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Entrepreneurship Workshop 1

CCMBA – June 30, 2017

WEMBA – July 15 & 16, 2017

Jon Fjeld

CC&WEMBA I&E Workshop

Rough agenda – June 30

•  Preliminary exercise: Starbucks (30 min. in teams then 45 min. discussion)

•  Framework / business plan and opportunity analysis

•  Lunch •  P4E case studies •  Proposed business ideas •  Concentration process & next steps

8:30 — 9:45

10:00 — 12:30

12:30 — 1:30 1:30 — 2:00

2:00 — 4:00 4:00 — 4:30

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CC&WEMBA I&E Workshop

Agenda – July 15 & 16

•  Preliminary exercise: Starbucks (30 min. in teams then 45 min. discussion)

•  Framework / business plan and opportunity analysis

•  P4E case studies •  Proposed business ideas •  Concentration process & next steps

Sat. 3:30 — 4:45

5:00 — 7:30

Sun. 9:00 — 9:30 9:45 — 11:30

11:30 — 12:00

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Themes

•  Thecri*calimportanceofcustomerfocus•  Managinguncertaintyandrisk•  Theitera*verela*onshipofplanningandexecu*on–theroleofexperimentsandmarkettests

•  Efficientuseofcapitalandotherresources•  Team

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STARBUCKS

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Starbucks today

2016revenueOpera*ngprofitCoffeehouses(ownedandlicensed)CountriesMarketcapP/Era*o

$21.3B$4.2B

>24,000

70

$85.5B30.9

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The beginning

“Determinedtopursuehisdream,Schultzle]Starbucksinlate1985.Heraised$400,000fromprivateinvestors,…”(p.9ofthecase)•  “ManyoftheinvestorsIapproachedtoldmebluntlythatthey

thoughtIwassellingacrazyidea.”•  “HowcouldyouleaveStarbucks?Whatastupidmove.”•  “Whyonearthdoyouthinkthisisgoingtowork?Americans

arenevergoingtospendadollarandahalfforacupofcoffee.”•  “You’reoutofyourmind.Thisisinsane.Youshouldjustgoget

ajob.”

Schultz&Yang,PourYourHeartintoIt.CC&WEMBAI&EWorkshop 7

Starbucks question

“Determinedtopursuehisdream,Schultzle]Starbucksinlate1985.Heraised$400,000fromprivateinvestors,…”(p.9ofthecase)• WhatwasSchultz’pitchtotheseearlyinvestors?• Wasthisinvestmentawiseinvestment?

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The Starbucks opportunity

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Coffee

Experience Starbucks

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Evaluation of an opportunity

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Istheventuresustainable?•  Compe**on•  People•  Financially

Evaluation of an opportunity

1.  Is there a sufficiently attractive market opportunity (need or problem)?

2.  Is the proposed solution feasible, both from a market perspective and a technology perspective?

3.  Can we compete (over a sufficiently interesting time horizon)?

4.  Do we have an team that can effectively capitalize of this opportunity?

5.  What is the profile risk and return of this opportunity?

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Evaluation of Starbucks

1.  Marketneed?Supported by demographics: income growth / financial security /

focus on gratification

2.  Solu*on?Plausiblebutunknown

3.  Sustainablecompe**veadvantage?Whatwoulditbebasedon?

4.  Team?WasSchultzcapable?Otherteammembers?

5.  Risk/reward?Dependsontheeconomicsofacoffeeshop.

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Starbucks: the initial unknowns

1.  Market:Will people come? Will they come back (repeat business)?

2.  Solu*on:Whatwillpeoplevalue?

3.  Economicsofacoffeeshop:Drivenbyrevenueandcostpercustomerandvolume

•  Raisedseedfundingtoprovetheconcept•  Ifvalid,therestwasallaboutgrowth

–  Morestores–  Moreproducts

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Key insights and strategic choices

•  Opportunityitself– Validatedbymarketgrowth

•  People-cri*calinservicebusiness•  Importanceofbrand•  Quality•  Demandcrea*on:“wordofmouth”•  Infrastructure&processestosupportgrowth

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FRAMEWORK

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What does it take to succeed?

Entrepreneurial Success

=

Good idea

good planning

good execution money luck + + + +

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Companyforma*on

“Nuclea*on”Comingupwith

theidea

Earlyplanning

Earlyrevenue

Growth

Ourfocus

Stages in new venture creation

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Plan

Do

Learn

What’s involved in entrepreneurship?

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Evaluating an opportunity

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Istheventuresustainable?•  Compe**on•  People•  Financially

Strategy: the key choices

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Sustainability?•  Compe**veadvantage•  Resources

+Roadmap/Milestones

Evaluation and strategy

Opportunityevalua2on Factgathering,analysis,basisfordecisionmaking

StrategyDecisions,choices:investmentandpriori*es

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Need/problem

Feasiblesolu*on

Team

Possibilityofcomp.advantage

Riskreward

Targetcustomer

Businessmodel

Choicesforsustainablecomp.advantage

Milestones

Theseac*vi*esareongoing21

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Business plan document

Opportunityevalua*on:•  Need/problem•  Solu*on•  Possibilityofcompe**ve

advantage•  Team•  Risk/return

Company’splan:•  Strategy:

–  Targetcustomers–  Businessmodel–  Choicesforsustainable

compe**veadvantage–  Roadmap/milestones

•  Opera*ngplan:–  Planforeachfunc*onal

area–  Budget

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Two sides of execution

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Framework for analysis

Investmentprospectus:

•  Need•  Solu*on•  Sustainability

–  Compe**veadvantage

–  Risk/return–  Team

Company’splan:•  Strategy:

–  Targetcustomers–  Businessmodel–  Sustainability–  Milestones

•  Opera*ngplan:–  Planforeach

func*onalarea–  Budget

Execu*on:•  MarketResearch•  Strategydevelopment•  Marke*ng•  Businessdevelopment•  Salesplanning•  R&DManagement•  Opera*onsmanagement•  Processandinfrastructure

management•  Budge*ng•  Financing•  Peoplemanagement

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The first two laws of entrepreneurship

FirstLawAlwaysstartwiththeneed.

SecondlawMakenoinvestmentbeforeits*me.

Iden*fytheassump*ons—comprehensiveanddiscreteelementsPriori*ze—basedonseverity,probability,andcostofresolu*on

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Resources

Guidelinesfortheentrepreneur:

hrp://www.dukeven.com/

ProgramforEntrepreneurs:hrp://www.dukep4e.org

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EFFICIENT & EFFECTIVE LEARNING

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Explora*on:ObserveQues*onTest

In the beginning execution is mostly about learning

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Foundation of a new venture

•  Goalofeverynewventure:findthematch Market+Product

•  How do you start?

“You can observe a lot by just watching.” (Yogi Berra)

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A simple model

•  Goalofeverynewventure:findthematch Market+Product

•  Thisishardtodiscoverbyaskingpeople(tradi*onalmarketresearcho]endoesn’tworkinanewventure).

•  Sojustlaunchtheproductandseewhathappens.•  Butwhatcanyouconcludefromfailure?Byitselfafailuretellyounothing.Itdoesnotguidethenextstep.

•  Learningrequiresspecificobjec*vesandaroadmap

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Efficient learning: integrated analysis and execution

Businessplanheavyentrepreneurship:•  Toomuchplanning

andanalysis•  Toomanyunknowns

“Efficientlearning”entrepreneurship:•  Wellformulatedhypothesis•  Integratedanalysisandexecu*on•  Everyac*onhasalearningobjec*ve•  Efficientuseofresources

“Justdoit”entrepreneurship:•  Notenoughthought

giventowhatarecri*calunknowns

•  Inefficientlearning

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Summary

Beginexecu*onassoonaspossiblebyperformingexperiments.

Clearhypothesisandaroadmapforlearning

Well-designed,efficienttest+

Analysis&planning

Execu2on

Andalwaysbeginbyvalida*ngtheneed.

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How to proceed

•  Yourideaisprobablywrong—youhavemadeassump*onsthatwillnotturnouttobetrue.

•  Canyoufindagoodideabeforeyourunoutofresources—*meandmoney?–  Timeismoney.–  Earlymoneyismoreexpensivethanlatermoney

•  Whenyoufinda“goodidea,”howefficientlyyouusecapitaldeterminesyourshare,overallreturn,andpossiblyevensuccessorfailure.

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Many unknowns

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Product+Market

•  Value/willingnesstopay•  Constraints/parameters

ofsolu*on•  Necessarycomplements•  Alterna*ves•  Inhibitors•  Influencers•  Customeracquisi*on•  Etc.

•  Features•  Businessmodel/price•  Compe**veposi*on•  Distribu*on•  Etc.

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What can go wrong? (What are you assuming?)

1.  Nobody wants what you are selling. 2.  Somebody wants it, but they don’t represent a real market. 3.  People want it, but for some reason they can’t buy it or can’t use it. 4.  People want it, but you can’t get it to them (economically). 5.  The technology doesn’t work. 6.  The technology works but you can’t protect it. 7.  The technology works but you can’t get it into a reasonable product. 8.  You build a bad product. 9.  You can’t build your product for a low enough cost. 10.  Somebody introduces a better product. 11.  Somebody has the power to stop you and exercises it. 12.  You need somebody else in the value chain to do something and they

don’t. 13.  You can’t find the right people. 14.  You just don’t execute on something important. 15.  Etc. CC&WEMBA I&E Workshop 35

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Creating a roadmap, milestone planning

Basicques*on:Willyourventuresucceed?Imagineaseriesofbigstepsthatincreaseyourconfidence(i.e.,reducetherisk)–  E.g.:acustomer,valida*onoftechnology,sellingmodel

Thesestepscancons*tuteaseriesofobjec*ves(roadmap)fortheventure:–  Andbecomethemilestonesinyourfinancingplan

Not all risk is the same

Ameasureofrisk:

severityofimpactXprobabilityRisksalsodifferon

costofresolu2on

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•  Risk derives from bad things happening.

•  Some are life threatening.

•  Some just reduce the likely return.

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Lowest cost resolution of uncertainty

1.  Iden*fytheassump*onsanddiscretesteps(elementsofuncertainty)requiredforyourventure.

2.  Rankorderthepointsofuncertainty(assump*ons)indecreasingorderofrisktotheventure—thisisthesequenceofexecu*on.

3.  Findawaytoresolveeachpointofuncertaintyforthelowestcost(*meandmoney).

4.  Factorinanyissuesofoverall*melinessandinterdependencies.

5.  Usethesemilestonesasaframeworkforyourplan.6.  Commitsufficientresourcetoachievethenextmilestone.7.  Makecorrec*onsasyoulearn(“pivot”).

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EVALUATING AN OPPORTUNITY

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Outline

Evalua*onanentrepreneurialopportunity•  What:

– Whatinforma*ontoyouneed?– Whataretheques*ons

•  How:–  Ifthemarketneedhasalreadybeenproven,youmaybetoolate

– Mostuncertaintyatthebeginningofaventure

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In the beginning

Opportunityevalua2on Factgathering,analysis,basisfordecisionmaking

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Theneedistheprimaryques*on

Whetherasolu*onispossibleisusuallysecond

Theseareimportantandwewilldiscussthemunderstrategy

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Need/problem

Feasiblesolu*on

Team

Possibilityofcomp.advantage

Riskreward

Whataretheques*onsyouneedtoanswerandthefactsyouaretryingtoascertain?

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P4E history Classof2010

Classof2011

Classof2012

Cassof2013

Classof2014

Classof2015

Classof2016

Classof2017

Selec2on 30ideas8students**Handpickedstudents

70ideas68students*•  Usedan•  applica*on

80ideas90students

50ideas100students

71ideas*104students**MatchmakerDirectory

108ideas112students

N/Aideas110students

N/Aideas105students

NV1Opp.Eval.

8projects 13projects48students

11projects37students

17projects53students

11projects38students

11projects~39students

12projects34students

13projects40+students

NV2Strategy

4projects 10projects32students

7projects22students

9projects25students

6projects16students

4projects14students

5projects20students

13projects25students

NV3Plan

3projects14students

4projects20students

3projects14students

1project2students

5projects17students

2newprojects9students

1.5projects7students/3students

4projects20students

Launch EntoGene*cs InvestorsMosaicHootliMedici

KKaneAIPatents

Jobbertunity CrowdTunesBrootaAll9sHowIDidItKOI

Physao KonostFired?Encapsio?

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P4Eoutcomestodate•  >100projectsover8years•  15launched•  Mostfailurestolaunch(^90%)duetoabsenceofmarket•  Mostcommonreasonforpromisingcompaniesnottolaunch:

studentdebt

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Class Projects Type Launch Fail Survive IT Life

scienceEnergy Consumer

other Market Tech. Other

2010 9 3 3 3 4 5 32011 16 7 4 2 3 5 11 42012 12 4 2 1 5 2 9 1 22013 17 10 2 5 3 11 3 32014 13 8 1 4 6 5 2 62015 (11) Totals 67 32 11 7 17 20 41 1 5 18

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Entrepreneurial opportunity

•  Problemcurrentlynotsolved•  Poten*alforchangeinconsump*on

Requires:•  Innova*on•  Capabilitytoexploittheinnova*on

Noteveryideaisanopportunity

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CC&WEMBA I&E Workshop

What Is a need or problem?

Parernofbehavior+Purpose

Somedeficiency:•  Unsa*sfactoryresult•  Toolong/toohard•  Tooexpensive•  Unpleasant/notenjoyable•  Unwantedconsequence

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Two perspectives

Demandside:–  Someneedsareobviousbutnotsa*sfied,e.g.,diseases,needforfuelefficiency

–  TechnologydoesnotexistSupplyside:

–  Someneedsaresa*sfiablebutnotrecognized,e.g.,socialnetworking?

–  TechnologyexistsbutisnotappliedHybrid:

–  Some*mestheneed/solu*oninsightrequiresa“leapofintegra*on,”e.g.,iPod/iTunes?

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Sources of opportunity

•  Changingdemographics

•  Changingtastes&interests

•  Fears&hopes•  Regula*on

•  Innova*on:newcombina*ons

•  Newtechnologies•  Newknowledge

•  Changeinregula*on•  Supplychain

disrup*on•  Inefficiencies

Society Technology Markets

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Order effects

Firstorder:Subs*tu*on-faster,berercheaperSecondorder:MoreoftheunderlyingtaskorcapabilityThirdorder:Crea*onofnewstructure,ins*tu*ons,

organiza*ons,etc.Entrepreneurialopportuni*esexistatalllevelsandfor

thosewhocansolvenewproblemscreatedbynewstructures,etc.

CC&WEMBA I&E Workshop 49With thanks to John McCann

Understanding the market

Whatareyoutryingtoachieve?

•  Whatisthepainandhowsevereisit?

•  Howmanycustomers?•  Howmuchwilltheypay

you?•  Forexactlywhatproduct?•  Howwillyouconvincethem

tobuy?•  Completeandaccurate

financialprojec*ons

Ques*ons:•  Isthereamarket?•  Whoisthecustomer?•  Whatistheneed?•  Whatalterna*vesdoesthe

customerhave?•  Whatisasolu*on?•  Whatisit’svalue?•  Arethereobstaclesto

purchase?•  Howdoesthecustomer

decidetobuy?CC&WEMBA I&E Workshop 50

CC&WEMBA I&E Workshop

Market research

Is there an opportunity?

Operating Plan

Market research

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CC&WEMBA I&E Workshop

Method

Hypothesis:• “Problem”• Universeofpoten*alcustomers

Qualify:• Context• Customerarributes• Value• Alterna*ves• Obstacles• BuyingprocessQuan*fy• Howmanysimilarbuyers

Possibili*es:• Validate• Revise• Reject

Observe

Question

Test

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CC&WEMBA I&E Workshop

An example

Current process: 1.  Artist creates a model 2.  Marketing creates drawings to test 3.  Engineer creates a specification 4.  Tool / dye created 5.  Production line established

Issues:•  Digitalprocesscheaper•  Bererintegra*onwithmarke*ng•  Greaterflexibility

Is this an opportunity? 53

CC&WEMBA I&E Workshop

Outcome

Why didn’t his work as expected / hoped?

•  Value was real •  Disruptive to the status quo •  Contrary to the skills of the majority

of people involved in the product process

•  Some aspects of the solution did not appeal to the tastes of key users / influencers

Remained a niche application

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CC&WEMBA I&E Workshop

Qualitative understanding

Context:•  Whatisthebusinessprocess?•  Whatprocessesdoesthisrelate

toandhowdoesitrelatetotheorganiza*on’sgoals?

People:•  Buyer/user/influencer•  Whataretheirinterests&

aspira*ons?Howdotheyaffectdecisions

Environment/eco-system:•  “Valuechain”-networkof

suppliersofproducts&servicesintowhichyoursolu*onmustfit

•  Other?

Organiza*on:•  Compe**veposi*on•  Strategy•  Culture/values•  Financials

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Whatdoyouneedtoknow,inaddi*ontounderstandingtheneed?

Customer attributes

•  What are the relevant differences among customers? Are there segments?

•  Why is a someone a willing buyer?

•  Refining your understanding of the market: –  Hypotheses — formation and testing –  Segmentation –  Personas –  Sizing target addressable market –  An answer to this question is a hypothesis about a target

customer.

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What and how will customers buy?

Solution •  Product:

–  Characteristics / features –  Must have / nice to have

•  Value: –  Quantification –  Why? E.g. cost reduction,

revenue enhancement, other? •  Obstacles:

–  Unwanted consequences –  Impact on processes –  Impact on people –  Implementation problems

Buyingprocess•  Allocation of resources

–  Budgeting cycle –  Approval process

•  Decision makers –  Objectives /

measurements •  Influencers

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Design around or sell around

CONCENTRATION hrp://www.dukep4e.org/fuqua-program-for-entrepreneurs/emba-concentra*on

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Teams

•  An important principle of start-ups: you cannot tolerate anyone who is not performing.

•  Seek diversity in your team

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Concentration process

Summer, 2017 Fall, 2017 Spring, 2018

•  Identify opportunity •  Form team •  Memo to Fjeld summarizing

•  Validate opportunity •  Formulate strategy •  Submit as final project in Entrepreneurial

Strategy or Entrepreneurship & New Venture Management

•  Create business plan document •  Submit in fulfillment of concentration

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