Investors Use The Product Life Cycle To Evaluate Entrepreneurs

A long term need for a product extends the benefits of repetitive purchases, and therefore enhances its persistence over time. For example, for centuries there was a repetitive need to purchase horseshoes. Eventually, other modes of transportation replaced the horse as one of the primary engines of human movement over long distances, and the repetitive need for the services of the blacksmith was severely diminished. For years, the answer to the long term nature of "smithy services" was needed. But at some point, it was not needed.

Venturers must therefore be aware of the stage of their entrepreneurial discovery in the product life cycle. The four most commonly cited stages of the product life-cycle are:

1. Product Introduction
2. Growth
3. Maturity
4. Decline

Is There Need For This Investment?

Most often, by answering yes to the question: Is it innovative? An investor can take some comfort that the product or service will be at an early stage in the product life cycle.

Then, the venturer must consider the speed of the product life cycle and when it is completed. The time horizon for personalized small-group transportation represented by the invention of automobile that appears to be quite wide. The time horizon for the vacuum tube, the transistor, and now the silicon chip, is much shorter-with the need for particular varieties of chip being even shorter still.

Accordingly, if the volume targets that are necessary to achieve value are possible to achieve in light of your assessment of the "term" of life for your product or service, then the answer to the sub-question: Is it long term? Yes, it can be. If the life-cycle stage or iteration time for the product or service is not long enough for you to achieve your volume target, then the answer to this question: Is it Persistent Over Time? NO-this means DON'T GO ON with a new venture until you have corrected the problem.

If you are assessing an operating business, you should seriously evaluate the premise upon what the business is based. Since it is highly unwise to proceed with a venture where the time horizon during which the product or service will be purchased, is shorter than needed to meet the financial objectives of the venture. Your choice is to either lower ambitions (treat the venture as temporary, i.e. market the product as a fad) or to walk away.

(One hint: Where you do decide to create a venture to market a fad, you will [once time runs out] be required to either throw away all the effort that you expended in building the organization of your venture or have something else for the company to do.)

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Dr. Ronald K. Mitchell is a specialist in entrepreneurial cognition, global entrepreneurship, and venture management. He developed the Entrepreneur Assessment which won the acclaimed Heizer Award for this groundbreaking research. Find out more at http://venturecapital.org/entrepreneurs

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