Transcript Document

Robert Uberman, Entrepreneurial Management
Introduction
Scope of the class, basic definitions,
organisational issues
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Basic definition
• The term “entrepreneur” is derived from French. Richard
Cantillon introduced it to the economic literature in 1755
to identify those who took responsibility for initiating and
developing a project, often a military or a religious
building.
• The first fighting balloon used by French army in the battle
of Maubeuge (1794) was named “Entreprenant” (Mordawski,
“Siły powietrzne…)
• Entrepreneurship is often regarded as the art of creating a
new company. The entrepreneur identifies an opportunity
in the form of an unsatisfied demand. Then he or she
successfully builds a company that can address this very
market need. (Entrepreneurial management in family owned companies. Credit Suisse
White Paper 04, IESE Management School, Navarra, 2010. )
Robert Uberman, Entrepreneurial Management
Fundaments of entrepreneurship
• Business orientation
• Most of the risk taken
• Maximum devotion to the enterprise
• An enterprise profoundly affected upon leave of an
entrepreneur
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Sources of entrepreneurship
• Family heritage (see next slide)
• Preferred life-style
• Long-term unemployment
In UK the number of self employed has risen by 71,000 over a time span
between 2008 (start of economic crisis) and 2012 resulting with 43 % of a
young population to make at least some money on entrepreneurial activity.
Moules Jonathan: Enterprise spirit stirs young people. Financial Times, May the the 28th,
2013.
• Innovation
• Social acceptance. Unfortunately „Now in the west there
is the sense that the „glorious history of desire and
dreams” has run out of steam”
• Johnson Luke: The small start-ups are as vital as the stars. Financial Times, Aug., the
28th, 2013.
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Family heritage
• „Super Size Me” Generation Takes Over an McDonalds’. Wall Street Journal,
9th of March, 2012.
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Entrepreneurs by nature and by force
• There’s a growing number of researches showing that
great entrepreneurs have some distinctive natural
features, namely:
• unusual, excessive confidence which in turn:
a) allows them to succeed where others have failed;
b) makes it difficult to forecast their moves
• strong attachment to their companies
• high tolerance of risk
and surprise, surprise:
• more than statistically justified are dyslexic (what forces them to
rely on others’ help – at least in American schools).
• All in the mind in: A special report on entrepreneurship. The Economist,
March the 14th, 2009, p. 4
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Five myths about entrepreneurship (1)
• Entrepreneurs are not lonely Atlases building their
behemoths – entrepreneurship is a social activity based
on strong interpersonal relations (e.g. Jobs & Wozniack of
Apple, Gates & Allen of Microsoft or Brin & Page of
Google)
• Entrepreneurs must be young – there’s no statistical
evidence of this conviction: according to Kaufman
Foundation study out of 652 American born founders of
high-tech companies an average was 39 with very similar
share of above 50 and below 25. Harland Sanders started
KFC at 65 !!!
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Five myths about entrepreneurship (2)
• Entrepreneurship is driven by venture capital –
professional VCs operate mainly in selected industries
while most of „angel” investors are brought through a
variety of informal ties (family, friends)
• Entrepreneurship is about new products – in fact process
improvement might form as good ground for success as
product invention: IKEA of Kampard, Berkshire Hathaway
of Buffet, Standard Oil of Rockefeller
• Entrepreneurs shall look for prosperity to start businesses
– actually a handful of then successful companies have
been started during recessions: Microsoft, Gap, HP to
name a few
• Global heroes: A special report on entrepreneurship. The Economist, March
the 14th, 2009, p. 3-6.
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Role of entrepreneurship in the US
• „Innovative leaders are the ones who will deliver into our idea-driven
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economy and create opportunity from the major challenges facing us
with the lifetimes of our children” says Rich Lyons, dean of the Haas
school
From mid-1980s till mid-2000s 450-550 thousands of new businesses
start annually
In 2010 there were ca. 22 millions small enterprises employing ca. 53
% of the workforce
But
„There has been a steady decline in the creation of new businesses
with at least one employee” with the annual creation falling to 400,000
per year.
• Raval Anjil: Innovation and creativity move to the heart of the curriculum. Financial
Times, Feb., the 6th, 2012, p. 8
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Innovation and entrepreneurship
• Innovation is „finding a new understanding of nature and
its channelling into new human capacity to control, to
prevent, and to produce” rather than:
• changes in technology and making opportunity for
technological advance to order.
• Peter F. Drucker: Innovation and Entrepreneurship. Harper Collins, New York,
1986.
• Innovation is all about human needs not technology –
case of Apple
• Innovation is one of several sources of entrepreneurship
but the one most widely discussed
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Purpose of the class on entrepreneurship
• As most researches underline a psychological (even
genetical) factors in development of successful
entrepreneurs education can only play a supplementary
role: a survey of entrepreneurs in Northeastern University
showed that as much as 61 % of them indicated innate
drive as a main reason to start business while only 1 %
admitted influence of higher education.
• Johnson Luke: The small start-ups are as vital as the stars. Financial Times, Aug., the
28th, 2013.
• „the best programmes acknowledge that they do not
create entrepreneurs but merely nuture them”
• Raval Anjil: Innovation and creativity move to the heart of the curriculum. Financial
Times, Feb., the 6th, 2012, p. 8
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New concept of entrepreneurship
education
• What is missing in the current education system is the
ability to fail.
• People generally learn by rote, and they are rewarded for
not making mistakes.
• While entrepreneurs have to learn making mistakes to
become eventually successful.
• Entrepreneurship is all about future and future is
predictive analytics, and science fiction, and projecting
what could potentially happen. One can never be sure
about that therefore they have to be taught to:
• take challenges;
• work in teams.
• Education for entrepreneurship: An interview with Tim Draper. Financial Times,
September, 2013.
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Grading
• Based on business concept developed throughout the
class
• Each section shall be based on a given session
• Consecutive sections have to be delivered before the
following class via e-mail to the
[email protected] address
• Although class attendance is not required failing to deliver
timely two assigned sections excludes a passing grade at
the first term
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From a splendid idea to a business idea
Creating ideas
First-checking ideas
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Creating ideas
• Creating ideas is not a scientifically described process
however many attempts in this direction has been made
so far.
• Creating ideas remains an art.
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Case in creating ideas – Ferran Adria
• Ferran Adria is a chef in of elBulli restaurant near
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Barcelona. He says about an idea creating process:
It’s mainly trial and error - if one has an idea he keeps
trying until it works
One gets ideas from life, from reading, from travel.
Inbreeding is not good therefore other chefs are a limited
source of inspiration
It is also important to be connected to other disciplines
One turns to science to have in depth understanding of
things
• Beard Alison, Silver Sara: Interview with Ferran Adria: Life’s Work. Harvard
Business Review, June, 2011, p. 140
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Case in creating ideas – Steve Jobs
• Steve Jobs created in fact three companies throughout
his life: the first Apple, Pixar Studio and the second Apple.
• A ”good” product is the one which allows you to lead a better life
• Making existing products more easy to use, enjoyable and
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accessible is a very beneficial innovation.
Doing what somebody loves will ultimately bring the best benefits
Consulting someone’s dreams is not a bad thing
Simplicity is the highest level sophistication
Success needs emotion and ability to say „no”.
• Carmine Gallo: The Innovation Secrets of Steve Jobs. McGraw-Hill, 2011
•
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Creating ideas – Key factors
• Monitor profoundly a selected environment
• Look for critique and complains on existing
products/solutions/business models remember:
• diseases are source of drugs’ and other medical treatment
innovations);
• the bigger the problem the bigger an opportunity
• Review customers’ needs – quite often what they say is
long distant from what they really wish (e.g. Midas case)
• Look at existing solutions’ gatekeepers capacity to
protect/evolve
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Putting ideas into a more general
framework
• Kuhn’s Theory of Scientific Progress:
• Science advances through alternating periods:
Periods of incremental evolution (normal science)
Periods of revolutionary/disruptive paradigm changes
• Paradigm changes result from crisis
• Paradigm changes require revolutions
• Existing paradigms are protected by gatekeepers
• Kuhn T. S.: The Structure of Scientific Revolutions. University of Chicago,
Chicago 1962
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Classifying ideas
Infrastructure
scaling opportunity
Opportunity for
innovative application
Supply
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Innovation waves
• IT waves of innovation – Hypo cycle theory: describes
how new innovation break upon the business scene
• Fenn J., Raskino M.: Mastering the Hypo-cycle: How to Choose the Right
Innovation at the Right Time. Harvard University Press, Boston, 2008
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A valid business idea
• A valid business idea does not to be innovative but it has
to be distinctive:
• It has to aim at satisfying certain unique need,
• However “uniqueness” can be defined in a number of ways.
• A handy way to identify/search for distinction is to apply
the 4 P model framework.
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Getting uniqueness
• In a absence of breakthrough innovation.
• Through distribution:
• geographical localization,
• Internet.
• Through a product differentiation:
• adding a service,
• product bounding.
• Through an effective promotion:
• tailored communication,
• demonstration.
• Through a price:
• innovative pricing schemes (have of the price paid ex post if customers needs
satisfied),
• low pricing (if build on something durable)
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Proposed ideas
• Food/free time industry:
• to create a bar, which distinctive feature is speed dating 2-3 times a
month;
• a restaurant with two zones: the first one is to be the restaurant
where costumers can have their meals, the other zone is to be a
chill-out zone, with pool and sunbeds where costumers can have a
drink, and chasing the sun or go to the jacuzzi;
• Polish "bistrot" with specific food, beer, vodka
• Renewable energy
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Creating ideas – some checks (1)
• The key question: Why this idea has not been marketed
yet?
• How many people would be interested in a product/service resulting from the
idea?
• Why people should pay for it?
• Why this idea has not been marketed yet? Or may it had been and failed?
• Why it is to be me to succeed with this idea?
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Creating ideas – some checks (2)
• Distinguish between the attention wave and the actual
value recognised
• Look for a gap between interest announced and real
steps undertaken to board on new services/products
• Remember: distinguishing hype from reality is really
challenging
• Swanson Burton E.: The Manager’s Guide to IT Innovation Waves. MIT Sloan
Management Review, vol. 53 no 2 Boston
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Creating ideas – additional comments
• Idea has to be described in a proper form:
• 1-2 pages in Word or 3-4 informative slides
• A real need to be satisfied has to be identified and reasons why it is not met yet
clearly outlined.
• Uniqueness of the idea has to be proven (eg. using the 4 P model).
• It is worth to prepare an opening slide or the title page
now, stating the and title and names of the group
members as well as its number, choosing appropriate
outline
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Ideas collected
• The idea of the business of the solar panel heating
system is this: The solar heating system provides all
homes water heating and also central heating (…) We
would have to get the components of the panels of other
companies and also hire a lot of people specialized in
solar panels installation, as well as hiring a local or buying
one, and getting all the tools necessary to make the
installation of those solar panels too. In addition we would
also have to buy the furniture of the local as some officers
would control all the paperwork and computer work too.
(Group I).
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Ideas collected
• Restaurant and chill out pool, we are going to call our Business plan:
The Suabell Club & resort. Located in a perfect zone next to the sea.
The Suabell Club & resort, will surprise you with (….).
• From the large terrace privileged right by the sea, the restaurant
Suabell Club & resort will surprise you (…) A meeting point for spirited
people looking for something different in an environment of satifaction
and relaxation.
• Stunning sea views, relaxing music, cozy and very refreshing menu’s
(…). Take a bath in our big pool where you can have waiter
service and there is off-course sunbeds (9 matches in google in
ads of various hotels).
• Suabell Club & resort offer as well proffesional wedding planer for the
occasion (Group II).
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Ideas collected
• Restaurant for Bodybuilders (Pro Flavor)
• It’s a restaurant that serves meals for those who prefer an active
lifestyle. Meals are specially created to meet the needs of
bodybuilders and others who require tasty healthy food, packed with
proteins, carbohydrates, and vitamins. The restaurant would be a
good place for people that don’t have time to cook for themselves,
because following a high-protein diet for bodybuilders means having
to eat huge portions of food 5-6 times a day. It allows the clients to sit
and eat, as well as taking packages on-the-go. (…). It also serves
nutrient supplements, produced by the top world sport supplement
companies (Group III).
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Ideas collected
• Polish "bistrot" with specific food, beer, vodka
(Group IV).
• To create a bar, which distinctive feature is
speed dating 2-3 times a month (Group V):
• It is quite popular in the United States, but we have not found many speed
dating services in Cracow, therefore we thought it might be a good idea to
implement it here. We could differentiate our Speed dating and also add other
events to our bar.
• So our Product is a good interesting bar with different great events (most
importantly - speed dating),
• Place - Near to the main square,
• Promotion - there are many possibilities. Now we are thinking about promoting
it using hand outs and posters in universities, Facebook and instagram.
• Price - It should not be too expensive. Probably, even free with possibilities of
leaving tips. The main profit will be earned by sellilng drinks and snacks.
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Ideas collected
• In Poland (probably in Warsaw) a French place where a
Polish customer can eat and discover the French cuisine.
The place is to be divided in two part which one is a
restaurant with typical French meal and the second part
will be a grocery store where people can buy some goods
from France. For us, we want to open a place affordable
for the people and with a friendly atmosphere (Group IX).
• Imported medical equipment (Group X).
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From a business idea to a marketable
product
Product concept
Product building
Marketing concept
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Turning buzz into money – the Twitter
Case
• Twitter spent 6 years to get over 100 millions users,
generating a lot of interest and media coverage but not
revenue
• Advertising managers keep asking what to do with Twitter
and how leverage it but nobody has come with a clear,
lean response
• Ovida Shira, Glazer Emily.: Twitter Takes a Slow Road Towards an IPO. Wall Street
Journal, 2nd of March, 2012
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Product development - warning
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Product concept
• Innovative opportunity
• Customer problem
• Product concept
• Almost always has to be a document (often called PRD = Product
Requirement Document) but, on the other side, business is not
about bringing documents but products, so keep it lean:
• 5 pages usually make a job;
• Focus on key features and link them to needs;
• Do not elaborate on obvious or standard requirements (except for these
you want to change);
• Keep holistic approach.
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Product building
• Requirements
• Design
• Testing
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Typical content of PRD (1)
• Introduction: Business idea (or reference to), definitions,
abbreviation, addressees (in your case is yourself to
remember what you have agreed on, and all newcomers).
• Assumptions and constrains: hypothesis regarding 4 P,
competitors, barriers to enter, regulatory issues.
• Product definition:
• business need described in a technical way,
• required features,
• technical challenges/issues (at this stage some description can be
given as scales).
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Typical content of PRD (2)
• Product specification:
• highly dependent on product itself:
• Has to be a result of a drill-down from product features:
• If the product is bistro with the Polish food I’d recommend to have here:
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Opening hours,
No of tables/chairs
Assortment specification,
Menu specification.
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Product marketing
• Implementation
• General availability
• Maintenence & support
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Robert Uberman, Entrepreneurial Management
From a marketable product to a business
model
Defining market in terms of volume and
revenues
Defining a relevant value chain
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Review of PRD
• Legal description too extended (make a legal enclosure
move some issues there)
• Parts of business model included too early (either
promotional tools).
• To narrow description:
• Check whether the customer problem is fully addressed:
“The waitresses in the restaurants don’t know enough about meal
choices to propose you” it was a problem but where’s a solution?
• Giving an address in case of a restaurant (even the exact one) is
not enough. The description of outlet is expected.
• In case of a generic products – uniqueness issue/cost
advantage
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Guessing a value proposition behind the
PRD
• In many cases a value proposition is understood as a
business model. That’s not what most customers care
about and expect as a value proposition.
• A value proposition is a business or marketing statement
that summarizes why a consumer should buy a
product or use a service. This statement should
convince a potential consumer that one particular product
or service will add more value or better solve a problem
than other similar offerings. A value proposition is not a
statement how the product/service will actually be
delivered.
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Value propositions (1) ???
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Value propositions (2) ???
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Robert Uberman, Entrepreneurial Management
Value propositions (3) ???
Connect with your friends — and other fascinating
people. Get in-the-moment updates on the things that
interest you. And watch events unfold, in real time,
from every angle.
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First identification of a value proposition
Goldsbrough Matthew: How To Craft Your Value Proposition, November 2003
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A model – based value proposition
• For a commuter who wants to sleep on a tram without
being disturbed, our portable headphones provide a full
insulation.
• Unlike typical ear inserts, Napping Headphones can be
used as normal headphones.
• This is because of our unique combination of innovative
use of sound processing software and sensors for sound
filtering, that has been awarded a gold medal on the
recent Nigata Technology Fair.
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Your value proposition – some hints
• Look at your PRD for necessary elements:
• If you don’t find any of them – amend the PRD,
• If you find any of them faulty – change the PRD.
• Consult your idea with colleagues (preferably not
participating in a class).
• Don’t be mislead by “Ough, fantastic” statements. Rather
drill down what they understood.
• Put on paper not only the statement itself but also
description of steps leading to it’s final formulation.
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Yours value propositions (1)
• (1) If you are single and looking for a right partner, but do not have
enough time and money, our bar with friendly and calm atmosphere
offers you a Speed Dating service, which provides fast and pleasant
search for the partner.
Unlike others, our Speed Dating is very thought through: you
can always participate in the type of Speed Dating you prefer.
• (2) For people, who lack time, who need to eat healthy and tasty- we
provide a broad range of meals, prepared by highly qualified cooks
and dietitians, individually tailored and available to be delivered to
wherever you are at any suitable time.
• (3) For people who want to warm the water of their swimming pool
and save money, our products can be install easily by the customer
and provide green energy.
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Yours value propositions (2)
• (4) For a young couple who wants to eat good seafood next to the
sea in a different environment , our restaurant offers a few types of
fish that do not offer any other , also the superb views of the sea
where you can hear the waves and feel the freedom or see the
amazing sunset.
Unlike other restaurants next to the sea in Suabell Club &
resort you can eat a different food and when you're done you can go to
our chillout area to relax in our hammocks, have a bath in our pool or
sunbathing in our natural grass surface.
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Business model defined
• Business model as a term had existed since business
was created but became popular in the dot.com era as it
evolved to a product itself (In Scholary Reviewed Journals
the term occurred 7 times in 1990 and over 600 times
from 2001)
• Suggested definition: The process implemented to
generate revenue and make a profit from operations. It
includes the components and functions of the business,
as well as the revenues it generates and the expenses it
incurs.
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Fundaments
Customers’ need(s) (market segment)
Core capabilities
Value proposition
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Defining market in terms of value and
volume - warning
• Internet – a product for everybody?
• Over 60 % of global population do not use it. Why:
• a) lack of compelling reason: information provided are global but
useless locally,
• b)
affordability: internet is cheap for people earning 1 000
USD/month not 100 USD/year,
• c) lack of capabilities (a lot of people are illiterate in traditional
sense),
• d) lack of appropriate infrastructure.
• Based on: Offline and falling behind: Barriers to Internet adoption. McKinsey &
Company, September 2014.
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Defining market in terms of value and
volume
• Taught extensively in marketing courses however with a
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bias towards methods used by big and mature
corporations mostly due to limited resources
Innovation require more holistic than analytical approach
An extensive use of public sources (including internet)
and estimates is required
A very good way to circumvent many restrictions is to start
from the end meaning defining what market size is
needed to support a given business model and check how
likely it is to gain it.
Remember that any change in a value proposition may
but needs not to change the market definition
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Customer need(s) vs core capabilities
• Customers need(s) has been defined in a relevant
Product Requirements Document
• PRD usually calls for a certain set of products/services to
be provided
• The key challenge is to identify key capabilities needed to
bring product to a market.
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Core capabilities
• Refer to Hamel and Prahalad presentation given as a part
of MNCs
• Remember that yours’ capabilities may be defined locally
while big corporations have to look internationally
• Define carefully your domain:
• geographically
• socially
• other ways
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Transferring core capabilities into products
• Capabilities are transferred to product through processes
• Processes can be performed either by an entrepreneur
(incl. it’s staff if any exists) or by partners (suppliers)
• Processes from a financial standpoint are triggering costs
• 4 steps procedure for an efficient process
identification:
• Identify processes necessary to deliver a value proposition
• Identify which one can be delivered by you
• Identify partners/suppliers capable to supply remaining one
• Check again your value proposition
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Bringing products to customers
• Products are brought to customers via distribution
channels (direct sales can be considered as a distribution
model too)
• Distribution can be performed either by an entrepreneur
(incl. it’s staff if any exists) or by partners (distributors)
• Distribution from a financial standpoint is triggering
revenues (if converted to sales)
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Successful sales – some hints
• Distributors charge for an access to customers not for a
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sales effort
Distributors charge for an access to their whole
customers’ base usually much bigger than a desired
market segment
Distributors pay much more reluctantly than customers
Internet is a powerful tool when customers are directed to
desired places (websites) by real
incentives/recommendations
There is no more valuable selling tool than a personal
message to a well-tailored customer base
Robert Uberman, Entrepreneurial Management
Getting it financed
Family and friends
Angel Investors
Venture Capital
Banks
Government financing
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Comments on Business Plans
• Market valuation:
• Lack of clear passage between very general data (total rice
production/consumption) and data related to a relevant market segment (yasmine
rice. Polish Bistro). If no statistics are available use estimates.
• Lack of any data (speed dating).
• Sales:
• Lack of sales concept.
• Lack of process description including data (numbers).
Only one group describe a typical day of their operations.
Very good idea to start with but not enough.
• Suppliers – it can be a real challenge for almost all
groups. Usually your business alone would not support
any providers.
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Family and friends
• Family and friends are actually the most popular source of
seed money
• Sometimes the notion gets expanded to FFF (adding
Fools)
• The are various reasons for the above going well beyond
„feeling obliged to help”:
• Many key elements determining a start-up success lay in founders
personality – experience, competences and devotion to the business
founded – nobody beyond the close circle of F&F can judge it profoundly.
• Fresh businesses need a lot of expertise which is best provided by people
close to it
• Sometimes F&Fs become first customers
• Usually the main disadvantage of F&F as source of
capital is their limited capability
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Angel investors
• Angel Investor are wealthy individuals (or groups of them)
who provide capital on basis of a mixed of return
expectation and other motivations (sometimes they
support start-ups in businesses they served as top
managers, sometimes they look far products and fun
(vineyards, horse stables are typical examples here)
• AIs typically invest 100 k - 1 million USD
• AIs demonstrate broad interests, however with fashions.
• Typically AIs do not advertise their interests. They can be
approached based on personal recommendations.
• Bill Snow: Venture Capital 101. Kindle Direct Publishing, 2011
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Venture capital (1)
• It might be claimed that the first venture capital type
establishment was created by Edison in 1883 in Menlo
Park, New Jersey (not to be mistaken with carrying the
same name camp in California) with a purpose to deliver
„a minor invention event ten days and a big thing every
six months or so”.
•
Yergin Daniel: „The Quest. Energy, Security and The Remaking of the Modern World” , The Penguin Press, New
York, 2012, pp. 346-347.
• Relatively new and most famous source of capital.
• Born around 1980 and attracted 4,5 billion USD capital by
1984 (data based on disclosures of 600 companies).
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Venture capital (2)
• There are various types of venture capital companies,
founded by individuals, investment banks, MNCs and
governments but also charities.
• They diffuse along many dimensions of interest as size,
industry, geographical regions, recipients social status
and so on.
• They share two common denominators: appetite for risk
and medium term (3-5 yrs.) investment horizon.
• Owen Robert R., Garner Daniel R., Bunder Dennis S.: The Arthur Young Guide to
Financing for Growth. Wiley, 1986, p. 71-85
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Venture capital (3)
• VCs typically make round 3,000 deals a year in USA and
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average deal size is 6-8 million USD
VCs focus on a few selected industries: IT (37%) as well
as biotechnology and medicine (21 %, 2002 data).
Venture capital providers seek to take over control of
certain areas of the business (usually finance but
sometimes HR, supplier relationship and so on).
Venture capital providers do not care to whom they
ultimately sell their stake in the business.
Quite often the only option for founders after the VC exit is
to quit as well.
• Bill Snow: Venture Capital 101. Kindle Direct Publishing, 2011
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Venture capital (4)
MNCs as venture capital providers, mln USD
15,196.7
120,000.00
100,000.00
1999
2000
2001
2002
2003
Total non-corporate VC Investment $M
2006
2008
2009
Total Corporate VC Investment $M
• Corporate Venture Capital Profiles. National Venture Capital Association.
2010
2 011
2,266.9
2007
2,289.7
2005
1,915.0
2004
1,340.1
1,289.0
1,914.8
1,807.8
1998
2,735.2
1997
2,676.0
1996
1,557.3
0.00
1995
823.4
470.3
20,000.00
960.0
40,000.00
1,560.0
4,625.3
7,789.2
60,000.00
2,619.2
80,000.00
2 012
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6 myths about VC
• VC is the primary source of start-up funding: in 2011 Angel investors founded
•
•
•
•
•
65,000 companies with $ 22 billions while VCs 3,700 companies, though with
$ 28 billions.
VCs take a big risk: actually it refers to investors not managers, who own less
than 1 % of VCs equity.
VCs offer great advice and mentoring: the judgment is made on individual
cases but not solid data available yet.
VCs generate spectacular returns: Kauffman Foundation research of 100 VCs
performance over a 20 years period demonstrated that only 20 outperformed
a small-cap index by 3-5 % while 62 failed to beat this index.
Bigger VCs are better: actually the opposite is true, certain studies even
indicated the threshold from where performance declines – USD 250
millions.
VCs are innovators: actually the opposite is true, over 20 years VC industry
show little sing of change in terms of strategy, structure and operational
behavior.
• Mulcahy D.: 6 Myths About Venture Capitalists. Harvard Business Review, May, 2013
Robert Uberman, Entrepreneurial Management
Banks
• Asset based financing:
• Leasing (based on fixed assets)
• Factoring (based on receivables)
• Other forms:
• Loans
• Private placement
• Banks evaluate start-ups agains collaterals
• Banks usually do not seek high interests but try to
reinforce sales of other services
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Government financing
• Relatively new but less than VC famous source of capital.
• Focus on formal approach (mind all stamps and
signatures, value proposition not necessary)
• Lengthy and paper consuming procedures.
• In US a Small Business Administration (SBA) exists,
founded in 1953, which aims at supporting of small
businesses.
• Owen Robert R., Garner Daniel R., Bunder Dennis S.: The Arthur Young Guide to
Financing for Growth. Wiley, 1986
• EU Funds has been widely accessible in Central Europe
since mid 2000 for companies employing less than 50
people and with turnover/assets below 10 millions EUR
• http://ec.europa.eu/small-business/index_en.htm
Robert Uberman, Entrepreneurial Management
Building the right business plan and
operational model
Risk analyses
Putting a business plan together
Creating operational model
Implementing it
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Identifying key risk factors
• In business risk means an opportunity, however it also
has a flip side
• Small entrepreneurs face two major sources of risk:
• overestimating appeal of their value proposition,
• underestimating alternatives for their value proposition.
• Rarely a value proposition of entrepreneurs, if in B2C
area, is oriented towards necessity, in most case it aims at
higher levels of Maslow’s pyramid
• When presented to any third party your project will be
scrutinised against risk factors
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Purpose of creating a business plan
• Determination of all difficult steps to be pursued with their
feasibility.
• Demonstrating that a venture is financially sound and has
real chance to become profitable
• Creating a firm basis for an operating plan.
• Owen Robert R., Garner Daniel R., Bunder Dennis S.: The Arthur Young Guide to
Financing for Growth. Wiley, 1986, p. 275-289
• Additional advice: write it and keep it conscise.
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Exemplary content of a good business
plan
• Executive summary (value proposition, market potential,
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•
•
•
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key risks factor, funding needed)
Company description: distinctive competences vs target
market
Market analysis & marketing
Technology (R&D)
Manufacturing (operations)
Management & ownership
Organisation and Personnel
Financial Projections
• Based on: Owen Robert R., Garner Daniel R., Bunder Dennis S.: The Arthur Young
Guide to Financing for Growth. Wiley, 1986, p. 275-289
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Startup pitch – good to remember
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Expanding a business plan into an
operational plan
• Value proposition
• Product Requirement Document
• Market analysis & marketing.
• Technology (R&D)
• Manufacturing (operations)
• Supply chain
• Management & ownership
• Organisation and Personnel
Financial Projections
Robert Uberman, Entrepreneurial Management
Reviewing PRD again
• Now look at your PRD not in terms of value for customers but to
specify key processes required in terms of the following:
• Marketing.
• Technology (R&D)
• Manufacturing (operations)
• Supply chain
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Marketing (1)
• Use the Porter’s model framework:
• Product (already defined)
• Place (this must come second)
• Price (this must precede promotion)
• Promotion
• Key risks:
• Wrong distribution channel
• Is distribution really needed?
• Does your distribution carry competitive or complementary products?
• Is distribution buying your products or taking it as a deposit?
• What is an impact of a withdrawal of any single distributor?
• Is distribution able to replicate your product, at what cost?
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Marketing (2)
• Key risks (2):
• Wrong price
• Is your selling based on price?
• Are customers conscious about price or the total purchasing cost?
• Is your pricing structure effective (all inclusive vs. per item pricing)?
• Is your pricing structure clear and reasonable for customers?
• Wrong promotion
• The very fact that the whole world looks at internet does not imply it
would see your website!!!
• Do not underestimate „word of mouth”!!!
• There is no better promotion carrier than product itself (think about
letting some of your service/products for free)
Robert Uberman, Entrepreneurial Management
Technology & manufacturing
• Map your process
• Do not overestimate your personal involvement
• Make sure that all elements of PDR are really delivered
• timely
• at cost (not price) assumed
• at required quality
• Allow for easy re-scaling - upgrading
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Personnel, Management, Ownership
Structure
• Do not be afraid of employing people – it pays off, however mind
cancellation terms
• Rely only on managers promoted from within
• Identify key competences you cannot afford to outsource:
• If it is a physical asset – own it (at least partially)
• If it is a legal asset – own it (e.g.. It is difficult to start pharmacy basing on a
personnel with a license)
• If it is a set of intangible assets (skills, contacts) protect it to the maximum extend
• Allow co-ownership only if a partner brings in key
competences
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Creating barriers: toll-gate strategies
• Look for a niche with high operational impact but relative low cost to
your customers:
• Alcon company developed in 30s an enzyme preventing some invasion
during cataract operation – no eye surgeon till now is made without it, yet
the cost of the enzyme is insignificant for a total surgery cost
• Dewey & Almy developed a sealing for tin cans which insulates perfectly
inside form any outside influence.
• Such strategies have their cost – usually companies mature fast and
then face little space for further grow.
• Moreover key risks factors are usually out of their control since the
real danger for them comes through a major shift in a target industry
(eg. elimination of tin cans by plastic containers).
• Drucker Peter F.: Innovation and Entrepreneurship. Harper, 1985, pp. 232-236
• However: creation of such „toll-gate” companies secures materially
several generations of a founder’s family.
Robert Uberman, Entrepreneurial Management
Getting money out of it
Defining exit options
Defining exit time
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Defining exit options
• It is difficult to expect from an entrepreneur to think about exit option
before starting business however early considerations help a lot.
• The natural exit options:
Pass it over to a next generation
b) Pass it to charity
c) Shut it down
d) Sell it out
a)
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Comments on business plans (a (near)
perfect summary)
• Value proposition.
•
•
If you are looking for a right partner, but do not have enough time and money, our bar offers you a Speed Dating service, which
provides fast and pleasant search for the partner in a private atmosphere.
Unlike others, our Speed Dating service has a pre-selection system, so you can always participate in the type of Speed Dating you
prefer.
• Market evaluation.
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Total population in Krakow: 759 144 people
Percentage of people in range of 15-64 ~ 71.7% = 544 306 people
29% of them are single = 157 848
The amount of foreign students in Krakow ~ 14500
Our approximate TAM (???) = 172348*80 PLN =13 787 840
Key risks factors (oriented towards internal failures not towards external threats).
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•
Lack of customers (precisely why?)
Dissatisfaction after using our service
• Bad reputation
• Place
• Wrong selection of people
• Bad organization
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•
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Failure of website functioning
Ineffective advertisement
Price
• Low
• High
• Finances.
•
Approximately we need 6375 PLN for a start, including website creation.
Robert Uberman, Entrepreneurial Management
87
Comments on business plans
(summaries)
• Lack of market potential – this is always expected by investors in
numbers since this is one of the two primary factors framing their
decision (the other is industry).
• how many people practicing in gyms live in Krakow, how much they spend on their
diets?
• How many people are building swimming pools per year in Germany, in Poland (you
are planning to sell 1,800 units per year).
• Lack of risk factors:
• Organize them around benefits provision, communication, distribution, cost base
•
•
•
•
•
•
and after sales,
users have already settled for some sort of solution and may be reluctant to switch,
people may be unwilling to expand energy sources,
people may not be aware of your offer while taking decisions,
access to distribution may be impossible,
overall costs may be too high,
after sales service can be a challenge.
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Passing the business over to a next
generation or to charity
• This issue combines various sciences, economics being only one of
them.
• The major problem with such exit is that quite often one should have
started preparation for such exit even before starting business.
• A history of leading US and European dynasties teaches that passing
to next generation is easier achieved in Europe than in the US while
Americans has developed a long lasting tradition of founding
charities.
• Poland has, as for now, no inheritance tax !!!
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Closing the business
• Usually caused by bad results: negative financial outlook & no interest
in take over.
• Sometimes it is caused by division between owners.
• Closing the business may not have adverse impact of an
entrepreneur’s further career providing all obligations are honestly
met (suppliers and employees paid, customers notified within a
reasonable period).
• Successful entrepreneues have many times liquidated their nonperforming businesses.
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Selling the business out
• There’s a difference in between selling the business out and selling
some shares and retaining influence.
• In a latter case one maintains his/her entrepreneurial status.
• Forms of selling the business out:
• IPO (Initial public offering):
• the most spectacular and often financially beneficial form;
• considered to be a benchmark of an ultimate success
• very expensive one;
• accessible only for relatively big companies;
• depriving founders from privacy;
• easy to tax.
• Private transaction:
• usually held in relative secret unless substantial to a publically traded entity;
• relatively cheap;
• carrying a risk of disclosures to competition (other interesting businesses) if fails (disclosures
made during the due diligence process usually do further than a relevant security exchange
commission requirements)
• sometimes includes non-cash payments. .
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Defining time of exit
• Decision about exit is always very difficult and emotional:
Statement of one entrepreneur after closing down his printing business: „I
feel like after having killed my own baby”
• In this case taking right decision requires really bird-eye view. Quite
often the only way to achieve it is to hire an external consultant.
• It is crucial to distinguish between short-time difficulties or correctable
mistakes on one side and sings of not attractive and feasible value
proposition on the other.
Robert Uberman, Entrepreneurial Management
IPO – Facebook’s story (1)
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IPO – Facebook’s story (2)
• Facebook debuted in May on Nasdaq with an implied valuation of
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•
•
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approaching 100 billions USD,
Unfortunately there has been very few stories like this,
Fortunately there has been a string of successful enterprises created
worldwide, bringing substantial benefits to their founders,
Some of them have hired their academic teachers as well paid
consultants – think about it before I die.
For various reasons, even if you fail to fulfil the above mentioned, I
wish you that you will never decide whether to sign into
entrepreneurial cycles or not, unknowledgably.