Lecture #2: Entrepreneurship, the Venture, Opportunity

Kurt Skifstad skifstad@umich.edu

Fall 2011 Kurt Skifstad (skifstad@umich.edu)

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Calendar
September: October: November: the Entrepreneur, Opportunity, Business Models, Strategy Venture Creation, High-level Planning Detailed Business Planning

December:

Financing and Growing the Venture

Assigned: Due: Assigned: Due: mid-Sept., Beginning of October mid-October, end of semester

Product Proposal Project: Business Plan Project:

Fall 2011 Kurt Skifstad (skifstad@umich.edu)

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Administrative
Attendance process Grading (expectation management)

B-, B, B+

A-, A

Winter 2011

Fall 2011 Kurt Skifstad (skifstad@umich.edu)

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Review
The Value Chain The Validation Cycle What is an Entrepreneur?
Validate

Propose

Refine

Entrepreneurs vs. Inventors

2 Types of Ventures
W

Fall 2011 Kurt Skifstad (skifstad@umich.edu)

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Entrepreneurs
identify and exploit (previously unexploited) opportunities

Fall 2011 Kurt Skifstad (skifstad@umich.edu)

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The Venture
(the Firm, Organization, Corporation, )
A transformational entity which uses Intellectual Capital (IC) and Entrepreneurial Capital (EC) to create desirable outputs from available inputs
The Entrepreneurial Venture
Raw Materials Components / Modules Financial Capital Physical Assets Technologies

IC + EC

Valuable Products & Services

Reference: Dorf and Byers

Fall 2011 Kurt Skifstad (skifstad@umich.edu) Lecture 2 6

Intellectual Capital
Human Capital knowledge, capabilities, skills Organizational Capital patents, technologies, processes, databases, networks Social Capital relationships w/ customers, suppliers, partners

IC = HC + OC + SC

Reference: Dorf and Byers

Fall 2011 Kurt Skifstad (skifstad@umich.edu) Lecture 2 7

Entrepreneurial Capital
Entrepreneurial Competence Entrepreneurial Commitment

EC = Ecomp x Ecomm

Reference: Dorf and Byers

Fall 2011 Kurt Skifstad (skifstad@umich.edu) Lecture 2 8

Market Value of a Venture

For a given:
managerial efficiency, M Operating context, C Opportunity, Opp

The Market Value (MV) of a venture can be expressed as:

MV = M x C x Opp x Ecomp x Ecomm

Reference: Dorf and Byers

Fall 2011 Kurt Skifstad (skifstad@umich.edu) Lecture 2 9

 or, in other words

The value of your venture depends on:
The opportunity you are pursuing The context you are operating in Your competence Your commitment Your effectiveness*

* and lots of other things

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Four Steps to Starting a New Venture (one view)

1. An opportunity is identified 2. A solution is created which exploits the opportunity 3. Resources (financial and physical) needed to launch the business are acquired (or possessed) 4. An arrangement is completed (founders, business partners, investors) which defines how ownership and wealth are shared *** Selecting the opportunity is the most important step ***

Fall 2011 Kurt Skifstad (skifstad@umich.edu)

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OPPORTUNITY

Fall 2011 Kurt Skifstad (skifstad@umich.edu)

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Opportunity
Pronunciation: \-pr-t-n-t, -ty-\

1 : a favorable juncture of circumstances

2 : a good chance for advancement or progress

from merriam-webster.com

Fall 2011 Kurt Skifstad (skifstad@umich.edu)

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Circumstances
Market Technology Desire Risk Profile

Availability of Resources (people, $, etc)

Fall 2011 Kurt Skifstad (skifstad@umich.edu)

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5 Characteristics of an Attractive Opportunity

Timely current need or problem Solvable w/ accessible resources (in the near future) Important customer deems the problem important Profitable customer will pay (enough to drive a profit) Context regulatory, cultural, etc

Fall 2011 Kurt Skifstad (skifstad@umich.edu)

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2 Types of Opportunities
Opportunity Pull ~ market-driven Capability Push ~ solution-driven

Examples:
Apple FedEx Cisco

Fall 2011 Kurt Skifstad (skifstad@umich.edu)

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Nine Categories of Opportunity

Increasing the value of a product or a service New applications of existing means or technologies Creating mass markets Customization for individuals Increasing reach Managing the supply chain

Convergence of change
Process innovation Increasing the scale of the firm

Fall 2011 Kurt Skifstad (skifstad@umich.edu)

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Identifying an Opportunity
Serendipity luck is where preparation and opportunity meet
Post-it Notes, Microwave Ovens, Penicillin, Super Glue, etc

Trends and Discontinuities

Society Technology Markets

Technical Innovation
???

Fall 2011 Kurt Skifstad (skifstad@umich.edu)

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Selecting the Right Opportunity

Attractive Opportunity Timely Solvable Important Profitable Favorable context

Interests, Passions, Commitment Like the tasks Like the challenges Committed to do whats required

The Sweet Spot Capabilities / Skills Good at the needed tasks Willing to learn

Fall 2011 Kurt Skifstad (skifstad@umich.edu)

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Summary
Entrepreneurs
create

Ventures
to exploit

Opportunities

Fall 2011 Kurt Skifstad (skifstad@umich.edu)

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What is a Startup?
Eric Ries http://ecorner.stanford.edu/authorMaterialInfo.htm l?mid=2289

Fall 2011 Kurt Skifstad (skifstad@umich.edu)

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Homework #2 (due Tuesday 9/13)

1. What Myers-Briggs personality type is best suited to entrepreneurship? (explain, dont just provide the letters) Why? (~1 page)

2.

What is your Myers-Briggs type (find a free online test, or use previous results)? What might that mean about what you need to do to succeed as an entrepreneur? (~1 page)
Submit to CTools

http://www.humanmetrics.com/cgi-win/JTypes3.asp
Fall 2011 Kurt Skifstad (skifstad@umich.edu)

Next Time:
Evaluating the Opportunity Markets Competitive Advantage

Fall 2011 Kurt Skifstad (skifstad@umich.edu)

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