EE3001 Technology Assessment

1. EE3001 Technology Assessment Hari K Garg eleghk@nus.edu.sg 6874-4542 E4 06 03

2. Outline • Ideas and beyond • Products • Markets • Financial • Others Acknowledgment: A/P Wong Poh Kam, Director CET, has kindly granted permission to use his materials for putting together this presentation.

3. The Venturing Process “The process of attracting, organizing and rewarding resources to turn an idea into a market reality” Process involves: • Creating and growing a new enterprise to execute the tasks needed to launch and grow a new product or service in the market • Structuring a system for rewarding participants who enter at different stages

4. Typical Stages in the New Venture Creation Process (Nesheim, 2000) • Idea • Kitchen Table • Founders’ commitment • Pullout from employer • Business plan creation • Filling management team • Raising seed capital • Closing capital and incorporation • Finding a home • Start-Up • Secondary capital rounds • Launch first product • Raise working capital • IPO or other means of exit

5. Key Elements of the Venturing Process: Entrepreneur’s Perspective • Get Idea • Make Commitment • Prepare Business Plan • Raise Capital • Build Team • Execute • Plan Exit

6. Getting Started: Some FAQs • Which comes first: Whether or what? When? • Getting advice: When, from whom, and how much do I reveal? • What should I know about intellectual property? • Getting a clean pullout from current employer • Picking partners: who, what role, when, with what reward? (co-founders vs. advisors, shareholders vs. management, fees, stocks and stock options) • Plan for business vs. Business plan

7. Purpose of Business Plan • As a plan for action • As a process for clarifying your thoughts and soliciting feedback and advice • As a document for fund raising, staff recruitment and partnership development • As a statement of intended outcome against which actual performance will be judged

8. Essence of Business Plan • Defining your Value Proposition • Execution Strategy to Realize the Value Proposition • Management Team best positioned to Execute • Projected Financial Performance • Resource Requirements to achieve the projected results

9. Outline of a Business Plan • Executive Summary • Customer Need and Business Opportunity • Market and Competitive Analysis • Business Strategy and Key Milestones • Product Development Plan • Marketing Plan • Operation Plan • Management and Key Personnel • Financial Projection • Risk Factors and Key Assumptions • The Proposed Offering

10. 3Cs for Venture Success: A Framework for Assessing the Viability of Business Venture Idea

11. Defining Value Proposition: Understanding the Three C’s for New Venture Success • Creating Value • Communicating Value • Capturing Value

12. Value Proposition: Specifying the 3Cs • What Customer Values are you creating? • With what product and/or service offerings? • In what ways that give you distinctive competitive advantage over others? You should be able to define the essence of your value proposition in one short sentence or short paragraph (the shorter, the better)

13. Creating Value • What are you offering? • To which customers? • What customer problems does it solve? • What customer needs does it satisfy? • How much will it cost, Who will pay for it and for how much?

14. Communicating Value • How do you reach your customers, partners and financiers? • How do you capture their attention? • How do you convince them of the usefulness of your product/service and viability of your business? • How do you build trust?

15. Capturing Value • How strong are the 5 competitive forces you are up against? • Existing Rivals offering similar products • Potential New Entrants • Close Substitutes • Powerful Buyers • Powerful Suppliers • What critical factors do you have to counter these competitive forces?

16. The Five Competitive Forces (Porter, 1985)

17. Creating Value: Customer Needs & Sources of Innovative Ideas

18. Creating Value • What is your offering? • What is unique/innovative in your offering? • To which customers? • What customer problems does it solve? • What customer needs does it satisfy? • How much will it cost, how many will pay for it and for how much?

19. An Innovative Business Idea must be translated into a Better Offering to some Customers What is innovative about your offering? • Improving Existing Product/Process • better quality/performance • reduce cost • Changing the existing rule of competition • disruptive technologies • new business model • Serving new market segments/customer needs • Creating a whole new industry • Creating new market segmentation

20. Opportunities for Business Innovation • Technological Innovation (product/process) • Underserved/Inefficient Markets • Latent or Newly Emerging Customer Needs • Changing Enabling Conditions (legal, political, social, cultural, infrastructural) • Under-utilized or New Sources of Information

21. Routes to Innovative Business Idea: • Product-focused (Product/service in search of improvement) • Technology-push (Solution in search of a problem) • Customer-driven (Problem in search of a solution) • Competitor-targeted (Find and attack competitor weaknesses) • Market anticipation (Bet on new emerging needs) • Information-leverage (Information in search of new uses)

22. Customer-Driven Approach to Business Innovation: Who is the Customer? How does the Innovation solve his Needs or Problems? • Defining customer value • Segmenting the market • Decision on which segments to Focus • Identifying Lead-User… • But avoid the “Christensen Lock-in” effect... • ...and understand the need for “Crossing the Chasm” from lead-user to mass customers

23. Changing the Rule of Competition through Disruptive technologies: the Abernathy-Clark model • Four Types of technological innovation: regular, niche, revolutionary, architectural • Choose a form of innovation that disrupts existing competencies of industry incumbents • Capitalize on the “Defender Dilemma” of incumbent industry leaders

24. MAPPING THE IMPACT OF TECHNOLOGICAL CHANGE disrupt existing/create new linkages Niche Creation Architectural Markets/Customer Linkage Technology/Production Conserve/entrench existing competence disrupt obsolete existing competence Regular Revolutionary conserve/entrench existing linkages

25. Changing the Rule of Competition through New Business Model: the “Meta-intermediary” Model • “Unglue” the physical and information value chain in the existing business model • Exploit the new information and communications technologies (ICT) to “glue back” the value chains with a new “navigator” that transforms the old reach vs. richness trade-off and shifts navigator affiliation from seller to buyer, dis-intermediating the old navigators in the process

26. Anticipating “New Market Space” • analyze latent, unarticulated customer needs • project technological trends and scenarios • forecast changing enabling conditions (e.g. deregulation, demographic trends, diffusion of enabling infrastructure, etc.) • goal is to identify unserved, emerging market needs

27. Leveraging information in new ways • Extract information from existing operational information chains • Apply information to new domains to create new businesses • Overcome “imprisonment” of information • Need to manage privacy concerns carefully

28. Business Innovation:The Example of American Airlines • Computer Reservation System • Customer loyalty program (Frequent Flyer System) • Cross-sharing of loyalty programs with other hospitality businesses • Co-Branding with credit cards • Yield Management System • Internet Portal for travel (Travelocity) • Mining of Database on Passengers • Procurement Portal What are the sources and impacts of these innovations?

29. Facilitating the Generation of Innovative Business Ideas • Try Multiple Approaches • Look out for Serendipity • Promote diversity • Encourage Creative Tensions • Iterate through divergence vs. convergence phases

30. Whatever the approaches used to generate Innovative Business Ideas, • need to meet Reality Test • customer value creation • value capture against competition • need iteration to refine idea

31. Capturing Value: Market & Competitive Analysis

32. Capturing Value • How strong are the 5 competitive forces you are up against? • Existing Rivals offering similar products • Potential New Entrants • Close Substitutes • Powerful Buyers • Powerful Suppliers • What critical factors do you have to counter these competitive forces?

33. How does your business idea provide “Unfair Competitive Advantages”? • Establishing First Mover Advantages • first to recognize opportunity • speed of execution • establish dominant design, set de facto standards • first to critical mass of users • Erecting Barriers to Entry • technology/other forms of proprietary intellectual capital • disruptive effects on incumbents • lock in major customers with high switching cost • rapid pace of continuous innovation, market expansion • strategic partnership to build largest coalition

34. Sustaining innovative advantage is hard • First-to-Market is insufficient; “There is no existing competitor” does NOT mean there will be no competitor in the future • especially where IP protection is inadequate • First Mover Disadvantages? • “pioneer gets arrows in the back” • fast followers can learn from mistake of pioneer, reap staff training and customer education benefits • potential technological leapfrogging opportunities by later entrants • Supplier/buyer power may block innovation and buy time for their own forward/backward integration entry

35. Positioning against incumbent competitors • Avoiding direct competition • Attack blind spot or area of weaknesses of incumbents • Changing the rule of competition • Build strategic alliances with key partners • Focus, focus

36. Capturing value from customers • Working with lead-users • Betting on small customers with high-growth potential • Multiple Revenue models • “Penetration Pricing” vs. “Skimming” strategy

37. Communicating Value: Marketing the Venture

38. Communicating Value • How do you reach your customers, partners and financiers? • How do you capture their attentions? • How do you convince them of the usefulness of your product/service nd viability of your business? • How do you build trust?

39. Communicating Value is more than Marketing (as conventionally defined) • Marketing of your products/services vs. marketing of your venture itself • New, unproven products or underlying technologies/processes, standards • New, unknown organization • Will the business last? Can it be trusted? • Marketing to Customers vs. Gaining Entry into a Business “Ecological System” • Developing relationships with Buyers, Sellers, Competitors, Distributors, Supporting Services, Strategic Alliance Partners

40. Marketing your products/services • Marketing: creating and keeping customers • Marketing vs. Selling vs. Business Development • Sensing: Identifying customers, their needs and (dis-)satisfaction • Offering: Product positioning (branding, product features, pricing, packaging vs. competitive offers) • Selling: Reach customers with your offering (advertising, promotion, direct vs. channels) • Fulfillment: Get customer orders fulfilled • Customer Care: After Sales Support/Services

41. Marketing Strategic Consideration • Market Segmentation and Choice of Focus • Targeting Your First Customers • Promotion, Pricing, Partnership & PR to Gain Initial Entry • Anticipating and Countering Competitive Reaction • Brand Development and Other Entry Barrier Building Mechanisms to Defend Position • Market Growth/Diversification/Internationalization Strategy • Expansion of Partnership, Affiliation and JV Strategies to Sustain Growth/Diversification • Maintaining & Exploiting Options for Multiple Revenue Models • Building Market Sensing Mechanisms to Learn and Adapt

42. Generic Market Growth/Diversification Strategies • Backward Integration • Forward Integration • Product Line Expansion • Customer Development • Diversification (combination of the last two)

43. Marketing your Venture • Brand Building • defining your product positioning • choose an appropriate name and brand image • Promoting your Venture • Targeting your message to the right audience • PR more important than advertising initially • Guerrilla marketing methods • Networking • Selling your Innovative Edge • Underdog vs. Establishment • Innovative attacker vs. Defender • Educational leadership in promoting the new industry

44. Growing your Venture: The Bowling Pin Analogy • first target • sequencing • leverage

45. Business Models and Financial Projection

46. Quantifying the Attractiveness and Financing Requirements of the Business • Key Business Milestones • Projection of Revenue Growth • Cost Analysis & Projection • Projection of Profit and Loss • Cash Flow Analysis • Projection of Financing Requirements • Risk/Sensitivity & Key Success Factors Analysis

47. Start-up Balance Cashflow Projection Financing Requirements Revenue Projection Balance Sheet Projection P / L Projection Key Milestones Cost Projection Key Business Ratios Benchmarks vs Comparable companies & industries “Off-Balance Sheet” Accounting for Intellectual Capital Acquisition Key IC indicators Financial Projection Process for Start-Up Plan

48. Key Business Milestones • Timeline of deliverables from start-up to exit • completion of product prototype • establishment of production facilities, marketing channels, partnership, etc. • product launches • market entry for each major market • etc.

49. Revenue Projection Model • Sources of revenue • customer sales, advertising, licensing fees, affiliate programs, etc. • Base year revenue assumptions • size of potential market, % market share captured, unit price, etc. • Growth assumptions • total market growth rate, % market share change, new vs. retained customers, price trend, etc.

50. Basis for Revenue Assumptions • market research (your own, others) on market size & growth, customer behaviour, purchase propensity, price sensitivity etc. • competitive intelligence on competitor pricing, market share, customer base etc. • benchmark vs. comparable companies and industries, why superior performance