entrepreneurship the seven domains and academic ... - lu
TRANSCRIPT
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School of Economics and Management | Xxxxxxxxxxxxxxxx | Xxxxxxxxxxxxxx | (D) D Month YYYY
Putting The Seven Domains to Work to Develop Your Opportunity
PROFESSOR FRÉDÉRIC DELMAR
School of Economics and Management | Xxxxxxxxxxxxxxxx | Xxxxxxxxxxxxxx | (D) D Month YYYY
Who am I and what I teach?
• Phd 1996 Stockholm School of Economics
• Entrepreneurship • New venture creation (opp
identification and exploitation) • New venture growth
• Undergraduate, master, IMBA, EMBA, PhD
• UmU, SU, SSE, EMLYON, HEC Montreal, LU
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Marston Venture Management What happend ?
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ProCom
• Bootstrapped the business with money from 3Fs to prove the model
• Raised $4 million from GE Capital when e-learning was all the rage
• Have treaded water since, no exit, but still around: the “living dead”
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Oxiden
• Raised £5 million from 3i • Took two years to get product to market • Then, a very lengthy sales cycle followed
• There was another solution… • Died after 4 years
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Darian Holdings
• Raised small amount of angel money • An opportunity arose to buy a competitor at a very attractive
price
• Having considerable success
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School of Economics and Management | Xxxxxxxxxxxxxxxx | Xxxxxxxxxxxxxx | (D) D Month YYYY
Glencoren
• Turned down by several investors, but did eventually raise a small amount for proof of concept
• Now trying to raise the next round
• A very long lead time play – changing surgeons’ behavior takes a long time
School of Economics and Management | Xxxxxxxxxxxxxxxx | Xxxxxxxxxxxxxx | (D) D Month YYYY
Research Question
How do entrepreneurs (and investors, too?) best assess market opportunities?
School of Economics and Management | Xxxxxxxxxxxxxxxx | Xxxxxxxxxxxxxx | (D) D Month YYYY
The Conventional Wisdom
• Three crucial factors for entrepreneurial success – Management… – Management…
– Management!
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School of Economics and Management | Xxxxxxxxxxxxxxxx | Xxxxxxxxxxxxxx | (D) D Month YYYY
In the World Of Warren Buffet
« When a business with a reputation for poor fundamentals meets a
management team with a reputation for brilliance…
It’s the reputation of the former that remains intact »
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Integrating the Seven Domains Framework
Macro Level
Micro Level
Market Domains Industry Domains
Mission, Ability to Aspirations, Execute Propensity on CSFs for Risk Connectedness up and down Value Chain
Team Domains
Market Attractiveness
Target Segment Benefits and Attractiveness
Industry Attractiveness
Sustainable Advantage
School of Economics and Management | Xxxxxxxxxxxxxxxx | Xxxxxxxxxxxxxx | (D) D Month YYYY
Macro-level
Market domain Industry domain
Micro-level Sustainable advantage
Market attractiveness
Target segment benefits and attractiveness
Industry attractiveness
Mission, aspirations, propensity for
risk
Ability to execute
Connectedness up, down, and across value chain
Team domain
What industry forces have the strongest impact on profitability? How are industry forces likely to change in the future?
What entrepreneurial or firm- level capabilities create a sustainable competitive advantage relative to rivals or potential rivals?
Is the market large enough? What is the growth rate and the upside potential?
To which target market is the venture’s value proposition particularly compelling? Is the target market large enough to support the business model? Does the target market provide an Option to grow into other markets?
Does the team have what it takes, in a human sense – in experience and industry know-how – to deliver superior performance for this particular opportunity?
Is the team well connected up, down and across the value chain so it will be quick to notice any opportunity or need to change its approach if conditions warrant?
Does the opportunity fit the team’s business mission, personal aspirations, and risk propensity? Venture
strategy
Potential Profitability
of opportunity
e) The Logic of Analyzing New Venture Opportunities, LBS Source: Mullins, J.W. (2003). The New Business Road Test. Prentice Hall: London
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School of Economics and Management | Xxxxxxxxxxxxxxxx | Xxxxxxxxxxxxxx | (D) D Month YYYY
General Guidance
• The domains are NOT additive; their relative importance can vary
• The wrong combination of factors can kill your venture • Strength on some factors may mitigate weaknesses on
others
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Scoring System
• Score your opportunity on the seven domains (1-10) • Are there any domains which score very highly/ very
poorly? • Does a strong score in one domain affect a poor score in
another domain? • For domains with intermediate scores, reshape the
opportunity if possible to counteract the difficulties
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Deal Makers
• There is no single domain where a strong score can by itself be a deal maker
• Niche market opportunities – strength in micro dimensions is key
• High potential opportunities – strength across domains is desirable
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School of Economics and Management | Xxxxxxxxxxxxxxxx | Xxxxxxxxxxxxxx | (D) D Month YYYY
Deal Breakers
• Failure to provide a differentiated solution to customer pain (micro market domain)
• Lack of ability to execute on CSFs
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Unattractive Macro Level Domains
• May be overcome by strength at the micro level • Especially if a strong, well connected team is in place
– Innovation may cause a stagnant market to grow – Differentiation which is difficult for competitors to copy
may provide sustainable competitive advantage
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Opportunities for Niche Market Entrepreneurs
• Macro-level factors of less importance • Compelling customer benefits and clear differentiation in
a carefully targeted segment is key
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School of Economics and Management | Xxxxxxxxxxxxxxxx | Xxxxxxxxxxxxxx | (D) D Month YYYY
Five Common Traps To Avoid
• The large market fallacy • The better mousetrap fallacy • The no sustainable business model trap • The me-too trap • The hubris trap
School of Economics and Management | Xxxxxxxxxxxxxxxx | Xxxxxxxxxxxxxx | (D) D Month YYYY
Investors want to know…
• Marketing research has been undertaken • There is evidence of genuine demand • That there is a genuine appreciation of the competition
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Task
• You have until the end of the course to identify, research, and prepare a presentation
• Analyze your own “entrepreneurial dream” using the Seven Domains model
• Which elements concern you? Can you overcome the problem by reshaping the opportunity?
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School of Economics and Management | Xxxxxxxxxxxxxxxx | Xxxxxxxxxxxxxx | (D) D Month YYYY
Some extensions
• Be able to describe the idea on which you want to commit – Solve a problem, net positive cash flow, limited risk,
superior, change in industry
• Be able to describe why you feel it is a good idea – Financial model, good advice, uniqueness, targets a
big market, ”intuition” • See my handout
School of Economics and Management | Xxxxxxxxxxxxxxxx | Xxxxxxxxxxxxxx | (D) D Month YYYY
Academic Entrepreneurs
• When solution search for problem • Distance from customer • Limited industrial and entrepreneurial experience
• The importance of HC for CA • High uncertainity
• High velocity • Market for technologies (licensing), market for product
and services
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School of Economics and Management | Xxxxxxxxxxxxxxxx | Xxxxxxxxxxxxxx | (D) D Month YYYY
University ”third mission” system The innovation system:
Patenting
University industry collaboration
Research into practice
Mostly faculty!
The entrepreneurship system:
Students, faculty starting new ventures
Mostly students!
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Why are we do we care?
The social returns to entrepreneurship?
Economic development and growth, competition, job creation
The individual returns to entrepreneurship?
Highly uncertain income, financial risk taking, delayed returns
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Some recent results
• Åstebro T, Braguinsky S, Braunerhjelm P & Broström A, (Forthcoming). ACADEMIC ENTREPRENEURSHIP -- Bayh-Dole versus the “Professor’s Privilege”. Science.
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School of Economics and Management | Xxxxxxxxxxxxxxxx | Xxxxxxxxxxxxxx | (D) D Month YYYY
Table 1. Main findings. A comparison of the differences in the rates of entrepreneurship and
earnings improvements for prior academics and non-academics becoming entrepreneurs
between the U.S. (1993-2006), and Sweden (1999-2008).
University-
employed
Ph.D.
Non-university
employed
Ph.D.
Relative
Entry Rate
U.S. Bi-annual entrepreneurship
rate
0.9% 4.0% 23%
Earnings difference from
switching to entrepreneurship
-15.1% -16.0%
Sweden Bi-annual entrepreneurship
rate
1.1% 2.5% 45%
Earnings difference from
switching to entrepreneurship
-9.7% -12.1%
Source: Authors’ estimates using NSF data and Statistics Sweden data.
School of Economics and Management | Xxxxxxxxxxxxxxxx | Xxxxxxxxxxxxxx | (D) D Month YYYY
Survival
• The worst performing are likely to become S-E • After two years, 60% of Swedish academic entrepreneurs
have given up while a smaller fraction of U.S. academic entrepreneurs have quit (about 40%).
• This is considerably larger failure rates when compared population data the respective countries (Andersson and Klepper, 2013).
• About 66% of Swedish academics who give up their entrepreneurial ambitions return to academia, while only a third of Americans do.
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Firm performance
• These firms contribute significantly to productivity in their industries, i.e., spillover effect
• They create value but seem to be unable to approiate value (i.e., low growth), but somewhat higher survival
• Period 1995-2002 • Delmar, F., Wennberg, K. & Hellerstedt, K. (2011). Endogenous
growth through knowledge spillovers in entrepreneurship: An empirical test. Strategic Entrepreneurship Journal, 5, 199-226.
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School of Economics and Management | Xxxxxxxxxxxxxxxx | Xxxxxxxxxxxxxx | (D) D Month YYYY
Conclusions
• Innovation systems ≠ Entrepreneurship systems • The social returns ≠ The individual returns • At individual faculty level:
– Rare, reduce income (- 10%), negative selection, low survival and low growth in their firms
– Contribute to growth – Do not expect researchers do things they do not know! – Large differences in relative rates between US and Sweden
due to different systems – We still know very little about e-ship coming from students
School of Economics and Management | Xxxxxxxxxxxxxxxx | Xxxxxxxxxxxxxx | (D) D Month YYYY
Conclusions
• Different models, learn to use them proactively • It is a question of fit (individual, opportunity, context) • Think dynamically, it is a process • Differ between description and argumentation • Ask questions • Gear up for the sale process (to help the customer to
solve a problem)
School of Economics and Management | Xxxxxxxxxxxxxxxx | Xxxxxxxxxxxxxx | (D) D Month YYYY