1. 4 The Opportunity: Creating, Shaping, Recognizing, Seizing Chapter
McGraw-Hill/Irwin
New Venture Creation, 7/e
© The McGraw-Hill Companies, Inc., All Rights Reserved.

2. Adams On Ideas Think you idea has to be unique? You’re deluded
Good ideas are not scarce, what is rare is a team that can execute = execution intelligence
Execution intelligence
Domain knowledge, fast-growth scar tissue, experience in hyper-competitive markets, risk management (anticipate customer pain) balanced team, leadership know-how
Want me to sign a nondisclosure? Instead, say “I’m clueless”
The 1:8:20 rule (1 Austin, 8 Boston, 20 Palo Alto)
Ideas are commodities
Getting to market first? Big deal.
Execute to dominate, not define, a market space
Think there’s no competition? You’re naïve.
I want to keep my money, laziness, and DIYers if nothing else
The existence of competition suggests that the idea itself is competitive

3. Sarasvathy on Effectuation
Expert entrepreneurs begin with:
Who they are, what they know, who they know
Principles
Crazy quilt
Affordable loss
Bird in the hand
Make lemonade out of lemons
Pilot in the plane
Examples
Business plan competition
Importance of Linked In

4. Bird in the Hand Feasibility Value Market Is it doable?
- technical feasibility
- market feasibility
Is it worth doing?
- financial feasibility
You
Can I do it?
- what will it take
- who else will I need?
Do I want to do it?
- does it motivate me?
- does it motivate others?

5. R&R What is the opportunity? Why is it an opportunity for Reiss?
Did Reiss use causal or effectual logic?
Why did others contribute to Reiss’ success?
Kaplan, TV Guide, Stores
Why is the whole deal economically feasible?
How did Reiss use the affordable loss principle?
What should Reiss do next?

6. R&R Numbers Large Firm Reiss Price $12.50 Variable Costs Manufacturing
$3.00
$3.20
Sales
$1.25
$2.50
Other $0
$2.81
Fixed Costs
$1,000,000
$50,000
Breakeven Point (units)
121,212
12,531

7. What is an entrepreneur?
Cantillon (1780) one who works for uncertain wages
Knight (1921) one who buys factors at certain prices and sells them in the future at uncertain prices
Schumpeter (1911) one who recombines resources to create new products, processes, inputs, markets, or organizations
Kirzner one who is alert to profit opportunities
Gartner one who creates a new venture
Stevenson one who pursues opportunities regardless of resources currently controlled
Timmons one who is opportunity obsessed, holistic in approach, and leadership balanced
Shane & Venkat one who discovers, explores, and exploits opportunities

8. Exhibit 1.7

9. Exhibit 1.6

10. Four Anchors Create or add value to a customer or end-user
Solving a significant problem, removing a serious pain point, or meeting a significant want or need – for which someone is willing to pay a premium
Communicable business model
Large market ($50m+)
High growth (20%+)
High margins (40%+)
Recurring revenue, low assets/working capital
25-30% return for investors
Good fit with management team

11. New Ventures Think big enough Fundamental realities
Better end up exhausted and rich then just exhausted
Fundamental realities
Most new ventures are works in process and works of art
Most business plans are obsolete at the printer
Speed, adroitness of reflex, and adaptability are crucial
The key to succeeding is failing quickly and recouping quickly, and keeping the tuition costs low

12. New Ventures Fundamental realities
Success is highly situational, depending on time, space, context, and stakeholders
The best entrepreneurs specialize in making “new mistakes” only
Starting a company is much harder than it looks, or you think it will be; but you can last a lot longer and do more than you think if you do not try to do it solo

13. Exhibit 4.1 Circle of Venture Capital Ecstasy

14. The Capital Market Food Chain
R&D
Funds <$200K from founders, angels, FFF (friends, fools, family), Small Business Innovation Research fund
Seed
Up to $500K
Launch
$1-$50m
Venture Capital, strategic partners, private equity
Series A – startup, Series B – product devlopment, C - shipping
High Growth
IPOs, strategic acquirers, private equity

15. To summarize…
…a superior opportunity has the qualities of being attractive, durable, and timely and is anchored in a product or service which creates or adds value for its buyer or end-user – usually by solving a very painful, serious problem.

16. Where are Opportunities Born?
“We look for ideas that change the way people live or work”
Technology sea change
Moore’s Law (processing power)
Metcalf’s Law (network effects)
Disruption
Market sea change
Value chain disruption/obsolescence/vulnerability
Deregulation

17. Where are Opportunities Born?
Societal sea change
Changes in ways we live, learn, work, etc.
Gilder’s Law – 10xs in 10 years (bandwith)
Brontosaurus factor
Arrogance
Loss of peripheral vision
Deadened reflexes – turning the tanker
Irrational exuberance
Over/undervalued assets

18. The Role of Ideas Ideas are merely the first step
Beware the mousetrap fallacy
Good ideas often come from pattern recognition
50,000 “chunks” of experience over 10 years
Creative linking or cross-association of experience, know-how, contacts
Not simply linear, additive or logical
Ability to see what others do not

19. Brainstorming Rules Can creativity be learned? Brainstorming
De Bono makes a living from it
Brainstorming
Record ideas in full view
Invent to the “void”
Resist becoming committed to one idea
Identify the most promising ideas
Refine and prioritize

20. Exhibit 4.6

21. Market Share of Different Customer Groups

22. Strategic Implications: Crossing the Chasm
Crossing the chasm between early adopters and the early majority
Innovators and early adopters are technologically sophisticated and will tolerate engineering imperfections (the early majority are not)
Innovators and early adopters are typically reached through specialized distribution channels (the early majority are not)
Innovators and early adopters are relatively few in number and not particularly price sensitive (the early majority are not)

23. The Chasm: AOL and Prodigy

24. Crossing the Chasm
Correctly identify the needs of the first wave of early majority users
Alter the business model in response
Alter the value chain and distribution channels to reach the early majority
Design the product to meet the needs of the early majority and so that it can be modified and produced or provided at low cost
Anticipate the moves of competitors

25. Established and Successor Technologies

26. Disruptive Technology
A new technology that gets its start away from the mainstream of a market and then, as its functionality improves over time, invades the main market
Revolutionizes the industry structure and competition, often causing the decline of established companies because they listen to customers who say they do not want it
Causes a technological paradigm shift

27. Exercises
Creativity exercise
Idea Generation Guide (pg. 167)