training of professor kent millington
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The training of Professor Kent Millington Creating Value from New Ideas and Technologies (organized by HTP)TRANSCRIPT
CREATING VALUE FROM NEW IDEAS AND TECHNOLOGIES
Minsk, Belarus
DR. KENT MILLINGTONOCTOBER 2012
INTRODUCTION TO ENTREPRENEURSHIP
• INNOVATION• OPPORTUNITY• TECHNOLOGY STRATEGIES• BUSINESS MODEL CANVAS• BUSINESS PLAN STRUCTURE
Developing technology into viable businessesCreativity – Innovation – EntrepreneurshipOpportunity RecognitionTechnology Assessment and examplesDeveloping a Strong Business ModelPresenting the Idea to Stakeholders
New Ideas and Technologies
ENTREPRENEURSHIP: THE ART AND SCIENCE OF BUILDING VALUE
ART: CREATIVITY; ENERGY; FEEL; INSIGHT
SCIENCE: ANALYSIS; DISCIPLINE; SYSTEMATIC APPROACH
Entrepreneurship: About People
DnA + AnD = Action
DnA = Dreams and Ambitions
AnD = Analysis and Discipline
Identify a need or opportunity
Create a solution - Innovation
Implement solution to create value
Harvest or other long-term strategy
ENTREPRENEURSHIP
Innovates or creates for personal gain
Takes the initiative to create wealth
Assembles and deploys resources under uncertain situations
Accepts the risks personally
ENTREPRENEUR
Two Kinds of Entrepreneurship
1. Opportunity – based2. Necessity – based
Young people 25-34 are dominant participants in entrepreneurship.
“A company’s ability to innovate – to use the value-creating ideas of employees, partners, customers, suppliers, and others…has become the 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
solutionsExpertise /Knowledge
Everything that a person knows and
can do in the broad domain of his
or her work
Motivation
Determines what
people will
actually do
Continuum of Innovation
Imitative Incremental Evolutionary Radical Revolutionary
The secret to innovation is uncovering an unmet consumer need 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 InnovationRadical Innovation
• Fundamental rethink• Disruptive technologies• Need to be nurtured for
long periods• Worse initial performance• Capture new markets• Can create new standards
Incremental Innovation
• Steady improvements• Sustaining technologies• Can be rapidly
implemented• Immediate gains• Develop customer loyalty• May hinder radical change
Product -, Service -, Process Innovation
Latest science and technology
Needs in society and the marketplace
Creativity• Production of novel and useful ideas• Discovery of opportunities• Output: new ideas
Innovation• Refining, evaluation and first prototypes of the new ideas• Evaluation of opportunities• Output: prototype
Entrepreneurship• Creation of value in the marketplace• Exploitation of opportunities• Output: new product, service, or process
The Creativity-Innovation-Entrepreneurship Chain
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 more new wealth than process innovation!
Allocation vs. AttractionAllocation is the use of existing resources, or a limited amount of new resources, in a risk-controlled investment process.
Attraction is the gathering and use of new resources in creative ways to promote a new opportunity in a high-risk investment.
Three Characteristics of Opportunity
NewnessPotential Economic ValuePerceived Desirability
Opportunity implies something that has not existed or been available before, that can yield potential economic gains, and whose development is consistent with legal and/or moral standards of the society in which it occurs.
•Alertness •Social Network Ideas•Prior Knowledge
-Of markets-How to service markets-Customer problems-Accumulation over time
Example: Focus Media in Shanghai
A Framework
Opportunity Recognition
A process to identify the potential to create something new that can generate economic value and is not currently being exploited or developed.
Basic Propositions Concerning Opportunities
Proposition 1: Opportunities emerge from changes in knowledge, technology, economic, political, social, and demographic conditions.
Proposition 2: Recognition depends on previous experience which enables people to see links between previously unconnected changes, knowledge, or events.
Product Opportunity GapSocial: Social and Cultural trends, Historical trends
Economic:State of the Economy, Level of Disposable Income, Changing Investment Opportunities
Technology:Emerging technologies, Re-evaluating existing technologies
Product Opportunity Gap
Place an “X” in the approximate location of the competitors in terms of price and performance/benefits/value added
Highest
Average
Lowest
Price
Lowest Average HighestPerformance/Benefit/Value Added
Discontinuous opportunities: The source of radical innovation
NewMarkets
ExistingMarkets
Existing Products/Technology
New Products/Technology
Adjacent
Opportunities
Exploit current assets
and capabilities
Status QuoGrow marketshare and profit(business expansion,not new businessdevelopment)
Adjacent
Opportunities
Increase primary
market demand
Discontinuous
Opportunities
Create new markets
and new products
… which create disproportionate wealth relative to adjacent opportunities
14%
86%Adjacentopportunities
Discontinuousopportunities
38%
62%
61%
39%
Type of newBusiness launch Revenues Profits
Source: Chan & Mauborgne (1997)
Managing Technology - Discovery to Application
Scientific Discovery
Invention
Innovation
Technology Application
Sustaining vs. Disruptive Technologies
Sustaining technologies focus on improvements of importance to existing customers. Existing companies best with incremental innovation.
Disruptive technologies create a new value proposition, reach new markets and customers. New companies better at disruptive, radical innovation.
• 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
Creating Competitive Advantage
Technology and Competitive Advantage
Technology
Competitive Dynamics
Competitive Advantage
Value Creation
Sustainable Competitive Advantage
Combination of scientific, technical, sales, and manufacturing knowledge can create a needed advantage.
Dilemma of a high tech company: How to provide incrementally superior products at faster speeds and lower prices?
How has technology changed the way YOU do
business?
How has technology changed the way YOU live
your life?
Effective Technology Management Answers Three Questions
How will we create value?
How will we deliver value?
How will we 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 Innovation
1. 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 Commercialization
Commercializing New Technologies, Vijay K. Jolly, Harvard Business School Press, 1997, p. 4
Imagining Incubating Demonstrating Promoting SustainingCreating unique product ideas
Proving product viability
Build prototypes
Build products & introduce to markets
Build markets & improve products
Find interested people & money
Find resources to build prototypes & identify markets
Build initial markets & plan market expansions
Develop market growth strategies
Product planning steps
Business planning steps
Technology Commercialization Process
Resource Needs
People Small Moderate Medium Large
Physical None Moderate Medium Large
Financial None Moderate Large Largest
Technology Assessment
1. Understand Technology2. Discover Possible Uses of Technology3. Understand Markets for Uses4. Determine How to Deliver Value
Technology S - Curve
Time
Performance
Product
The S-Curve of Technological Progress
S – Curve Strategy
1st Technology
2nd Technology
3rd Technology
Time
Performance
Product
Managing Along the S – Curve
1st Technology
2nd Technology
3rd Technology
Time
Performance
Product
Managing Growth
ManagingTransitions
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 important technology.
The Entrepreneurial Process
Opportunity Resources
Team
Creativity
Communication
Leadership
Business Plan
Fits and Gaps
Source: 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
• Growth Potential > 20% per year
• Reachable Customer
• Durable
• Emerging or Fragmented
• US$1 Billion Potential
• Barriers to Entry
• Number of Competitors
• Low cost provider
• 40%+ Gross margin
• Low capital required
• Break even in 1-2 years
Own or Control Resources
Minimize and Control
versus
Maximize 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 AnalysisSUPPLIER POWER
Number of Suppliers, Volume of Inputs and Impact on Costs, Available Substitutes, Input Costs relative to Total Costs.
RIVALRY
Exit Barriers, Industry Concentration, Value Added, Industry Growth, Product differences, Brand Identity
BUYER POWER
Buyer Volume, Price Sensitivity, Buyer’s Incentives, Product Differentiation, Brand Identity
THREAT OF SUBSTITUTES
Switching Costs, Interest in Substitution, Price/Performance
BARRIERS TO ENTRY
Costs, Access to Inputs, Government Policy, Brand Identity, Capital Requirements, Switching Costs, Economies of Scale
Three General Strategies
Cost Leadership
Differentiation Focus
Lower CostsMergers
IntegrationPrice
Performance
FeaturesService
ConvenienceNew Innovation
Target Markets
Limited Distribution
How Companies Develop1.Small Business Entrepreneurship – 95%+ of business
2.Scalable Startup Entrepreneurship – receive most investment
3.Large Company Entrepreneurship – innovation as variants of existing core products; disruptive innovation difficult.
4.Social Entrepreneurship - innovation to solve social needs
Search for Business Model
Execution of Business Model
Build a Customer Development Process
Concept/Bus. Plan
Product Dev.
Alpha/Beta Test
Launch/1st Ship
Product Development
Customer Development
? ? ? ?
Customer Discovery: Step 1
CustomerDiscovery
CustomerValidation
CustomerCreation
CompanyBuilding
• 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
CustomerDiscovery
CustomerValidation
Customer
Creation
Company
Building
• Develop a repeatable and scalable sales process
• Only earlyvangelists are crazy enough to buy
“Pivoting” is changing a fundamental part of the business model. It can be simple: recognizing that your product was priced incorrectly. It can be more complex: your target customer needs to change, the feature set is wrong, you chose the wrong sales channel or your customer acquisition programs are ineffective.
– 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 3
CustomerDiscovery
CustomerValidation
CompanyBuilding
CustomerCreation
– 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
Customer Discovery: Step 4
CustomerDiscovery
CustomerValidation
CompanyBuilding
CustomerCreation
Nine Blocks of the Business Model
1. Customer Segments2. Customer relationships3. Value propositions4. Channels5. Key Resources6. Key Activities7. Key Partners8. Revenue streams9. Cost Structure
Business Model Generation, Alexander Osterwalder & Yves Pigneur, 2010
Business Model Canvas
Key Partners Key
Activities
Key Resources
Value Proposition Customer
Relations
Customer Segments
Channels
Cost Structure Revenue Streams
Business Model Canvas
Key Partners Key
Activities
Key Resources
Value Proposition Customer
Relations
Customer Segments
Channels
Cost Structure Revenue Streams
Customer SegmentsMass Market: focus on one large group; i.e., consumer electronics
Niche Market: specific segments; i.e., supplier-buyer relationships like auto parts manufacturers
Segmented: different needs and problems; i.e., banks and professional services (engineering, consultants)
Diversified: unrelated segments; i.e., Amazon selling products and providing computer services
Multi-sided platforms: credit card companies; i.e., card holders 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 services
Finding the right mix of channels is crucial to bringing a value proposition to market.
ChannelTypes
Own Partner
Direct Indirect
Sales Force
Web Sales
Own Stores
Partner Stores
Wholesale
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?
Channel Phases
Customer Relationships
Motivations: Customer acquisition, customer retention, Boosting sales (upselling)
Personal AssistanceDedicated Personal AssistanceSelf-serviceAutomated serviceUser communitiesCo-creation of innovative products
Key Resources
Physical: facilities, buildings, equipment
Human: especially for creative industries
Financial: sources of funding
Intellectual: patents, copyrights, partnerships, customer databases
Key Activities
Production: designing, making, delivering
Problem solving: consulting, services, hospitals
Platform/network: software, networks, social media, brands, platform promotion
Key Partnerships
Strategic alliances between non-competitors and financial sources
Strategic partnerships with competitors
Joint Ventures
Buyer-supplier relationships to assure reliable supplies
Revenue Streams
One-time customer purchases
Recurring revenues
Asset sales, Usage fee, Subscription fees, Lending/Renting/Leasing, Licensing
Pricing considerations
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 innovation
Economies of scale Economies of scope Fixed costs Variable costs
Business Model Canvas
Key Partners
Key Activities
Key Resources
Value Proposition
Customer Relations
Customer Segments
Channels
Cost Structure Revenue Streams
Business Model Canvas – SWOT Analysis
KP KA
KR
VP CR CS
C
C$ R$
Strengths
Opportunities
Weaknesses
Threats
Internal
External
Helpful Harmful
Business Model Canvas – Value Innovation
KP KA
KR
VP CR CS
C
C$ R$
- Costs + Value
Business Model Canvas – Value Innovation
KP KA
KR
VP CR CS
C
C$ R$
- Costs + Value
Eliminate
Reduce
Raise
Create
Cost Side Value Side
Apple iPod/iTunes Business Model
What about your Company????
Business Model Canvas for Apple iTunes
KP KA
KR
VP CR CS
C
C$ R$
Record Companies
OEMs
Hardware Design
Marketing
PeopleBrand NameiPod hardwareiTunes software
Seamless Music Experience
Lovemark
Switching Costs
Mass market
Retail stores Apple storesApple.com
People Manufacturing Marketing and sales
iTunes storesLarge hardware revenuesSome 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
On-Line Sources
http://www.businessplans.org/
http://www.bplans.com/
http://www.bizplans.com/
Management Plan
o Identify key functions and skills
o Identify people
o Identify “fits and gaps”
o Establish credibility
o Show ability to manage business
Product/Service Plan
Describe product or service
Who will buy the product or service?
What benefits result from this product or service?
Describe unique features
Developing a Marketing Strategy and Marketing Plan
TargetMarket
MarketingMix
MarketingStrategy
Time-RelatedDetails and Budget
MarketingPlan
+ +
==
Marketing
MarketingEnvironment
Environment
Unique Selling Proposition
Unique Claim
Plausible support
and Tradeoff
Crossing the Chasm
2 1/2%Innovators
13 1/2%Early
adopters
34%Early
majority
34%Late
majority
16%Laggards
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 those functions
Prepare contingency plans for each function
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.
