Entrepreneurship Workshop 2 - Sites€¦ · CC&WEMBA I&E Workshop Evaluation of an opportunity 1....
Transcript of Entrepreneurship Workshop 2 - Sites€¦ · CC&WEMBA I&E Workshop Evaluation of an opportunity 1....
Entrepreneurship Workshop 2
WEMBA &CCMBA September 16, 2016
Jon Fjeld
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Agenda
• Quick review • Framework • Discussion: strategy
– Target customers – Business Model – Sustainable competitive advantage – Milestone planning
• Project presentations • Wrap-up
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FRAMEWORK
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Companyforma6on
“Nuclea6on”Comingupwith
theidea
Earlyplanning
Earlyrevenue
Growth
Ourfocus
Stages in new venture creation
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What does it take to succeed?
Entrepreneurial Success
=
Good idea
good planning
good execution money luck + + + +
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Plan
Do
Learn
The basics
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..
Need(market)
SolutionTeam
Financialviability
Competition
Evaluating an opportunity
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Evaluation of an opportunity
1. IsthereasufficientlyaMrac6vemarketopportunity(needorproblem)?
2. Istheproposedsolu6onfeasible,bothfromamarketperspec6veandatechnologyperspec6ve?
3. Dowehaveanteamthatcaneffec6velycapitalizeofthisopportunity?
4. Canwecompete(overasufficientlyinteres6ng6mehorizon)?
5. Whatistheprofileriskandreturnofthisopportunity?
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Targetcustomer
Businessmodel
Sustainablecompe66veadvantage
Roadmap(milestones)
Elements of strategy
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Evaluation and strategy
Opportunityevalua3on Factgathering,analysis,basisfordecisionmaking
StrategyDecisions,choices:investmentandpriori6es
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Need/problem
Feasiblesolu6on
Team
Possibilityofcomp.advantage
Riskreward
Targetcustomer
Businessmodel
Choicesforsustainablecomp.advantage
Milestones
Theseac6vi6esareongoing10
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Business plan document
Opportunityevalua6on:• Need/problem• Solu6on• Team• Possibilityofcompe66ve
advantage• Risk/return
Company’splan:• Strategy:
– Targetcustomers– Businessmodel– Choicesforsustainable
compe66veadvantage– Roadmap/milestones
• Opera6ngplan:– Planforeachfunc6onal
area– Budget
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Two sides of execution
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Framework for analysis
Investment prospectus:
• Need/problem • Solution • Team • Competitive
advantage • Risk / return
Company’s plan: • Strategy:
– Target customers – Business model – Choicesforsustainable
compe66veadvantage– Roadmap /
milestones • Operating plan:
– Plan for each functional area
– Budget
Execu6on:• MarketResearch• Strategydevelopment• Marke6ng• Businessdevelopment• Salesplanning• R&DManagement• Opera6onsmanagement• Processandinfrastructure
management• Budge6ng• Financing• Peoplemanagement
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The first two laws of entrepreneurship
FirstLawAlwaysstartwiththeneed.
SecondlawMakenoinvestmentbeforeits6me.
Analysis—comprehensiveanddiscreteelementsSequencing—basedonseverity,probability,andcostofresolu6on
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Strategy in a new venture
• Similar but different • More and less freedom
Compared to corporate strategy
New venture strategy
1. Targetcustomer– Whatarethechoices?– Segments– Value/marketsize?
2. Businessmodel– Product:“wholeproduct,”valuechain– Again,whatarethechoices?
3. Sustainablecompe66veadvantages– Howcanyoucompeteoverthelongterm?– Whatinvestments?
4. Milestoneplanning– Whatistheorderofinvestment?– Whatarethekeymilestones?– Howdoyoustructurefinancing?
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Theseques6onsarealllinked.
Theprocessisitera6veandpiecemeal,notsequen6al
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Planning
1. Strategy• Targetcustomers• Businessmodel• Choicesforsustainablecompe66veadvantage• Milestoneplanning
2. Opera6ngplan• Planforeachfunc6onalarea• Budget
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How do customers differ?
• What is the need/pain and how severe is it? – Value / willingness to pay – For what product
• What are the customers’ alternatives? • How many customers? Size of the opportunity • How will you convince them to buy?
– Interests – Influences
• What are the inhibitors or obstacles?
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Target customers
Start with formulating a choice: – Who are potential targets?
• Based on segmentation – What do they represent?
Considerations: – What is the required solution?
• Can we deliver? Cost • Does it strengthen us? Competitive implications
– Ease of implementation for the customer – Decision process – Size of opportunity represented
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A conceptualization
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Value/ Differentiation
Difficulty / cost to the company
Good
Bad
Size of market also a consideration
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Planning
1. Strategy• Targetcustomers• Businessmodel• Choicesforsustainablecompe66veadvantage• Milestoneplanning
2. Opera6ngplan• Planforeachfunc6onalarea• Budget
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Business model
Product: • What is the “whole product”?
– How will it get to the customer?
– What will your role be? (place in the value chain)
Price: • What is the perceived value? • What will customers pay for? • How do they want to pay?
(revenue model)
Place / promotion: • Description, messaging,
articulation of value, outlets • Distribution Business practices: • How will customers interact
with the company? • Service / support Functions inside vs. outside the firm • Partnerships • Staffing
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A complicated example: the iPod
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Need Solu6on Product Technology
Portablemusicforaverageconsumers
iPod
• Whatistheinnova6on?• Whatconnectstheproduct
totheneed?
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The iPod solution
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Need Solu6on Product Technology
Portablemusicforaverageconsumers
iPod
iTunessoiwareforPC&Mac
iTunesStore
iPodclickwheel
System:• Acquiring• Storing• Organizing• Selec6ng• Playing
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Planning
1. Strategy• Targetcustomers• Businessmodel• Choicesforsustainablecompe66veadvantage• Milestoneplanning
2. Opera6ngplan• Planforeachfunc6onalarea• Budget
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Sources of competitive advantage
Whatthefirmdoes:decisions&policies
Assetsfirmstartswith(usuallyIPofsomekind)
Compe66veadvantage
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Competitive strategy
Marketanalysis
Industryanalysis
Valuetocustomer
Compe6tors&partners
Choices & actions that determine and strengthen competitive position
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Value
TothecustomerProduct • Function / price /
packaging / other? Cost of ownership • Product purchase • Maintenance / expansion • Quality • Skills needed • Other?
Sourcesofvalue• Capabilities • Quality • Integration • Selling process • Service • Packaging • Consulting • Ease of doing business • Fun
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Competences
Firms do many things • Design / develop • Manufacture • Market • Sell • Service
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• Hire • Innovate • Strategize • Plan
Mediocre Advantage Competent
Where is the company on the spectrum?
Where do they need to be?
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Core competences: a fundamental concept
Businessmodel
Sustainablecompe66veadvantage
Corecompetences
How much and what part of the solution will you provide?
Position in the value chain
Business relationships
How are you uniquely identified?
Position versus competitors
What is defensible? Brand / messaging
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Position
Value chain
Competitors
X
X
X
X
X
X
You
X
X
Solutions Customers
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Competitive position
Whatiscompe66veadvantage?• Somethingthatallowsthefirmtodelivervalueto
thecustomerprofitably• (impliesthatthefirmdoesitbeMerthan
compe6tors)
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Whatissustainablecompe66veadvantage?• Acompe66veadvantagethatisrare&hardto
imitateorinnovatearound
Objective: Sustainable competitive advantage: VRIN
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Sources of sustainable competitive advantage
• Skills&exper6se:people– Hiring/HRpolicies
• Intellectualproperty– Patents– Otherformsofprotec6on:TM,secrecy
• Complementaryassets– E.g.,distribu6onforacontentcompany
• Rela6onships– Customers:“firstmoveradvantage”– Suppliers– Keypartnerships
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Digression on innovation
Sustaining: • Make a product or
service perform better in ways that customers in mainstream market value
• Always introduced by incumbents
Disruptive: • Create an entirely
new market • Perform worse on
some dimension important to mainstream
• Lower margin
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How to analyze industry players
Resources: • People • Equipment • Technologies • Cash • Product designs • Information • Relationships • Customers
Processes: • Patterns of
– Interaction – Coordination – Decision making
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Values:• Standardsbywhich
employeessetpriori6es,e.g.:• Margin• Revenuepoten6al• Posi6on/brand
RPV analysis
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Planning
1. Strategy• Targetcustomers• Businessmodel• Choicesforsustainablecompe66veadvantage• Milestoneplanning
2. Opera6ngplan• Planforeachfunc6onalarea• Budget
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How to proceed
• Yourideaisprobablywrong• Canyoufindagoodideabeforeyourunoutofresources—6meandmoney?– Timeismoney.– Earlymoneyismoreexpensivethanlatermoney
• Whenyoufinda“goodidea,”howefficientlyyouusecapitaldeterminesyourshare,overallreturn,andpossiblyevensuccessorfailure.
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Managing uncertainty
Experiments(“Lean”)
Milestones
Efficientuseofcapital
Seed VC Growth
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Differentterminologies,sameunderlyingconcept
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Net cash
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$0 Time
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Cost of money
• Timeactuallyismoney
• Animaginaryhomerun;100,000shares,2founders,1yearbeforemoney
Stage SharesCompany
valueAmountinvested Sharevalue
Valueof$1inequity
Founding 100,000 $100,000 $200,000 $0.50 2Seed 100,000 $1M $500,000 $10 0.1SeriesA 150,000 $15M $7.5M $100 0.01SeriesB 225,000 $225M $112.5M $1,000 0.001
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Why?
• “Risk”offailureishigh.– Manyassump6onsthatmaynotbetrue.
• Andgoesdownasyoureduceuncertainty.– Probabilityofsuccessgoesupasassump6onsaredeterminedtobetrue.
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Not all risk is the same
Ameasureofrisk:
severityofimpactXprobabilityRisksalsodifferon
costofresolu3on
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Resolution of uncertainty
• Involvesevidence—hypothesistes6ng• Requiresjudgment&imagina6on
Theissueisgenerallytoestablishmarket/productfitbeforethemarketexists
– Valida6onoftheneed– Technicalfeasibility– Possibilityofpartnerships– Protectability– Etc.
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Milestones
Basic question: Will your venture succeed? Imagine a series of big steps that increase your confidence
– E.g.: a customer, validation of technology, selling model
These steps can constitute a series of objectives for the
venture: – And become the milestones in your financing plan
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Lowest cost resolution of uncertainty
1. Iden6fytheassump6onsanddiscretesteps(elementsofuncertainty)requiredforyourventure.
2. Rankorderthepointsofuncertainty(assump6ons)indecreasingorderofrisktotheventure
(severityXprobability/cost)• Thisisthesequenceofexecu6on• Requiresfindingawaytoresolveeachpointofuncertaintyforthelowest
cost(6meandmoney).3. Factorinanyissuesofoverall6melinessandinterdependencies.4. Usethesemilestonesasaframeworkforyourplan.5. Commitsufficientresourcetoachievethenextmilestone.6. Makecorrec6onsasyoulearn(“pivot”).
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How much money should you raise or invest?
• Should you raise the total amount of cash needed (according to projections) in a single investment?
Usually not • How much is the business worth? • What increases the value of the
company? Reduction of uncertainty
1. Establish a plan (which you will end up revising):
2. Determine a milestone that produces a step up in valuation - what will remove the (a?) main source of uncertainty?
• (Keep in mind that investment may be tranched)
3. Determine cash needs • Including asset based financing to reduce
requirement for equity based financing
4. Raise enough to get you to the next milestone that would cause step up in valuation (+ small cushion, if possible)
$0 Time
-$5
$5
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The first two laws of entrepreneurship
FirstLawAlwaysstartwiththeneed.
SecondlawMakenoinvestmentbeforeits6me.
Analysis—comprehensiveanddiscreteelementsSequencing—basedonseverity,probability,andcostofresolu6on
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Resources
Guidelinesfortheentrepreneur:
hMp://www.dukeven.com/
ProgramforEntrepreneurs:hMp://www.dukep4e.org
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CONCENTRATION hMp://www.dukep4e.org/fuqua-program-for-entrepreneurs/emba-concentra6on
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Teams
• An important principle of start-ups: you cannot tolerate anyone who is not performing.
• Seek diversity in your team
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Concentration process
Summer, 2016 Fall, 2016 Spring, 2017
• Identify opportunity • Form team • Memo to Fjeld summarizing
• Validate opportunity • Formulate strategy • Submit as final project in Entrepreneurial
Strategy or Entrepreneurship & New Venture Management
• Create business plan document • Submit in fulfillment of concentration
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