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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
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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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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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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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