Contents 1 Introduction - What is Entrepreneurship? 2 What are Investors Looking For? The Three crucial components for a 3 successful new business Ingredients for a Successful New 4 Business
Introduction (1/2)• After finishing your graduation you will be at the crossroads of life: – Career in your own business [YOB] “Entrepreneurship” – wage employment [JOB]
Introduction (2/2)Difference between Wage Employment and Entrepreneurship
What is Entrepreneurship??• The Entrepreneurial Process includes all the functions, activities, and actions that are part of perceiving opportunities and creating organizations to pursue them. – An Entrepreneur is someone who perceives an opportunity and creates an organization to pursue it.
Critical Factors for Starting a New Enterprise What about having a QUIZ??
Critical Factors for Starting a New Enterprise (1/3)1. Personal Attributes – A higher need for achievement. – A higher internal locus of control. – Independence – Financial success – Self-realization – Recognition – Innovation
Critical Factors for Starting a New Enterprise (2/3)1. Environmental Factors: – Silicon Valley FEVER – Entrepreneur genetics !!
Critical Factors for Starting a New Enterprise (3/3)1. Sociological Factors – Family Responsibilities. – Experience VS. Optimism and Energy
Evaluating Opportunities for New Businesses• How should you evaluate the prospects of starting a new Business?? – USA: only 1 business in 10 will ever reach its 10th birthday.• This is because they are started as part-time pursuits and are never intended to become full-time businesses.
The Three crucial components for a successful new business (1/8)
The Three crucial components for a successful new business (2/8)• The crucial ingredients for entrepreneurial success are a superb-entrepreneur with a first-rate management team and an excellent market opportunity.• In entrepreneurship, as in any other profession, Luck is where preparation and opportunity meet.
The Three crucial components for a successful new business (3/8)1. The Opportunity: – The biggest misconception about an idea for a new business is that it must be unique. • If you have a unique idea, you become super- secretive, reluctant to discuss it with anyone who doesn’t sign a nondisclosure agreement. • That makes it almost impossible to evaluate the idea.
The Three crucial components for a successful new business (4/8)1. The Opportunity (Cont.): – The idea in itself is not what is important. – Developing the idea, implementing it, and building a successful business are the important things.
The Three crucial components for a successful new business (5/8)• The Customer: – Would-be entrepreneurs who are unable to name a customer are not ready to start a business. – They have found an idea but have not yet identified a market need.
The Three crucial components for a successful new business (6/8)• The Timing: – In some emerging industries, there is a definite window of opportunity that opens only once. – Most entrepreneurs should avoid these kind of opportunities • they will rush to open their business, lead to costly mistakes.
The Three crucial components for a successful new business (7/8)1. The Entrepreneur and the Management Team: – Opportunity will not become a successful business without strong entrepreneurial and management skills. a. Experience in the same industry. b. management experience.
The Three crucial components for a successful new business (8/8)1. Resources: – Entrepreneurial frugality requires: • Low overhead. • High productivity. • Minimal ownership of capital assets.
Ingredients for a Successful New Business• Founders: Every startup company must have a first-class entrepreneur.• Focused: Entrepreneurial companies focus on niche markets.• Fast & Flexible: They make decisions quickly and implement them swiftly. They keep an open mind.• Forever-innovating: They are tireless innovators.• Flat: Entrepreneurial organizations have as few layers of management as possible.• Frugal: By keeping overhead low and productivity high.
Contents 1 How Do I Come Up with a Good Idea? 2 Is Your Idea an Opportunity?
How Do I Come Up with a Good Idea? (1/2)• Finding your passion: – Launching an entrepreneurial venture takes a tremendous amount of time and energy, and you will have difficulty sustaining that level of energy if you aren’t passionate about the business. • about all the things that give you joy. • Ask your Friends (they know you better!!)
How Do I Come Up with a Good Idea? (2/2)• Idea Multiplication – Moving from seed idea to something that is robust, exciting, and powerful. • cocktail-party entrepreneur is all talk and no action. 1.Gather Stimuli. 2.Multiply Stimuli: Brain-Writing. 3.Create Customer Concepts: build a simple mock- up of what the product will look like. 4.Optimize Practicality: identify those features that are unnecessary, impractical, or simply too expensive
Is Your Idea an Opportunity? (1/5)• five major areas you need to fully understand prior to your launch:
Is Your Idea an Opportunity? (2/5) • The Customer: – Who is your core customer? 1. Primary target audience (PTA): most likely to buy at a price that preserves your margins and with a frequency that reaches your target revenues. 2. Secondary target audience (STA): part of your growth strategy. 3. Tertiary target audience (TTA). – Trends: spot trends that are currently influencing customer buying behavior and that might influence it in the future.
Is Your Idea an Opportunity? (3/5)• The Customer (Cont.): – Frequency and Price: how often our average customer buys our product or service and how much he or she is willing to pay. • Don’t use a penetration-pricing strategy. • Use cost-plus pricing.
Is Your Idea an Opportunity? (4/5)• The Competition: – How is the customer currently fulfilling the need or want you intend to fill? • Direct competitors. • Indirect competitors. • Substitutes. – The good news is that many times strong competitors won’t bother with new startups. – How to know your competitors: • Ask suppliers. • Professional investors.
Is Your Idea an Opportunity? (5/5)• Suppliers and vendors: – suppliers can have tremendous power, and that will directly affect your margins.• The Government: – Tax – Time for registering a new business.• The Global Environment.
Introduction to business models• A business model describes the rationale of how an organization creates, delivers, and captures value.• Consists of two components: – The Revenue Model: breaks down all the sources of revenue that your business will generate. – The Cost Model: identifies how you are spending your resources to make money
The Revenue Model• Breaking down the revenue sources into categories.• Different revenue categories often require variations on the firm’s central strategy to achieve the highest possible outcomes – influenced by ‘‘drivers’’ that are directly correlated with the level of revenues the company earns. – If you don’t fully understand your revenue drivers, you won’t achieve the greatest success.
The Cost Model• A firm needs to spend money to influence the revenue drivers.• Includes two primary categories: – Cost of goods sold (COGS): represents costs directly associated with the revenue source. – Operating costs: like advertisements, Rapid delivery.• Until having a full understanding of the business model required, it is difficult to move on to tactics to implement that strategy.
The First-Mover Myth• To capture a first-mover advantage: 1. You have to be first (or very early) into the market. 2. You need to capture a large percentage of the market quickly (fast growth). 3. You need to create switching costs so the customer will stick with you.
Formulating a Winning Strategy Exercise
Contents 1 Definition of Business Model 2 The 9 Building Blocks
Business Model DefinitionA Business Model describes the rationaleof how an organization creates, delivers,and captures Value.
The 9 Building BlocksWe believe a business model can best be described through nine basic building blocks that show the logic of how a company intends to make money.They cover the four main areas of a business: (1) Customers (2) Offer (3) Infrastructure (4) Financial Viability.
1- Customer Segments (1/3)It defines the different groups ofpeople or organizations anenterprise aims to reach andserve. For whom are we creating value? Who are our most important customers?
1- Customer Segments (2/3)Customer groups represent separate segments if: Their needs require and justify a distinct offer. They are reached through different Distribution Channels. They require different types of relationships. They have substantially different profitabilities. They are willing to pay for different aspects of the offer.
1- Customer Segments (3/3)There are different types of Customer Segments: Mass market Niche market Segmented Diversified Multi-sided platforms (or multi-sided markets)
2- Value Propositions (1/2)It describes the bundle of products and servicesthat create value for a specific CustomerSegment What value do we deliver to the customer? Which one of our customer’s problems are we helping to solve? Which customer needs are we satisfying? What bundles of products and services are we offering to each Customer Segment?
2- Value Propositions (2/2)Elements from the following non-exhaustive listcan contribute to customer value creation:* Newness * Performance* Customization * Accessibility* Design * Brand/status* Price * Cost reduction* Risk reduction * “Getting the job done”* Convenience/usability
3- ChannelsIt describes how a company communicates withand reaches its Customer Segments to deliver aValue Proposition.
4- Customer Relationships (1/2)It describes the types of relationships a company establishes with specific Customer Segments.Customer relationships may be driven by the following motivations: Customer acquisition Customer retention Boosting sales (upselling)
4- Customer Relationships (2/2)We can distinguish between several categoriesof Customer Relationships: Personal assistance Dedicated personal assistance Self-service Automated services Communities Co-creation
5- Revenue Streams (1/3)It represents the cash a company generates from each Customer Segment (costs must be subtracted from revenues to create earnings).A business model can involve two different types of Revenue Streams: 1.Transaction revenues resulting from one-time customer payments 2. Recurring revenues resulting from ongoing payments to either deliver a Value Proposition to customers or provide post-purchase customer support.
5- Revenue Streams (2/3)There are several ways to generate RevenueStreams: Asset sale Usage fee Subscription fees Lending/Renting/Leasing Licensing Brokerage fees Advertising
6- Key ResourcesIt describes the most important assets required to make a business model work.Key Resources can be categorized as follows: Physical Intellectual Human Financial
7- Key ActivitiesIt describes the most important things a company must do to make its business model work.Key Activities can be categorized as follows: Production Problem solving Platform/ network
8- Key Partnerships (1/2)It describes the network of suppliersand partners that make the businessmodel work.It can be useful to distinguish betweenthree motivations for creatingpartnerships: Optimization and economy of scale Reduction of risk and uncertainty Acquisition of particular resources and activities
8- Key Partnerships (2/2)We can distinguish between four different typesof partnerships: 1. Strategic alliances between non-competitors 2. Strategic partnerships between competitors 3. Joint ventures to develop new businesses 4. Buyer-supplier relationships
9- Cost Structure (1/2)It describes all costs incurred to operate a business model.It can be useful to distinguish between two broad classes of business model Cost Structures: Cost-driven Value-driven
9- Cost Structure (2/2)Cost Structures can have the followingcharacteristics: Fixed costs Variable costs Economies of scale Economies of scope