INFORMATION TECHNOLOGY ENTREPRENEURSHIP

1. INFORMATION TECHNOLOGY ENTREPRENEURSHIP CLASS SIX: IDEA GENERATION AND OPPORTUNITY ANALYSIS (BUILD OR BUY?) Elikem Nutifafa Kuenyehia Management consultant & Corporate Lawyer

2. Agenda for class 6 • Recap of class 5 • Guest Speaker: Ehi Benitie, Chief Technology Strategist, Rancard Solutions • Idea generation • Opportunity analysis • Build or buy?

3. Idea Generation • The first step in establishing an entrepreneurial venture • Success as an entrepreneur depends on how well the idea is executed

4. Sources of Ideas • Consumer insights • Competitive response • Personal or professional experience • Hobbies or interest • Franchises • Media • Exhibitions • Brainstorming

5. A good idea ≠ success It must be developed into a good concept

6. Criteria for a good concept • Consumer taste • Number of potential buyers • Purchasing power of potential buyers • Return on investment • Individual values and interest • Value proposition • The entrepreneur’s resources & skills

7. Researching the opportunity • Market research • Customer research • Concept validation • Industry analysis • Competitive analysis • Trade area analysis

8. Market research Helps you understand; • macro/micro economic environment • competitive set • Potential customers • Marketing channels

9. Customer research • Define the customer • Have conversations with potential customers • Speak to potential suppliers

10. Know your customers’ needs • Observable needs; explicit needs people can and are willing to tell you about • Tacit needs; customers know the need but are unwilling to voice it • Latent needs; hidden needs that people may be unconscious of

11. Concept validation • Expose target customers to the concept and get their reactions • Commission prototypes where necessary and show them to the customer • Create a concept board or concept sheet where prototypes are not possible (readable in less than a minute) • Encourage the customer to use it and to comment on how to improve it • Data must be as objective as possible

12. Objective of concept validation • To determine if the product or service meets an unmet need • To determine if the product or service meets needs the customer did not know he had • To determine if the product or service meets customer needs in a way that exceeds or is at least equal to what is provided by the competition

13. Concept validation-capturing the customer’s voice • Conversations with the customer • One-to-one • Focus groups • Questionnaires • Rank products and services on a number of attributes • Purchase intent (probability of purchase) • Definitely would buy • Probably would buy • Neutral • Probably would not buy • Definitely would not buy

14. Concept validation-capturing the customer’s voice • Purchase frequency (how often would you expect to buy • Everyday • Every week • Once a year • Twice in my lifetime • Purchase magnitude (how many will you expect to buy) • One • A dozen • A crate • A carton

15. Advantages/disadvantages of concept validation Advantages • Prevents costly mistakes down the line • Gives the entrepreneur opportunities to feed back customer insights into his products/services Disadvantages • Time consuming • Opponents may beat you to the market when they know your intentions

16. Industry analysis Michael Potter’s five forces framework • Rivalry • Numerous or equally balanced competitors • Slow industry growth • Lack of differentiation or switching costs for customers • High exit barriers • Barriers to entry • Economies of scale • Product differentiation • Capital requirements

17. Industry analysis II • Switching costs • Government policy • Threat of substitute products or services • Buyer power • Discounts • Additional services • High quality • Supplier power • More concentrated suppliers’ industry • Fewer substitute products available

18. Competitive analysis • How do the major players in the industry make their profits? • Their strengths and weaknesses • Their target customer, key customers and positioning • Their sales, volume, market share and growth • Their pricing and marketing strategy • Product lines and distribution channels • Their business models • Management style and goals, their ethos • Their entire value chain

19. Advantages of competitive analysis • Shows opportunity areas in the industry • Helps anticipate potential problems • Helps in structuring the entrepreneur’s business and business strategy

20. Trade area analysis • Which part of the country to locate in • Proximity to markets • Proximity to raw materials • Labour supply • Business climate • Population growth trends, density and shifts • Competition • Transportation networks and other infrastructure

21. Trade area analysis II • Where to locate in a particular city, town or village • Customer traffic • Adequate parking • Visibility • Competition • Cost • Size and layout

22. Build or buy?

23. Pros of buying vs building • Faster route to entrepreneurship • Experience of the previous owner can be leveraged • Easier to find finance

24. Difficulties of buying vs building • Cultural/Employee related issues • Customer and supplier relationships may not be inherited • Business may be overpriced

25. Due diligence!!!

26. Due diligence guidelines • Ask, ask, ask • When you hear an answer, make sure you also see the answer • Use the Colombo method • When co-investing, do your own due diligence • Painstakingly review all information about all aspects of the company

27. Franchising A form of licensing by which the owner (the franchisor) of a product, service or business method obtains distribution through affiliated dealers (the franchisee)

28. Advantages for the franchisor • Fast growth • Economies of scale • Cashflow • Motivation & market knowledge • Does not dilute ownership

29. Disadvantages for the franchisor • Loss of control over operation • Loss of contact with customers • Free riding • Sharing income stream

30. Advantages for the franchisee • Safety net hence lower risk of failure • Support in terms of training, R&D, etc • Economies of scale

31. Disadvantages for the franchisee • Lack of control • Quasi-employment • Can be expensive in the long run • Limit on exit strategy

32. Build or buy? II • Mom & Pop/ life style entrepreneurs • Informal systems • Not concerned about growth • High growth entrepreneur • Seeks exponential growth • Formal systems for cashflow planning, financial management, strategic planning, marketing

33. Questions????

34. Thank you!!!