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MGT 246 Introduction to Entrepreneurship Professor Haibo LIU 1 Announcement  T1. Presentation proposal due 11/01 ©2015 John Wiley and Sons 2 Searching for Entrepreneurship Opportunities  How  Who  Where  When ©2015 John Wiley and Sons 3 When  The different search needs at different stages of the innovation ©2015 John Wiley and Sons 4 ©2015 John Wiley and Sons 5 https://www.youtube.com/watch?v=E-U02-RWUPc https://www.youtube.com/watch?v=E-U02-RWUPc ©2015 John Wiley and Sons 6 https://www.youtube.com/watch?v=E-U02-RWUPc https://www.youtube.com/watch?v=E-U02-RWUPc Dominant Design  People began exploring the idea of the bicycle in the middle of the 19th century and a huge variety of types emerged between 1860 and 1890.  Various attempts were made to establish a dominant design, but it was not until near the turn of the century that the experiments with wheels, gears, seats, etc. converged to the now familiar 'diamond frame'. This still forms the basis of most bicycle design. ©2015 John Wiley and Sons 7 Dominant Design  The post-war period in Europe led to an expansion in the demand for cycles as a cheap mode of transport and this put emphasis on production to low cost and high quality.  For a long period innovation focused on process improvement to achieve these goals and the product and market remained stable - essentially characteristic of the mature phase in the product/technology life cycle. ©2015 John Wiley and Sons 8 Dominant Design  This did not mean that more radical concepts were not being explored, simply that they were not adopted widely. Innovation was still taking place in specialist niches.  But it was not until the 1960s when Alex Moulton introduced his small wheel collapsible bike that mainstream product innovation took place.  His original design was for a bicycle which could be folded up and carried on the train for commuters to use between the office and the station; other variants included a small shopping bike. ©2015 John Wiley and Sons 9 Dominant Design  Considerable product innovation followed this development, especially around accessories, new lightweight materials, and cycle clothing (helmets, etc.).  The development of the mountain bike and to a resurgence of interest in cycling as a leisure activity rather than as a mode of transport.  Given the 150 year history of the bicycle, with its patterns of radical change followed by convergence and consolidation it would be unwise to suggest that today's product represents the end of the road for innovation in this sector. ©2015 John Wiley and Sons 10 ©2015 John Wiley and Sons 11 Abernathy and Utterback model ©2015 John Wiley and Sons 12 Innovation Lifecycle  In the early stage – the ‘fluid’ phase – there is a lot of uncertainty, and emphasis is placed on product innovation.  Typically, entrepreneurs have lots of ideas ...

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MGT 246 Introduction to Entrepreneurship Professor Haibo LIU 1 Announcement ©2015 John Wiley and Sons 2 Searching for Entrepreneurship Opportunities ©2015 John
Wiley and Sons 3 When stages of the innovation ©2015 John Wiley and Sons 4 ©2015 John Wiley and Sons 5 https://www.youtube.com/watch?v=E-U02-RWUPc https://www.youtube.com/watch?v=E-U02-RWUPc ©2015 John Wiley and Sons 6
https://www.youtube.com/watch?v=E-U02-RWUPc https://www.youtube.com/watch?v=E-U02-RWUPc Dominant Design middle of the 19th century and a huge variety of types emerged between 1860 and 1890. design, but it was not until near the turn of the century that the experiments with wheels, gears, seats, etc. converged to the now familiar 'diamond frame'. This still forms the basis of most bicycle design. ©2015 John Wiley and Sons 7 Dominant Design -war period in Europe led to an expansion in the demand for cycles as a cheap mode of transport and this put emphasis on production to low cost and high quality. improvement to achieve these goals and the product and market remained stable - essentially characteristic of the mature phase in the product/technology life cycle.
©2015 John Wiley and Sons 8 Dominant Design explored, simply that they were not adopted widely. Innovation was still taking place in specialist niches. roduced his small wheel collapsible bike that mainstream product innovation took place. up and carried on the train for commuters to use between the office and the station; other variants included a small shopping bike. ©2015 John Wiley and Sons 9 Dominant Design
development, especially around accessories, new lightweight materials, and cycle clothing (helmets, etc.). ment of the mountain bike and to a resurgence of interest in cycling as a leisure activity rather than as a mode of transport. of radical change followed by convergence and consolidation it would be unwise to suggest that today's product represents the end of the road for innovation in this sector. ©2015 John Wiley and Sons 10 ©2015 John Wiley and Sons 11 Abernathy and Utterback model ©2015 John Wiley and
Sons 12 Innovation Lifecycle – the ‘fluid’ phase – there is a lot of uncertainty, and emphasis is placed on product innovation. fail) about the ways to use new market and technological opportunities. proliferation of entrepreneurial ideas as an example of a fluid phase. ©2015 John Wiley and Sons 13 Innovation Lifecycle cular configuration – the ‘dominant design’ process innovation.
consistent quality, etc.? o the business of car design but his Ford Model T became the dominant design and succeeded principally because of the extensive process innovations around mass production. ©2015 John Wiley and Sons 14 Innovation Lifecycle third, ‘mature’ phase in which innovation is incremental in both product and process another breakthrough and return to the fluid stage. as in the fluid phase but in the mature stage we would be better placed concentrating on incremental improvement innovations. ©2015 John Wiley and Sons 15
Dominant Design 16 2007 "Apple reinvents the phone." Dominant Design ©2015 John Wiley and Sons 17 How about the dominant design of services? ©2015 John Wiley and Sons 18 How about the dominant design of services?
©2015 John Wiley and Sons 19 How about the dominant design of services? ©2015 John Wiley and Sons 20
Social Innovation ©2015 John Wiley and Sons 21 Jane Chen and the Warm Embrace incubator am tried to solve? http://www.ted.com/talks/jane_chen_a_warm_embrace_that_sav es_lives?langu age=en 22 http://www.ted.com/talks/jane_chen_a_warm_embrace_that_sav es_lives?language=en Breakout room
• Appoint someone to take notes • Appoint someone to keep the time • Discuss the questions • You have 6 minutes, click the “help” button any time Innovation is about recombination! combinations of prior technologies essential feature in productive thought” -and-roll music is widely thought to have resulted from a fusion of rhythm and blues, folk, country, and gospel music. well as by borrowing from other languages. ©2015 John Wiley and Sons 24
Innovation ‘the process of creating value from ideas’. o It is a process o Creating value: economic or social value o Idea: new and useful Social Innovation characteristics. at drive social innovation? 26 Social Innovation rather than being wholly new in themselves zation sectoral or disciplinary boundaries
Corporate social responsibility • Social innovation as securing a ‘licence to operate’ o Requests by various stakeholders o May not be incompatible with developing a successful business • Social innovation as aligning values o Benefits of aligning values with their staff o Better retention • Social innovation as a learning laboratory o Meeting the needs of a different group to those of the mainstream population o Usually under resource limitations 28 Discussion – or harder – to create a sustainable business venture with a social entrepreneurship idea? Why? 30 Triple Bottom Line
Simultaneous assessment of a company‘s performance against: responsibilities 31 Challenges in social innovation social enterprises rely on grants, donations, etc. that are unpredictable there because of their believes. This means that the traditional forms of organization and motivation may be less applicable MGT 246�Introduction to EntrepreneurshipAnnouncementSearching for Entrepreneurship OpportunitiesWhen��Dominant DesignDominant DesignDominant DesignDominant DesignSlide Number 11Slide Number 12Innovation LifecycleInnovation LifecycleInnovation LifecycleDominant DesignDominant DesignHow about the dominant design of services?How about the dominant design of services?How about the dominant design of services?Social InnovationJane Chen and the Warm Embrace incubatorBreakout roomInnovation is about recombination!InnovationSocial InnovationSocial InnovationSlide Number 28Slide Number
29DiscussionTriple Bottom LineChallenges in social innovation MGT 246 Introduction to Entrepreneurship Professor Haibo LIU 1 Asynchronous session: method Questions: 1. Who are the cofounders of method? Describe their background and personality. 2. How are their skills and background complementary? 3. What was the inspiration for creating the company? 4. Who are method’s competitors? How is method’s positioning unique? 5. What have you learned from their experience as entrepreneurs?
What Made them Successful? Breakout Room 1. Selection your team number 2. Introduce yourself 3. Work on this question 4. You have 5 mins Design driven innovation and Method -founded by chemical engineer Adam Lowry and designer/marketer Eric Ryan dispensers and environmental friendly products
Design Thinking and Coca Cola Poll from Socrative NNOV8 participation points! https://www.socrative.com/ Design Thinking and Coca Cola ly different from its predecessors? - Birth of the Contour Bottle
Design Thinking -Cola was becoming easily confused with ‘copycat’ brands. -Cola called for a bottle that could be recognized when broken on the ground or by touch in the dark. Root Glass Company of Terre Haute, Indiana Design Thinking and Apple product to the mp3 player market ers to follow because of the uniqueness of the look and feel needs: there are important psychological and cultural factors Jonathan Ive Recent Focus on Design Thinking
Harvard Business Review, Business Week, The Wall Street Journal, and The New York Times lawsuits between Samsung and Apple are design related Design Thinking innovation consulting firm IDEO and its leadership, founder David Kelley (Kelley and Littman, 2005), and more recently, current chief executive officer Tim Brown (Brown, 2009). of design thinking itself: although originally focused on product development, it has expanded to include the design of services, strategies, and even educational and other social systems. Design Thinking observation, collaboration, fast learning, visualization of ideas, rapid concept prototyping, and concurrent business analysis ~ Thomas Lockwood, former president of the Design Management Institute tools to problem solving.
~ Tim Brown Design Thinking - challenges formulations and solutions and were characterized by conditions of high uncertainty. more about “what is the best question to ask” nature of many design problems. Design Thinking 18 Design Thinking - Takeaways View of the Design Thinking Process Sources of Innovation
finding novel ways to meet an existing need lies behind many new business ideas. laboratories, science facilities and universities in the public and private sectors generate new knowledge every minute comes in at mature stage in industry or product lifecycles. 21 Design Driven Innovation ©2015 John Wiley and Sons Locate: market pull innovation Design Driven Innovation ©2015 John Wiley and Sons
Design Driven Innovation technology driven products, or the emotional aspects of services mers didn’t know they wanted Design Driven Innovation experience, including the food, ambiance, service, status, etc. patient experience include: banking, airlines, hotels, etc. at was the most common source of lighting before electric lights?
Who Invented Incandescent Light? electric lamp in the early 1800s. in 1878 that Edison studied while building his own. lighting? Innovations Meet Institutions tion’s technical and economic superiority over an incumbent rival. (adoption), Edison’s system of electric lighting depended on the concrete details of its design to invoke public’s familiarity with existing gas and water utilities (existing institutions). understanding but also preserved the flexibility to evolve and build new institutions Compatibility
tion is perceived to be consistent with the existing values, experience and needs of potential adopters. o existing skills and practices, o values and norms. ent into which they are introduced. Significant misalignments between the innovation and the adopting organization will require changes in the innovation or organization, or, in the most successful cases of implementation, mutual adaptation of both. How Great Designers Think -out craftsmanship
~William Lidwell https://www.youtube.com/watch?v=rdH8Kuku9tA&t=3622s https://www.youtube.com/watch?v=rdH8Kuku9tA&t=3622s Dyson vacuum Watch the video below and analyze how design thinking is applied to their new product development: James Dyson launches new Dyson vacuum with laser technology. – YouTube https://www.youtube.com/watch?v=fN7KJ46DHjU https://www.youtube.com/watch?v=fN7KJ46DHjU Red Dot Product Design Award Chair Nendo Oki Sato, Tokyo, Japan Air Purifier Homwee Technology (Sichuan) Co., Ltd., Chengdu, China http://red-dot.de/pd/online- exhibition/?lang=en&y=2016&v=28738&i=D
Red Dot Product Design Award Mountain Bike Canyon Bicycles GmbH, Germany HP Officejet Printer Hewlett-Packard, Singapore MGT 246�Introduction to EntrepreneurshipAsynchronous session: methodSlide Number 3Slide Number 4Slide Number 5Slide Number 6What Made them Successful?Design driven innovation and MethodDesign Thinking and Coca ColaPoll from SocrativeDesign Thinking and Coca ColaDesign ThinkingDesign Thinking and AppleRecent Focus on Design ThinkingDesign ThinkingDesign ThinkingDesign Thinking - challengesDesign ThinkingDesign Thinking - TakeawaysView of the Design Thinking ProcessSources of InnovationSlide Number 22Slide Number 23Design Driven InnovationDesign Driven InnovationSlide Number 26Who Invented Incandescent Light?Innovations Meet InstitutionsCompatibilityHow Great Designers ThinkDyson vacuum Red Dot Product Design AwardRed Dot Product Design Award MGT246 Introduction to Entrepreneurship Professor Haibo LIU 1
To dos o Case writeup submission on Method, group-based submission o Call for one group for case presentation (2 extra points!) Only one group, first come first served. o I2. IDEO shopping cart video o No submission required ©2015 John Wiley and Sons 2 About Zoom focused) r attendance (duration you are online). Please make sure your display name is consistent with your registered name (otherwise I cannot tell it is you).
window se over your name in the “Participants” list on the right side of the Zoom window 3 4 Business models The purpose of a business model is to provide a clear representation of where and how value is created and can be captured. 5 Examples of business models • A theatre - uses scripts, actors, scenery, lighting and music to create a theatrical experience which the audience values.
• How about an insurance company? 6 Plan? ©2015 John Wiley and Sons 7 Why use business models? • To provide a clear representation of where and how value is created and can be captured. o To provide a helpful checklist of areas to consider in making sure the idea and the route to creating value with it is well thought out. o To provide a roadmap for how an innovation can create value – it won’t just happen, it needs a framework. • To provide a way of sharing the idea with others o Easier to tell an interesting story o Makes the business vision explicit. Eg. to venture capitalists or to innovation teams
o From ideas to implementation 8 Key components of business model – the value proposition. – the supply side. – the demand side. – the key activities by the supply side to create value for the demand side. 9 Business model canvas 10Alex Osterwalder, invented the Business Model Canvas , co- founded strategyzer.com Budget Airlines (Business Model Canvas) ©2015 John Wiley and Sons 11 https://www.youtube.com/watch?v=wlKP- BaC0jA&list=PLBh9h0LWoawphbpUvC1DofjagNqG1Qdf3&ind
ex=3 https://www.youtube.com/watch?v=wlKP- BaC0jA&list=PLBh9h0LWoawphbpUvC1DofjagNqG1Qdf3&ind ex=3 12 Strategy Value Proposition customers will value over what they currently have. proposition? Why would customers buy your product? What are the weaknesses of existing competitors? this? What challenges that other competitors have that you can overcome (with your resources)? - value-propositions#preview 14 https://strategyzer.com/training/courses/mastering-value- propositions#preview
Target Market you can separate out different groups the sharper your targeting nt target customers? slightly different offers? current pain points? Which aspects your product or service appeal to them? 15 About prototyping prototyping? ©2015 John Wiley and Sons 16 About prototyping
prototyping? o Focus on your business model (the bigger picture) o Don’t fall in love with your first idea (iterative process) o Test your models early (how?) ©2015 John Wiley and Sons 17 Examples of “BAD” value propositions e customers met target customers well, or your idea is too fuzzy. , or the cheapest
18 Examples of “great” ideas but usually taken for granted Norms, habits or rules that are different from what you are used to, usually from another industry, domain, country or culture (more about this when we learn about Design Thinking) 19 Business model innovation • Business model ‘innovation’ is about creating new models or changing existing ones to maximize the value created • Does business model innovation require the discovery of new products or services, or new technology? • Are most business model innovations disruptive innovations? 20
Examples of business model innovation are increasingly being reframed as service offerings. o Rolls-Royce redefined its business model as ‘power by the hour’ o Chemical companies are increasingly looking to provide rental models in which they offer services to support the effective use of their products rather than simply delivering bulk chemicals 21 ©2015 John Wiley and Sons 22 It is All about Process 23 Searching for Entrepreneurship Opportunities
©2015 John Wiley and Sons 24 Searching for Entrepreneurship Opportunities 25 Searching for Entrepreneurship Opportunities 26 27
Dyson (James Dyson) clogged air filters in his Ballbarrow factory, built a cyclone particle collector similar to devices used in larger industrial plants, such as sawmills. he worked for the next five years, testing a few thousands of prototypes, before he produced a satisfactory model 28 https://www.britannica.com/biography/James-Dyson 29 Warby Parker (Jeff Raider, Neil Blumenthal, David Gilboa) are too expensive. backpacking trip. The cost of replacing them was so high that he spent the first semester of grad school without them, squinting and complaining. (We don’t recommend this.)
at how hard it was to find a pair of great frames that didn’t leave our wallets bare. Where were the options? 30 https://www.warbyparker.com/history 31 Crate and Barrel (Gordon and Carole Segal) found a couple of stores in the Virgin Islands with Scandinavian designs and good prices. One day I was washing the dishes we had bought and said, "There's got to be other young couples with good taste and no money like us. Why don't we open a store?“ gns at affordable prices 32 www. fortune.com What
terms of incremental or radical change ©2015 John Wiley and Sons 33 Who involved in the entrepreneurial process engagement of more people inside and outside the organization 34 Exploit or explore? ©2015 John Wiley and Sons 35
Where: Exploit or explore? • Exploit (Exploitation) – innovations built on what we already know in mainly incremental fashion. What we did in the past will play a strong role in shaping what we do next. • Explore (Exploration) – innovation, venturing into new fields and opening up innovation space. • Which one is more risky? ©2015 John Wiley and Sons 36 MGT246�Introduction to EntrepreneurshipTo dosAbout ZoomSlide Number 4Slide Number 5Slide Number 6Slide Number 7Slide Number 8Slide Number 9Slide Number 10Budget Airlines (Business Model Canvas)Slide Number 12StrategyValue PropositionTarget MarketAbout prototypingAbout prototypingExamples of “BAD” value propositionsExamples of “great” ideas�Slide Number 20Slide Number 21Slide Number 22Slide Number 23Searching for Entrepreneurship OpportunitiesSearching for Entreprene urship OpportunitiesSearching for Entrepreneurship OpportunitiesSlide Number 27Dyson (James Dyson) Slide Number 29Warby Parker (Jeff Raider, Neil Blumenthal, David Gilboa)Slide Number 31Crate and Barrel (Gordon and Carole Segal)WhatWhoSlide Number 35Slide Number 36 MGT 246
Introduction to Entrepreneurship Professor Haibo LIU 1 Announcements T2. due 11/15, start this once your proposal is approved. Announcements Make sure: join later! lose unnecessary programs
Rent the Runway-1 ir network and important contacts in the design industry? Rent the Runway-2 w did they test their ideas? What did they learn? Compare it to what the IDEO team did at the supermarket. entrepreneurs? What is social innovation?
Bottom of the Pyramid Strategy Globalization of Innovation 8 The “Early” Globalization -based maritime expedition led by Christopher Columbus encountered the Americas, a continent which was previously unknown in Europe plants, animals, culture, human populations, technology, and ideas in the 15th and 16th centuries The “Early” Globalization What is Globalization? 11
What is Globalization? interdependence among countries as reflected in increasing cross-border flows of three types of entities: goods and services, capital, and know- how.” 12 What are the drivers of globalization? What Is Driving Globalization? 14 What Is Driving Globalization? - ning rapidly 15 Born Global o Skype
o Airbnb o Uber o Amazon 16 Poll from Socrative participation points! lick “finish quiz” after you finish https://b.socrative.com/login/student/ Bottom of the Pyramid Strategy Assumptions about the bottom of the pyramid represent a viable market sted in advanced technology
Examples of Fugal Innovation emerging economies, innovative firms in those countries were stripping products of their fripperies and cutting their cost drastically. and China. -Nissan has a center for frugal engineering in India. 20 Source: “Frugal Innovation: How to Do More with Less”, Navi Radjou, and Jaideep Prabhu (Cambridge U) What is frugal innovation? models, reconfigures value chains, and redesigns products to serve users who face extreme affordability constraints. means products of lower quality and reliability? 21
More examples 22 • The Tata Nano is a city car manufactured by Tata Motors • Approximately $2,000 Frugal Innovation and Social Innovation customers? 23 The Design Process Design Thinking Simplified MGT 246�Introduction to EntrepreneurshipAnnouncementsAnnouncementsRent the Runway-1Rent the Runway-2�What is social innovation?Bottom of the Pyramid StrategyGlobalization of InnovationThe “Early” GlobalizationThe “Early” GlobalizationWhat is Globalization?What is Globalization?What are the drivers of globalization?What Is
Driving Globalization? What Is Driving Globalization? Born GlobalPoll from SocrativeBottom of the Pyramid StrategyAssumptions about the bottom of the pyramid�Examples of Fugal InnovationWhat is frugal innovation?More examplesFrugal Innovation and Social InnovationThe Design ProcessDesign Thinking Simplified Welcome to MGT 246 Entrepreneurial Management Session 1 Professor Haibo LIU 1 About the Course 2 About Zoom focused)
name (duration you are online). Please make sure your display name is consistent with your registered name (otherwise I cannot tell it is you). the top of the Zoom window list on the right side of the Zoom window 3 Ice breaker recently? Why did you (not) like it? 4
Syllabus 5 Individual Creativity Challenge task. 6 Individual Creativity Challenge ink of different ways you can use a paper clip 7 Creative Destruction revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one
and Democracy" in 1942 8 Innovation Matters ideas and knowledge into products and services da, the following factors characterize successful small and medium-sized enterprises SMEs: characteristic associated with success. or are more successful than those that do not innovate. are those that are innovative. 9 Innovation Matters regular survey of senior executives around the world exploring innovation. In its 2012 survey of 650 organizations, the following emerged:
average 13% more profit from new products and services than average performers do, and 30% shorter time-to-break-even. 10 GLOBAL INNOVATION INDEX 11 https://www.wipo.int/global_innovation_index/en/ 12 13 Companies that are most entrepreneurial and innovative 14
Source: BCG The World's Most Innovative Companies of 2020 – Fast Company 16 https://www.fastcompany.com/most-innovative- companies/2020 https://www.fastcompany.com/ most-innovative-companies/2020 Innovation 17 Innovation is all about change. o It is a process o Creating value: economic or social value o Idea: new and useful
18 https://www.ces.tech/ Entrepreneurship -up venture or a key group within an established organization trying to build/renew its products or services. passion, commitment, judgement and risk taking which provides the motive power behind the innovation process. 19 Innovation & Entrepreneurship 20 vation is the specific tools of entrepreneurs, the means by which they exploit change as an opportunity for a different product or service. capable of being learned, capable of being practiced. Innovation & Entrepreneurship
innovation – ‘innovation is what entrepreneurs do’. o The lone genius who battles single-handedly to bring his/her idea to fruition (James Dyson) o The start-up team whose creative interchange helps shape something new (Larry Page and Sergei Brin of Google, Bill Gates and Paul Allen at Microsoft) o Social entrepreneurs (Mohammed Yunus, Nobel prizewinning founder of Grameen bank) 21 Types of Entrepreneurs lf-employed, small business entrepreneur o Eg. Owner of a pet grooming shop o Eg. The Grameen Bank, a Nobel Peace Prize-winning microfinance organization and community development bank founded in Bangladesh by Muhammad Yunus o Is social innovation only about making changes in underdeveloped or developing world? o Eg. Elon Musk, James Dyson, Caterina Fake, etc.
23 24 Innovation isn't easy o Not recognizing the need for change; o Complacency – core competence becomes core rigidity; o Closed information network, insulated from new ideas. 25 10 Minutes break! 26 Successful Entrepreneurs... nt dimensions of innovation
(ways in which we can change things) trick (building capability) (innovation strategy) approaches in the face of a changing environment) -taking rather than risk averse. 27 Collaboration in Innovation Many of the most successful innovations and new ventures were co-created. core of radical innovation ©2015 John Wiley and Sons Innovation & Entrepreneurship 3e by Bessant & Tidd
Collaboration in Innovation/Entrepreneurship ©2015 John Wiley and Sons Innovation isn't easy o Complacency – core competence becomes core rigidity; o Closed information network, insulated from new ideas. 30 Factors influencing new venture creation ©2015 John Wiley and Sons
Can we manage innovation? – behavior patterns which become embedded; innovation happen; – ‘the way we do things around here’ 32 Dimensions of innovation – what can we change? Dimension Type of change Product Changes in the things (products/services) which an organization offers Process Changes in the ways in which these offerings are created and delivered Position Changes in the context into which the products/services are introduced Paradigm Changes in the underlying mental models which frame what the organization does 33
Dimensions of innovation – what can we change? products/services/processes, or ‘do what we do but better’ t changes to products/services/processes, or ‘do something completely different (and better)’ 34 Dimension Incremental Radical Product Process Position Paradigm Examples of the 4Ps model: Product Innovation type Incremental: do what we do but better Radical: do something different (and better) ‘Product’ – what we
offer the world Newer Windows OS replacing previous versions – essentially improving on existing software idea New to the world software – for example the first speech recognition program 35 Examples of the 4Ps model: Process ‘Process’ - how we create and deliver that offering Improved factory operations efficiency Online shopping Innovation type
Incremental: do what we do but better Radical: do something different (and better) 36 Examples of the 4Ps model: Position ‘Position’ – where we target that offering and the story we tell about it Banking services targeted at key segments – students, retired people, etc. Low cost airlines opening up air travel to those previously unable to afford it – create new market and also disrupt existing one Innovation type Incremental: do what
we do but better Radical: do something different (and better) 37 Examples of the 4Ps model: Paradigm ‘Paradigm’ – how we frame what we do, eg. Business model IBM from being a machine maker to a service and solution company – selling off its computer making and building up its consultancy and service side. Amazon, Google, Skype (redefining industries like retailing, advertising, and telecoms through online models) Innovation type
Incremental: do what we do but better Radical: do something different (and better) 38 Dimensions of innovation – what can we change? https://www.youtube.com/watch?v=S4KrIMZpwCY https://www.history.com/topics/inventions/model-t following questions: o What were the innovations at that moment? o Were those changes incremental or radical? Why so? 39 https://www.youtube.com/watch?v=S4KrIMZpwCY https://www.history.com/topics/inventions/model-t Poll from Socrative
Haibo L. 40 https://b.socrative.com/login/student/ Ford Model-T’s Innovations -scale mass production using the assembly line Note: In 1901 Ransom Olds designed and introduced the Curved Dash Oldsmobile. This was the first American motor vehicle produced on the first assembly line. 41 Dimensions of innovation – what can
we change? products/services/processes, or ‘do what we do but better’ products/services/processes, or ‘do something completely different (and better)’ 42 Dimension Incremental Radical Product Process Position Paradigm Exploring innovation space 43 To dos • If you only have two or three people, you can email me your list too. • If you have no preferences, I will assign you to a team (there is no
need to email me in this case). • I will combine teams in the end, so do expect new members. • We will discuss it in the next class (participation!) • No submission required 44 Welcome to MGT 246�Entrepreneurial ManagementAbout the CourseAbout ZoomIce breakerSyllabusIndividual Creativity ChallengeIndividual Creativity ChallengeCreative DestructionInnovation MattersInnovation MattersGLOBAL INNOVATION INDEXSlide Number 12Slide Number 13Companies that are most entrepreneurial and innovative�Slide Number 15The World's Most Innovative Companies of 2020 – Fast CompanyInnovationInnovationEntrepreneurshipInnovation & EntrepreneurshipInnovation & EntrepreneurshipTypes of EntrepreneursSlide Number 23Slide Number 24Innovation isn't easy10 Minutes break!Successful Entrepreneurs...Collaboration in InnovationSlide Number 29Innovation isn't easySlide Number 31Can we manage innovation?Dimensions of innovation – what can we change?Dimensions of innovation – what can we change?Slide Number 35Slide Number 36Slide Number 37Slide Number 38Dimensions of innovation – what can we change?Poll from SocrativeFord Model-T’s InnovationsDimensions of innovation – what can we change?Slide Number 43To dos MGT 246 Introduction to
Entrepreneurship Professor Haibo LIU “The Termites” at Stanford University named Lewis Terman between the third grade and eighth grade as measured by Intelligence Quotient (IQ) study, which is now famously known as Genetic Studies of Genius, collected data from the students throughout their entire lives. 2 Students with high IQ are also: their peers
3 Poll from Socrative participation points! uiz” after you finish https://www.socrative.com/ Threshold Theory having a high IQ is not equivalent to being highly creative certain level, intelligence doesn’t have much effect on creativity 5 6
10,000 Thousand Hours Rule you need to have, and after that it comes down to a lot of deliberate practice, putting in your reps, and developing your skill set (taking a that 10,000 hours of "deliberate practice" are needed to become world-class in any field (Anders Ericsson) 7 ed English schoolboys, and found that conventional measures of IQ did not always do justice to their abilities. -solving which produced the "right" answer, but under-estimated creativity and unconventional approaches to problems. something that is new and useful 8 IQ and Creativity
What are advantages working in groups? 9 What are the potential problems working in groups? 10 eativity recognizes the potential of diversity and interaction and tools to support this include those which enable ‘creative collisions’. cludes paying attention to factors like physical space, time and ‘permission’, reward and recognition, establishing a process and training and skills development. 11 Group Creativity Collaboration in Innovation/Entreprenurship
©2015 John Wiley and Sons Advantages and disadvantages 13 It is All about Process 14 IDEO IDEO backgrounds of the team members? uES6ayCw0 https://www.youtube.com/watch?v=YPuES6ayCw0
IDEO supermarket? IDEO before, why did they have to go to the supermarket again for this project? IDEO IDEO? IDEO IDEO amplify advantages of collaboration, and at the same time minimize its disadvantages? IDEO
IDEO’s “deep dive”? What are the dos and don’ts? “Deep Dive” Process at IDEO convergent thinking?) bell) convergent thinking?) Design Thinking 23 It is All about Process 24
10 Minutes Break! MGT 246 �Introduction to Entrepreneurship“The Termites”Students with high IQ are also:Poll from SocrativeThreshold TheorySlide Number 610,000 Thousand Hours RuleSlide Number 8What are advantages working in groups?What are the potential problems working in groups?Slide Number 11Slide Number 12Slide Number 13Slide Number 14IDEOIDEO�IDEOIDEOIDEOIDEOIDEO“Deep Dive” Process at IDEODesign ThinkingSlide Number 2410 Minutes Break! MGT246 Introduction to Entrepreneurship Professor Haibo LIU Manufacturing vs Service Economies Manufacturing vs Service Economies communication & IT, entertainment, professional and public services developed countries?
-quarters of the wealth and 85% of employment. Differences between products and services to Singapore Differences between products and services •Tangibility: o Product is tangible • Perceptions of quality: o Service quality is based on customer experience • Simultaneity: o Service is produced and immediately consumed • Storage: o Services usually cannot be stored for later consumption, eg. seats on an airline o Create problem of matching supply with demand o
Solution s: discounts at off-peak time, employ part-time works at peak time • Customer contact: o service has proximity to customers o service usually has direct contact with customers, eg. medical treatment kes a successful product/service? Diffusion of innovations • Diffusion is the means by which innovations are translated into social and economic benefits. • However, the benefits of innovations can take 10–15
years to be fully effected, and in practice most innovations fail to be adopted widely, and so have limited social or economic impact. Rogers’ definition communicated through certain channels over time among members of a social system. It is a special type of communication, in that the messages are concerned with new ideas. ~ Everett Rogers 2003 Adoption Curve The S-curve Assumption: all potential
adopters are similar And have the same needs https://www.youtube.com/watch?v=NiNoNYLBabA https://www.youtube.com/watch?v=NiNoNYLBabA Breakout room over the chasm of innovation diffusion? and give a specific example Network externality
in the benefit, or surplus, that an agent derives from a good when the number of other agents consuming the same kind of good changes. example, your mobile phone becomes increasingly valuable since you will have greater use for it. Network externality into two distinct parts. o The first component is the value generated by the product even if there are no other users. o The second component is the additional value derived from being able to interact with other users of the product, and it is this latter value that is the essence of network effects.
Bandwagon Effect of pressure caused by the sheer number of those who have already adopted an innovation, rather than by individual assessments of the benefits of an innovation despite no clear advantage of the innovation innovation, the more influential the bandwagon effects is Factors Affecting Diffusion In predicting the rate of adoption of an innovation, five factors explain 49–87% of the variance: • Relative advantage • Compatibility • Complexity
• Trialability • Observability ©2015 John Wiley and Sons Innovation & Entrepreneurship 3e by Bessant & Tidd Relative Advantage innovation is perceived as better than the product it supersedes, or competing products. example cost or financial payback -economic factors such as convenience, design, satisfaction and social prestige may be equally important.
Compatibility innovation is perceived to be consistent with the existing values, experience and needs of potential adopters. o Existing skills and practices o Values and norms Who Invented Incandescent Light? What was the main source of lighting before the Incandescent Light? Who Invented Incandescent Light?
electric lamp in the early 1800s. in 1878 that Edison studied while building his own. lighting? Poll from Socrative Haibo L. s only one question
21 https://b.socrative.com/login/student/ Innovations Meet Institutions technical and economic superiority over an incumbent rival. dence suggests that for its initial success (adoption), Edison’s system of electric lighting depended on the concrete details of its design to invoke public’s familiarity with existing gas and water utilities (existing institutions). , which exploited past understanding but also preserved the flexibility to evolve and build new institutions Complexity
innovation is perceived as being difficult to understand or use. ns which are simpler for potential users to understand will be adopted more rapidly than those which require the adopter to develop new skills and knowledge. Trialability an innovation can be experimented with on a limited basis. uncertainty to potential adopters, and allows learning by doing. Innovations which can be trialled will generally be adopted more quickly than those which cannot.
– how far can the risk of adoption be down into small steps rather than requiring a fullbroken commitment at the outset Observability an innovation are visible to others. innovation, the more likely it will be adopted. that innovations spread as potential adopters come into contact with existing users of an innovation. Early Days of Airbnb
Denver, but there were only 28,000 hotel rooms available. -of-town attendees. bnb blasted bloggers in Denver with its marketing. the lodging crisis in Denver. Summary • Services and products are different in a number of ways, especially intangibility and perceived benefits, and so will demand the adaptation of the standard models and prescriptions for new product development. •The relative advantage, compatibility, complexity, trialability and observability of an innovation all affect the rate of diffusion.
Innovation & Entrepreneurship 3e by Bessant & Tidd Success factors in new ventures • Product/service advantage • Market knowledge • Clear product definition • Risk assessment • Project organization • Project resources • Proficiency of execution • Top management support ©2015 John Wiley and Sons Innovation & Entrepreneurship 3e by Bessant & Tidd MGT246�Introduction to EntrepreneurshipManufacturing vs Service EconomiesManufacturing vs Service EconomiesDifferences between products and servicesSl ide Number 5Slide Number 6Slide Number 7Rogers’
definitionAdoption CurveSlide Number 10Breakout roomNetwork externalityNetwork externalityBandwagon EffectSlide Number 15Relative AdvantageCompatibilityWho Invented Incandescent Light?What was the main source of lighting before the Incandescent Light?Who Invented Incandescent Light?Poll from SocrativeInnovations Meet InstitutionsComplexityTrialabilityObservabilityEarly Days of AirbnbSlide Number 27Slide Number 28 Crowdfunding To dos . Have a great Thanksgiving! Canvas -home) in the
last class • Answer questions based on a given case • Only use concepts learned in this class Airbnb 1. Who are the cofounders of Airbnb? Describe their background and personality. Are there complementary skills in the founding team? 2. What was the inspiration of creating the company? 3. What challenges the cofounders faced, and how did they solve them? 4. How did the interactions with the hosts help them generate insights to improve their business model? What have they learnt? 5. What have you learned from their experience as entrepreneurs? 3
Sources of Funding How does startup funding, such as Series A, B, C, etc., work? outside investors, and each time they do, it's called a funding "round." Each round represents another stage in the startup's life.
-seed funding round: Think of this as the Steve Jobs's garage stage. Your startup doesn't have a concrete product, but you have a good concept. Your funders aren't professional investors, just friends or family who want to see you succeed. attracts interest from "angel investors," individuals who fund early-stage companies. ve achieved proof of concept, and investors known as venture capitalists are analyzing data on what you achieved with past investments. to expand. You might use the funds to explore new markets, grow teams, or hire a really expensive person on Cameo to make an appearance at an all-hands. up more market share, develop new products, or even make acquisitions.
https://www.morningbrew.com/daily Exit/Liquidation Strategies Going Public PO), thus becoming a publicly traded and owned entity
number and price of the shares that will be issued expanding lists may use IPOs as an exit strategy Going Public - Benefits Going Public - Cons
o Investment backing fees ~ 7% o Auditors, lawyers ~ 5% Initial Public Offering (IPO) opportunities
prospects of a certain industry, thus drives up prices (supply and demand) stock Investment Banker Investment Banker and
discounted cash flow and institutional investors (E.g. investors include pension funds and life insurance companies) Builds a demand schedule for the offering during the “road show” usually places the share with best customers CrowdfundingTo dosAirbnbSlide Number 4Sources of FundingHow does startup funding, such as Series A, B, C, etc., work? �Exit/Liquidation StrategiesGoing PublicGoing Public - BenefitsGoing Public - ConsInitial Public Offering (IPO)Investment BankerInvestment Banker
9 - 8 1 1 - 0 6 5 R E V : O C T O B E R 2 4 , 2 0 1 4 _____________________________________________________ _____________________________________________________ ______ Professor Thomas R. Eisenmann, Michael Pao (MBA 2011), and Research Associate Lauren Barley prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illust rations of effective or ineffective management. Copyright © 2011, 2012, 2014 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1- 800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted,
or transmitted, without the permission of Harvard Business Sc hool. T H O M A S R . E I S E N M A N N M I C H A E L P A O L A U R E N B A R L E Y Dropbox: “It Just Works” Drew Houston, the 27-year-old cofounder and CEO of Dropbox, a downloadable application that allowed users to easily share, sync, and store files (photos, documents, videos, etc.) across most personal computers (PC) and smartphones, saw the fog rolling over the hills as he headed up US Route 101 to the company’s headquarters in San Francisco, California. It was June 2010, and he had just finished a board meeting. Things were going well: Dropbox had plenty of cash in the bank, activations continued to ramp up, and the company’s freemium
business model was working well. However, Houston had plenty on his mind. He reflected on the board’s discussion of Dropbox’s product strategy and ways to accelerate growth. Dropbox, founded in April 2007 and launched to the public in September 2008, stored and tracked tens of billions of files for a user base of several million users, two-thirds of whom resided outside the U.S. The company reached this scale by offering a single product version to both consumers and business users and without conducting much formal market research on these users and their preferences. Exchanges in support forums suggested that many customers relied on Dropbox for specific tasks, such as backing up photos, running a startup, or collaborating on Microsoft Office documents. Users were constantly requesting new features, many of which would violate the company’s commitment to offering a simple, easy- to-use product. As Houston approached the office, he wondered if Dropbox should continue its strategy of
offering a single product for all users or whether it should segment its diverse and growing user base, perhaps by creating a “professional” version that targeted the “power” user or a separate product for small to medium-sized businesses. Houston looked forward to discussing these options with his team. Drew Houston Houston was introduced to computer programming and startups at a young age. He was writing software at age 5 and testing an online game at age 14. When he identified security problems with that game, its developer hired him as a network engineer. In 2001, Houston attended Massachusetts Institute of Technology (MIT) where he also cofounded Accolade, an online SAT preparation service. Houston graduated from MIT with a bachelor of science in computer engineering in January 2006. For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO
LIU, University of California - Riverside from Dec 2021 to Dec 2021. 811-065 Dropbox: “It Just Works” 2 After graduation, Houston joined Bit9, an enterprise security software company headquartered in Cambridge, Massachusetts. However, after watching friends leave for Silicon Valley to pursue their entrepreneurial dreams, he was determined to follow. Houston commented, “I was working full-time at Bit9 and part-time on the online SAT prep startup that I’d launched in 2004. That startup was profitable, but I didn’t have much passion for the product. I was searching for a new opportunity that was more technically challenging.” Dropbox met this requirement. Houston got the idea for Dropbox while waiting for a bus at Boston’s South Station in December 2006. He had planned to work on a programming project for Bit9
during the four-hour ride to Manhattan, but left his USB flash drive at his Cambridge apartment. Frustrated, he began designing a service to sync and share files between personal computers over the Internet. Launching Dropbox It’s hard to imagine Tom Cruise in Minority Report sending himself files via Gmail or lugging around a USB thumbdrive. — Drew Houston1 After his frustrating experience on the bus, Houston started working full-time on Dropbox. He said: I needed it badly. I worked on multiple desktops and a laptop and could never remember to keep my USB drive with me. I was drowning in email attachments trying to share files for my previous startup. My home desktop’s power supply literally exploded one day, killing one of my hard drives, and I had no backups. I tried everything I
could find but each product inevitably suffered problems with Internet latency, large files, bugs, or just made me think too much.2 To help with the project, Houston recruited Arash Ferdowsi, who dropped out of MIT to work with Houston, later becoming Dropbox’s cofounder and chief technology officer. The pair spent the next four months coding a prototype in a tiny Cambridge apartment. Dropbox was a late entrant to the fiercely competitive online backup and storage services space. The first firms in the space, which had small businesses as customers, were launched in the late 1990s by startups offering outsourced storage at remote data centers. As costs declined, services also became available for consumers seeking to back up their data online. Most early users were technically adept, for example, college students downloading music from peer-to-peer file-sharing services. Few firms in this first wave of services survived the dot-com
crash, but by late 2006 the market was crowded again with new offerings. (See Exhibit 1 for competitors.) In July 2007, the tech blog Mashable published a list of more than 80 online backup and storage services.3 Market research vendors such as IDC fueled the hype by predicting in 2007 that the worldwide market for online backup services would grow to $715 million by 2011.4 Investor interest in online storage surged when Mozy, an online backup service, was acquired by EMC, a publicly held storage company, for $76 million in late 2007. Houston was confident that Dropbox could succeed in the face of intense competition. He reasoned that Dropbox would be able to collect revenue from some users, because consumers generally understood that storage cost money, whether it came in the form of a physical drive or an For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in
MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021. Dropbox: “It Just Works” 811-065 3 online service. When challenged by venture capitalists to explain why the world needed another cloud backup company, Houston asked them, “How many of those services do you personally use?” The answer from VCs was almost invariably, “None of them.”5 Houston asserted that direct experience with rival services, which often failed to transfer data across firewalls and sometimes balked with big files or a large numbers of files, was helpful in understanding what would become Dropbox’s performance advantages. Houston said: The first generation of cloud storage services was based on a simplistic model, where file
accesses were redirected over the Internet instead of to your computer’s hard drive. Your operating system and all your applications assume that accessing your hard drive is cheap and fast, but when these requests are instead routed to a server thousands of miles away, they can take an order of magnitude longer. This subtle but critical distinction explains why when working remotely, even simple actions like browsing a directory can freeze your computer for seconds at a time. We needed to take a completely different approach by storing files locally and updating the cloud copy in the background using a number of time- and bandwidth- saving optimizations. Product Development and Early-Stage Financing Houston and Ferdowsi created a prototype that allowed Windows PC users to access files of any size or type via an encrypted Internet connection from other Dropbox-enabled PCs or from any web browser. The Dropbox client software tracked changes in real time to any file placed in the user’s local Dropbox folder, then almost instantly synchronized a copy
of that file on Dropbox’s servers, updating only those portions of the file that had changed, in order to save bandwidth and time. Likewise, within milliseconds, copies of the file were synchronized in local Dropbox folders on all other devices connected through the user’s account. “We engineered Dropbox so it just worked, all of the time,” Drew explained, “We handle all kinds of obstacles, from flaky wireless connections to corporate firewalls, which is not an easy task.” With a working prototype in hand, Houston came up with an innovative approach for testing demand. He had produced recruiting videos for his college fraternity; with this know-how, he created a three-minute screencast of a product demo and uploaded it to Hacker News, a popular online forum for developers. “I did this out of necessity. There was no way I could ask for people’s files before we were 100% sure our code was reliable. But I had a prototype that showed off the product’s best features,” he said.6 Houston used the screencast to recruit beta users and solicit feedback on features. He added, “Not launching is painful, but
not learning can be fatal. We got a lot of feedback through that video, so we were learning while we were building.” Houston had another reason for posting the video on Hacker News: he hoped to connect with its founder, Paul Graham, who was also the founder of the prestigious and selective Y Combinator seed fund and incubator program. Houston recalled, “I had just submitted my application to Y Combinator and as a gambit to get their attention, I submitted the video to Hacker News. I hoped it would work.”7 It did: in April 2007, Dropbox received $15,000 in funding from Y Combinator. (See Exhibit 2 for excerpts from Dropbox’s Y Combinator application.) In exchange for a small percentage of a startup’s common equity—usually 2% to 10%—Y Combinator provided up to $20,000 of seed capital as well as mentoring, workspace, and introductions to other advisers and investors over a three-month period. At the end of three months, it held a “demo day” where its most promising companies made funding
For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021. 811-065 Dropbox: “It Just Works” 4 pitches to a large group of startup investors. Many startups applied to Y Combinator’s program, which had a track record for matching strong technical teams with elite venture capital firms. The cofounders planned to build a single version of Dropbox that would be targeted to individuals—both consumers and business users. Houston explained: Before I launched Dropbox, I worked at a security software startup, where I got a formative
lesson about targeting enterprise customers. Their decision cycles seemed endless, and involved lots of gatekeepers. You run into this Catch-22 where you can’t make sales unless you are certified by IT, and you can’t get certified until you have a track record. It’s especially hard if you call on small and medium-sized businesses. They don’t talk to each other, so you can’t rely on references. And as a startup, the customer is always worried about whether you’ll be around to support their product. Based on these lessons, we decided to target Dropbox to individual users, both consumers and businesspeople. The idea is to get people using it inside companies without IT’s permission. Once IT sees that Dropbox is in heavy demand and that it works reliably, we’ll get certified for use across the company. This approach worked with Wi-Fi equipment and BlackBerrys. That’s been our go-to-market strategy for enterprise: personal use as a Trojan horse. Houston proposed using a freemium business model that offered
both free and premium (i.e., subscription) accounts. Initially, he planned to give away 1 gigabyte (GB) accounts for free and charge for additional storage, perhaps by offering an individual user 10 GB of storage for $5 per month. Upon conclusion of the Y Combinator program in September 2007, Dropbox raised $1.2 million of convertible debt from Menlo Park, California–based Sequoia Capital. “We fit into Sequoia’s sweet spot: we were two young technical founders, working out of an apartment, targeting a big market. It helped that we were ranked at the top of our Y Combinator cohort,” Houston recalled. He and Ferdowsi then relocated to San Francisco, but despite the capital infusion, they continued to run lean, operating the company out of a 900-square-foot office sublet. Dropbox delivered its service through Amazon’s Simple Storage Service (S3) cloud storage platform, avoiding the need for infrastructure investments and positioning the company to scale rapidly. Beta Testing
The cofounders created a private beta program for a limited group of users who registered through a simple landing page. The page contained a short description of Dropbox and requested an e-mail address from visitors interested in participating in the beta test. (See Exhibit 3 for the landing page). Beta testers would receive a 2 GB Dropbox for free; a premium version was not yet offered. Houston commented: There’s a spectrum of well-informed opinions about when to launch your product. At one end, Paul Graham tells entrepreneurs, “Launch early and often” to accelerate learning. At the other end, [respected software guru] Joel Spolsky says, “Launch when your product doesn’t completely suck.” We were managing people’s files, and it’s a big deal if you lose or ruin them. That meant moving toward Spolsky’s end of the spectrum and keeping our beta test small. Next, Houston devised ways to generate demand for the beta service. Developing a Macintosh client expanded the potential user base. Houston also undertook some guerilla marketing. He
For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021. Dropbox: “It Just Works” 811-065 5 produced another short demo video and posted it in March 2008 on Digg, a site that showcased web content deemed popular by Digg’s users. Houston felt it was essential to communicate in an authentic manner with the tech enthusiasts who frequented Digg. He sprinkled virtual “Easter eggs” (intentional hidden messages, jokes, or features inserted into a software program or video game by its developer) into the video, for example, references to Chocolate Rain (a YouTube phenomenon), TPS reports used in the movie Office Space, MIT’s Killian Hall, and
the 09 F9 key for decrypting Blu-ray disks (dissemination of which, in the face of movie studio legal threats, was a hacker crusade). With this tongue-in-cheek nod to its tech-savvy audience, the Dropbox video soared to the top of Digg, generating hundreds of thousands of views within a few days. Overnight, the list for Dropbox’s private beta jumped from 5,000 to 75,000 names, far exceeding the team’s expectations. Building the Company Make something people want. — Y Combinator motto Based on consumer response to the second video, it appeared that the promise behind Dropbox— “It just works”—resonated with potential early adopters, especially those who were familiar with the performance limitations of existing online backup and storage services. Dropbox opened its beta to the public in September 2008 at TechCrunch50, an annual competition showcasing high-potential startups. Dropbox was one of 50 startups selected to present at the event from a pool of over 1,000
applicants. TechCrunch50 served a dual purpose: it would generate buzz for Dropbox’s launch and also provide a product development deadline for the team. In September 2008, Dropbox publicly launched its Windows and Mac clients, and added a Linux version in response to beta user requests. All of the clients were functionally identical. At the same time, the company offered a 50 GB Dropbox for $9.99 a month or $99 a year; a 100 GB option for $19.99 per month or $199 per year was added in early 2009. Users continued to receive 2 GB accounts for free. After launch, Houston shifted his focus back to product development. Dropbox’s first six hires hailed from MIT’s computer science program, and its team was mostly composed of engineers during the company’s first two years. Houston felt these first hires were critical for setting the company’s culture, which he characterized as being obsessed with quality and taking pride in both working hard and in making something “good.” Early on, board members tasked Houston with hiring a product
manager (PM) to help coordinate engineering efforts and prioritize features. Houston reflected: If you ask 10 people what a product manager is, you’ll get 10 different answers. They tend to fall on a continuum with the end points being “librarian” and “poet.” A librarian is focused on blocking and tackling, coordination, and facilitating communication. This type of PM is inherently organized and follows up relentlessly. A poet PM listens to the voice of the customer during usability tests and focus groups and based on that insight formulates an aesthetic vision, a grand strategy, and a product road map. Our first product manager was more of a librarian than a poet, because we needed a librarian’s discipline: even today we don’t have enough of that DNA in the company. But he just drove people nuts. It was painful, but we had to let him go after six months. For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO
LIU, University of California - Riverside from Dec 2021 to Dec 2021. 811-065 Dropbox: “It Just Works” 6 For the next year until Dropbox hired another product manager, the company relied on Houston and Ferdowsi to drive the product road map. Development proceeded more slowly than Houston expected. In his April 2007 Y Combinator application, Houston had predicted that Dropbox would offer a commercial version of its product within eight weeks, but launching Dropbox to the public actually took 18 months. Houston said, “As a result of doing a few things well, we left a lot of other things behind. We had no business people, we were terrible at getting mainstream PR, and running fast and loose didn’t make for the most predictable engineering organization.”8 Early Marketing Efforts
Houston mused that since Dropbox was following a tried-and- true blueprint for launching a consumer Internet service, his next step would need to be devising a marketing plan. Dropbox retained an online marketing consultant to help with this task. Houston said, “What do most web companies do? Apply to TechCrunch50, check. Buy AdWords, check. Get real marketing people, check.”9 Early on, Dropbox attempted to acquire new customers through paid search advertising. However, incumbents had bid up the cost per click for obvious search keywords. As a result, it cost Dropbox more than $300 to acquire a paying customer. (See Exhibit 4 for sample AdWords campaign performance.) This was not economically sustainable, since an annual subscription for 50 GB service was priced at $99. Dropbox tweaked its sign-up process to increase the conversion rate from free user to paying customer. In addition, the team experimented with display ads and affiliate programs (through
which partner sites referred users in exchange for a fee). However, as with search ads, these efforts yielded unacceptably high acquisition costs per paying customer. The company also tried hiding the free service option for visitors who arrived via ads. Houston recalled, “Our average acquisition cost per paying customer went from thousands of dollars to hundreds, but we still had a problem with our economics. And we didn’t feel good about doing sneaky things to our users to get them to pay.”10 Sequoia Capital and Accel Partners subsequently led a $6 million Series A round of financing in October 2008, but even with additional capital in the bank, relying on advertising for customer acquisition would not be a viable long-term option. Growth through Analytics Houston realized that with a freemium strategy, optimization of marketing messages and pricing would be critical to Dropbox’s success. Consistent with this priority, the company hired an analytics engineer as its eighth employee. Inspired by Facebook’s growth
team, which was dedicated to user acquisition and engagement, Houston later assigned 30% of engineering resources to optimizing customer acquisition efforts. This team closely tracked metrics across Dropbox’s conversion funnel by cohort.a Metrics included the percent of landing-page visitors who registered as free users; the percent of registrants who still were active free users after X months; and the percent of free users who upgraded to paid subscriptions after Y months. Houston said, “We run our business based on the Startup Metrics for Pirates ‘AARRR’ framework developed by investor Dave McClure. He says firms should closely track metrics around the acquisition of landing-page visitors; activation of those visitors into users; retention of users; referral of new visitors by satisfied users; and revenue earned from users.” a A cohort was a set of prospects or users acquired at the same time and/or via the same marketing method. For the exclusive use of Q. Shi, 2021.
This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021. Dropbox: “It Just Works” 811-065 7 The team used A/B testing to fine-tune page layouts and content.b Based on test results, Dropbox also decreased the amount of free storage given to users. Analytics showed that gigabytes were not necessarily the best measure of value for Dropbox users. “We had all kinds of people paying us for Dropbox but not even bumping against their quota,” Houston said.11 Analytics likewise revealed that few users were accessing past versions of their files, all of which—including deleted files—were being permanently stored
by Dropbox at a significant and rapidly growing cost. The company modified its policy, offering all Dropbox users 30 days of “undo” history free of charge. Unlimited undo history became a $39- per-year add-on feature called Pack-Rat, available to subscription users only. Houston said, “Just a tenth of a percent improvement in conversion rates, or a small decrease in the cost of serving a customer can have a huge impact on profitability. Freemium is a spreadsheet game—one you win with lots and lots of little moves.”12 Growth through Partnerships Houston initially believed that partnering might be another strategy for accelerating growth. He approached PC security software providers shortly after Dropbox’s launch, hoping they might bundle Dropbox with their applications. He did so against the advice of his cofounder Ferdowsi, who was skeptical that large companies would ever sign deals with an unknown startup. Houston said, “I figured we’d get our first 100,000 users through expensive search marketing, then we’d need an awesome Plan B to make our economics work. At that time, my
best idea for Plan B was distribution deals.” After wasting weeks on discussions that invariably stalled, Houston decided to scrap the idea. He recalled: Big companies sometimes seem happy to talk to a startup. They’ll bring in 12 middle managers—none of whom have any authority—to kick the tires and learn all about your technology. They’ll spin your wheels for months. We got close to a deal with one of the antivirus software providers. At the 11th hour, they brought in an SVP who announced that they were going to bury our brand in a white label deal, contrary to everything we’d discussed prior to that point. And the SVP said, “Oh-by-the-way, we’ll need all this customization.” I came back and looked at my board slides, which showed how we’d take over the world with distribution deals. I felt like an idiot. Arash was furious; he said, “I told you this would happen.” Since then, I’ve realized that no significant tech company has been built solely through distribution deals without having a strong brand of its
own. Partly due to the way I got burned in these discussions, we still don’t have a VP of business development. We’re looking for one, but I’m worried that if we hire the wrong person, we could get pulled in too many different directions. Organic Growth Despite improvements through analytics, Houston and his colleagues struggled to make the company’s marketing programs profitable. Nevertheless, the service grew rapidly, reaching 200,000 users 10 days after launch and 1 million users by June 2009. The vast majority of these users were acquired through word-of-mouth referrals and viral marketing efforts, rather than paid advertising. b A/B tests divided a set of similar individuals into a control group that experienced a status quo product and a test group that experienced a product with one modified element. Its purpose was to determine if the modification yielded a statistically
significant improvement in conversion rates. For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021. 811-065 Dropbox: “It Just Works” 8 A relentless focus on ease-of-use and reliability had paid dividends in the form of loyal users who encouraged friends, family, and coworkers to try Dropbox. Houston commented, “The power of focus can’t be understated. If you look at a feature matrix of Dropbox versus everyone else, we would never come in first. We would rather do a few things well rather than present Dropbox in a confusing way.”13
In mid-2009, Dropbox management abandoned paid search advertising entirely in favor of an exclusive focus on organic customer acquisition efforts. Houston commented, “It dawned on us that Dropbox was different. It’s not like the average user wakes up in the morning wishing to get rid of their USB drive. If you don’t think you have a problem, you’re not going to look for a solution. Search is great for harvesting demand, not for creating it.”14 Focusing on organic growth proved successful: Dropbox registered its 2 millionth user in October 2009, one month after launching its iPhone application. To identify ways to improve ease-of-use and product features, the Dropbox team tracked support forums closely. Houston said, “We get feature requests for things we already have. These are particularly bad because it means that even though we’ve implemented something, our users can’t find it. We pay close attention when that happens.”15 In November 2009, the company launched “Votebox” on its site, which allowed users to vote and comment on features they would like to see
added. (See Exhibit 5 for the Votebox landing page.) Since the team gained considerable insight on users’ preferences through support forums, the Votebox, and A/B testing, Dropbox did not conduct regular consumer surveys. However, it did conduct occasional usability tests. In one early instance, the entire team watched as not one of five typical consumers recruited from Craigslist could successfully install and interact with the application. Houston recalled: Watching them fail was excruciating. Imagine if your coffee maker just spit coffee all over the counter every third time you used it or your car stopped in the middle of the road. That’s the computer experience for a normal person. The PC is always conspiring against you to lose your stuff or break in some weird way. You have no idea what happened or what you did wrong. Watching those five consumers struggle to try to figure out how to use our product was probably the most painful day we ever had as a team, but afterward, we created a list of 70 things to fix.
The team also devised better tools for satisfied users to spread the word about Dropbox. The most successful was a referral program whereby an existing user who referred a new user to Dropbox received 250 megabytes of additional free storage (up to 8 GB total for users with free accounts). Additionally, the new user upon sign-up received 250 megabytes of space on top of the 2 GB allocated to a free account. This two-sided incentive structure, modeled on one used by PayPal in its launch phase, served to reduce the distrust normally associated with spam-inducing, one-sided marketing campaigns. Houston and his colleagues improved other viral features, including password-protected shared folders that were accessible by multiple Dropbox users. Public folders also encouraged users to refer Dropbox. When users placed a file in their public folder (which was automatically nested within their Dropbox folder), they were given a link they could share, making the file accessible to anyone with Internet access.
Word-of-mouth referrals and viral marketing generated strong results. In April 2010, Dropbox’s 4 million users produced 2.8 million direct referral invites. Of the recent sign-ups, 35% originated from For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021. Dropbox: “It Just Works” 811-065 9 the referral program and 20% from shared folders and other viral features.16 The rest were acquired through word-of-mouth referrals and PR efforts. Houston reflected, “It’s hard to master freemium products unless you can build an organic customer acquisition engine. If you think of your free user
costs as your marketing budget, then things begin to make more sense.”17 Dropbox did not publish financial results, but industry observers had attempted to calculate both its revenue and its data storage costs. Analysts estimated that 2% to 3% of Dropbox’s users were paying customers, which implied a $10 million to $15 million annual revenue run rate in mid-2010.18 Dropbox was reported to be storing 433 MB of data per user in late 2009.19 Using this figure as the average amount of data stored for each free user and assuming an average of 25 GB for each paid user, an analyst estimated Dropbox’s monthly spending for storage and bandwidth to be $0.11 per free user and $3.18 per paid user, based on published prices for high-volume Amazon S3 customers.20 Accelerating Growth With product and marketing strategies in place, Houston was ready to focus on ways to accelerate Dropbox’s growth and capture a larger share of the rapidly growing global market for file synchronization and backup services. IDC projected 28% annual
growth for this market, from $724 million in 2009 to $2.5 billion in 2014.21 Industry growth was being fueled by declining costs for both storage and bandwidth. According to IDC, the per gigabyte cost for enterprise-grade storage equipment had fallen from $5.35 in 2005 to $1.23 in 2010, and would decline further to $0.36 in 2014. According to the DrPeering International consultancy, the average monthly wholesale cost for high- bandwidth Internet data delivery, measured per megabit per second, had fallen from $75 in 2005 to $5 in 2010, and would decline further to $0.94 in 2014.22 Among the options the Dropbox team debated was whether to continue to offer a single product for both consumers and business users. Houston commented: You can categorize Dropbox users along two dimensions: whether or not they share files with others, and whether or not they use the application for business. These dimensions define a 2x2 matrix, and we have lots of users in all four cells. Dropbox is a general-purpose application, much like Microsoft Word. My mom uses the same version of Word to record
recipes as my lawyer uses to mark up a 40-page contract. Deciding to offer a single product for consumers and business users was a big hurdle for us, and building a product that was compelling for both types of users was no small task. Staying the Course Since launch, Dropbox’s team had continuously upgraded their product’s ease-of-use and features, often in response to users’ requests. The list of additional functionality desired by users continued to grow, for example, offering the service in languages other than English. (See Exhibit 6 for nationalities represented by its user base.) Pursuing incremental product improvement opportunities as part of a “stay-the-course” strategy could keep Dropbox’s 25-person team busy for years. However, some of the most requested features threatened the company’s commitment to providing an easy-to-use product. The team had deliberately avoided implementing the most requested feature on Votebox: enabling the service to sync files
outside of the Dropbox folder, in particular, the “My Documents” folder within Windows (or its Macintosh counterpart, “Documents”). While a Dropbox folder could contain any number of other user-created folders, it For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021. 811-065 Dropbox: “It Just Works” 10 could not hold folders generated by the PC operating system (e.g., “My Documents”). Moving such a folder into the Dropbox folder could break crucial connections and cripple the operating system. Allowing Dropbox to sync outside folders would make the
service more flexible, but also more difficult to use. Users would have to make potentially confusing, high-stakes decisions about synchronization priorities across multiple devices. Mistakes by users could generate complex support issues. Houston explained: Imagine you’re a new user at home and you link to your “My Documents” folder and everything goes just great. Then you go to work and you blaze through the installer and you say, “Yeah, yeah, just sync it all.” You don’t think carefully about the implications of telling Dropbox to merge the contents of your “My Documents” folders on your home and work machines. You discover you’ve created this giant, ugly conglomeration of home and work files on both machines, and there’s no undo button. As part of a stay-the-course strategy, Dropbox could also revisit the idea of pursuing partnerships. In May 2010, Dropbox made moves in that direction, announcing a mobile application programmin g interface (API) that allowed third-party software developers to access files within a user’s Dropbox.
Early partners leveraging the API included QuickOffice (mobile editing and creating of Office documents), FuzeMeeting (web conferencing), and GoodReader (document retrieval and viewing). Also, in the past few months, a number of PC and smartphone manufacturers had approached the company about pre-installing Dropbox on their devices. They saw a parallel between online storage and antivirus/security software or search toolbars, which had generated hundreds of millions of dollars in bounties for OEMs, while significantly expanding their partners’ customer acquisition funnels. Houston commented: It was clear early on that there were strong similarities between our business and PC security software. We both have a product you probably don’t know that you need. You’re not looking for it. You’re happy when you have it, but if you don’t have it, life goes on. Products like this probably should come pre-installed on a PC, so you only have to think about them once.
Although Houston’s earlier partnership talks came to naught, perhaps the situation had changed now that Dropbox had millions of users and a strong reputation. Along those lines, the Android ecosystem represented a promising opportunity. In May 2010, at the same time Dropbox released a native iPad application, it also offered its official Android application. Houston asked: Shouldn’t every Android device ship with Dropbox? This could be a powerful differentiator for a device maker. And it could drive customer acquisition for us. A big barrier to adoption for Dropbox is that we require a client installation, which can be a high friction experience. Having the service bundled and pre-installed on millions of devices would remove this obstacle. Opportunities to partner with Android device makers raised a related question for Houston: what were the odds that Google—Android’s creator—would move aggressively into Dropbox’s space? Houston said:
Imagine a day when Google flips the switch and gives away a terabyte of free storage to 100 million machines. We think about this a lot; it pushes us to get big fast and lock in customers. We don’t want to become a fallen star like Netscape, which was crushed by Microsoft. For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021. Dropbox: “It Just Works” 811-065 11 Past efforts around cloud storage at Google have failed for internal political reasons. It’s not like they don’t have the technical talent to make this work, and cloud services are certainly aligned with their mission. But the project has been a black
sheep inside Google since 2005. At first they were worried about runaway server costs, like they had with YouTube. More recently, they’ve viewed file management as a feature of Google Docs. But deep down, all the ugly, grungy engineering we’ve done to make Dropbox work across multiple PC platforms seems irrelevant in their eyes. They think that PCs in their current incarnation, with local storage, will disappear as the cloud takes over. But with the grandeur of their vision, trying to move everything to the web, Google is not solving problems that real people have today. Product Segmentation There were many ways that Dropbox could segment its diverse and growing user base and tailor separate products or add-on features for the segments. The online backup and data storage services space remained fragmented and fiercely competitive in 2010. Among leading vendors serving individual users, Dropbox remained distinct in offering the ability to synchronize files across devices and to share files through public and private folders, although
some smaller startups provided similar capabilities (e.g., SugarSync). By contrast, offerings from large rivals like Mozy and Carbonite were limited to automated backup and remote file access via any web browser. Mozy’s service was free for up to 2 GB of storage; unlimited storage for a single computer was available for $4.95 per month. Carbonite did not offer free service (other than 15-day trials); its unlimited storage service for a single computer cost $54.95 per year. Since 2005, the website BackupReview.com had ranked the top 25 online backup and data storage companies in the consumer, small-medium business (SMB), and enterprise segments. (See Exhibit 7 for June 2010 rankings.) Dropbox ranked sixth in the consumer segment, but it was not mentioned as a top-25 provider in either the SMB or enterprise segments. By contrast, Mozy ranked No. 3 on the consumer list and No. 4 in the enterprise segment; Carbonite ranked No. 1 on the consumer list and No. 4 in the SMB segment. Dropbox could follow its rivals’ lead and offer a version specifically designed for small
businesses, as Carbonite had done by launching Carbonite Pro in February 2010. According to Carbonite’s CEO, “Now we have a version of Carbonite that incorporates everything that these small- business users have been asking for: no per-PC fees, administrative tools that are simple enough for any office manager to use, the ability to back up external dr ives, and priority support.”23 Pricing for Carbonite Pro, which supported an unlimited number of PCs, depended on the total volume of data storage a business required: rates ranged from $10 per month for up to 20 GB to $250 per month for 300 to 499 GB. The service featured a dashboard that allowed an office manager to easily track the backup status and volume of data stored for all of a company’s PCs, along with a restore wizard that guided the recovery of backup file copies. It was unclear how Carbonite’s push into the SMB segment would impact its profitability. Carbonite had incurred an operating loss of $14.2 million during the first six months of 2010, largely due to aggressive marketing spending (see Exhibit 8 for its P&L statement). Unlike Dropbox,
Carbonite relied heavily on paid advertising for customer acquisition, including radio, TV, and online display ads, as well as search engine marketing. Carbonite’s business model differed from Dropbox’s in another important way: Carbonite stored customers’ files on its own servers, rather than relying on a cloud services partner like Amazon S3. For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021. 811-065 Dropbox: “It Just Works” 12 Conclusion As he arrived at Dropbox’s San Francisco office, Houston wondered if his team was ready for the
rapid expansion ahead. He reflected on the company’s long- range goals: What we want to do as a company is let you sit at any computer or device and have access to all your stuff. For example, in college I could go from one workstation to any of the thousands of others on campus and not only could I see all my files but my entire desktop and environment. But after I graduated, I was on my own. So we’re trying to build that kind of seamless experience for the rest of the world. It’s a simple idea, but very challenging to build— certainly enough to keep us busy for the next five years.24 For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021. 8
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si z e s/ l/ . For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021. 811-065 Dropbox: “It Just Works” 14 Exhibit 2 Excerpts from Dropbox’s April 2007 Y Combinator Application
# What is your company going to make? Dropbox synchronizes files across your/your team's computers. It's much better than uploading or email, because it's automatic, integrated into Windows, and fits into the way you already work. There's also a web interface, and the files are securely backed up to Amazon S3. Dropbox is kind of like taking the best elements of subversion, trac and rsync and making them "just work" for the average individual or team. Hackers have access to these tools, but normal people don't. There are lots of interesting possible features. One is syncing Google Docs/Spreadsheets (or other office web apps) to local .doc and .xls files for offline access, which would be strategically important as few web apps deal with the offline problem. # Please tell us in one or two sentences something about each founder that shows a high level of ability. Drew - Programming since age 5; startups since age 14; 1600 on SAT; started profitable online SAT prep
company in college (accoladeprep.com). For fun last summer reverse engineered the software on a number of poker sites and wrote a real-money playing poker bot (it was about break-even) # What's new about what you're doing? Most small teams have a few basic needs: (1) team members need their important stuff in front of them wherever they are, (2) everyone needs to be working on the latest version of a given document (and ideally can track what's changed), (3) and team data needs to be protected from disaster. There are sync tools (e.g. beinsync, Foldershare), there are backup tools (Carbonite, Mozy), and there are web uploading/publishing tools (box.net, etc.), but there's no good integrated solution. Dropbox solves all these needs, and doesn't need configuration or babysitting. Put another way, it takes concepts that are proven winners from the dev community (version control, changelogs/trac, rsync, etc.) and puts them in a package that my little sister can figure out (she uses Dropbox to keep track of her high school term papers, and doesn't need to burn CDs or carry USB sticks anymore.)
At a higher level, online storage and local disks are big and cheap. But the internet links in between have been and will continue to be slow in comparison. In "the future", you won't have to move your data around manually. The concept that I'm most excited about is that the core technology in Dropbox -- continuous efficient sync with compression and binary diffs -- is what will get us there. # What do you understand about your business that other companies in it just don't get? Competing products work at the wrong layer of abstraction and/or force the user to constantly think and do things. The "online disk drive" abstraction sucks, because you can't work offline and the OS support is extremely brittle. Anything that depends on manual emailing/uploading (i.e. anything web-based) is a non-starter, because it's basically doing version control in your head. But virtually all competing services involve one or the other. With Dropbox, you hit "Save", as you normally would, and everything just works, even with large files (thanks to binary diffs).
# What are people forced to do now because what you plan to make doesn't exist yet? Email themselves attachments. Upload stuff to online storage sites or use online drives like Xdrive, which don't work on planes. Carry around USB drives, which can be lost, stolen, or break/get bad sectors. Waste time revising the wrong versions of given documents, resulting in Frankendocuments that contain some changes but lose others. My friend Reuben is switching his financial consulting company from a PHP-based CMS to a beta of Dropbox because all they used it for was file sharing. Techies often hack together brittle solutions involving web hosting, rsync, and cron jobs, or entertaining abominations such as those listed in this slashdot article ("Small Office Windows Backup Software" - http://ask.slashdot.org/article.pl?sid=07/01/04/0336246). For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021.
Dropbox: “It Just Works” 811-065 15 # How will you make money? The current plan is a freemium approach, where we give away free 1GB accounts and charge for additional storage (maybe ~$5/mo or less for 10GB for individuals and team plans that start at maybe $20/mo.). It's hard to get consumers to pay for things, but fortunately small/medium businesses already pay for solutions that are subsets of what Dropbox does and are harder to use. There will be tiered pricing for business accounts (upper tiers will retain more older versions of documents, have branded extranets for secure file sharing with clients/partners, etc., and an 'enterprise' plan that features, well, a really high price.) I've already been approached by potential partners/customers asking for an API to programmatically create Dropboxes (e.g. to handle file sharing for Assembla.com, a web site for managing global dev teams). There's a
natural synergy between Basecamp-like project mgmt/groupware web apps (for the to-do lists, calendaring, etc.) and Dropbox for file sharing. I've also had requests for an enterprise version that would sit on a company's network (as opposed to my S3 store) for which I could probably charge a lot. # Who are your competitors, and who might become competitors? Who do you fear most? Carbonite and Mozy do a good job with hassle-free backup, and a move into sync would make sense. Sharpcast (venture funded) announced a similar app called Hummingbird, but according to (redacted) they're taking an extraordinarily difficult approach involving NT kernel drivers. Google's coming out with GDrive at some point. Microsoft's Groove does sync and is part of Office 2007, but is very heavyweight and doesn't include any of the web stuff or backup. There are apps like OmniDrive and Titanize but the implementations are buggy or have bad UIs. # What tools will you use to build your product? Python (top to bottom.) sqlite (client), mysql (server).
Turbogears (at least until it won't scale.) Amazon EC2 and S3 for serving file data. # If you've already started working on it, how long have you been working and how many lines of code (if applicable) have you written? 3 months part time. About ~5KLOC client and ~2KLOC server of python, C++, Cheetah templates, installer scripts, etc. # If you have an online demo, what's the url? Here's a screencast that I'll also put up on news.yc: http://www.getdropbox.com/u/2/screencast%20- %20Copy.html If you do have a Windows box or two, here's the latest build: http://www.getdropbox. com/u/2/DropboxInstaller.exe # How long will it take before you have a prototype? A beta? A version you can charge for? Prototype - done in Feb. Version I can charge for: 8 weeks maybe? (ed: hahaha)
MGT 246Introduction to EntrepreneurshipProfessor Hai
MGT 246Introduction to EntrepreneurshipProfessor Hai
MGT 246Introduction to EntrepreneurshipProfessor Hai
MGT 246Introduction to EntrepreneurshipProfessor Hai
MGT 246Introduction to EntrepreneurshipProfessor Hai
MGT 246Introduction to EntrepreneurshipProfessor Hai
MGT 246Introduction to EntrepreneurshipProfessor Hai
MGT 246Introduction to EntrepreneurshipProfessor Hai
MGT 246Introduction to EntrepreneurshipProfessor Hai
MGT 246Introduction to EntrepreneurshipProfessor Hai
MGT 246Introduction to EntrepreneurshipProfessor Hai

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MGT 246Introduction to EntrepreneurshipProfessor Hai

  • 1. MGT 246 Introduction to Entrepreneurship Professor Haibo LIU 1 Announcement ©2015 John Wiley and Sons 2 Searching for Entrepreneurship Opportunities ©2015 John
  • 2. Wiley and Sons 3 When stages of the innovation ©2015 John Wiley and Sons 4 ©2015 John Wiley and Sons 5 https://www.youtube.com/watch?v=E-U02-RWUPc https://www.youtube.com/watch?v=E-U02-RWUPc ©2015 John Wiley and Sons 6
  • 3. https://www.youtube.com/watch?v=E-U02-RWUPc https://www.youtube.com/watch?v=E-U02-RWUPc Dominant Design middle of the 19th century and a huge variety of types emerged between 1860 and 1890. design, but it was not until near the turn of the century that the experiments with wheels, gears, seats, etc. converged to the now familiar 'diamond frame'. This still forms the basis of most bicycle design. ©2015 John Wiley and Sons 7 Dominant Design -war period in Europe led to an expansion in the demand for cycles as a cheap mode of transport and this put emphasis on production to low cost and high quality. improvement to achieve these goals and the product and market remained stable - essentially characteristic of the mature phase in the product/technology life cycle.
  • 4. ©2015 John Wiley and Sons 8 Dominant Design explored, simply that they were not adopted widely. Innovation was still taking place in specialist niches. roduced his small wheel collapsible bike that mainstream product innovation took place. up and carried on the train for commuters to use between the office and the station; other variants included a small shopping bike. ©2015 John Wiley and Sons 9 Dominant Design
  • 5. development, especially around accessories, new lightweight materials, and cycle clothing (helmets, etc.). ment of the mountain bike and to a resurgence of interest in cycling as a leisure activity rather than as a mode of transport. of radical change followed by convergence and consolidation it would be unwise to suggest that today's product represents the end of the road for innovation in this sector. ©2015 John Wiley and Sons 10 ©2015 John Wiley and Sons 11 Abernathy and Utterback model ©2015 John Wiley and
  • 6. Sons 12 Innovation Lifecycle – the ‘fluid’ phase – there is a lot of uncertainty, and emphasis is placed on product innovation. fail) about the ways to use new market and technological opportunities. proliferation of entrepreneurial ideas as an example of a fluid phase. ©2015 John Wiley and Sons 13 Innovation Lifecycle cular configuration – the ‘dominant design’ process innovation.
  • 7. consistent quality, etc.? o the business of car design but his Ford Model T became the dominant design and succeeded principally because of the extensive process innovations around mass production. ©2015 John Wiley and Sons 14 Innovation Lifecycle third, ‘mature’ phase in which innovation is incremental in both product and process another breakthrough and return to the fluid stage. as in the fluid phase but in the mature stage we would be better placed concentrating on incremental improvement innovations. ©2015 John Wiley and Sons 15
  • 8. Dominant Design 16 2007 "Apple reinvents the phone." Dominant Design ©2015 John Wiley and Sons 17 How about the dominant design of services? ©2015 John Wiley and Sons 18 How about the dominant design of services?
  • 9. ©2015 John Wiley and Sons 19 How about the dominant design of services? ©2015 John Wiley and Sons 20
  • 10. Social Innovation ©2015 John Wiley and Sons 21 Jane Chen and the Warm Embrace incubator am tried to solve? http://www.ted.com/talks/jane_chen_a_warm_embrace_that_sav es_lives?langu age=en 22 http://www.ted.com/talks/jane_chen_a_warm_embrace_that_sav es_lives?language=en Breakout room
  • 11. • Appoint someone to take notes • Appoint someone to keep the time • Discuss the questions • You have 6 minutes, click the “help” button any time Innovation is about recombination! combinations of prior technologies essential feature in productive thought” -and-roll music is widely thought to have resulted from a fusion of rhythm and blues, folk, country, and gospel music. well as by borrowing from other languages. ©2015 John Wiley and Sons 24
  • 12. Innovation ‘the process of creating value from ideas’. o It is a process o Creating value: economic or social value o Idea: new and useful Social Innovation characteristics. at drive social innovation? 26 Social Innovation rather than being wholly new in themselves zation sectoral or disciplinary boundaries
  • 13. Corporate social responsibility • Social innovation as securing a ‘licence to operate’ o Requests by various stakeholders o May not be incompatible with developing a successful business • Social innovation as aligning values o Benefits of aligning values with their staff o Better retention • Social innovation as a learning laboratory o Meeting the needs of a different group to those of the mainstream population o Usually under resource limitations 28 Discussion – or harder – to create a sustainable business venture with a social entrepreneurship idea? Why? 30 Triple Bottom Line
  • 14. Simultaneous assessment of a company‘s performance against: responsibilities 31 Challenges in social innovation social enterprises rely on grants, donations, etc. that are unpredictable there because of their believes. This means that the traditional forms of organization and motivation may be less applicable MGT 246�Introduction to EntrepreneurshipAnnouncementSearching for Entrepreneurship OpportunitiesWhen��Dominant DesignDominant DesignDominant DesignDominant DesignSlide Number 11Slide Number 12Innovation LifecycleInnovation LifecycleInnovation LifecycleDominant DesignDominant DesignHow about the dominant design of services?How about the dominant design of services?How about the dominant design of services?Social InnovationJane Chen and the Warm Embrace incubatorBreakout roomInnovation is about recombination!InnovationSocial InnovationSocial InnovationSlide Number 28Slide Number
  • 15. 29DiscussionTriple Bottom LineChallenges in social innovation MGT 246 Introduction to Entrepreneurship Professor Haibo LIU 1 Asynchronous session: method Questions: 1. Who are the cofounders of method? Describe their background and personality. 2. How are their skills and background complementary? 3. What was the inspiration for creating the company? 4. Who are method’s competitors? How is method’s positioning unique? 5. What have you learned from their experience as entrepreneurs?
  • 16. What Made them Successful? Breakout Room 1. Selection your team number 2. Introduce yourself 3. Work on this question 4. You have 5 mins Design driven innovation and Method -founded by chemical engineer Adam Lowry and designer/marketer Eric Ryan dispensers and environmental friendly products
  • 17. Design Thinking and Coca Cola Poll from Socrative NNOV8 participation points! https://www.socrative.com/ Design Thinking and Coca Cola ly different from its predecessors? - Birth of the Contour Bottle
  • 18. Design Thinking -Cola was becoming easily confused with ‘copycat’ brands. -Cola called for a bottle that could be recognized when broken on the ground or by touch in the dark. Root Glass Company of Terre Haute, Indiana Design Thinking and Apple product to the mp3 player market ers to follow because of the uniqueness of the look and feel needs: there are important psychological and cultural factors Jonathan Ive Recent Focus on Design Thinking
  • 19. Harvard Business Review, Business Week, The Wall Street Journal, and The New York Times lawsuits between Samsung and Apple are design related Design Thinking innovation consulting firm IDEO and its leadership, founder David Kelley (Kelley and Littman, 2005), and more recently, current chief executive officer Tim Brown (Brown, 2009). of design thinking itself: although originally focused on product development, it has expanded to include the design of services, strategies, and even educational and other social systems. Design Thinking observation, collaboration, fast learning, visualization of ideas, rapid concept prototyping, and concurrent business analysis ~ Thomas Lockwood, former president of the Design Management Institute tools to problem solving.
  • 20. ~ Tim Brown Design Thinking - challenges formulations and solutions and were characterized by conditions of high uncertainty. more about “what is the best question to ask” nature of many design problems. Design Thinking 18 Design Thinking - Takeaways View of the Design Thinking Process Sources of Innovation
  • 21. finding novel ways to meet an existing need lies behind many new business ideas. laboratories, science facilities and universities in the public and private sectors generate new knowledge every minute comes in at mature stage in industry or product lifecycles. 21 Design Driven Innovation ©2015 John Wiley and Sons Locate: market pull innovation Design Driven Innovation ©2015 John Wiley and Sons
  • 22. Design Driven Innovation technology driven products, or the emotional aspects of services mers didn’t know they wanted Design Driven Innovation experience, including the food, ambiance, service, status, etc. patient experience include: banking, airlines, hotels, etc. at was the most common source of lighting before electric lights?
  • 23. Who Invented Incandescent Light? electric lamp in the early 1800s. in 1878 that Edison studied while building his own. lighting? Innovations Meet Institutions tion’s technical and economic superiority over an incumbent rival. (adoption), Edison’s system of electric lighting depended on the concrete details of its design to invoke public’s familiarity with existing gas and water utilities (existing institutions). understanding but also preserved the flexibility to evolve and build new institutions Compatibility
  • 24. tion is perceived to be consistent with the existing values, experience and needs of potential adopters. o existing skills and practices, o values and norms. ent into which they are introduced. Significant misalignments between the innovation and the adopting organization will require changes in the innovation or organization, or, in the most successful cases of implementation, mutual adaptation of both. How Great Designers Think -out craftsmanship
  • 25. ~William Lidwell https://www.youtube.com/watch?v=rdH8Kuku9tA&t=3622s https://www.youtube.com/watch?v=rdH8Kuku9tA&t=3622s Dyson vacuum Watch the video below and analyze how design thinking is applied to their new product development: James Dyson launches new Dyson vacuum with laser technology. – YouTube https://www.youtube.com/watch?v=fN7KJ46DHjU https://www.youtube.com/watch?v=fN7KJ46DHjU Red Dot Product Design Award Chair Nendo Oki Sato, Tokyo, Japan Air Purifier Homwee Technology (Sichuan) Co., Ltd., Chengdu, China http://red-dot.de/pd/online- exhibition/?lang=en&y=2016&v=28738&i=D
  • 26. Red Dot Product Design Award Mountain Bike Canyon Bicycles GmbH, Germany HP Officejet Printer Hewlett-Packard, Singapore MGT 246�Introduction to EntrepreneurshipAsynchronous session: methodSlide Number 3Slide Number 4Slide Number 5Slide Number 6What Made them Successful?Design driven innovation and MethodDesign Thinking and Coca ColaPoll from SocrativeDesign Thinking and Coca ColaDesign ThinkingDesign Thinking and AppleRecent Focus on Design ThinkingDesign ThinkingDesign ThinkingDesign Thinking - challengesDesign ThinkingDesign Thinking - TakeawaysView of the Design Thinking ProcessSources of InnovationSlide Number 22Slide Number 23Design Driven InnovationDesign Driven InnovationSlide Number 26Who Invented Incandescent Light?Innovations Meet InstitutionsCompatibilityHow Great Designers ThinkDyson vacuum Red Dot Product Design AwardRed Dot Product Design Award MGT246 Introduction to Entrepreneurship Professor Haibo LIU 1
  • 27. To dos o Case writeup submission on Method, group-based submission o Call for one group for case presentation (2 extra points!) Only one group, first come first served. o I2. IDEO shopping cart video o No submission required ©2015 John Wiley and Sons 2 About Zoom focused) r attendance (duration you are online). Please make sure your display name is consistent with your registered name (otherwise I cannot tell it is you).
  • 28. window se over your name in the “Participants” list on the right side of the Zoom window 3 4 Business models The purpose of a business model is to provide a clear representation of where and how value is created and can be captured. 5 Examples of business models • A theatre - uses scripts, actors, scenery, lighting and music to create a theatrical experience which the audience values.
  • 29. • How about an insurance company? 6 Plan? ©2015 John Wiley and Sons 7 Why use business models? • To provide a clear representation of where and how value is created and can be captured. o To provide a helpful checklist of areas to consider in making sure the idea and the route to creating value with it is well thought out. o To provide a roadmap for how an innovation can create value – it won’t just happen, it needs a framework. • To provide a way of sharing the idea with others o Easier to tell an interesting story o Makes the business vision explicit. Eg. to venture capitalists or to innovation teams
  • 30. o From ideas to implementation 8 Key components of business model – the value proposition. – the supply side. – the demand side. – the key activities by the supply side to create value for the demand side. 9 Business model canvas 10Alex Osterwalder, invented the Business Model Canvas , co- founded strategyzer.com Budget Airlines (Business Model Canvas) ©2015 John Wiley and Sons 11 https://www.youtube.com/watch?v=wlKP- BaC0jA&list=PLBh9h0LWoawphbpUvC1DofjagNqG1Qdf3&ind
  • 31. ex=3 https://www.youtube.com/watch?v=wlKP- BaC0jA&list=PLBh9h0LWoawphbpUvC1DofjagNqG1Qdf3&ind ex=3 12 Strategy Value Proposition customers will value over what they currently have. proposition? Why would customers buy your product? What are the weaknesses of existing competitors? this? What challenges that other competitors have that you can overcome (with your resources)? - value-propositions#preview 14 https://strategyzer.com/training/courses/mastering-value- propositions#preview
  • 32. Target Market you can separate out different groups the sharper your targeting nt target customers? slightly different offers? current pain points? Which aspects your product or service appeal to them? 15 About prototyping prototyping? ©2015 John Wiley and Sons 16 About prototyping
  • 33. prototyping? o Focus on your business model (the bigger picture) o Don’t fall in love with your first idea (iterative process) o Test your models early (how?) ©2015 John Wiley and Sons 17 Examples of “BAD” value propositions e customers met target customers well, or your idea is too fuzzy. , or the cheapest
  • 34. 18 Examples of “great” ideas but usually taken for granted Norms, habits or rules that are different from what you are used to, usually from another industry, domain, country or culture (more about this when we learn about Design Thinking) 19 Business model innovation • Business model ‘innovation’ is about creating new models or changing existing ones to maximize the value created • Does business model innovation require the discovery of new products or services, or new technology? • Are most business model innovations disruptive innovations? 20
  • 35. Examples of business model innovation are increasingly being reframed as service offerings. o Rolls-Royce redefined its business model as ‘power by the hour’ o Chemical companies are increasingly looking to provide rental models in which they offer services to support the effective use of their products rather than simply delivering bulk chemicals 21 ©2015 John Wiley and Sons 22 It is All about Process 23 Searching for Entrepreneurship Opportunities
  • 36. ©2015 John Wiley and Sons 24 Searching for Entrepreneurship Opportunities 25 Searching for Entrepreneurship Opportunities 26 27
  • 37. Dyson (James Dyson) clogged air filters in his Ballbarrow factory, built a cyclone particle collector similar to devices used in larger industrial plants, such as sawmills. he worked for the next five years, testing a few thousands of prototypes, before he produced a satisfactory model 28 https://www.britannica.com/biography/James-Dyson 29 Warby Parker (Jeff Raider, Neil Blumenthal, David Gilboa) are too expensive. backpacking trip. The cost of replacing them was so high that he spent the first semester of grad school without them, squinting and complaining. (We don’t recommend this.)
  • 38. at how hard it was to find a pair of great frames that didn’t leave our wallets bare. Where were the options? 30 https://www.warbyparker.com/history 31 Crate and Barrel (Gordon and Carole Segal) found a couple of stores in the Virgin Islands with Scandinavian designs and good prices. One day I was washing the dishes we had bought and said, "There's got to be other young couples with good taste and no money like us. Why don't we open a store?“ gns at affordable prices 32 www. fortune.com What
  • 39. terms of incremental or radical change ©2015 John Wiley and Sons 33 Who involved in the entrepreneurial process engagement of more people inside and outside the organization 34 Exploit or explore? ©2015 John Wiley and Sons 35
  • 40. Where: Exploit or explore? • Exploit (Exploitation) – innovations built on what we already know in mainly incremental fashion. What we did in the past will play a strong role in shaping what we do next. • Explore (Exploration) – innovation, venturing into new fields and opening up innovation space. • Which one is more risky? ©2015 John Wiley and Sons 36 MGT246�Introduction to EntrepreneurshipTo dosAbout ZoomSlide Number 4Slide Number 5Slide Number 6Slide Number 7Slide Number 8Slide Number 9Slide Number 10Budget Airlines (Business Model Canvas)Slide Number 12StrategyValue PropositionTarget MarketAbout prototypingAbout prototypingExamples of “BAD” value propositionsExamples of “great” ideas�Slide Number 20Slide Number 21Slide Number 22Slide Number 23Searching for Entrepreneurship OpportunitiesSearching for Entreprene urship OpportunitiesSearching for Entrepreneurship OpportunitiesSlide Number 27Dyson (James Dyson) Slide Number 29Warby Parker (Jeff Raider, Neil Blumenthal, David Gilboa)Slide Number 31Crate and Barrel (Gordon and Carole Segal)WhatWhoSlide Number 35Slide Number 36 MGT 246
  • 41. Introduction to Entrepreneurship Professor Haibo LIU 1 Announcements T2. due 11/15, start this once your proposal is approved. Announcements Make sure: join later! lose unnecessary programs
  • 42. Rent the Runway-1 ir network and important contacts in the design industry? Rent the Runway-2 w did they test their ideas? What did they learn? Compare it to what the IDEO team did at the supermarket. entrepreneurs? What is social innovation?
  • 43. Bottom of the Pyramid Strategy Globalization of Innovation 8 The “Early” Globalization -based maritime expedition led by Christopher Columbus encountered the Americas, a continent which was previously unknown in Europe plants, animals, culture, human populations, technology, and ideas in the 15th and 16th centuries The “Early” Globalization What is Globalization? 11
  • 44. What is Globalization? interdependence among countries as reflected in increasing cross-border flows of three types of entities: goods and services, capital, and know- how.” 12 What are the drivers of globalization? What Is Driving Globalization? 14 What Is Driving Globalization? - ning rapidly 15 Born Global o Skype
  • 45. o Airbnb o Uber o Amazon 16 Poll from Socrative participation points! lick “finish quiz” after you finish https://b.socrative.com/login/student/ Bottom of the Pyramid Strategy Assumptions about the bottom of the pyramid represent a viable market sted in advanced technology
  • 46. Examples of Fugal Innovation emerging economies, innovative firms in those countries were stripping products of their fripperies and cutting their cost drastically. and China. -Nissan has a center for frugal engineering in India. 20 Source: “Frugal Innovation: How to Do More with Less”, Navi Radjou, and Jaideep Prabhu (Cambridge U) What is frugal innovation? models, reconfigures value chains, and redesigns products to serve users who face extreme affordability constraints. means products of lower quality and reliability? 21
  • 47. More examples 22 • The Tata Nano is a city car manufactured by Tata Motors • Approximately $2,000 Frugal Innovation and Social Innovation customers? 23 The Design Process Design Thinking Simplified MGT 246�Introduction to EntrepreneurshipAnnouncementsAnnouncementsRent the Runway-1Rent the Runway-2�What is social innovation?Bottom of the Pyramid StrategyGlobalization of InnovationThe “Early” GlobalizationThe “Early” GlobalizationWhat is Globalization?What is Globalization?What are the drivers of globalization?What Is
  • 48. Driving Globalization? What Is Driving Globalization? Born GlobalPoll from SocrativeBottom of the Pyramid StrategyAssumptions about the bottom of the pyramid�Examples of Fugal InnovationWhat is frugal innovation?More examplesFrugal Innovation and Social InnovationThe Design ProcessDesign Thinking Simplified Welcome to MGT 246 Entrepreneurial Management Session 1 Professor Haibo LIU 1 About the Course 2 About Zoom focused)
  • 49. name (duration you are online). Please make sure your display name is consistent with your registered name (otherwise I cannot tell it is you). the top of the Zoom window list on the right side of the Zoom window 3 Ice breaker recently? Why did you (not) like it? 4
  • 50. Syllabus 5 Individual Creativity Challenge task. 6 Individual Creativity Challenge ink of different ways you can use a paper clip 7 Creative Destruction revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one
  • 51. and Democracy" in 1942 8 Innovation Matters ideas and knowledge into products and services da, the following factors characterize successful small and medium-sized enterprises SMEs: characteristic associated with success. or are more successful than those that do not innovate. are those that are innovative. 9 Innovation Matters regular survey of senior executives around the world exploring innovation. In its 2012 survey of 650 organizations, the following emerged:
  • 52. average 13% more profit from new products and services than average performers do, and 30% shorter time-to-break-even. 10 GLOBAL INNOVATION INDEX 11 https://www.wipo.int/global_innovation_index/en/ 12 13 Companies that are most entrepreneurial and innovative 14
  • 53. Source: BCG The World's Most Innovative Companies of 2020 – Fast Company 16 https://www.fastcompany.com/most-innovative- companies/2020 https://www.fastcompany.com/ most-innovative-companies/2020 Innovation 17 Innovation is all about change. o It is a process o Creating value: economic or social value o Idea: new and useful
  • 54. 18 https://www.ces.tech/ Entrepreneurship -up venture or a key group within an established organization trying to build/renew its products or services. passion, commitment, judgement and risk taking which provides the motive power behind the innovation process. 19 Innovation & Entrepreneurship 20 vation is the specific tools of entrepreneurs, the means by which they exploit change as an opportunity for a different product or service. capable of being learned, capable of being practiced. Innovation & Entrepreneurship
  • 55. innovation – ‘innovation is what entrepreneurs do’. o The lone genius who battles single-handedly to bring his/her idea to fruition (James Dyson) o The start-up team whose creative interchange helps shape something new (Larry Page and Sergei Brin of Google, Bill Gates and Paul Allen at Microsoft) o Social entrepreneurs (Mohammed Yunus, Nobel prizewinning founder of Grameen bank) 21 Types of Entrepreneurs lf-employed, small business entrepreneur o Eg. Owner of a pet grooming shop o Eg. The Grameen Bank, a Nobel Peace Prize-winning microfinance organization and community development bank founded in Bangladesh by Muhammad Yunus o Is social innovation only about making changes in underdeveloped or developing world? o Eg. Elon Musk, James Dyson, Caterina Fake, etc.
  • 56. 23 24 Innovation isn't easy o Not recognizing the need for change; o Complacency – core competence becomes core rigidity; o Closed information network, insulated from new ideas. 25 10 Minutes break! 26 Successful Entrepreneurs... nt dimensions of innovation
  • 57. (ways in which we can change things) trick (building capability) (innovation strategy) approaches in the face of a changing environment) -taking rather than risk averse. 27 Collaboration in Innovation Many of the most successful innovations and new ventures were co-created. core of radical innovation ©2015 John Wiley and Sons Innovation & Entrepreneurship 3e by Bessant & Tidd
  • 58. Collaboration in Innovation/Entrepreneurship ©2015 John Wiley and Sons Innovation isn't easy o Complacency – core competence becomes core rigidity; o Closed information network, insulated from new ideas. 30 Factors influencing new venture creation ©2015 John Wiley and Sons
  • 59. Can we manage innovation? – behavior patterns which become embedded; innovation happen; – ‘the way we do things around here’ 32 Dimensions of innovation – what can we change? Dimension Type of change Product Changes in the things (products/services) which an organization offers Process Changes in the ways in which these offerings are created and delivered Position Changes in the context into which the products/services are introduced Paradigm Changes in the underlying mental models which frame what the organization does 33
  • 60. Dimensions of innovation – what can we change? products/services/processes, or ‘do what we do but better’ t changes to products/services/processes, or ‘do something completely different (and better)’ 34 Dimension Incremental Radical Product Process Position Paradigm Examples of the 4Ps model: Product Innovation type Incremental: do what we do but better Radical: do something different (and better) ‘Product’ – what we
  • 61. offer the world Newer Windows OS replacing previous versions – essentially improving on existing software idea New to the world software – for example the first speech recognition program 35 Examples of the 4Ps model: Process ‘Process’ - how we create and deliver that offering Improved factory operations efficiency Online shopping Innovation type
  • 62. Incremental: do what we do but better Radical: do something different (and better) 36 Examples of the 4Ps model: Position ‘Position’ – where we target that offering and the story we tell about it Banking services targeted at key segments – students, retired people, etc. Low cost airlines opening up air travel to those previously unable to afford it – create new market and also disrupt existing one Innovation type Incremental: do what
  • 63. we do but better Radical: do something different (and better) 37 Examples of the 4Ps model: Paradigm ‘Paradigm’ – how we frame what we do, eg. Business model IBM from being a machine maker to a service and solution company – selling off its computer making and building up its consultancy and service side. Amazon, Google, Skype (redefining industries like retailing, advertising, and telecoms through online models) Innovation type
  • 64. Incremental: do what we do but better Radical: do something different (and better) 38 Dimensions of innovation – what can we change? https://www.youtube.com/watch?v=S4KrIMZpwCY https://www.history.com/topics/inventions/model-t following questions: o What were the innovations at that moment? o Were those changes incremental or radical? Why so? 39 https://www.youtube.com/watch?v=S4KrIMZpwCY https://www.history.com/topics/inventions/model-t Poll from Socrative
  • 65. Haibo L. 40 https://b.socrative.com/login/student/ Ford Model-T’s Innovations -scale mass production using the assembly line Note: In 1901 Ransom Olds designed and introduced the Curved Dash Oldsmobile. This was the first American motor vehicle produced on the first assembly line. 41 Dimensions of innovation – what can
  • 66. we change? products/services/processes, or ‘do what we do but better’ products/services/processes, or ‘do something completely different (and better)’ 42 Dimension Incremental Radical Product Process Position Paradigm Exploring innovation space 43 To dos • If you only have two or three people, you can email me your list too. • If you have no preferences, I will assign you to a team (there is no
  • 67. need to email me in this case). • I will combine teams in the end, so do expect new members. • We will discuss it in the next class (participation!) • No submission required 44 Welcome to MGT 246�Entrepreneurial ManagementAbout the CourseAbout ZoomIce breakerSyllabusIndividual Creativity ChallengeIndividual Creativity ChallengeCreative DestructionInnovation MattersInnovation MattersGLOBAL INNOVATION INDEXSlide Number 12Slide Number 13Companies that are most entrepreneurial and innovative�Slide Number 15The World's Most Innovative Companies of 2020 – Fast CompanyInnovationInnovationEntrepreneurshipInnovation & EntrepreneurshipInnovation & EntrepreneurshipTypes of EntrepreneursSlide Number 23Slide Number 24Innovation isn't easy10 Minutes break!Successful Entrepreneurs...Collaboration in InnovationSlide Number 29Innovation isn't easySlide Number 31Can we manage innovation?Dimensions of innovation – what can we change?Dimensions of innovation – what can we change?Slide Number 35Slide Number 36Slide Number 37Slide Number 38Dimensions of innovation – what can we change?Poll from SocrativeFord Model-T’s InnovationsDimensions of innovation – what can we change?Slide Number 43To dos MGT 246 Introduction to
  • 68. Entrepreneurship Professor Haibo LIU “The Termites” at Stanford University named Lewis Terman between the third grade and eighth grade as measured by Intelligence Quotient (IQ) study, which is now famously known as Genetic Studies of Genius, collected data from the students throughout their entire lives. 2 Students with high IQ are also: their peers
  • 69. 3 Poll from Socrative participation points! uiz” after you finish https://www.socrative.com/ Threshold Theory having a high IQ is not equivalent to being highly creative certain level, intelligence doesn’t have much effect on creativity 5 6
  • 70. 10,000 Thousand Hours Rule you need to have, and after that it comes down to a lot of deliberate practice, putting in your reps, and developing your skill set (taking a that 10,000 hours of "deliberate practice" are needed to become world-class in any field (Anders Ericsson) 7 ed English schoolboys, and found that conventional measures of IQ did not always do justice to their abilities. -solving which produced the "right" answer, but under-estimated creativity and unconventional approaches to problems. something that is new and useful 8 IQ and Creativity
  • 71. What are advantages working in groups? 9 What are the potential problems working in groups? 10 eativity recognizes the potential of diversity and interaction and tools to support this include those which enable ‘creative collisions’. cludes paying attention to factors like physical space, time and ‘permission’, reward and recognition, establishing a process and training and skills development. 11 Group Creativity Collaboration in Innovation/Entreprenurship
  • 72. ©2015 John Wiley and Sons Advantages and disadvantages 13 It is All about Process 14 IDEO IDEO backgrounds of the team members? uES6ayCw0 https://www.youtube.com/watch?v=YPuES6ayCw0
  • 73. IDEO supermarket? IDEO before, why did they have to go to the supermarket again for this project? IDEO IDEO? IDEO IDEO amplify advantages of collaboration, and at the same time minimize its disadvantages? IDEO
  • 74. IDEO’s “deep dive”? What are the dos and don’ts? “Deep Dive” Process at IDEO convergent thinking?) bell) convergent thinking?) Design Thinking 23 It is All about Process 24
  • 75. 10 Minutes Break! MGT 246 �Introduction to Entrepreneurship“The Termites”Students with high IQ are also:Poll from SocrativeThreshold TheorySlide Number 610,000 Thousand Hours RuleSlide Number 8What are advantages working in groups?What are the potential problems working in groups?Slide Number 11Slide Number 12Slide Number 13Slide Number 14IDEOIDEO�IDEOIDEOIDEOIDEOIDEO“Deep Dive” Process at IDEODesign ThinkingSlide Number 2410 Minutes Break! MGT246 Introduction to Entrepreneurship Professor Haibo LIU Manufacturing vs Service Economies Manufacturing vs Service Economies communication & IT, entertainment, professional and public services developed countries?
  • 76. -quarters of the wealth and 85% of employment. Differences between products and services to Singapore Differences between products and services •Tangibility: o Product is tangible • Perceptions of quality: o Service quality is based on customer experience • Simultaneity: o Service is produced and immediately consumed • Storage: o Services usually cannot be stored for later consumption, eg. seats on an airline o Create problem of matching supply with demand o
  • 77. Solution s: discounts at off-peak time, employ part-time works at peak time • Customer contact: o service has proximity to customers o service usually has direct contact with customers, eg. medical treatment kes a successful product/service? Diffusion of innovations • Diffusion is the means by which innovations are translated into social and economic benefits. • However, the benefits of innovations can take 10–15
  • 78. years to be fully effected, and in practice most innovations fail to be adopted widely, and so have limited social or economic impact. Rogers’ definition communicated through certain channels over time among members of a social system. It is a special type of communication, in that the messages are concerned with new ideas. ~ Everett Rogers 2003 Adoption Curve The S-curve Assumption: all potential
  • 79. adopters are similar And have the same needs https://www.youtube.com/watch?v=NiNoNYLBabA https://www.youtube.com/watch?v=NiNoNYLBabA Breakout room over the chasm of innovation diffusion? and give a specific example Network externality
  • 80. in the benefit, or surplus, that an agent derives from a good when the number of other agents consuming the same kind of good changes. example, your mobile phone becomes increasingly valuable since you will have greater use for it. Network externality into two distinct parts. o The first component is the value generated by the product even if there are no other users. o The second component is the additional value derived from being able to interact with other users of the product, and it is this latter value that is the essence of network effects.
  • 81. Bandwagon Effect of pressure caused by the sheer number of those who have already adopted an innovation, rather than by individual assessments of the benefits of an innovation despite no clear advantage of the innovation innovation, the more influential the bandwagon effects is Factors Affecting Diffusion In predicting the rate of adoption of an innovation, five factors explain 49–87% of the variance: • Relative advantage • Compatibility • Complexity
  • 82. • Trialability • Observability ©2015 John Wiley and Sons Innovation & Entrepreneurship 3e by Bessant & Tidd Relative Advantage innovation is perceived as better than the product it supersedes, or competing products. example cost or financial payback -economic factors such as convenience, design, satisfaction and social prestige may be equally important.
  • 83. Compatibility innovation is perceived to be consistent with the existing values, experience and needs of potential adopters. o Existing skills and practices o Values and norms Who Invented Incandescent Light? What was the main source of lighting before the Incandescent Light? Who Invented Incandescent Light?
  • 84. electric lamp in the early 1800s. in 1878 that Edison studied while building his own. lighting? Poll from Socrative Haibo L. s only one question
  • 85. 21 https://b.socrative.com/login/student/ Innovations Meet Institutions technical and economic superiority over an incumbent rival. dence suggests that for its initial success (adoption), Edison’s system of electric lighting depended on the concrete details of its design to invoke public’s familiarity with existing gas and water utilities (existing institutions). , which exploited past understanding but also preserved the flexibility to evolve and build new institutions Complexity
  • 86. innovation is perceived as being difficult to understand or use. ns which are simpler for potential users to understand will be adopted more rapidly than those which require the adopter to develop new skills and knowledge. Trialability an innovation can be experimented with on a limited basis. uncertainty to potential adopters, and allows learning by doing. Innovations which can be trialled will generally be adopted more quickly than those which cannot.
  • 87. – how far can the risk of adoption be down into small steps rather than requiring a fullbroken commitment at the outset Observability an innovation are visible to others. innovation, the more likely it will be adopted. that innovations spread as potential adopters come into contact with existing users of an innovation. Early Days of Airbnb
  • 88. Denver, but there were only 28,000 hotel rooms available. -of-town attendees. bnb blasted bloggers in Denver with its marketing. the lodging crisis in Denver. Summary • Services and products are different in a number of ways, especially intangibility and perceived benefits, and so will demand the adaptation of the standard models and prescriptions for new product development. •The relative advantage, compatibility, complexity, trialability and observability of an innovation all affect the rate of diffusion.
  • 89. Innovation & Entrepreneurship 3e by Bessant & Tidd Success factors in new ventures • Product/service advantage • Market knowledge • Clear product definition • Risk assessment • Project organization • Project resources • Proficiency of execution • Top management support ©2015 John Wiley and Sons Innovation & Entrepreneurship 3e by Bessant & Tidd MGT246�Introduction to EntrepreneurshipManufacturing vs Service EconomiesManufacturing vs Service EconomiesDifferences between products and servicesSl ide Number 5Slide Number 6Slide Number 7Rogers’
  • 90. definitionAdoption CurveSlide Number 10Breakout roomNetwork externalityNetwork externalityBandwagon EffectSlide Number 15Relative AdvantageCompatibilityWho Invented Incandescent Light?What was the main source of lighting before the Incandescent Light?Who Invented Incandescent Light?Poll from SocrativeInnovations Meet InstitutionsComplexityTrialabilityObservabilityEarly Days of AirbnbSlide Number 27Slide Number 28 Crowdfunding To dos . Have a great Thanksgiving! Canvas -home) in the
  • 91. last class • Answer questions based on a given case • Only use concepts learned in this class Airbnb 1. Who are the cofounders of Airbnb? Describe their background and personality. Are there complementary skills in the founding team? 2. What was the inspiration of creating the company? 3. What challenges the cofounders faced, and how did they solve them? 4. How did the interactions with the hosts help them generate insights to improve their business model? What have they learnt? 5. What have you learned from their experience as entrepreneurs? 3
  • 92. Sources of Funding How does startup funding, such as Series A, B, C, etc., work? outside investors, and each time they do, it's called a funding "round." Each round represents another stage in the startup's life.
  • 93. -seed funding round: Think of this as the Steve Jobs's garage stage. Your startup doesn't have a concrete product, but you have a good concept. Your funders aren't professional investors, just friends or family who want to see you succeed. attracts interest from "angel investors," individuals who fund early-stage companies. ve achieved proof of concept, and investors known as venture capitalists are analyzing data on what you achieved with past investments. to expand. You might use the funds to explore new markets, grow teams, or hire a really expensive person on Cameo to make an appearance at an all-hands. up more market share, develop new products, or even make acquisitions.
  • 95. number and price of the shares that will be issued expanding lists may use IPOs as an exit strategy Going Public - Benefits Going Public - Cons
  • 96. o Investment backing fees ~ 7% o Auditors, lawyers ~ 5% Initial Public Offering (IPO) opportunities
  • 97. prospects of a certain industry, thus drives up prices (supply and demand) stock Investment Banker Investment Banker and
  • 98. discounted cash flow and institutional investors (E.g. investors include pension funds and life insurance companies) Builds a demand schedule for the offering during the “road show” usually places the share with best customers CrowdfundingTo dosAirbnbSlide Number 4Sources of FundingHow does startup funding, such as Series A, B, C, etc., work? �Exit/Liquidation StrategiesGoing PublicGoing Public - BenefitsGoing Public - ConsInitial Public Offering (IPO)Investment BankerInvestment Banker
  • 99. 9 - 8 1 1 - 0 6 5 R E V : O C T O B E R 2 4 , 2 0 1 4 _____________________________________________________ _____________________________________________________ ______ Professor Thomas R. Eisenmann, Michael Pao (MBA 2011), and Research Associate Lauren Barley prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illust rations of effective or ineffective management. Copyright © 2011, 2012, 2014 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1- 800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted,
  • 100. or transmitted, without the permission of Harvard Business Sc hool. T H O M A S R . E I S E N M A N N M I C H A E L P A O L A U R E N B A R L E Y Dropbox: “It Just Works” Drew Houston, the 27-year-old cofounder and CEO of Dropbox, a downloadable application that allowed users to easily share, sync, and store files (photos, documents, videos, etc.) across most personal computers (PC) and smartphones, saw the fog rolling over the hills as he headed up US Route 101 to the company’s headquarters in San Francisco, California. It was June 2010, and he had just finished a board meeting. Things were going well: Dropbox had plenty of cash in the bank, activations continued to ramp up, and the company’s freemium
  • 101. business model was working well. However, Houston had plenty on his mind. He reflected on the board’s discussion of Dropbox’s product strategy and ways to accelerate growth. Dropbox, founded in April 2007 and launched to the public in September 2008, stored and tracked tens of billions of files for a user base of several million users, two-thirds of whom resided outside the U.S. The company reached this scale by offering a single product version to both consumers and business users and without conducting much formal market research on these users and their preferences. Exchanges in support forums suggested that many customers relied on Dropbox for specific tasks, such as backing up photos, running a startup, or collaborating on Microsoft Office documents. Users were constantly requesting new features, many of which would violate the company’s commitment to offering a simple, easy- to-use product. As Houston approached the office, he wondered if Dropbox should continue its strategy of
  • 102. offering a single product for all users or whether it should segment its diverse and growing user base, perhaps by creating a “professional” version that targeted the “power” user or a separate product for small to medium-sized businesses. Houston looked forward to discussing these options with his team. Drew Houston Houston was introduced to computer programming and startups at a young age. He was writing software at age 5 and testing an online game at age 14. When he identified security problems with that game, its developer hired him as a network engineer. In 2001, Houston attended Massachusetts Institute of Technology (MIT) where he also cofounded Accolade, an online SAT preparation service. Houston graduated from MIT with a bachelor of science in computer engineering in January 2006. For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO
  • 103. LIU, University of California - Riverside from Dec 2021 to Dec 2021. 811-065 Dropbox: “It Just Works” 2 After graduation, Houston joined Bit9, an enterprise security software company headquartered in Cambridge, Massachusetts. However, after watching friends leave for Silicon Valley to pursue their entrepreneurial dreams, he was determined to follow. Houston commented, “I was working full-time at Bit9 and part-time on the online SAT prep startup that I’d launched in 2004. That startup was profitable, but I didn’t have much passion for the product. I was searching for a new opportunity that was more technically challenging.” Dropbox met this requirement. Houston got the idea for Dropbox while waiting for a bus at Boston’s South Station in December 2006. He had planned to work on a programming project for Bit9
  • 104. during the four-hour ride to Manhattan, but left his USB flash drive at his Cambridge apartment. Frustrated, he began designing a service to sync and share files between personal computers over the Internet. Launching Dropbox It’s hard to imagine Tom Cruise in Minority Report sending himself files via Gmail or lugging around a USB thumbdrive. — Drew Houston1 After his frustrating experience on the bus, Houston started working full-time on Dropbox. He said: I needed it badly. I worked on multiple desktops and a laptop and could never remember to keep my USB drive with me. I was drowning in email attachments trying to share files for my previous startup. My home desktop’s power supply literally exploded one day, killing one of my hard drives, and I had no backups. I tried everything I
  • 105. could find but each product inevitably suffered problems with Internet latency, large files, bugs, or just made me think too much.2 To help with the project, Houston recruited Arash Ferdowsi, who dropped out of MIT to work with Houston, later becoming Dropbox’s cofounder and chief technology officer. The pair spent the next four months coding a prototype in a tiny Cambridge apartment. Dropbox was a late entrant to the fiercely competitive online backup and storage services space. The first firms in the space, which had small businesses as customers, were launched in the late 1990s by startups offering outsourced storage at remote data centers. As costs declined, services also became available for consumers seeking to back up their data online. Most early users were technically adept, for example, college students downloading music from peer-to-peer file-sharing services. Few firms in this first wave of services survived the dot-com
  • 106. crash, but by late 2006 the market was crowded again with new offerings. (See Exhibit 1 for competitors.) In July 2007, the tech blog Mashable published a list of more than 80 online backup and storage services.3 Market research vendors such as IDC fueled the hype by predicting in 2007 that the worldwide market for online backup services would grow to $715 million by 2011.4 Investor interest in online storage surged when Mozy, an online backup service, was acquired by EMC, a publicly held storage company, for $76 million in late 2007. Houston was confident that Dropbox could succeed in the face of intense competition. He reasoned that Dropbox would be able to collect revenue from some users, because consumers generally understood that storage cost money, whether it came in the form of a physical drive or an For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in
  • 107. MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021. Dropbox: “It Just Works” 811-065 3 online service. When challenged by venture capitalists to explain why the world needed another cloud backup company, Houston asked them, “How many of those services do you personally use?” The answer from VCs was almost invariably, “None of them.”5 Houston asserted that direct experience with rival services, which often failed to transfer data across firewalls and sometimes balked with big files or a large numbers of files, was helpful in understanding what would become Dropbox’s performance advantages. Houston said: The first generation of cloud storage services was based on a simplistic model, where file
  • 108. accesses were redirected over the Internet instead of to your computer’s hard drive. Your operating system and all your applications assume that accessing your hard drive is cheap and fast, but when these requests are instead routed to a server thousands of miles away, they can take an order of magnitude longer. This subtle but critical distinction explains why when working remotely, even simple actions like browsing a directory can freeze your computer for seconds at a time. We needed to take a completely different approach by storing files locally and updating the cloud copy in the background using a number of time- and bandwidth- saving optimizations. Product Development and Early-Stage Financing Houston and Ferdowsi created a prototype that allowed Windows PC users to access files of any size or type via an encrypted Internet connection from other Dropbox-enabled PCs or from any web browser. The Dropbox client software tracked changes in real time to any file placed in the user’s local Dropbox folder, then almost instantly synchronized a copy
  • 109. of that file on Dropbox’s servers, updating only those portions of the file that had changed, in order to save bandwidth and time. Likewise, within milliseconds, copies of the file were synchronized in local Dropbox folders on all other devices connected through the user’s account. “We engineered Dropbox so it just worked, all of the time,” Drew explained, “We handle all kinds of obstacles, from flaky wireless connections to corporate firewalls, which is not an easy task.” With a working prototype in hand, Houston came up with an innovative approach for testing demand. He had produced recruiting videos for his college fraternity; with this know-how, he created a three-minute screencast of a product demo and uploaded it to Hacker News, a popular online forum for developers. “I did this out of necessity. There was no way I could ask for people’s files before we were 100% sure our code was reliable. But I had a prototype that showed off the product’s best features,” he said.6 Houston used the screencast to recruit beta users and solicit feedback on features. He added, “Not launching is painful, but
  • 110. not learning can be fatal. We got a lot of feedback through that video, so we were learning while we were building.” Houston had another reason for posting the video on Hacker News: he hoped to connect with its founder, Paul Graham, who was also the founder of the prestigious and selective Y Combinator seed fund and incubator program. Houston recalled, “I had just submitted my application to Y Combinator and as a gambit to get their attention, I submitted the video to Hacker News. I hoped it would work.”7 It did: in April 2007, Dropbox received $15,000 in funding from Y Combinator. (See Exhibit 2 for excerpts from Dropbox’s Y Combinator application.) In exchange for a small percentage of a startup’s common equity—usually 2% to 10%—Y Combinator provided up to $20,000 of seed capital as well as mentoring, workspace, and introductions to other advisers and investors over a three-month period. At the end of three months, it held a “demo day” where its most promising companies made funding
  • 111. For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021. 811-065 Dropbox: “It Just Works” 4 pitches to a large group of startup investors. Many startups applied to Y Combinator’s program, which had a track record for matching strong technical teams with elite venture capital firms. The cofounders planned to build a single version of Dropbox that would be targeted to individuals—both consumers and business users. Houston explained: Before I launched Dropbox, I worked at a security software startup, where I got a formative
  • 112. lesson about targeting enterprise customers. Their decision cycles seemed endless, and involved lots of gatekeepers. You run into this Catch-22 where you can’t make sales unless you are certified by IT, and you can’t get certified until you have a track record. It’s especially hard if you call on small and medium-sized businesses. They don’t talk to each other, so you can’t rely on references. And as a startup, the customer is always worried about whether you’ll be around to support their product. Based on these lessons, we decided to target Dropbox to individual users, both consumers and businesspeople. The idea is to get people using it inside companies without IT’s permission. Once IT sees that Dropbox is in heavy demand and that it works reliably, we’ll get certified for use across the company. This approach worked with Wi-Fi equipment and BlackBerrys. That’s been our go-to-market strategy for enterprise: personal use as a Trojan horse. Houston proposed using a freemium business model that offered
  • 113. both free and premium (i.e., subscription) accounts. Initially, he planned to give away 1 gigabyte (GB) accounts for free and charge for additional storage, perhaps by offering an individual user 10 GB of storage for $5 per month. Upon conclusion of the Y Combinator program in September 2007, Dropbox raised $1.2 million of convertible debt from Menlo Park, California–based Sequoia Capital. “We fit into Sequoia’s sweet spot: we were two young technical founders, working out of an apartment, targeting a big market. It helped that we were ranked at the top of our Y Combinator cohort,” Houston recalled. He and Ferdowsi then relocated to San Francisco, but despite the capital infusion, they continued to run lean, operating the company out of a 900-square-foot office sublet. Dropbox delivered its service through Amazon’s Simple Storage Service (S3) cloud storage platform, avoiding the need for infrastructure investments and positioning the company to scale rapidly. Beta Testing
  • 114. The cofounders created a private beta program for a limited group of users who registered through a simple landing page. The page contained a short description of Dropbox and requested an e-mail address from visitors interested in participating in the beta test. (See Exhibit 3 for the landing page). Beta testers would receive a 2 GB Dropbox for free; a premium version was not yet offered. Houston commented: There’s a spectrum of well-informed opinions about when to launch your product. At one end, Paul Graham tells entrepreneurs, “Launch early and often” to accelerate learning. At the other end, [respected software guru] Joel Spolsky says, “Launch when your product doesn’t completely suck.” We were managing people’s files, and it’s a big deal if you lose or ruin them. That meant moving toward Spolsky’s end of the spectrum and keeping our beta test small. Next, Houston devised ways to generate demand for the beta service. Developing a Macintosh client expanded the potential user base. Houston also undertook some guerilla marketing. He
  • 115. For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021. Dropbox: “It Just Works” 811-065 5 produced another short demo video and posted it in March 2008 on Digg, a site that showcased web content deemed popular by Digg’s users. Houston felt it was essential to communicate in an authentic manner with the tech enthusiasts who frequented Digg. He sprinkled virtual “Easter eggs” (intentional hidden messages, jokes, or features inserted into a software program or video game by its developer) into the video, for example, references to Chocolate Rain (a YouTube phenomenon), TPS reports used in the movie Office Space, MIT’s Killian Hall, and
  • 116. the 09 F9 key for decrypting Blu-ray disks (dissemination of which, in the face of movie studio legal threats, was a hacker crusade). With this tongue-in-cheek nod to its tech-savvy audience, the Dropbox video soared to the top of Digg, generating hundreds of thousands of views within a few days. Overnight, the list for Dropbox’s private beta jumped from 5,000 to 75,000 names, far exceeding the team’s expectations. Building the Company Make something people want. — Y Combinator motto Based on consumer response to the second video, it appeared that the promise behind Dropbox— “It just works”—resonated with potential early adopters, especially those who were familiar with the performance limitations of existing online backup and storage services. Dropbox opened its beta to the public in September 2008 at TechCrunch50, an annual competition showcasing high-potential startups. Dropbox was one of 50 startups selected to present at the event from a pool of over 1,000
  • 117. applicants. TechCrunch50 served a dual purpose: it would generate buzz for Dropbox’s launch and also provide a product development deadline for the team. In September 2008, Dropbox publicly launched its Windows and Mac clients, and added a Linux version in response to beta user requests. All of the clients were functionally identical. At the same time, the company offered a 50 GB Dropbox for $9.99 a month or $99 a year; a 100 GB option for $19.99 per month or $199 per year was added in early 2009. Users continued to receive 2 GB accounts for free. After launch, Houston shifted his focus back to product development. Dropbox’s first six hires hailed from MIT’s computer science program, and its team was mostly composed of engineers during the company’s first two years. Houston felt these first hires were critical for setting the company’s culture, which he characterized as being obsessed with quality and taking pride in both working hard and in making something “good.” Early on, board members tasked Houston with hiring a product
  • 118. manager (PM) to help coordinate engineering efforts and prioritize features. Houston reflected: If you ask 10 people what a product manager is, you’ll get 10 different answers. They tend to fall on a continuum with the end points being “librarian” and “poet.” A librarian is focused on blocking and tackling, coordination, and facilitating communication. This type of PM is inherently organized and follows up relentlessly. A poet PM listens to the voice of the customer during usability tests and focus groups and based on that insight formulates an aesthetic vision, a grand strategy, and a product road map. Our first product manager was more of a librarian than a poet, because we needed a librarian’s discipline: even today we don’t have enough of that DNA in the company. But he just drove people nuts. It was painful, but we had to let him go after six months. For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO
  • 119. LIU, University of California - Riverside from Dec 2021 to Dec 2021. 811-065 Dropbox: “It Just Works” 6 For the next year until Dropbox hired another product manager, the company relied on Houston and Ferdowsi to drive the product road map. Development proceeded more slowly than Houston expected. In his April 2007 Y Combinator application, Houston had predicted that Dropbox would offer a commercial version of its product within eight weeks, but launching Dropbox to the public actually took 18 months. Houston said, “As a result of doing a few things well, we left a lot of other things behind. We had no business people, we were terrible at getting mainstream PR, and running fast and loose didn’t make for the most predictable engineering organization.”8 Early Marketing Efforts
  • 120. Houston mused that since Dropbox was following a tried-and- true blueprint for launching a consumer Internet service, his next step would need to be devising a marketing plan. Dropbox retained an online marketing consultant to help with this task. Houston said, “What do most web companies do? Apply to TechCrunch50, check. Buy AdWords, check. Get real marketing people, check.”9 Early on, Dropbox attempted to acquire new customers through paid search advertising. However, incumbents had bid up the cost per click for obvious search keywords. As a result, it cost Dropbox more than $300 to acquire a paying customer. (See Exhibit 4 for sample AdWords campaign performance.) This was not economically sustainable, since an annual subscription for 50 GB service was priced at $99. Dropbox tweaked its sign-up process to increase the conversion rate from free user to paying customer. In addition, the team experimented with display ads and affiliate programs (through
  • 121. which partner sites referred users in exchange for a fee). However, as with search ads, these efforts yielded unacceptably high acquisition costs per paying customer. The company also tried hiding the free service option for visitors who arrived via ads. Houston recalled, “Our average acquisition cost per paying customer went from thousands of dollars to hundreds, but we still had a problem with our economics. And we didn’t feel good about doing sneaky things to our users to get them to pay.”10 Sequoia Capital and Accel Partners subsequently led a $6 million Series A round of financing in October 2008, but even with additional capital in the bank, relying on advertising for customer acquisition would not be a viable long-term option. Growth through Analytics Houston realized that with a freemium strategy, optimization of marketing messages and pricing would be critical to Dropbox’s success. Consistent with this priority, the company hired an analytics engineer as its eighth employee. Inspired by Facebook’s growth
  • 122. team, which was dedicated to user acquisition and engagement, Houston later assigned 30% of engineering resources to optimizing customer acquisition efforts. This team closely tracked metrics across Dropbox’s conversion funnel by cohort.a Metrics included the percent of landing-page visitors who registered as free users; the percent of registrants who still were active free users after X months; and the percent of free users who upgraded to paid subscriptions after Y months. Houston said, “We run our business based on the Startup Metrics for Pirates ‘AARRR’ framework developed by investor Dave McClure. He says firms should closely track metrics around the acquisition of landing-page visitors; activation of those visitors into users; retention of users; referral of new visitors by satisfied users; and revenue earned from users.” a A cohort was a set of prospects or users acquired at the same time and/or via the same marketing method. For the exclusive use of Q. Shi, 2021.
  • 123. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021. Dropbox: “It Just Works” 811-065 7 The team used A/B testing to fine-tune page layouts and content.b Based on test results, Dropbox also decreased the amount of free storage given to users. Analytics showed that gigabytes were not necessarily the best measure of value for Dropbox users. “We had all kinds of people paying us for Dropbox but not even bumping against their quota,” Houston said.11 Analytics likewise revealed that few users were accessing past versions of their files, all of which—including deleted files—were being permanently stored
  • 124. by Dropbox at a significant and rapidly growing cost. The company modified its policy, offering all Dropbox users 30 days of “undo” history free of charge. Unlimited undo history became a $39- per-year add-on feature called Pack-Rat, available to subscription users only. Houston said, “Just a tenth of a percent improvement in conversion rates, or a small decrease in the cost of serving a customer can have a huge impact on profitability. Freemium is a spreadsheet game—one you win with lots and lots of little moves.”12 Growth through Partnerships Houston initially believed that partnering might be another strategy for accelerating growth. He approached PC security software providers shortly after Dropbox’s launch, hoping they might bundle Dropbox with their applications. He did so against the advice of his cofounder Ferdowsi, who was skeptical that large companies would ever sign deals with an unknown startup. Houston said, “I figured we’d get our first 100,000 users through expensive search marketing, then we’d need an awesome Plan B to make our economics work. At that time, my
  • 125. best idea for Plan B was distribution deals.” After wasting weeks on discussions that invariably stalled, Houston decided to scrap the idea. He recalled: Big companies sometimes seem happy to talk to a startup. They’ll bring in 12 middle managers—none of whom have any authority—to kick the tires and learn all about your technology. They’ll spin your wheels for months. We got close to a deal with one of the antivirus software providers. At the 11th hour, they brought in an SVP who announced that they were going to bury our brand in a white label deal, contrary to everything we’d discussed prior to that point. And the SVP said, “Oh-by-the-way, we’ll need all this customization.” I came back and looked at my board slides, which showed how we’d take over the world with distribution deals. I felt like an idiot. Arash was furious; he said, “I told you this would happen.” Since then, I’ve realized that no significant tech company has been built solely through distribution deals without having a strong brand of its
  • 126. own. Partly due to the way I got burned in these discussions, we still don’t have a VP of business development. We’re looking for one, but I’m worried that if we hire the wrong person, we could get pulled in too many different directions. Organic Growth Despite improvements through analytics, Houston and his colleagues struggled to make the company’s marketing programs profitable. Nevertheless, the service grew rapidly, reaching 200,000 users 10 days after launch and 1 million users by June 2009. The vast majority of these users were acquired through word-of-mouth referrals and viral marketing efforts, rather than paid advertising. b A/B tests divided a set of similar individuals into a control group that experienced a status quo product and a test group that experienced a product with one modified element. Its purpose was to determine if the modification yielded a statistically
  • 127. significant improvement in conversion rates. For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021. 811-065 Dropbox: “It Just Works” 8 A relentless focus on ease-of-use and reliability had paid dividends in the form of loyal users who encouraged friends, family, and coworkers to try Dropbox. Houston commented, “The power of focus can’t be understated. If you look at a feature matrix of Dropbox versus everyone else, we would never come in first. We would rather do a few things well rather than present Dropbox in a confusing way.”13
  • 128. In mid-2009, Dropbox management abandoned paid search advertising entirely in favor of an exclusive focus on organic customer acquisition efforts. Houston commented, “It dawned on us that Dropbox was different. It’s not like the average user wakes up in the morning wishing to get rid of their USB drive. If you don’t think you have a problem, you’re not going to look for a solution. Search is great for harvesting demand, not for creating it.”14 Focusing on organic growth proved successful: Dropbox registered its 2 millionth user in October 2009, one month after launching its iPhone application. To identify ways to improve ease-of-use and product features, the Dropbox team tracked support forums closely. Houston said, “We get feature requests for things we already have. These are particularly bad because it means that even though we’ve implemented something, our users can’t find it. We pay close attention when that happens.”15 In November 2009, the company launched “Votebox” on its site, which allowed users to vote and comment on features they would like to see
  • 129. added. (See Exhibit 5 for the Votebox landing page.) Since the team gained considerable insight on users’ preferences through support forums, the Votebox, and A/B testing, Dropbox did not conduct regular consumer surveys. However, it did conduct occasional usability tests. In one early instance, the entire team watched as not one of five typical consumers recruited from Craigslist could successfully install and interact with the application. Houston recalled: Watching them fail was excruciating. Imagine if your coffee maker just spit coffee all over the counter every third time you used it or your car stopped in the middle of the road. That’s the computer experience for a normal person. The PC is always conspiring against you to lose your stuff or break in some weird way. You have no idea what happened or what you did wrong. Watching those five consumers struggle to try to figure out how to use our product was probably the most painful day we ever had as a team, but afterward, we created a list of 70 things to fix.
  • 130. The team also devised better tools for satisfied users to spread the word about Dropbox. The most successful was a referral program whereby an existing user who referred a new user to Dropbox received 250 megabytes of additional free storage (up to 8 GB total for users with free accounts). Additionally, the new user upon sign-up received 250 megabytes of space on top of the 2 GB allocated to a free account. This two-sided incentive structure, modeled on one used by PayPal in its launch phase, served to reduce the distrust normally associated with spam-inducing, one-sided marketing campaigns. Houston and his colleagues improved other viral features, including password-protected shared folders that were accessible by multiple Dropbox users. Public folders also encouraged users to refer Dropbox. When users placed a file in their public folder (which was automatically nested within their Dropbox folder), they were given a link they could share, making the file accessible to anyone with Internet access.
  • 131. Word-of-mouth referrals and viral marketing generated strong results. In April 2010, Dropbox’s 4 million users produced 2.8 million direct referral invites. Of the recent sign-ups, 35% originated from For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021. Dropbox: “It Just Works” 811-065 9 the referral program and 20% from shared folders and other viral features.16 The rest were acquired through word-of-mouth referrals and PR efforts. Houston reflected, “It’s hard to master freemium products unless you can build an organic customer acquisition engine. If you think of your free user
  • 132. costs as your marketing budget, then things begin to make more sense.”17 Dropbox did not publish financial results, but industry observers had attempted to calculate both its revenue and its data storage costs. Analysts estimated that 2% to 3% of Dropbox’s users were paying customers, which implied a $10 million to $15 million annual revenue run rate in mid-2010.18 Dropbox was reported to be storing 433 MB of data per user in late 2009.19 Using this figure as the average amount of data stored for each free user and assuming an average of 25 GB for each paid user, an analyst estimated Dropbox’s monthly spending for storage and bandwidth to be $0.11 per free user and $3.18 per paid user, based on published prices for high-volume Amazon S3 customers.20 Accelerating Growth With product and marketing strategies in place, Houston was ready to focus on ways to accelerate Dropbox’s growth and capture a larger share of the rapidly growing global market for file synchronization and backup services. IDC projected 28% annual
  • 133. growth for this market, from $724 million in 2009 to $2.5 billion in 2014.21 Industry growth was being fueled by declining costs for both storage and bandwidth. According to IDC, the per gigabyte cost for enterprise-grade storage equipment had fallen from $5.35 in 2005 to $1.23 in 2010, and would decline further to $0.36 in 2014. According to the DrPeering International consultancy, the average monthly wholesale cost for high- bandwidth Internet data delivery, measured per megabit per second, had fallen from $75 in 2005 to $5 in 2010, and would decline further to $0.94 in 2014.22 Among the options the Dropbox team debated was whether to continue to offer a single product for both consumers and business users. Houston commented: You can categorize Dropbox users along two dimensions: whether or not they share files with others, and whether or not they use the application for business. These dimensions define a 2x2 matrix, and we have lots of users in all four cells. Dropbox is a general-purpose application, much like Microsoft Word. My mom uses the same version of Word to record
  • 134. recipes as my lawyer uses to mark up a 40-page contract. Deciding to offer a single product for consumers and business users was a big hurdle for us, and building a product that was compelling for both types of users was no small task. Staying the Course Since launch, Dropbox’s team had continuously upgraded their product’s ease-of-use and features, often in response to users’ requests. The list of additional functionality desired by users continued to grow, for example, offering the service in languages other than English. (See Exhibit 6 for nationalities represented by its user base.) Pursuing incremental product improvement opportunities as part of a “stay-the-course” strategy could keep Dropbox’s 25-person team busy for years. However, some of the most requested features threatened the company’s commitment to providing an easy-to-use product. The team had deliberately avoided implementing the most requested feature on Votebox: enabling the service to sync files
  • 135. outside of the Dropbox folder, in particular, the “My Documents” folder within Windows (or its Macintosh counterpart, “Documents”). While a Dropbox folder could contain any number of other user-created folders, it For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021. 811-065 Dropbox: “It Just Works” 10 could not hold folders generated by the PC operating system (e.g., “My Documents”). Moving such a folder into the Dropbox folder could break crucial connections and cripple the operating system. Allowing Dropbox to sync outside folders would make the
  • 136. service more flexible, but also more difficult to use. Users would have to make potentially confusing, high-stakes decisions about synchronization priorities across multiple devices. Mistakes by users could generate complex support issues. Houston explained: Imagine you’re a new user at home and you link to your “My Documents” folder and everything goes just great. Then you go to work and you blaze through the installer and you say, “Yeah, yeah, just sync it all.” You don’t think carefully about the implications of telling Dropbox to merge the contents of your “My Documents” folders on your home and work machines. You discover you’ve created this giant, ugly conglomeration of home and work files on both machines, and there’s no undo button. As part of a stay-the-course strategy, Dropbox could also revisit the idea of pursuing partnerships. In May 2010, Dropbox made moves in that direction, announcing a mobile application programmin g interface (API) that allowed third-party software developers to access files within a user’s Dropbox.
  • 137. Early partners leveraging the API included QuickOffice (mobile editing and creating of Office documents), FuzeMeeting (web conferencing), and GoodReader (document retrieval and viewing). Also, in the past few months, a number of PC and smartphone manufacturers had approached the company about pre-installing Dropbox on their devices. They saw a parallel between online storage and antivirus/security software or search toolbars, which had generated hundreds of millions of dollars in bounties for OEMs, while significantly expanding their partners’ customer acquisition funnels. Houston commented: It was clear early on that there were strong similarities between our business and PC security software. We both have a product you probably don’t know that you need. You’re not looking for it. You’re happy when you have it, but if you don’t have it, life goes on. Products like this probably should come pre-installed on a PC, so you only have to think about them once.
  • 138. Although Houston’s earlier partnership talks came to naught, perhaps the situation had changed now that Dropbox had millions of users and a strong reputation. Along those lines, the Android ecosystem represented a promising opportunity. In May 2010, at the same time Dropbox released a native iPad application, it also offered its official Android application. Houston asked: Shouldn’t every Android device ship with Dropbox? This could be a powerful differentiator for a device maker. And it could drive customer acquisition for us. A big barrier to adoption for Dropbox is that we require a client installation, which can be a high friction experience. Having the service bundled and pre-installed on millions of devices would remove this obstacle. Opportunities to partner with Android device makers raised a related question for Houston: what were the odds that Google—Android’s creator—would move aggressively into Dropbox’s space? Houston said:
  • 139. Imagine a day when Google flips the switch and gives away a terabyte of free storage to 100 million machines. We think about this a lot; it pushes us to get big fast and lock in customers. We don’t want to become a fallen star like Netscape, which was crushed by Microsoft. For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021. Dropbox: “It Just Works” 811-065 11 Past efforts around cloud storage at Google have failed for internal political reasons. It’s not like they don’t have the technical talent to make this work, and cloud services are certainly aligned with their mission. But the project has been a black
  • 140. sheep inside Google since 2005. At first they were worried about runaway server costs, like they had with YouTube. More recently, they’ve viewed file management as a feature of Google Docs. But deep down, all the ugly, grungy engineering we’ve done to make Dropbox work across multiple PC platforms seems irrelevant in their eyes. They think that PCs in their current incarnation, with local storage, will disappear as the cloud takes over. But with the grandeur of their vision, trying to move everything to the web, Google is not solving problems that real people have today. Product Segmentation There were many ways that Dropbox could segment its diverse and growing user base and tailor separate products or add-on features for the segments. The online backup and data storage services space remained fragmented and fiercely competitive in 2010. Among leading vendors serving individual users, Dropbox remained distinct in offering the ability to synchronize files across devices and to share files through public and private folders, although
  • 141. some smaller startups provided similar capabilities (e.g., SugarSync). By contrast, offerings from large rivals like Mozy and Carbonite were limited to automated backup and remote file access via any web browser. Mozy’s service was free for up to 2 GB of storage; unlimited storage for a single computer was available for $4.95 per month. Carbonite did not offer free service (other than 15-day trials); its unlimited storage service for a single computer cost $54.95 per year. Since 2005, the website BackupReview.com had ranked the top 25 online backup and data storage companies in the consumer, small-medium business (SMB), and enterprise segments. (See Exhibit 7 for June 2010 rankings.) Dropbox ranked sixth in the consumer segment, but it was not mentioned as a top-25 provider in either the SMB or enterprise segments. By contrast, Mozy ranked No. 3 on the consumer list and No. 4 in the enterprise segment; Carbonite ranked No. 1 on the consumer list and No. 4 in the SMB segment. Dropbox could follow its rivals’ lead and offer a version specifically designed for small
  • 142. businesses, as Carbonite had done by launching Carbonite Pro in February 2010. According to Carbonite’s CEO, “Now we have a version of Carbonite that incorporates everything that these small- business users have been asking for: no per-PC fees, administrative tools that are simple enough for any office manager to use, the ability to back up external dr ives, and priority support.”23 Pricing for Carbonite Pro, which supported an unlimited number of PCs, depended on the total volume of data storage a business required: rates ranged from $10 per month for up to 20 GB to $250 per month for 300 to 499 GB. The service featured a dashboard that allowed an office manager to easily track the backup status and volume of data stored for all of a company’s PCs, along with a restore wizard that guided the recovery of backup file copies. It was unclear how Carbonite’s push into the SMB segment would impact its profitability. Carbonite had incurred an operating loss of $14.2 million during the first six months of 2010, largely due to aggressive marketing spending (see Exhibit 8 for its P&L statement). Unlike Dropbox,
  • 143. Carbonite relied heavily on paid advertising for customer acquisition, including radio, TV, and online display ads, as well as search engine marketing. Carbonite’s business model differed from Dropbox’s in another important way: Carbonite stored customers’ files on its own servers, rather than relying on a cloud services partner like Amazon S3. For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021. 811-065 Dropbox: “It Just Works” 12 Conclusion As he arrived at Dropbox’s San Francisco office, Houston wondered if his team was ready for the
  • 144. rapid expansion ahead. He reflected on the company’s long- range goals: What we want to do as a company is let you sit at any computer or device and have access to all your stuff. For example, in college I could go from one workstation to any of the thousands of others on campus and not only could I see all my files but my entire desktop and environment. But after I graduated, I was on my own. So we’re trying to build that kind of seamless experience for the rest of the world. It’s a simple idea, but very challenging to build— certainly enough to keep us busy for the next five years.24 For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021. 8
  • 203. si z e s/ l/ . For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021. 811-065 Dropbox: “It Just Works” 14 Exhibit 2 Excerpts from Dropbox’s April 2007 Y Combinator Application
  • 204. # What is your company going to make? Dropbox synchronizes files across your/your team's computers. It's much better than uploading or email, because it's automatic, integrated into Windows, and fits into the way you already work. There's also a web interface, and the files are securely backed up to Amazon S3. Dropbox is kind of like taking the best elements of subversion, trac and rsync and making them "just work" for the average individual or team. Hackers have access to these tools, but normal people don't. There are lots of interesting possible features. One is syncing Google Docs/Spreadsheets (or other office web apps) to local .doc and .xls files for offline access, which would be strategically important as few web apps deal with the offline problem. # Please tell us in one or two sentences something about each founder that shows a high level of ability. Drew - Programming since age 5; startups since age 14; 1600 on SAT; started profitable online SAT prep
  • 205. company in college (accoladeprep.com). For fun last summer reverse engineered the software on a number of poker sites and wrote a real-money playing poker bot (it was about break-even) # What's new about what you're doing? Most small teams have a few basic needs: (1) team members need their important stuff in front of them wherever they are, (2) everyone needs to be working on the latest version of a given document (and ideally can track what's changed), (3) and team data needs to be protected from disaster. There are sync tools (e.g. beinsync, Foldershare), there are backup tools (Carbonite, Mozy), and there are web uploading/publishing tools (box.net, etc.), but there's no good integrated solution. Dropbox solves all these needs, and doesn't need configuration or babysitting. Put another way, it takes concepts that are proven winners from the dev community (version control, changelogs/trac, rsync, etc.) and puts them in a package that my little sister can figure out (she uses Dropbox to keep track of her high school term papers, and doesn't need to burn CDs or carry USB sticks anymore.)
  • 206. At a higher level, online storage and local disks are big and cheap. But the internet links in between have been and will continue to be slow in comparison. In "the future", you won't have to move your data around manually. The concept that I'm most excited about is that the core technology in Dropbox -- continuous efficient sync with compression and binary diffs -- is what will get us there. # What do you understand about your business that other companies in it just don't get? Competing products work at the wrong layer of abstraction and/or force the user to constantly think and do things. The "online disk drive" abstraction sucks, because you can't work offline and the OS support is extremely brittle. Anything that depends on manual emailing/uploading (i.e. anything web-based) is a non-starter, because it's basically doing version control in your head. But virtually all competing services involve one or the other. With Dropbox, you hit "Save", as you normally would, and everything just works, even with large files (thanks to binary diffs).
  • 207. # What are people forced to do now because what you plan to make doesn't exist yet? Email themselves attachments. Upload stuff to online storage sites or use online drives like Xdrive, which don't work on planes. Carry around USB drives, which can be lost, stolen, or break/get bad sectors. Waste time revising the wrong versions of given documents, resulting in Frankendocuments that contain some changes but lose others. My friend Reuben is switching his financial consulting company from a PHP-based CMS to a beta of Dropbox because all they used it for was file sharing. Techies often hack together brittle solutions involving web hosting, rsync, and cron jobs, or entertaining abominations such as those listed in this slashdot article ("Small Office Windows Backup Software" - http://ask.slashdot.org/article.pl?sid=07/01/04/0336246). For the exclusive use of Q. Shi, 2021. This document is authorized for use only by Quanzhe Shi in MGT 246 Fall 2021 Individual Final Exam taught by HAIBO LIU, University of California - Riverside from Dec 2021 to Dec 2021.
  • 208. Dropbox: “It Just Works” 811-065 15 # How will you make money? The current plan is a freemium approach, where we give away free 1GB accounts and charge for additional storage (maybe ~$5/mo or less for 10GB for individuals and team plans that start at maybe $20/mo.). It's hard to get consumers to pay for things, but fortunately small/medium businesses already pay for solutions that are subsets of what Dropbox does and are harder to use. There will be tiered pricing for business accounts (upper tiers will retain more older versions of documents, have branded extranets for secure file sharing with clients/partners, etc., and an 'enterprise' plan that features, well, a really high price.) I've already been approached by potential partners/customers asking for an API to programmatically create Dropboxes (e.g. to handle file sharing for Assembla.com, a web site for managing global dev teams). There's a
  • 209. natural synergy between Basecamp-like project mgmt/groupware web apps (for the to-do lists, calendaring, etc.) and Dropbox for file sharing. I've also had requests for an enterprise version that would sit on a company's network (as opposed to my S3 store) for which I could probably charge a lot. # Who are your competitors, and who might become competitors? Who do you fear most? Carbonite and Mozy do a good job with hassle-free backup, and a move into sync would make sense. Sharpcast (venture funded) announced a similar app called Hummingbird, but according to (redacted) they're taking an extraordinarily difficult approach involving NT kernel drivers. Google's coming out with GDrive at some point. Microsoft's Groove does sync and is part of Office 2007, but is very heavyweight and doesn't include any of the web stuff or backup. There are apps like OmniDrive and Titanize but the implementations are buggy or have bad UIs. # What tools will you use to build your product? Python (top to bottom.) sqlite (client), mysql (server).
  • 210. Turbogears (at least until it won't scale.) Amazon EC2 and S3 for serving file data. # If you've already started working on it, how long have you been working and how many lines of code (if applicable) have you written? 3 months part time. About ~5KLOC client and ~2KLOC server of python, C++, Cheetah templates, installer scripts, etc. # If you have an online demo, what's the url? Here's a screencast that I'll also put up on news.yc: http://www.getdropbox.com/u/2/screencast%20- %20Copy.html If you do have a Windows box or two, here's the latest build: http://www.getdropbox. com/u/2/DropboxInstaller.exe # How long will it take before you have a prototype? A beta? A version you can charge for? Prototype - done in Feb. Version I can charge for: 8 weeks maybe? (ed: hahaha)