New faculty and staff – have chairs do it – l welcome Emily and introduce CAL team and Shauna and Aaron and Landon Photos Reed Gooch retirement Welcome Emily back
training of Professor Kent Millington
CREATING VALUE FROM NEW IDEAS AND TECHNOLOGIES Minsk, Belarus DR. KENT MILLINGTON OCTOBER 2012
INTRODUCTION TOENTREPRENEURSHIP• INNOVATION• OPPORTUNITY• TECHNOLOGY STRATEGIES• BUSINESS MODEL CANVAS• BUSINESS PLAN STRUCTURE
New Ideas and TechnologiesDeveloping technology into viable businessesCreativity – Innovation – EntrepreneurshipOpportunity RecognitionTechnology Assessment and examplesDeveloping a Strong Business ModelPresenting the Idea to Stakeholders
ENTREPRENEURSHIP: THE ARTAND SCIENCE OF BUILDING VALUEART: CREATIVITY; ENERGY; FEEL; INSIGHTSCIENCE: ANALYSIS; DISCIPLINE; SYSTEMATIC APPROACH
Entrepreneurship: About People DnA + AnD = Action DnA = Dreams and Ambitions AnD = Analysis and Discipline
ENTREPRENEURSHIPIdentify a need or opportunityCreate a solution - InnovationImplement solution to create valueHarvest or other long-term strategy
ENTREPRENEURInnovates or creates for personal gainTakes the initiative to create wealthAssembles and deploys resources under uncertain situationsAccepts the risks personally
Two Kinds of Entrepreneurship 1. Opportunity – based 2. Necessity – basedYoung people 25-34 are dominantparticipants in entrepreneurship.
“A company’s ability to innovate –to use the value-creating ideas ofemployees, partners, customers,suppliers, and others…has becomethe core driver of growth,performance, and valuation.” McKinsey Report 2008
Two Important Considerations for Entrepreneurs • INNOVATION / CREATIVITY • OPPORTUNITY IDENTIFICATION
The three components of creativity Creative thinking How people approach problems and Expertise / solutions Knowledge Motivation Everything that a Determines what person knows and people will can do in the actually do broad domain of his or her work
Continuum of InnovationImitative Incremental Evolutionary Radical RevolutionaryThe secret to innovation is uncovering an unmet consumerneed and the filling it in an innovative, creative way.
Continuum of InnovationImitative: copies something well-known and acceptedIncremental: small improvements; faster, better, cheaperEvolutionary: new to firm but not to world (i.e., technologies in new places)Radical: technologies that give large performance improvements or lower costsRevolutionary: new to individual, firm, and the world Best Opportunities between Incremental and Radical
Incremental vs. Radical InnovationIncremental Innovation Radical Innovation• Steady improvements • Fundamental rethink• Sustaining technologies • Disruptive technologies• Can be rapidly • Need to be nurtured for implemented long periods• Immediate gains • Worse initial performance• Develop customer loyalty • Capture new markets• May hinder radical change • Can create new standards Product -, Service -, Process Innovation
The Creativity-Innovation-Entrepreneurship Chain Latest science and technology Creativity Innovation Entrepreneurship • Production of novel • Refining, evaluation • Creation of value and useful ideas and first prototypes in the marketplace • Discovery of of the new ideas • Exploitation of opportunities • Evaluation of opportunities • Output: new ideas opportunities • Output: new product, • Output: prototype service, or process Needs in society and the marketplace
Types of Innovation1. Product: early stage of product life cycle, innovations are frequent. As rate of product innovation decreases, process innovation increases. (What we make)2. Process: makes manufacturing more efficient through automation, lowering costs. (How we make it)Product /Service innovation creates much morenew wealth than process innovation!
Allocation vs. AttractionAllocation is the use of existing resources,or a limited amount of new resources, in arisk-controlled investment process.Attraction is the gathering and use of newresources in creative ways to promote anew opportunity in a high-risk investment.
Three Characteristics of OpportunityNewnessPotential Economic ValuePerceived DesirabilityOpportunity implies something that has not existed orbeen available before, that can yield potential economicgains, and whose development is consistent with legaland/or moral standards of the society in which it occurs.
A Framework•Alertness•Social Network Ideas•Prior Knowledge -Of markets -How to service markets -Customer problems -Accumulation over time Example: Focus Media in Shanghai
Opportunity RecognitionA process to identify the potential tocreate something new that cangenerate economic value and is notcurrently being exploited or developed.
Basic Propositions Concerning OpportunitiesProposition 1: Opportunities emerge fromchanges in knowledge, technology, economic,political, social, and demographic conditions.Proposition 2: Recognition depends onprevious experience which enables peopleto see links between previously unconnectedchanges, knowledge, or events.
Product Opportunity GapSocial:Social and Culturaltrends, Historicaltrends Product Opportunity Gap Technology: Emerging technologies Re-evaluating existing Economic: technologies State of the Economy, Level of Disposable Income, Changing Investment Opportunities
Place an “X” in the approximate location of the competitors in terms of price and performance/benefits/value added HighestPrice Average Lowest Lowest Average Highest Performance/Benefit/Value Added
Discontinuous opportunities: The source of radical innovation Adjacent Discontinuous New Opportunities Opportunities Markets Exploit current assets Create new markets and capabilities and new products Status Quo Grow market Adjacent share and profit Existing Opportunities Markets (business expansion, Increase primary not new business market demand development) Existing Products/ New Products/ Technology Technology
… which create disproportionate wealth relative to adjacent opportunities 14% 38% Discontinuous 61% opportunities Adjacent 86% opportunities 62% 39% Type of new Business launch Revenues Profits Source: Chan & Mauborgne (1997)
Sustaining vs. Disruptive TechnologiesSustaining technologies focus onimprovements of importance to existingcustomers. Existing companies best withincremental innovation.Disruptive technologies create a new valueproposition, reach new markets and customers.New companies better at disruptive, radicalinnovation.
Creating Competitive Advantage• Competitive Advantage – Something that the firm does better than any of its competitors. – Goal: To have a sustainable competitive advantage • Requires that the advantage: – Must be valued by customers – Not easily duplicated by competitors
Technology and Competitive Advantage Technology Competitive ValueCompetitive Advantage CreationDynamics
Sustainable Competitive AdvantageCombination of scientific, technical, sales,and manufacturing knowledge can create aneeded advantage.Dilemma of a high tech company: How toprovide incrementally superior products atfaster speeds and lower prices?
How has technologychanged the way YOU do business? How has technologychanged the way YOU live your life?
Effective Technology Management Answers Three Questions How will we create value? How will we How will we deliver value? capture value?
Three Key Questions – and Eight Others •How will we create value? How will the technology evolve? How will the market change? How do we organize effectively? • How will we capture value? How do we gain a sustainable competitive advantage? How should we compete when standards are important? How to manage technology platforms? • How will we deliver value? How should we execute the marketing strategy? How do we make decisions and take decisive action?
Major Strategic Questions• Should we create our own new technology and innovations internal to the firm? OR• Should we acquire technology from external sources like acquisition or strategic alliances?
Dimensions of Internal Innovation1. Goal of internal innovation is for the firm to outperform its competition.2. Internal innovation involves many individuals, capabilities, and resources.3. Resources are critical to the innovation process. (Human, Physical, Financial)
Reasons for Using External Innovation: 1. The firm’s product line falling behind competitors. 2. A new competitor enters the market, which will change the dynamics of the industry. 3. The firm discovers its processes are not as efficient and/or effective as those of its competitors. 4. The firm believes its current products or processes are not going to be successful in the future. 5. Expansion into new markets and/or new products is achieved faster.
The Process of Technology CommercializationCommercializing New Technologies, Vijay K. Jolly, Harvard Business School Press, 1997, p. 4
Technology Commercialization Process Imagining Incubating Demonstrating Promoting SustainingProduct Build products & Build markets Creating unique Proving product Buildplanning product ideas viability prototypes introduce to & improvesteps markets products Build initial DevelopBusiness Find resources to Find interested markets & build prototypes & market growthplanning people & money identify markets plan market strategies expansionssteps Resource Needs People Small Moderate Medium Large Physical None Moderate Medium Large Financial None Moderate Large Largest
Technology Assessment1. Understand Technology2. Discover Possible Uses of Technology3. Understand Markets for Uses4. Determine How to Deliver Value
Technology S - Curve PP er ro fd ou rc mt a n c e Time
S – Curve Strategy PP e 3rd Technologyr ro fd o 2nd Technologyu rc mt a n 1st Technology c e Time
Managing Along the S – Curve PP e Managing 3rd Technologyr r Growtho fd o 2nd Technologyu r m Managingc a Transitionst n 1st Technology c e Time
Management Implications•Technology shifts before investment recovery•Management focus often fragmented•Engineering strength often misused• Marketing becomes a problem introducing new technology over the old one•Difficult to manage the ROI in importanttechnology.
The Entrepreneurial Process Communication Opportunity Resources Business Plan Fits and GapsCreativity Leadership TeamSource: New Venture Creation, 6th Edition, Jeffrey A. Timmons and Stephen Spinelli, McGraw Hill, 2004
The Three M’s of Opportunity Market Demand Market Structure & Size Margin Analysis• Fast Customer Payback • Emerging or Fragmented • Low cost provider• Growth Potential > 20% • US$1 Billion Potential • 40%+ Gross marginper year • Barriers to Entry • Low capital required• Reachable Customer • Number of Competitors • Break even in 1-2 years• Durable
Own or Control ResourcesMinimize and Control versusMaximize and Own Human Resources (People) Financial Resources Physical Resources
The Entrepreneurial Team Leader: Teacher, Resilient, Deals with adversity and risk, Has integrity, Builds entrepreneurial culture Team: Relevant experience, Motivation to excel, Commitment, Determination, Creative, Adaptable, Opportunity obsession
Michael Porter’s Five Forces Analysis SUPPLIER POWER Number of Suppliers, Volume of Inputs and Impact on Costs, Available Substitutes, Input Costs relative to Total Costs. THREAT OFBARRIERS TO ENTRY SUBSTITUTESCosts, Access to Inputs, RIVALRY Switching Costs,Government Policy, BrandIdentity, Capital Exit Barriers, Industry Interest inRequirements, Switching Concentration, Value Substitution,Costs, Economies of Scale Added, Industry Growth, Price/Performance Product differences, Brand Identity BUYER POWER Buyer Volume, Price Sensitivity, Buyer’s Incentives, Product Differentiation, Brand Identity
Three General Strategies Cost Differentiation FocusLeadershipLower Costs Features Target Mergers Service Markets Integration Convenience Price New Innovation LimitedPerformance Distribution
How Companies Develop1.Small Business Entrepreneurship – 95%+ of business2.Scalable Startup Entrepreneurship – receive mostinvestment3.Large Company Entrepreneurship – innovation asvariants of existing core products; disruptive innovationdifficult.4.Social Entrepreneurship - innovation to solve socialneeds
Search for Execution ofBusiness Model Business Model
Build a Customer Development Process Product Development Concept/ Product Alpha/Beta Launch/1st Bus. Plan Dev. Test Ship Customer Development ? ? ? ?
Customer Discovery: Step 1 Customer Customer Customer Company Discovery Validation Creation Building• Stop selling, start listening – There are no facts inside your building, so get outside• Test your hypotheses – Two are fundamental: problem and product concept
Customer Validation: Step 2 Customer Customer Customer Company Discovery Validation Creation Building• Develop a repeatable and scalable sales process• Only earlyvangelists are crazy enough to buy
“Pivoting” is changing a fundamental part of thebusiness model. It can be simple: recognizing that yourproduct was priced incorrectly. It can be more complex:your target customer needs to change, the feature setis wrong, you chose the wrong sales channel or yourcustomer acquisition programs are ineffective.
Customer Discovery: Step 3Customer Customer Customer CompanyDiscovery Validation Creation Building– Goal is to create end-user demand and drive that demand into the sales channel.– Marketing message will be different based on the kind of market being entered and the customers being sought– Brand building and heavy advertising work in existing markets but not so much in new markets.
Customer Discovery: Step 4 Customer Customer Customer Company Discovery Validation Creation Building– Where the company transitions from informal, learning, and discovery to formal departments of Sales, Marketing, Business Development– Build departments to exploit early market success– Add employees to meet demand for products
Nine Blocks of the Business Model 1. Customer Segments 2. Customer relationships 3. Value propositions 4. Channels 5. Key Resources 6. Key Activities 7. Key Partners 8. Revenue streams 9. Cost StructureBusiness Model Generation, Alexander Osterwalder & Yves Pigneur,2010
Business Model Canvas Key Value Customer Partners Key Proposition Customer Segments Activities Relations Key Channels Resources Cost Structure Revenue Streams
Business Model Canvas Key Value Customer Partners Key Proposition Customer Segments Activities Relations Key Channels Resources Cost Structure Revenue Streams
Customer SegmentsMass Market: focus on one large group; i.e., consumerelectronicsNiche Market: specific segments; i.e., supplier-buyerrelationships like auto parts manufacturersSegmented: different needs and problems; i.e., banks andprofessional services (engineering, consultants)Diversified: unrelated segments; i.e., Amazon selling productsand providing computer servicesMulti-sided platforms: credit card companies; i.e., cardholders and merchants
Value Proposition: Five Key Values• Product: Performance, quality, features, brand, easy to use, safe.• Price: Fair, visible, consistent, reasonable.• Access: Convenient location, found in reasonable time.• Service: Ordering, delivery, return, check-out.• Experience: Emotional, respect, ambiance, fun, intimacy.• One value selected to dominate value proposition, a second to differentiate, and remaining three meet the industry norm.
Channels Communication: marketing message, raising awareness, customer evaluation Distribution: delivering value proposition Sales: places to purchase product or servicesFinding the right mix of channels is crucial to bringing a valueproposition to market.
Channel Own Partner Types Direct Indirect Sales Web Own Partner Wholesale Force Sales Stores StoresChannel Phases 1. Awareness: How to raise awareness of products? 2. Evaluation: How do customers evaluate products? 3. Purchase: How and where do customers buy? 4. Delivery: How do we deliver value proposition? 5. After Sales: How provide post-purchase support?
Customer RelationshipsMotivations: Customer acquisition, customerretention, Boosting sales (upselling) Personal Assistance Dedicated Personal Assistance Self-service Automated service User communities Co-creation of innovative products
Key ResourcesPhysical: facilities, buildings, equipmentHuman: especially for creative industriesFinancial: sources of fundingIntellectual: patents, copyrights,partnerships, customer databases
Cost Structure Cost-driven model: minimize costs, low prices, maximum automation, extensive outsourcing, process innovation Value-driven model: value creation, premium values, personalized service, product innovationEconomies of scale Economies of scope Fixed costs Variable costs
Business Model Canvas Key Key Value Customer Customer Partners Activities Proposition Relations Segments Key Channels Resources Cost Structure Revenue Streams
Business Model Canvas – SWOT AnalysisI KP KA VP CR CSn Strengthst Weaknesseserna KR ClExt Opportunities Threatse C$ R$rnal Helpful Harmful
Business Model Canvas – Value Innovation KP KA VP CR CS - Costs + Value KR C C$ R$
Business Model Canvas – Value Innovation KP KA VP CR CS Eliminate Raise - Costs + Value KR C Reduce Create C$ R$ Cost Side Value Side
Apple iPod/iTunes Business Model What about your Company????
Business Model Canvas for Apple iTunes KP KA VP CR CS Hardware Lovemark Record Design Companies Seamless Switching Marketing Costs Music Mass Experience market OEMs KR C People Retail stores Brand Name Apple stores iPod hardware Apple.com iTunes software C$ R$ People Manufacturing iTunes stores Marketing and sales Large hardware revenues Some music revenues
Creating the Business Plan A roadmap for a desired direction Consider essential tasks Instills much-needed discipline Investors insist on a defensible plan Benefit to entrepreneur
Sections of Business Plan• Executive Summary• Management and Organization Plan• Product/Service Plan• Marketing Plan• Operations Plan• Financial Plan
Management Plano Identify key functions and skillso Identify peopleo Identify “fits and gaps”o Establish credibilityo Show ability to manage business
Product/Service Plan Describe product or service Who will buy the product orservice? What benefits result from this product or service? Describe unique features
Developing a Marketing Strategy and Marketing Plan Marketing TargetMarketing Environment Strategy Market = + + Time-Related Marketing Details and = Mix Budget Marketing Plan
Unique Selling Proposition Unique Claim Plausible support and Tradeoff
Crossing the Chasm 34% 34% Early Late majority majority 2 1/2% 13 1/2% 16%Innovators Early Laggards adopters Time of adoption for innovations
Operations Plan Plan for each function of the company:inventories, manufacturing, distribution,marketing and sales, customer service,finances Understand the critical path of thosefunctions Prepare contingency plans for eachfunction
The Financial PlanBuilding Pro Forma Statements with Sales and Revenue projections Operating Expense projections Asset projections Debt and Equity needs projections Cash Flow Projections ***Cash is King***
The Executive Summary Listed first but Created last Most important form of written communication 2 to 4 pages Clear, concise, and compelling Highlights each section with emphasis on the Financial Plan
The Elevator Pitch• Get the interest of potential investors, customers, or strategic partners• Gives a clear picture of the company and its products• 2-minute overview – Product or service offering – Target market – Current development stage – Current needs (capital, beta testers, etc.) Practice, Practice, Practice
Develop an Elevator Pitch• Set the stage (product or service)• Stake a claim (claim it and you own it)• Benefit (how it helps the target market and specifically the company you are talking to)• Provide proof (who is using/testing)• What is needed (short and specific)
Sample Elevator Pitch• ACME Technology is a developer of proprietary seismic imaging software.• ACME is targeting the $2.5 billion spent annually for seismic imaging software by the upstream oil & gas industry.• ACME currently has three patents pending and is seeking funding to complete development of its beta software product, which is being implemented and tested by Standard Oil.