costs vs. benefits for the NPD and its launch
  • consists of revenue and cost projections
  • supports recommendations made in the document that justify the NPD and its launch

Typical Uses

• a more expanded version (i.e., a business plan) to justify a new business
• by a start-up company to secure funding

Typical Input

• estimates of sales and expenses

Typical Output

• pro-forma financial statements used to determine potential internal rate of return (IRR) and return on investment (ROI)

Click here for more information on how to create a Business Case.

• Conduct preliminary market, industry, and competitive assessments
  • establish/document market size, target markets, and competitive landscape
    • (see an example)
• Forecast sales, market-testing, simulated market testing, etc.
  
  • (Click here for more information about new product sales forecasting)
  • Preliminary Forecast Worksheet
  • Samples:
    • Balance Sheet
    • Cash Flow Worksheet
    • Income Statement

Small Business Innovation Research Program (SBIR)

• Executive Summary
• Introduction & Background
• Summary of Opportunity and Business Objectives
• Alternatives
  • Assumptions
  • Revenue Estimates and Financial Performance Metrics
  • Cost Estimates
  • Risk Assessment
• Financial Analysis
• Recommendations
• Implementation Approach/Timeline
• What venture capitalists look for in a business case
  • How to build a business plan
  • What not to say in a business plan
• Business plan software
• Business case for VOC flooring

Sample Business Plan Outline

Market Assessment

• Define what distinguishes your marketspace from other similar marketspaces
  • who are your targeted customers
• Value Proposition
  • what does your buyer get relative to a competitor's offering
  • What are value propositions anyway?
• Market Size Estimates (see for example: Building Materials Demand Data)
• Total Available Market (TAM)
  • sizing a market is difficult without use of professional market studies
    • for example: nahbrc.org Builder/Consumer Practices Study
• Served Available Market (SAM)
  • estimate market share you intend to capture within your segment
• Share of Market (SOM)
  • the market share you have in your SAM

Example (data source: NAHB Research Center Reports for Eastern Hardwood Product Manufacturers)

• You produce and sell 532 cabinets annually for the US residential kitchen market
  • TAM = the total US residential cabinet market (165,000 units in 2005)
  • SAM = the total US residential kitchen cabinet market (32,425 units in 2005)
  • SOM = the share of the total US residential kitchen cabinet market that you capture
    • thus, the SOM/SAM ratio = 532 of 32,425 units, or 1.6%
    
    
    • a change in the SOM/SAM ratio from 1.6% indicates whether you're:
      - growing/losing marketshare from existing market levels
      
      
    • a change in the SOM/TAM ratio (532/165,000) = 0.3% indicates whether you're:
      - competing in a market that is expanding/contracting/
      - capturing/losing more of that expanding/contracting market

(content source: The Window Manager)

Additionally, it is important to consider, understand, and guard against the following occurrences within your marketspace.

• a supplier forward integrating into your market and becoming a competitor
• a customer backward integrating into your market and becoming a competitor
• threats posed by:
  • the potential of new entrants and substitutions
  • government regulations
  • see the model presented by Michael Porter in Competitive Advantage

Additional Resources:

• Population, housing, economic, and geographic data
  • U.S. Economic Accounts
  • Bureau of Labor Statistics
  • U.S. Census Bureau
• Competitive Advantage Worksheet
• Competitor's Strength and Weaknesses Worksheet
• Direct, Indirect, and Future Competition Worksheet
• Analyzing the Environment Worksheet
• Market Research Checklist
• Competitors Pricing Strategies Worksheet
• Industry Potential Worksheet
• Evaluating Distribution Channels