MGMT 411: ENTREPRENEURSHIP & NEW VENTURE DEVELOPMENT March 7, 2017 Entrepreneurial Strategy SECTION I - TEAMS TEAM TEAM 1 TEAM 2 TEAM 3 TEAM 4 TEAM 5 TEAM 6 TEAM 7 TEAM 8 TEAM 9 TEAM 10 TEAM 11 TEAM MEMBERS Duhan Kurt, Önem Özbizerdik, Gürol Aşar, Eda Keskin, Elif Büşra Aslanlay, Furkan Akdoğan Merve Akdağ, Deniz Özen, Gizem Çölek, Emre Korkmaz, Aybars Balci, Melike Meltem Tumer, Sila Bilgin, Ece Cakici, Pinar Celik , Celik Ozcelik Cansu Mumcu, Kübra Akbalık, Can Burak Gencoglu, Omer Bingol, Rana Uludag, Ilgin Yildiz Alp Günaydın, Başak Karslıgil, Batuhan Erek, Çiğdem Bulut, Ceren Yıldırım, Beyza Yuksel Kutay Demireren, Eda Gürbüz, Efe Ekren, Fetican Durakbaşı, Deniz Şen Emel Orman, Gulcin Saracoglu, Fulin Ugras, Isil Nalcabasmaz, Cagil Tulin, Tulay Selcuk Baris Selcen, Zeynep Cetinkaya, Pelin Pulcu, Gurbuz Catalkaya, Alperen Birim Basak Dogruyusever, Gizay Ekmen, Serra Ozkok, Ersin Seckin, Arda Birincioglu, Irem Bas Sezgi Şengör, Selina Başaran, Berk Dolu, Serra Serdaroğlu, Elif Koçak, Kemal Arda Gürdal Kaan Baransel, Canberk Aslan, Mert Can Ozcan, Cansu Sayan PRESENTATION QUALITY - VOTING IDEA QUALITY - VOTING Assignment Scores 6 12 10.0 19 8 10.0 12 6 10.0 2 9.0 9 5 9.5 7 5 9.0 2 6 9.5 5 8 9.5 5 7 9.0 1 9.0 6 9.5 1 An analysis of EP exercise results – Section I Presentation Quality High IV III I II 6.0 Low Low 6.0 High Idea Quality The correlation between Idea Score and Presentation Score is 0.43. An Introduction to Strategy Formulation The Alaskan Gold Mine The Alaskan Gold Mine Option #1 (wait 3-4 weeks) #2 (over top) #3 (valley) #4 (wait 3 days) Possible Min Time Max Time Gain Personal Risk The Alaskan Gold Mine Option Possible Min Time Max Time Gain #1 (wait 3-4 weeks) #2 (over top) 7 days 10 days #3 (valley) 14 days 21 days #4 (wait 3 days) 10-13 days 17-24 days to top to valley Personal Risk The Alaskan Gold Mine Option Possible Min Time Max Time Gain #1 (wait 3-4 weeks) #2 (over top) 7 days 10 days #3 (valley) 14 days 21 days #4 (wait 3 days) 10-13 days 17-24 days to top to valley Personal Risk No $$$s None For sure $$$s Maybe $$$s Life $$$, if no storm, Lose, if storm None, if no storm: none, if storm None CONCEPTUAL OVERVIEW The Environment “Threats & Opportunities” GOAL Management’s values & attitude toward risk STRATEGY Organization’s resources and capabilities “Strengths & Weaknesses” Strategy: Link between the firm and its environment The Fundamental Question of Strategy • Why some firms are more successful than others? • Strategy is about winning=how to outperform rivals. Strategy: is the overall plan for deploying resources to establish a favorable position. Answers two questions: Where to compete? Decide on markets to enter How to compete? Create competitive advantage in each market. GOALS • What key financial metrics do startups focus on? • Should startups use the financial metrics of established firms? GOALS • What are key financial metrics for startups? – Growth Option Value (Vgop) V = Vcap + Vgop (Myers, 1977) V = Firm value Vcap = Firm value derived from the cash generated by assets in place. Vgop = Firm value derived from future growth opportunities. (R&D investment level, Marketing expenditure level, Traffic to your website, conversion rates, Size of user base…..) Established Turkish Firms Growth Option Value Table 1. Top Turkish Firms with respect to their growth option value Firm Name Industry Firm Value Growth Option Value Growth Rank Option Rate Rank Turkcell Telecom 13306.86 7709.62 1 0.58 31 Coca-Cola Beverages 7124.33 5590.28 3 0.78 22 Anadolu Efes Beverages 8287.20 5487.34 4 0.66 28 BSH White Goods 3158.00 3158.00 5 1.00 6 Ford Otomotiv Automotive 4690.07 2929.91 6 0.62 30 Arcelik White Goods 6157.31 2344.43 7 0.38 38 Ülker Food & Beverages 3038.16 2317.27 8 0.76 24 Turk Telekom Telecom 14662.24 2252.27 9 0.15 43 TOFAS Automotive 4240.00 1949.87 10 0.46 32 GOALS (cont’d) • What are key financial metrics for startups? – Cash Burn Rate: How fast you burn your cash? In how many months will you run out of cash? SWOT Analysis Characteristics of Good Strategies Guiding Policy How are we going to solve these problems? Diagnosis What is the problem? Coherent Actions What actions are we going to take? The Alaskan Gold Mine - Part II • Assume you chose the valley pass (#3). Five days later you are halfway there. But, you may have pushed too hard as you sprained your ankle. Fortunately, you run into Pat, and old friend on a trapping expedition. Pat could get you to the claims office and offers to take you. If you were healthy, you could get there easily in 7 days, but you cannot make it alone without a few days rest, and even then it could take 10 days or more, depending on how your ankle holds up. Traveling together, you might make it in 10 to 14 days. If you tell Pat about the gold and make a deal, Pat alone could get there in 8 to 10 days. • Your are not sure whether Pat can exercise the option and file the claim correctly, because Pat is not bright, tends to drink in excess, and is not the single-minded hustler that you are. Pat is a simple, decent person who likes trapping but would, you suspect, both need and desire financial independence. You think you could trust Pat if you offer to split 50-50, because Pat would need your expertise to capitalize on the discovery. • What is your decision? Go it alone__ Go with Pat__ Send Pat__ CONCEPTUAL OVERVIEW The Environment “Threats & Opportunities” GOAL Implementation Levers: Management’s values & attitude toward risk Organization’s resources and capabilities “Strengths & Weaknesses” STRATEGY Organization structure Systems and processes People and rewards Strategic Leadership: Lever and resource allocation decisions Develop support among stakeholders Performance WSJ Article – Digg Admits Missteps • What are some of the fundamental issues of strategy raised in this article? • Out of the reasons for the failure, which reason do you think was the most damaging? Strategy in High-Tech Markets: 1. What factors determine the extent to which innovators capture value from their innovation? 2. How to enter the market? 3. When to enter the market? The Development of Technology: From Knowledge Generation to Diffusion IMITATION Supply side Basic Knowledge Invention Innovation Diffusion Demand side ADOPTION The Development of Technology: From Knowledge Generation to Diffusion Appropriation (Capture) of Value: Who gets the benefits from Innovation? Customers Suppliers Innovator Imitators and other “followers” The Profitability of an Innovation What factors determine the extent to which innovators capture the value of their innovation? The Profitability of an Innovation Depends On 1. Legal protection (the regime of appropriability) 2. Tacitness and complexity of the technology: How easily imitable the technology is? 3. Lead time: How fast is it imitable? 4. Complementary resources: Who owns them? How specialized are these resources? Legal Protection of Intellectual Property • Patents • Copyrights • Trademarks • Trade Secrets —exclusive rights to a new product, process, substance or design. —exclusive rights to artistic, dramatic, and musical works. — exclusive rights to words, symbols or other marks to distinguish goods and services; trademarks are registered with the Patent Office. — protection of chemical formulae, recipes, and industrial processes. Tacitness & Complexity of Innovation Codifiable Knowledge: Knowledge that can be written down. Tacit knowledge cannot be written down which makes it difficult to imitate. Complexity vs. Simplicity: Complex innovations are harder to imitate. Lead Time • If rivals can imitate—time lag is the major advantage of the innovator. • But maintaining lead-time advantage requires continuous innovation • Lead time is reinforced by learning effects Complementary Resources Manufacturing Distribution Finance Core technological know-how Service Complementary technologies Marketing Other The bargaining power of the owners of complementary resources depends upon whether complementary resources are generic or specialized. How to Enter the Market? Alternative Strategies for Exploiting Innovation Licensing Outsourcing certain functions Strategic Alliances Joint Ventures Internal Commercialization Risk & Return Competing Resources Examples 13 Market Entry Timing First Movers Are Not Always Winners When to Enter the Market? First (Early) or Second (Late) Mover First (Early) Mover Advantages and Disadvantages Advantages 1. Above-average returns until other competitors respond effectively 2. Start down the learning curve earlier 3. Opportunity to gain customer loyalty 4. Opportunity to set standards Disadvantages 1. Demand uncertainty 2. Costs of educating customers 2. High development costs 3. Risk of adopting a losing standard (Beta/VHS) Second (Late) Mover Advantages & Disadvantages A second mover is a firm that responds to a first mover’s competitive action often through imitation or a move designed to counter the effects of the initial action. Advantages of second movers Reduction in demand uncertainty Market research to improve satisfying customer needs Learn from the first mover’s successes and shortcomings Gaining time for R&D to develop a superior product Disadvantages of second movers Loss of opportunity to establish brand loyalty If significant learning curve through moving first, then giving up competitive advantage