Introduction to Innovation and Entrepreneurship PDF

Introduction to innovation and entrepreneurship Entrepreneurship ▪ Process by which individuals (group of individuals) pursue (pursues) opportunities with or without regard to resources they currently control for the purpose of creating future goods and services that will address a bigger social/e...

Introduction to innovation and entrepreneurship Entrepreneurship ▪ Process by which individuals (group of individuals) pursue (pursues) opportunities with or without regard to resources they currently control for the purpose of creating future goods and services that will address a bigger social/economic/environmental problem ▪ Pursuit of opportunity beyond resources controlled (Howard Stevenson) ▪ Art of turning an idea into a business Entrepreneur ▪ A person who takes risks of starting new ventures ▪ Creates value for various stakeholders WHY PEOPLE BECOME ENTREPRENEURS ▪ To be their own boss ▪ To pursue their own ideas ▪ To pursue financial rewards THREE TYPES OF STARTUP FIRMS 1\. Salary substitute firms ▪ Small firms ▪ Yield a level of income that is similar to what could be earned when working for an employer 2\. Lifestyle firms ▪ Provides the owners the opportunity to pursue a lifestyle and earn a living while doing so 3\. Entrepreneurial firms ▪ Bring new products and services to the market ▪ Create value for the owners, the customers, and other stakeholders EFFECT ON ECONOMIES 1\. Innovation ▪ Process of creating something new 2\. Job creation ▪ Small businesses create substantial number of jobs worldwide 3\. Development of social capital ▪ Better infrastructure, lifestyle, facilities 4\. Development of human capital ▪ Skill development ▪ Education THE INNOVATION PROCESS 1\. Ideation 2\. Invention 3\. Innovation 4\. Imitation MARKET SEGMENTS 4 main filters to segment a market ▪ Demographic : Gender Income Ethnicity Education ▪ Geographic ▪ Psychographic : Interest / lifestyle / attitude ▪ Behavioral Choose one market segment ▪ Your target segment ▪ Provide proper justification ▪ Develop a persona for your target segment ▪ What characteristics are common for the majority in that segment? ▪ Will give pointers to "human factors" to be used in design ▪ When developing personas, try to feel like the persona ▪ Evoke empathy for the persona -- "be in their shoes" ▪ The more you can relate to the persona, the better you can design for that persona CUSTOMER JOURNEY MAP ▪ A tool used to develop more empathy with customers ▪ One way of doing it: Look beyond the narrow definition of your offering and consider the customer's total experience ▪ The more broadly you define the customer experience, the more opportunities you can identify for improvement ▪ E.g., An interior house paint producing company ▪ Narrow focus: Innovate characteristics of the product (making it less drippy, or making use of less paint to cover the surface area) ▪ Broad focus: Getting customers to realize that they need to paint something, helping them choose the color, shortening the preparation and cleanup time, keeping a track of which color was applied on which wall for future reference A customer journey map helps in thinking systematically ▪ It is achieved by analyzing the steps the customers go through when they do something ▪ We use maps to synthesize what we learn from interviews and observations ▪ Alternatively, during field research, you can also ask your end users to map out their own journeys A detailed visual breakdown of all of the smaller events that make up a larger experience ▪ Larger experience e.g., grocery shopping, attending a class ▪ In a customer journey map, we include many smaller experiences that we may not think much about ▪ This map helps to identify the positives and the negatives in any experience Steps to create a customer journey map Step 1: Determine the "journey" that needs to be mapped, with clearly defined starting and ending points ▪ Step 2: Ask the participants to reflect on their own experiences ▪ Step 3: Ask the participants to list each step of that experience ▪ Each step should be listed on a sticky note ▪ The more detailed the steps, the more valuable the map ▪ Step 4: Ask participants to post their steps on a timeline ▪ Step 5: Ask participants to reflect on the timeline and add more steps if needed ▪ Step 6: Label the Y axis to indicate positive and negative experiences ▪ Step 7: Ask participants to move each sticky note up or down on the Y axis to show the degree of positivity or negativity Ideas and opportunities What is an idea? ▪ A thought or suggestion to a possible course of action ▪ A thought, an impression, a notion, (often) vague conceptualization ▪ How can we generate ideas? ▪ What is an opportunity? ▪ A set of circumstances that creates a situation of making something possible ▪ A favorable set of circumstances that creates a need for a new product or service ▪ How can we identify opportunities? ▪ Entrepreneurship -- matching ideas with opportunities ▪ Many great ideas fail because of lack of this "match" HOW TO GENERATE IDEAS ▪ We have a few techniques at our disposal that help us generate ideas ▪ Research ▪ Brainstorming ▪ Focus groups ▪ Research: Process of generation of ideas through gap analysis ▪ Brainstorming: Process of generation of a pool of ideas on a particular theme ▪ Focus groups: Process of generation of ideas through discussions between people who are related in some ways to a particular theme / issue HOW TO IDENTIFY OPPORTUNITIES ▪ Cognitive ability: Experienced entrepreneurs usually have a "feel" of what might work and what might not work ▪ Social network: Entrepreneurs gather vast amounts of information from their social networks ▪ Previous experience: Previous experience helps entrepreneurs with the detailed understanding of a particular market / industry ▪ Trend analysis: ▪ Market analysis -- PESTEL analysis ▪ Industry analysis -- Porter's five forces analysis ETHNOGRAPHY ▪ Ethnography is the art and science used to describe a group or culture (Fetterman, 1998) ▪ It is conducted on-site or in a naturalistic setting in which real people live ▪ It allows you to get an insider's view of reality, by providing deep insightful data ▪ Observation is at least as important as the questions asked ▪ Objective: To see the world (and challenge) from the perspective of another person ▪ By observing actions and hearing stories that reveal people's behavior, motivations, beliefs, and feelings ▪ Only by deeply understanding people, we will be able to design better products / services for them ▪ Three important tactics: ▪ Immerse ▪ Observe ▪ Engage Ensure interviewees know the interview is voluntary ▪ Clarify how their stories will be used, protected, and/or shared ▪ Honor people's time ▪ Practice self-awareness before you engage in interviews ▪ Be mindful of their experience in the interview ▪ Be human, seek stories, talk about feelings OBSERVATION TECHNIQUE ▪ What is the person you're observing doing in a particular situation? Note the obvious as well as the surprising. Just report the objective facts ▪ How is he/she doing it? Does it require effort? Does he/she appear rushed? Pained? Happy? Is the activity impacting the person in either positive or negative way? ▪ Why is he/she doing what he/she is doing? This step usually requires that you make informed guesses regarding motivation and emotions. This step will reveal assumptions that you should ask users about, and often uncovers unexpected realizations OBSERVATION TECHNIQUE ▪ What : ▪ Sitting at the edge of walkway ▪ Looking down at laptop on lap ▪ Earphone in ears ▪ How: ▪ Sitting cross-legged ▪ Back against rail ▪ Loose papers and electronics on the ground ▪ Bag next to the body ▪ Seems to be 'in the zone' -- just concentrating and working ▪ Why : ▪ Needs to finish some work before getting on flight? ▪ Only available electrical outlet around, close to gate? ▪ Wants to relax on flight? Design thinking I WHAT IS IT ▪ A tool used to develop new products and services ▪ An approach to creative problem solving ▪ Place of origin: Stanford University, d.School ▪ Founders: David Kelley, Bernard Roth (2004) ▪ Requirements: Empathy, practice-orientation WHAT IS IT ▪ A non-linear process : ▪ Iterative ▪ Human centered: ▪ Discovers people's real needs and wants ▪ Highly creative : ▪ Looks at situations differently ▪ Collaborative : ▪ Builds on others' ideas ▪ Hands-on : ▪ Prototype focused WHAT IT IS NOT ▪ Only for the creative people or product designers ▪ A narrow approach to aesthetics, art and craft ▪ Just a brainstorming session ▪ A one-day process where problems can be solved in 24-hours ▪ An approach to replace analytical problem solving A table with text on it Description automatically generated DESIGN THINKING STEPS 1\. EMPATHYZE ▪ Your main job is to understand people and their problems within the context of your design challenge ▪ Try to understand the way people do things and why, their physical and emotional needs, how they think about the world, and what is meaningful to them ▪ To empathize one should : ▪ Observe ▪ Engage ▪ Watch and listen 2\. DEFINE ▪ The define mode of the design process is about bringing clarity and focus ▪ It is your chance and responsibility, as a design thinker, to define the challenge you are taking on, based on what you have learned about your users and about the context ▪ The goal of the Define phase is to craft a meaningful and actionable problem statement, the point-of-view ▪ A good point-of-view is one that : ▪ Provides focus and frames the problem -- the "how might we?" question How might we? ▪ In Design Thinking it's important to frame your problem from the point of view of your users ▪ The \"How might we?\" question is used to reframe and focus on a design challenge or problem ▪ Too Broad: \"How might we improve the world?" ▪ Too Narrow: \"How might we increase the click-through rate of the blue button on our webpage by 5% in the next week?" ▪ Just Right: \"How might we enhance the online shopping experience for elderly users to make it more accessible and user-friendly? 3\. IDEATE ▪ It is the stage of the design process in which you concentrate on idea generation ▪ You ideate in order to transition from identifying problems to creating solutions for your users ▪ Early in a design project, ideation is about pushing for a widest possible range of ideas from which you can select, and NOT simply finding a single best solution ▪ You ideate by combining your rational thoughts with imagination Ideate Ideation is innovative thinking to generate new and original ideas, concepts, or solutions. It is the starting point of the creative process and the launching pad for innovation. Ideation promotes exploration, experimentation, and brainstorming to produce valuable and meaningful outcomes. It helps teams collaborate, communicate, and problem-solve together to achieve a common goal. Divergent thinking Divergent thinking is the ability to generate a variety of possible solutions, options, or alternatives to a given problem or challenge. Examples of divergent thinking techniques include brainstorming, mind mapping, and analogies. Divergent thinking promotes creativity, open-mindedness, and out-ofthe-box thinking. It can lead to breakthrough ideas and innovative solutions to complex issues. Convergent thinking Convergent thinking is the ability to narrow down, filter, and select the best possible solution or option from a given set of alternatives. Examples of convergent thinking techniques include decision-making, prioritization, and evaluation criteria. Convergent thinking promotes critical thinking, analysis, and rational decision-making. It can lead to practical and effective solutions to problems. 4\. PROTOTYPE ▪ The Prototype mode is the iterative generation of artifacts intended to answer questions that get you closer to your final solution ▪ A prototype can be anything that a user can interact with ▪ In the early stages, you should create low-resolution prototypes that are quick and cheap to make ▪ These prototypes elicit useful feedback from users and colleagues ▪ In later stages your prototype may get more refined 5\. TEST ▪ The Test mode is when you solicit feedback about the prototypes you have created from your users ▪ Ideally you should test within a real context of the user's life ▪ Testing is essential to : ▪ Refine prototypes and solutions: Testing informs the next iterations of prototypes. Sometimes this means going back to the drawing board ▪ Learn more about your user: Testing is another opportunity to build empathy through observation and engagement ▪ Refine your POV: Sometimes testing reveals that not only did you not get the solution right, but also that you failed to frame the problem correctly THE LEAN STARTUP ▪ Inspired by the "without waste" / "lean" manufacturing process developed by Toyota in the 1950s ▪ Lean manufacturing consists of the following rules ▪ Know your customer ▪ Produce what is requested ▪ Eliminate waste ▪ Engage in just-in-time production ▪ Continuously improve production cycles ▪ Lean startup is a business development approach for startups based on the principles of lean manufacturing THE LEAN STARTUP ▪ Short cycles for tests and corrections : ▪ Minimize cost and time to market ▪ Develop a minimum viable product (MVP) quickly ▪ Practice validated learning : ▪ Eliminate efforts that are not necessary to learn what customers want ▪ Engage in a cycle of "build-measure-learn" ▪ Follow-up strategies (based on the "learn" step) : ▪ Pivot -- change ▪ Persevere -- continue on course MINIMUM VIABLE PRODUCT ▪ An early version of a prototype, developed with minimum effort, that lets entrepreneurs test their ideas in the market quickly ▪ An MVP ranges in complexity from extremely simple smoke tests (little more than an advertisement) to early prototypes BUSINESS MODELS ▪ A company's plan detailing how to create, deliver, and capture value for its stakeholders ▪ What kind of stakeholders? : ▪ Internal -- management, employees, board ▪ External -- customers, suppliers, other partners ▪ Represents the core elements of a firm's business and how those core elements are interconnected A business model, or economic model describes the principles by which an organization creates, delivers and captures value (Osterwalder and Pigneur, 2010) ▪ A business model is defined as the set of mechanisms allowing a company to create value through the value proposition made to its customers (its value architecture) and to capture this value to transform it into profits (Lehmann-Ortega and Schoettl, 2005) ▪ A business Model is a set of choices organizations make to generate revenue (Lecocq et al., 2006) BUSINESS MODEL CATEGORIES 1\. The Standard Business Model ▪ When companies use business models that are prevalent in the industry to develop their own business models ▪ This leads to incremental developments in BM 2\. The Disruptive Business Model ▪ When companies do not use business models that are prevalent in the industry to develop their own business model, but invent radically different ways of doing business ▪ This leads to disruptive developments in BM ▪ Examples? BUSINESS MODEL TYPOLOGY ▪ **Product business model:** A dyadic transactional relationship where goods or services are designed and delivered without prior interactions with the customer **▪ Solutions business model:** A dyadic relationship where goods or services can only be designed and delivered after prior interactions with the customer ▪ **Matchmaking business model (platforms**): A triadic relationship where a firm identifies two or more customer groups and brings them together in its marketplace **BUSINESS MODEL CANVAS** ▪ A tool developed by Alexander Osterwalder and Yves Pigneur ▪ Consists of 9 distinct but interconnected parts ▪ Visual tool to emphasize how a company can create, deliver, and capture value BUSINESS MODEL CANVAS 1\. Customer segments ▪ Which group of customers does your business want to serve? ▪ Proper segmentation leads to better strategies ▪ Segmentation filters ▪ Demographic ▪ Geographic ▪ Psychographic ▪ Behavioral 2\. Value propositions : ▪ The set of attributes of a product / service that creates values / benefits for specific groups of customers (segments) ▪ The value proposition can be incremental or disruptive ▪ Values can be qualitative or quantitative. 3\. Channels : ▪ How a firm reaches its customers and delivers its products / services ▪ Used for communication, sales ▪ Can be direct (stores) or indirect (partner stores) 4\. Customer relationships: ▪ Types of relationships that a firm establishes with its addressed customer segments ▪ Can be personalized or automated ▪ Important for customer acquisition, customer retention, customer satisfaction, boosting sales. 5\. Revenue streams : ▪ Methods by which a firm makes money from each customer segment ▪ Different revenue streams can have different pricing mechanisms ▪ One-time income or recurring income 6\. Key resources : ▪ Resources and assets that a company must possess for its business model to work ▪ Are dependent on the type of business model ▪ Can be tangible or intangible 7\. Key activities : ▪ Activities that are necessary for the regular functioning of a business ▪ Inhouse or outsource? 8\. Key partners ▪ Network of suppliers, distributors and other partners ▪ Strategic alliances, JVs, franchisees ▪ Helps in achieving economies of scale and risk reduction 9\. Cost structures ▪ All associated costs ▪ Fixed or variable Customer Segments For whom are we creating value? Who are our most important constituents? Examples: Health-Care: Established Hospital Health Systems Smaller Health Clinics Private Practice Physicians Emerging Med-Tech Researchers Established Medical Device Manufacturers Ambulance Service Providers Variations: Business-to-Consumer; Bus.-to-Bus.; Bus.-to-Gov't Mass Market / Niche Market Segmented; Diversified Multiple Decision-Makers: Economic Buyers, Gatekeepers, Actual Users Multi-Sided Platforms **Value Propositions** Value Propositions What value do we deliver to our customers? Which of our customer's problems are we helping to solve? What bundles of products and services are we offering to each customer? Which customer needs are we satisfying? Characteristics: Newness Performance Customization "Getting the Job Done" Design Value Propositions Brand/Status Price Cost Reduction Risk Reduction Accessibility Convenience / Usability Customer Relationships What type of relationship does each of our Customer Segments expect us to establish and maintain with them? Customer Relationships Which ones have we established? How are they integrated with the rest of our business model? How costly are they? Examples: Communities Automated Services Self-Service Co-creation Personal assistance -- Mentorship Dedicated Personal Assistance -- Assigned Mentors Channels Through which Channels do our Customers want to be reached? How are we reaching them now? Channels How are our Channels integrated? Which ones work best? Which are most cost-efficient? How are we integrating them with our customer's routines? Channel Phases: Awareness Information Evaluation Purchase Delivery After Sales How we make money? How are the customers currently paying? How would they prefer to pay? How much does each Revenue Stream contribute to overall revenues **Types:** Purchase Subscription fees Licensing Lending/Renting/ Leasing Brokerage fees Advertising **Dynamic Pricing** Negotiation (bargaining) Yield Management Real-time-Market **Fixed Pricing** List Price Volume dependent Product feature dependent Customer segment dependent Key Activities What Key Activities do our Value Propositions require? Our Distribution Channels? Customer Relationships? Revenue Streams? Categories: Production Problem Solving Platform / Network Key Resources What Key Resources do our Value Propositions require? Our Distribution Channels? Customer Relationships? Revenue Streams? **Types of Resources:** Physical Intellectual (brand patents, copyrights, data) Human Financial Key Partners Who are our Key Partners? Who are our key suppliers? What Key Resources are we acquiring from them? What Key Activities do partners perform? Partner Candidates: Established Medical Firms Established Health Systems Ecosystem Service Providers Motivations for Partnerships: Promoting the Ecosystem Optimization and economy Reduction of risk and uncertainty Acquisition of particular resources and activities Cost Structures What are the most important costs inherent in our business model? Which Key Resources are most expensive? Which Key Activities are most expensive? Is our business more: Cost-Driven (leanest cost structure, low-price value proposition) Value Driven (focused on value creation, premium value proposition) Sample Characteristics: Fixed Costs (salaries, rents, utilities) Variable costs Economies of scale Economies of scope WHAT IS FEASIBILITY ▪ Process of determining if a business idea is feasible / viable ▪ Consists of different components ; ▪ Product / service feasibility ▪ Industry and market feasibility ▪ Organizational feasibility ▪ Competitor analysis ▪ Requires both the following ; ▪ Primary research ▪ Secondary research PRODUCT/SERVICE DESIRABILITY ▪ Is the product / service desirable in the market? ▪ Does it serve a need in the marketplace? ▪ A concept test ; ▪ A preliminary description of the service / product ▪ Solicit feedback from potential customers / industry experts ▪ What is the problem with this approach? How can you solve it?; ▪ Following lean startup principles ▪ Short rounds of development and testing ▪ Pivot (change existing strategy) or persevere (persist with current strategy Industry and market feasibility ▪ Groups a firm's general environment into 6 segments ▪ Political, Economic, Sociocultural, Technological, Environmental, Legal (PESTEL) ▪ We need to determine how PESTEL forces influence an industry, which, in turn, influences a firm ▪ Is used to scan, monitor and evaluate important external factors and trends ▪ PESTEL forces have become more global in recent years ▪ Opening up of new markets ▪ Increase in volumes of international trade ▪ Implications? POLITICAL / LEGAL ▪ Political processes, policies and actions are implemented through legal channels ; ▪ Laws, mandates, regulations, court decisions ▪ Effect of political factors on firm performance? ▪ Example? ▪ Are market regulations good or bad for the industry in general? ECONOMIC ▪ Mostly macro-economic factors ▪ How can the following factors influence firm strategy? ▪ Growth rates ▪ Interest rates ▪ Levels of employment ▪ Price stability (inflation and deflation) ▪ Currency exchange rates SOCIOCULTURAL ▪ Captures a society's cultures, norms and values ▪ Changes constantly and differs across groups ▪ What are the implications on firm strategy? TECH AND ENVIRONMENTAL ▪ Technological: Application of knowledge to create new process and products ▪ Environmental: Issues concerning natural environment, global warming and sustainable economic growth ▪ Examples of technology innovations and environmental factors which may affect firm strategies? INDUSTRY ATTRACTIVENESS - PORTER'S FIVE FORCES ▪ Industry - a group of incumbent firms that deal with similar sets of suppliers and buyers ; ▪ Similar products and services are on offer to meet needs ▪ Industry analysis is needed to ; ▪ Identify an industry's profit potential ▪ Suggest a firm's strategic positioning within that industry **PORTER'S FIVE FORCES** **1.BUYER BARGAINING POWER** **▪** How many alternative options are there in the market for customers? ▪ What would the cost of switching be? ▪ How long are your contracts on average? ▪ Are customers well educated about the product? ▪ Are they price sensitive? ▪ How much of your product or service do customers purchase? ▪ How strong is your brand value and loyalty? **2.SUPPLIER BARGAINING POWER** **▪** How many suppliers of the product or service you use are there? ▪ What are the switching costs? ▪ Is what they supply unique or special? ▪ How big a customer are you to your supplier? **3.THREAT OF NEW ENTRANTS** ▪ Is there regulation in the market? ▪ How complicated is the product or service? ▪ Are there legal barriers such as IP? ▪ What budget would be required? ▪ What would the existing players' response be? ▪ What are the barriers to entry? ▪ Have new players arrived recently? If so, how did they do? **4.THREAT OF SUBSTITUTES** ▪ Are there already substitute products or services? ▪ Is the cost for a customer to switch low? ▪ What is the brand loyalty and strength like in the marketplace? ▪ How does the product or service compete? ▪ Is anyone developing a new substitute? **5.COMPETITIVE RIVALRY** ▪ How many direct competitors are in this space? ▪ How big is the marketplace, can it sustain multiple successful companies? ▪ What is the industry growth looking like? ▪ What is the M&A news in this space? ▪ What are the exit barriers? ▪ Have you lost to competitors and, if so, why? Organizational feasibility **▪ Assessment whether a business has sufficient management expertise (skills and capabilities) and resources ;** **▪** Resource sufficiency ▪ Management prowess **▪ Resource sufficiency ;** ▪ Assets like cash, buildings, machinery, IP, employees ▪ Can be tangible or intangible **▪ Management prowess ;** ▪ Organizational and managerial skills necessary to orchestrate diverse set of resources and to deploy them strategically **RESOURCE BASED VIEW (RBV)** ▪ A firm is a bundle of tangible and intangible resources and capabilities ▪ Distinct resources and capabilities build the competitive advantages of firms through the development of core competencies ▪ Unique, inimitable and non-substitutable resources and capabilities maintain the sustainability of competitive advantages **THE VRIN FRAMEWORK** ▪ Certain types are resources are key to superior firm performance (Resource based view of the firm -- Jay Barney) ▪ VRIN - Valuable, Rare, Inimitable, Non-Substitutable ▪ OR ▪ VRIO - Valuable, Rare, Inimitable, Organized (Does the firm have organized management systems, processes, structures, and culture to capitalize on resources and capabilities? ) COMPETITOR ANALYSIS ▪ Is required to understand the strengths and weaknesses of competitors ▪ Can help a startup identify how to enhance their business strategy ▪ Can tell a startup how to out-do their competitors ▪ Can be a source of competitive advantage