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Startnowhow - Opportunity Recognition and Evaluation

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by Dr. Joachim Behrendt

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Startnowhow - Opportunity Recognition and Evaluation

  1. 1. INTRODUCTION StartNowHow • Open seminar series for active and prospective entrepreneurs • 10 sessions on monthly basis until summer 2017 • Covers relevant theoretical and practical aspects of entrepreneurship • Based on lecture „entrepreneurship“ @Bogazici University • Based on experiences of entrepreneurs, investors, mentors and consultants • Each session with guest speaker (entrepreneurs, investors, mentors, etc.) • Certificate provided for participants (from BIC Angels / Bogazici University Entrepreneurship Center) joining at least 70% of the sessions • Language: English / Turkish • Thursdays 17.15h – 19.30h • Next session: Thu 9. February 2017 • Topic: Market and Competitor Research • Early registration for each session required (eventbrite), limited capacity! • Priority for regular participants Startnowhow – Seminar 212.01.2017 2
  2. 2. INTRODUCTION StartNowHow - Seminar Topics (preliminary) 1. Thu 22.09.16: The entrepreneurial ecosystem in Turkey 2. Thu 20.10.16: Entrepreneurship as a profession 3. Thu 17.11.16: Financial planning for startups 4. Thu 15.12.16: Planning, developing and testing a business model 5. Thu 12.01.17: Opportunity recognition and evaluation 6. Thu 09.02.17: Market and competitor research 7. Thu 09.03.17: Funding the startup – stage financing for ventures 8. Thu 06.04.17: Startup valuation 9. Thu 04.05.17: The investment process – pitching, negotiations and termsheet 10. Thu 01.06.17: Success and failure as an entrepreneur Startnowhow – Seminar 112.01.2017 3
  3. 3. INTRODUCTION StartNowHow - Literature • Bowers, Brent, 8 Patterns of Highly Effective Entrepreneurs, Doubleday, New York, NY 2008 • Bygrave, William D. / Zacharaiks, Andrew, The Portable MBA in Entrepreneurship, 4th ed., Wiley, Hoboken, NJ 2010 • Drucker, Peter F., Innovation and Entrepreneurship, 1st ed. 1985, reprinted 2010, Elsevier, Kiddlington, 2010 • Harper, Stephen C., Extraordinary Entrepreneurship: The Professional’s Guide to Starting an Exceptional Enterprise, Wiley, Hoboken, NJ 2005 • Hirshberg, Meg Cadoux, For Better or for Work, All Inc., New York, NY 2012 • Hisrich, Robert D. / Peters, Michael P. / Shepherd, Dean A., Entrepreneurship, 9th ed., McGraw-Hill, New York, NY 2012 • Kuratko, Donald F., Entrepreneurship: Theory, Process, Practice, 8th ed., South-Western, Mason, OH 2009 • Leach, J. Chris / Melicher, Ronald W., Entrepreneurial Finance, International Edition, 4th ed., South- Western, Hampshire 2012 • Osterwalder, Alexander / Pigneur, Yves, Business Model Generation, Wiley, Hoboken, NJ 2010 • Ries, Eric, The Lean Startup, Crown Business, New York, NY 2011 • Smith, Janet Kiholm / Smith, Richard L. / Bliss, Richard T.,Entrepreneurial Finance – Strategy, Valuation, and Deal Structure, Standford University Press, Stanford, CA 2011 • Stokes, David / Wilson, Nick, Small Business Management and Entrepreneurship, 6th ed., South-Western, Hampshire 2010 • Taleb, Nassim Nicholas, The Black Swan – The Impact of the Highly Improbable, revised ed., Penguin, London 2010 • Timmons, Jeffry A. / Spinelli, Stephen, New Venture Creation – Entrepreneurship for the 21st Century, 9th ed., McGraw-Hill, New York, NY 2011 Startnowhow – Seminar 112.01.2017 4
  4. 4. OPPORTUNITYRECOGNITION Entrepreneur Profiles – Motivations • Pull influences („opportunity-based entrepreneurship“) • Desire for independence • Desire to exploit an opportunity • Turning a hobby / previous work experience into a business • Financial incentive • Push influences („necessity-based entrepreneurship“) • Redundancy • (Threat of) unemployment • Disagreement with previous employer • Desire for independence • (Source: Stokes / Wilson, Small Business Management, pp.37-38) • .... But: „Who is the Entrepreneur“? 12.01.2017 5Entrepreneurship Source: Timmons / Spinelli, New Venture Creation, p. 55
  5. 5. OPPORTUNITYRECOGNITION Entrepreneurship and Innovation Startnowhow – Seminar 1 Source: Bygrave / Zacharakis, The Portable MBA in Entrepreneurship,, p.32 12.01.2017 6
  6. 6. OPPORTUNITYRECOGNITION Paths of Idea Generation • The Alertness Path: • Discovery by constant alertness, constant scanning of environment for opportunities • Source of ideas: Environment • Source of differentiation: Learning • Process: Spontaneous • Basis of discovery: Subconscious • Fit with entrepreneur: Typically poor • The Search Path: • Discovery by systematic search for a problem solution • Source of ideas: Information channel • Source of differentiation: Knowledge • Process: Deliberate • Basis of discovery: Conscious • Fit with entrepreneur: Typically strong • Often, idea generation is a mix of both paths • Ideas are often generated by a combination of play, improvisation, and observation • (from: Bygrave / Zacharias, The Portable MBA in Entrepreneurship, pp.30-31) 12.01.2017 7Startnowhow – Seminar 3
  7. 7. OPPORTUNITYRECOGNITION The Seven Sources for Innovative Opportunities • The Unexpected • Example: Unexpected success of IBM PC • The Incongruous • Examples: Invention of container ships / roll-on-roll-off ships, overnight package delivery • Process Needs • Examples: McDonalds, microwave ovens • Industry and Market Structures • Examples: Printing industry, ERP software, media industry • Demographics • Examples: Health care industry, universities in Turkey • Changes in Perception • Examples: Fashion industry, organic food • New Knowledge • Examples: Electricity, light bulb, internet, mobile phone, robotics, ... • Source: Drucker, Innovation and Entrepreneurship, pp.27-117 12.01.2017 8Startnowhow – Seminar 3
  8. 8. OPPORTUNITYRECOGNITION Creativity – The Fear Factor 12.01.2017 9Startnowhow – Seminar 3 Source: Bygrave / Zacharakis, The Portable MBA in Entrepreneurship, p. 37
  9. 9. OPPORTUNITYEVALUATION Characteristics of Superior Business Opportunities • Added value • Venture creates or adds significant value to a customer or end user • Venture solves a significant problem • Venture adds value by solving a significant problem, removing a serious pain, or meeting a significant want or need • Someone is willing to pay a premium for solving this problem • Venture has robust market, margin, and money-making characteristics • Large enough market (min. 50 Mio $) • High growth expectation (min. 20% p.a.) • High gross margins (min. 40%) • Strong and early cash flow (recurring revenue, low assets, low working capital) • High profit potential (min. 10% - 15% after tax income) • Attractive, realizable return for investors (Internal Rate of Return IRR min. 25%- 30%) • Venture fits to skillset • Good fit with founder(s) and managment team skills for that time and marketplace • Attractive risk-reward balance • Source: Timmons / Spinelli, New Venture Creation, p.150 12.01.2017 10Startnowhow – Seminar 3
  10. 10. OPPORTUNITYEVALUATION Sustainable Competitive Advantage • Necessary: Resource bundle that is valuable, rare and inimitable • Resources are all inputs to production process – land, raw materials, machinery, other fixed assets, patents, licenses, employee skills, management skills, knowledge, ... • Resource bundle is valuable when it enables the firm to pursue opportunities, neutralize threats, and offer products and services that are valued by customer • Resource bundle is rare when it is possessed by few, if any, (potential) competitors • Resource bundle is inimitable when replication of this combination of resources would be difficult and / or costly for (potential) competitors. • Core resource: Entrepreneurial knowledge • In mind of entrepreneur, or in collective mind of employees / management team • Source: Market knowledge • Source: Technology knowledge • Source: Hisrich / Peters / Shepherd, Entrepreneurship, pp.67-70 12.01.2017 11Startnowhow – Seminar 3
  11. 11. OPPORTUNITYEVALUATION Opportunity Screening Process Funnel 12.01.2017 12Startnowhow – Seminar 3 Source: Harper, Extraordinary Entrepreneurship,, p.127
  12. 12. OPPORTUNITYEVALUATION Classification Guidelines for the VOS Indicator 12.01.2017 13Startnowhow – Seminar 3 Source: Leach / Melicher, Entrepreneurial Finance, p.55
  13. 13. BIC ANGEL INVESTMENTS Dr. Joachim Behrendt Phone: +90 212 328 1939 Fax: +90 212 328 1933 www.bicangels.com http:/twitter.com/joachimbehrendt http://tr.linkedin.com/pub/joachim-behrendt/18/706/a7a Email: j.behrendt@bicangels.com

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