January 17, 2005

Establishing an eBusiness CITM360 – Class 2

Steven A. Gedeon PhD, MBA, PEng CITM360 – Week 2

Week 2

This Week’s Agenda

• Review Innovation Nation • Entrepreneurship – The Good, the Bad and the Ugly • Developing Business Ideas • e-Business Discussion (Idea Sources) – e-Business Trends – e-Business Models • The Elevator Pitch (for next week)

Why Take This Course?

• All Knowledge Worker Jobs Require Entrepreneurial and Intrapreneurial Skills that are Key to Innovation • (Virtually) All Business is eBusiness • All Business Decisions Require: – Analysis of the Data (Getting Facts, Research Skills) – Synthesis of the Key Issues, Developing Strategy – Planning (Setting Goals, Articulating Actions, Roles & Responsibilities, Integration) – Justifying the Return on Investment (ROI) • Integration of All Your Other Courses • Core Management Skill Development Week 2 Dr. Steven A. Gedeon [email protected]

Innovation Nation

• The Real Digital Age has Just Begun • There Will be 10 Successful Startups in Wave 2 for Every One in Wave 1 • Most Entrepreneurial and Investment Opportunities are Still Ahead of Us • New Generation Tech-Savvy “Always-On” 12-25 Yr Olds • More non-PCs than PCs Connected to Internet • Dramatic Use of Cell Phones and Mobile Devices • Convergence: Content, Set-top Boxes, Game Consoles, PC, non-PC, broadband and wireless Week 2 Dr. Steven A. Gedeon [email protected]

Innovation Nation

• XML as the Lingua Franca of the Internet • Business Must Still Spend Big $ on Next Gen Tech • Power & Effectiveness of National Governments Fading • Emergence of World Citizens (“Netizens”) Increasingly Empowered and Independent • Cyber Affiliation Groups • Creators and Distributors of Information More Powerful than Governments • Entrepreneurial Capitalism Spreading Worldwide with Innovations coming from Europe, Japan, Asia,… Week 2 Dr. Steven A. Gedeon [email protected]

Canada is an Innovation Nation

• Serial Entrepreneurs – Experienced Directors and Officers, $, Examples • Financiers – Public Markets, VC…, Banks, Angels, Gov’t (SR&ED, NRC), US • Coaches – Source of Mentors, Outsourcing Available • Academic Bridges – Educated Workforce, Skills Training, Bridges, Resources, Tech • Infrastructure Builders – Telecom (Cable, Wireless…), Personal Safety, Legal System… Week 2

Impressive Stats on Global Competitiveness

Dr. Steven A. Gedeon [email protected]

Lies an Entrepreneur Told Me

Most of What You Read is a Lie.

– Sampling Error #1 Being an Entrepreneur is Fun. It’s Not!

#2 Entrepreneurs Succeed. Most Fail!

#3 You Should Quit your Day Job and Start Your Company Now. Don’t!

#4 You Need Venture Capital. You don’t!

#5 You Need a Specific Education to be an Entrepreneur. You don’t!

Don’t be Fooled by 30 Success Stories

Week 2 Dr. Steven A. Gedeon [email protected]

What is Entrepreneurship?

• Capitalizing on Change • Identifying Opportunities • Marshalling Resources This Takes Place: • Alone and With Teams • Starting Up New Ventures and Building from Within an Existing Structure (“Intrapreneurship”) • In Your Personal Life and Within a Job • In Large and Small Companies Week 2 Dr. Steven A. Gedeon [email protected]

The Entrepreneurial Focus

Week 2 Strategic Orientation Seizing Opportunity Commitment of Resources Management Structure The Entrepreneur Driven by Perception of Opportunity Revolutionary Short Duration Many Stages Episodic (Rent) The Administrator Driven by Controlled Resources Evolutionary Long Duration 1 Stage, Formal Planning (Own) Flat Informal Network Hierarchy The Heart of Entrepreneurship: Stevenson/Gumpert

The Entrepreneurial Focus • Rapid Pace of Change means Cannot Predict Resource Needs, Must be Flexible • Allows you to Get the Best when Needed • Since you Cannot Control, Must Motivate based on Competence and Persuasion • Meritocracies Demand Flat Organization with Lots of Autonomy • Compensation Tied to Personal Goals

Week 2 Dr. Steven A. Gedeon [email protected]

Characteristics of an entrepreneur

What makes up a successful entrepreneur?

• • • • • • • • • • • decisive goal-oriented creative competitive risk-taker, not a gambler high-energy and can handle stress independent and self-confident, yet knows when to get help organized - able to do many things at once self-starter likes a challenge is creative, and has dreams and goals • • • • likes to work for him/herself and be in control hardworking and willing to stick with a project is not easily discouraged is motivated by a strong desire to achieve and attain financial success • • • is a positive thinker who does not dwell on setbacks focuses his/her attention on the chances of success rather than the chances of failure often has a close friend or relative who owns a business • is often a recent immigrant to North America (within two generations) Week 2

Entrepreneur’s Framework

Week 2

Can I Capitalize on Change?

Personal & Professional Goals Risk Tolerance Vision of the Future Direction If the answer is yes..

If the answer is no..

What is the Opportunity?

Clear Definitions and Plans Profitability and Potential for Growth Organizational Infrastructure

Can I Execute the Strategy?

Marshalling Resources Does it Excite me and others The Founder’s Role

• Week 2

Are you an entrepreneur?

1.

2.

3.

4.

A quick Trait Test: I am confident in my ability to influence others I work harder than most others I know I have a clear picture of my future I spend more time attending to responsibilities than most people do 5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

I have specific long-term goals I spend time each week planning my future Compared to most people, I take work or school seriously I do a thorough job in completing my tasks The steps to success are obvious to me I believe in my own ability to succeed I work more hours per day than the average person I see myself as controlling my own destiny Compared to others, I am more likely to exercise self-control I make the major decisions that affect my life I know what I want to achieve • 0=never true of you • 1=occasionally true • 2=usually true of you • 3= always true of you • Above 38 = well above average • 34-38 = above average • 26-34 = average • 22 – 26 = below average • Below 22 – well below average If you did not get the score you wanted, don’t worry. Entrepreneurship skills are gained through experience, professional development, education and the ability to recognize and take advantage of opportunities

Week 2

Generating Business Ideas

“Certain business sectors are growing; certain trends, from demographics to immigration to recreation and leisure patterns are fueling growth for many entrepreneurs. ... Find a way to adapt these ideas to your business concept.” (Business Plans That Work, p. 8)

Looking for Ideas

When looking around for business ideas, bear in mind that these could be based on many approaches, including: – A

manufactured product

where you buy materials or parts and make up the product(s) yourself. Could be info, digital products or hard goods.

– A

distributed product

where you buy product from a wholesaler, retailer, or manufacturer. – A

service

which you provide. Many good business ideas are not completely original. Possible combinations of existing/new products/markets.

Existing Products New Products Existing Markets New Markets Week 2 1 2 http://www.planware.org/ideas.htm#3 3 4

Where can Ideas come from?

http://www.profitguide.com/m agazine/article.jsp?content=2 0031204_125637_4320 Be on the lookout for Emerging Trends and Expanding Market Niches Week 2 • • • • •

Consider Potential Growth Areas: help people get things done apply new technologies to solve old problems build communities of interest serve demands for health, finances, leisure… (see Business Plans That Work, pp. 8-9)

• • • • • • •

Observe consumer behavior (or your own interests): What do people/organizations buy ? What do they want and cannot buy ? What do they buy and don't like ? Where do they buy, when and how ? Why do they buy ? What are they buying more of ? What else might they need but cannot get ?

Where can Ideas come from?

Personal Contact

Customers Suppliers Entrepreneurs Co-Workers Friends & Family Professors Venture Capitalists Chamb. Commerce Tech Transfer Office Gov’t Agencies

Visit Read

Trade Shows Libraries Museums Plants Invention Expos Franchise Expos Universities Trade Magazines Trade Directories CBD (US Gov’t) NASA Tech Briefs Books Newsletters Classifieds Research Institutes Alert Services Lists

Observe Trends

Business Models New Technology Social Trends Economic Geographic Demographic Psychographic Fads Legal Changes

Most come from your Personal Interests and Experiences

Week 2

Trends

• Personalization (clothes, music, ring tones, vacations) • Community (Blogs, chat, Multi-user domains) • PC Hardware (speed, storage, sound, 3D, color) • Mobile Devices (cell phones, PDAs, wearable) • Gaming (on-line, game consoles, tournaments) • Reality TV, Interactive TV (Cnd Idol, sports) • On-line rich media (Real, shock, flash, QT, winamp) • Convergence (VoIP, Broadband, Wireless, VR) • Other Tech (Bio-Tech, Nano-Tech, Agri-Foods, Medical) • Globalization (outsourcing, different countries dominating) Week 2 And Many Others… Dr. Steven A. Gedeon [email protected]

Idea Creation..

• Kick around thoughts • Generate lists • Choose those that interest you • Look at trends • Don’t dismiss crazy ideas before you do research: • Product/service sources • Target customers • Possible competitors • Demographics …not fads Week 2

Thinking Outside the Box

• You are driving along in your car on a wild, stormy night. You pass by a bus stop, and you see three people waiting for the bus: 1. An old lady who looks as if she is about to die. 2. An old friend who once saved your life. 3. The perfect man (or) woman you have been dreaming about. • You could pick up the old lady, because she is going to die, and thus you should save her first; or you could take the old friend because he once saved your life, and this would be the perfect chance to pay him back. However, you may never be able to find your perfect dream lover again. • There is only room for one passenger in your car. What do you do?

Week 2

Looking for Opportunities To create a successful e Business, must understand:

– Where are the growth trends – How to create an IT-based advantage – How to create Internet based advantage – Differentiation – Sustainable Competitive Advantage Week 2

What is e-Business?

Connecting IT Systems to the Internet Week 2 Extending the power of information systems through the reach of the Internet to: • Suppliers • Customers • Employees • Affiliation Groups • Connected Devices Dr. Steven A. Gedeon [email protected]

IT for Competitive Advantage

Porter & Millar* suggest IT can be used to: • develop new applications – Innovation - B2B Internet Commerce will reach $8.5 trillion in 2005 (Gartner Inc.) • reengineer the business – cost leadership, – improve internal efficiencies – strengthen business relationships – manage growth – scale painlessly • gather business intelligence (customers & competitors) – differentiation, customer-orientation Week 2 * How Information Gives you Competitive Advantage, Harvard Business Review, July/August, 1985.

The Web is NOT the Internet

• The Internet refers to a Network Infrastructure and certain Standards (Internet Protocol) • Many Standards – HTTP (e.g. HTML format) – email (POP3, SMTP, IMAP) – Online Chat (e.g. IRC) • The World Wide Web (using a Web Browser) is only one of many services on the Internet – Intranet, Extranet, Internet Week 2 Dr. Steven A. Gedeon [email protected]

Internet for Competitive Advantage

Week 2

• Expand your market reach • Increase visibility in the marketplace • Improve customer service, increase responsiveness to customers • Develop new services • Strengthen business relationships • Decrease costs • Reduce channel conflicts

“The e-business (r)evolution” Amor

Properties of the Internet

• • • Mediating Technology – Interconnects parties that are interdependent or want-to-be. B2B, B2C, C2C, C2B Universality – Ability to enlarge or shrink the world • Enlarges: anyone can access – increases its reach • Shrinks – an employee in California does not need to relocate to Canada to perform a particular job function Network Externalities – Metcalfe Law: The Value of the network increases as the square of the number of people in the network • Eg. E-Bay – the more members are connected to e-Bay the greater are the chances of someone selling the products over that medium • • • Distribution Channel – Acts as a distribution channel for products that are largely information based: S/W, music, videos, e-books, tickets for airlines, brokerage services.

Time Moderator – Ability to shrink and enlarge time • Shrink – someone in Europe needs access to a product in US – can get to it via Internet immediately • Enlarge – 24X7 access – no delays between continents Information Asymmetry Shrinker (ex. car dealers) – Exists when one party has access to information ahead of another party – Internet reduces some of these assymetries Week 2

Combining the Internet & IT

• • • • • • • • • • Mediating Technology – B2B, B2C, C2C, C2B Universality Network Externalities – Metcalfe Law: The Value of the network increases as the square of the number of people in the network Distribution Channel Time Moderator Information Asymmetry Shrinker (ex. car dealers) Infinite Virtual Capacity Low Cost Standard Creative Destroyer Transaction Cost Reducer • • • • • • • • • transactional geographical automational analytical informational sequential knowledge management tracking disintermediation IT Capabilities Week 2

IT Capabilities take advantage of Internet Properties to secure differentiation and competitive advantage

e-Business for Competitive Advantage

• Global Accessibility and Sales Reach • Closer Relationships and Integrated Strategic Partnerships • Free Samples • Reduced Costs and Dynamic Price Changes • Fewer “Media Breaks” (Harmonized Info Sources) • Shorter Time to Market and Competitive Response • Improved Customer Loyalty “The e-business (r)evolution” Amor Week 2

Examples of e-Business

• “e-enabling” existing businesses, e.g.

– bricks & clicks – using technologies for internal efficiencies • “pure play” dot coms, e.g.

– portals – online retailers • What kind of eBusiness should your team develop? Anything goes, as long as it’s eBiz.

Week 2

Examples of e-Businesses

• • • • • • • • • • • •

E-Auctioning E-Banking E-Commerce E-Communications E-Directories E-Franchising E-Fulfillment E-Gambling E-Gaming E-Information E-Learning E-Logistics

Week 2 • • • • • • • • • • • •

E-Mailing E-Marketing E-Media E-News E-Operations Management E-Research E-Supply E-Trading E-Transaction Processing E-Travel E-Virtual Reality E-Zines B2B – B2C – B2E – G2C – P2P

Dr. Steven A. Gedeon [email protected]

e-Business Challenges

• Attracting and Keeping Customers – eyeballs, user experience, stickiness, branding • Internet Time to Market – Rapid Implementation of New Services – Time to Market • Back End Integration: Single Biggest Problem – Content Sources, Legacy Systems – ERP, Sales Force Automation, Customer Service, Logistics, Fulfillment • Quality of Service – Real-time, transactions, scalability, availability, performance • Lack of Experienced Resources – Management, domain, architects, development Week 2

More e-Biz Challenges

• Going Global Not as Easy as it Seems – Multi-Languages, Accepting Money, Local Interests – Most Big Companies have Country-Specific Websites • Not Easy to Give Away Free Stuff, Much Less Sell It • Competition Just a Click Away • Potential for Channel Conflicts • Copyright Infringement • Security and Privacy Concerns • “The Naked Corporation” Tapscott – You Can’t Hide – People Can and Will Complain – Loudly – You’d Better be Buff Week 2 Dr. Steven A. Gedeon [email protected]

Things to Consider

• Value Proposition to Customers and Customers’ Propensity to Buy • Uniqueness, Importance, Sustainability • Niche or Mass Market (Mass Customization) • Revenue Model • Methods & Costs of Building Traffic • Ability to turn Traffic into Profits • Fulfillment Requirements & Capacity Week 2

Differentiation

• • Give customers clear reasons to prefer the product over other, less differentiated products  charge a premium price that covers the additional production costs. Examples of Differentiation Strategy: Mercedes cars ; Differentiate within just one or a small number of target market segments. – Provide products that are clearly different from competitors who may be targeting a broader group of customers. – Ensure that customers really do have different needs and wants - in other words that there is a

valid basis for differentiation

(e.g. - and that existing competitor products are not meeting those needs and wants. Examples of Differentiation Focus: any successful niche retailers; The Perfume Shop ); Week 2 • • • • • • • • • Quality?

Customer Service?

Creativity?

Breadth of Line?

Being First?

Leadership?

Heritage?

Being the Latest?

Being the Hottest?

What is a Business Model?

Internet and non Internet • A set of activities that allows the firm to make money.

– What value are we offering and to whom?

– What price is appropriate?

– How do we provide the value?

• Shareware, Freeware, Adware, Spyware, Shrinkware – Do we have a competitive advantage in providing the value, and how do we sustain it?

Week 2

Elements of a Business Model

Component of a Business Model Questions for all Business Models Questions Specific to Internet Business Models

Customer Value • What’s the value proposition?

Scope Revenue Source/Revenue Model Week 2 Is the firm offering something distinctive or at a lower cost than its competitors ?

To which customers (geographic and demographic) is the firm offering value? What is the range of products and services offered?

Where do the dollars come from? Who pays for what value and when? What are the margins in each market?

What is it about the Internet that allows your firm to offer its customers something distinctive? Can the Internet allow you to solve a new set of problems for customers? What is the scope of customers that the Internet enables your firm to reach? Does the Internet alter the product or service mix?

Are revenue sources different with the Internet? What is new?

Copyright © 2001, The MacGraw-Hill Companies, Inc., Internet Models and Strategies, Afuah and Tucci. All Rights Reserved. (modified)

Elements of a Business Model

Pricing Connected Activities Implementation Capabilities Sustainability Week 2 How does the firm price the value?

How does the Internet make pricing different?

What set of activities does the firm have to perform to offer this value and when?

What organizational structure, systems, people, and environment does the firm need to carry out these activities?

What are your firm’s capabilities and capability gaps that need to be filled? How does the firm fill these capabilities?

What is it about the firm that makes it difficult for other firms to imitate it? How does the firm keep making money? How does the firm sustain its competitive advantage?

How many new activities must be performed because of the Internet? How much better can the Internet help you to perform existing activities?

What does the Internet do to the strategy, structure, systems, people and environment?

What new capabilities do you need? What is the impact of the Internet on those capabilities?

Does the Internet Make the sustainability easier or more difficult?

Choosing a concept

• “Choose a business concept you’re excited about and want to experience. Choose something you’re really good at. Build on your strengths.” • “When you go into business for yourself, make sure that you know something nobody else knows. Do something better than anybody else. Develop a unique idea or unique marketing position.” (Business Plans That Work, pp. 18-19) • “Take a look at your e-business idea and decide whether or not the value of the product or service you plan to offer increases with greater use or distribution over the internet.” (see pp. 42-49) • “If you have a good idea, you’ll have competitors. Acknowledge that. The question now becomes, what significant competitive advantage do you see for yourself?” (p. 24) Week 2

Summary of Key Points A good e-Business Idea is/has: • Exciting to You

(You want to spend time working on this)

• Large and Growing Market • A Defined and Differentiated Niche • Uses IT and the Internet to create competitive advantage • Has an Appropriate Business Model

Week 2 Dr. Steven A. Gedeon [email protected]

Next Week – Elevator Pitches • Each Group to Deliver 30-60 Second “Pitch” of your Idea.

• Name of Company • The Product • The Customer • Why I Should Accept a Meeting

– Why is this Exciting, Profitable, Important… Week 2

Idea Generation

• In your groups: – Think about current trends and ‘hot topics’ that you may have come across in the newspapers, school, work, magazines.

– Think of 5 concepts that may answer: • If XXXX was available it would solve YYYY Week 2