STARTUP PHILOSOPHY

CEMEC BRAZIL

Bob Caspe

The International Entrepreneurship Center

Entrepreneurial Action

1

This Course

Today is about Strategy and Philosophy. My goal is to erase everything that you think you know and start over.

Tomorrow is about Tactics. We will look at specific Marketing strategies and how and why they work.

Two Simple Rules for a Startup

Choose a Worthwhile ProjectYou Tend to Pick Stupid Projects to Work onYou Cloud Your Thinking with PassionYou Waste Your Most Precious Resource

Avoid Going Out of BusinessYou Focus only on the Long TermYou Forget about Today’s BillsYou Are Far Too Rigid to Simply Make

Money

My Observations

Most startups are too internally focused Most Medium sized Companies lack

Adequate marketing & strategy Time is not an Innovator’s friend Randomness is a Critical Part of Business

I Know You It’s Different Here In Brazil You Believe That You Need to Know A

Customer “As A Friend” Before You Can Make A SaleResult of a weaker legal system

Your Product Development is world class Your Marketing Departments Stink (or don’t

exist) Your Sales Department is Under Performing Your Innovation Doesn’t Give You the Return

That it Should

Latin America

Extraordinary Growth over the Last 10 Years

Stabilizing Politically and Legally Missing Pool of Experienced Middle

Managers Opening to International Competition You are Looking Outside for Growth

Today’s Lecture

Create a Framework for Understanding how Business WorksWhy some growWhy others fail

What are Unique Rules and Challenges for Startups

Where does the Study of Business Fit in? Education

ArtsHistorySciences

○ Physics○ Chemistry○ Biology○ Business Share a common Model

EducationArtsHistorySciencesBusiness

Operational Frameworks

PhysicsNewtonian PhysicsEinstein’s Theories of RelativityQuantum Mechanics

BiologyEvolution through Reproduction & Genetics

BusinessEvolution of Ideas & Business Models

Evolutionary Models

BiosphereSpecies

○ Plants…

○ AnimalsMammalsReptiles…

NoosphereIdeas

○ Music○ Art○ Literature○ Business

OnlineRetail…

○ Governments

My Model for “Business”

Change is Through Evolutionary Development that Builds Upon Prior States with Adaptations that are in partly Forced by the Environment

Changes are Driven by TechnologyInnovation Arrives in Bursts which are

“Inventor Independent” The Speed of Evolutionary Change is

Increasing for Several Reasons

Many Beliefs

You Need to Invent Something You Need to Write a Business Plan

before you Act You Need to Study other Businesses You Need to Raise Venture Capital You Need to Develop a Sales and

Marketing Process for Distribution of your Inventions

are wrong

Course Contents

A Philosophy of Small BusinessRiskProbabilitySurvivalMetrics

A Guide to Marketing• Category• Value• OEM• Transaction

Bob Caspe

BS in Electrical Engineering in 1969 Founded 4 High Tech Companies Currently a Consultant and Teacher

The IEC

http://iecpartners.com

What we offer at the IEC

MentorshipMarketing StrategyMarketingSales

Education Space and a Community Market Acceleration into the US, Latin

America and EuropeIMAP

Summer Entrepreneurship Program

June 2014Boston Massachusetts

Boston College

What was the most significant Change to Society in the Last 500 Years?

Advances in Communications

Printing Press – Telephone – wireless – loudspeaker –cell phone – Internet

What is the Largest Challenge for the Entrepreneurial Startup?

How are you going to Sell your product or service?

Marketing is the process of Buying Customers!

Definition of “Marketing”

Marketing is the process of communicating to eligible customers a transaction along with adequate value so as to convince the customer to buy.

Gross Sales

COGS

Gross Margin

Marketing & Sales

G&A

EBITDA

15%

Bottom Up Marketing Costs

Direct mail

Phone

Customer Visit

Transaction Marketing and

Sales Cost

Marketing Investment Drives Revenue

Campaign

Marketing & Sales Investment

Contributed Margin

COGS

Fixed Costs

Net Profit

Transaction

If you spend enough money, you can sell anything!But can you make money doing it?

Most Startup Failures

Sale Price- Cost of Goods Sold

= Gross Margin- Customer Acquisition Cost

= Net Transaction Margin

If the Net Transaction Margin is Negative, then you’re on your way to failure

What is the CAC?

It’s Made DifficultEarly Startups use the CEO to do sales and

this is not sustainable over the long termIn the beginning the sales process is being

learned so the cost is higher But, proving that the CAC can be low

enough to be profitable is key

Relative Importance of the Cost of Marketing and Sales (size of ball)

Selling Cost as a Percentage of Unit Price

Num

ber

of C

usto

mer

s

Jet Plane

IPOD

Which is Hardest?

Invent Build Website Sell

Degree of difficulty

Which one is best to start with and why?

But, which one do you typically start with?

Why Sell First?

Create Concept Design Product Build Product Create Website Sell DIE – Oops

no more money

Create Concept Sell Modify Concept Sell Design Product Build Product Ship Product Create Website Buy Boat

Typical Student Business Concept

Bob’s Business Concept

SELL FIRST

But Bob…

What happens if they buy it?Will I go to Jail?

When Should I Make a Prototype?

When Should I write my business plan?

Kickstarter but…

Kickstarter’s model is to sell first. There is no sale of equity, only a future product. And, all you need is a photoshop picture and a story.

But… we will talk about consumer markets later.

Conclusions Selling is the hardest part of business. Sell first, and only continue on if your sales

are successful. Calculate your CAC Early in the Process Limit your passion and investment in your

business idea until sales are verified. Make sure that you can sell for less than the

available margin offered by a transaction.

Evolution of Business & Technology

Entropy – Measurement of Disorder

Rudolf Clausius -

1882

2nd Law of Thermodynamics Entropy of a

Closed System Increases Over Time

Edwin Schrodinger

Negentropy

Entropy versus Life

Disorder Order

Evolution – The Accumulation of Order

Central to Evolution

Diversity in the PopulationRandom mixing and changes through

mutation Heredity – the passing on of traits Environmental Pressures Causing

Selection

Life

Evolution defines the process by which Life increases its own organization

Extinctions of species (or companies) is a byproduct of instability in the environment and Competition

Humans have extended our Genome with language and drawings into external data

The Genome Encodes Life

Humans Extended our Genome

Alternative Frameworks

Humans have an extended genome which includes our ideas, and that genome evolves by the same rules of evolution, only faster.

The Noosphere evolves mindlessly, inventions are destined to happen, only waiting for underlying inventions. Its behavior is identical to evolution of the biosphere (Driven by the fundamentals of Physics).

Noosphere

Teilhard de Chardin defined the noosphere as “a living tissue of consciousness”

The collective consciousness of the human species

SPECIES IDEAS

BIOSPHERE NOOSPHERE

Examples of Selection in America In the Biosphere

North American Animals dominate South American Animals when the Isthmus of Panama forms 3M years ago

Humans push the Buffalo to extinction 200 years ago

In the NoosphereWestern European Culture Dominates

American Indian Culture – 200 years ago

Either Way, they are the same

Darwin Also Observed

Adaptive Radiation - Rapid Bursts of Innovation that Waited Until Underlying Innovations Were Available for Use

Pockets of Concentrated VarietyRainforestsCoral Reefs

Concentrations of Diversity

The “Invention” of the eye He Studied the Eye as an example that

would prove his concept of evolution. Was it “Mindful, or Mindless” creation?

Cambrian Explosion (540 million years ago)Common Ancestry of Visual Pigments50-100 Different types of “eyes” evolved

Our Inventions including our companies are part of our own evolution.

Noosphere - Adaptive Radiation

1611 – Sunspots Observed in 4 Countries

First Battery – Dean Von Kleist & Cuneus Leyden 1745 & 1746

Ogburn & Thomas (1920s) – 148 instances of Independent Innovations within the same decade

Invention

Stuart Kauffman, biologist described this as: The Adjacent Possible

Defines both the limits and potential that is “hovering on the edge of the present.”

Powered Flight

Gustave Whitehead 1901, EU

Write Brothers 1903, US

Clement Adler 1890, FR

Santos Dumont ?, BR

Noosphere Concentrations of Invention

Larger Cities have patent submission rates in excess of linear predictions

Consider the impact of the Internet on “virtual City Size!”

Environmental Instability

Technology

RA

TE

OF

CH

AN

GE

Invention Pyramid

Inverted

Number of Inventions per time period is expanding

What This All Means

Most, if not all, inventions and innovations of businesses are based upon technology.

Each Innovation “waits” for Underlying Innovations first.

With the Universality and Speed of the Internet, each Innovation is Likely to be Occurring Elsewhere Simultaneously.

Replacing Innovations are also Following Closely Behind.

The Evolution of Businesses Abundance of Business Models within

any one Business Category Heredity of Business Ideas Selection through Competitive Pressure

and Destabilization through Technological Advancement

Conclusion

The Methodologies that We Choose to Use to Compete in Business Must be Consistent With the Working Model Assumptions of How Businesses Grow and Die.

In the Biosphere the Direction of Evolution is Driven by the Laws of Physics

In Business, Money Drives the Direction

Therefore

Time is NO LONGER your Friend You Must Exploit Your Innovation As

Quickly As Possible and you MUST SEEK:International Distribution QuicklyPartnerships That Can Shorten Your Path

to:○ Capital○ Brand Equity○ Distribution

Examine the Status Quo

Shift to Mobile Technologies from desktops and laptops

Everyone & Everything is Connected Knowledge is devalued Power is Shifting to the Masses

Mobile Phone Growth

Smart Phone Growth

Business Adaptation TimeA

VA

ILA

BLE

YE

AR

S1

100

1900 2010

1876

~1899

Spending on TV and print in US has dropped by 40% in 3 years

Revenues Doubled and Net Income Increased 400%

The Results

Corporate Extinction

Of the top 25 industrial Companies in the US in 1900 only two remain there today.

Of the top 25 on the Fortune 500 in 1961 only 6 remain there today.

CEO’s Have Not Kept Pace

Hosni Mubarak didn’t use facebook

Facebook has over 1 billion Users – the third largest “country” in the world

Executives Have Lost Ground

Logo Design

1990Design Agency

Scitex Workstation$5,000

2000In-House

Macintosh PC$500

2010Cloud

99Designs.com$50

Business Models are Changing

The Virtual CompanyNo EmployeesNo FacilityNo OverheadReduced Capital NeedsNew types of capital and/or royalty

structures

Off-Shore Sourcing

Manufacturing Engineering Accounting Law

Conclusions

Technology will leave no business model untouched and may drive many to extinction.

New virtual models are growing. Change leads to entrepreneurial

opportunity. Time is NOT your friend.

Let’s take a break