the ideas to business

Innovative New Business Design Process PyramidBusiness Environmental Influences Persona target market segment Product Idea Starter Concept Solution Positioning Statement Bus Hypothesis P

Idea to Business

(Hint: it’s a journey not a task)

Process Overview

TL Faley, PhDManaging Director, ZLI

April 3, 2008

… And the steps you skip will destroy any chance of success

WRONG

Non-Linear, Interdependent, Process Phases

• Phase I: Business Design

– Identifying opportunities and shaping business concepts

• Phase II: Feasibility analysis and assessment

• Phase III: Creating your business plan

• Phase IV: Launching your business

– Aligning the necessary resources (including money)

• Phase V: Growing your business

• Phase VI: Exiting your business

– From succession planning to IPOs

3

Short Overview Articles

• “The Process of Business Creation ,” TL Faley, Inc Magazine (on-line), August

A Staged, Gated Process to Plan

Innovation

Source

Business Hypothesis

Business Hypothesis

Business Feasibility Study

Business Feasibility Study

Business Plan

Other entrants

Other entrants

Hypothesis strong enough to merit deeper investigation?

Business merit planning/launching?

Opportunity What Who are your users?is the product or service?

Why do they buy?

How does your business make money?

Customers Market Industry Company Team

Full Plan and Investor Pitch

Assessment

Integration

Levels of Thinking/Planning

• Business Design – Vector Direction

– Structured, Detailed, but Qualitative

• Assessment - Vector Dimension

ZLI Programs that can help

Dare to Dream encourages

the thoughtful development of student-led businesses

AND the development of student entrepreneurial skills and

understanding

ZLI Activities for 2007-08

Frankel Commercialization Fund Wolverine Venture Fund

Michigan Business Challenge

& Intercollegiate Competitions

Entrepreneurial MAP domestic & international opportunities

Marcel Gani Internship Program (includes self-hosted internships)

Michigan Growth Capital Symposium

Private Equity Conference

Entrepalooza: Exploration of entrepreneurship across multiple industries and business stages

Where you are

• Some of you have identified a compelling unmet market

need or emerging market

• Some of you have identified a product that is the

embodiment of some interesting technology or other

innovation source

• A rare few of you have product concepts targeted at

specific users

Where you are not

• None of you have a sustainable business design

• So let’s first talk about how you get to a complete business design

11

Innovative New Business Design Process Pyramid

Business Environmental Influences

Persona (target market segment)

Product Idea (Starter Concept)

Solution Positioning Statement

Bus

Hypothesis

Product Offering

Building the Iceberg

from the bottom up

Business Hypothesis

• What is your product/service?

(What does your company do?)

• Who are your customers?

• Why will they use your product?

(Value proposition to the user?)

• How does your company make money?

(Company’s value capture mechanism?)

Business Hypothesis:

Core Elements of the Business Model

Core Business Elements:

Your Business Hypothesis

•What is your product/service?

•Who are your customers?

•Why do they use your product?

•How does your company make

money?

Marketing Strategy Distribution Strategy Product Strategy (leading edge, service, low cost?) Business Partnerships/Alliances

15

Outputs of each portion

Persona (target market segment)

Product Idea (starter concepts)

(ex technology)

Business Environmental Influences

Bus

Hypothesis

Product Offering

Business Formulation:

• Explicitly determine Businesses’ Product Offering

• Determine precisely what the business does

• Determine Business’ Value Proposition

• Both value creation & capture.

Product Concept Creation:

• Determine core enabler benefits

• Product concept brainstorming

• Market segmentation

(persona development for new markets)

• Determine Product Benefit / Customer

Timing

Identify the Innovation

source that enables the

opportunity now

Solution Positioning Statement

Innovation Source(s)

BUSINESS HYPOTHESIS What is the product or service offered?

(exactly what does the company do/provide?)

Who are your users?

Why will they use your product?

How does your business make money?

POSITIONING STATEMENT For (target segment)

The (product/brand)

Is (most important benefits)

Because (reason why,

Take an initial guess at a business hypothesis

Business Hypothesis

Influence Diagram

Business Positioning

Product

Offering

• Working through the business environmental influences

• Finding the Path to Commercialization

Business Hypothesis Elements

• What precisely is your product/service?

– What precisely does the company do?

• Who are your customers?

– What is your target persona? (Need-based market

segment?)

• Why do they use your product?

– What Value do you create/problem do you solve for the

user?

• How does your company make money?

– Value capture mechanism

17

What is your product or service?

• What specifically does your company do?

Distribution Sales

Marketing Mfg

Product Design Technology

Raw Materials

Less is more

“I have often said there are three types of business:

making stuff, selling stuff, and servicing stuff

The usefulness of this for a startup is that too many

business plans attempt to be in two or more different sorts

of businesses Being good at one thing is tough enough

Being good at two or more is even tougher! ”

Charles Fry, serial entrepreneur

19

How do you make money?

• Product retail sales: using value chain  HP

• Product internet sales: direct to customer  Dell

• B2B: commercial purchase on terms  Xerox, BASF

• Advertising: provide ad space  Yahoo, ABC

• Licensing: per unit revenue, payable  IBM, universities

• Consulting: fee for service or impact  McKinsey

• Services: per unit charges H&R Block

• Transaction fees: per activity  eBay

• Subscription: content over time  Consumer Reports

• Affiliate: referrals and partnerships  Amazon

Refining the top of the Pyramid

Persona (target market segment)

Product Idea (starter concepts)

(ex technology)

Business Environmental Influences

Bus

Hypothesis

Product Offering

Business Formulation:

• Explicitly determine Businesses’ Product Offering

• Determine precisely what the business does

• Determine Business’ Value Proposition

• Both value creation & capture.

Product Concept Creation:

• Determine core enabler benefits

• Product concept brainstorming

• Market segmentation

(persona development for new markets)

• Determine Product Benefit / Customer

Timing

Identify the Innovation

source that enables the

opportunity now

Solution Positioning Statement

Innovation Source(s)

BUSINESS HYPOTHESIS What is the product or service offered?

(exactly what does the company do/provide?)

Who are your users?

Why will they use your product?

How does your business make money?

POSITIONING STATEMENT For (target segment)

The (product/brand)

Is (most important benefits)

Because (reason why,

Business Positioning Evaluation Loop

Business Hypothesis

Influence Diagram

Business Positioning Product

Offering

Business Positioning Evaluation Loop

Business Hypothesis

Influence Diagram

Business Positioning Assessment

Product

Offering

23

• Where is your proposed company in the value chain?

Value Chain: Material, Money, and information flow

Design

Manufacture

Sales

ConsumerDistribution

25

Value Chains can be complicated….

Value Chain Assessment

• Value ($-flow) versus Supply Chain (material-flow)

– ID Who has the Value Capture Power now?

• Value Creation through:

– Become a New Entrant (competitor of existing products; cheaper, better,

faster)

– Create a Substitute (alternative to existing solutions—different way of doing

something; search engine v yellow pages)

– Aggregation/Consolidation

• Industry consolidation to shift 5-forces equilibrium

– Collapsing the Value Chain

• Eliminating links out of the chain (ala Dell)

– Addressing an emerging market (see innovation sources)

– Other?

• Exploit new technology (ex internet) to get economy of scale of services (ex: call centers)

27

What?

• What are does your company really have?

• What is the driving need/desire of the proposed

buyer ?

• What complementary assess (CA) does your

company need to deliver its product that fulfills

this need?

• What complementary benefits (CB) does the

company’s product also need to deliver in order to

satisfy the complimentary needs of the customer?

Teece’s Framework: Determining the optimal value-capture vehicle for your Intellectual Asset

Niche Business Potential

IAs have

no capturable

value

Strong New Business Potential

License to

or Partner with

If control the IA and

the CAs, then you have

the potential to create

an extremely

well-positioned business.

Note: This assessment assumes that you are the IA holder,

but do not currently have the complimentary assets necessary to fully commercialize your IA.

Ref: David Teece, 1986

Intellectual Assets (IAs)

Intellectual Assets continued

• Life of author plus 70 years

• “Work for Hire”

– 95 years from first publication – or 120 years from creation

– Subject Matter

• Works of authorship

• Fixed in any tangible medium

• Expression, not concepts

31

Complimentary Assets

• All those things necessary to transform the assets you have

into the products/services your customers desire (and

delivering it to them)

• Advantaged Complimentary Assets:

– Physical and intellectual assets:

• Brand name

• Manufacturing Plants

• Distribution channels

• Customer relationships

• IP that others may need (blocking their ‘freedom to practice’)

• Resources (ex: deep financial pockets)

– Capabilities:

• Manufacturing or design capabilities

• Sales and service expertise

• How does the company plan on acquire/gaining

access to its necessary complimentary assets?

Business Positioning Evaluation Loop

Business Hypothesis

Influence Diagram

Business Positioning

Product

Offering

• Who holds the value capture power?

– Porter’s Five Forces

– Use Company Operating Margins for companies across

the chain as a proxy for relative value capture strength

• www.hoovers.com

35

Porter’s 5 Forces: Industry Analysis

Industry Competitiveness

Threat of New Entrants (Barriers to Entry)

Porter’s 5 Forces:

Industry Value-chain Analysis

Industry Competi- tiveness

Threat of New Entrants

Bargaining Power Of End users

Industry Competi- tiveness

Industry Competi- tiveness

Threat of New Entrants Threat of New Entrants

Threat of Substitute Products/Services

Threat of Substitute Products/Services

• Who hold the “value capture” power?

37

Can you Shift the equilibrium of the Industry’s Balance of Power?

Business Positioning Evaluation Loop

Business Hypothesis

Influence Diagram

Business Positioning

Product

Offering

Innovative New Business Design Process Pyramid

Business Environmental Influences

Persona (target market segment)

Product Idea (Starter Concept)

(ex technology)

Solution (Positioning Statement)

Bus

Hypothesis

Product Offering

Innovation Source(s)

What’s the difference?

Solution to Product Offering

• Company Product Offering as a subset of “Solution”

– Example: Users need faster processing computer

– “Solution” is a new, advanced processing chip

– Intel/AMD own (expensive/specialized) complementary assets

– Your Company Offering becomes a chip design and you partner with

Intel/AMD/TSMC for mfg.

• Company Product Offering as a superset of “Solution”

– Example: Users need information on joint replacement therapy

– “Solution” is content/information

– Efficient Channel to deliver content to user does not exist

– Complimentary assets to create channel are cheap/generic

– Your Company Offering becomes a web portal for joint replacement therapy

information

Business Positioning Evaluation Loop

Business Hypothesis

Influence Diagram

Business Positioning Assessment

Product

Offering

41

The Innovation Process Pyramid

Business Environmental Influences

Persona Starter conceptSolution idea,

Bus

Hypothesis

Product Offering

First Down, then up. Business Hypothesis• What is your product/service?

(What does your company do?)

• Who are your customers?

• Why will they use your product?

(Value proposition to the user?)

• How does your company make money?

(Company’s value capture mechanism?)

Solution (Positioning Statement)

Talk to people!!

• Especially potential customers!!!

• Let them help you design the future

• Be aware: People adopt to their surroundings accept

what currently is

• Need to “read between the lines”

– The Why Chain

– LOCA (Latent Observations / Constant Annoyances)

43

Outputs of each portion

Persona (target market segment)

Product Idea (starter concepts)

(ex technology)

Business Environmental Influences

Bus

Hypothesis

Product Offering

Business Formulation:

• Explicitly determine Businesses’ Product Offering

• Determine precisely what the business does

• Determine Business’ Value Proposition

• Both value creation & capture.

Product Concept Creation:

• Determine core enabler benefits

• Product concept brainstorming

• Market segmentation

(persona development for new markets)

• Determine Product Benefit / Customer

Timing

Identify the Innovation

Solution Positioning Statement

BUSINESS HYPOTHESIS What is the product or service offered?

(exactly what does the company do/provide?)

Who are your users?

Why will they use your product?

How does your business make money?

POSITIONING STATEMENT For (target segment)

The (product/brand)

Is (most important benefits)

Because (reason why,

underlying enabler)

WHY NOW?

Opportunity Drivers

Developing a Feasibility Study

More Detail – More Quantitative

COPYRIGHT © 2006 THE REGENTS OF THE

UNIVERSITY OF MICHIGAN ALL RIGHTS RESERVED

• The Firm (a.k.a Micro-Industry)

• Team: Mission, Aspirations, and Risks

• Team: Can you execute?

• Team: Connectedness

• Summary

Business Assessment Framework

TEAM DOMAIN

Connectedness up, down, and across value chain

Ability to execute CSFs

Missions, aspirations, Propensity for risk

Macro-level

Micro-level

REF: The New Business Road Test, John Mullins © 2003

Market Attractiveness

Industry Attractiveness

Target segments benefits and attractiveness

Sustainable advantage

Value-capture position

(IA vs CA) (Teece, 1986)

Product Differentiation (Intellectual Assets)

Opportunity  Assessment

Building the foundation for the assessment phase

The Business Hypothesis

Macro-level

Micro-level

Market Attractiveness

Industry Attractiveness

Target segments benefits and attractiveness

Sustainable advantage

Business Product Offering

Solution Positioning Statement Business Environmental Influences

• Use this opportunity to set up your audience

• One or two paragraphs

– Clear elaboration of the Core Concept

• Should clearly answer

– The hypothesis, model are you testing, e.g

• Be clear about the product or services your company sells

49

Micro-Market Pain

• What customer pain will you resolve?

• What are potential customers doing now?

– A current solution does exist

• Does your product offer clear and compelling benefits?

• In the customers’ minds, are these benefits superior to

what’s currently offered?

– Is this better, faster, cheaper, prettier, etc

• Why now?

– Connect timeliness of solution to the market pain