ENTREPRENEURIAL GROWTH FALL SEMESTER, 2013 MAN 385.24 UNIQUE #04780 Professor Class Days Class Room Office Office Hours Phone E-Mail Course Web Page Teaching Assistants John N. Doggett Monday and Wednesdays from 12:30 to 2:00 p.m. UTC 4.104 CBA 5.124k Wednesdays, 5:30 to 6:30 p.m. or by appointment 512-232-7671 john.doggett@mccombs.utexas.edu via Canvas Grant Garlinghouse (grant.garlinghouse@mba14.mccombs.utexas.edu) Course Objectives I have taught this course since late in the last century. Today, as we approach a second global recession, helping people learn how to grow firms as astutely as possible will play a role in speeding the beginning of a new recovery. When companies like Cisco and HP abandon major market segments, it is even more important to think critically about how to grow a firm’s products. Given the chaotic period that we are entering, I have made several significant changes to this course. First, I have done away with the individual midterm. The “next” recovery will be a group effort. So will your midterm. Second, I have assigned three books. These are some of the best books out there on how to think about innovation, competition and how to grow a business. They will become “let me read that again” go-to books that you will use long after you graduate from UT. To compensate for the heavy reading load, I have eliminated most of the background notes from the course. Third, we are going to take a critical look at what is going on around the world. I believe that more than ever before, global events will have a profound impact on our ability to grow or maintain healthy businesses. I fear that this new global recession will be deeper and more destructive than the one that hit us in 2007-2009, and that recession was the worst since 1948. I want to make sure that each and every one of you is prepared to take advantage of the economic chaos that is buffeting the world. Doggett Entrepreneurial Growth—Fall, 2013 page 2 This course is for students who want to explore the challenges of running and growing an entrepreneurial company or a division of an established firm. We start by looking at the most basic question. Can the firm grow; should the firm grow? Since growth is a choice, we will also look at the trade-offs between aggressive growth and what venture capitalists call "life style" businesses. We will also look at the importance of identifying opportunities for new product development and responding to competitive threats. We will then look at how managers can learn how to identify and respond to strategic inflection points that shape the growth potential of all firms. This is a critical first step before one can decide what growth model makes the most sense for a firm. We will focus on the key things that managers must do to determine: 1. What is the right type of growth? 2. How much growth can their firms manage? 3. What will their competitors do in response? Since growth is not a given, we will also look at the challenges that threaten the viability of firms that have escaped the launch pad and those that have been in existence for some time. A crucial part of our analysis will be to better understand how managers can anticipate and respond to the reaction of competitors to their growth strategies. No course on entrepreneurial growth would be complete without asking the "was it all worth it?" question. While many think that owning a firm that is experiencing hyper-growth is a dream come true, the reality is that such explosive growth is like jumping out of an airplane with your hair on fire without a parachute. That is not for everyone. This course will continually ask students to look at the personal challenges of being the owner/manager of a growing, entrepreneurial firm. Some cases in this course look at the challenge of growth from a non-US perspective. This is to help you understand the explosion in entrepreneurship that is happening outside of the US. To help you prepare for my style of case teaching, I’ve assigned a new HBS tool called the Case Analysis Coach. It’s the best tool out there to help you prepare for my class. As you prepare for each case, keep these questions in the back of your mind: 1. Which customers should we target? Which customers should we avoid? 2. What’s the right way to segment our markets? What products will our customers want to buy? 3. How can we beat the competition? 4. How should we distribute our products? 5. How do we communicate with our customers and create a strong brand? Doggett Entrepreneurial Growth—Fall, 2013 page 3 6. Which things should our company do and which should we let our partners and suppliers do? 7. How can we delay commoditization and how can we respond when it begins to happen? 8. Who should we appoint to run this business? 9. Is this employee likely to succeed or fail in this assignment? 10. What’s the right organizational structure for this company or business unit? 11. How do we develop a viable strategy? 12. Whose investment capital will help us succeed, and whose money might poison our chances of success? 13. How can we build a productive culture in our company? 14. How can we change a culture that has become unproductive? 15. How can I get my employees to enthusiastically support a new course of action? 16. How do we manage and control the resource allocation process? 17. Should we acquire a new company as a way of building capacity? If so, should we integrate the acquisition into the company, or keep it as a separate organization? Leadership and this Course Each student must participate in a group project during the semester. The goal of these projects will be to help real entrepreneurs manage the growth of their firms. Groups of students will work with venture capital firms, the Austin Technology Incubator and local Chambers of Commerce to identify entrepreneurial firms facing major growth challenges. Each team will then help these firms develop strategies to grow. Project firms can be in Austin, or anyplace on the planet. The requirements are that the firm must have a serious growth challenge that they want the team to address, they are willing to provide the team with complete financial visibility to the issues that you are working on and they will take your recommendations seriously. Each project team must submit a project proposal to Professor Doggett for approval. These projects will help you develop your leadership skills in a number of ways. First, you will learn how to “manage” groups of peers where each student cannot be the group leader. Second, you will learn to manage the client relationship with CEOs and other senior company officials to maximize the value that your team provides their firm. Finally, by observing and reflecting on the dynamics of your team and your client company, you will develop a deeper understanding of what entrepreneurial leadership requires. Materials Case Packet: You must purchase your case packet from www.hbsp.edu. Grant will send you a link that you can use to purchase the materials once you are registered for the course. Books: Purchase on-line or at a bookstore. They are not in the Co-op. Doggett Entrepreneurial Growth—Fall, 2013 page 4 Required Books: The Startup Owner’s Manual: A Step-by-Step Guide for Building a Great Company, Steven Gary Blank and Bob Dorf, K&S Ranch, Inc., 2012. The Innovator's Solution: Creating and Sustaining Successful Growth by Clayton M. Christensen and Michael Raynor, HBS Press, 2003. The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, Eric Ries, Crown Business, 2012. Course Requirements and Grading Grading: This course MUST be taken for a letter grade. Class Participation = 50% This is a case-based course. Case courses help students become better entrepreneurs and managers by requiring them to conduct detailed analysis, develop managerial plans of action and defend these action plans in class. This course will require a minimum of 4 hours of work per class. You must spend at least 3 hours analyzing each case and at least 1 hour preparing an action plan that is supported by rigorous analysis for each case prior to class. I have assigned four books that will help you understand the dynamics of entrepreneurial growth. Reading these books will require at least one and a half additional hours of work per class. Each student must also join a study group of fellow students and spend a minimum of one hour discussing each case prior to class. During our class sessions, each student must be prepared to actively participate in the discussion of every case. Your class participation grade will be based primarily on the quality of your comments, not on the quantity. Comments that demonstrate a thorough analysis of the issues presented by each case, an awareness and appreciation of the comments made by fellow students, and an implementation of the frameworks from the readings that add to the learning process of the class will receive high grades. Comments that ignore the content and flow of the discussion or that reflect inadequate preparation will receive low grades. Finally, we will also run a cash flow management simulation during the last weekend of September. Your performance on that simulation will be 5% of your class participation grade. Group Presentations = 30% During the semester, each of you will participate in a group analysis of a significant growth opportunity facing a business. Your group's job will be to help them develop a strategy for Doggett Entrepreneurial Growth—Fall, 2013 page 5 sustained growth. Your group will present a paper and an in-class presentation at the end of the semester. Each group member must actively participate in the development of the report and the presentation. Each group will be required to spend significant time with the entrepreneur. You must also meet with me for three separate meetings during the semester. Group Mid-term Exam = 20% Each of you must join a study group to help you prepare for class. That study group will also be tasked with spending a weekend reading, analyzing and developing an action plan for a case, which will serve as your mid-term exam. Examination grades will reflect your group’s success in identifying key challenges faced by the manager, developing a realistic plan of action to respond to the managerial challenges presented by the exam case and performing in-depth quantitative and qualitative analysis to support your group’s action plan. Missing Class Policy I know that one of your priorities may be to get a job as we enter the second global recession since 2007. My policy on missing classes is as follows: You must submit a 10-page write up for every case that we covered when you missed a class. This 10-page write up must be submitted to Daniel by the beginning of the next class. If you do not submit one paper per missed case to Daniel by the beginning of the next class, your maximum potential grade for the semester will be reduced by ½ of a letter grade. If you miss more than one class, your maximum potential grade for the semester will be reduced by ½ of a letter grade for each additional class that you miss, if you submit the 10page paper by the beginning of the next class. If you miss more than one class and do not submit the 10-page paper by the beginning of the next class, your maximum potential grade for the semester will be reduced by 1 full letter grade. I will waive the ½ or 1 grade penalty for exceptional circumstances that are related to the health or safety of yourself, your spouse, your children, your family or your significant other. Religious Holy Days: By UT Austin policy, you must notify me of your pending absence at least fourteen days prior to the date of observance of a religious holy day. If you must miss a class, an examination, a work assignment, or a project in order to observe a religious holy day, you will be given an opportunity to complete the missed work within a reasonable time after the absence. McCombs Classroom Professionalism Policy The highest professional standards are expected of all members of the McCombs community. The collective class reputation and the value of the Texas MBA experience hinges on this. Doggett Entrepreneurial Growth—Fall, 2013 page 6 You should treat the Texas MBA classroom as you would a corporate boardroom. Faculty are expected to be professional and prepared to deliver value for each and every class session. Students are expected to be professional in all respects. The Texas MBA classroom experience is enhanced when: Students arrive on time. On time arrival ensures that classes are able to start and finish at the scheduled time. On time arrival shows respect for both fellow students and faculty and it enhances learning by reducing avoidable distractions. Students display their name cards. This permits fellow students and faculty to learn names, enhancing opportunities for community building and evaluation of in-class contributions. Students do not confuse the classroom for the cafeteria. The classroom (boardroom) is not the place to eat your breakfast tacos, wraps, sweet potato fries, or otherwise set up for a picnic. Please plan accordingly. Recognizing that back-to-back classes sometimes take place over the lunch hour, energy bars and similar snacks are permitted. Please be respectful of your fellow students and faculty in your choices. Students minimize unscheduled personal breaks. The learning environment improves when disruptions are limited. Students are fully prepared for each class. Much of the learning in the Texas MBA program takes place during classroom discussions. When students are not prepared they cannot contribute to the overall learning process. This affects not only the individual, but their peers who count on them, as well. Students respect the views and opinions of their colleagues. Disagreement and debate are encouraged. Intolerance for the views of others is unacceptable. Phones and wireless devices are turned off. We’ve all heard the annoying ringing in the middle of a meeting. Not only is it not professional, it cuts off the flow of discussion when the search for the offender begins. When a true need to communicate with someone outside of class exists (e.g., for some medical need) please inform the professor prior to class. Remember, you are competing for the best faculty McCombs has to offer. Your professionalism and activity in class contributes to your success in attracting the best faculty to this program. Academic Dishonesty I have no tolerance for acts of academic dishonesty. Such acts damage the reputation of the school and the degree and demean the honest efforts of the majority of students. The minimum penalty for an act of academic dishonesty will be a zero for that assignment or exam. The responsibilities for both students and faculty with regard to the Honor System are described on the final pages of this syllabus. As the instructor for this course, I agree to observe all the faculty responsibilities described therein. As a Texas MBA student, you agree to observe all of the student responsibilities of the Honor Code. If the application of the Honor System to this class and its assignments is unclear in any way, it is your responsibility to ask Doggett Entrepreneurial Growth—Fall, 2013 page 7 me for clarification. Students with Disabilities Upon request, the University of Texas at Austin provides appropriate academic accommodations for qualified students with disabilities. Services for Students with Disabilities (SSD) is housed in the Office of the Dean of Students, located on the fourth floor of the Student Services Building. Information on how to register, downloadable forms, including guidelines for documentation, accommodation request letters, and releases of information are available online at http://deanofstudents.utexas.edu/ssd/index.php. Please do not hesitate to contact SSD at (512) 471-6259, VP: (512) 232-2937 or via e-mail if you have any questions. Schedule 1. Wednesday, August 28, 2013 a. Note: b. Lecture: 2. Wednesday, September 4, 2013 a. 3. The Case Analysis Coach Every Business is a Growth Business Lecture: Every Business is a Growth Business, continued Monday, September 9, 2013 a. Case: Kate Spade Study Questions for Kate Spade 1. 2. Is Kate Spade a well-managed company? Is there anything that you would recommend to make Kate Spade more profitable and valuable? How much is Kate Spade worth? Which offer, if any, should Kate Spade accept? Why? Would you invest given the business plan as written? 3. 4. 5. 4. Wednesday, September 11, 2013 a. Case: Quirky: A Business Based on Making Invention Accessible Study Questions for Quirky 1. How can the company achieve acceptable long-term margins? Doggett Entrepreneurial Growth—Fall, 2013 page 8 2. Should Quirky continue to add new products at an ever-increasing rate? If so, how can it do this while retaining the flexibility and nimbleness that characterized its early development? 3. Should it bring manufacturing in-house? If so, how should it decide what it should do in-house and what should it continue to outsource? 4. How should Quirky address the difficulties of selling its products through third-party retailers? Should it increase direct selling activities? If so, how? If not, why not? 5. Should Quirky partner with established consumer companies? If so, what form should such a partnership take? Whom would you partner with? 5. Monday, September 16, 2013 a. Case: Milango Financial Services Study Questions for Milango 1. Is microfinance an attractive industry in Kenya? Why or why not? 2. How does Milango’s growth affect its day-to-day decisions? 3. Based on the options presented in the case, what should Kithendu do? How should he propose this option to his board of directors? Include a plan of action. 6. Wednesday, September 18, 2013 a. Case: Blink Booking Study Questions for Blink Booking 1. 2. 3. 4. 5. Evaluate Rebecca’s launch of Blink Booking in Europe. Should Rebecca be the next CEO of Blink Booking? Why are cloning/replication/arbitrage models springing up in Europe? What are the attributes of the companies that Rocket Internet has cloned? What should Rebecca do to increase the likelihood of achieving her goals of developing an arbitrage platform to aid Spain? 7. Monday, September 23, 2013 a. Case: HGRM: Bringing Back High Touch Hospitality Study Questions for HGRM 1. 2. 3. 4. What is HGRM? Why did Carlo feel the need to invest in this system? What is the value proposition of HGRM? What is the Information System design at the heart of the initiative? Is HGRM a success? What metrics would you use to measure success? Would you invest in it as a spinoff business? Doggett Entrepreneurial Growth—Fall, 2013 page 9 5. Fontana wants to make HGRM a business. What would you do to insure the success of this initiative? 8. Wednesday, September 25, 2013 a. Case: Mutti, S.p.a. Study Questions for Mutti 1. Why has Mutti been successful at building and maintaining a strong brand position in what appears to be a commodity category? 2. Why does Mutti continue to innovate in the processed tomato category? 3. Would Francesco be better off expanding into other categories of products? 4. Is Mutti doing too much? Should they be more focused? If yes, how would you recommend that they focus their business? 5. Do you believe that Mutti can grow its business and maintain its unique culture and brand identity? What evidence do you have to support this? 9. Monday, September 30, 2013 a. Case: Mission Hills: Leading the China Golf Industry Study Questions for Mission Hills 1. Answer all of the questions on page 12 of the case. 10. Wednesday, October 2, 2013 a. Case: AirAsia X: Can the Low Cost Model Go Long Haul? Study Question for AirAsia 1. What is the general environment of the global airline industry? 2. What factors lead to the success of AirAsia as it grew and expanded from Malaysia to other parts of Southeast Asia and beyond? 3. What broad elements of AirAsia’s original business model had to be revised as it introduced AirAsia X and moved beyond short to medium haul service to longer haul service? How did its industry and competitive environment change during this expansion? 4. How can X best leverage the extensive network of the regional sister company AirAsia to select new and profitable destinations for X? 11. Monday, October 7, 2013 a. Case: Bonnier: Digitalizing the Media Business Study Questions for Bonnier Doggett Entrepreneurial Growth—Fall, 2013 page 10 1. Was the choice Bonnier chose to establish a centralized R&D department and to change its innovation practices a sound business decision? What made this decision highly risky? What specific decisions did Bonnier and Öhrvall take to overcome related challenges? 2. What is the nature of digital innovation and how can fast-paced digital innovation processes be handled in traditional and conservative business contexts and industries? How did Öhrvall organize innovation differently from the traditional incremental innovators in the industry? 3. Which direction should Bonnier take when developing the Mag+ further? How can it position the product in relation to other products and services? Should Mag+ be integrated with social media like Twitter and Facebook? Do readers want to discuss the articles that they have read on such services? How much should be included in one issue of a magazine? Should some of the content be free, and if so, how can that be addressed in the service design? 4. What should Bonnier R&D focus on for its next innovation project? How can it move beyond digitalizing existing product categories? What would a “totally new kind of business” be for Bonnier? How does digital media manifest itself in new ways? 12. Wednesday, October 9, 2013 Phase Separation Solutions (PS2): The China Question a. Case: Study Questions for Phase Separation Solutions 1. 2. 3. 4. Should PS2 enter the Chinese market? Is PS2 ready to enter the Chinese market now? Which options should PS2 pursue? Develop an Action Plan for expansion. [Activate Working Capital Management Simulation: Managing Growth] 13. Monday, October 14, 2013 [Midterm distributed at the end of class] a. Note: b. Debrief: How Fast Can Your Company Afford to Grow? Working Capital Simulation: Managing Growth 14. Wednesday, October 16, 2013 a. Case: M-Tronics (A) Study Questions for M-Tronics 1. 2. 3. What is troubling George McElroy? Should John Martell be concerned about the same issues? What actions should John Martell take at this time Please prepare a specific action plan. Doggett Entrepreneurial Growth—Fall, 2013 page 11 15. Monday, October 21, 2013 [Midterm due at the beginning of class] a. Case: Discuss Midterm 16. Wednesday, October 23, 2013 a. Case: Canada Goose: The South Korea Opportunity Study Questions for Canada Goose 1. 2. 3. 4. What makes South Korea an attractive new market for Canada Goose? What will be the best way to distribute CG products in South Korea? Which style of jacket should CG sell to the new customer groups? How should Canada Goose position itself in order to reach the two target groups for Canada Goose in South Korea? How does the current state of the company, both in North America and Western Europe, impact the success of a full-scale foray into South Korea? How can Canada Goose maximize growth while positioning the brand as strongly as possible in South Korea and globally? 5. 6. 17. Monday, October 28, 2013 MakerBot: Challenges in Building a New Industry b. Case: Study Questions for MakerBot 1. How can MakerBot lead the growth of the personal manufacturing industry, which is arguably a new industry? 2. Long-term, how potent is MakerBot’s open innovation strategy, focused on crowdsourcing, in the face of rising competition? 3. To what degree are larger, established players from the industrial/professional markets a competitive threat? 4. Finally, are makers or do-it-yourselfers a big enough market to fuel growth and potential with the technology? 18. Wednesday, October 30, 2013 a. Case: redBus: The Next Step for Growth Study Questions for redBus 1. 2. What is your understanding of redBus? How would you describe it as a company? Is redBus successful? If yes, what are the key characteristics that have led to its growth? If no, why do you think so? What else could be done by redBus to be successful? Doggett Entrepreneurial Growth—Fall, 2013 3. 4. 5. page 12 Evaluate the strategy of redBus with respect to the following characteristics: long-term goals (customer need to be addressed, value offering, goal/target), competitive environment (4C’s analysis and Porter’s 5-Forces) and resources and capabilities (value chain, activity map). What is the business model of redBus? What are its key characteristics? What are the different options for growth available to redBus? What do you think should be the next step of growth? Why? 19. Monday, November 4, 2013 a. Case: Amazon, Apple, Facebook and Google Study Questions for Amazon, Apple, Facebook and Google 1. 2. 3. 4. Define the contested boundaries among Amazon, Apple, Facebook and Google. For each contested boundary that you have identified, how is that contest likely to play out? How many contests give rise to winner-take-all markets? How many to always-a-share markets? How will the complex ecosystems, in which online businesses are built on top of other online businesses and third party sellers that rely on platforms, evolve? Identify a firm that you know something about, for example a media company, a retailer or a manufacturing firm, with some involvement in the online economy. Which, if any, of the big four firms does it currently rely on? Might that reliance change? How might that firm hedge its risks if there is a transition to one of the others? What skills will be under-supplied in the future of the digital economy that you envisage? 20. Wednesday, November 6, 2013 a. Case: Dropbox: “It Just Works” Study Questions for Dropbox 1. 2. 3. Dropbox is a late mover in a crowded space. What opportunity did Houston see? Specifically, what are the key elements of Dropbox’s current business model? Is Dropbox profitable by June 2010? Are you optimistic about its prospects? How does your current evaluation of Dropbox’s current profitability influence your evaluation of the venture’s prospects? When he applied to Y Combinator (see case Exhibit 2), what hypothesis did Houston hold about key elements of Dropbox’s business model? As of June 2010, which of these hypothesis have been confirmed and which have been discarded? What is your assessment of the approach that Houston used to test hypotheses? Did he waste time/resources or make notable mistakes? Can you imagine better ways to test key hypotheses? Doggett Entrepreneurial Growth—Fall, 2013 4. 5. page 13 Imagine that at the same time Dropbox was formed Google decided to target the opportunity that Houston had identified. How would Google’s approach in pursuing “G-Drive” have differed from the approach that Dropbox’s team followed? What should Houston do about the decision poised at the end of the case, i.e., creating a separate version for small and medium sized business (SMB) customers? What process should he use to make this decision 21. Monday, November 11, 2013 a. Case: Pandora Radio: Royalties Kill the Web Radio Star? (A) Study Questions for Pandora 1. 2. 3. Map out key elements of Pandora’s business model. As you think about where the company is today, ask yourself what are the key indicators that tell Kennedy whether his model is working or not? How serious of an issue are their high usage customers? What is the most appropriate response to the decision of the Copyright Royalty Board? 22. Wednesday, November 13, 2013 a. Case: Emerging Business Opportunities At IBM (A) Study Questions for IBM 1. 2. 3. 4. 5. 6. Why do large companies like IBM find it so difficult to create new businesses? What are the primary barriers to success? What is your evaluation of the “Horizons of Growth” model? What are the distinguishing features of emerging, H3 businesses? How did the EBO management system evolve over time? What was accomplished during the Thompson era and the Corporate Strategy era? What are the key elements to the current EBO system? What is your evaluation of this system? How should Harreld deal with those businesses now reaching H2 status? Should he increase the number of EBOs? 23. Monday, November 18, 2013 a. Case: Apple, Inc. in 2012 Study Questions for Apple, Inc. in 2012 1. 2. What, historically, have been Apple’s competitive advantages? Analyze the personal computer industry. Why did Apple struggle historically in PCs? Doggett Entrepreneurial Growth—Fall, 2013 3. 4. 5. page 14 How sustainable is Apple’s competitive position in PCs, MP3 players, and smartphones? What are Apple’s long-term prospects for the iPad? What advice would you offer new CEO Tim Cook? 24. Wednesday, November 20, 2013 Group Presentations 25. Monday, November 25, 2013 Group Presentations 26. Wednesday, November 27, 2013 Group Presentations 27. Monday, December 2, 2013 Group Presentations 28. Wednesday, December 4, 2013 a. Note: How Will You Measure Your Life? Assignment for Class i. Write what you want you obituary to say about you at the end of your life. ii. Send your obituary to me by Sunday, December 1st.