science of start ybsa - march 2012

The Science of Start A systematic method for building high-growth, high-profit companies

paulshawsmith scientific business strategy

JEAN-BATISTE SAY


GEORGE BUSH



1,04 m own a business more than 3.5 yrs old

2,5 m are setting up a business

44,4 m are not

entrepreneurial

Source: GEM (2011) and StatsSA (2010)

2,39 m discontinue a business

1.94 m own a business less than 3.5 yrs old


R100 million +

45 852 (1/40)

R1 to 10 million

R1 million or less

Source: SARS (2011)

1, 659 765

166 424 (1/11)

R10 to 100 million

6 815 (1/275)

Sales turnover of VAT registered businesses


9 steps to R100 million +


They have ambition


15%

60%

Source: Barringer, Jones & Neubaum (2005)

Growth-Oriented Vision?

Rapid

Growth

Slow

Growth

Democratise the automobile

Put a computer on every desk in every home

Organise the world’s information & make it

universally accessible and useful

Crush Adidas


Employees in 5 years?

Source: GEM (2007)

0+ 1+ 2+ 5+ 10+ 20+ 50+ 100+


Sales in 5 years?

Source: GEM (2007)

0 1m 2m 5m 10m 20m 50m 100m


1 They have ambition


They build teams


13.1%

54.2.%

Source: Bruderl, et al. (1992)

5-year failure rate?

+

>


3.3%

0.4%

Source: Stam and Schutjens (2004)

Twenty employees?

paulshawsmith scientific business strategy Source: Aldrich, Nancy, Carter & Ruef (2004)

48%

38%

7%

4%

3%

1 founder

2 founders

3 founders

4 founders

5 + founders



2 They build teams


They burn the

business plan


Source: Lange, Mollov, Pearlmutter, Singh and Bygrave (2007)

“new ventures launched with formal written

business plans do not outperform ones

launched without them.”

Business Plan?


Source: Bhide (2000)

21%

79%

Yes! No!

No! No!

No!


Doh!?!



2 They build teams

3 They burn the business plan


They realise plans

are guesses

AMAR BHIDE


What is a business plan?

WAGs

Guess?

Guess?

Guess?

Guess?

Guess?

Guess?

Guess?

Guess?

Guess?

Yngve Bergvist

Evan Williams



2 They build teams


4 They realise plans are guesses


If they guess wrong,

they change

Did you change or adapt your original idea?


Source: Bhide (2000)

33%

66%

No! Yes!


Great Idea


Better Idea

Learn


Better Idea

Learn

Learn


Better Idea

Learn

Learn

Learn

Learn


Success

Learn

Learn

Learn

Learn


Learn


Learn

Learn


Learn

Learn

Learn


Learn

Learn

Learn

Learn


Learn

Learn

Learn

Learn

Success


Guess

Test Change

plan

Guess?

Guess?

Test

Guess?

Test

Test

Guess?

Test

Guess?

Test

Guess?

Test Guess?

Test

Guess?

Test

Guess?

Test



2 They build teams



5 If they guess wrong, they change


When do you know to stop searching?


They change until they

find product-market fit

Product-Market fit?

Interest!

Satisfaction!

Customer Interest?

1 Not interested & will never purchase

2 Not interested, but maybe one day

3 Interested, but want other to test

4 Interested & will purchase once released

5 Will pre-order & pay now!

Customer Satisfaction?

1 Never purchase again

2 Probably not purchase again

3 Might purchase again

4 Will purchase again

5 Will definitely purchase again (love the product)



2 They build teams




6 They change until they find product

market fit


They don’t grow until

product-market fit


Pre-mature Scaling

AMAR BHIDE


Plan

Skip the search

Build

No

Product/

Market

Fit


of high growth internet start ups fail due to premature scaling.

Source: Start Up Genome Report(2011)


times faster than startups that scale prematurely

Startups that scale properly grow about

Source: Start Up Genome Report(2011)



2 They build teams





market fit

7 They don’t grow until the they find

product-market fit


They work with

what they have

Begin with the end in mind

Failing to plan is planning to fail

Specific Result

Given

Goal

Causal Thinking

(Selecting between given means to achieve a pre-determined goal)

M1

M2

M4

M6

M3

M5

Vision

paulshawsmith scientific success strategy

People

Knowledge

Resources

Market

Gap Plan

Causal Thinking

Market

Research


Hire Staff

Cook Book

Buy Ingredients

Outcome Plan

Casual Thinking


27 Entrepreneurs


3 40 start ups to

$200 million to $6 billion

1IPO

???

Bruce Flohr, the founder of RailTex

AMAR BHIDE

paulshawsmith scientific business strategy Source: Sarasavathy (2007)

I'd just go sell it. I don't believe in market research. Somebody once told me the only thing you need is a customer. Instead of asking all the questions, I'd try and make some sales. I'd learn a lot, you know: which people, what were the obstacles, what

were the questions, which prices work better. Even before I started production. So my market research would actually be

hands-on actual selling."

AMAR BHIDE

paulshawsmith scientific business strategy Source: Sarasavathy (2007)

"Ultimately, the best test of any product is to go to your target market and pretend like it's a real business. You'll find out soon

enough if it is or not. You have to take some risks. You can sit and analyze these different markets forever and ever and ever, and

you'd get all these wonderful answers, and they still may be wrong. The problem with the businessman type is they spend a lot of time with all their great wisdom and all their spreadsheets and all their Harvard Business Review people, and they'd either

become convinced that there's no market at all or that they have the market nailed. And they'd go out there big time, with a lot of expensive advertising and upfront costs, because they're gonna

overwhelm the market, and the business would go under."

Bird-in-the-hand



Opportunities

Knowledge

People

Resources

Outcome

Outcome

Outcome

Outcome

Outcome

Outcome

Effectual Thinking

(Imaging a possible new end using a given set of means)


Knowledge of

Cooking

Equipment

Available

People I

Know

Ingredients

on Hand

Meal 2

Meal 1

Meal 3

Meal 4

Meal 5

Meal 6

Effectual Thinking


Course

Match

Partner

Friends

Customer

Students

FaceMash

Effectual Thinking

Harvard

Connection



2 They build teams





market fit

7 They don’t grow until the they find

product-market fit

8 They work with what they have


They intuitively

understand

Lean Entrepreneurship,

customer development

& Effectuation

8.1 Terms?

What terms will the

partners require?

8.2 Costs?

How much will they

charge?

6.1 Acquirable?

What are your fixed and variable costs?

9. Costs? 5. Pricing?

How will you charge? How much will you charge?

5.1 Terms? Will the business

Make money?

Will the customers

buy the product?

Profitable?

3. Product/

Market fit? 1. Customer?

2. Market

Size?

Who is the

customer? 4.2 Costs?

7.1 Doable?

Can you perform the

Key activities?

7.2 Costs?

Costs to perform

Key activities?

Can you acquire

The key resources?

6.2 Costs?

Cost of key resources?

Cost to acquire a

customer?

What is the

Market size?

4.1 How?

How will you acquire

customers?

5.2 Costs?

Cost of distribution?

What are the channel

terms?


Searching

Business

Model

Proven

Building

Product

Market

Fit

Cross

The

Chasm

Early Adaptors Innovators Early Majority

Talking to

Innovators

Sell to

Innovators

Sell to

Early adaptors

Sell to

Early Majority

AMAR BHIDE


25,000 firms

$1.8 trillion


11th Biggest GDP

Joe Jacobson


100 Million Trees

JOE JACOBSON


Hagen Stehr

Francis Bacon

entrepreneurmag.co.za/author/paul_smith

slideshare.net/paulshawsmith

[email protected]

073 954 1346
