TEACHING AND ENCOURAGING
ENTREPRENEURSHIP AND
INNOVATION
Belarus Universities
DR. KENT MILLINGTON
OCTOBER 2012
TOPICS OF DISCUSSION
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Innovation
Opportunity Recognition
Managing Innovation
Technology Commercialization
Developing New Business
Business Model canvas
Entrepreneurship Risks and Rewards
Risks:
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Business Failure
Unpredictable Business Conditions
Long Hours
Product/Service compete on Price only
Imitation strategy
Entrepreneurship Risks and Rewards
Rewards:
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Financial
Emotional – building a business
Pride
Recognition
Flexibility
Creativity
ENTREPRENEURSHIP: THE ART
AND SCIENCE OF BUILDING VALUE
ART:
CREATIVITY; ENERGY; FEEL;
INSIGHT
SCIENCE: ANALYSIS; DISCIPLINE;
SYSTEMATIC APPROACH
ENTREPRENEURSHIP
Identify a need or opportunity
Create a solution - Innovation
Implement solution to create value
Harvest or other long-term strategy
Two Kinds of Entrepreneurship
1. Opportunity – based
2. Necessity – based
Young people 25-34 are dominant
participants in entrepreneurship.
Two Important Considerations for
Entrepreneurs
• INNOVATION / CREATIVITY
• OPPORTUNITY IDENTIFICATION
Continuum of Innovation
Imitative
Incremental
Evolutionary
Radical
Revolutionary
The secret to innovation is uncovering an unmet consumer
need and the filling it in an innovative, creative way.
Continuum of Innovation
Imitative: copies something well-known and accepted
Incremental: small improvements; faster, better,
cheaper
Evolutionary: new to firm but not to world (i.e.,
technologies in new places)
Radical: technologies that give large performance
improvements or lower costs
Revolutionary: new to individual, firm, and the world
Best Opportunities between Incremental and Radical
The Creativity-Innovation-Entrepreneurship Chain
Latest science and technology
Creativity
• Production of novel
and useful ideas
• Discovery of
opportunities
• Output: new ideas
Innovation
• Refining, evaluation
and first prototypes
of the new ideas
• Evaluation of
opportunities
• Output: prototype
Entrepreneurship
• Creation of value
in the marketplace
• Exploitation of
opportunities
• Output: new product,
service, or process
Needs in society and the marketplace
Types of Innovation
1. Product: early stage of product life cycle,
innovations are frequent. As rate of product
innovation decreases, process innovation
increases. (What we make)
2. Process: makes manufacturing more efficient
through automation, lowering costs. (How we
make it)
Product /Service innovation creates much more
new wealth than process innovation!
Three Characteristics of Opportunity
Newness
Potential Economic Value
Perceived Desirability
Opportunity implies something that has not existed or
been available before, that can yield potential economic
gains, and whose development is consistent with legal
and/or moral standards of the society in which it occurs.
A Framework
•Alertness
•Social Network
•Prior Knowledge
Ideas
-Of markets
-How to service markets
-Customer problems
-Accumulation over time
Example: Focus Media in Shanghai
Basic Propositions Concerning
Opportunities
Proposition 1: Opportunities emerge from
changes in knowledge, technology, economic,
political, social, and demographic conditions.
Proposition 2: Recognition depends on
previous experience which enables people
to see links between previously unconnected
changes, knowledge, or events.
Product Opportunity Gap
Social:
Social and Cultural
trends, Historical
trends
Product
Opportunity Gap
Technology:
Economic:
State of the Economy, Level of
Disposable Income, Changing
Investment Opportunities
Emerging technologies
Re-evaluating existing
technologies
Discontinuous opportunities: The source of radical innovation
New
Markets
Existing
Markets
Adjacent
Opportunities
Exploit current assets
and capabilities
Status Quo
Grow market
share and profit
(business expansion,
not new business
development)
Existing Products/
Technology
Discontinuous
Opportunities
Create new markets
and new products
Adjacent
Opportunities
Increase primary
market demand
New Products/
Technology
… which create disproportionate wealth relative to adjacent
opportunities
14%
38%
61%
Discontinuous
opportunities
Adjacent
opportunities
86%
62%
39%
Type of new
Business launch
Revenues
Profits
Source: Chan & Mauborgne (1997)
Managing Technology Discovery to Application
Scientific
Discovery
Invention
Innovation
Technology
Application
Sustaining vs. Disruptive Technologies
Sustaining technologies focus on
improvements of importance to existing
customers. Existing companies best with
incremental innovation.
Disruptive technologies create a new value
proposition, reach new markets and customers.
New companies better at disruptive, radical
innovation.
Creating Competitive Advantage
• Competitive Advantage
– Something that the firm does better than any of
its competitors.
– Goal: To have a sustainable competitive
advantage
• Requires that the advantage:
– Must be valued by customers
– Not easily duplicated by competitors
Technology and Competitive
Advantage
Technology
Competitive
Dynamics
Competitive
Advantage
Value
Creation
Major Strategic Questions
• Should we create our own new
technology and innovations internal
to the firm?
OR
• Should we acquire technology from
external sources like acquisition or
strategic alliances?
Dimensions of Internal Innovation
1. Goal of internal innovation is for the firm to
outperform its competition.
2. Internal innovation involves many
individuals, capabilities, and resources.
3. Resources are critical to the innovation
process. (Human, Physical, Financial)
Reasons for Using External Innovation:
1. The firm’s product line falling behind competitors.
2. A new competitor enters the market, which will change the
dynamics of the industry.
3. The firm discovers its processes are not as efficient and/or
effective as those of its competitors.
4. The firm believes its current products or processes are not
going to be successful in the future.
5. Expansion into new markets and/or new products is
achieved faster.
Technology S - Curve
P
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P
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Time
The S-Curve of Technological Progress
S – Curve Strategy
P
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P
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3rd Technology
2nd Technology
1st Technology
Time
Managing Along the S – Curve
P
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P
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a
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Managing
Growth
3rd Technology
2nd Technology
Managing
Transitions
1st Technology
Time
Management Implications
•Technology shifts before investment recovery
•Management focus often fragmented
•Engineering strength often misused
• Marketing becomes a problem introducing
new technology over the old one
•Difficult to manage the ROI in important
technology.
The Process of Technology Commercialization
Commercializing New Technologies, Vijay K. Jolly, Harvard Business School Press, 1997, p. 4
Technology Commercialization Process
Product
planning
steps
Imagining
Incubating Demonstrating Promoting
Creating unique
product ideas
Business
planning
steps
Proving product
viability
Find interested
people & money
Build
prototypes
Find resources to
build prototypes &
identify markets
Sustaining
Build products &
introduce to
markets
Build initial
markets &
plan market
expansions
Build markets
& improve
products
Develop
market growth
strategies
Resource Needs
People
Small
Moderate
Medium
Large
Physical
None
Moderate
Medium
Large
Financial
None
Moderate
Large
Largest
Technology Assessment
1.
2.
3.
4.
Understand Technology
Discover Possible Uses of Technology
Understand Markets for Uses
Determine How to Deliver Value
How Companies Develop
1.Small Business Entrepreneurship – 95%+ of business
2.Scalable Startup Entrepreneurship – receive most
investment
3.Large Company Entrepreneurship – innovation as
variants of existing core products; disruptive innovation
difficult.
4.Social Entrepreneurship - innovation to solve social
needs
Search for
Business Model
Execution of
Business Model
Build a Customer Development Process
Product Development
Concept/
Bus. Plan
Product
Dev.
Alpha/Beta
Test
Launch/1st
Ship
Customer Development
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Customer Discovery: Step 1
Customer
Discovery
Customer
Validation
Customer
Creation
Company
Building
• Stop selling, start listening
– There are no facts inside your building, so get outside
• Test your hypotheses
– Two are fundamental: problem and product concept
Customer Validation: Step 2
Customer
Discovery
Customer
Validation
Customer
Creation
Company
Building
• Develop a repeatable and scalable sales
process
• Only earlyvangelists are crazy enough to buy
“Pivoting” is changing a fundamental part of the
business model. It can be simple: recognizing that your
product was priced incorrectly. It can be more complex:
your target customer needs to change, the feature set
is wrong, you chose the wrong sales channel or your
customer acquisition programs are ineffective.
Customer Discovery: Step 3
Customer
Discovery
Customer
Validation
Customer
Creation
Company
Building
– Goal is to create end-user demand and drive that
demand into the sales channel.
– Marketing message will be different based on the
kind of market being entered and the customers
being sought
– Brand building and heavy advertising work in
existing markets but not so much in new markets.
Customer Discovery: Step 4
Customer
Discovery
Customer
Validation
Customer
Creation
Company
Building
– Where the company transitions from informal,
learning, and discovery to formal departments of
Sales, Marketing, Business Development
– Build departments to exploit early market
success
– Add employees to meet demand for products
Nine Blocks of the Business Model
1.
2.
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5.
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8.
9.
Customer Segments
Customer relationships
Value propositions
Channels
Key Resources
Key Activities
Key Partners
Revenue streams
Cost Structure
Business Model Generation, Alexander Osterwalder & Yves Pigneur,
2010
Business Model Canvas
Key
Partners
Key
Activities
Key
Resources
Cost Structure
Value
Proposition Customer
Relations
Channels
Revenue Streams
Customer
Segments
Customer Segments
Mass Market: focus on one large group; i.e., consumer
electronics
Niche Market: specific segments; i.e., supplier-buyer
relationships like auto parts manufacturers
Segmented: different needs and problems; i.e., banks and
professional services (engineering, consultants)
Diversified: unrelated segments; i.e., Amazon selling products
and providing computer services
Multi-sided platforms: credit card companies; i.e., card
holders and merchants
Value Proposition: Five Key Values
• Product: Performance, quality, features, brand, easy to use,
safe.
• Price: Fair, visible, consistent, reasonable.
• Access: Convenient location, found in reasonable time.
• Service: Ordering, delivery, return, check-out.
• Experience: Emotional, respect, ambiance, fun, intimacy.
• One value selected to dominate value proposition, a second
to differentiate, and remaining three meet the industry norm.
Channels
Communication: marketing message, raising
awareness, customer evaluation
Distribution: delivering value proposition
Sales: places to purchase product or services
Finding the right mix of channels is crucial to bringing a value
proposition to market.
Channel
Types
Own
Partner
Direct
Sales
Force
Web
Sales
Indirect
Own
Stores
Partner
Stores
Wholesale
Channel Phases
1.
2.
3.
4.
5.
Awareness: How to raise awareness of products?
Evaluation: How do customers evaluate products?
Purchase: How and where do customers buy?
Delivery: How do we deliver value proposition?
After Sales: How provide post-purchase support?
Customer Relationships
Motivations: Customer acquisition, customer
retention, Boosting sales (upselling)
Personal Assistance
Dedicated Personal Assistance
Self-service
Automated service
User communities
Co-creation of innovative products
Key Resources
Physical: facilities, buildings, equipment
Human: especially for creative industries
Financial: sources of funding
Intellectual: patents, copyrights, partnerships,
customer databases
Key Activities
Production: designing, making, delivering
Problem solving: consulting, services,
hospitals
Platform/network: software, networks,
social media, brands, platform promotion
Key Partnerships
Strategic alliances between non-competitors and
financial sources
Strategic partnerships with competitors
Joint Ventures
Buyer-supplier relationships to assure reliable
supplies
Revenue Streams
One-time customer purchases
Recurring revenues
Asset sales, Usage fee, Subscription fees,
Lending/Renting/Leasing, Licensing
Pricing considerations
Cost Structure
Cost-driven model: minimize costs, low
prices, maximum automation, extensive
outsourcing, process innovation
Value-driven model: value creation, premium
values, personalized service, product
innovation
Economies of scale
Fixed costs
Economies of scope
Variable costs
Business Model Canvas
Key
Partners
Key
Activities
Key
Resources
Cost Structure
Value
Customer
Proposition Relations
Channels
Revenue Streams
Customer
Segments
Business Model Canvas – SWOT Analysis
I
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KP
KA
VP
CR
Strengths
Weaknesses
C
KR
Opportunities
C$
CS
Threats
R$
Helpful
Harmful
Business Model Canvas – Value Innovation
KP
KA
VP
CR
- Costs
+ Value
C
KR
C$
CS
R$
Business Model Canvas – Value Innovation
KP
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Eliminate
VP
CR
CS
Raise
- Costs
+ Value
C
KR
Reduce
C$
Cost Side
Create
R$
Value Side
Apple iPod/iTunes Business Model
What about your Company????
Business Model Canvas for Apple iTunes
KP
KA
Record
Companies
CR
Hardware
Design
Marketing
OEMs
VP
CS
Lovemark
Seamless
Music
Experience
Switching
Costs
KR
C
People
Brand Name
iPod hardware
iTunes software
Retail stores
Apple stores
Apple.com
C$
Mass
market
R$
People
Manufacturing
Marketing and sales
iTunes stores
Large hardware revenues
Some music revenues
ENCOURAGING ENTREPRENEURSHIP
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Show how to take part in the world
Meet and know older entrepreneurs
Access to technologies and capital
Tax benefits and other incentives
Entrepreneurship education
Дзякуй
J. Kent Millington
milliken@uvu.edu