ELEC5701
Disrupting Markets
sdfl
Matt Barrie
Chief Executive
Freelancer.com
matt@freelancer.com
Bill Bartee
Managing Director
SXVP
wbartee@gmail.com
Matt
Barrie
matt@freelancer.com
+61 4 11331123
What are we looking for
• Problems – “No problem, no market” (Vinod Khosla)
• Big markets - the size of Texas ($1bn++)
Through exercise: which would you compromise out of
Product, Team or Market?
• Scalable businesses – unbounded capacity to grow revenue
without a corresponding increase in costs or complexity
e.g. hotel (unscalable) vs freelancer.com (scalable)
Thought exercise: How do you make $1 million?
• Pain killers, not vitamins
What do we mean by DISRUPT?
Better, faster, longer, stronger
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10x better
10x faster
10x cheaper
10x better customer service
10x better distribution
10x more convenient
…
Why 10x?
• Switching costs are too high for 20% improvement
• Cost of customer acquisition will be too high and the rate
you can acquire too slow
• Competitors can take defensive moves to lock in or leapfrog
• Your competitive advantage is unlikely to be sustainable
Disruption in the Music Industry
Disruption in the Music Industry
Disruption in the Music Industry
Disruption in the Music Industry
Disruption in the Music Industry
Disruption in the Music Industry
Competitive advantage
• We are looking for sustainable competitive advantages
• A lot of consumer Internet businesses you see today have no
sustainable competitive advantage; they are betting on first
to market and a quick flip. Hope is not a strategy.
• Does the idea lend itself to building a company or is it a one
hit wonder?
• What is the “secret sauce” that competitors can’t replicate?
9 Ways for Opportunities to Disrupt
1. Increasing the value of a product or service
2. New applications of existing technologies (e.g. Magstripe)
3. Creating mass markets (e.g. Model T)
4. Customisation for individuals (e.g. Dell)
5. Increasing reach (e.g. Kogan, Spotify)
6. Supply chain dominance (e.g. Apple, Walmart)
7. Convergence of industries (e.g. Genetic engineering)
8. Process innovation (e.g. Fedex)
9. Economies of scale (e.g. US railroads)
Industries to Disrupt
• Look for inefficiency – there’s opportunity
• Look for people with job descriptions that can be described
(and replaced) by algorithms
• Humans are inefficient, expensive, error prone and
unreliable- look for businesses with lots of humans
• Code is scalable, efficient and has global reach
• Look for industries that are not yet dominated by a software
business - “Software is eating the world” (Andreessen)
• Look for industries that haven’t innovated forever, that are
lazy, bloated, with fat profits and don’t employ rocket
scientists (classic example: real estate)
Industries to Disrupt
• Find incumbents, pick off a vertical and do it better (e.g. as
OKCupid, Airbnb and Freelancer has done to Craigslist, Etsy
has done to eBay)
• Look for industries with lots of infrastructure (e.g. Harvey
Norman, LJ Hooker) and do it without it (e.g. Kogan, Leasate)
• Look for industries where their business model has made
them unable to innovate (e.g. Harvey Norman, LJ Hooker
and their franchise models)
• Dirty industries are great (less competitors). Vice is nice.
Look for discontinuities
Society
Technology
Markets
Aging society
Innovation
Deregulation
Lifelong education
Disruptive technologies
Supply chain disruption
Food & population
New knowledge
Globalisation
Regulation
• Opportunities can be found where there are discontinuities
• Capture opportunity by creating a response to it
• Works best when there is a good fit with the team’s
experience, skills and passion
Look for trends 3-5 years out
“I skate to where the puck is going to be, not where it
has been” - Wayne Gretzky
Examples of Trends
Growth in computing power, cloud computing
Reach of the internet, demographics
Spread of mobile communications, personal area networks
Miniaturisation of technologies
Change in lifestyles
Rising middle class in developing nations
Cloud computing
Aging of the population
Evaluating Opportunities
• How do you make money?
• How large is the market? How large is it really? (segment)
• Who will buy the dog food? Why will they buy? How much
will they pay? How long does is the sales cycle? Is the sales
process repeatable and scalable?
• Where will the market be in 3-5 years?
• Will the customer enable you to profit?
• Can your team execute on the idea? What’s missing?
• If it doesn’t work, can you fail fast with minor losses?
Evaluation Frameworks
• See the course blog for frameworks for the top VCs
Factor
Problem to be
solved (P)
1
2
3
Small
Under $100M
Medium
Up to $1B
Large
Over $1B
Sophistication of
solution (S)
Non-proprietary Tech
AND
Non-existent channel
Either
proprietary Tech
OR
In-place channel
Proprietary Tech
AND
In-place channel
Quality of
Entrepreneurial
Team (E)
Inexperienced Team
OR No Team
Some Related
Experience
Deep
Background of
Experience
P, S, E out of 10
D = demerit points
Value = P * S * E – D
Things I personally want to disrupt
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Real Estate
Legal
Accounting & Tax
Recruiters
Craigslist
Paypal
eBay
Telecoms (PSTN)
Media
Guns
Keys
Wallet
…
What to do next
• Describe the problem
• Write the elevator pitch
• Write the vision for the company
• Write the mission statement
• What is the business model?
• Why is your solution compelling and does it have a
sustainable competitive advantage?
• Write up an executive summary
• Do some basic modelling (e.g. how do you make $1m?)
Homework
• Read “Don’t Mean to be Alarmist, But The TV Business May
Be Starting to Collapse”
http://www.businessinsider.com/tv-business-collapse-2012-6