Copyright 2013 Jack M. Kaplan & Anthony C. Warren Getting Started Patterns of Entrepreneurship...

Copyright 2013 Jack M. Kaplan & Anthony C. Warren

Getting Started

Patterns of Entrepreneurship Management

4th Edition, Chapter 2

The Art of Innovation -Developing Ideas and Business

Opportunities Idea to

Opportunity

Evaluating the

Opportunity

WhyInnovate


Presentation Outline

Idea toOpportuni

ty

Evaluating the

Opportunity

Why Innovate

Chapter 2

• Why Innovate?– Macro-economic Trends– Types of Innovation– Framework– Frameworks for Innovation

• Making an Idea an Opportunity• Evaluating the Opportunity

– Questions– Opportunity Costs– Framework


Why Innovate?

• The Growth of the Internet• Shift to a Service Economy• Reduction of International Trade Barriers• International Free-Flows of Capital• Rapid Technological Obsolescence

Idea toOpportuni

ty

Evaluating the

Opportunity

Why Innovate

Chapter 2


Types of Innovation

• The S-Curve of Innovation• Derivative vs. Radical• Disruptive Innovation

- Candles to Incandescent Lighting• Incremental Innovation

- Evolution of Designer Candles

Idea toOpportuni

ty

Evaluating the

Opportunity

Why Innovate

Chapter 2

Derivative Innovation givesIncremental Improvements

Time

Performance

The S-Curves with Incremental Innovation


Derivative Innovation

Idea toOpportuni

ty

Evaluating the

Opportunity

Why Innovate

Chapter 2

S-Curves for a Disruptive Innovation

Disruptive InnovationLeads to Radical Changes

Time

Performance

Time to adopt radical innovation –before performance advantages.

Disruptive Innovation

Idea toOpportuni

ty

Evaluating the

Opportunity

Why Innovate

Chapter 2


Time

Candles

Incandescent Lamps

Discharge Lamps

LED’s Pe

rfor

man

ce

Waves of Disruption in Lighting

New Disruptive Technologies Changed the Lighting Industry Many Times – What’s Next?

Idea toOpportuni

ty

Evaluating the

Opportunity

Why Innovate

Chapter 2



Models for Innovation

• Analogs- Leafbusters

• Intersection of Technology Trends- Netflix and Streaming Video

• “Points of Pain”- SmartPak

• Analysis of Existing Businesses- SuperFast Pizza

Idea toOpportuni

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Evaluating the

Opportunity

Why Innovate

Chapter 3


Where Ideas for Opportunities Originate

Improving Existing Technology, Product, or Service15%

Vision of Opportunity11%

Present Work Environment47%

Secondary Sources: Brainstorming, Trade Publications, Commerce Business Only, Idea Brokers, Venture Capital Firms, Technology Transfer Agencies27%

Idea toOpportuni

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Evaluating the

Opportunity

Why Innovate

Chapter 3


Converting an Idea into anOpportunity

What is an Opportunity?• Identifying which business ideas have

real commercial potential is one of the most difficult challenges that an entrepreneur will face.

Seize the Opportunity • Know what factors create opportunity out

of an initial idea.

Idea toOpportuni

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Evaluating the

Opportunity

WhyInnovate

Chapter 3


The Five Phases to Success

•Recognize the Opportunity and ACT

•Investigate the Need

•Develop the Plan

•Determine the Resources Needed

•Manage the Business

Idea toOpportuni

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Evaluating

the Opportuni

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WhyInnovate

Chapter 3


Questions to Evaluate the Business Opportunity

What indicators suggest the idea may be the basis of a valuable and viable opportunity?

What are the conditions that enable the opportunity to be successful?

How might the future of the initial product or service change over time?

How long (in terms of time) is the window of opportunity?

How big is the opportunity?

Idea toOpportuni

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Evaluating the

Opportunity

WhyInnovate

Chapter 3


Evaluating the Opportunity

Does the Opportunity……Fill a need that customers will value?

Show evidence of customer acceptance?

Show that a substantial market exists now?

Indicate that your solution is much better than the competition?

Show a significant upside potential?

Can be achieved with reasonable costs?

Idea toOpportuni

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Evaluating the

Opportunity

WhyInnovate

Chapter 2


Frameworks for Evaluating an Opportunity - 1

Market Issues:

Criterion Stronger Opportunity Weaker Opportunity

Need Identified Unclear Customers Reachable; receptive Unreachable or loyalties

established Payback to user/customer Less than one year Three years or more Product life cycle Long; recover investment Short; recover investment Industry structure Competition or emerging Aggressively competitive Potential market size $100 million sales Less than $10 million sales Market growth rate Growing at 30% to 50% Contracting less than 10% Gross margins 30% to 50% Less than 20%; volatile Market share attainable (year 5) 20% or more Less than 5%

Idea toOpportuni

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Evaluating the

Opportunity

WhyInnovate

Chapter 2


Frameworks for Evaluating an Opportunity – 2

Financial and Harvest Issues:


Profits after tax 10% to 15% or more; durable Less than 5%; fragile Time to: Break-even Positive cash flow ROI potential

Under 2 years Under 2 years 25% or more per year

More than 3 years More than 3 years Less than 15-20% per year

Value Capital requirements

High strategic value Low to moderate; fundable

Low strategic value Very high; unfundable

Exit mechanism Present or envisioned harvest options

Undefined; illiquid investment

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Evaluating the

Opportunity

Why Innovate

Chapter 2



Competitive Advantage Issues:


Fixed and Variable Costs

Production, marketing distribution

Lowest

Highest

Degree of Control Prices, channels of

resources/distribution

Moderate to strong

Weak

Barriers to Entry Proprietary protection Response/lead time

Yes 6 months to one year

None None

Legal contractual advantage Proprietary of exclusivity None Sources of differentiation Numerous Few or none Competitors mindset and strategies

Live and let live; not self destructive

Defensive and strongly reactive

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Evaluating the

Opportunity

Why Innovate

Chapter 2



Management Team and Risk Issues:


Management team Existing, strong, proven performance

Weak, inexperienced, lacking key skills

Contacts and networks Well-developed; high quality; accessible

Crude; limited; inaccessible

Risk Low High Fatal Flaws None One or more

Idea toOpportuni

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Evaluating the

Opportunity

Why Innovate

Chapter 4

Copyright 2013 Jack M. Kaplan & Anthony C. Warren Getting Started Patterns of Entrepreneurship...

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