ENT | 9

Entrepreneurship Part 9 - Business Models

In this article of the series entrepreneurship we will introduce the concept of business models. Show how the study of business models can inform the entrepreneur. In addition we will see how we can provide a system to characterize business models and discuss the role of business model innovation. To take it right here, in the following article (10) we will have a deep dive on competition evaluation.

To start off let’s define the phrase Business Model

A business model is the description of the way in which a company, a corporate system or an industry creates value on the market.

Bieger and Agost (2001)

Or in other words, a business model is a “story that explains how enterprise work”.

Hence, a good business model has to provide answers to the following questions:

• Who is the customer?

• For what is the customer willing to pay for?

• What is the underlying economic logic that explains how we can deliver value to customers at reasonable costs?

The business model is a structural template that describes the organization of a focal firm's transactions with all of its external constituents in factor and product markets.

Zott & Amit (2008)

The emergence of the network economy provides a multitude of opportunities for new and innovative business models, which is also a challenge for management theory.

The internet as a basic innovation and other technological innovations allow completely new networks. Corporate networks and customer networks allow new divisions of labor and possibilities of communication between companies, customers and suppliers.

One role of business models is hence to providing a set of generic level descriptors, of how a form organizes itself to create and distribute value in a profitable manner.

So what is the deal? Finding opportunities!

To define and find business opportunities we have several steps to take

1 Analysis of the organizational environment

• Macro-economic development and Megatrends

• Juristic and regulatory developments

• Technological developments

• Changes in society

• Natural environment

2 Developments within an industry

• Type

• Growth (today and forecast)

• Market segments

• Marketing standards

• General trends

• Opportunities?

3 Analysis of the competitive environment

• Product systems and services

• Positioning within the industry (strengths and weaknesses)

• Marketing (4P)

• Market share

• Competitors reaction

• Opportunities?

4 Development of a profile for the target market

• Customer needs, product design, distribution, branding …

• Focus on the end customer

• Customer profile

  • Who is my potential customer?

  • How do my customers behave?

  • How do my customers decide to purchase my product or service?

  • What is the decision of my customer influencing?

• Opportunities?

5 Definition of Sales Target

• Use as many formal and informal ways to find a sales target as possible

• Compare your results with external market data

Finally answer the following question:

DO WE AIM AT AN ATTRACTIVE MARKET?

To categorize your business idea following graphics shell support:

Source: McKinsey

So finally the questions is: “Is your Idea an Opportunity?”

Idea generation is only the first part of the process that leads towards the development of a successful business model. To evaluate an idea, five major areas need to be understood:

1. Customers

2. Competitors

3. Suppliers and Vendors

4. Government

5. Broader Global Environment

Global business environment

Whats left is the open question of who is now your customer?

To optimize the features most important to the customer, the first question is who the core customers are. Customer groups can be broken down into two general categories.

Primary Target Audience (PTA)

Is the customer group which is most likely to buy at a price that preserves your margins, and with a frequency that reaches your target revenues. These buyers share common characteristics and behaviors and account for the highest volume of sales.

Secondary Target Audience (STA)

The secondary target audience includes future primary buyers, those buying at a high rate within a small segment and people who influence primary buyers. Their characteristics and buying behaviors usually differ from those of the primary buyers.

Next article of the series in entrepreneurship we will look at how to evaluate your competition. Stay tuned - and thanks for reading.

ENT | 8

Entrepreneurship Part 8 - The innovation process

Welcome back to the next part of the entrepreneurship series. In this article we want to have a look on different ways to develop a business idea. This will also then define the end of the chapter creativity, innovation and entrepreneurship.

In the end we are talking about six different ways and here they are with some examples:

Analyze the state of the art technology
The iPhone is a combination of:
- Telecommunication
- MP3-Player
- Camera
- and much more

Analyze existing products and services
- You can create your own books, calendar, blog, etc. > publishing

Watch science and research
Learn from nature, typically a good advisor, e.g. artificial spider silk:
Advantages:
- biotech chip to replace spinneret
- lighter than cotton, stronger than steel
- perfect eco-balance
Applications:
- Bulletproof vests
- Different kinds of armor
- Aircraft construction
- Automotive construction

Detect trends and mega-trends
- Miniaturization
- Modularization
- Combination
- Instand Operativeness
- Substitution of mechanical systems
- Sustainable/Green energy supply
- Hydrogen as energy supply
- Do we still need human workforce…
- etc.

Monitore demographic trends
- Convenience
- Individualization
- Automation of work
- Need for adventure

Develop new solutions

But how can it be seen, the process model of creativity, innovation and entrepreneurship.

Entrepreneurship as a process

This is all speeded up as new opportunities come across every day as life cycles of goods and services are shortened to the absolute minimum.

Next article of the series in entrepreneurship we will start to have a look at business models and value creation. Stay tuned - and thanks for reading.

ENT | 7

Entrepreneurship Part 7 - Sources of Innovation

Hey there and welcome back to part 7 of the series of entrepreneurship.

Today we will have a talk about sources of innvation, according to Peter Ducker there are four areas of opportunities within industries and organizations:

1. Incongruities
   occur whenever a gap exists between expectations and reality

2. Industry and market changes
   emerge as the result of continual shifts in the marketplace, caused by changes in customer attitudes, advances in technology or industry growth

3. Unexpected occurrences
   are productive sources of innovation because most people dismiss, disregard or even resent them

4. Process needs
   arise whenever a demand arises to innovate as a way of answering a particular need

If you look at the social environment of an organization you will have additional sources of innovation such as:

1. New knowledge
   can create innovations that differ in their predictability as well as in the changes they pose to entrepreneurs. Innovations in bioscience or nanotechnology are cases in point

2. Perceptual changes
   open up new opportunities when members of a community change their interpretation of facts and figures

3. Demographic changes
   are the most reliable changes, providing precise pictures of future ager and population structures

There are different trends an organization should permanently monitor, to recognize relevant developments that can be a source of innovation.

All upfront goes the TECHNOLOGY, which technologies are relevant for the company in the future? Concerning MARKET and CUSTOMERS, are there changes in customer needs and tastes that imply risks or opportunities for the organization? How can information about customer needs be collected? And finally what about COMPETITION? Which innovation is to be expected on the market? Are there any new products, services or processes introduced in the market by competitors and if so, are they successful?

The KANO Model describing the relationship between customer satisfaction and the fulfillment of requirement features.

Want to learn more about the KANO model read here.

When thinking about creativity typically you will be able to divide them into three main components:

1. Creative Thinking Skills
   How do people approach problems?

2. Knowledge
   Everything a person knows and can do

3. Motivation
   What people actually do

Next step is to look at some creativity techniques:

Problem reversal

• State the problem in reverse (change a positive statement into a negative one)

• Figure out what everybody else is not doing

• Change the direction or location of perspective

Forced analogy

• Take a fixed element, such as a product or the idea of a product

• Force it, to take the attributes of another unrelated element

• This should form a free flow of associations

Attribute listing

• List all major attributes of a product, object or idea

• For each of the attributes, list ways each of these attributes could be changed, e.g. CASE > is made out of PLASTIC > can be made out of METAL

Mind maps/concept maps

Brainstorming

But in the end you can’t force creativity, when looking on the distribution of when ideas develop we see that only 24% are developed while working and 76% are developed outside the company:

Where do ideas develop - operations insider

Based on this you might think about what factors are then influencing creativity? Well here are some examples:

Encouragement of creativity
Creativity can be enhanced through:

• Encouragement of risk-taking and of idea generation

• Valuing innovation throughout all management levels

• Perceived supervisor support

• Fair and supportive evaluations and so on

Autonomy
Is creativity fostered when teams have a high autonomy in daily work and a sense of ownership and control over their own work and ideas.

Resources
Resource allocation is directly related to creativity levels of a project.

Pressures
Pressures can support creativity when it is perceived as arising from the urgent, intellectual, challenging nature of a problem, but it can also undermine creativity, when it reaches an undesirable high level.

Mental Blocks
Creativity can be impeded by various mental blocks such as prejudice or functional fixation.

ENT | 6

Entrepreneurship Part 6 - Creativity and ENT

You didn’t come this far to only come this far! Welcome back to part 6 of the series of entrepreneurship.

In part 6 of the series entrepreneurship we will have a look on creativity, innovation and entrepreneurship. By that we’ll go through the three components of creativity, use some techniques of creativity, define and explain the sources of innovation, discuss different types of innovation and in the end explain the links between creativity, innovation and entrepreneurship.

The best way to have a good idea is to have lots of ideas

Linus Pauling (Winner of Peace and Chemistry Nobel Price)

The process of entrepreneurship starts with ideas for new services, products, business models or organizations - both in startups as well as existing organizations. Therefore different concepts of creativity and innovation are intrinsically tied to each other and some minds say that they cannot exist without the other.

Before we continue we want to define the three keywords in this section and what our understanding is of them:

Innovation
is generally understood as the successful introduction of a new thing or method which is the embodiment, combination, or synthesis of knowledge in original, relevant, valued new products, processes or services (Luecke&Katz | 2003).

Creativity
”is the process through which invention occurs - the enabling process by which something new comes into existence.”

Innovation Management
is the discipline of managing processes in innovation, in order to respond to external or internal opportunities and using creative efforts to introduce new ideas, processes or products (Kelley&Kranzburg | 1978)

Idea classification matrix (cf. Neck 2010)

Using this approach we can say that creativity is in general defined as coming up with new ideas and innovation is implementing those. (cf Goddard 2008). But also when you goole the term innovation is often used to refer to the entire process by which an organization generates creative new ideas and converts them into products, services or business models where customers are willing to pay for. Having an idea is always the starting point of an innovation no matter if you have it by yourself or in a team workshop.

Looking on Innovation we have to separate them into different types of innovation:

Service/Product Innovation
Introducing new services or products or a combination of both

Process Innovation
Just think about SMED and the EMIPS methodology (eliminate, minimize, integrate, parallelize and synchronize).

Social Innovation
New developments to get rid of social unacceptable conditions.

Structural/Organizational Innovation
Organizational development that supports all value adding activities of an organization.

Last but not least we differentiate between incremental and disruptive innovation. Those can be described as followed and are relevant for product-, process- or service-innovation:

Incremental Innovation

• Steady improvements

• Based on sustaining technologies

• Obedience to cultural routines and norms

• Can be rapidly implemented

• Immediate gains

• Develop customer loyalty

Disruptive Innovation

• Fundamental rethinking

• Based on disruptive technologies

• Experimentation and play/make believe

• Needs to be nurtured for long periods

• Worse initial performance, potential big gains

• Create new markets

ENT | 5

Entrepreneurship Part 5 - A guide for the right growth

Welcome back! In part 5 of the series about entrepreneurship let us discuss about the right growth rate.

To find the optimal growth rate for a new business, entrepreneurs must consider many factors, including the following:

• Economies of scale, scope or customer network

• The ability to lock in customers or scarce resources

• Competitors’ growth

• Resource constraints

• Internal financing capability

• Tolerant customers

• Personal temperaments and goals

An Entrepreneur’s guide to the Big Issue (Bhide, 1999)

Economic growth mainly occurs not because of broad improvements in technology, productivity and resource availability, but because entrepreneurs

1. improve their technology, organization and processes

2. become more productive and innovative

3. force other firms out of business

As the ongoing creative destruction occurs, new and better jobs than the lost ones are created, the overall level of productivity rises and economic wellbeing increases.

To keep it short. Entrepreneurship is a process in which people identify new opportunities and convert them into marketable products and services. Therefore, the field of entrepreneurship involves the study of

1. sources of opportunities

2. the process of discovery, evaluation and exploitation of opportunities

3. the set of individuals who discover, evaluate and exploit these opportunities

Five factors have been commonly cited as being crucial for entrepreneurship to take place: an individual (the entrepreneur), a market opportunity, adequate resources, a business organization and a favorable environment.

Hope you liked what you have been reading. In the next part of entrepreneurship we will go in phase 2 and talk about creativity and innovation on the entrepreneurial journey.

ENT | 4

Entrepreneurship Part 4 - ENT as a Process

Welcome back! In part 4 of the series about entrepreneurship we will have a look on entrepreneurship as a process.

In the field of research entrepreneurship is concerned with the following questions:

• Who recoginzes entrepreneurial opportunities?

• How and when does the process of opportunity recognition happen?

• Entrepreneurship as a field is hence closely related to economics, strategic management, sociology, psychology, historical research, anthropology et al.

When we think about a model of the entrepreneurial process it will look something like this:

Model of entrepreneurial process.

So lets think about the model of venture creation

A model of value creation.

The creation of a new venture to exploit an entrepreneurial opportunity is more likely when:

• there are a few incentives for an individual to exploit the opportunity within an existing organization

• incumbent firms in an industry can not achieve high levels of economies of scale and scope

• there are low entry barriers in an industry

Alternative ways to make use of an opportunity could be a management buy-in (MBI) or management buy-out (MBO), the foundation of a joint venture, or a selling of user rights or license.

Values

Readiness for change, or at least the willingness to live with it, is essential of a society is to create wealth and value for its population.

Politics

At a macro level, politics provide a framework for entrepreneurship by organizing a society. However, if chaos impedes entrepreneurship, conversely too much order is just as bad. Successful societies create and manage a tension between order and chaos.

Economic Institutions

Institutions like property rights, stock exchanges, banks, courts, laws of contract et al. are tools used by entrepreneurs to capitalize on opportunities and convert those opportunities into marketable services and products.

This brings us to the question: What are the reasons for new venture creations?

1 Desire for autonomy

Entrepreneurs want to be independent, possibly work at location of their choice and be their own boss.

2 Material rewards

Entrepreneurs want to be rewarded according to their efforts and because of the anticipated financial gains.

3 Creativity

Many entrepreneurs want to take advantage of their own talents, to create something new and to realize their desire to bring something new into existence.

But there are also some reasons that speak against new venture creations:

1 Lack of resources

Many potential entrepreneurs think that they lack competencies in management or marketing. They also have to face the liability of newness and the problems to find sufficient finance.

2 Compliance costs

High taxes and the costs of complying with government legislation are perceived as a major hurdle.

3 Hard reality

The process of venture creation is often harder and riskier than initially expected. The future is perceived as very uncertain and, as a result, a certain fear of failure emerges over while the would-be entrepreneur gathers resources and processes information to launch the venture.

Once this is done we want to show some relevant performance measures:

Relevant performance measures

Hope you enjoyed the read. Next in line will be finding the right growth rate including an entrepreneur’s guide to the big issues.