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March 20, 2006
A Marketing Lesson on “American Inventor”
by Sridhar Ramanathan
Have you seen the latest show on ABC called “American Inventor”? It’s a fun show featuring inventors who pitch products. Most ideas are crazy but some are very cool. I really enjoyed the 14 year old kid who invented a portable air conditioner that hooks onto your car window and cools the car down so your dog won’t suffer heat exhaustion (or worse) while you’re shopping. The judges were taken by the boy’s passion but shot down his idea saying it was not compelling enough. Their issue came down to market size. The boy showed a flip chart with calculations based on the total number of dogs in the US. His mistake was that it was a “top down” projection rather than “bottoms up”. Even experienced entrepreneurs in Silicon Valley make the mistake of top down forecasts.
Here’s a paraphrasing of his calculation:
100M US households x 2/3 have dogs x $20/unit = $1.3B market for pet air conditioners
We should give the kid a break and congratulate him for his ingenuity and vision. What can we learn from his mistake? Venture capitalists always prefer a projection based on actual or pending sales. So here’s how the 14-year old might have pitched the American Inventor panel if he were my next door neighbor in Livermore:
- $500 of orders in the backlog from 25 families out of 100 families in my immediate neighborhood that I personally pitched door to door last month
- $320/month of potential orders based on 4 pet shops in Livermore each of which told me they could sell 1 unit per week
- $1.9M annual revenue assuming that Livermore, a town of 75,000, is representative of 500 towns in the US with warm weather climates
So if the kid had asked the panelists, would you invest a $100K in a venture returning $1.9M gross and $380K net (20% margin) year one, he might have gotten the order.
The lesson here for Marketers is that nothing sells like sales. If you’re helping your CEO pitch venture capitalists, help by closing a few deals and channel partnerships that provide hard evidence for a much larger market opportunity. Guy Kawasaki has more smart tips for budding entrepreneurs at “The Top Ten Lies of Entrepreneurs”
Posted March 20, 2006 | Permalink
Posted to Marketing Management
Hi Sridhar,
Sounds like a show to catch sometime! What a great, accessible explanation of the difference between top-down and bottom's up forecasting.
By the way, I love the doggie air conditioner idea. Living here in Sactotomato it gets so hot in the summer, if I had a dog I would probably want one of these.
Posted by: Elise | March 20, 2006 12:01 PM