V. GLOSSARY

Many of the terms used in this workbook have broader definitions than are intended here. The following definitions refer to this New Venture Workbook.

Acquisition An existing independent business purchased out-right by the firm. Joint ventures are considered here to be a type of partnership. The nature of the joint venture agreement may extend beyond a development agreement to that of an acquisition. In any case, joint ventures and acquisitions require Departmental and Corporate approval.
Applications An application is defined as a group of uses which have separate and identifiable customer benefits. It is synonymous with a market segment as used in this workbook.
Business Fit Business fit refers to the potential synergy between the business concept and other in-house businesses. Fit focuses on mutually supporting strengths.
Business Opportunity The business opportunity is the total opportunities for all applications.
Concept Test A concept test is used to determine interest of the potential customers in product and service concepts. It is not a business test, in that it does not determine whether this business concept will be successful.
Contribution Margin The contribution margin is the proportion of the price that exceeds the variable costs. It is a measure of the inherent profitability of the product and services. It should be noted, however, that there are additional costs that will be set against the contribution. Contribution margins of over 30% are generally expected for a concept to be considered viable.
Customer Benefits Customer benefits are the advantages to the customer for using the product. They are expressed in terms of what the customer gains from the product.
Customer Commitment For new venture analysis, customer commitment focuses on his intention to buy the product. It is recognized that that intention may not become reality.
Distribution Distribution refers to all means of getting the product to the ultimate user. This may include several levels of customers.
Fitness for Use Not all instances of an application will allow the use of the product. Fitness for use focuses on those instances. Generally, physical rather than economic limitations are used as the criteria of Fitness for Use.
Marketing Marketing is the function of encouraging the customer to use the product. This function includes sales and promotion.
Markets The collection of all potential customers for the product and services is referred to as the product markets. As used in this workbook, markets consist of applications.
Opportunity It is unlikely that any business will capture 100% of a market. Opportunity reflects the likely fraction of the price-adjusted functional potential that is realistically capturable by this business.
Partnership Any agreement with an outsider organization or other in-house organization involving working together in the development of this business is a partnership. This may be either formal or informal in nature.
Penetration Few businesses grow instantaneously. The expected rate of growth is referred to as penetration.
Potential In general the potential refers to the largest possible annual sales of the product. Potential as used in this workbook refers to the functional potential.

Functional potential includes all feasible markets for which the product is fit for use and is within the acceptable price range.

Product Product, as used in this workbook, is synonymous with the product offering. It includes all physical products, services, and attributes as delivered to the customers.
Prototypes Early models of the product, services, and process that can be used to test the product business concepts.
Quality Quality, in this workbook, refers exclusively to product consistency and performance. In this regard, it has a very limited definition.
Resource A resource consists of manpower, funds and special facilities needed to continue the development of a business concept.
Risk Risk reflects all the possibilities of things that can go wrong in the development of the business. For this workbook, risk refers to the collective probability of success.
Share For this workbook, share refers to that part of the price adjusted market potential that will eventually be captured.
Stake The economic value of the business to the firm. There are a number of measures of stake that can be used. In the New Venture Workbook, stake is synonymous with market potential and opportunity. Other measures can be used, if appropriate.
Target Price Target price is the proposed price for the products. It is understood that this is only an estimated price. It must be consistent with the estimate of the functional potential. A high target price should restrict the product's uses. A low target price would provide a larger market but at a restricted contribution margin.
Variable Costs Variable or marginal costs refer to those unit costs directly attributed to making an additional unit (of product and service). All overhead, burden, and investment charges are excluded from variable costs.