Welcome to “Entrepreneurship and Business for Engineers and Scientists” !!

Welcome to“Entrepreneurship and Business for Engineers and Scientists” !! TG 401, Section A Course website: stevens.edu/sse/tgcourse Dr. Carl Pavarini Distinguished Service Professor School of Systems & Enterprises

Today’s Agenda • Course objective and target audience • Course administration/requirements • Course outline and learning outcomes • The goal of a commercial business • Defining product success • Introduction to financial measurements • Readings and assignment for next week

Course Objective Investigate the business-related issues critical for successful commercialization of new technology, in start-ups and existing businesses - understanding the business side of a company (goals and roles) - identifying the key business issues in making products successful - learning how to address these issues - understanding the impact of business issues on products, and on technical work

Critical Business Issues…..the five key business issuesin technology commercialization • Market and customer analysis • Beating the competition • High-tech marketing and sales • Planning and managing for profitability • Partnering with other companies

Dimensions ofCommercialization • Opportunity selection:deciding on the market and the specific product/service • Business planning: creating a “winning” plan for the business • Financing: getting the money and resources (people, assets, connections…) • Managing: executing the plan, with ongoing modifications, to market-entry and eventual success

This Course is NOT…. A management course (it’s taught from the perspective of someone with a technical job) A course on how to launch a start-up (the start-ups we’ll study are already in existence)

TechnicalandBusinessjobs…….. • Design and development of technology-based products (R&D); engineer or engineering manager • Manufacturing engineering • Corporate information technology (infrastructure and/or applications) • Sales engineering (aka technical sales) • Customer technical support (aka post-sales support) • Technical consulting • Marketing and/or product management of technology-based products • Sales • Manufacturing/operations (supply chain management) • Financial analysis • Business consulting (strategy, operations, …) • Leading technology-based companies/divisions • Founding high technology businesses

Business and Technical Jobs Product Planning (New) Product Management Marketing & Sales Manufacturing & Logistics Customer Support Exploratory R&D Product Design & Development Technical Sales Operations Engineering Post-sale Technical support Information Technology/Infrastructure/Applications

Why you need to know about “business” in a technical job…. • Business issues will directly impact the technical work you will do each day • Technical employees who contribute to resolution of business issues are considered more valuable • Many people transition from technical to business jobs as their career develops (including starting a business) …this course will make you a better engineer or scientist (or help position you for an eventual “business” job)

Are these “technical” questions? How would you go about answering them?

What would you do…? You need to decide whether to add a particular feature to a product you are designing. The product requirements document doesn’t mention it. You ask someone in Marketing, but she really can’t recommend with confidence whether to add it or not.

What would you do…? Your product team is meeting to make some important decisions on: (1) new product directions, (2) which customers/markets to focus on, and (3) how to improve customer service. You are asked to represent the Engineering or IT department at the meeting. What contributions will you make to these deliberations?

What would you do…? You have an idea for an exciting new intrusion detection product, based on a new signal processing algorithm you invented. You’d like to convince “management” to fund the development of this product. What arguments/analyses will be persuasive, and how will you create them?

What would you do…? You are behind schedule in implementing an important new process technology for the Manufacturing line. A Sales person asks you to join him in visiting an important potential customer. The customer location is in China and the visit will take 3-4 days.

What would you do…? You need a new piece of test equipment for your design lab. A Manufacturing engineer on your product team also needs a (different) piece of test equipment; there’s not enough money for both. Your product team leader (a non-technical person from Marketing) asks the two of you to decide which one to buy, and to explain the reason for your decision.

These are decisions that typically must be made by “engineering” or “technical” people… …how will you make them? …what objective(s) and criteria will you use in making these decisions?

We’ll learn by analyzing “Business Cases” • WiFi networks (FHP Wireless) • Online brokerage services (DLJdirect/eTrade) • Package delivery (Airborne Express/DHL) • Electric Cars (THINK) • Engineering analysis software (Mathsoft) • Personal computers (Lenovo) • Golf equipment (GolfLogix) • Web marketing software (Hub Spot) • Pacemakers/defibrillators (Guidant) • Shoes (Crocs) • Videogame accessories (Emotiv) • Orthodontics (Invisalign)

Instructor Introduction Carl Pavarini • PhD, systems engineering, Rensselaer Polytechnic Institute • 10 yrs applied research and product development (Bell Labs) • 15 yrs product & division management (AT&T/Lucent) • 10 yrs venture investing and board participation • Adjunct professor at RPI and Stevens Inst of Tech (previously taught in Columbia & Rutgers MBA programs) Why am I teaching this course…… and what makes me qualified to do so?

Course Requirements/Admin • Required text(custom casebook, e-access via HBSP) • Required readingseach week; articles on business concepts, business “cases,” internet searches • “One-page, two-sides” written homeworkeach week • Class discussion/dialogue on readings and assigned homework questions • Syllabus, weekly class presentation slides and supplementary materials are available on the course website: stevens.edu/sse/tgcourse • Class attendance and participation: we start on time; email pre-notification of missing class

Accessing the Casebook Link: cb.hbsp.harvard.edu/cb/access/12058376 Complete the registration process to get a login and password Pay for the casebook via credit or debit card

Course Grading • 25% case-based midterm exam • 25% weekly homework • 25% case-based final exam • 25% in-class participation (really!)

Weekly Homework • Questions related to the reading assignment will be assigned each week (12 weeks) • Each student submits written answers via email or on paper; no late submissions • maximum length of “one page (both sides)” • Homework questions are “in advance” of covering the material in class, so… • Objective is to demonstrate that you’ve thought about the questions (not that you necessarily have the correct answers -- yet) • Graded “acceptable” or “not acceptable” • Individual submissions required, but group discussion encouraged! • Returned with comments only at request of student

Course Homework Grades # of acceptable course hw grade submissions 12 A 11 A- 10 B 9 C 8 D 7 or fewer F Email notification of unacceptable or missing assignments; Homework will be not be returned UNLESS you ask for comments

Class Participation Grading • D,F: poor attendance and participation; inattention (web surfing, texting, talking, sleeping, etc) • C: good attendance and attention, but little/no active class participation • B: 2-4 active contributions per class (answers, comments, questions, stories, disagreements, challenges, …) • A: particularly insightful or useful contributions (not necessarily more frequent!) You will receive an interim cp grade at mid-term; If you want to know how you’re doing……ASK ME

Typical Grade Distributionindividual semesters vary considerably

Carl Pavarini Contact Information • Office hours: before and after class and by appointment (in-person, phone, e-mail, IM) • Email: carlpavarini@aol.com cpavarin@stevens.edu • Telephone: 973-543-9496 (home) 973-809-8336 (cell)

What you get in return…... • Useful concepts, information and insights about the business world…..will make you a better engineer/scientist • The benefit of my practical experience as an engineer and business person…..what’s important, and what works • A productive, stimulating, interactive and fun environment…..if you do your part

Course Outline – modules 1 & 2 • Objectives of Commercial Businesses • Financial Measures • Structure and roles within a company • Creating winning Business Plans • Market and customer analysis • Beating the competition: competitive advantage and differentiation • Making decisions about products • Case-based midterm exam – on product decisions (Mathsoft – engineering analysis software)

Course Outline – modules 3 & 4 • Marketing, and its interfaces with R&D • Sales and sales channels • Market-focused product development • Operations (manuf, logistics, service) • Launching a product (esp. marketing & sales decisions) • Case-based final exam – on product launch (Invisalign – orthodontics)

Course Outcomes You are able to analyze a company’s income statement, and can identify the company’s critical opportunities and challenges in growing its business profitably. You understand the importance of competitive differentiation, and can utilize the “whole product” concept and identify opportunities for competitive advantage. You can identify and choose target customers and perform a competitive analysis, in order to make decisions on product definition and other elements of the marketing mix. You are able to identify: the best-practices utilized in market-focused product development processes, the key operations trade-offs/balances, and the impacts technical people have on a company’s business functions (marketing, sales, operations).

Definition of product success Whole product Product plan: key success factors Differentiation Market attractiveness Target customers Competitive advantage Marketing mix (C+4P) Product positioning Sales functions Channel options Channel value-added Operations balance …because you’ll understand and apply these Concepts (13)

Income statement analysis Financial benchmarks Target customer description Target customer selection 5 Forces analysis Competitive analysis (10 dimensions) Product decisions Decision criteria Identifying competitive options Product competitive positioning Channel economics Process dimensions Product development best practices … and you’ll be able to use these Methods/Tools (13)

Today’s Topics • The “purpose” of a business; objectives of business leaders • Introduction to financial measurements

How do you know if a product or service is “successful”? Definition of success, and its market/competitive/financial drivers (class discussion and dialogue)

The “Purpose” of a Business Understanding the Objectives of Commercial Businesses (and Business Managers)

A Commercial Business’ Objective is to…? • Provide quality goods and services • Provide jobs • Beat competitors • Contribute to the overall economy • Contribute to economic/national security • Make money (profits) • Increase the wealth of its executives • Increase the wealth of its owners • Some combination of the above

How about: Examine how the business’ leader is evaluated and compensated? Which raises the question: Who does the leader “report” to? On What Basis Should We Decide on the Answer?

Corporate Governance Owners Board of Directors President/ Chief Executive Officer (CEO)

Who are the owners? • Normally, a company has many owners • Owners may be individuals, other companies, investment firms, …... • The units of ownership are “shares of stock” • Each owner owns a percentage of the company (equal to the percentage of the total shares of stock)…….if a company has 10M shares outstanding, an owner with 500,000 shares owns 5% of the company • Shares can (normally) be sold to others

Logarithmic • Linear • Chart Cursor • Track Ball • Crosshair • Off • OHLC Values • On • Off • Reset • Compare ^GSPC to: • Dow Jones (^DJI) • NASDAQ (^IXIC) • S&P 500 (^GSPC) • Basic Chart • Full Screen • Print • Share • Send Feedback • Logarithmic • Linear • Chart Cursor • Track Ball • Crosshair • Off • OHLC Values • On • Off • Reset • Compare ^GSPC to: • Dow Jones (^DJI) • NASDAQ (^IXIC) • S&P 500 (^GSPC) • Basic Chart • Full Screen • Print • Share • Send Feedback • Line Type • OHLC • Candlestick • Line • Chart Scale • Line Type • OHLC • Candlestick • Line • Chart Scale • Compare • Events • Splits • Dividends • Insider Transactions • Analyst Opinion Changes • Key Developments • Technical Indicators • Simple Moving Average (SMA) • Exponential Moving Average (EMA) • Bollinger Bands (BBands) • Money Flow Index (MFI) • MACD • Parabolic SAR (PSAR) • Rate of Change (ROC) • Relative Strength Index (RSI) • Slow Stochastic • Fast Stochastic • Volume • Volume + MA • Williams %R • Chart Settings • Compare • Events • Splits • Dividends • Insider Transactions • Analyst Opinion Changes • Key Developments • Technical Indicators • Simple Moving Average (SMA) • Exponential Moving Average (EMA) • Bollinger Bands (BBands) • Money Flow Index (MFI) • MACD • Parabolic SAR (PSAR) • Rate of Change (ROC) • Relative Strength Index (RSI) • Slow Stochastic • Fast Stochastic • Volume • Volume + MA • Williams %R • Chart Settings S&P 500 Stock Price Index(log scale)

The Board of Directors represents the Owners • The (share)owners of a company elect a board of directors to represent the interests of the owners; the board elects a chairman • The management of a company is selected by, and reports to, the board of directors; the highest member of management is the Chief Executive Officer (CEO), who is also often the President • One or more members of management may also serve as members of the board; at a minimum, the CEO is on the board

The Difference BetweenPublic and Private Companies • Public: shares of its stock are sold through “public” exchanges (NYSE, Nasdaq, etc)…. anyone can purchase stock, and its price is known and public information • Private: all sales of shares of its stock are arranged through “private” transactions….. price is determined through private negotiation (at the time of a transaction) and is not publicly known

The Objective of a Commercial Business is to…? • Provide quality goods and services • Provide jobs • Beat competitors • Contribute to the overall economy • Contribute to economic/national security • Make money (profits) • Increase the wealth of its executives • Increase the wealth of its owners • Some combination of the above

Answer: Increase the Wealth of the Owners The total value of the owners’ interests in the company ( “total shareowner value”)

Shareowner Wealth is Most Directly Measured By……? • Revenues • Profits/earnings • Stock price per share • Market capitalization • Dividends paid to shareowners • Combination of the above

Ans: Market Capitalizationplus dividends The “market cap” (for private firms: “valuation”) of the firm = stock price per share x number of shares outstanding (held by shareowners) Dividends = Cash payments ($/share) made by the firm to shareowners upon the approval of the board of directors

Market Cap (Stock Price) is Primarily Driven By…….? • Revenues • Revenue growth • Earnings (profits) • Earnings growth • Beliefs about the future values of revenues and earnings • Combination of the above

By definition: Stock price/share = (P/E ratio) x earnings/share Empirically, it has been observed that: P/E ratio ~ k x % earnings growth (so, k is often called the “PEG ratio”) Ans: beliefs about future earnings (and revenues)

P/E and PEG, empirically… For the S&P500 from 1950-2008: Average long-term earnings growth ~ 7% Average P/E (trailing=most recent) ~ 16 Average PEG ~ 2.2 Interesting article on “current” P/E: http://finance.yahoo.com/banking-budgeting/article/110510/the-decline-of-the-pe-ratio [note: both “trailing” (last 12 months earnings) and “forward” (expected earnings) P/Es are discussed]

Welcome to “Entrepreneurship and Business for Engineers and Scientists” !!