TEACHING AND ENCOURAGING ENTREPRENEURSHIP AND

INNOVATION

Belarus Universities

DR. KENT MILLINGTONOCTOBER 2012

TOPICS OF DISCUSSION

• Innovation• Opportunity Recognition• Managing Innovation• Technology Commercialization• Developing New Business• Business Model canvas

Entrepreneurship Risks and Rewards

• Business Failure• Unpredictable Business Conditions• Long Hours• Product/Service compete on Price only• Imitation strategy

Risks:

Entrepreneurship Risks and Rewards

• Financial• Emotional – building a business• Pride• Recognition• Flexibility• Creativity

Rewards:

ENTREPRENEURSHIP: THE ART AND SCIENCE OF BUILDING VALUE

ART: CREATIVITY; ENERGY; FEEL; INSIGHT

SCIENCE: ANALYSIS; DISCIPLINE; SYSTEMATIC APPROACH

Identify a need or opportunity

Create a solution - Innovation

Implement solution to create value

Harvest or other long-term strategy

ENTREPRENEURSHIP

Two Kinds of Entrepreneurship

1. Opportunity – based2. 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 InnovationImitative: copies something well-known and acceptedIncremental: small improvements; faster, better,

cheaperEvolutionary: new to firm but not to world (i.e.,

technologies in new places)Radical: technologies that give large performance

improvements or lower costsRevolutionary: new to individual, firm, and the world

Best Opportunities between Incremental and Radical

Latest science and technology

Needs in society and the marketplace

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

The Creativity-Innovation-Entrepreneurship Chain

Types of Innovation1. 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

NewnessPotential Economic ValuePerceived 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.

•Alertness •Social Network Ideas•Prior Knowledge

-Of markets-How to service markets-Customer problems-Accumulation over time

Example: Focus Media in Shanghai

A Framework

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 GapSocial: Social and Cultural trends, Historical trends

Economic:State of the Economy, Level of Disposable Income, Changing Investment Opportunities

Technology:Emerging technologies, Re-evaluating existing technologies

Product Opportunity Gap

Discontinuous opportunities: The source of radical innovation

NewMarkets

ExistingMarkets

Existing Products/Technology

New Products/Technology

Adjacent

Opportunities

Exploit current assets

and capabilities

Status QuoGrow marketshare and profit(business expansion,not new businessdevelopment)

Adjacent

Opportunities

Increase primary

market demand

Discontinuous

Opportunities

Create new markets

and new products

… which create disproportionate wealth relative to adjacent opportunities

14%

86%Adjacentopportunities

Discontinuousopportunities

38%

62%

61%

39%

Type of newBusiness 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.

• 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

Creating Competitive Advantage

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

Time

Performance

Product

The S-Curve of Technological Progress

S – Curve Strategy

1st Technology

2nd Technology

3rd Technology

Time

Performance

Product

Managing Along the S – Curve

1st Technology

2nd Technology

3rd Technology

Time

Performance

Product

Managing Growth

ManagingTransitions

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

Imagining Incubating Demonstrating Promoting SustainingCreating unique product ideas

Proving product viability

Build prototypes

Build products & introduce to markets

Build markets & improve products

Find interested people & money

Find resources to build prototypes & identify markets

Build initial markets & plan market expansions

Develop market growth strategies

Product planning steps

Business planning steps

Technology Commercialization Process

Resource Needs

People Small Moderate Medium Large

Physical None Moderate Medium Large

Financial None Moderate Large Largest

Technology Assessment

1. Understand Technology2. Discover Possible Uses of Technology3. Understand Markets for Uses4. Determine How to Deliver Value

How Companies Develop1.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

Concept/Bus. Plan

Product Dev.

Alpha/Beta Test

Launch/1st Ship

Product Development

Customer Development

? ? ? ?

Customer Discovery: Step 1

CustomerDiscovery

CustomerValidation

CustomerCreation

CompanyBuilding

• 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

CustomerDiscovery

CustomerValidation

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.

– 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 3

CustomerDiscovery

CustomerValidation

CompanyBuilding

CustomerCreation

– 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

Customer Discovery: Step 4

CustomerDiscovery

CustomerValidation

CompanyBuilding

CustomerCreation

Nine Blocks of the Business Model

1. Customer Segments2. Customer relationships3. Value propositions4. Channels5. Key Resources6. Key Activities7. Key Partners8. Revenue streams9. Cost Structure

Business Model Generation, Alexander Osterwalder & Yves Pigneur, 2010

Business Model Canvas

Key Partners Key

Activities

Key Resources

Value Proposition Customer

Relations

Customer Segments

Channels

Cost Structure Revenue Streams

Customer SegmentsMass 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.

ChannelTypes

Own Partner

Direct Indirect

Sales Force

Web Sales

Own Stores

Partner Stores

Wholesale

1. Awareness: How to raise awareness of products?2. Evaluation: How do customers evaluate products?3. Purchase: How and where do customers buy?4. Delivery: How do we deliver value proposition?5. After Sales: How provide post-purchase support?

Channel Phases

Customer Relationships

Motivations: Customer acquisition, customer retention, Boosting sales (upselling)

Personal AssistanceDedicated Personal AssistanceSelf-serviceAutomated serviceUser communitiesCo-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 Economies of scope Fixed costs Variable costs

Business Model Canvas

Key Partners

Key Activities

Key Resources

Value Proposition

Customer Relations

Customer Segments

Channels

Cost Structure Revenue Streams

Business Model Canvas – SWOT Analysis

KP KA

KR

VP CR CS

C

C$ R$

Strengths

Opportunities

Weaknesses

Threats

Internal

External

Helpful Harmful

Business Model Canvas – Value Innovation

KP KA

KR

VP CR CS

C

C$ R$

- Costs + Value

Business Model Canvas – Value Innovation

KP KA

KR

VP CR CS

C

C$ R$

- Costs + Value

Eliminate

Reduce

Raise

Create

Cost Side Value Side

Apple iPod/iTunes Business Model

What about your Company????

Business Model Canvas for Apple iTunes

KP KA

KR

VP CR CS

C

C$ R$

Record Companies

OEMs

Hardware Design

Marketing

PeopleBrand NameiPod hardwareiTunes software

Seamless Music Experience

Lovemark

Switching Costs

Mass market

Retail stores Apple storesApple.com

People Manufacturing Marketing and sales

iTunes storesLarge hardware revenuesSome music revenues

ENCOURAGING ENTREPRENEURSHIP

• 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