Assessing Technology Ventures: Building Entrepreneurial Competencies

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Assessing Technology VenturesBuilding
Entrepreneurial Competencies

• Dr. Alan L. Carsrud
• Center for Global Entrepreneurship and Innovation
• Florida International University
• (Based on the work of Professors Carsrud,
  Brannback, Sternberg, Foster and others)

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How can we make betterinvestment decisions in
terms of time, people and money?

• What are the really critical areas we need to
  initially focus on during an analysis?
• How can we more effectively and quickly evaluate
  potential new ventures?
• What works with different technologies?

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Lets take a scientific approach to the process by
testing some hypotheses rather than jumping to
conclusions.
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Whats a Hypothesis ?

• A tentative explanation that can be tested by
  further investigation.
• A supposition provisionally assumed to be true
  which acts as a guide to investigation.
• A statement to be proved or disproved.

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So where does an investor start to find the
answers to these hypotheses?
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What sections of a business plan should I read
first?

• Executive Summary
• Introduction
• Product
• Market
• Operations
• Legal
• Sales Marketing
• Competition

• Financial forecasts
• Ownership capitalization
• Use of funds
• Organization
• Management
• Officers
• Directors advisors

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The Value Proposition
Technology Product
Market
Value Proposition
Problem
Benefits
Management
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H1 The new technology will provide increased
capabilities to the user.

• Technology should yield significant benefits in
• Performance
• Functionality
• Capabilities
• Cost reduction
• Two or more of the above

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Assessing High Technology(but not necessarily
biotechnology)
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Product Technology

• H2 This technology is not a radically new,
  disruptive technology that will replace current
  technology
• Examples 8 to 5 1/4 to 3 1/2 disk drives
• Might be more expensive initially, lower cost
  after majority adoption

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Product Technology

• H3 There are no technology standards issues.
• Technology based on stable standards
• Not in a current technology standards conflict
• (or will this replace an existing standard that
  is outmoded)

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Assessing Markets Market Needs
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Yardsticks in Market Assessment

• Increasing levels of confidence
• Why are they here asking for money, we have no
  idea what they do and who would care.
• Recites publicly available statistics (lowest)
• Purchased available research study
• Commissioned a custom market study
• Personally conducted own market study
• Interviewed 15 target market customers
• Signed up beta test customers

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More Yardsticks

• Has fully operational satisfied customers
• Has clearly defined detailed sales pipeline by
  prospect name
• Why are they here asking us for money, they dont
  need it.

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Technology Assessment
Technology
Functional Capabilities
Benefits
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Example Portable PCs

• Functional Capabilities
• Weight
• Size/Volume
• Processor speed Mhz
• Battery life

• Benefits
• Portablity
• Effective compute power
• Maximum time without power connection

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Example Fiberoptic Cable

• Functional Capabilities
• Low weight/size/cable
• Less signal attenuation
• High message volume capacity
• Fast transmission
• Immune to cross talk, RFI and EMI

• Benefits
• Easier to install lower cost
• Fewer re-transmission amplifiers
• More clear signals
• Easier to trouble shoot maintain

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Example DSL Line

• Functional Capabilities
• Uses existing twisted pair telephone line
• 15-20 times faster than 56kbps dial up modem

• Benefits
• No new line installation required
• Enables service operators to sell more broadband
  services

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Example Email

• Functional Capabilities
• Multiple addressees
• Instantaneous, electronic transmission
• One click reply forward
• Stored addresses
• Electronic message storage

• Benefits
• Easy mass mailing
• No delay
• Quick easy response
• Minimal
• No paper, no postage, no envelopes, no storage
  cabinets

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Example Cellular Short Message Service (SMS)

• Functional Capabilities
• 160 characters/message
• Faster to transmit than voice minimum
  transmission time
• Message immediately transmitted
• Email on a cell phone

• Benefits
• Less costly to transmit
• Cellular services price lower than voice calls
• Silent, doesnt ring, discreet messaging
• Instantaneous transmission

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Market Hypotheses

• H4 Competitive environment acceptable
• 1 or 2 major competitors maximum
• H5 Segment addressable
• Segment is unique, identifiable, reachable
• H6 Segment critical problem
• Target customers can verbalize their problem
• Serious problems exist

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• H7 Small segments better for startups
• H8 Segment knowledge critically important

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Product Hypotheses

• H Product is unique breakthrough
• Advanced over current state of technology
• H Product concept is proven
• Developed and beta tested
• Solid technical foundation
• No standards issues

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Examples

• Documentum
• Concorde Jet
• Camouflage painting

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The Value Triad3 Basic Elements of a Value
Proposition
Customer
Value Proposition
Product
Application
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The Value Triad

• An analysis tool
• Has three inter-related elements
• Product
• Customer
• Application A set of functional capabilities
  or features
• All three interact to create a value
• This value is what customers buy

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The Value Proposition

• The combination of product application creates
  value for a particular customer segment
• Is something to sell
• Forms the basis of
• Marketing
• Advertising
• Promotional programs

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• Change any element of the triad and it creates an
  entirely new value proposition

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Value Triad Example

• Customer Consumer in their own kitchen
• Product A 3.00 manual eggbeater
• Application Bake a family birthday cake
• Value Proposition
• A manual eggbeater can save you time and energy
  over using a spoon to bake a single cake

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Another version

• Customer Owner of Bed Breakfast Inn
• Product A 350 Hobart table top mixer
• Application Making pancakes for 10 guests every
  day
• Value Proposition
• The Hobart mixer is a faster, more efficient
  mixer that is sturdier, reliable, and suitable
  for significant daily use.

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And a third version

• Customer/Buyer U.S. Army
• User Military cook/baker
• Application Baking 500 cakes/day
• Product 3,500 Large capacity,
  heavy duty, floor mounted industrial mixer
• Value proposition
• This industrial mixer provides high capacity,
  high performance and very long term reliability.

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Value Matrix

• Frequently the product is already defined
• Then 2 variables Customer Application
• Can use a spreadsheet analysis
• Rows Applications/ Features
• Columns Customer target market segments
• Rank each application and customer type
• 1 to 5 5 must have, 4 should have, 3
  nice to have, 2 useable, but not important

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A Must Have CompellingReason To Buy

• Critical to product launch success
• Without it youll probably never get to see the
  chasm, let alone cross it
• Absolutely required to cross the chasm and to
  sell early majority pragmatists

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• Early majority/Pragmatists dont buy 4s -
  Should Have value propositions
• The strength of the value proposition must exceed
  the pragmatists fear and risks of buying a high
  tech discontinuous product

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A Must Have Value Proposition is a Compelling
Reason to Buy

• Three sources of a Must Have
• 1 - Provides a dramatic competitive advantage
• 2 - Radically improves productivity
• 3 - Significantly reduces costs

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Must Have 1Provides a Dramatic Competitive
Advantage

• Advantage not previously available
• Dramatic, significant, not minor
• In a major operational area
• Examples?
• ATM, CT scanner, Polaroid camera, Xerox 914
  copier

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Must Have 2 Radically Improves Productivity

• Improves productivity of a well-understood
  critical success factor
• Superior price-performance
• Examples?
• CAD software, e-mail, Internet search engines,
  word processing spreadsheet software

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Must Have 3 Significantly Reduces Operating
Costs

• Must be visible, verifiable, significant,
  quantifiable, easy to prove
• Free offers get attention
• Examples?
• ATM, laparascopic surgery, spreadsheet word
  processing software, online software distribution

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• Difficult to cross the chasm if only have 1 of
  the 3 sources of must have
• Better to have 2 of 3 sources
• Best to have all 3 sources
• ATMs
• Laparascopic surgery

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Laparascopic Surgery

• Why has this method of surgery become so popular?
• Can you determine the sources of the Compelling
  Reason To Buy?

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Laparascopic Surgery

• Dramatic competitive advantage
• Faster patient recovery, reduced pain, safer
• Patients go to doctors hospitals who do it
• Radically improves productivity
• Doctors spend less time per surgery post op
• Significantly reduces costs
• Less time in hospital less cost
• Insurance companies benefit, lower premiums

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How Do Automated Teller Machines create a Must
Have value proposition?
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Automated Teller Machines

• Dramatic competitive advantage
• Open 24 hours, much faster transaction time
• Radically improves productivity
• Need fewer tellers per branch
• Focus on better service and selling new services
• Significantly reduces costs
• Less paperwork, labor costs
• 91 cents w/teller to 27 cents w/ATM

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Value Matrix Exercise

• Develop a value matrix
• Vertical axis applications/features
• Horizontal axis Target customers
• Rank each cell 1 through 5
• 1 not usable, 2 minor benefit
• 3 nice to have 4 should have
• 5 must have