entrepreneurship workshop 1 - sites.fuqua.duke.edu · entrepreneurship workshop 1 wemba – june 4...

Entrepreneurship Workshop 1

WEMBA – June 4 & 5, 2016

CCMBA – June 24, 2016

Jon Fjeld

CC&WEMBA I&E Workshop

Agenda – June 4 & 5

•  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

2


Agenda – June 24

•  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

9:00 — 10:15

10:30 — 2:00 (with break for lunch)

2:15 — 3:00

3:15 — 4:30 4:30 — 5:00

3

Themes

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

•  Efficientuseofcapitalandotherresources•  Team

CC&WEMBAI&EWorkshop 4

STARBUCKS


Starbucks today

2014revenueOpera*ngprofitCoffeehouses(ownedandlicensed)CountriesMarketcapP/Era*o

$16.5B$3B

>21,000

65

$77.4B30


Starbucks question

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


The Starbucks opportunity

CC&WEMBAI&EWorkshop

Coffee

Experience Starbucks

8

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

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

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


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.


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


Key insights and strategic choices

•  Opportunityitself– Validatedbymarketgrowth

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


FRAMEWORK


Companyforma*on

“Nuclea*on”Comingupwith

theidea

Earlyplanning

Earlyrevenue

Growth

Ourfocus

Stages in new venture creation


Plan

Do

Learn

The basics


..

Need(market)

SolutionTeam

Financialviability

Competition

Evaluating an opportunity


Targetcustomer

Businessmodel

Sustainablecompe**veadvantage

Roadmap(milestones)

Elements of strategy


Two sides of execution


The first two laws of entrepreneurship

FirstLawAlwaysstartwiththeneed.

SecondlawMakenoinvestmentbeforeits*me.

Analysis—comprehensiveanddiscreteelementsSequencing—basedonseverity,probability,andcostofresolu*on


What does it take to succeed?

Entrepreneurial Success

=

Good idea

good planning

good execution money luck + + + +



Evaluation of an opportunity

1.  Isthereasufficientlyaorac*vemarketopportunity(needorproblem)?

2.  Istheproposedsolu*onfeasible,bothfromamarketperspec*veandatechnologyperspec*ve?

3.  Dowehaveanteamthatcaneffec*velycapitalizeofthisopportunity?

4.  Canwecompete(overasufficientlyinteres*ng*mehorizon)?

5.  Whatistheprofileriskandreturnofthisopportunity?

21


Planning

1.  Strategy•  Targetcustomers•  Businessmodel•  Choicesforsustainablecompe**veadvantage•  Milestones

2.  Opera*ngplan•  Planforeachfunc*onalarea•  Budget

22


New venture strategy

1. Targetcustomers

2. Businessmodel

3. Choicesforsustainablecompe**veadvantage

4.Objec*ves/milestones

• Segments?• Value/marketsize?

• “Wholeproduct”• Valuechain,eco-system

• Howcanyoucompeteoverthelongterm?• Whatinvestmentsshouldyoumake?

• Whatistheorderofexecu*on?• Howdoyoustructurefinancing?

Theseques*onsarealllinked.

Theprocessisitera*veandpiecemeal,notsequen*al

23

Evaluation and strategy

Opportunityevalua3on Factgathering,analysis,basisfordecisionmaking

StrategyDecisions,choices:investmentandpriori*es

CC&WEMBAI&EWorkshop

Need/problem

Feasiblesolu*on

Team

Possibilityofcomp.advantage

Riskreward

Targetcustomer

Businessmodel

Choicesforsustainablecomp.advantage

Milestones

Theseac*vi*esareongoing24


Business plan document

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

advantage•  Risk/return

Company’splan:•  Strategy:

–  Targetcustomers–  Businessmodel–  Choicesforsustainable

compe**veadvantage–  Milestones

•  Opera*ngplan:–  Planforeachfunc*onal

area–  Budget

25


Resources

Guidelinesfortheentrepreneur:

hop://www.dukeven.com/

ProgramforEntrepreneurs:hop://www.dukep4e.org

26

EFFICIENT & EFFECTIVE LEARNING


Explora*on:ObserveQues*onTest

In the beginning execution is mostly about learning



Foundation of a new venture

•  Goalofeverynewventure:findthematch Market+Product

•  How do you start?

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

29


Method

Hypothesis:• “Problem”• Universeofpoten*alcustomers

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

Possibili*es:• Validate• Revise• Reject

Observe

Question

Test

30

A simple model

•  Goalofeverynewventure:findthematch Market+Product

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

•  Sojustlaunchtheproductandseewhathappens.•  Butwhatcanyouconcludefromfailure?Byitselfafailuretellyounothing.Itdoesnotguidethenextstep.

•  Learningrequiresspecificobjec*vesandaroadmap

31CC&WEMBAI&EWorkshop

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


Summary

Beginexecu*onassoonaspossiblebyperformingexperiments.

Clearhypothesisandaroadmapforlearning

Well-designed,efficienttest+

Analysis&planning

Execu3on

Andalwaysbeginbyvalida*ngtheneed.


Managing uncertainty

Experiments(“Lean”)

Milestones

Efficientuseofcapital

Seed VC Growth

Differentterminologies,sameunderlyingconcept


How to proceed

•  Yourideaisprobablywrong—youhavemadeassump*onsthatwillnotturnouttobetrue.

•  Canyoufindagoodideabeforeyourunoutofresources—*meandmoney?–  Timeismoney.–  Earlymoneyismoreexpensivethanlatermoney

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


Your “theory”

•  Ifyourassump*onsarecorrect,yourventurewillbeworthalotofmoney.

•  Therearethreekindsofstatementsinyourtheory:–  Driversofvalue(expressionsoftheneed)–  Driversofcost–  Driversofsustainability(especiallysustainablecompe**veadvantage)

•  Intelligentexperimenta*oninvolves:–  Decomposi*on:assimpleaspossiblebutnosimpler(toparaphraseEinstein)

–  Sequencing36CC&WEMBAI&EWorkshop

Many unknowns

37

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.

CC&WEMBAI&EWorkshop

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 38

CC&WEMBA I&E Workshop 39

Creating a roadmap, milestone planning

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

Thesestepscancons*tuteaseriesofobjec*vesfortheventure:–  Andbecomethemilestonesinyourfinancingplan

Not all risk is the same

Ameasureofrisk:

severityofimpactXprobabilityRisksalsodifferon

costofresolu3on

CC&WEMBAI&EWorkshop

•  Risk derives from bad things happening.

•  Some are life threatening.

•  Some just reduce the likely return.

40

Net cash

$0 Time


Cost of money

•  Timeactuallyismoney

•  Animaginaryhomerun;100,000shares,2founders,1yearbeforemoney

Stage SharesCompanyvalue

(pre-money)Amountinvested Sharevalue

Founding 100,000 $100,000 $200,000 $0.50Seed 100,000 $1M $500,000 $10SeriesA 150,000 $15M $7.5M $100SeriesB 225,000 $225M $112.5M $1,000


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”).


How much money should you raise or invest?

•  Should you raise the total amount of cash needed (according to projections) in a single investment?

Usually not •  How much is the business worth? •  What increases the value of the

company? Reduction of uncertainty

1.  Establish a plan (which you will end up revising):

2.  Determine a milestone that produces a step up in valuation - what will remove the (a?) main source of uncertainty?

•  (Keep in mind that investment may be tranched)

3.  Determine cash needs •  Including asset based financing to reduce

requirement for equity based financing

4.  Raise enough to get you to the next milestone that would cause step up in valuation (+ small cushion, if possible)

$0 Time

-$5

$5

t1 t2 t3 CC&WEMBAI&EWorkshop 44

EVALUATING AN OPPORTUNITY


Outline

Evalua*onanentrepreneurialopportunity•  What:

– Whatinforma*ontoyouneed?– Whataretheques*ons

•  How:–  Ifthemarketneedhasalreadybeenproven,youmaybetoolate

– Mostuncertaintyatthebeginningofaventure


In the beginning

Opportunityevalua3on Factgathering,analysis,basisfordecisionmaking

CC&WEMBAI&EWorkshop

Theneedistheprimaryques*on

Whetherasolu*onispossibleisusuallysecond

Theseareimportantandwewilldiscussthemunderstrategy

47

Need/problem

Feasiblesolu*on

Team

Possibilityofcomp.advantage

Riskreward

Whataretheques*onsyouneedtoanswerandthefactsyouaretryingtoascertain?


P4E history Classof2010

Classof2011

Classof2012

Cassof2013

Classof2014

Classof2015

Classof2016

Classof2017

Selec3on 30ideas8students**Handpickedstudents

70ideas68students*•  Usedan•  applica*on

80ideas90students

50ideas100students

71ideas*104students**MatchmakerDirectory

108ideas112students

N/Aideas110students

N/Aideas105students

NV1Opp.Eval.

8projects 13projects48students

11projects37students



11projects~39students


13projects40+students

NV2Strategy

4projects 10projects32students

7projects22students

9projects25students

6projects16students

4projects14students

5projects20students


NV3Plan

3projects14students

4projects20students

3projects14students

1project2students

5projects17students

2newprojects9students

1.5projects7students/3students

Launch EntoGene*cs InvestorsMosaicHootliMedici

KKaneAIPatents

Jobbertunity CrowdTunesBrootaAll9sHowIDidItKOI

Physao SiNON“Graphene”Embrace

49CC&WEMBAI&EWorkshop

P4E outcomes to date

•  92projectsover7years•  21con*nuedexistenceinsomeform•  59of71failures(83%)duetoabsenceofmarket

Class Projects Type Launch Fail IT Life

scienceEnergy Consumer

other Market Tech. Other

2010 9 3 3 3 2 6 2011 17 7 4 3 3 6 10 1 2012 13 5 2 1 5 2 10 1 2013 17 10 2 5 3 11 32014 13 8 1 4 5 6 22015 11 4 1 6 0 9 22016 12 3 4 5 3 7 22017 14 8 6



Entrepreneurial opportunity

•  Problemcurrentlynotsolved•  Poten*alforchangeinconsump*on

Requires:•  Innova*on•  Capabilitytoexploittheinnova*on

Noteveryideaisanopportunity

51


What Is a need or problem?

Paoernofbehavior+Purpose

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

52

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?



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

54

Order effects

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

organiza*ons,etc.Entrepreneurialopportuni*esexistatalllevelsandfor

thosewhocansolvenewproblemscreatedbynewstructures,etc.

CC&WEMBA I&E Workshop 55With 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 56


Market research

Is there an opportunity?

Operating Plan

Market research

57


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•  Beoerintegra*onwithmarke*ng•  Greaterflexibility

Is this an opportunity? 58


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

59


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

60

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.


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


Design around or sell around

The first two laws of entrepreneurship

FirstLawAlwaysstartwiththeneed.

SecondlawMakenoinvestmentbeforeits*me.

Analysis—comprehensiveanddiscreteelementsSequencing—basedonseverity,probability,andcostofresolu*on


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



Teams

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

•  Seek diversity in your team

65

Concentration process

Summer, 2016 Fall, 2016 Spring, 2017

•  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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