Transcript Session 4 - Beta Golf

Beta Golf
Opportunity Identification
Brainstorming Best Practices
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Arrange for appropriate space
Have a clear objective
Keep track of all ideas
Use a moderator
Assign tasks and circulate ideas
Use a small group of five(5) to ten(10) people
Establish time limits
Suspend criticism
Postpone evaluation
Encourage people to combine and build on other
ideas
Classes of Opportunities
• Increasing the value of a produce or service
• New applications of existing means or
technologies
• Creating mass markets
• Customization for individuals
• Increasing reach
• Managing the supply chain
• Convergence of change
• Process innovation
• Increasing the scale of the firm
Where do great ideas come from?
• Opportunities created by macro-trends
– Technological, legislative, societal, economic
– “The overwhelming majority of successful
innovations exploit change.” - Peter Drucker.
• Living and experiencing the customers
pain
• The fertile ground of scientific research
• If it works in Italy – let’s try it here
Source: Mullins, J.W. (2003). The New Business Road Test. Prentice-Hall: London.
Sources of Ideas
Prior Job
43%
Hobby / Interest
18%
Suggestion / Chance
18%
Family Business / Friends or
relatives
12%
Other
9%
Purdue study of 2994 entrepreneurs across a broad section of industries
Sweet spots
• http://ecorner.stanford.edu/authorMaterialI
nfo.html?mid=1465
Technology trends and opportunities
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Life sciences: genetic
engineering, genomics,
biometrics
Information technology:
internet, wireless devices
Food preservation: improved
distribution of food
Video gaming: Learning,
entertainment
Speech recognition: Interface
between computers and people
Security devices and systems:
Identification devices, baggage
checkers, protective clothes
Nanotechnology: Devices 100
nanometers or less for drug
delivery, biosensors
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Fuel cells: electrochemical
conversion of hydrogen or
hydrocarbon fuels into electric
current
Superconductivity: energy
savings on utility power lines
Designer enzymes: Protein
catalysts that accelerate
chemical reactions in living
cells for consumers and health
products
Smart cards: wallet-sized
personal information cards
Software security: blocking
unsolicited e-mail
Robots: teams of small,
coordinated robots for
monitoring safety functions
Social / cultural trends & opportunities
• Aging of the babyboom generation
• Increasing diversity of
the people of the U.S.
• Alternative energy
• Two-working-parent
families
• Rising middle class of
developing nations
• Changing role of
religious organizations
• Changing role of
women in society
• Pervasive influence of
the media – televisions,
DVDs, Internet
• Growth of the Latino
population in the U.S.
How important is the idea itself?
• Conventional view: idea is the basis of competitive
advantage
• However, consider the example of patents as the
codification of an idea:
– Generally, firms that generate patented ideas, license them to
large firms (Hsu & Stern)
– Even if patent—may not be able to defend
– Have to disclose to get resources
• Venture Capital view:
– “Very few businesses succeed as original idea”
– “Every good idea they see they see 30 times” (Kaplan)
– Ranks 10th out of 25 VC decision criteria (Macmillan)
Opportunity Evaluation
Required capabilities of entrepreneurial team
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Has talent, knowledge, and
experience within the industry
where the opportunity occurs.
Seeks important opportunities
with sizable challenges and
valuable potential returns.
Able to select an opportunity in
a short period: timely
Able to convert an opportunity
into a workable and marketable
enterprise.
Achievement-oriented; wants to
succeed.
Connected to others up and
down the value chain.
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Able to accommodate
uncertainty and ambiguity
Flexibly adapts to changing
circumstances and competitors.
Seeks to evaluate and mitigate
the risks of the venture.
Creates a vision of the venture
to communicate the opportunity
to staff and allies.
Attracts, trains, and retains
talented, educated people
capable of multidisciplinary
insights.
The Logic of Analyzing New Venture Opportunities
Source: Mullins, J.W. (2003). The New Business Road Test. Prentice Hall: London
Market domain
Industry domain
Potential
Profitability
of opportunity
Is the market large enough?
What is the growth rate and
the upside potential?
Market
attractiveness
Industry
attractiveness
Macro-level
Does the opportunity fit the team’s
business mission, personal
aspirations, and risk propensity?
Mission, aspirations,
Ability to execute
propensity for
risk
Team
domain
Venture
strategy
Connectedness up,
down, and across value chain
Micro-level
Target segment benefits
and attractiveness
Sustainable
advantage
What industry forces have the
strongest impact on profitability?
How are industry forces likely
to change in the future?
Does the team have what it takes,
in a human sense – in experience
and industry know-how – to deliver
superior performance for this
particular opportunity?
To which target market Is the
venture’s value proposition
particularly compelling?
Is the target market large enough to
support the business model?
Does the target market provide an
Option to grow into other markets?
Is the team well connected up, down
and across the value chain so it will
be quick to notice any opportunity or
need to change its approach if
conditions warrant?
What entrepreneurial or firmlevel capabilities create a
sustainable competitive advantage
relative to rivals or potential rivals?
Their Criteria (Investment Strategy)
• Funded investments on a deal-by-deal basis with
corporate and financial partners
• Focused on sectors in which it had little or no investment
competition
• Only pursued opportunities for which it had a superior
technology, process, or other significant competitive
advantage
• Customized approach to developing a business (JV,
license, acq, startup) to maximize best chance for longterm success.
• Conducted rigorous feasibility study of concept and
market opportunity, focusing on steps, timeline, and
prioritizing key risks
• Adopted a hands-on management relationship.
Strategy and Risk/Reward
• Each option had different risk / reward
implications
• What was invested?
• When did the firm turn project cash flow
positive?
• How much control did Beta Group have?
• How likely was success
Cash Flow Implications of Strategy
Licensing
Acquire company
New company
OEM option
Assess the probability of success
• What are the expected probability of
succeeding under any scenario?
• What about risks associated with each
scenario?
• Risk (usually) translates into higher
expected return
What Happened (1)?
• Beta Group decided to pursue an OEM
agreement with Ping
– Beta knew how to manufacture to precise tolerances
– Lower capital requirements (and risk) than new
company or buyout.
• Actually bid for Hogan, but KKR outbid them.
• No one had previously received a royalty in the
golf industry
What Happened (2)?
• Initial club market targeted was putters.
– National Golf Show in Fall 1997
– Complete sell-out of Ping putters with HXL
technology
– Called the Isoforce Putter
• Sold out Isoforce Putters in 1998 and 1999
What Happened (3)?
• Launched Pixl Golf in 2000
– Selling complete line of HXL clubs
• Putters - $225
• Irons - $999 / set
• Wedges - $160
– Hired a president, Art Chou, former Head of R&D for
Titleist and a Golf Digest technical editor
– Putter named “Best Putter” by PGA
– Clubs now distributed widely
– 2008
• Estimated annual sales - $120,000
• 2 employees
Prep Work
• Tuesday
– R&R
– Calculate break even for each party
• Start with writing down the business model (value chain)
• Look at fixed and variable expense for each party
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Trivia Inc
Bob Reiss
Sam Kaplan
TV Guide (Royalty Basis and They Own Goods)
Alan Charles
Swiss Colony
• Assume TV Guide has $20,000 of overhead in each scenario
• Assume Alan Charles has $15,000 of fixed cost