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Transcript of Chapter Four The Opportunity: Creating, Shaping, Recognizing, Seizing Chapter Four Dowling BA 560...
The Opportunity: Creating, Shaping, Recognizing,
Seizing
Chapter FourChapter Four
DowlingDowlingBA 560BA 560
Fall 2006Fall 2006
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 22
The OpportunityThe Opportunity
When is an idea an opportunity?When is an idea an opportunity?
An opportunity has the qualities of being attractive, An opportunity has the qualities of being attractive, durable, and timely and is anchored in a product durable, and timely and is anchored in a product or service which creates or adds value for its or service which creates or adds value for its buyer or end user.buyer or end user.
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 33
The OpportunityThe Opportunity
OpportunitiesOpportunities……
Are created, or built, using ideas and Are created, or built, using ideas and entrepreneurial creativity.entrepreneurial creativity.
Are spawned, in a free market society, when Are spawned, in a free market society, when there are changing circumstances, chaos, there are changing circumstances, chaos, confusion, inconsistencies, lags or leads, confusion, inconsistencies, lags or leads, knowledge and information gaps.knowledge and information gaps.
Are situational. Conditions can be idiosyncratic Are situational. Conditions can be idiosyncratic or generalizable. or generalizable.
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 44
New VenturesNew Ventures
Fundamental realitiesFundamental realities– Most new ventures are works in process and Most new ventures are works in process and
works of artworks of art– Most business plans are obsolete at the Most business plans are obsolete at the
printerprinter– Speed, adroitness of reflex, and adaptability Speed, adroitness of reflex, and adaptability
are crucialare crucial– The key to succeeding is failing quickly and The key to succeeding is failing quickly and
recouping quicklyrecouping quickly
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 55
New VenturesNew Ventures
Fundamental realitiesFundamental realities– Success is highly situational, depending on Success is highly situational, depending on
time, space, context, and stakeholderstime, space, context, and stakeholders
– The best entrepreneurs specialize in making The best entrepreneurs specialize in making “new mistakes” only“new mistakes” only
– Starting a company is much harder than it Starting a company is much harder than it looks, or you think it will be; but you can last a looks, or you think it will be; but you can last a lot longer and do more than you think if you do lot longer and do more than you think if you do not try to do it solonot try to do it solo
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 66
Exhibit 4.1 Circle of Venture Exhibit 4.1 Circle of Venture Capital EcstasyCapital Ecstasy
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 77
The OpportunityThe OpportunityOpportunity Spawners & DriversOpportunity Spawners & Drivers Regulatory ChangesRegulatory Changes 10-fold change in 10 years or less10-fold change in 10 years or less Reconstruction of value chain and channels of Reconstruction of value chain and channels of
distributiondistribution Proprietary or contractual advantageProprietary or contractual advantage Existing management/investors burned out or Existing management/investors burned out or
under managedunder managed Entrepreneurial leadershipEntrepreneurial leadership Market leaders are customer-obsessed or customer-Market leaders are customer-obsessed or customer-
blindblind
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 88
Where are Opportunities Born?Where are Opportunities Born?
Technology sea changeTechnology sea change– Moore’s LawMoore’s Law– Metcalf’s LawMetcalf’s Law– DisruptionDisruption
Market sea changeMarket sea change– Value chain Value chain
disruption/obsolescence/vulnerabilitydisruption/obsolescence/vulnerability– DeregulationDeregulation
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 99
Where are Opportunities Born?Where are Opportunities Born?
Societal sea changeSocietal sea change– Changes in ways we live, learn, work, etc.Changes in ways we live, learn, work, etc.– Gilder’s Law – 10xGilder’s Law – 10xss in 10 years in 10 years
Brontosaurus factorBrontosaurus factor– ArroganceArrogance– Loss of peripheral visionLoss of peripheral vision– Deadened reflexes – turning the tankerDeadened reflexes – turning the tanker
Irrational exuberanceIrrational exuberance– Undervalued assetsUndervalued assets
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 1010
The OpportunityThe Opportunity
The highly organic and The highly organic and situational character of situational character of the entrepreneurial the entrepreneurial process underscores process underscores the criticality of the criticality of determining determining fitfit and and balancing balancing riskrisk and and rewardreward..
-Timmons-Timmons
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 1111
The OpportunityThe Opportunity
IdeasIdeas: : Over-rated?Over-rated?
‘‘Flashes of brilliance’ are Flashes of brilliance’ are rare: Instead, it’s more rare: Instead, it’s more common to see a series of common to see a series of trial-and-error iterations trial-and-error iterations before a promising idea fits before a promising idea fits with what the market wants.with what the market wants.
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 1212
The OpportunityThe Opportunity
First-Mover AdvantageFirst-Mover Advantage
Though not a guarantor of Though not a guarantor of success, there is tremendous success, there is tremendous potential value in being first potential value in being first with an idea, so long as you with an idea, so long as you have the capacity to capitalize on being first and have the capacity to capitalize on being first and establishing market share or erecting other establishing market share or erecting other barriers to entry.barriers to entry.
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 1313
The OpportunityThe Opportunity
The ‘Great Mousetrap Fallacy’The ‘Great Mousetrap Fallacy’
‘‘If a man can make a better If a man can make a better mousetrap … the world mousetrap … the world will make a beaten path will make a beaten path to his door.’ to his door.’ EmersonEmerson
‘‘The truth of the matter is that ideas are inert The truth of the matter is that ideas are inert and, for all practical purposes, worthless.’ and, for all practical purposes, worthless.’ TimmonsTimmons
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 1414
The OpportunityThe Opportunity
Experience: Herbert Simon Experience: Herbert Simon
The entrepreneur’s pattern-The entrepreneur’s pattern-recognition skillsrecognition skills
The ‘50,000 Chunks’ The ‘50,000 Chunks’ of experienceof experience
Seeing what others don’t seeSeeing what others don’t see
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 1515
The OpportunityThe Opportunity$1 billion$1 billion
$500 million$500 million
$250 million$250 million
$100 million$100 million
5 Years5 Years 10 Years10 Years 20 Years20 Years
Window of Window of OpportunityOpportunity
MarketMarket
Mar
ket
Siz
eM
arke
t S
ize
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 1616
Exhibit 4.7Exhibit 4.7
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 1717
EvaluatingEvaluating
Criteria for evaluating venture opportunityCriteria for evaluating venture opportunity– Industry and marketIndustry and market– EconomicsEconomics– Harvest issuesHarvest issues– Competitive advantage issuesCompetitive advantage issues– Management team issuesManagement team issues– Personal criteriaPersonal criteria– Strategic differentiationStrategic differentiation
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 1818
The OpportunityThe Opportunity
Criteria for Evaluating Venture OpportunitiesCriteria for Evaluating Venture OpportunitiesExhibit 4.8 - TimmonsExhibit 4.8 - Timmons
Industry & MarketIndustry & Market
Market Market Market structureMarket structure Market sizeMarket size Market capacityMarket capacity Growth rateGrowth rate Market share attainable in year 5Market share attainable in year 5 Cost StructureCost Structure
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 1919
The OpportunityThe Opportunity
Criteria for Evaluating Venture OpportunitiesCriteria for Evaluating Venture OpportunitiesExhibit 4.8 - TimmonsExhibit 4.8 - Timmons
EconomicsEconomics
Time to breakeven/positive cash flowTime to breakeven/positive cash flow ROI potentialROI potential Capital requirementsCapital requirements Internal rate of return potentialInternal rate of return potential Free cash flow characteristicsFree cash flow characteristics
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 2020
The OpportunityThe Opportunity
Criteria for Evaluating Venture OpportunitiesCriteria for Evaluating Venture OpportunitiesExhibit 4.8 - TimmonsExhibit 4.8 - Timmons
Harvest IssuesHarvest Issues
Value-added potentialValue-added potential Valuation multiples Valuation multiples and comparablesand comparables
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 2121
The OpportunityThe Opportunity
Criteria for Evaluating Venture OpportunitiesCriteria for Evaluating Venture OpportunitiesExhibit 4.8 - TimmonsExhibit 4.8 - Timmons
Competitive Advantage IssuesCompetitive Advantage Issues
Fixed and variable costsFixed and variable costs Control over costs, prices, and distributionControl over costs, prices, and distribution Barriers to entryBarriers to entry
Proprietary protectionProprietary protectionResponse/lead timeResponse/lead timeLegal, contractual advantageLegal, contractual advantageContracts and networksContracts and networksKey peopleKey people
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 2222
The OpportunityThe Opportunity
Criteria for Evaluating Venture OpportunitiesCriteria for Evaluating Venture OpportunitiesExhibit 4.8 - TimmonsExhibit 4.8 - Timmons
Management TeamManagement Team
Entrepreneurial teamEntrepreneurial team Industry and technical Industry and technical experienceexperience IntegrityIntegrity Intellectual honestyIntellectual honesty
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 2323
The OpportunityThe Opportunity
Criteria for Evaluating Venture OpportunitiesCriteria for Evaluating Venture OpportunitiesExhibit 4.8 - TimmonsExhibit 4.8 - Timmons
Fatal-Flaw Issue Personal CriteriaFatal-Flaw Issue Personal Criteria
Goals and fitGoals and fit Upside/downside issuesUpside/downside issues DesirabilityDesirability Risk/reward toleranceRisk/reward tolerance Stress toleranceStress tolerance
BA560 Venture Planning Prof. DowlingBA560 Venture Planning Prof. Dowling 2424
The OpportunityThe OpportunityCriteria for Evaluating Venture OpportunitiesCriteria for Evaluating Venture Opportunities
Exhibit 4.8 - TimmonsExhibit 4.8 - Timmons
Strategic DifferentiationStrategic Differentiation
Degree of fitDegree of fit TeamTeam Service managementService management TimingTiming TechnologyTechnology FlexibilityFlexibility Opportunity orientationOpportunity orientation PricingPricing Distribution channelsDistribution channels