3.1: your position in the value chain
86
Value chains •
many elements are needed, many steps are taken before an end user need is fulfilled
•
your contribution is only small part of the whole picture
•
do you see the total picture?
•
Value chains: ‘La suite des évènements’ in an industry/market/segment/ niche • •
•
Can be extraordinarily complex or very straightforward • •
•
How step by step the product is being built and brought to the customers Value increases as value is added by players Photovoltech: approximately 10 customers and 10 suppliers; long term contracts iPhone…
What is it exactly that you do as a company? 87
Ecosystem animator
Regulator
Materials, components, subsystems supplier
Service provider Complementary products supplier
Ecosystem players R&D, design
Manufacturing
Brand name
Retail channel
Investment goods supplier Staff functions
Finance
3.2: complementary assets
89
Complementary assets •
Your core assets generally are not sufficient to have a rounded offer to the market, complementary assets may be required • •
Especially if you are a small startup... Complementary assets generally linked to value chain of industry, or to product complements •
See biotech & pharma, Apple & music labels for iPod
•
Key question: are these complementary assets owned +/exclusively by specific players in the market? Or are they readily available, or easy to build up yourself?
•
If there are players with important and ‘exclusive’ complementary assets: you may need to team up with them, and share the value
•
Owners of strong complementary assets may also consider entering in your market • • •
Can you forbid them (patent?) Does it make sense for them, does it fit in their strategy? Speed versus resources... 90
EMI and the CAT scanner
EMI: electronics company active a/o in sound equipment, ended up in recording business
The CAT Scanner was a medical imaging system developed by Godfrey Hounsfield at EMI.
EMI had no track record in medical electronics but decided to invest in order to develop its own scanner business.
This market attracted entrants by established medical imaging companies, such as GE. These companies were better placed to sell and support such complex medical equipment.
Although EMI had applied for a number of patents, this did not prevent the appearance of a number of competing machines. By 1976, EMI lost market leadership in the US market.
EMI was beginning to have difficulties in other parts of its business. In 1979, EMI was sold. The new Thorn-EMI sold off the CAT scanner business to GE at a knockdown price.
Godfrey Hounsfield shared the Nobel prize for medicine in 1979.
The EMI case •
Unique assets •
Relevant •
• •
•
•
Needed complementary assets •
Nobel prize-level knowledge of CAT scanners Patents First mover advantage
•
•
Irrelevant • •
Experience in manufacturing medical products In-depth understanding of hospital market
•
Consumer brand name Knowledge of movie and recording industry
•
Expertise in reimbursement processes by national social security organsations Sales and marketing channels •
•
GE: 300 persons
Service and support system •
•
investment decision making, key players,...
GE 1200 persons
-> Threat of entry •
General Electric, Siemens, Philips = incumbents in medical equipment market • •
Posses complementary assets Virtually unlimited resources 92
How to compete depends on uniqueness of assets and dependance on complementary assets
managing innovation and entrepreneurship, Fiona Murray, MIT Sloan School of Management spring 2008
How to compete depending on uniqueness of assets and dependance on complementary assets
source: Gans and Stern, 2003
94
Ideas factories •
Strong intellectual property protection by startup but incumbents control the complementary assets •
•
•
•
•
•
Biotechnology, electronics components
Key issue is not longer whether to pursue a cooperation strategy but when and how Start-up with leading technology will focus on research and commercialize through reinforcing partnerships
Ideas factories can
•
Return on innovation will depend on the bargaining power of the start-up • •
•
enhance the competitive advantage for incumbents by reinforcing the basis of advantage for those established firms offer a fertile source of new innovations for incumbents, especially when the start up’s technology is complementary to the existing value proposition
And its bargaining skills! -> hire accordingly
How to enhance the bargaining power of your start-up • • •
clearly signal and demonstrate the value of the technology disclosure does not undermine bargaining power because approbiability is strong ! play established firms against each other in a bidding war
95
Complementary assets in biotechnology
96
How to compete depending on uniqueness of assets and dependance on complementary assets
source: Gans and Stern, 2003
97
Ideas factories •
Strong intellectual property protection by startup but incumbents control the complementary assets •
•
•
•
•
•
Biotechnology, electronics components
Key issue is not longer whether to pursue a cooperation strategy but when and how Start-up with leading technology will focus on research and commercialize through reinforcing partnerships
Ideas factories can
•
Return on innovation will depend on the bargaining power of the start-up • •
•
enhance the competitive advantage for incumbents by reinforcing the basis of advantage for those established firms offer a fertile source of new innovations for incumbents, especially when the start up’s technology is complementary to the existing value proposition
And its bargaining skills! -> hire accordingly
How to enhance the bargaining power of your start-up • • •
clearly signal and demonstrate the value of the technology disclosure does not undermine bargaining power because approbiability is strong ! play established firms against each other in a bidding war
98
Greenfield competition •
Strong intellectual property protection and incumbent complementary assets are unimportant
•
Doesn’t happen that often... •
•
Ability to control the development and evolution of platforms and standards may be decisive
Xerox
•
Start-up innovators can preclude effective imitation
•
The power to determine the most effective commercialization strategy lies with the start-up innovator
•
Both competition and cooperation may be effective 99
The attacker’s advantage •
Poor intellectual property protection + incumbents do not control the complementary assets •
•
•
•
Happens very often!
•
Start-ups and incumbents are on a “level playing field” •
Startups must exploit the blind spot of current market leaders & target the underserved customer groups •
Competition is likely to be intense
•
“stealth” is a crucial element of an effective competition-oriented commercialization strategy don’t moon the giant !
Incumbents have the opportunity to imitate once they recognize the nascent threat •
•
•
•
start-ups have an opportunity to overturn established positions and to capture market leadership by effectively developing and diffusing competence-destroying technology
easy imitability weakens postion of initial innovator increases risk of getting only small share of the value over the long-term reduces advantage from either cooperation or competition
Speed is of essential importance •
Be faster, so as to be systematically ahead of competition •
•
This applies as long as you can make the difference based on technical advantage!
Ecosystems properties such as network effects and lock-in determine whether first mover can build sustainable advantage •
Facebook 100
Reputation-based ideas trading •
poor intellectual property protection and incumbents control the complementary assets necessary for effective commercialization
•
disclosure problem !!
•
in capital intensive industries, incumbents are tempted to expropiate technology revealed to them (e.g. automobile, aircraft..)
•
start-up has to rely on reputation-based ideas trading
101
MIT research on commercialisation strategies
managing innovation and entrepreneurship, Fiona Murray, MIT Sloan School of Management spring 2008
10
The role of industrial partners •
Often essential role • • • •
•
Different formats for role • • •
•
IBM for Microsoft Adobe for Enfocus Softkinetic (and others) for Optrima Energy players as investors in Photovoltech Investor Customer, supplier Joint marketing
Different time frames •
Dependant on volatility of market, evolution of industry
•
Roles change, balance of power shifts
•
Always be on the outlook for interesting partners
•
There must be a clear strategic reason for the partnership on both sides 103
Outsourcing •
Outsourcing is often defined as involving the contracting out of a business function - commonly one previously performed in-house - to an external provider
•
Deciding what to outsource and what to do internally is a major and very complex decision. • • • •
What are the core assets you wish to invest in? What is secondary? Is the required expertise really available @ partner? Will you depend on just one supplier? Will you be able to compete? •
•
Can you become large enough to compete, given the market, network effects and economies of scale?
IP leakage: train your future competitor?
•
Can provide shortcut to a more competitive product
•
But it typically contributes little to building the people-embodied skills that are needed to sustain product leadership
•
Example Chrysler • •
Engines and power trains just one more component, outsourced Becoming dependent on Mitsubishi and Hyundai 104
3.3 Mapping your ecosystem
105
106
Ecosystems maps •
Architectural map •
•
•
•
How things work, roles Contributions of individual participants or business elements “You are here and there are your neighbors” Basic education about the STRUCTURE of the business, roles and niches, and who its competitors and complementors are
•
Business map •
•
• •
•
Participants with relative share, at a point in time Optionally, adjacent ecosystems too “Who’s doing well” Illustrate relative SCALE or strength of a business, its competitors and complementors Can demonstrate ecosystem invasion
•
Chronological map •
•
• • •
•
• •
Detailed ecosystem changes (or events) over time Activity compared with competitors Evolution trajectory “What’s going on” Show historical or potential DYNAMICS in the ecosystem Benchmark against competitors show strategic intent Help plan for strategic goals
107
Business ecosystems
•
Vertical axis • •
Generally (extended, ‘whole’ product’) value chain Relevance to subject at hand • •
•
Horizontal axis •
Market •
•
•
•
Adjacent markets Companies, products Relative size
Dynamics •
Spot changes in different dimensions •
•
•
Standards within market
Cells •
•
Are you an industry analyst? Or do you need it for company-strategic purposes?
At industry level, at company level
Identify opportunities and threats
+ Your position and strategy 108
The players...
109
110
111
By 2010? •
Same markets?
•
Same players?
•
Same value chain?
•
What happened to Nokia?
112
Markets are time dependent...
113
Ecosystem maps applied to Optrima
114
115
116
117
118
119
120
121
Applied to Optrima
122
123
124
125
Breaking news
October 08 2015
•
Sony Acquires Belgian Innovator of Range Image Sensor Technology, Softkinetic Systems S.A., in its Push Toward Next-Generation Range Image Sensors and Solutions
•
Tokyo, Japan - Sony Corporation is announcing that it has completed the acquisition of Softkinetic Systems S.A., after reaching an agreement with the company and its major shareholders. With this acquisition, Softkinetic - which possesses time-of-flight ("ToF") range image sensor technology, as well as related systems and software - has become a wholly-owned subsidiary of Sony.
•
Sony will focus on combining Softkinetic's ToF range image sensor technology expertise with its own technologies with the aim of developing the next generation of range image sensors and solutions, not only in the field of imaging, but for broader sensingrelated applications as well. 126
3.4: your business model
127
Business models... •
The Zen description of the way you make money
•
Some examples...
•
Build and maintain an expensive infrastructure and let users pay for the ‘services’ you deliver over it •
•
• • •
•
• •
•
Sell equipment at low cost and make money on consumables •
Provide free-of-charge services and/or products to a wide audience and make money on linked services towards that audience paid by third parties
Provide expert services to customers for a fee •
•
Sell made-to-order PCs direct to end-users •
•
129
•
Often the business model is a no-brainer •
•
Business model innovation is popular these days... • •
•
Google, Apple Web x.0 companies
Sometimes business model innovations fail... •
•
Horeca, consulting, taxi’s...
Netscape
Complexity, needed resources and expertise, longevity can vary enormously!
129
The device and the consumables... •
Sale of two interdependent products • •
•
You can decide to price the equipment low and rely on sales of consumables •
•
equipment or instruments consumables
Sales of the consumables is dependent upon the installed base
Examples
•
Sometimes you can’t avoid that other people supply the consumables
•
Printers and ink cartridges
•
•
Medical devices and consumables
•
Senseo, Nespresso Ink cartridges
130
Webvan •
Webvan was an online grocery business
•
Webvan offered a 30 minute delivery window without considering that many working customers would like their groceries delivered at home at 5PM.
•
Webvan placed a $1 billion order with engineering company Bechtel to build its warehouses, bought a fleet of delivery trucks, as well as 115 Herman Miller Aeron chairs (at over $800 each).
•
At its peak, it offered service in ten U.S. markets.
•
None of Webvan's senior executives (or investors) had any management experience in the supermarket industry.
•
Orders were smaller than the minimal order size to be profitable, so money was lost per order
•
‘Its business model was profit proof’
•
Went bankrupt in 2001. Webvan went from being a $1.2bn company with 4,500 employees to being liquidated in under two years.
•
High-profile investors including Sequoia Capital (Apple, Google, Paypal…) saw Webvan's stock plummet from its all-time high of $30 to just six cents within a few months.
131
eBay •
Online auction company; create IT infrastructure that allows people to communicate for a modest fee
•
Company takes no part in transactions, has no responsibility for the goods offered at auction, nor for collecting the payments, nor for shipping the goods
•
Receives revenues from seller fees
•
Pays the cost of building and maintaining the online infrastructure, marketing, product development and general and administrative expenses
•
The internet economy •
• • •
•
Relatively low fixed costs and no variable costs gives the company enormous operating leverage Small number of salaried employees can handle huge and growing volume of business Compare what it takes to run eBay and Colruyt / Walmart A doubling of transaction volumes (and revenue) can be accommodated with relatively modest extra investments
Network effects •
Very strong first mover advantage 132
eBay vs. Webvan
Webvan – huge up-front investments
minimal threshold to run business: distribution centers, logistics...
– huge operational costs – requires major change in daily habits of customers: requires time and marketing efforts to win them over – cost model of webvan is on at least one points worse than traditonal distribution: in the supermarket order picking is done by the customer – distribution is very low margin business – distributors have huge buying power, receive lower prices – business model requires minimal sales value per transaction – very high risk:
eBay – – – – –
very low investments very low operational costs little marketing expenses high margins low risks
up-front investment
16
some questions •
Who is better placed to make money on Webvan business model?
•
Why?
134
Key aspects of financial business model •
Funding needs
•
Revenue model
•
The amount of cash required before a company achieves positive cash flow
•
How do you make money?
• • •
•
•
•
-> compare eBay to Webvan
•
Over what period of time is the investment required? At what point does the cash flow of the company turn positive? Break-even point
Product sales, rental, consumables, services... A simple question that receives strange answers in these Internet times •
Stock, payment conditions...
What is the maximum financing need of the business model?
•
•
•
Investments Losses during startup period Money tied up in the process •
•
•
How much money do you make per transaction? • •
•
"Freemium is a business model where the basic or core version of the offering of the business is made available to the endcustomer for free and a premium is charged for the advanced or special version of the offering for the end-customer."
If you loose money on every transaction you will never make a profit See Webvan, Pets.com...
What does it take to reach breakeven?
Where do you (plan to) get the money from?
135
How to use business models •
Show that you understand the overall financials of the project •
What amounts of money do I need to start up and run the project? How will I make money?
•
What are key drivers from a financial point of view?
•
136
Alexander Osterwalder’s Business Model Canvas
137
Alexander Osterwalder’s Business Model Canvas •
source: https://en.wikipedia.org/wiki/ Business_Model_Canvas
•
Business Model Canvas is a strategic management template for developing new or documenting existing business models.
•
It is a visual chart with elements describing a firm's or product's value proposition, infrastructure, customers, and finances.
•
It assists firms in aligning their activities by illustrating potential trade-offs.
•
The Business Model Canvas was initially proposed by Alexander Osterwalder based on his earlier work on Business Model Ontology.
•
Since then, new canvases for specific niches have appeared. 138
139
The three core business types •
www.alexandercowan.com/business-model-canvas-templates
•
there are three core business types: product, scope, and infrastructure.
•
Product-driven businesses • •
•
Scope-driven businesses •
•
•
•
have a differentiated product of some sort. Key Resources in product-driven businesses are typically key talent in critical areas of expertise and accumulated intellectual property related to their offering. are focused on doing a bunch of things for a particular set of customers. They create some synergy around a particular Customer Segment. For example, a business that takes care of all the IT needs for law firms is a scopedriven business. These businesses have knowledge about their segment, a repeatable set of processes, and sometimes infrastructure, like service centers.
Infrastructure-driven businesses • • •
achieve economies of scale in a specific, highly repeatable area. Telecom and Retailers are primarily infrastructure(-driven) businesses. The Key Resources for this type of business are various types of physical or virtual infrastructure. 140
Step 1: Customer Segments •
•
1. Segment Dimensions •
•
Do you have a single or multi-sided market? In a multi-sided market you have at least as many segments as you have sides.
2. Segment Composition •
•
•
(edited) source: www.alexandercowan.com/business-model-canvas-templates
Look within each segment at individual customer types as ‘Personas’. List both buyers and users of your product (many Personas will be both). A Persona is a vivid, humanized rendition of your customer. You should be able to visualize these Personas, understand what they think, see, feel, and do in your product area.
3. Problems, Needs, Habits & Current Alternatives • •
What need are you fulfilling for the customer? Make sure you can identify an existing need/problem and identify alternatives that your customer uses today. You want to link your Value Propositions back to these in the next section.
•
Output: a list of Personas, organized by Customer Segment if you have more than one segment. Try to prioritize them.
•
If you’re spending a lot of time on this first item, that’s probably good. The Canvas is a tool, not all the nine blocks are equal. 141
Step 2: Value Propositions (VP) •
source: edited from https://www.alexandercowan.com/business-model-canvastemplates/
•
Which of the Problems or Needs that you identified in your Personas are you fulfilling? What is unique about your VP and why does your customer prefer them to their Current Alternatives?
•
You may have a many of these. Write them on a whiteboard, rank them and winnow out all but the most critical: what do you do that causes a customer to pick you over a competitor or alternative? Once you’ve isolated these, map them to the Customer Segments.
•
Output: a prioritized list of VP’s and linkages from each Personas to the VP’s relevant to them. This pairing is the key driver for most business models.
•
If you’re not sure whether the VP’s are correct, write them down, prioritize them, and figure out the quickest way to prove or disprove them. 142
Step 3: Channels •
source: edited from https://www.alexandercowan.com/business-model-canvastemplates
•
Channels includes entities you use to communicate your proposition to your segments, as well as entities through which you sell product and later service customers.
•
Output: a list of important Channels, linked to Personas or Segments. Make notes on what steps are relevant for eachpromotion, sales, service, etc.
•
Channels and Customer Relationships define your interface with the Customer. Think all the way through the customer ‘journey’. Often the way they get a customer’s attention is different than the way they onboard them or support them over the long term.
•
Another consideration is whether your channels will give you enough visibility into the user, including a way to follow up with users. Document your assumptions and figure out how you’ll quickly prove or disprove them. 143
Step 4: Customer Relationships •
•
How does the customer interact with you through the sales and product lifecycle? • • •
•
source: edited from https://www.alexandercowan.com/business-model-canvastemplates/
a dedicated personal contact? over the web? a channel?
A few questions: • • •
Can the Value Proposition be delivered this way, promotion, sale, aftersale service? Can you make the numbers work? Is there a premium support product you need to create/test?
•
Output: a description of Customer Relationships, with notes if they differ across Customers or across the customer journey.
•
Be sure to document and review critical assumptions. You should validate your Segments and their relationship to the Propositions.
•
You can provide personal support in the early days to do discovery and validation of Segments and Propositions. 144
Step 5: Revenue Streams •
https://en.wikipedia.org/wiki/Business_Model_Canvas
•
You should map Segments to Propositions to Revenue Streams.
•
Revenue Streams: The way a company makes income from each customer segment. Several ways to generate a revenue stream: • • •
•
•
•
•
Asset Sale: Selling ownership rights to a physical good. e.g. retail corporations Usage Fee: Money generated from the use of a particular service e.g. UPS Subscription Fees – Revenue generated by selling a continuous service. e.g. Netflix Lending/Leasing/Renting: Giving exclusive right to an asset for a particular period of time. e.g. Leasing a Car Licensing: Revenue generated from charging for the use of a protected intellectual property. Brokerage Fees: Revenue generated from an intermediate service between 2 parties. e.g. Broker selling a house for commission Advertising: Revenue generated from charging fees for product advertising.
145
•
At this point, step back and look at the picture you’ve created about your Offering and Customers.
•
The next four steps deal with your ‘Infrastructure’, the plumbing you need to execute:
146
Step 6: Key Activities •
•
source: edited from https://www.alexandercowan.com/business-model-canvastemplates/
These are the crucial things the business needs to do to deliver on its propositions • •
•
•
if you are selling through 3rd parties, then channel management is important. For a product-driven business, this includes learning about users and new techniques to build better product. If you’re focused on a particular set of customers, it includes maintaining superior expertise on the segment(s) and creating or acquiring products and services that are a good fit. For an infrastructure business, it includes keeping the infrastructure working reliably and making it more efficient.
•
You then consider how the Key Activities and/or Key Resources drive your Value Propositions
•
Outputs: a list of Key Activities linked to your business’ Value Propositions.
•
One question this analysis raises is whether certain Activities and Resources are really core to your business. 147
Step 7: Key Resources •
Key resources are the strategic assets you need in place, to a greater or more targeted degree than your competitors.
•
The Business Model Canvas proposes that there are three core business types: product, scope, and infrastructure. •
•
•
Key Resources in product-driven businesses are typically key talent in critical areas of expertise and accumulated intellectual property related to their offering. Scope-driven businesses typically have key knowledge about their segment, a repeatable set of processes, and sometimes infrastructure, like service centers. Infrastructure-driven businesses Key Resources are various types of physical or virtual infrastructure.
148
Step 8: Key Partnerships •
source: edited from https://www.alexandercowan.com/business-model-canvastemplates/
•
At this point, the Canvas has helped you sharpen and articulate your business’ focal points.
•
What Activities and Resources are important but not aligned with what’s uniquely strategy for you? What’s outside of your business type? Could partners do some of those? Why? Which?
•
"What’s strategically important that I’m not going to do?"
•
I recommend mapping Key Partners to Key Activities. If an activity is key, it’s still part of your business model. This is a way to denote which specific Partners are handling various Key Activities for you.
149
Step 9: Cost Structure •
You’ve worked to understand how your Key Activities drive your propositions and hence your revenue. Therefore: • • • • •
•
For purposes of linking things together, look at how your Key Activities drive your Cost Structure: •
•
How do they drive costs? Are those costs well aligned with the key Value Propositions? Are the costs more fixed or variable as you test different business models? Are they more linear with your scaling or more fixed? You want to have these in mind as you tweak your model.
If there are major cost components that don’t map to a Key Activity, take a closer look at those costs.
Output: a list of Cost Structure elements with notes on their relationship to Key Activities.
150
Step 10: Applications, Analysis & Next Steps •
The most core and obvious applications of the Canvas are to ask: • • • •
•
Does it make sense? Could it be better? Does the rest of my team understand and agree? Have additional ideas? (rinse and repeat at least quarterly)
Competitiveness •
•
The canvas does a good job of helping you figure out your business, which is a good place to start. You also want to look at the competitive environment and think about if and how you have/maintain a long term competitive advantage. For this, use Michael Porter’s Five Forces framework. Walk through the Five Forces for your company and then bounce back to your canvas. How does it all hang together?
151
The Uber Business Model Canvas
152
The Google Business Model Canvas
153
LinkedIn Business Model Canvas
154
Amazon Business Model Canvas
155
Coca Cola Business Model Canvas
156
Lean Canvas •
source: adapted from https://canvanizer.com/new/lean-canvas
•
An adaptation by Ash Maurya of Osterwalder’s Business Model Canvas.
•
The Lean Canvas is more actionable and entrepreneur-focused. Ash Maurya added following elements: •
•
•
•
Problem- several businesses fail applying a lot of effort, financial resources and time to build the wrong product. It is therefore vital to understand the problem first. Solution- once a problem has been recognized the next thing is to find a solution to it. A solution box with the Minimum Viable Product “MVP” concept was included. Key Metrics- a startup business can better focus on one metric. It is crucial that the right metric is identified because the wrong one could be catastrophic to the startup. Unfair Advantage- this is the competitive advantage. A startup should recognize whether or not it has an unfair advantage over others.
157
Lean Canvas •
Following things were omitted from the original Business Model Canvas: • •
•
Key Activities and Key Resources- they were covered in the Solution box. Customer Relationships- a deeply focused startup business should establish customer relationships from the beginning. As such, these were covered in the Channels box. Key Partners- according to Ash most startups don’t require key partners when putting up because they deal in unknown and untested products. It would be a waste of time trying to build such relationships.
158
Lean Canvas
159
Business Model Canvas
160
Top 10 Business Model Pitfalls •
•
10.Not knowing how you will measure your success • •
•
•
•
and missing out the optimal maximum -> explore and test different models in parallel
7.Problems are not specific enough •
•
When you start by building a product for everyone, you end up building a product for no-one -> your early adopters define the business model
8. Ending up on a local maximum •
•
"begin with an end in mind" see TED Talk Golden Circle Simon Simonek
9. Marketing to everyone •
•
by Ash Maurya, https://www.youtube.com/watch?v=5sn7pZXY5b4
nail the problem of the customer, get inside of his head
6. Having no unfair advantage story 161
•
5. A weak value proposition
•
4. No having enough runway •
•
3. No significant path to (early majority) customers •
•
Crossing the chasm
2. No monetizable pain •
•
i.e. not enough money on the bank
will you earn money???
1. Falling in love with your solution •
-> focus in the minimum viable product
162
4. Assessing your project
163
Strategy... •
Strategy is finding a viable spot in the ecosystem and setting out a course towards it
•
Strategy is about answering three key questions • •
•
•
1: what is it that you bring to the table? How unique is it? 2: what offering do you build based on this, what is the added value of this offer for your customers? 3: what is the concrete plan?
At the end of the day you choose... • • •
Go/nogo on a single idea Priorities between options (or adaptive strategies)
164
Assessing (and comparing) projects •
You always need to make an overall assessment of a project, and often you have to choose between options and scenario’s
•
Criteria you should include in your assessment •
Financials • • •
•
Strengths of project • •
•
• •
•
Unique competitive position? Soundness of overall project
Time-to-market •
•
Capital needs Potential return -> see other sessions
Short term horizon or long shot?
Project complexity Validation stage of project Competitive position
+ Is it an attractive industry? 165
Is it an attractive industry? •
•
Some industries are more attractive than others Main determining elements according to Porter’s Five Forces: •
Some elements I would add: •
Market dynamics •
•
Market growth? Stage on ILC?
Regulatory context •
Governement related aspects
Competitive position: • •
•
•
•
rivalry: are there a lot of competitors? Barriers to entry: is the market easy to enter for newcomers? Threat of substitutes: do alternative ways of responding to customer needs exist?
The number of players in the value chain: •
•
•
Are you dependant on a limited number of suppliers? Are you dependant on a limited number of customers? -> few customers/suppliers = weaker bargaining position
166
The attractiveness of industries... •
Industries vary wildly in attractiveness
•
Photographer’s market today: lousy! • •
•
•
Direct competition: lots of competitors, easy entry, attractive job Substitute products: journalists that take the photographs themselves, image banks (+ amateur photographers for weddings) Few and shrinking customers (magazines, newspapers)
Photocopier market in 1960’s: great! (for Xerox...) • • •
Huge need , no substitute No competitors thanks to patent Lots of customers, no key suppliers
167
Project complexity •
Complexity for the firm
•
Complexity for the customer
•
Market, customers:
•
novelty of offering for customer
•
(behavioral) change for customer
•
dis-benefits to customer
• • •
•
Technology • •
•
Is your organisation equipped to deal with the project? Do you need new partners? Do you have agreements with them?
+ Cost; return on investment, total cost of ownership
•
There’s nothing wrong with complexity •
•
Do you know the industry?
By doing complex things you build competitive advantage But you do have to cope with it
•
The more novelty and the bigger, the more complex
•
-> you need to assess your project’s complexity
Team members’ experience in domains •
These weigh heavility in decision making process
•
Complementary assets •
•
How new for the firm? + how far from mass production?
•
Impact on processes within company •
•
New? Familiar? Markets, channels, type of customers Sale methods, skills, contacts...
• •
Can you decrease complexity? How will you cope with this complexity? 168
Decreasing knowledge of the market
Chances are... “Suicide Square” .03%
Probability of Success Improved product in existing market: 75%
Market Business New Business Model Expansion Expansion
Probability of Success New Product with unrelated technology in existing market: 50%
Market MarketBusiness New Business Business Business Extension Expansion Model ExpansionExtension Expansion Market Product Penetration Extension
Market Extension Probability of Success
Product Expansion
Business Extension Market Business
Business Expansion
Market Business New Business Model Expansion Expansion Market Extension
Business Extension
Business Expansion
Market Product Penetration Extension
Product Expansion
New Business Model Expansion Expansion
Market Business New Business Model Expansion Expansion
Market Extension
Market Extension
Business Extension
Business Expansion
Probability of
Success Market Product Product Existing product in a new Market Product Product market: 15% Extension ExpansionExpansion PenetrationPenetration Extension New Product in a New
Business Extension
Business Expansion
Market Product Penetration Extension
Product Expansion
Market: 5%
Decreasing knowledge of the technology
169
Project validation •
Some dimensions to take along when defining the degree of validation (and therefore of risk) of a project •
•
Market • • •
Seed money is essentially destined to move the project up the validation scale
• •
•
What do you have today?
•
•
Technology
•
• • • • •
•
Lab demonstrator Engineering specifications Operational prototype Value chain in place 10.000 copies manufactured
Intellectual property •
-> see later
•
Organisation •
•
End-user customers, channel: Letter of intent Test installation Signed customers Operational customers, reordering, referenced Market validation through customers Installed base, recurring business Team composition vs. needs
Financial • • •
Revenue stream Cash break-even Profitable 170
Technology Readiness Levels
171
Technology Readiness Levels •
https://en.wikipedia.org/wiki/Technology_readiness_level
•
Technology readiness levels (TRL) are a method of estimating technology maturity of Critical Technology Elements of a program during the acquisition process.
•
They are determined during a Technology Readiness Assessment that examines program concepts, technology requirements, and demonstrated technology capabilities.
•
TRL are based on a scale from 1 to 9 with 9 being the most mature technology. The use of TRLs enables consistent, uniform discussions of technical maturity across different types of technology.
•
Different definitions are used. Although they are conceptually similar, significant differences exist in terms of maturity at a given technology readiness level. Amongst others: • • • •
U.S. Department of Defense (DoD) definitions NASA definitions European Space agency (ESA) definition Oil & Gas Industry definitions 172
Technology Readiness Levels in the European Commission Description TRL 1.
basic principles observed
TRL 2.
technology concept formulated
TRL 3.
experimental proof of concept
TRL 4.
technology validated in lab
TRL 5. TRL 6.
technology validated in relevant environment (industrially relevant environment in the case of key enabling technologies) technology demonstrated in relevant environment (industrially relevant environment in the case of key enabling technologies)
TRL 7.
system prototype demonstration in operational environment
TRL 8.
system complete and qualified
TRL 9.
actual system proven in operational environment (competitive manufacturing in the case of key enabling technologies; or in space) 173
Assessing and ranking projects
174
How Addestino does it...
175
The one-pager
176
What Khosla Ventures looks for in seed stage investments •
Overall •
•
•
•
•
•
a crazy idea that may have a significantly non-zero chance of working. the key technology risks of your approach need to be identified. The economic and market benefits if it is successful need to be identified Planning for risk elimination at the lowest possible cost is the key variable we look for. Your seed plan should validate your hunches about the market and help you decide what market segment you want to enter.
problem overview •
•
your unfair advantage •
•
• •
• •
•
Do you have a scientific breakthrough or IP, a businessmodel innovation, or a unique partnership? Address the innovation in significant detail—think science and engineering, not marketing. Why is now the right time? What has been proven and how far is this from a commercial scale? What risks remain to be proven? What are the three major things that could go wrong? How long will it take to experimentally validate the technology viability?
What is the problem you are trying to solve? 177
What Khosla Ventures looks for in seed stage investments •
milestones / financials •
•
•
What are the technical milestones that this financing will achieve? What are your future milestones, and how much capital will you need to achieve these milestones? What is your total and operating cash burn (the amount you're spending) per month
•
market / competition •
•
•
•
•
•
Do you have a good understanding of the competitive landscape? Are you comparing your company against the technology competition in areas that matter to the end customer? Are you comparing your future product to your competitor's current product or to their future product? Is your innovation addressing a need in a large enough market ($1B plus)? How significant a step forward is represented by the technology or innovation? What impact will it have on the competition? Why can't your plan be replicated tomorrow by a competitor? Why have other players in the field missed out on the technology? 178
What Khosla Ventures looks for in seed stage investments •
your team •
•
Who are you, and why are you qualified to lead this opportunity? What skill sets do you bring to this problem? What technical skills will your team need to add? Do you envision yourself as the long-term CEO or in another role? The focus is mostly on you, your goals, and your technical team. Address why you are uniquely qualified to solve this problem. People key to your innovation matter to us. What is the role of every member of your current team? Are they all working toward mitigating your primary risks, or are they really working on non-critical "development" that can be addressed later? Are they the best possible people for meeting your current milestones? Are the founders thought leaders or associated with the thought leaders in the field? What critical people who could address your key risks are missing, and where can you find them?
179
Seed fund - what doesn't matter •
"We project $XXXM in revenue in 2019." •
•
•
Your five-year marketing financials and revenue projections are a shot in the dark. All forecasts are wrong (including ours); focus on the burn rate and your path toward achieving the milestones, instead of false precision at this stage.
"I have the next Facebook / Google / Twitter." •
"We expect to grow from 50M to 150M users in XXX." •
We're more interested in how you acquire your initial customers, and how you keep them. Plans often fail to explain how the founders will bootstrap themselves in the start-up mode. How will you get that large customer base in the first few months or quarters? Details matter more than gross, unsupported assumptions. If you have indicators of solutions to this bootstrap risk, that is important for us.
•
If your business plan is built on copying what existing companies are already doing, you are unlikely to succeed. Instead, explain to us why you are the first XYZ. A better Facebook or social network will receive substantial skepticism; but again, we have occasionally climbed past this skepticism. We will keep an open mind, but another "me too," slightly-better-features plan is seldom our cup of tea.
"I have a complete business plan; I just need funds to make it happen." •
Unfortunately, experience has led us to disagree. If you are looking solely for funds as opposed to help building a business, we are probably not your best option. It is important to us to understand what help you need and how open you are to this help. 180
•
(-> SWOT analysis) •
Identify , based on the previous elements: the key challenges of the organisation • • •
•
Organizational: Strengths and Weaknesses. Environmental: Opportunities and Threats. These sum up the key elements of your project, based on your analysis.
Note: what counts is the sharpness of your analysis!
181
The problem is: generally you don’t know enough to decide with a clear conscience -> strategies for uncertain markets
182
Strategies for uncertains markets •
Source: Eric D. Beinhocker, Sloan Management Review Spring 1999
•
Source: Christensen The Innovator’s Dilemma
•
Defining strategies based on narrow predictions is entirely the wrong mind-set for an inherently uncertain world
•
•
We should take a cue from nature and rely less on our ability to make accurate predictions and more on the power of evolution
Not only are the market applications for disruptive technologies unknown at the time of their development, they are unknowable
•
•
Businesses should not have a singular focussed strategies but instead cultivate and manage populations of multiple strategies that evolve over time Parrallelism: the more places you are simultaneously exploring the more likely your are to find a higher peak in your fitness landscape
•
Market research is not an option for disruptive innovations
•
Strategies and plans should be plans for learning and discovery rather than plans for execution
•
The risk: spreading too thin •
•
As with everything: local circumstances (company, industry) determine the right balance Elk voordeel heb z’n nadeel
183
Example: HP Kittyhawk •
Introduced in 1992 • •
•
1.3 inch form factor Capacity of 20 MB
Massive investment on forecasted market: PDA’s •
Product optimized for this use
•
Turned out that market of PDA’s didn’t materialize…
•
… but other markets (GPS, gaming) did, but with different requirements •
Cost vs. sturdiness
•
Product was insufficiently flexible to adapt
•
HP patience had dried up, project was halted 184
Example: Microsoft and Operating Systems •
1988 Operating Systems landscape • • • •
•
Overwhelming market share: DOS 4.0 Sexiest product: Apple Macintosh Range of (mainframe) vendors with proprietary OS: IBM, DEC, Siemens... Major developments in PC/Workstation OS market •
• • •
IBM: working on OS/2 (together with Microsoft) Microsoft: working on Windows 2.0 Sun+AT&T+Xerox: Unix Open Look Hewlett_packard, Digital Equipment Corporation, Apollo, Siemens Nixdorf: Open Systems Foundation (Unix)
1988 Microsoft Strategy • • • • •
•
Continue to develop DOS Become the largest software developer for Apple Macintosh: Word, Excel Develop Windows 1->2->3->95... Co-develop OS/2 with IBM Buy SCO Unix, the largest provider of PC-based Unix Operating Systems
Microsoft... • • •
Couldn’t know what would happen Did have its preferred outcome: Windows domination But had ‘irons in the fire’ for most other outcomes • •
•
Macintosh -> applications OS/2: co-ownership; Unix: a major player
And in parallel was building those core assets that were needed in any outcome • •
Graphical user interfaces Object-oriented programming 185
Some ways to implement adaptive strategies •
Keep moving •
•
•
Stasis is death. If you are not constantly exploring, you will never find new peaks of opportunity Procter & Gamble, Merck, Hewlett-Packard... created a culture of restlessness, discomfort with the status quo, and constant striving for improvement
Mix small and large steps •
Successful growth companies manage a portfolio of strategic initiatives across three horizons: • • •
•
•
Extend and defend existing business Build off existing capabilities to create new businesses Initiatives plans the seeds for future businesses that do not yet exist
Use scenario’s to anticipate what may happen •
• • •
•
Map the diversity of your strategies •
•
•
Strategy creation is highly dependant on people’s experience and frames of reference. Group-think is the death of strategic diversity •
General Electric: deliberatly attracts people from diverse talent pools and then gives employees varying experiences in different business, functions and geographies
•
•
•
Check whether you have the right balance of short, medium and long ‘jumps’ in your project portfolio.
Don’t let established business monopolize decision making
Invest in diversity •
Identify a range of possible scenario’s into the future Check which strategic initiatieves fit which scenario Check if you cover enough scenario’s What is your preferred scenario?
In many companies, investment dollars often flow to the policitally powerful or those who have today’s revenues instead of tomorrow’s possibilities Most companies find it difficult to abandon poorly performing strategies Distinguish between failed experiments and failed people
Use venture capital performance metrics • •
Not: sales, profits But meeting milestones, progress in technology development, establishing key relationships, building talent, market acceptance 186
The role of opportunism •
Ignace De Bock, Business Angel Enfocus
•
You know what strategy is, Marc? Something falls on your plate and you decide to do something with it. Or not.
•
Opportunities very much define the course of events
•
Some examples •
Microsoft • •
•
Enfocus •
•
The first personal computer IBM is looking for an Operating System PDF
Adobe •
Apple
187
Iteration •
Strategies are never cast in stone
•
You must systematically reassess the soundness of the strategy...
•
.. But you shouldn’t change course at every corner/issue either...
•
See slide by Daniel van Nieuwenhoven
188
