Due diligence for an early stage investment

The way to analyse a product or service




2 min read

Most investment opportunities centre around either a new product or business model or sometimes both.

A great example of this is the Apple iPod and iTunes. MP3 players already existed when the iPod was introduced but what Apple did was to bring it to market in a revolutionary way by allowing you to buy any song for the same price through iTunes. The iPod was the product and Apple’s business model was how they brought it to market.

When looking at how a product is brought to market you need to consider aspects such as whether the company’s position is defensible - either through intellectual property (IP) or via key partnerships. Or, whether the business model is a disruptive one that solves a problem that people have with the current model.

Ask yourself whether the product is an innovative one or a ’me too’ one and what advantages it has in terms of features and benefits over existing or potential competitors. How hard would it be to imitate?

Take a look at the quality of the product and try to ascertain whether the company is able to deliver consistent product quality over time. And, consider aspects such as whether the product is environmentally safe - something that is increasingly important in these green and safety-conscious times.

Do the distribution channels for the product or service already exist or will they have to be created? Is there any seasonality i.e. is the product one for which there is a market all year round or is demand seasonal?

How does the product or service differentiate itself; for example is it:

 

  • Prestige like Rolls Royce
  • Quality like Mercedes Benz
  • Engineering-led like Audi
  • Innovative like Tesla
  • Economical like VW
  • Value-for-money like Dacia

 

And, of course, it’s also important for any business to have thought through its plan to sell to customers and to know how and where to find them. 

 


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