The Institute for The Institute for Innovation and Innovation and

Entrepreneurship at Entrepreneurship at UTDUTDLeveraging the power of ideas and technology to create new ventures Leveraging the power of ideas and technology to create new ventures

and add economic, social and cultural value to our communityand add economic, social and cultural value to our community

Alcatel-Lucent AT&T UniversityAlcatel-Lucent AT&T UniversityCreating Value for the Customer; Creating Value for the Customer;

Capturing Value for the Entrepreneur Capturing Value for the Entrepreneur and Investorsand Investors

22

Creating and Capturing Creating and Capturing ValueValue

AgendaAgenda Introduction of Topic Introduction of Topic (10 mins)(10 mins)

Brief Self-Introduction by Panelists Brief Self-Introduction by Panelists (10 mins)(10 mins)

Moderated Panel Discussion Moderated Panel Discussion (20 mins)(20 mins)

Questions from the Audience Questions from the Audience (20 mins)(20 mins)

33

Creating and Capturing Creating and Capturing ValueValue

Dr. Joseph C. Picken – Dr. Joseph C. Picken – Executive Director, The Institute Executive Director, The Institute for Innovation and Entrepreneurship at UT Dallasfor Innovation and Entrepreneurship at UT Dallas

Brendon Mills – Brendon Mills – Serial Entrepreneur: Serial Entrepreneur: Senior Advisor - Senior Advisor - ATEME (Telecommunications)ATEME (Telecommunications) GM, VP Mobile Video Business Unit - GM, VP Mobile Video Business Unit - RGB Networks RGB Networks

(Telecommunications)(Telecommunications) CEO, Founder, RipCode, Inc. CEO, Founder, RipCode, Inc. (Internet Industry)(Internet Industry) CEO, Founder, GENBAND, Inc. CEO, Founder, GENBAND, Inc. (Telecommunications)(Telecommunications)

George Mavromaras – George Mavromaras – Serial EntrepreneurSerial Entrepreneur Partner, Texas App Consulting Group Partner, Texas App Consulting Group (Mobile App (Mobile App

Development)Development) CEO, Founder, Mavro, Inc. CEO, Founder, Mavro, Inc. (Medical Spanish Guide)(Medical Spanish Guide)

44

The Importance of the The Importance of the Business ConceptBusiness Concept

Defining and clearly articulating a viable Defining and clearly articulating a viable business business conceptconcept is the essential first step for any is the essential first step for any entrepreneurentrepreneur

The business concept addresses two key questions: The business concept addresses two key questions: How will the venture How will the venture create value for a customer?create value for a customer? How will the venture be organized to generate profits and How will the venture be organized to generate profits and

capture economic returns capture economic returns for the entrepreneur and for the entrepreneur and investors? investors?

An attractive and viable business concept is An attractive and viable business concept is essential:essential: To attract employees, key advisors and initial customersTo attract employees, key advisors and initial customers To raise investment capitalTo raise investment capital

55

Superior Solution

to Problem

Customer Need

or Proble

m

The Entrepreneurial The Entrepreneurial ProcessProcess

Execute the Plan

Create Value (value

proposition)

Capture Value(strategy

& business model)

Exit the

Venture

The The Business Business ConceptConcept

Building a sustainable business is all about the processes and priorities of execution within the framework of a viable business concept

The business model defines the mechanism of an exchange: the value created for the customer and the return of a reciprocal value from the customer to the firm. For the firm to earn a profit, the reciprocal value must be greater than the cost to the firm of creat-ing the value delivered to the customer

The creation of real value for a real customer is the essential first step. The value created for the customer is described by the value proposition

Typically, a successful exit is required to fully capture the value created by the venture for the benefit of the entrepreneur and his investors

66

Creating Value for the Creating Value for the CustomerCustomer The entrepreneur’s initial challenge is to create customer The entrepreneur’s initial challenge is to create customer

value:value: We must understand what the customer We must understand what the customer needs needs andand values values and then and then

define an offering that meets those needs better than the define an offering that meets those needs better than the next best next best alternativealternative

You must adopt the customer’s point of view. The entrepreneur You must adopt the customer’s point of view. The entrepreneur usually sees what the product usually sees what the product will do will do (functionality); the customer (functionality); the customer sees (or imagines) what the product sees (or imagines) what the product will do for him will do for him (utility). (utility).

Key question: What is the customer’s “job-to-be-done”?Key question: What is the customer’s “job-to-be-done”? The entrepreneur must then deliver a solution that solves The entrepreneur must then deliver a solution that solves

the customer’s problem better than that customer’s next the customer’s problem better than that customer’s next best alternative. To do so, you must understand: best alternative. To do so, you must understand: How the customer solves the problem today. What his alternatives How the customer solves the problem today. What his alternatives

are. How satisfied or dissatisfied is he with the current solution? are. How satisfied or dissatisfied is he with the current solution? How the customer will have to change his behavior to utilize your How the customer will have to change his behavior to utilize your

solution. How willing the customer is to change his behavior, and solution. How willing the customer is to change his behavior, and what factors may inhibit behavioral change. what factors may inhibit behavioral change.

77

Capturing Value for the Capturing Value for the EntrepreneurEntrepreneur

You must then determine how to deliver the solution You must then determine how to deliver the solution in a manner that captures a portion of the value in a manner that captures a portion of the value created for the entrepreneur and his investors created for the entrepreneur and his investors

Capturing value requires a Capturing value requires a business model business model and a and a strategystrategy that ensure sufficient profits to provide a that ensure sufficient profits to provide a fair return on the investment (of time and resources) fair return on the investment (of time and resources) required to create the businessrequired to create the business

A business model consists of four interlocking A business model consists of four interlocking elements that describe how the business works to elements that describe how the business works to create and capture value:create and capture value:

Customer Value PropositionCustomer Value Proposition Profit Model (economics of the business)Profit Model (economics of the business) Key ResourcesKey Resources Key ProcessesKey Processes

88

The Four Box Business Model The Four Box Business Model FrameworkFrameworkCustomer Value

PropositionTarget CustomerJob to be done – important need or problem to be solved for the target customerOffering – a solution that solves the problem or satisfies the need Key Resources

PeopleTechnology, productsEquipmentInformationChannels,Partnerships, alliancesBrand

Profit FormulaRevenue modelCost structureMargin modelResource velocity

Key ProcessesProcessesRules & metricsNorms

Describes how a company creates value for a given set of customers at a given price

Defines the way the company will capture value for itself and its shareholders in the form of profit

The means by which the company delivers value to the customer and itself

The means by which the company delivers value to the customer and itself – enabling the enterprise to fulfil the CVP and profit formula in a repeat-able, scalable fashion.

99

Business Model Business Model Development: Development:

An Iterative ProcessAn Iterative Process Mullins and Komisar argue that no venture succeeds Mullins and Komisar argue that no venture succeeds

based on the original business plan (Plan A):based on the original business plan (Plan A): There are just too many assumptions and leaps of faithThere are just too many assumptions and leaps of faith Some (or many) of them will be wrong and must be revisedSome (or many) of them will be wrong and must be revised

The ventures that succeed are those that recognize The ventures that succeed are those that recognize (and are willing to admit) that Plan A isn’t working:(and are willing to admit) that Plan A isn’t working: Test and and modify key assumptions about the market, the Test and and modify key assumptions about the market, the

opportunity, and the competition, and…opportunity, and the competition, and… Move to Plan B (or C or D), before they run out of moneyMove to Plan B (or C or D), before they run out of money

Google didn’t make money on Plan A, or Plan B, or Google didn’t make money on Plan A, or Plan B, or Plan C – they iterated their business model until they Plan C – they iterated their business model until they finally stumbled upon Plan D, which finally worked. finally stumbled upon Plan D, which finally worked.

1010

Two Very Different ApproachesTwo Very Different ApproachesStart with a Novel

Product/Service Idea

Develop a Winning Business Concept

Write a Comprehensive Business Plan

Find Venture Capital Funding

Hire the “A” Team

Design the Product

Build the Product

Take Orders

Get Rich – Retire Early

oror

Start with a Novel Product/Service Idea

Develop a Winning Business Concept

“Try it, iterate it until you get it

right, then build a repeatable, scalable business process”

Build a Company Capable of

Sustained & Profitable Growth

Leverage Resources – use Bootstrap

Financing

Plan APlan A Plan BPlan B

Business Model

Business Strategy

Pitch it again and again –Iterate and

Refine the Idea

“Try it, iterate it until you get it right, then build a

repeatable, scalable business process”

1111

Key Questions to Be Key Questions to Be AddressedAddressed

Creating Value for a customerCreating Value for a customer How did you discover the customer need around which How did you discover the customer need around which

you built your business?you built your business? How did you validate that need?How did you validate that need? How was the idea iterated and refined as you went How was the idea iterated and refined as you went

forward?forward? Capturing Value for the entrepreneur and investorsCapturing Value for the entrepreneur and investors

What was your original business model concept? Did it What was your original business model concept? Did it work?work?

How did your business model evolve as your business How did your business model evolve as your business grew?grew?

What triggered the changes in your model? What triggered the changes in your model?