Building a Business Model - Entrepreneurship 101
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Building a Business Model - Entrepreneurship 101

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Thinking carefully about economics and business strategy can mean the difference between having great technology and having a great company. This lecture focuses on clearly defining your business ...

Thinking carefully about economics and business strategy can mean the difference between having great technology and having a great company. This lecture focuses on clearly defining your business model, including how you’re going to make money with your product or service. Case studies are used to test concepts against a specific business.

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Building a Business Model - Entrepreneurship 101 Presentation Transcript

  • 1. Business Models: Science or Art? NOVEMBER 16, 2011 ENTREPRENEURSHIP 101 @ MARS PROFESSOR AJAY AGRAWAL UNIVERSITY OF TORONTO CO-FOUNDER, THE NEXT 36©2011 Ajay Agrawal
  • 2. Last Year @ MARS—  Waiting room app ¡  Problem ÷  Patients waste time waiting for doctors, dentists, etc ¡  Solution ÷  Mobile device app that enables patients to sign in when they arrive and then receive notification when they are on deck so they can go elsewhere while they wait rather than sit in the waiting room ¡  Challenges ÷  Docs need to install system in their office, train staff ÷  Patients need to download app ¡  Who pays ÷  Patient? Doctor? Province? Insurance firm? Patient’s employer?
  • 3. What is a Business Model?—  Value Proposition ¡  How the venture creates value—  Business Model ¡  How the venture appropriates value (i.e., “makes money”)
  • 4. Types of Business Models—  Sell a product (e.g., RIM)—  License the idea, licensee will manufacture and sell the product (e.g., biotech)—  Sell a service (e.g., Surveymonkey)—  Give away (or heavily subsidize) a product or service ¡  Sell to third parties (e.g., newspapers, TV, discount travel) ¡  Sell complementary products (e.g., razors/blades, content/phones/phone plans, consoles/games)—  Transaction fee (e.g., eBay)
  • 5. Three University Start-Up Examples—  Motion Metrics ¡  Robotics for open pit mining—  D-Wave ¡  Commercial quantum computer—  Winston ¡  Mobile app for limo service
  • 6. Motion Metrics: Broken Tooth Detection System©2011 Ajay Agrawal
  • 7. Motion Metrics—  Problem ¡  Broken teeth from excavators damage crusher—  Solution ¡  Vision system mounted on excavator alerts cab operator when tooth is suddenly missing—  Business Model ¡  Sell product to mine, sell product to OEM, license technology to someone else to manufacture and sell
  • 8. D-Wave (founded 1999)—  Problem (?)—  Solution ¡  Powerful ÷  Vastly speeds up computation ¡  Efficient ÷  Eliminates many energy consumption problems found with current processors; energy profile doesnt change as our computers get bigger; processors with 1000x the computing power can be created with very little increase in power consumption. Breaking the link between energy consumption and computing power is a revolutionary prospect in high-performance computing ¡  Intelligent ÷  Processors are architected to be highly effective at learning, rather than simply running complex arithmetic operations like a conventional electronic circuit. By building computers in this way, they are able to perform tasks that we find it difficult to imagine computers undertaking - like creating art, learning to recognize faces, and writing news stories—  Business Model ¡  Sell computers, license technology for others to manufacture, sell service
  • 9. D/+-4 GK9<$G/*9L93$M9K9<N9/*9L93O*)(:9.N8()*).()N+9P:+4 %9&/$69**&$MK19&/0O/:9&3N+):PFrom: Haig Farris [mailto:jhaigf@gmail.com]Sent: Sunday, October 30, 2011 3:53 PMTo: Toope, Stephen; Farrar, David; Hepburn, John; Faculty of Science, Dean; Muzyka, Daniel; Kuipers, Anton;Anne Condon; Doug Bonn; Alejandro Adem; Bill Levine; Granot, FriedaCc: Philip Stamp; George Sawatzky; Doug Oldenburg; Eldad HaberSubject: Historic Opening of the Worlds First Quantum Computing CentreAllOct 28 2011 was a historic and thrilling moment for D-Wave, its staff, board and shareholders.These few pictures are to give you a flavour of the event. My only regret was that there was no onethere representing UBC to see how many of their graduates, led by Dr. Geordie Rose, are changingthe world and are so recognized by leading business and academic figures.Those that attended on behalf of D-Wave were amazed and thrilled at the effort, vision, commitmentand enthusiasm that USC and Lockheed demonstrated by the high level representatives of eachorganization and what they said.In addition to buying D-Wave One, USC and Lockheed have built an impressive facility to house themachine and organized a raft of programs, research and educational approaches to generate newsolutions to previously intractable problems.The center director is a high energy person determined to keep USC in the forefront of quantumcomputing. Dr. Daniel Lidar, one of USCs leading lights in QC, has identified many areas ofresearch and potential industrial collaborations and is hard at work implementing same.For its part Lockheed has many projects planned for the machine including software verificationwhich is a huge issue for fly by wire machines that fly, float, walk, talk etc.We were very pleased that The Consul General of Canada attended and as he has a background withquantum computing efforts at Waterloo, his interest will translate into effective communication to theCanadian government of the significance of this eventGeordie Rose was a rock star both in his presentations to the official gathering and the seminars hegave to scientists and researchers following the ceremony. He won everybodys heart for his passion,commitment and vision. There were even a few people seen wiping a tear or two away during hisremarks at the ribbon cutting. Vern Brownell, our CEO, did a masterful job networking with the keyplayers. D-Wave is on the map.To top off the week, at the D-Wave board meeting the previous day, we learned of one of the mostsignificant advances our scientists have developed in making the machine useable by yourgrandmother. Up to this point the programming of the machine has been extremely complex andwould be a hurdle to rapid deployment of the machine to customers not awash in physicists and
  • 10. commitment and vision. There were even a few people seen wiping a tear or two away during hisremarks at the ribbon cutting. Vern Brownell, our CEO, did a masterful job networking with the keyplayers. D-Wave is on the map.To top off the week, at the D-Wave board meeting the previous day, we learned of one of the mostsignificant advances our scientists have developed in making the machine useable by yourgrandmother. Up to this point the programming of the machine has been extremely complex andwould be a hurdle to rapid deployment of the machine to customers not awash in physicists andmathematicians.Bill MacReady and his team have developed a high level "basic" language that allows users toprogram the machine without using machine language. From a commercial point of view this is ahuge step forward.All in all, it was two days for the ages.Hopefully we can find away to have this capability at UBC.Cheers ;&<")0)+=)00Haig
  • 11. RIBBON CUTTING ROOMUSC QC Center opening
  • 12. USC QC CENTER RIBBON CUTTING VERN BROWNELL, USC DEAN RAY JOHNSON (LOCKHEED CTO)USC PLANNED USE OF DWAVE MACHINE
  • 13. Winston—  Problem ¡  Limo arrivals unreliable ¡  Hassle making payment at end of ride ¡  Hassle keeping receipts ¡  Expense fraud—  Solution ¡  Mobile app to order limo with one touch ¡  Track location of limo en route ¡  Track location of pick up and drop off for employer ¡  Manage receipts—  Business model ¡  Sell to limo companies? Passengers? Passenger employers? Other (e.g., American Express)? ¡  Two-sided market problem (drivers not interested without many passengers, passengers not interested without many drivers) ÷  Sell corporate accounts to scale quickly (focus on fraud; convenience a perk)
  • 14. Factors to Consider1.  Relative benefit/cost for each party2.  Risk profile for each party3.  Sales cycle/costs4.  Bargaining power 1.  Market structure 2.  IP5.  Complementary assets6.  Two-sided market problem?7.  Network effects problem?
  • 15. Thought Experiment—  Challenge ¡  Top business schools charge approximately $90,000 tuition ¡  Cost to students is tuition plus two years of lost income ¡  This fee schedule is particularly challenging for entrepreneurs ÷  Cash poor for at least the first few years ÷  Outcomes are highly skewed (many never earn much, a few do very well) ¡  Many business schools are charged with offering little meaningful support to students after they graduate and have their first job—  What if a business school charged zero tuition up front, but instead collected tuition as a small percentage of future income?
  • 16. Seems Impossible—  Difficulties ¡  Monitoring income is difficult and costly ¡  Select on students who have expectations of low future income ¡  Cash flow challenges for school (pay now, collect later)—  But ¡  Aligns incentives; now b-school really cares about the earnings of each graduate for their entire career
  • 17. Already Happening?—  Y-Combinator ¡  Entrepreneurs give 6-7% equity in their ventures in return for: ÷  Approximately $20k ÷  Coaching ÷  Services ÷  Networking ÷  Signal (status) ÷  Access to investors, partners, etc. ¡  Three months, highly applied, Demo Day at the end—  More competitive to gain entrance than Harvard Business School—  Average value of (210) companies they funded = $22m
  • 18. Thank you