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Transcript of Copyright 2013 Jack M. Kaplan & Anthony C. Warren Getting Started Patterns of Entrepreneurship...
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
Getting Started
Patterns of Entrepreneurship Management
4th Edition, Chapter 2
The Art of Innovation -Developing Ideas and Business
Opportunities Idea to
Opportunity
Evaluating the
Opportunity
WhyInnovate
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
Presentation Outline
Idea toOpportuni
ty
Evaluating the
Opportunity
Why Innovate
Chapter 2
• Why Innovate?– Macro-economic Trends– Types of Innovation– Framework– Frameworks for Innovation
• Making an Idea an Opportunity• Evaluating the Opportunity
– Questions– Opportunity Costs– Framework
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
Why Innovate?
• The Growth of the Internet• Shift to a Service Economy• Reduction of International Trade Barriers• International Free-Flows of Capital• Rapid Technological Obsolescence
Idea toOpportuni
ty
Evaluating the
Opportunity
Why Innovate
Chapter 2
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
Types of Innovation
• The S-Curve of Innovation• Derivative vs. Radical• Disruptive Innovation
- Candles to Incandescent Lighting• Incremental Innovation
- Evolution of Designer Candles
Idea toOpportuni
ty
Evaluating the
Opportunity
Why Innovate
Chapter 2
Derivative Innovation givesIncremental Improvements
Time
Performance
The S-Curves with Incremental Innovation
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
Derivative Innovation
Idea toOpportuni
ty
Evaluating the
Opportunity
Why Innovate
Chapter 2
S-Curves for a Disruptive Innovation
Disruptive InnovationLeads to Radical Changes
Time
Performance
Time to adopt radical innovation –before performance advantages.
Disruptive Innovation
Idea toOpportuni
ty
Evaluating the
Opportunity
Why Innovate
Chapter 2
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
Time
Candles
Incandescent Lamps
Discharge Lamps
LED’s Pe
rfor
man
ce
Waves of Disruption in Lighting
New Disruptive Technologies Changed the Lighting Industry Many Times – What’s Next?
Idea toOpportuni
ty
Evaluating the
Opportunity
Why Innovate
Chapter 2
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
Models for Innovation
• Analogs- Leafbusters
• Intersection of Technology Trends- Netflix and Streaming Video
• “Points of Pain”- SmartPak
• Analysis of Existing Businesses- SuperFast Pizza
Idea toOpportuni
ty
Evaluating the
Opportunity
Why Innovate
Chapter 3
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
Where Ideas for Opportunities Originate
Improving Existing Technology, Product, or Service15%
Vision of Opportunity11%
Present Work Environment47%
Secondary Sources: Brainstorming, Trade Publications, Commerce Business Only, Idea Brokers, Venture Capital Firms, Technology Transfer Agencies27%
Idea toOpportuni
ty
Evaluating the
Opportunity
Why Innovate
Chapter 3
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
Converting an Idea into anOpportunity
What is an Opportunity?• Identifying which business ideas have
real commercial potential is one of the most difficult challenges that an entrepreneur will face.
Seize the Opportunity • Know what factors create opportunity out
of an initial idea.
Idea toOpportuni
ty
Evaluating the
Opportunity
WhyInnovate
Chapter 3
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
The Five Phases to Success
•Recognize the Opportunity and ACT
•Investigate the Need
•Develop the Plan
•Determine the Resources Needed
•Manage the Business
Idea toOpportuni
ty
Evaluating
the Opportuni
ty
WhyInnovate
Chapter 3
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
Questions to Evaluate the Business Opportunity
What indicators suggest the idea may be the basis of a valuable and viable opportunity?
What are the conditions that enable the opportunity to be successful?
How might the future of the initial product or service change over time?
How long (in terms of time) is the window of opportunity?
How big is the opportunity?
Idea toOpportuni
ty
Evaluating the
Opportunity
WhyInnovate
Chapter 3
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
Evaluating the Opportunity
Does the Opportunity……Fill a need that customers will value?
Show evidence of customer acceptance?
Show that a substantial market exists now?
Indicate that your solution is much better than the competition?
Show a significant upside potential?
Can be achieved with reasonable costs?
Idea toOpportuni
ty
Evaluating the
Opportunity
WhyInnovate
Chapter 2
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
Frameworks for Evaluating an Opportunity - 1
Market Issues:
Criterion Stronger Opportunity Weaker Opportunity
Need Identified Unclear Customers Reachable; receptive Unreachable or loyalties
established Payback to user/customer Less than one year Three years or more Product life cycle Long; recover investment Short; recover investment Industry structure Competition or emerging Aggressively competitive Potential market size $100 million sales Less than $10 million sales Market growth rate Growing at 30% to 50% Contracting less than 10% Gross margins 30% to 50% Less than 20%; volatile Market share attainable (year 5) 20% or more Less than 5%
Idea toOpportuni
ty
Evaluating the
Opportunity
WhyInnovate
Chapter 2
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
Frameworks for Evaluating an Opportunity – 2
Financial and Harvest Issues:
Criterion Stronger Opportunity Weaker Opportunity
Profits after tax 10% to 15% or more; durable Less than 5%; fragile Time to: Break-even Positive cash flow ROI potential
Under 2 years Under 2 years 25% or more per year
More than 3 years More than 3 years Less than 15-20% per year
Value Capital requirements
High strategic value Low to moderate; fundable
Low strategic value Very high; unfundable
Exit mechanism Present or envisioned harvest options
Undefined; illiquid investment
Idea toOpportuni
ty
Evaluating the
Opportunity
Why Innovate
Chapter 2
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
Frameworks for Evaluating an Opportunity - 3
Competitive Advantage Issues:
Criterion Stronger Opportunity Weaker Opportunity
Fixed and Variable Costs
Production, marketing distribution
Lowest
Highest
Degree of Control Prices, channels of
resources/distribution
Moderate to strong
Weak
Barriers to Entry Proprietary protection Response/lead time
Yes 6 months to one year
None None
Legal contractual advantage Proprietary of exclusivity None Sources of differentiation Numerous Few or none Competitors mindset and strategies
Live and let live; not self destructive
Defensive and strongly reactive
Idea toOpportuni
ty
Evaluating the
Opportunity
Why Innovate
Chapter 2
Copyright 2013 Jack M. Kaplan & Anthony C. Warren
Frameworks for Evaluating an Opportunity - 4
Management Team and Risk Issues:
Criterion Stronger Opportunity Weaker Opportunity
Management team Existing, strong, proven performance
Weak, inexperienced, lacking key skills
Contacts and networks Well-developed; high quality; accessible
Crude; limited; inaccessible
Risk Low High Fatal Flaws None One or more
Idea toOpportuni
ty
Evaluating the
Opportunity
Why Innovate
Chapter 4