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Calculating the Probability of Success
Posted: Sunday, July 17, 2005
by elcabooso
Jack Price $ Associates
CALCULATING THE PROBABILITY OF SUCCESS
>There are about three big opportunities per lifetime. Like baseball, if you miss all three, you are out. Do you remember the last opportunity you missed? Did you miss Microsoft? Did you miss Yahoo? Did you miss Google?
Couda, shouda, wouda
Why did you miss out? Was it lack of knowledge? Was it indecision? If it was lack of knowledge, you can forgive yourself. You can not know what you do not know. There was nothing you could do about it. If it was indecision, there was something you could have done.
Opportunity is the fruit of Convergence. Peter Drucker defines an opportunity this way:
“Opportunity in the market place is because of a process of convergence…convergence of forces that were previously not together."
The idea of forces coming together, converging, is stronger than the business itself. The forces Peter Drucker did not individually identify as converging will be enumerated and discussed in this article.
There are five essential forces that must be present for any successful business venture. This article will describe these five essential forces that must be in place for any business venture to be successful. These five essential forces apply to any business venture. They are universal, abstract, and independent of business type. They apply from academia to zymology.
An analytical method to evaluate these essential elements and arrive at a numerical figure of merit will be presented. The method is strong, impersonal, and reliable. You will arrive at a numerical rating for the relative strength for the Probability of Success (S) in any business you care to evaluate. Reducing the evaluation to a number between zero and 100 gives you a powerful, impartial method to evaluate or compare any opportunity. This will remove emotion from the decision process.
Convergence of these five essential ingredients is absolutely essential for success. All five forces must be present simultaneously. In other words, they must all converge at the same point in time for the same business venture. They must all be in the right place at the right time to create an opportunity for success.
These forces are the essence of all businesses, regardless of product. They are like the spokes in a wagon wheel. If one spoke is missing, the wheel breaks down. Each factor dramatically affects the business potential outcome.
Without the convergence of these five forces there is no opportunity. If there is no convergence, there is nothing you can do to make the business a success. No amount of hard work and no amount of money will yield success. Opportunity presents itself only when all these forces are in simultaneous alignment. One force is not considered more important than the others. The order in which they are presented is no indication of their relative values. They will be discussed in the following random order.
This method is not buried in concrete. Feel free to make your own assessments of relative importance. When you finally establish a value, stick with it. Be consistent so comparisons can be made between one possibility and another. For example, if you decide leadership has a maximum value of 2, stick with it on any business you wish to evaluate. It will be convenient if the sum of the maximum values allowed always equals100. In this case, Leadership has been arbitrarily assigned a maximum value of 2. All you need to do is decide if the leadership of your proposed opportunity deserves a zero, 1, or 2.
1. COMPANY (C) (Maximum = 20)
Company Management (Maximum = 10)
Leadership (2)
Confidence or trust (2)
Experience (2)
Honesty (2)
Influence (2)
Company Financial Stability (Maximum = 10)
Assets (2)
Cash (2)
Credit Rating (2)
Visibility (2)
Technology (2)
Many start-up opportunities do not have the financial assets to sustain their own growth. A viable opportunity must have very deep pockets or be owned by someone with very deep pockets, preferably someone who has already gone through the growth cycle and has the funds to support your growth
2. ProDucts (D) (Maximum = 20)
Leading Edge Product Technology (Maximum = 5)
R&D
Proprietary, no other place to get it
Competitive
Product Quality (Maximum = 5)
Quality, like Reliability, must be built into the design and process. It cannot be “tested" into the products.
Product Fills Need (Maximum = 5)
There should be a need for your product or service. If there is no need, there is no demand, and there is no business. There may be very little demand for 78 rpm vinyl records.
Consumable (Maximum = 5)
If the product is not consumable, there is no additional market after the initial sales.
3. Trends (R) (Maximum = 20)
Demographic Trends (Maximum = 10)
As individuals, we can not create a demographic trend. We can only recognize it and take advantage of it. The “Baby Boomers" are the largest market in history. Starting immediately after WWII, 76 million babies were born during the period between1945 to 1964. When the first of these babies were born, a powerful demand for baby products materialized. Companies like Johnson & Johnson and Gerber’s made huge profits. As these individuals started shaving, Gillette started making huge profits. As they learned to drive, the Ford Mustang was in demand.
Economic Trends (Maximum = 10)
Individuals do not create an economic trend. Individuals have no control over economic trends however certain businesses are sensitive to economic trends. Real estate is sensitive to interest rates. In times of economic downtrends a low number would be assigned. Cosmetics, on the other hand, are virtually immune to economic downtrends and would be assigned a high number.
4. Timing (T) (Maximum = 20)
You have no doubt heard the expression that in real estate the three most important factors are Location, Location, and Location. In business, the mantra is Timing, Timing, and Timing.
If one force is more important than the others, perhaps timing is the most important element of success. Timing, like trends, is also beyond your control. Like trends, you can only recognize timing and take advantage of it. There is nothing you can do to improve timing. It is either there or it is not.
A. Formulation Phase: (Maximum = 20)
This is the phase where research and development are just completed. Production and initial marketing efforts begin. This region is characterized by slow, deliberate growth. As an agricultural example, this is the time for planting. It is defined as the region of the growth curve where income from sales is less than $50 million per year.
This is the time to get into any business. It requires forethought and knowledge. It does not require speculation. It requires due diligence on your part to study the opportunity and arrive at your estimate of the strength of the five essential force ingredients of a successful business venture. If you identify that the opportunity is in the formulation phase, assign timing a value of 20.
B. Critical Mass Point
The critical mass point is defined as sales of $50 million per year. This is the point which will determine “When". This is the point when your labors will begin to yield fruit at such a great rate you will be unable to contain them. From this point onward, the curve rises ever so steeply. This is the time to act quickly and decisively. If you are not on board at this time, the opportunity will quickly leave you behind. If you identify that the opportunity is at the critical point, assign timing a value of 20.
C. Momentum
Momentum is defined as sales greater than $50 million per year. If you have exercised your desire, ability, and motivation, you have already become a participant before the opportunity reaches momentum. You have exercised your choice and are now in position to enjoy the fruits of your labor. There is nothing you can do to stop the momentum which is now building beneath you. It is beyond your control. It is like a giant wave that carries you to the pinnacle of success. There may be some who grab onto the opportunity as it speeds by them, but the opportunity for exponential growth also rapidly decays exponentially as the wave crest rises higher and higher until the opportunity diminishes. For example, you could buy Microsoft stock now, but the big opportunity is already over and it will never come back again. If you find your opportunity is just starting into momentum, assign timing a value closer to 20. If you find your opportunity near the top of the curve, near stabilization (below), assign timing a number closer to one.
D. Stabilization
This is the area where the exponential growth has died out. Momentum has dissipated. The business is mature, stable, and secure. The curve is relatively flat, and growth has slowed to a value similar to the development phase. The opportunity has gone. It is passed. It is over. There is no opportunity. If you find that your opportunity is in stabilization, assign timing a value near zero and start looking for another opportunity.
5. Compensation (K) (Maximum = 20)
Leverage (Maximum = 10)
If you trade time for money, you will never get ahead by investing one increment of your time for one increment of income. You will remain in the very treadmill you are trying to escape. You will get by, but you will never get ahead. If you want to get ahead, you must find a way to multiply your efforts. That is done by leveraging yourself. J. Paul Getty stated this clearly when he said:
“I had rather have one percent of a hundred people’s efforts than 100% of my own efforts".
If you have no way to leverage yourself (e.g. fixed salary) assign leverage a number near zero. If you can leverage yourself, assign a number closer to 10.
Multiple ways to earn income (Maximum = 10)
Sales Profits (1)
When you can profit from your own efforts, assign value of 1, otherwise zero.
Override (1)
If you receive override compensation on the efforts of others, assign value of 1, otherwise zero.
Matching (5)
If you can receive matching compensation on the efforts of others, assign full value of 5.
Residual (2)
When you build your equity to the point that you have residual compensation from your previous efforts, assign a value of 2.
Perpetuity (1)
If your equity is yours to sell or will to your survivors, assign a value of 1, otherwise zero.
Define the Possibility for Success (P) as being totally dependent upon the sum of the five prime forces required for a successful business. Notice that it has nothing to do with you. The only thing you will do is evaluate each ingredient and assign it a strength value. This will depend upon the research you conduct to gain information about the five essentials for the particular business venture. Assign each one of the five ingredients a value from zero to 20. (Naturally, 20 is the ideal, strongest value.) You have computed all the values for C, D, R, T, and K. Repeating, you have evaluated each force ingredient separately and arrived at your evaluation of its relative strength.
Add up all five of your separate evaluations.
P = C + D + R + T + K
For example, if all five ingredients are present in the business opportunity and each is individually evaluated as being 20, then:
P = 20 + 20 + 20 + 20 + 20
P = 100
Let us further define a multiplier (M), as a figure of merit derived from your desire, motivation, and ability to succeed. Let M be limited to a number between zero and one with zero being the worst case and one being the best case. Note that this multiplier is entirely dependent upon you, not the opportunity. Determine this multiplier number by self-evaluating your desire, ability, and motivation. Notice that the multiplier number does not depend on your time. Too many people say “I don’t have the time." That means you are “to busy chopping wood to stop and sharpen the ax". Successful people do not have time---they make time. Ideally, you want to rate yourself as a “1", not a zero.
Define Success (S) as:
S = M(P)
If you are a one and not a zero, and all five ingredients of a successful business are present at their full value, there is no gamble since:
S = 1(100)
S = 100
Having completed your “due diligence", failure is no longer an option. The probability for success is 100 percent. Your success is assured. It is no longer a question of “If". It is simply a question of “When".
Get on board this opportunity fast!
About the Author
Jack Price is a retired electrical engineer, reliability engineer, member of the American Society for Quality Control (ASQC), and successfully engaged in multi-level marketing (MLM) via the Internet. You may contact Jack at
www.autoimmune.biz/specialp.htm..
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Top-level comments on this article: (1 total)
» left by Clay Ruge
from Tucson, Az 3 years 223 days ago.
This is a great model that I have been using in my presentations and it is very accurate. Fortunately I have found a company that rates a 97 using this evaluation process. If anyone would like to know more about the company I have gotten involved in please email meat ProsperityandHealth at yahoo dot com, and I will be happy to share it with you. Thank you for this evaluation model.
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