The Opportunity: Creating, Shaping, Recognizing, Seizing Chapter Four Dowling BA 560 Fall 2006

BA560 Venture Planning Prof. Dowling The Opportunity When is an idea an opportunity? An opportunity has the qualities of being attractive, durable, and timely and is anchored in a product or service which creates or adds value for its buyer or end user. BA560 Venture Planning Prof. Dowling

BA560 Venture Planning Prof. Dowling The Opportunity Opportunities… Are created, or built, using ideas and entrepreneurial creativity. Are spawned, in a free market society, when there are changing circumstances, chaos, confusion, inconsistencies, lags or leads, knowledge and information gaps. Are situational. Conditions can be idiosyncratic or generalizable. BA560 Venture Planning Prof. Dowling

BA560 Venture Planning Prof. Dowling New Ventures Fundamental realities Most new ventures are works in process and works of art Most business plans are obsolete at the printer Speed, adroitness of reflex, and adaptability are crucial The key to succeeding is failing quickly and recouping quickly BA560 Venture Planning Prof. Dowling

BA560 Venture Planning Prof. Dowling New Ventures Fundamental realities Success is highly situational, depending on time, space, context, and stakeholders The best entrepreneurs specialize in making “new mistakes” only Starting a company is much harder than it looks, or you think it will be; but you can last a lot longer and do more than you think if you do not try to do it solo BA560 Venture Planning Prof. Dowling

Exhibit 4.1 Circle of Venture Capital Ecstasy BA560 Venture Planning Prof. Dowling

BA560 Venture Planning Prof. Dowling The Opportunity Opportunity Spawners & Drivers Regulatory Changes 10-fold change in 10 years or less Reconstruction of value chain and channels of distribution Proprietary or contractual advantage Existing management/investors burned out or under managed Entrepreneurial leadership Market leaders are customer-obsessed or customer-blind BA560 Venture Planning Prof. Dowling

Where are Opportunities Born? Technology sea change Moore’s Law Metcalf’s Law Disruption Market sea change Value chain disruption/obsolescence/vulnerability Deregulation BA560 Venture Planning Prof. Dowling

Where are Opportunities Born? Societal sea change Changes in ways we live, learn, work, etc. Gilder’s Law – 10xs in 10 years Brontosaurus factor Arrogance Loss of peripheral vision Deadened reflexes – turning the tanker Irrational exuberance Undervalued assets BA560 Venture Planning Prof. Dowling

BA560 Venture Planning Prof. Dowling The Opportunity The highly organic and situational character of the entrepreneurial process underscores the criticality of determining fit and balancing risk and reward. -Timmons BA560 Venture Planning Prof. Dowling

BA560 Venture Planning Prof. Dowling The Opportunity Ideas: Over-rated? ‘Flashes of brilliance’ are rare: Instead, it’s more common to see a series of trial-and-error iterations before a promising idea fits with what the market wants. BA560 Venture Planning Prof. Dowling

BA560 Venture Planning Prof. Dowling The Opportunity First-Mover Advantage Though not a guarantor of success, there is tremendous potential value in being first with an idea, so long as you have the capacity to capitalize on being first and establishing market share or erecting other barriers to entry. BA560 Venture Planning Prof. Dowling

BA560 Venture Planning Prof. Dowling The Opportunity The ‘Great Mousetrap Fallacy’ ‘If a man can make a better mousetrap … the world will make a beaten path to his door.’ Emerson ‘The truth of the matter is that ideas are inert and, for all practical purposes, worthless.’ Timmons BA560 Venture Planning Prof. Dowling

BA560 Venture Planning Prof. Dowling The Opportunity Experience: Herbert Simon The entrepreneur’s pattern- recognition skills The ‘50,000 Chunks’ of experience Seeing what others don’t see BA560 Venture Planning Prof. Dowling

BA560 Venture Planning Prof. Dowling The Opportunity $1 billion Market $500 million Market Size $250 million Window of Opportunity $100 million BA560 Venture Planning Prof. Dowling 5 Years 10 Years 20 Years

BA560 Venture Planning Prof. Dowling Exhibit 4.7 BA560 Venture Planning Prof. Dowling

BA560 Venture Planning Prof. Dowling Evaluating Criteria for evaluating venture opportunity Industry and market Economics Harvest issues Competitive advantage issues Management team issues Personal criteria Strategic differentiation BA560 Venture Planning Prof. Dowling

BA560 Venture Planning Prof. Dowling The Opportunity Criteria for Evaluating Venture Opportunities Exhibit 4.8 - Timmons Industry & Market Market Market structure Market size Market capacity Growth rate Market share attainable in year 5 Cost Structure BA560 Venture Planning Prof. Dowling

BA560 Venture Planning Prof. Dowling The Opportunity Criteria for Evaluating Venture Opportunities Exhibit 4.8 - Timmons Economics Time to breakeven/positive cash flow ROI potential Capital requirements Internal rate of return potential Free cash flow characteristics BA560 Venture Planning Prof. Dowling

BA560 Venture Planning Prof. Dowling The Opportunity Criteria for Evaluating Venture Opportunities Exhibit 4.8 - Timmons Harvest Issues Value-added potential Valuation multiples and comparables BA560 Venture Planning Prof. Dowling

BA560 Venture Planning Prof. Dowling The Opportunity Criteria for Evaluating Venture Opportunities Exhibit 4.8 - Timmons Competitive Advantage Issues Fixed and variable costs Control over costs, prices, and distribution Barriers to entry Proprietary protection Response/lead time Legal, contractual advantage Contracts and networks Key people BA560 Venture Planning Prof. Dowling

BA560 Venture Planning Prof. Dowling The Opportunity Criteria for Evaluating Venture Opportunities Exhibit 4.8 - Timmons Management Team Entrepreneurial team Industry and technical experience Integrity Intellectual honesty BA560 Venture Planning Prof. Dowling

BA560 Venture Planning Prof. Dowling The Opportunity Criteria for Evaluating Venture Opportunities Exhibit 4.8 - Timmons Fatal-Flaw Issue Personal Criteria Goals and fit Upside/downside issues Desirability Risk/reward tolerance Stress tolerance BA560 Venture Planning Prof. Dowling

BA560 Venture Planning Prof. Dowling The Opportunity Criteria for Evaluating Venture Opportunities Exhibit 4.8 - Timmons Strategic Differentiation Degree of fit Team Service management Timing Technology Flexibility Opportunity orientation Pricing Distribution channels BA560 Venture Planning Prof. Dowling

BA560 Venture Planning Prof. Dowling Exhibit 4.9 BA560 Venture Planning Prof. Dowling