Tech Entrepreneurship Andrew Maxwell MBA P.Eng Lecture 2

Agenda for this class Cognitive foundations Sources of new opportunities Market based Technology based Entrepreneurial vs intrapreneurial activity Start up vs. license Entrepreneurial process Decision making process

Cognitive foundations

Sources of new opportunities

Market based

Technology based

Entrepreneurial vs intrapreneurial activity

Start up vs. license

Entrepreneurial process

Decision making process

Cognitive foundations Idea generation Creativity Practical intelligence (real life problems) Analytical intelligence (critical analysis) Creative intelligence (new ways) Opportunity recognition

Idea generation

Creativity

Practical intelligence (real life problems)

Analytical intelligence (critical analysis)

Creative intelligence (new ways)

Opportunity recognition

Sources of ideas for new ventures Customers. Understand their needs – vitamins and pain killers. Existing enterprises. Understand gaps in their current products or how they can be improved. Technology understanding. How new technology can facilitate new opportunity or business model. Personal experience. Identify a specific gap in the market based upon personal experience.

Customers. Understand their needs – vitamins and pain killers.

Existing enterprises. Understand gaps in their current products or how they can be improved.

Technology understanding. How new technology can facilitate new opportunity or business model.

Personal experience. Identify a specific gap in the market based upon personal experience.

Methods available for generating new venture ideas Focus groups used for initially screening ideas and concepts. Brainstorming by using the spontaneous contributions of participants. Problem inventory. Consumers are given a list of problems for a general product category.

Focus groups used for initially screening ideas and concepts.

Brainstorming by using the spontaneous contributions of participants.

Problem inventory. Consumers are given a list of problems for a general product category.

Creation of opportunity Technological change Political or regulatory change Social or demographic change

Technological change

Political or regulatory change

Social or demographic change

This leads to creation of new: Opportunity Example Products / services medical device Production method computerized drug development Markets viagra Ways of organizing e-health New raw materials bio-diesel

Opportunity Example

Products / services medical device

Production method computerized drug development

Markets viagra

Ways of organizing e-health

New raw materials bio-diesel

Types of knowledge R and D intensive Locus of Innovation Innovation process

R and D intensive

Locus of Innovation

Innovation process

Innovation Drivers Materials Biotechnology Information Technology Energy

Materials Biotechnology

Information Technology Energy

Demand Market size Market growth Market segmentation

Market size

Market growth

Market segmentation

Industry life cycle Young Dominant design

Young

Dominant design

Industry structure Capital intensive Economies of scale/brand Concentration Smaller firms

Capital intensive

Economies of scale/brand

Concentration

Smaller firms

Opportunities favouring existing firms Learning curve Reputation Cash flow Economies of scale Complementary assets

Learning curve

Reputation

Cash flow

Economies of scale

Complementary assets

Opportunities favouring new firms Competence destroying change Cannibalize existing business Discrete Human capital Risk profile

Competence destroying change

Cannibalize existing business

Discrete

Human capital

Risk profile

Ease of adoption Pain killers vs vitamins Pain killers solve an existing problem of which people are already aware. If they do this better than current solutions, customers need to have them. Vitamins provide enhancements to current solutions, in some cases providing benefits customers were not even previously aware of, they are therefore nice to have. Which do you think would be easier to get customers to adopt?

Pain killers solve an existing problem of which people are already aware. If they do this better than current solutions, customers need to have them.

Vitamins provide enhancements to current solutions, in some cases providing benefits customers were not even previously aware of, they are therefore nice to have.

Which do you think would be easier to get customers to adopt?

Open source as a business model The open source movement started in the software industry, but is now becoming a model for technology innovation and in turn creating completely new business models. What it is and what it is not. What drives it? What are the opportunities being created and how do you make money from them?

The open source movement started in the software industry, but is now becoming a model for technology innovation and in turn creating completely new business models.

What it is and what it is not.

What drives it?

What are the opportunities being created and how do you make money from them?

Open source – what it is Open source is based on a community of common interest, product developers, users and interested third parties sharing their knowledge, experience and resources to create high quality solutions rapidly, cost effectively and with enhanced feature sets, compared to traditional development. Intellectual property developed in the open source model, belongs to the community and can be freely used by all members of the community, usually at no cost, but subject to certain constraints.

Open source is based on a community of common interest, product developers, users and interested third parties sharing their knowledge, experience and resources to create high quality solutions rapidly, cost effectively and with enhanced feature sets, compared to traditional development.

Intellectual property developed in the open source model, belongs to the community and can be freely used by all members of the community, usually at no cost, but subject to certain constraints.

Open source – what it is not Open source development is not free to non-community members. It is protected and belongs to the community who set rules around: Modification Attribution Commercialization Open source community set their own rules: Who can join and who has what role Who can use the output of the development and what direction future development will take

Open source development is not free to non-community members.

It is protected and belongs to the community who set rules around:

Modification

Attribution

Commercialization

Open source community set their own rules:

Who can join and who has what role

Who can use the output of the development and what direction future development will take

The importance of the internet Whilst open source software development has been possible due to the internet (which was actually invented to achieve this objective). The internet can have a much more profound role on disruptive innovation across many technologies: Facilitates interaction between developers in different fields and communities and directly with customers Facilitates rapid technology development across locations and disciplines Solutions of interested to limited segments can be sold via the internet, relatively cost effectively.

Whilst open source software development has been possible due to the internet (which was actually invented to achieve this objective). The internet can have a much more profound role on disruptive innovation across many technologies:

Facilitates interaction between developers in different fields and communities and directly with customers

Facilitates rapid technology development across locations and disciplines

Solutions of interested to limited segments can be sold via the internet, relatively cost effectively.

Opportunity recognition process

Entrepreneurial Process

Universal Industrial Success Curve Shows Most New Business Development Efforts Unsuccessful 1 10 100 1000 10,000 Number of Ideas 1 2 3 4 5 6 7 Stage of NBD Process 3000 Raw Ideas (Unwritten) 300 Ideas Submitted 125 Small Projects 9 Early Stage Devel. 4 Major Devel. 1.7 Launches 1 Success Source: G. Stevens and J. Burley, “3000 Raw Ideas = 1 Commercial Success!” Research-Technology Management,40(3):16-27,May-June, 1997. Runner-Up, IRI “Best Paper of the Year.” CIC Impact Zone

Product Planning and Development Process Idea stage: Idea is generated Concept stage: Validate the idea Product development stage: Find a first customer and create a demo Test marketing stage: put out on trial Commercialization stage

Idea stage: Idea is generated

Concept stage: Validate the idea

Product development stage: Find a first customer and create a demo

Test marketing stage: put out on trial

Commercialization stage

Commercialization Roadmap Revenue $$$ cover “sins” Relationships Bring Dollars $$$ to Show it works for the Customer I Believe in you $$$ Money Pursuit Distribution centric  Market centric Customer centric  Distribution centric Technology centric  Customer centric Faith in idea  Technology centric Attitude Shift First Customer Demands Beta Configuration & Testing Customer Driven Features Market Opportunity & Impact Technology Capitalization Demands Licensing Considerations Business Resources Business Proposition Business Market Demands Channel Options Competitive Position Market Dynamics Sales Take the Order. Activate Stakeholder Participation Embed the Customers voice Prove Assumptions Goal Launch Maximize Align Validate S E L L Stages of the CIC process for guiding innovation to be market -ready I N V E N T Critical Factor Assessment Multiple Application Assessment

Opportunity assessment A short document, identifying and quantifying the opportunity (not the business, not the financials). Provides enough data to decide if it is worth looking at the opportunity in detail, including: What is the product or service, the underlying technology and the business model? How have you validated that the market/opportunity exits (personal research, third party feedback)? Who are current/future potential competitors, how will you compete? How will you make money and how much can you make? What are the longer term opportunities for growth? How much time/resource do you need to get to these levels of results? What needs to be done to turn this opportunity into a viable venture? Do you need to attract external finance? If so can you make a strong case for potential investors (including identifying a likely exit strategy)? Have you created an entrepreneurial team with suitable background and experience?

A short document, identifying and quantifying the opportunity (not the business, not the financials). Provides enough data to decide if it is worth looking at the opportunity in detail, including:

What is the product or service, the underlying technology and the business model?

How have you validated that the market/opportunity exits (personal research, third party feedback)?

Who are current/future potential competitors, how will you compete?

How will you make money and how much can you make?

What are the longer term opportunities for growth?

How much time/resource do you need to get to these levels of results?

What needs to be done to turn this opportunity into a viable venture?

Do you need to attract external finance? If so can you make a strong case for potential investors (including identifying a likely exit strategy)?

Have you created an entrepreneurial team with suitable background and experience?

CIC Validation process Technology (uniqueness, protectability) Market (opportunity, competition, structure) Management (leader, team) Business Model (margins, revenues, costs and implementation issues) http://www.cbc.ca/dragonsden/e01/

Technology (uniqueness, protectability)

Market (opportunity, competition, structure)

Management (leader, team)

Business Model (margins, revenues, costs and implementation issues)

http://www.cbc.ca/dragonsden/e01/

Technology Will lots of people be interested in buying this product? Great product, clear need, can see lots of customers lining up for this one. Good product, of interest to a limited number of people. Can not se many people buying or switching to this product. Do you think that the product is ready for customers, or is there still some development required? Product complete and ready for sale, investment required for marketing and/or inventory build up. Product design finished but needs some more work before ready. Needs some more development before it is ready. Will other people be able to copy the product easily? The product is patented or very difficult to copy. It will not be that easy to copy the product. Anyone could copy it easily.

Will lots of people be interested in buying this product?

Great product, clear need, can see lots of customers lining up for this one.

Good product, of interest to a limited number of people.

Can not se many people buying or switching to this product.

Do you think that the product is ready for customers, or is there still some development required?

Product complete and ready for sale, investment required for marketing and/or inventory build up.

Product design finished but needs some more work before ready.

Needs some more development before it is ready.

Will other people be able to copy the product easily?

The product is patented or very difficult to copy.

It will not be that easy to copy the product.

Anyone could copy it easily.

Market Did the inventor have a customer in mind when they developed the product? They have a first customer/s in place who will purchase the product/service as soon as it is available. Some clear early customers who have been consulted in developing the product, but have not yet agreed to purchase. There are no first customers identified. Does the inventor know how they are going to sell the product to customers? They understand the market and have a realistic marketing plan and a distribution strategy in place. They have explored a number of realistic options, but there are no agreements in place. Limited thought has been given to this issue or plan proposed not realistic. Did the inventor persuade you that there will be a large market for this product? Large market (over $20 million) identified and achievable Medium market (over $5 million) identified and achievable Market size small (less than $5 million) or unconvinced that the larger market identified exists.

Did the inventor have a customer in mind when they developed the product?

They have a first customer/s in place who will purchase the product/service as soon as it is available.

Some clear early customers who have been consulted in developing the product, but have not yet agreed to purchase.

There are no first customers identified.

Does the inventor know how they are going to sell the product to customers?

They understand the market and have a realistic marketing plan and a distribution strategy in place.

They have explored a number of realistic options, but there are no agreements in place.

Limited thought has been given to this issue or plan proposed not realistic.

Did the inventor persuade you that there will be a large market for this product?

Large market (over $20 million) identified and achievable

Medium market (over $5 million) identified and achievable

Market size small (less than $5 million) or unconvinced that the larger market identified exists.

Management / Business Model Do you think that the management team of the company have the necessary experience to run this business? Significant relevant experience in running a business of this type. Limited experience, but some clear knowledge of the issues which the business is likely to face. No evidence of the experience required. Do you think they understand the financial side of running the business well enough? Complete understanding; - amount of money asking for is enough to last them until they are making money (usually in less than 12 months). Good understanding; - amount of money requested probably enough (may need to last them up to two years) Not sufficient evidence of their financial understanding or they will run out of money before they are profitable.

Do you think that the management team of the company have the necessary experience to run this business?

Significant relevant experience in running a business of this type.

Limited experience, but some clear knowledge of the issues which the business is likely to face.

No evidence of the experience required.

Do you think they understand the financial side of running the business well enough?

Complete understanding; - amount of money asking for is enough to last them until they are making money (usually in less than 12 months).

Good understanding; - amount of money requested probably enough (may need to last them up to two years)

Not sufficient evidence of their financial understanding or they will run out of money before they are profitable.

Food for Thoughts How would you go about monitoring and evaluating the new products being offered by existing companies? Is this a viable technique for generating new ideas? Why or why not? Which do you think is more important in evaluating a new technology business opportunity, the management or the technology?

How would you go about monitoring and evaluating the new products being offered by existing companies? Is this a viable technique for generating new ideas? Why or why not?

Which do you think is more important in evaluating a new technology business opportunity, the management or the technology?