Entrepreneurship the Seven Domains and Academic ... - Lu

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School of Economics and Management | Xxxxxxxxxxxxxxxx | Xxxxxxxxxxxxxx | (D) D Month YYYY

Putting The Seven Domains to Work to Develop Your Opportunity

PROFESSOR FRÉDÉRIC DELMAR


Who am I and what I teach?

•  Phd 1996 Stockholm School of Economics

•  Entrepreneurship •  New venture creation (opp

identification and exploitation) •  New venture growth

•  Undergraduate, master, IMBA, EMBA, PhD

•  UmU, SU, SSE, EMLYON, HEC Montreal, LU


Marston Venture Management What happend ?

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ProCom

•  Bootstrapped the business with money from 3Fs to prove the model

•  Raised $4 million from GE Capital when e-learning was all the rage

•  Have treaded water since, no exit, but still around: the “living dead”


Oxiden

•  Raised £5 million from 3i •  Took two years to get product to market •  Then, a very lengthy sales cycle followed

•  There was another solution… •  Died after 4 years


Darian Holdings

•  Raised small amount of angel money •  An opportunity arose to buy a competitor at a very attractive

price

•  Having considerable success

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Glencoren

•  Turned down by several investors, but did eventually raise a small amount for proof of concept

•  Now trying to raise the next round

•  A very long lead time play – changing surgeons’ behavior takes a long time


Research Question

How do entrepreneurs (and investors, too?) best assess market opportunities?


The Conventional Wisdom

•  Three crucial factors for entrepreneurial success – Management… – Management…

– Management!

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In the World Of Warren Buffet

« When a business with a reputation for poor fundamentals meets a

management team with a reputation for brilliance…

It’s the reputation of the former that remains intact »


Integrating the Seven Domains Framework

Macro Level

Micro Level

Market Domains Industry Domains

Mission, Ability to Aspirations, Execute Propensity on CSFs for Risk Connectedness up and down Value Chain

Team Domains

Market Attractiveness

Target Segment Benefits and Attractiveness

Industry Attractiveness

Sustainable Advantage


Macro-level

Market domain Industry domain

Micro-level Sustainable advantage

Market attractiveness

Target segment benefits and attractiveness

Industry attractiveness

Mission, aspirations, propensity for

risk

Ability to execute

Connectedness up, down, and across value chain

Team domain

What industry forces have the strongest impact on profitability? How are industry forces likely to change in the future?

What entrepreneurial or firm- level capabilities create a sustainable competitive advantage relative to rivals or potential rivals?

Is the market large enough? What is the growth rate and the upside potential?

To which target market is the venture’s value proposition particularly compelling? Is the target market large enough to support the business model? Does the target market provide an Option to grow into other markets?

Does the team have what it takes, in a human sense – in experience and industry know-how – to deliver superior performance for this particular opportunity?

Is the team well connected up, down and across the value chain so it will be quick to notice any opportunity or need to change its approach if conditions warrant?

Does the opportunity fit the team’s business mission, personal aspirations, and risk propensity? Venture

strategy

Potential Profitability

of opportunity

e) The Logic of Analyzing New Venture Opportunities, LBS Source: Mullins, J.W. (2003). The New Business Road Test. Prentice Hall: London

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General Guidance

•  The domains are NOT additive; their relative importance can vary

•  The wrong combination of factors can kill your venture •  Strength on some factors may mitigate weaknesses on

others


Scoring System

•  Score your opportunity on the seven domains (1-10) •  Are there any domains which score very highly/ very

poorly? •  Does a strong score in one domain affect a poor score in

another domain? •  For domains with intermediate scores, reshape the

opportunity if possible to counteract the difficulties


Deal Makers

•  There is no single domain where a strong score can by itself be a deal maker

•  Niche market opportunities – strength in micro dimensions is key

•  High potential opportunities – strength across domains is desirable

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Deal Breakers

•  Failure to provide a differentiated solution to customer pain (micro market domain)

•  Lack of ability to execute on CSFs


Unattractive Macro Level Domains

•  May be overcome by strength at the micro level •  Especially if a strong, well connected team is in place

–  Innovation may cause a stagnant market to grow – Differentiation which is difficult for competitors to copy

may provide sustainable competitive advantage


Opportunities for Niche Market Entrepreneurs

•  Macro-level factors of less importance •  Compelling customer benefits and clear differentiation in

a carefully targeted segment is key

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Five Common Traps To Avoid

•  The large market fallacy •  The better mousetrap fallacy •  The no sustainable business model trap •  The me-too trap •  The hubris trap


Investors want to know…

•  Marketing research has been undertaken •  There is evidence of genuine demand •  That there is a genuine appreciation of the competition


Task

•  You have until the end of the course to identify, research, and prepare a presentation

•  Analyze your own “entrepreneurial dream” using the Seven Domains model

•  Which elements concern you? Can you overcome the problem by reshaping the opportunity?

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Some extensions

•  Be able to describe the idea on which you want to commit – Solve a problem, net positive cash flow, limited risk,

superior, change in industry

•  Be able to describe why you feel it is a good idea –  Financial model, good advice, uniqueness, targets a

big market, ”intuition” •  See my handout


Academic Entrepreneurs

•  When solution search for problem •  Distance from customer •  Limited industrial and entrepreneurial experience

•  The importance of HC for CA •  High uncertainity

•  High velocity •  Market for technologies (licensing), market for product

and services


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University ”third mission” system The innovation system:

Patenting

University industry collaboration

Research into practice

Mostly faculty!

The entrepreneurship system:

Students, faculty starting new ventures

Mostly students!


Why are we do we care?

The social returns to entrepreneurship?

Economic development and growth, competition, job creation

The individual returns to entrepreneurship?

Highly uncertain income, financial risk taking, delayed returns


Some recent results

•  Åstebro T, Braguinsky S, Braunerhjelm P & Broström A, (Forthcoming). ACADEMIC ENTREPRENEURSHIP -- Bayh-Dole versus the “Professor’s Privilege”. Science.

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Table 1. Main findings. A comparison of the differences in the rates of entrepreneurship and

earnings improvements for prior academics and non-academics becoming entrepreneurs

between the U.S. (1993-2006), and Sweden (1999-2008).

University-

employed

Ph.D.

Non-university

employed

Ph.D.

Relative

Entry Rate

U.S. Bi-annual entrepreneurship

rate

0.9% 4.0% 23%

Earnings difference from

switching to entrepreneurship

-15.1% -16.0%

Sweden Bi-annual entrepreneurship

rate

1.1% 2.5% 45%

Earnings difference from

switching to entrepreneurship

-9.7% -12.1%

Source: Authors’ estimates using NSF data and Statistics Sweden data.


Survival

•  The worst performing are likely to become S-E •  After two years, 60% of Swedish academic entrepreneurs

have given up while a smaller fraction of U.S. academic entrepreneurs have quit (about 40%).

•  This is considerably larger failure rates when compared population data the respective countries (Andersson and Klepper, 2013).

•  About 66% of Swedish academics who give up their entrepreneurial ambitions return to academia, while only a third of Americans do.


Firm performance

•  These firms contribute significantly to productivity in their industries, i.e., spillover effect

•  They create value but seem to be unable to approiate value (i.e., low growth), but somewhat higher survival

•  Period 1995-2002 •  Delmar, F., Wennberg, K. & Hellerstedt, K. (2011). Endogenous

growth through knowledge spillovers in entrepreneurship: An empirical test. Strategic Entrepreneurship Journal, 5, 199-226.

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Conclusions

•  Innovation systems ≠ Entrepreneurship systems •  The social returns ≠ The individual returns •  At individual faculty level:

–  Rare, reduce income (- 10%), negative selection, low survival and low growth in their firms

–  Contribute to growth –  Do not expect researchers do things they do not know! –  Large differences in relative rates between US and Sweden

due to different systems –  We still know very little about e-ship coming from students


Conclusions

•  Different models, learn to use them proactively •  It is a question of fit (individual, opportunity, context) •  Think dynamically, it is a process •  Differ between description and argumentation •  Ask questions •  Gear up for the sale process (to help the customer to

solve a problem)


Entrepreneurship the Seven Domains and Academic ... - Lu

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