The Institute for Innovation and Entrepreneurship at UTD Leveraging the power of ideas and technology to create new ventures and add economic, social and cultural value to our community Alcatel-Lucent AT&T University Creating Value for the Customer; Capturing Value for the Entrepreneur and Investors

2 Creating and Capturing Value Agenda Introduction of Topic (10 mins) Introduction of Topic (10 mins) Brief Self-Introduction by Panelists (10 mins) Brief Self-Introduction by Panelists (10 mins) Moderated Panel Discussion (20 mins) Moderated Panel Discussion (20 mins) Questions from the Audience (20 mins) Questions from the Audience (20 mins)

3 Creating and Capturing Value Dr. Joseph C. Picken – Executive Director, The Institute for Innovation and Entrepreneurship at UT Dallas Dr. Joseph C. Picken – Executive Director, The Institute for Innovation and Entrepreneurship at UT Dallas Brendon Mills – Serial Entrepreneur: Brendon Mills – Serial Entrepreneur: Senior Advisor - ATEME (Telecommunications) Senior Advisor - ATEME (Telecommunications) GM, VP Mobile Video Business Unit - RGB Networks (Telecommunications) GM, VP Mobile Video Business Unit - RGB Networks (Telecommunications) CEO, Founder, RipCode, Inc. (Internet Industry) CEO, Founder, RipCode, Inc. (Internet Industry) CEO, Founder, GENBAND, Inc. (Telecommunications) CEO, Founder, GENBAND, Inc. (Telecommunications) George Mavromaras – Serial Entrepreneur George Mavromaras – Serial Entrepreneur Partner, Texas App Consulting Group (Mobile App Development) Partner, Texas App Consulting Group (Mobile App Development) CEO, Founder, Mavro, Inc. (Medical Spanish Guide) CEO, Founder, Mavro, Inc. (Medical Spanish Guide)

4 The Importance of the Business Concept Defining and clearly articulating a viable business concept is the essential first step for any entrepreneur Defining and clearly articulating a viable business concept is the essential first step for any entrepreneur The business concept addresses two key questions: The business concept addresses two key questions: How will the venture create value for a customer? How will the venture create value for a customer? How will the venture be organized to generate profits and capture economic returns for the entrepreneur and investors? How will the venture be organized to generate profits and capture economic returns for the entrepreneur and investors? An attractive and viable business concept is essential: An attractive and viable business concept is essential: To attract employees, key advisors and initial customers To attract employees, key advisors and initial customers To raise investment capital To raise investment capital

5 Superior Solution to Problem Customer Need or Problem The Entrepreneurial Process Execute the Plan Create Value (value proposition) Capture Value (strategy & business model) Exit the Venture The Business Concept Building a sustainable business is all about the processes and priorities of execution within the framework of a viable business concept The business model defines the mechanism of an exchange: the value created for the customer and the return of a reciprocal value from the customer to the firm. For the firm to earn a profit, the reciprocal value must be greater than the cost to the firm of creat- ing the value delivered to the customer The creation of real value for a real customer is the essential first step. The value created for the customer is described by the value proposition Typically, a successful exit is required to fully capture the value created by the venture for the benefit of the entrepreneur and his investors

6 Creating Value for the Customer The entrepreneur’s initial challenge is to create customer value: The entrepreneur’s initial challenge is to create customer value: We must understand what the customer needs and values and then define an offering that meets those needs better than the next best alternative We must understand what the customer needs and values and then define an offering that meets those needs better than the next best alternative You must adopt the customer’s point of view. The entrepreneur usually sees what the product will do (functionality); the customer sees (or imagines) what the product will do for him (utility). You must adopt the customer’s point of view. The entrepreneur usually sees what the product will do (functionality); the customer sees (or imagines) what the product will do for him (utility). Key question: What is the customer’s “job-to-be-done”? Key question: What is the customer’s “job-to-be-done”? The entrepreneur must then deliver a solution that solves the customer’s problem better than that customer’s next best alternative. To do so, you must understand: The entrepreneur must then deliver a solution that solves the customer’s problem better than that customer’s next best alternative. To do so, you must understand: How the customer solves the problem today. What his alternatives are. How satisfied or dissatisfied is he with the current solution? How the customer solves the problem today. What his alternatives are. How satisfied or dissatisfied is he with the current solution? How the customer will have to change his behavior to utilize your solution. How willing the customer is to change his behavior, and what factors may inhibit behavioral change. How the customer will have to change his behavior to utilize your solution. How willing the customer is to change his behavior, and what factors may inhibit behavioral change.

7 Capturing Value for the Entrepreneur You must then determine how to deliver the solution in a manner that captures a portion of the value created for the entrepreneur and his investors You must then determine how to deliver the solution in a manner that captures a portion of the value created for the entrepreneur and his investors Capturing value requires a business model and a strategy that ensure sufficient profits to provide a fair return on the investment (of time and resources) required to create the business Capturing value requires a business model and a strategy that ensure sufficient profits to provide a fair return on the investment (of time and resources) required to create the business A business model consists of four interlocking elements that describe how the business works to create and capture value: A business model consists of four interlocking elements that describe how the business works to create and capture value: Customer Value Proposition Customer Value Proposition Profit Model (economics of the business) Profit Model (economics of the business) Key Resources Key Resources Key Processes Key Processes

8 The Four Box Business Model Framework Customer Value Proposition  Target Customer  Job to be done – important need or problem to be solved for the target customer  Offering – a solution that solves the problem or satisfies the need Key Resources  People  Technology, products  Equipment  Information  Channels,  Partnerships, alliances  Brand Profit Formula  Revenue model  Cost structure  Margin model  Resource velocity Key Processes  Processes  Rules & metrics  Norms Describes how a company creates value for a given set of customers at a given price Defines the way the company will capture value for itself and its shareholders in the form of profit The means by which the company delivers value to the customer and itself The means by which the company delivers value to the customer and itself – enabling the enterprise to fulfil the CVP and profit formula in a repeat- able, scalable fashion.

9 Business Model Development: An Iterative Process Mullins and Komisar argue that no venture succeeds based on the original business plan (Plan A): Mullins and Komisar argue that no venture succeeds based on the original business plan (Plan A): There are just too many assumptions and leaps of faith There are just too many assumptions and leaps of faith Some (or many) of them will be wrong and must be revised Some (or many) of them will be wrong and must be revised The ventures that succeed are those that recognize (and are willing to admit) that Plan A isn’t working: The ventures that succeed are those that recognize (and are willing to admit) that Plan A isn’t working: Test and and modify key assumptions about the market, the opportunity, and the competition, and… Test and and modify key assumptions about the market, the opportunity, and the competition, and… Move to Plan B (or C or D), before they run out of money Move to Plan B (or C or D), before they run out of money Google didn’t make money on Plan A, or Plan B, or Plan C – they iterated their business model until they finally stumbled upon Plan D, which finally worked. Google didn’t make money on Plan A, or Plan B, or Plan C – they iterated their business model until they finally stumbled upon Plan D, which finally worked.

10 Two Very Different Approaches Start with a Novel Product/Service Idea Develop a Winning Business Concept Write a Comprehensive Business Plan Find Venture Capital Funding Hire the “A” Team Design the Product Build the Product Take Orders Get Rich – Retire Early or Start with a Novel Product/Service Idea Develop a Winning Business Concept “Try it, iterate it until you get it right, then build a repeatable, scalable business process” Build a Company Capable of Sustained & Profitable Growth Leverage Resources – use Bootstrap Financing Plan A Plan B Business Model Business Strategy Pitch it again and again – Iterate and Refine the Idea “Try it, iterate it until you get it right, then build a repeatable, scalable business process”

11 Key Questions to Be Addressed Creating Value for a customer Creating Value for a customer How did you discover the customer need around which you built your business? How did you discover the customer need around which you built your business? How did you validate that need? How did you validate that need? How was the idea iterated and refined as you went forward? How was the idea iterated and refined as you went forward? Capturing Value for the entrepreneur and investors Capturing Value for the entrepreneur and investors What was your original business model concept? Did it work? What was your original business model concept? Did it work? How did your business model evolve as your business grew? How did your business model evolve as your business grew? What triggered the changes in your model? What triggered the changes in your model?