Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Chapter 1 The Power of Entrepreneurship

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © An entrepreneur is the person who destroys the existing economic order by introducing new products and services, by introducing new methods of production, by creating new forms of organization, or by exploiting new raw materials. Definition of entrepreneurship Schumpeter An entrepreneur is the person who perceives an opportunity and creates an organization to pursue it. Simpler

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Business in the US 99.5% are small businesses (with 500 or fewer employees) 24 million businesses Have only 1 employee Part-time employees Full-time employees

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © 2 years10 years 1 year 81 % survive 5 years 10-year survival rates of business establishments 40 % survive 65 % survive25 % survive

Web 2.0 companies From 2002 to 2006, some 40 percent of Web 2.0 deals were located in the Bay Area. That figure dropped to just 20 percent during the first half. From , valuations of Web 2.0 companies doubled over the last year – VCs have to invest more than double the amount to get the same ownership slice as they did in 2006.

Change in share price for Web 2.0 companies since 2012

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Chapter 2 The Entrepreneurial Process

Entrepreneurship Defined: Entrepreneur: someone who perceives an opportunity and builds an organization to pursue that opportunity. Entrepreneurship involves all the functions, activities, and actions associated with perceiving opportunities and creating organizations to pursue them. These include: –Market and Customer Research –Service and Product Innovation –Team Building –Finding & Managing Resources –Leadership –Etc…

Factors Influencing the Decision to Start a Company Higher Internal Locus of Control Desire for Financial Success Desire to Achieve Self-Realization Desire for Recognition Joy of Innovation Risk Tolerance Personal Attributes Environmental Factors Local, Regional, or National attitudes towards entrepreneurship Social and cultural pressures for or against risk taking and entrepreneurship Access to entrepreneurial role models Responsibilities to family and community Remember: No single type of person is best suited for entrepreneurship! Entrepreneurs come from all walks of life, backgrounds, etc!

Before Making the Commitment Would be Entrepreneurs Must: 1) Assess their own financial reality. It can be very difficult to sustain a salary in the early years of starting a new business, and as a result it is essential for would be entrepreneurs to work through their own personal income needs. If they have a family or other responsibilities that make taking a financial risk more difficult, entrepreneurs must complete an honest assessment of whether and when the company will be able to match past salary levels. 2) Identify key contacts in their networks. The people in an entrepreneur’s network are his or her greatest potential source of capital, clients, employees, and feedback. Before jumping into an entrepreneurial endeavor it’s essential to take an inventory of the resources in one’s network. 3) Reach out to sources of free advice and feedback. Most people root for the underdog, and as a result would be entrepreneurs have at their disposal the advice and good will of countless people in their communities and the business world at large. The best entrepreneurs reach out to these communities for all the free advice and wisdom they can get.

The Timmons Model for Entrepreneurial Success:

The Tenets of the Timmons Model: 1) The Opportunity –Is there a clear customer need for the proposed product or service? –Is the timing right: is the team ready, is the market ready? –Ideas are a dime a dozen – it’s the combination of the factors above and the execution of the business plan that makes an idea an opportunity. 2) The Lead Entrepreneur and Management Team –Experience within the proposed industry can be essential to success. –Investors and other backers prefer to see a track record of driving growth and profits. –An ‘A’ team with a ‘B’ idea is almost always better than the opposite. 3) The Resources –Resources include capital, technology, equipment, and most importantly – people. –The entrepreneur’s mantra is one of Low Overhead, High Productivity, and Controlling but not Owning resources. –The best entrepreneurs are incredibly creative at finding ways to get things done inexpensively and effectively. You can always find ways to do things faster, cheaper, or better!

There are Two Key Forms of Start Up Capital Requires no transfer of ownership of the company. Presents potential for higher risk for the entrepreneur. Requires repayment, and therefore careful cash flow planning. DebtEquity Investors gain an ownership stake in the company through a transfer of shares. This transfers most of the risk to the investor, which explains the costs and expected returns. Does not require repayment, but does require careful capital planning and investment. Remember: Most companies will never take on outside investors, and many will never use debt financing for growth.

Happiness is a Positive Cash Flow! It’s Essential to Understand the Difference between Profits and Cash Flow: –A profitable company can have a negative cash flow and risk running out of money. –An unprofitable company can have a positive cash flow and be on a healthy trajectory. Profit is measured as a Gain or Loss on the Income Statement, however… –It is typically measured on an accrual basis, and therefore does not accurately reflect the cash inflows and outflows of the company. –Some transactions of cash occur off the Income Statement, and therefore impact cash flow but not profits. A good example is repayment of a loan, which reduces cash balances but has no impact on profits or losses. Cash Flow measures the increase/decrease of cash during a given timeframe: –It is comprised of three elements: operations, investing, and financing. –Each of these areas can have a tangible impact on the Cash Flows of a business, and must be planned and monitored closely. –Positive or Negative Cash Flows are not necessarily good or bad on their own. What matters is the context – is the company growing, struggling, etc?

Entrepreneurial opportunities Attractive, timely, durable, provide value

Defined Situations in which new goods, services, raw materials, and organizing methods can be introduced and sold at a price that is greater than their cost of production (Casson, 1982) An opportunity that is attractive, durable, timely, and grounded in a product or service that delivers value to a customer (Armstrong)

Run a prison! Timely? Durable? Attractive? Grounded in a product or service that delivers value to a customer?

Pet rocks! Timely? Durable? Attractive? Grounded in a product or service that delivers value to a customer?

Type writer repair! Timely? Durable? Attractive? Grounded in a product or service that delivers value to a customer?

“Handheld electronic device” Timely? Durable? Attractive? Grounded in a product or service that delivers value to a customer? Apple Newton Message Pad,

Apple Newton’s Message Pad

Newton MessagePad Newton MessagePad, a tablet-PDA hybrid with handwriting recognition. There was nothing else like it, but its ungainly size,, and hard-to-read screen relegated it to technology-cult status.technology-cult status But its innovations lived on, with its handwriting recognition still used in the Mac OS X's Ink control panel that appears when a pen tablet is connected and that helped form the gesture technology used in the iPhone. The Newton also inspired 1996's Palm Pilot, which used many of the Newton's ideas in a size that made it easy to carry around.

Takeaways You must meet all criteria (attractive, timely, durable, provides value) to ensure quality of opportunity Experiment, prototype, and protect intellectual property (see Apple Newton example) Prepare for imitators – what is unique about your offering?

Opportunity Recognition, Shaping and Re-shaping

Idea-to-opportunity transition Seed of ideaIdea Viable Opportunity Passion Professional Experience Idea Multiplication

Idea multiplication – IDEO technique Gather Stimuli Multiply Stimuli Create Customer Concepts Optimize Practicality Observe Brainstorm/brain-write Build a simple mock up Add/remove features

Designing a better consumer experience 1.Observation 2.Brainstorming 3.Rapid prototyping 4.Refining 5.Implementing

Observation Understand the consumer experience by:  Shadowing. Observing people using products, shopping, going to hospitals, taking the train, using their cell phones.  Behavioral mapping. Photographing people within a space, such as a hospital waiting room, over two or three days.  Consumer Journey. Keeping track of all the interactions a consumer has with a product, service, or space.  Camera Journals. Asking consumers to keep visual diaries of their activities and impressions related to a product.

Observation  Camera Journals. Asking consumers to keep visual diaries of their activities and impressions related to a product.  Extreme User Interviews. Talking to people who really know – or know nothing – about a product or service, and evaluating their experience using it.  Storytelling. Prompting people to tell personal stories about their consumer experiences.  Unfocus Groups. Interviewing a diverse group of people: To explore ideas about sandals, IDEO gathered an artist, a bodybuilder, a podiatrist, and a shoe fetishist.

Brainstorming An intense, idea-generating session analyzing data gathered by observing people. Each lasts no more than an hour. Rules of brainstorming are strict and are stenciled on the walls: Defer Judgment. Don’t dismiss any ideas. Build on the Ideas of Others. No “buts,” only “ands.” Encourage Wild Ideas. Embrace the most out- of-the box notions because they can be the key to solutions.

Brainstorming Go For Quantity. Aim for as many new ideas as possible. In a good session, up to 100 ideas are generated in 60 minutes. Be visual. Use yellow, red, and blue markers to write on big 30-inch by 25-inch Post-Its that are put on a wall. Stay focused on the topic. Always keep the discussion on target. One conversation at a time. No interrupting, no dismissing, no disrespect, no rudeness

Rapid Prototyping Mock up working models to help everyone visualize possible solutions and speed up decision-making and innovation. Guidelines:  Mock up everything. It is possible to create models not only of products but also of services such as health care and spaces such as museum lobbies.  Use videography. Make short movies to depict the customer experience.  Go fast. Build mock-ups quickly and cheaply. Never waste time on complicated concepts.

Rapid Prototyping  No frills. Make prototypes that demonstrate a design idea without sweating over the details.  Create scenarios. Show how a variety of people use a service in different ways and how various designs can meet their individual needs.  Bodystorm. Delineate different types of consumers and act out their roles.

Refining Narrow down the choices to a few possibilities: Brainstorm in rapid fashion to weed out ideas and focus on the best remaining options Focus prototyping on a few key ideas to arrive at an optimal solution to a problem Engage the client actively in the process of narrowing the choices

Refining Be disciplined and ruthless in making selections Focus on the outcome of the process – reaching the best possible solution. Get agreement from all stakeholders. The more top-level executives who sign off on the solution, the better the chances of success.

The opportunity space Global Business Environment CustomersYour CompanySuppliers Government Regulations Competitors

The customer Social group (e.g., white collar, blue collar, etc.) Lifestyle (e.g., mainstream, sexual orientation, materialistic, active, athletic, etc.) Personality Traits (Worriers, Type A’s, Shy, Extroverted, etc.) Values (Liberal, Conservative, Open- Minded, Traditional, etc.) Age Gender Household Income Family Size/Family Lifecycle Occupation Education Level Religion Ethnicity/Heritage Nationality Social Class Marital Status PsychographicsDemographics Common Demographic/Psychographic Categories Target Audience Categories Primary Target Audience Secondary Target Audience Tertiary Target Audience

Macro trends Child care, Home services – landscaping, house cleaning, prepared foods Dual-Income households Drain on healthcare system, growth of diet industry, changes in food industry, health clubs, home gyms Obesity Internet, media on demand, electronic publishing, spreadsheets, electronic communication Personal Computing Pampers, Rock & Roll, Television, Minivans, Real Estate, McMansions, etc. Baby Boom Generation ImpactTrend Important Trends over the Last 50 Years

S-curve Time Market Adoption Window of Opportunity 123 New Competitors Enter Obsolescence Phase

Setting prices Price Penetration Pricing Strategy Requires Enormous Financing Cost-plus Pricing Strategy Price May Not Match The Value Assessing Market Prices for Competing Products Strategy The Best Option

Reaching customer – the value chain Base Ingredients -Beef, Sauce, etc. -From Food Distributor COGS % COGS % COGS % COGS % GM % GM % GM % GM % Gourmet Chili Food Distributors Grocery Stores Example - Value Chain of Gourmet Chili Example in Excel

Business Models Using the “business model canvas”

The business model canvas

1 Customer Segments The Customer Segments Building Block defines the different groups of people or organizations an enterprise aims to reach and serve

Customer Segments Customer groups represent separate segments if: Their needs require and justify a distinct offer They are reached through different distribution channels They require different types of relationships They have substantially different profitabilities They are willing to pay for different aspects of the offer

Examples of Customer Segments Mass market Niche market Segmented Diversified Multi-sided platforms (or multi-sided markets)

2 Value Propositions The Value Propositions Building Block describes the bundle of products and services that create value for a specific Customer Segment The Value Proposition is the reason why customers turn to one company over another.

Examples of Value Propositions Newness Performance Customization “Getting the job done” Design Brand/status Price

3 Channels The Channels Building Block describes how a company communicates with and reaches its Customer Segments to deliver a Value Proposition

Channels Communication, distribution, and sales Channels comprise a company's interface with customers. Channels are customer touch points that play an important role in the customer experience.

Channels Channels serve several functions, including: –Raising awareness among customers about a company’s products and services –Helping customers evaluate a company’s value Proposition –Allowing customers to purchase specific products and services –Delivering a Value Proposition to customers –Providing post-purchase customer support

Channels – Key Questions Through which Channels do our Customer want to be reached? How are we reaching them now? How are our Channels integrated? Which ones work best? Which ones are most cost-efficient? How are we integrating them with customer routines?

Channel phases 1.Awareness: raise awareness about products and services 2.Evaluation: help customers evaluate product 3.Purchase: how do customers purchase? 4.Delivery: deliver the value proposition to the customer 5.After sales: provide post-purchase customer support

4 Customer relationships The Customer Relationships Building Block describes the types of relationships a company establishes with specific Customer Segments Driven by customer acquisition, retention, and upselling

Categories of customer relationships Personal assistance Dedicated personal assistance (bankers for high net worth individuals) Self-service (no direct relationship with customer) Automated service (personal online profiles give access to personalized services) Communities (especially online) Co-creation (e.g., Amazon’s customers write reviews, eBay’s seller ratings)

5 Revenue Streams 1.Transactions from one-off customer payments 2.Recurring revenues from ongoing payments for continuous delivery of value proposition or post-purchase consumer support

Revenue Streams come from 1.Asset sales – sales of a physical product 2.Usage fee – minutes on phone, nights in hotel room 3.Subscription fees – selling continuous access to a service 4.Lending/renting/leasing – temporarily grant exclusive access to an asset 5.Licensing – give customers permission to use protected IP 6.Brokerage fees – intermediation services 7.Advertising – fees for promoting product, service, or brand

6 Key resources Allow the business to create and deliver the value proposition, reach customers, maintain relationships, and generate revenues Physical, financial, intellectual, human ; owned, leased, or borrowed

7 Key activities Actions a company must take to be successful Microsoft – develop software, Facebook – develop platforms, Dell – supply chain management, McKinsey – problem solving Categories: production, problem solving, platform/network

8 Key partnerships Alliances to optimize business models, reduce risk, or acquire resources Four types 1.Strategic alliances between non-competitors 2.Cooperation between competitors 3.Joint ventures to develop new businesses 4.Buyer-supplier relationships to ensure reliable supplies

9 Cost structure The costs associated with the other 8 pieces of the business model Approaches: cost-driven versus value- driven Characteristics: fixed, variable, economies of scale, economies of scope

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Chapter 5 Entrepreneurial Marketing

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. ©  Definition of marketing by the American Marketing Association: an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stake holders.  Marketing practices vary depending on the type of company and the products and services it sells. Entrepreneurial Marketing

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Why Marketing is Critical for Entrepreneurs  Because no venture can become established and grow without a customer market;  Because it is difficult and expensive to bring new products and services to market;  To differentiate product or service to customers makes the company distinctive and valuable;  Companies must be able to switch marketing gears quickly to attract new customer segments. Entrepreneurial Marketing

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Entrepreneurs Face Unique Marketing Challenges  limited resources in financial, managerial, and time;  limited market information;  decision-making inclined to be muddled by personal biases and beliefs;  poorly established relations with multiple audiences. Entrepreneurial Marketing

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Acquiring Market Information  Marketing research could cover information such as: -Product attributes important to customers; -Possibility of customers’ buying willingness by marketing behaviors; -Market trend; -The location of the customers’ preference. Entrepreneurial Marketing

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Acquiring Market Information Two basic types of market data Primary data Data you collect yourself Limitations of primary data Secondary data Economical and usually used to collect baseline information Entrepreneurial Marketing

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Market dynamics Entrepreneurs are more successful in large and growing markets –Large markets amortize the fixed costs of getting started over a larger number of units –It’s easier to sell into rapidly growing markets

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Market dynamics The performance of product adoption follows an S shape –Initially, need a large amount of effort to achieve small improvements in product performance –Then performance improvements accelerate and small efforts can lead to large improvements –Later, must make large efforts to achieve small improvements

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Market dynamics Established firms rarely compete with entrepreneurs to develop new products on the early part of the S curve –The new product usually begins with inferior performance that hurts the company’s overall performance –Managers of established companies believe they can always improve the performance of their existing products to compete with new products

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Marketing Strategy for Entrepreneurs  A company’s marketing strategy must closely align with its resources and capabilities;  Segmentation, targeting, and positioning are key marketing dimensions that set the strategic framework. Entrepreneurial Marketing

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Entrepreneurial Marketing Marketing Strategy for Entrepreneurs/the Marketing Mix ProductStrategy place promotion Pricing Strategy

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Entrepreneurial Marketing Guerilla Marketing  Guerilla marketing acts as non-traditional, grassroots, and captivating – that gain consumers’ attention and build awareness of the company.  Word-of-Mouth marketing, Buzz marketing, and Viral Marketing.  Other issues in Guerrilla Marketing. Entrepreneurial Marketing

Bygrave & Zacharakis, Entrepreneurship, New York: Wiley. © Entrepreneurial Marketing Marketing Skills for Managing Growth  Understanding and Listening to the Customer  Building brand awareness and building brand equity Entrepreneurial Marketing