Transcript HARVARD BUSINESS SCHOOL CLUB OF WASHINGTON DC

HARVARD BUSINESS SCHOOL CLUB
OF WASHINGTON DC
ENTREPRENEURSHIP ROUNDTABLE
WEBINAR SERIES FOR NATIONAL
UNIVERSITY STARTUP COMPETITION
INTRODUCTION TO INNOVATIVE
STRATEGIES FOR ENTREPRENEURS SERIES
JANUARY 27, 2009 WEBINAR
PRESENTERS
• Bob Kolodney, serial entrepreneur and moderator
of the Entrepreneurship RoundTable of the
Harvard Business School Club of Washington, DC
([email protected])
• Dick Davies, the CEO of Sales Lab and of
Planphoria – a web 2.0 company
([email protected])
• Raj Rai, a founder and partner of New Markets
Partners – an early stage venture capital firm
([email protected])
THIS WEBINAR SERIES - OUR APPROACH
Our Objective:
• To make participants in the competition aware of
cutting edge approaches to conceiving and
launching new ventures
Our Target Audience:
• University researchers who are considering
launching new ventures
• Calendar:
– Today (January 27/09): A presentation of Some
Traditional Basic Elements for Venture Development
– February 9/09: An Overview of Disruptive Innovation
Strategy
– March 10/09: An Overview of Blue Ocean Strategy
TODAY’S SESSION
A Background Briefing on Entrepreneurship Basics:
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Entrepreneurship and the Business Plan;
Marketing and Sales; and
Key financial concepts; as well as
Some background on Disruptive Innovation Strategy and Blue Ocean Strategy
The matters that we are presenting today are entirely compatible with those
disciplines that have been developed over the last 15 years.
But, that new thinking makes it possible for innovative entrepreneurs to increase
their chances for success and the extent of potential success.
Basically, these approaches provide:
• Insights about the innovative positioning of new ventures; and
• Tools to make it possible.
They can help you:
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Modify your business model,
Re-orient your product or service,
Change the borders of your target market, and
More effectively carry out your venture.
But, you need to know something about
entrepreneurship basics first.
Otherwise, introducing you to these disciplines
would be premature.
It would be like giving a GPS to someone on
foot to help him navigate rush hour traffic.
You need to have a vehicle.
ENTREPRENEURSHIP
• We want to help enable you to accomplish something
extremely challenging.
• At the Harvard Business School, where entrepreneurial
management is a required course, they call it “Opportunistic
Management” – an orientation that is generally attributed to
Professors Bill Stahlman and Howard Stevenson.
• This is a very useful concept.
• It goes to the heart of what entrepreneurship is all about;
entrepreneurs are in the business of identifying and
capitalizing on opportunities.
• But I think that starting a venture based on an innovation
with growth potential can better be described as “Extreme
Management”.
Comparing regular management to entrepreneurial
management – like comparing:
• Golf or Tennis to:
• Kick-Boxing, Cliff Climbing or Dirt Track Bike Racing.
• It is intense, fast-paced, challenging, and multi-faceted.
• It is like going into battle. Time and resources are short.
Many things need to be done - and there is always
competition.
• Entrepreneurial management is very interesting because it
involves everything related to managing a business – in
starting the blog of our Entrepreneurship RoundTable, we
had dozens of subjects for discussion.
• In a small developing venture you don’t have the luxury of
a lot of people who do nothing but specialized functions.
• There are many varied jobs to do, and there is a lot of
cross-over – as CEO you will wear many hats.
• The fog of war can easily overwhelm you.
Guy Kawasaki has famously said that in developing an
innovation-based enterprise you:
• Create Like a God;
• Command Like a King; and
• Work Like a Slave.
• In shorthand – Create like a Slave
• Incidentally, you should like your product or service and
believe that it is something worthwhile.
• Unless you like it enough to obsess about getting it into
the market, it is very unlikely that you can succeed.
• You must really be convinced in order to be willing to put
yourself into indentured servitude for a time.
• If you are indifferent, starting a venture will be nothing but
an exercise in masochism.
Some Useful Qualities for Entrepreneurs:
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Boldness
Ambition
Energy
Resourcefulness
Persistence
A Positive Attitude
Alertness
Humility in the Face of Competition
The Desire to Learn
The Desire to Create and Build
The Desire to Make a Difference
A Willingness to Take Calculated Risks
Articulateness
The Ability to Visualize, Overview and Summarize
Attention to Detail
A Knack for Organization
Multi-Tasking Ability
Time Management Capability
Social Skills
The Ability to Convince
The Ability to Inspire
But, how do you even know when to do what?
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When do you need to be bold?
When is humility called for?
When do you need an overview?
When do you need to sweat the details?
When should you be learning?
When should you be teaching, convincing, and inspiring?
• But, don’t worry, none of us are perfect. We will all make
mistakes.
• Fortunately, many imperfect people have succeeded in
launching new businesses based on innovations – and
many more will.
A big challenge is the 10-30-60 Rule
• In reality your brilliant innovation will not be appreciated by most of
your potential customers as you get started.
• Most people don’t like change. Innovative entrepreneurs find that:
• 10% of your potential customers (the Pioneers) will be eager to try
something new;
• 30% of your potential customers (the Early Adopters) will want to try
your innovation when someone else has used it successfully;
• 60% of your potential customers (the Sheep) will never want to use
your new product or service until the old product or service has
disappeared from the market.
• Unfortunately, this is a pretty dependable rule, and it’s a reason why
determination, persistence and energy are important to an
entrepreneur.
• One of the attractive aspects of the Disruptive Innovation and Blue
Ocean approaches for me is that they may provide a way to neutralize
this 10-30-60 rule (that seems to be a law of nature) – at least partially.
THE BUSINESS PLAN
• The key to organizing a new venture is the business plan.
• It is important to do a business plan.
• It’s a great tool to make new businesses possible. It gives you a
holistic view of your project, and helps you to turn it into a venture.
• My mentor named Georges Doriot (who was a very successful venture
capitalist) said that:
• until you do a business plan with coherent cash flow projections you
don’t have any idea whether your venture might be feasible; and
• you don’t have anything to talk about with a potential investor.
• Steven Brandt, who used to teach at Stanford, and who has inspired
many successful entrepreneurs, points out that:
• you are not really serious about a venture unless you do a business
plan –
• it is really the least that you can do with respect to something that will
require your intense and extended time and effort.
• Here we will borrow very liberally from Steven Brandt’s ideas and
concepts.
The Purposes of the Business Plan:
• Roadmap for the Venture
• Tool to Raise Money
• Living Document for Guidance
• The plan is more important to you than it is to potential
investors – much more important.
• In doing a plan you are really carrying out the first steps in
launching the venture.
• The viable business plan will reflect research, contacts and
discussions with people in the market place.
• You need to do a reality-based feasibility study.
• Just filling in the blanks in a pre-formatted template will not
carry you very far – although it can get you started.
THE ESSENTIAL VISION OF A BUSINESS PLAN:
• Describe your business in terms of selling something that someone is
willing to pay for
• This is the heart of your business model. In order to make it possible
you need to know:
• Exactly how your customer will be able to use your product;
• The precise advantages to him;
• Any necessary adjustments to his way of doing things, or preparation
or other inconvenience that might dissuade him from buying the
product;
• and you need to act accordingly – to modify the product features, to
make it affordable, to explain it adequately, facilitate training, or
whatever is necessary.
• You need to know what your customer does as well as he does –
maybe better.
COMPONENTS OF A BUSINESS PLAN
• The business plan has various parts - typically they are:
• Executive Summary – The Concept – Objectives – Market Analysis –
Production – Marketing – Technology – Organization/People –
Financial Projections – Ownership – Exhibits
Lets look a little more closely at these segments.
The Executive Summary
• This section is your introduction, overview, and marketing document to
investors.
• It should not be long. I agree with the standard advice that it should be a
maximum of two pages.
• In most cases it should contain some ideas or facts from all of the segments
that follow it.
• It definitely should contain the strongest arguments for your venture, the most
attention-grabbing and appealing ideas and facts.
• For 99% of potential investors – if they do not find the executive summary
appealing, they will not look any further – and will immediately drop
consideration of you venture.
The Concept
• Product/Service description
• Uniqueness
• The need
• The use
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It’s important to determine the intensity of the need, and the precise way that
the product or service will be used.
Remember, we are talking about a profit-making enterprise here.
When developing the concept, there should be a little man sitting on your
shoulder and whispering in your ear, telling you “Show me the money!”
Objectives
• What to be achieved
• When
• The strategy
Market Analysis
• General description of entire market – including its size
• Precise description of segments to be pursued
• Intermediate influences on customers – e.g. distributors,
dealers, sales reps, associations, etc.
• Present and anticipated competition
• Present and anticipated pricing
• Present and anticipated governmental influences
• History of similar products, services, businesses
• Break-even – number of units, part of market to be sold
Production
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Equipment
Facilities
Materials
Labor requirements
Quality control
Packing
Transportation
Other requirements
Initial program
Schedule
Budget
Results expected
Contingency plans
• This section is appropriate to a service as well as a product
offering. It should exist even when production is being
outsourced.
Marketing
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Product/service features/benefits to be emphasized
Methods of promotion and sales
Distribution channels
Initial program
Schedule
Budget
Results expected
Contingency plans
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Many high-tech entrepreneurs shy away from marketing and sales, especially
sales.
I can’t count the number of business plans that I have seen without a budget
for marketing and sales.
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But, marketing is the beating heart of your business, and sales are its
lifeblood.
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Marketing includes knowing the appeal of the product, figuring out how to best
communicate and demonstrate it – and you have to choose a channel of
distribution.
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You need to know how sales work, the basics – what it means to qualify a
prospective customer, make a presentation, overcome objections, close a sale.
You’ll need to know how these elements come together in the sales cycle for
your product – and how long it takes to make a sale.
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You’ll need to go beyond the basics.
Technology
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Description
Intellectual property/patents
Trade secrets protection
Staffing
Methods of inquiry and testing
Schedules
Budgets
Results expected
Contingency plans
• New high-tech entrepreneurs tend to think that this is
the most important part of the business plan – it is
NOT – for many ventures it is not even necessary.
Organization/People
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Management team responsibilities and qualifications
Who is accountable to whom
Organizational design
Initial staffing program
Schedules
Budget
Results expected
Contingency plans
• In developing a venture you have to mobilize the
efforts of other people. That is what business
management is all about.
• You need to be able to measure things and work with
appropriate numbers, but your business is built on
people.
• The old saw, “No man, or woman, is an island” is
absolutely true here.
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For good reason this is one of the significant parts of a business plan for
Venture Capitalists and Angel Investors.
After they look at the executive summary, the concept, the deal and the cash
flow, they generally look at the people involved.
Many famous VCs have said that they would prefer a mediocre concept with
good people to a good concept with mediocre people – they say this for
emphasis because no-one ever wants to go for a mediocre concept.
They mean that they would prefer a good concept with exceptional people to
an exceptional concept with good people.
In addition to good character and relevant experience, there are other
capabilities that are important in a management team.
When I put together a team for a new venture, I use a shorthand overlay of
capabilities that I have adapted from Ichak Adizes’ book, Corporate Life Cycles.
To make sure that the management team will be effective and resourceful we
need to make sure that at least someone has capability related to:
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Entrepreneurial Vision
Energetic Execution
Organization/Administration
Integration/Human Relations
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and we have to establish teamwork that will bring those talents into play when
they are needed.
Financial Projections
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Cash flow
Pro forma profit and loss statements, and
Balance sheets
Program for monitoring and controlling funds, people and
systems
Ownership
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The Deal
Summary of funding requirements
Money raising program
Projected returns to investors
Exhibits
• To explain, amplify, prove, support
• Anything that would interrupt the flow of the main
document; or
• Which constitutes separately printed materials
DRILLING DOWN
• Now we want to zero in on two segments of the Business
Plan that involve absolutely critical matters that many
entrepreneurs do not deal with adequately:
• Marketing and Sales
• Key Aspects of Finance.
• Some people think that marketing is just advertising and
public relations.
• They are wrong. It is much, much more.
• In fact the Business Plan is largely an exercise in
Marketing.
• The basic instinct of most technologists is to avoid sales,
and the post-mortems of most failed ventures show that
the entrepreneurs never learned how to sell. Sales is
where the rubber meets the road.
• Our Marketing and Sales presenter today is Dick Davies.
Dick is a high-tech marketing and sales guru in the
Washington DC area.
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• Our finance presenter is Raj Rai, an early
stage venture capitalist from College Park,
Maryland who teaches a course in high-tech
entrepreneurship at the University of
Maryland.
• Raj will present some life or death financial
matters for new ventures – including cash
flows, break even analysis, and cash
management..
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• You might want to have a look at Steven Brandt’s
website (www.scbrandt.com ) where he makes
available, free of charge, an e-book entitled Profit
Mechanics, as well as his Entrepreneuring book and
other materials.
• Remember that your real life cash flow will never be
adequate unless you manage your cash. That means:
• Not only not wasting money; but also
• Not over-extending credit; and
• Obsessively collecting the money that is owed to you.
ONGOING ADAPTATION
• Once you have done your business plan, are you
set, with a definite way to go?
• Don’t we wish!
• In Steve Brant’s book, Entrepreneuring: The Ten
Commandments, his 10th commandment is:
• Anticipate incessant change by periodically
testing adopted business plans for their
consistency with the realities of the world
marketplace.
• You will have to be ready to re-orient yourself and
your venture continually – to deal with problems
that arise, and to take advantage of opportunities
that appear.
• The good thing is that there is a very big
upside to this.
• These modifications and adjustments make
possible real success for those who are
willing to become systematically resourceful.
• As Dick indicated, the feedback from
customers, gathered by good sales people,
helps to make adjustments possible.
ORIENTATION OF THE NEXT TWO SESSIONS
• In the next two sessions we will introduce Disruptive Innovation
Strategy and Blue Ocean Strategy.
• A distinctive aspect of these approaches is that:
• Instead of looking to serve existing prime customers in the
existing market place,
• They are largely concerned with modifying a product or service
offering, and
• Establishing new market space by targeting dissatisfied
customers and non-customers – the potential customers for the
new venture.
• But, has no-one ever thought about doing this before?
• Why yes they have.
• Joseph Schumpeter, the economist, saw creative destruction as the
engine of economic development in the capitalist system.
• Peter Drucker, the leading management thinker of the 20th Century,
wrote quite a bit about this.
• His Basic Entrepreneurial Strategies:
• “Being Fustest with the Mostest” (an expression attributed to a
Confederate cavalry general) – also known as “first mover advantage”;
• Entrepreneurial Judo – “Hit ‘em where they ain’t”(an expression
attributed to a baseball player named Willie Keeler) – finding holes in
the market;
• Niche Strategies (tollgate, specialty skill, specialty market)
• Changing Economic Characteristics (product, market, industry)
All directed toward:
• Creating utility,
• Pricing affordably,
• Adapting to customer’s reality,
• Delivering value.
• Drucker even identifies Competitive Weakness to
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“Creaming” a market
False Quality
Premium Pricing
Maximization instead of optimization
and he points out that these weaknesses enable
strategies to work.
• Incidentally, Druker once said something that all
entrepreneurs can aspire to:
• “The best way to predict the future is to create it.”
FINDING A WINNING
FORMULA
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As a serial entrepreneur, I have found that you can find a Winning
Formula for your business.
This happens, at least in my case, through obsessive involvement in a
venture, picking up ideas by listening to other people, and being open to
new orientation.
A real Winning Formula is:
• An approach that gives you, and the people associated with you,
confidence;
• It may arrive as an “epiphany” (after lots of hard thinking);
• It may arrive in stages;
• It resonates with everyone that touches the business.
• It’s great!
• But, until now the way that the entrepreneur creatively destructs and
innovates has been in a black box – desirable but largely unknown.
THE POTENTIAL IMPACT OF DISRUPTIVE
INNOVATION AND BLUE OCEAN
What interests me most about these disciplines is that they
give you a path to find and implement a winning formula:
• They start by giving you additional understanding of the
way that markets work;
• Then they provide methods of analysis, and tools for
strategy implementation
THE MAIN THINGS TO TAKE AWAY
FROM TODAY’S SESSION
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Entrepreneurship is challenging;
The business plan is important and useful;
You should want to do it and do it right;
Doing the plan will benefit you in many ways;
Making adjustments as you go along is the key to real success.
Entrepreneurship is not an ivory tower activity;
Customers are essential;
Their needs should be your needs;
You need to learn how to sell;
You need to know how to break-even, and you need to manage your
cash;
• You should be on the lookout for a winning formula for your business.
Q&A
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Background for next two
webinars
DISRUPTIVE INNOVATION BACKGROUND
• Disruptive Innovation Strategy began with the investigation
by Professor Clay Christensen of the phenomenon of new
technologies coming into the market place and displacing
market leaders.
• He noticed that companies with new inferior technologies
catering to marginal customers repeatedly came into
markets, and that over time they themselves became the
market leaders.
• Andy Grove, the former longtime CEO of INTEL called this
phenomenon the innovator’s worst nightmare.
• By following best established management practices and
supplying the best possible product to the most
demanding and highest paying customers, market leaders
actually sealed their fate.
• Professor Christensen figured out how the disruptive
innovation displacements happened, and set out to find
ways to make use of the phenomenon or defend against it.
• In a series of books, The Innovator’s Dilemma, The
Innovator’s Solution, and Seeing What’s Next, Christensen
and his collaborators set about creating a practical
discipline.
• One of the key insights that they had is the distinction
between disruptive innovations, that change the way that
things are done, and sustaining innovations that provide
incremental improvements.
• There is an interplay between the two kinds of innovation.
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• By adding incremental improvements (sustaining
innovations) to a disruptive innovation, a new entrant can
displace a market leader.
• In our next session on February 9 we are fortunate
to have a presentation by Scott Anthony.
• Scott is one of Clay Christensen’s collaborators, a
co-author of Seeing What’s Next, and CEO of
Innosight, the consulting company that Professor
Christensen founded.
• He is a co-author of a book entitled The Innovators
Guide To Growth.
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• This book summarizes disruptive innovation
thinking, and provides a systematic approach and
a tool set to implement it. You might want to have
a look at that book and the Innosight website
(www.innosight.com).
BLUE OCEAN BACKGROUND
• Looking beyond this, the third session will be an
introduction to Blue Ocean Strategy.
• This discipline has been developed by W.Chan Kim and
Renee Maubaugne, professors at INSEAD, who are coauthors of the book, Blue Ocean Strategy, and are codirectors of the Blue Ocean Institute.
• Blue Ocean Strategy provides an approach to conceiving
ventures that allows you to reconfigure your product or
service offering and its market.
• The discipline began with the study of successful strategic
moves by many businesses in many different industries
over the years - everything from Henry Ford’s Model T to
the Cirque de Soleil.
• The discipline that has been developed has analytical and
implementation tools.
• Its principal objective is to make it possible to reconfigure and
implement a new business model in order:
• to leave a highly-contested market (a “Red Ocean” with blood in the
water); and
• create new market space without effective competition (a “Blue
Ocean”).
• The Blue Ocean approach makes use of a process called “value
innovation” in which you:
• look at the elements of a product or service offering on which ventures
in the industry compete, and
• determine elements that can be:
– Eliminated,
– Reduced,
– Improved, and
– Added.
• Doing value innovation is not simple, but there is
an excellent systematic approach and there are
tools to help you:
• Modify your product/service offering;
• Change the market borders of your business
model; and
• Implement your strategy – with execution methods
to incorporate into it.
• You might want to have a look at the Blue Ocean
Strategy website - (www.blueoceanstrategy.com)
and the book, Blue Ocean Strategy.
• The Next webinar in this series is on Monday,
February 9 – with Scott Anthony on Disruptive
Strategy
RESOURCES FOR THIS WEBINAR SERIES
• Overall: Wiki Statement for the Entrepreneurship Round Table
Innovative Strategies for Entrepreneurs Best Practices Initiative –
posted at the website of the Harvard Business School Club of
Washington DC (www.hbsclubwdc.net) on the Entrepreneurship tab
• For the January 27 session: The materials at website of Steven Brandt,
www.scbrandt.com – particularly Entrepreneuring: The Ten
Commandments and Profit Mechanics (in the "Building a Business"
section;
• For the February 9 session: Various information on disruptive
innovation strategy at the Innosight website, www.innosight.com,
and the book, The Entrepreneur's Guide to Growth, (as well as The
Innovator's Dilemma, the Innovator’s Solution and Seeing What's Next)
• For the March 10 session: Overview information about Blue Ocean
strategy at www.blueoceanstrategy.com , particularly the diagrams in
the BOS tools section (under “About Blue Ocean Strategy”) and the
book, Blue Ocean Strategy
COMMUNICATIONS
Praise, Encouragement, Suggestions:
• Bob Kolodney – [email protected]
Complaints:
• Dick Davies – [email protected]
Other Unpleasant Remarks:
• Raj Rai – [email protected]