Entrepreneurship Readings Summary

Entrepreneurship

Reading 1: Beating the Odds When You Launch a New Venture

Risks should be uncovered and hedged in order of their importance and affordability.

BOB REISS. Board-game industry. At every turn, he seeks to reduce risks before making any significant financial investments or operational commitments. He limited his risk-capital to the cost of the game design and the prototype.

• Dead-killer risks. Your venture is doomed.
• Path-dependant risks (the risk of settling too early on a strategic direction). You’ll be run out of funds before you ever come to market.

E.g.: E Ink. Supplier of Amazon’s Kindle today. Electronic paper display technology.

They pursue three different strategic path: display signage (finally not successful), e-book, radio paper products. They reduced the costs by outsourcing marketing & production. They focused on technology.  

• Operational risks that can be disposed quickly and cheaply. You’ll transform a temporary setback into an insurmountable obstacle.

The founder of Netflix. He mailed himself a CD in a envelope to test the duration and the state of the CD. He tested one of the key venture’s operational risks.

Success comes to those who eliminate risks in the right order. Example: e-commerce website.

Customer demand > Product Mix > Website > Warehouse > Operating

Risk and value are inversely proportional. When you remove risk, you increase value.

        Test early, test cheaply. Two types of tests: targeted experiments (surveys, focus groups) and integrated experiments (a prototype,         a test-site location, launch the product in a real transactional environment). Experiments should help redirect a venture, not confirm that your initial ideas were correct.

Study: successful ventures have redirected their strategy at least five times before they hit a solid growth trajectory.

        The curse of too much capital. Venture capitalists invest in a way (different rounds) far more effective. The lower the risk, the greater the value. “Spend a little to learn a lot”. E.g.: Vermeer Technologies. Contender of WWW at the beginning, not enough money, so they changed. They took another path.

Reading 2: Breakthrough Thinking from Inside the Box

Three bad ways of leading a brainstorming:

• Thinking outside the box. Unstructured, abstract, boundless brainstorming is bad.
• Slicing and dicing old boxes. In the form of existing market and financial data OR special market research. That produces only small to middling, average insights. Easily imitable by competitors. Moreover, Market studies forecasted a flop for Sony Walkman and a limited demand for cell phones… They rarely find out the latent, hidden need.

“There are no bad ideas” “Go wild”→ abstract brainstorming is bad. You need to structure, posing the right question. Half the battle, you need also to organize and conduct your brainstorming in a good way.

Study inside two kinds of companies who built their success on breakthrough ideas:

• Large companies
• Garage-based start-ups

E.g. what is the biggest hassle about using or buying our product?

Insights:

• CarMax: used cars with warranties purchased in a pleasant environment at reasonable, fixed prices.
• Prepaid cell-phones that can be bought off-the-shelf (thus avoiding the long set-up and high phone bills).

The world is still full of such opportunities.

E.g. gas station directly in your parking

The most fertile questions focus the mind on valuable overlooked corners of the universe of possible improvements.

E.g. a music magazine’s logic tree for generating fresh article ideas

How to better orchestrate the process?

• Small groups of 5 people. Pay attention to pushy people.
• Select people who can produce original insights. E.g. mountain bikes result of a subset of customers.
• Define good idea: the criteria and the boundaries.
• Choose question based on incremental ideas VS breakthrough idea. E.g. Michael DELL with his mail-order distribution model

Reading 3: Strategic Innovation at the Base of the Economic Pyramid

ANDERSON & MARKIDES

Recent enabler of strategic innovation: ICT

Innovation takes place when a company identify a map in the industry positioning map, goes after them and these gaps grow to become big markets.

Identifying new gaps with 3 main questions:

• WHO should we target?
• WHAT value proposition we offer? (customer needs and wants)
• HOW we offer these products in a cost-efficient way?

Innovation in developed world OK but what of developing world? BOP (bottom of the pyramid) market

• WHO: useless, demand already very large

For a reminder, in developed world, companies tend to focus on delivering new or different benefits to customers:

• Swatch emphasize the design and coolness; Seiko the accuracy and the price        
• British Airways emphasize the frequency of routes and service; easyJet  the price

In developing world:

• WHAT: to offer and adapt products coming from the West. Company must change the price-performance ratio in a dramatic way and/or to modify the product in ways that make it culturally acceptable. Affordability and acceptability
• HOW: focus on distribution channels (availability), to create demand (awareness)

• 4As : affordability, acceptability, availability and awareness

Examples:

• Availability. Distribution and storage costs too high, especially in isolated regions. Target: rural population. TATA Nano: flat-pack automobile by TATA. Local retailers are in charge of the assembling.  Low-cost product.
• Acceptability. Relevance of women hairs in Indian culture. Prejudice: low-cost shampoo would harm hairs. General purpose soap, Breeze 2-in-1, big success.
• Awareness. NOKIA with Nokia Mobile Vans. Acts as travelling retail. They achieved over six millions customer contacts.

Reading 4: Entrepreneurs and the Cult of Failure

• Freud: fear is when you irrationally react to a simple stick as it was a dangerous snake.
• Fear is actually good: it helps protect us from things that are dangerous – such as risk taking. Healthy fear.

Failure is a nature part of doing business

Failure comes early; success takes time. Early failures important to learn and to spot the good opportunities. 

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