CS419 Info. Technology Entrepreneurship

CS419Info. Technology Entrepreneurship Fall 2012 – 2013 Emre Oto Building a Lean, Scalable Startup www.CS419online.com Follow on Twitter: @CS419Bilkent

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» Half Moon Bay, CA

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» Today’sAgenda • Value Innovation • Blue Ocean Strategy • TheTechnologyAdoptionLifecycle

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» Value InnovationIndustry Analysis • An industry is a group of firms that market products which are close substitutes for each other (e.g. the car industry, the travel industry). • Classical view: Structuralist View • Industry structural conditions are a given and firms are forced to compete within them • = Environmental determinism • Companies and managers are largely at the mercy of economic forces greater than themselves.

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» Value InnovationIndustry Analysis = Porter’s 5 Forces

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» Value InnovationIndustry Analysis = Porter’s 5 Forces • The world doesn’t work this way: • Reason 1: Co-opetition • = Game Theory • We will study this later.

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» Value InnovationIndustry Analysis = Porter’s 5 Forces • The world doesn’t work this way: • Reason 2: The Reconstructionist View Market boundaries and industries can be reconstructed by the actions and beliefs of industry players.

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» Value InnovationStructuralist vs. Reconstructionist

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» Value InnovationStructuralist vs. Reconstructionist • Structuralist view says (Porter) • Pursue either low-cost OR differentiation • Reconstructionalist view says • You can and should attain low-cost AND differentiation at the same time =Value Innovation

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» Value InnovationCost Reduction + Differentiation

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» Value InnovationCost Reduction + Differentiation • Cost savings are made from eliminating and reducing the factors an industry competes on. • Buyer value is lifted by raising and creating elements the industry has never offered. • Over time, costs are reduced further as scale economies kick in, due to the high sales volumes that superior value generates.

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» Value Innovation..lies in Blue Oceans

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» Blue Ocean StrategyRed Oceans • Red oceans represent all the industries in existence today—the known market space. • In red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are well understood. • Companies try to outperform their rivals in order to grab a greater share of existing demand. • As the space gets more and more crowded, prospects for profits and growth are reduced. • Products turn into commodities, and increasing competition turns the water bloody.

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» Blue Ocean StrategyBlue Oceans • Denote all the industries not in existence today—the unknown market space, untainted by competition. • Demand is created rather than fought over. • Companies can give rise to completely new industries, abut in most cases, a blue ocean is created from within a red ocean when a company alters the boundaries of an existing industry. • It is about doing business where there is no competitor

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» Blue Ocean StrategySeldom about technology • Blue oceans were seldom the result of technological innovation per se; the underlying technology was often already in existence. • Most blue oceans are created from within, not beyond, red oceans of existing industries. • This challenges the view that new markets are in distant waters. • Blue oceans are right next to you in every industry.

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC»

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» Blue Ocean StrategyCreating Blue Oceans Focus Divergence

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» Blue Ocean StrategyThe Value Curve • The value curve—a graphic depiction of the way a company or an industry configures its offering to customers • Drawn by plotting the performance of the offering relative to other alternatives along the key success factors that define competition in the industry or category.

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» Blue Ocean StrategyThe Value Curve – xIndustries

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» Blue Ocean StrategyCreating New Market Space

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» Blue Ocean StrategyRead the HBR papers folks! • Value Innovation: The Strategic Logic of High Growth, by W. Chan Kim and Renée Mauborgne • Creating New Market Space, by W. Chan Kim and Renée Mauborgne • Blue Ocean Strategy, by W. Chan Kim and Renée Mauborgne

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption Lifecycleaka the TALC

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption LifecycleInnovators = Tech. Enthusiasts • Fundamentally committed to new tech. • Take pleasure in its intricacies, love to get their hands on the latest and greatest innovation • One drawback: They don’t have any money. • But they have influence • Gatekeepers to the rest of the lifecycle • We need their endorsement

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption LifecycleEarly Adopters = Visionaries • “True revolutionaries who want to use the discontinuity of any innovation to make a break with the past and start an entirely new future” • Expectation: Being the first to exploit the new capability • Creating a dramatic and insurmountable competitive advantage • They put money on the table • As much money as the VC/Angel investor community may provide

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption LifecycleEarly Adopters = Earlyvangelist • They also help publicize the new innovation, giving it a necessary boost to succeed in the early market. • Tradeoff: Each visionary demands special modifications no one else would dream of using. • Screws up your R&D resources when you are a startup • Please God, give me a customer that wants what everybody else wants = pragmatist

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption LifecycleThe Early Market First to exploit First to explore Early Market No one else is interested in being the first

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption LifecycleEarly Majority = Pragmatists • Make the bulk of technology purchases • They believe in evolution, not revolution • They shy away from visionaries • Neutral about technology • Look to adopt innovations only after a proven track record of useful productivity improvement • and strong references • Buy the de facto standard = the market leader

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption LifecycleLate Majority = Conservatives • Pessimistic about their ability to gain any value from technology investments • Only undertake them if there is a “force majeur” and the next best thing is to let the rest of the world pass them by • Very price-sensitive, highly skeptical, very demanding • Unwilling to pay for any extra services • Simplify and commoditize systems to the point where they just work • “Happy to buy several dozen of the world’s most advanced microprocessors, as long as they are deeply embedded inside a BMW”

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption LifecycleLaggards= Skeptics • They challenge the hype, and possibly to the level of hating your guts • They are not customers, but ever-present critics • The goal of high-tech marketing is not to sell to them but rather to sell around them

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption LifecycleExpected Natural Progression • Begin by seeding new products with the technology enthusiasts to they can help you educate the visionaries

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption LifecycleExpected Natural Progression • Once you have captured the visionaries’ interest, do whatever it takes to make them satisfied customers so that they serve as good references for the pragmatists.

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption LifecycleExpected Natural Progression • Gain the bulk of your revenue by serving pragmatists, ideally by becoming the market leader and setting the de facto standards.

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption LifecycleExpected Natural Progression • Leverage success with the pragmatistis to generate sufficient volume and experience so that products become reliable enough to meet the needs of the conservatives.

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption LifecycleExpected Natural Progression • Leave the skeptics.

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption LifecycleVisionaries and Pragmatists

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption LifecycleVisionaries and Pragmatists • Visionaries do not present a reference group for pragmatists. • Products get stuck in the chasm

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption LifecycleCrossing the Chasm • Niche market selection • Identify target niche vertical • “Bowling Alley” metaphor • Whole product • Competitive positioning

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption LifecycleCore Product vs Whole Product • Minimum set of product features and services that fulfills the compelling reason to buy of the pragmatic customers in the niche vertical segment

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption LifecycleWhole Product for MITS CRM integration Core product Social media Reporting İYS VOD CMS VOD Incentive system Interaction 3D design and anim. Security and network Design of print material

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption LifecycleCompetitive Positioning • Unlike early adopter customers, pragmatic customers need to compare • You have to position your product against a meaningful competition that they can compare against • ..and you have to establish the positioning of the product against your identified competition

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption LifecyclePrinciples of positioning • Principle 1: Positioning is a noun, not a verb • Principle 2: Positioning exists in people’s heads not in your words • Principle 3: For the pragmatic customer, positioning is the single largest influence on the buying decision • Principle 4: People are highly conservative about entertaining changes in positioning • Don’t constantly mess up with people’s heads

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption LifecycleThe positioning statement • For (target customers – beachhead segment only) • Who are dissatisfied with (the current market alternative) • Our product is a (new product category) • That provides (key problem-solving capability) • Unlike (the product alternative) • We have assembled / Our system is (key whole product features for your specific application)

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption LifecycleThe Big Picture

CS419Technology Entrepreneurship Week #3 «Value Innovationandthe TALC» The Technology Adoption LifecycleShortcomings of the TALC model • Problems occur much earlier than the chasm • “You should be lucky to have this problem” • Doesn’t provide a systematic methodology on how to “get” to the chasm • Gaussian growth only happens in an entrepreneur’s dreams • A startup’s customer base growth never follows a smooth continuous curve • Growth is not a simple sales execution problem • The actual transition from one type of customer to another is at best a step function (depending on market type)

CS419 Info. Technology Entrepreneurship