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Engineering Entrepreneurship

Ron Lasser, Ph.D.EN 0062 Class #2

9-15-06

A Good Idea – Intellectual Property: How Strong is it?

Class web site:

http://www.ee.tufts.edu/en/62/

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Entrepreneur Case StudyTeam & Entrepreneur Assignments

Williamson, Thomas C.

Ossa, Felipe

Kurtysh, Gene

Hering, Gregory M.

Ammon, Robert F.

Jeff BezosAmazon.com

Maretsky, Emily E.

Potkin, Eric J.

Martinez, Clarida

Hogan, Rachael A

Cheser, Alexandra Y.

Michael DellDell Computer

Mann-Stadt. Maris

Shanley, Andrew T

Matiasz, Nicholas J.

Kearns, Megan K.

Davenport, Matthew R.

Steve JobsApple Computer

Rosenstrauch, Paul

Tassinari, Thomas M.

Moehrke, Andrew T.

Khan, Golam R.

Dwyer, Andrea M

George LucasIL&M & Lucasfilm Ltd

Taylor, Daniel K.

Munkacsy, Alan D.

Khasidov, Roman

Fender, Kevin W.

Howard SchultzStarbucks

Temple, William G.

Neumann, Myles T.

Korchin, Cory S.

Gannon, Matthew C.

Vinod KhoslaSun Microsystems

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Ready. Set. Go?

Stage 1

Pre-Start Up

Stage 2

Start Up

Stage 3

Growth

Stage 4

Mature

Stage 5

Innovationor

Decline

If you do not know where to start, then start at the beginning

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Start Up Stage – Characteristics

Growth beginsCustomers

RevenueProject implementation

Organization/managementProcess/regulation

StakeholdersEmployeesFinancial backers (investors)Suppliers and partners

RiskSize and scope of marketTechnology feasibility and robustnessEmployee capabilitiesIntellectual propertyCompetition

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How to Evaluate a New Venture

The OpportunityThe DealThe ContextThe People

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Opportunity or Good Idea

How do you know the difference?Yes...yes…yes it is about the customer, but how do you know

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Customer Value – Background

All customer requirements are not equalMany product planning methods identify, but do not classify requirementsIt is important to understand the relationship of the unmet needs – the value the customer places on it and the motivation to act on itKano’s Method distinguishes the relationship between fulfillment and the satisfaction or dissatisfaction experienced by the customerTheory is rooted in social psychology and Motivation – Hygiene Theory of Frederick Herzberg

Factors that produce (job) satisfaction are separate and distinct from those that produce (job) dissatisfactionDissatisfaction is not the opposite of satisfaction

May be used as leading indicator for strategy and tactical initiatives

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Application – Customer Needs

Assign 4 random variables matching the requirements of a customer for a product/service

Xd = desired

Xp = proportional

Xm = must have

Xi = indifferent

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Suppose we conduct a Survey

For a particular product or service feature/functionality:

Xd = desired = 35

Xp = proportional = 42

Xm = must have = 8

Xi = indifferent = 15

35% desire the feature; 42% like it depending how robust it is; 77% are favorable to it

8% expect it to be there, but do not base their buying decision upon it; 15% are indifferent to it; 23% are cool to it

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But this is not the whole story

What is your confidence that these probabilities are correct?Now we get into statistics…

Mathematical tests can correlate dataInterval of error can be determinedBased upon previous history if available (for the entrepreneur – you are breaking new ground, so we are back to subjective probability!)

It all comes down to how well the experiment matched the actual conditions!

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Kano’s Method

The invisible ideas about a topic can be made visibleKano focused on the ideas about quality in customer requirements

Customer satisfaction, for some customer requirements is proportional to how fully functional to the product is with respect to a requirementDifferentiates four types of customer requirements:

Explicit statement of what they want; the more functionality thebetterExpected, but verbalized; Assumed to be self-evidentUnexpected; unstated, but customers recognize value and improvement/differentiator when they see itIndifferent; neutral satisfaction no matter level of functionality

Analytical tool distinguishes customer requirements

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Benefit of Kano’s Method

Develops insight into:Relationship between the customer needsValue of a particular featureKey market benefit messagesDesign objectives and solutionsDevelopment team focus

Strategy/Development/Launch trade-offs:

Define product roadmap path forward by revenuePrioritize feature development by value to customerPosition feature by market segment, competitive advantage

Distinct data available for decision-makingLeading indicator of customer and market directionInput (potential customer requirements) maybe obtained via several sourcesStructured and formal methodology that can be monitored and measured

Management can insure alignment to strategy and measure progress toward objectives

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Drawbacks to Kano’s Method

Does not identify when customer is using competitor’s product / service feature to support usage of your product

Indifference may mask critical feature

Differentiation of small features versus large ones not explicit

Large feature may make or break product, whereas small one most likely will not

Metrics and ideation required once a requirement is knownKano is not solution or implementation oriented, but provides data to support ultimate solution

The importance of a customer requirement (or pain) is not identified

A separate investigation is required to understand the importance of the problem or pain to the customer; Kano categorizes it

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Kano Method – Weak ValuesMust-Be

Customer satisfaction does not move above neutralLesser or greater functionality does not influence customersLack of feature quickly dissatisfies the customer. These features are expected to be present. e.g., good brakes or windshield wipers in a car

IndifferenceRequirement does not impact the buying decision or satisfy the customer’s problem (or pain), but may be importantCustomer may perceive solution exists somewhere else or available via other means

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Kano Method – Strong ValuesAttractive

Customer is satisfied when feature is presentSatisfaction is greater as functionality increasesCustomer is NOT dissatisfied when feature is less functional or not present. e.g., if car button to open window, when pressed lightly, lowers window all the way

One-DimensionalCustomer satisfaction increases as the feature’s functionality increasesCustomer satisfaction falls in proportion to decreased product functionality, e.g., gas mileage—the higher the gas mileage, the happier the customer is

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One-Dimensional• Gas mileage

DysfunctionalDysfunctional

SatisfactionSatisfaction

DissatisfactionDissatisfaction

FunctionalFunctional

Attractive• Remote door lock

Indifference• Hubcap

styles

Must-Be• Windshield

wipers• Brakes

Reference: Noriaki Kano, Shinichi Tsuji, Nobuhiko Seraku, and Fumio Takerhashi“Miryokuteki Hinshitsu To AtarimaeHinshitsu” (“Attractive Quality and Must-Be Quality”), Quality, JSQC 14(2) Tokyo, Japan, Society for Quality Control, 1984

Kano – Graphic Representation

An An Automotive Automotive

ExampleExample

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Kano – Trend Over Time

Customer problems trend over timeEliminated pain is replaced with another

Requirements migrate in valueA to O to M to I

Disruptive technology can appear to change need

Music is personal!

Time

Personal Stereo Example

Personal stereo – Walkman

Walkman with AM/FM Radio

Small headphones

Shock/Vibration Resistance

Small headphones with volume adjust

CD Player

Shock/Vibration Resistance for Car MP3 and Computer

connectivity

Music stick

Long Battery Life

Web Music Solar Fuel

Cell?

Req

uir

emen

ts/

Feat

ure

s

iPod

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Technology Adoption Model

Defines how customers respond to discontinuous innovations

Word processors, cell phones, personal computers, personal stereos, CDs, Downloading music

High tech application versus consumer productBased upon social research about how communities adapt to change

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References: von Hippel, Eric, The Sources of Innovation, Oxford University Press, 1988, Herstatt, Cornelius and Eric von Hippel, “Developing New Product Concepts via the Lead User Method: A CaseStudy in a “Low Tech” Field,” Journal of Product Innovation Management, vol. 9, 1992, pp. 213-221

Normal distribution of customer space based upon riskEarly/Late majority one-third each of total space, closest to normal perceived risk of adopting new ideaChange is adopted from left to rightDefines how to communicate with customers

"Lead users"(Von Hippel)

Critical Variable

Num

ber o

f Use

rs

Early adopters

Early majority

Late majority

Laggards

Technology Adoption Model

Innovators

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References: von Hippel, Eric, The Sources of Innovation, Oxford University Press, 1988, Herstatt, Cornelius and Eric von Hippel, “Developing New Product Concepts via the Lead User Method: A Case Study in a “Low Tech” Field,” Journal of Product Innovation Management, vol. 9, 1992, pp. 213-221

Needs foreshadow the general demand of the marketObtain high benefit from solving lead users’ needsRarely today’s largest customersRisk immune move to front of timeline

"Lead users"(Von Hippel)

Time

Num

ber o

f Use

rs

Early adopters

Early majority

Late majority

Laggards

Technology Adoption Life Cycle

Innovators

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Category of Constituencies

Innovators Technology enthusiastsRisk immuneCommitted to new ideas, technologies, products, and servicesLack money, have influenceCan make or break a something new

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Category of Constituencies

Early adopters VisionariesDesire to break with past and exploit future

See discontinuity as a competitive advantageHave money and influencePotential investorsDesires highly differentiated product which could be problematic for new venture

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Category of Constituencies

Early majority PragmatistsBelieve in evolution, not revolutionLook for proven technology to solve problemsResist shifting to new innovations, for it disrupts current level of efficiency

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Category of Constituencies

Late majority ConservativesPessimistic about technology

Potential to cause more problems that the one’s it is intending to solve

Price sensitive, demand performance and robustness, and demonstrated track-recordLook for commodity solution

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Category of Constituencies

LaggardsSkepticsCritics and hecklers of technologyAdopt new idea when they have no choiceNew ventures ignore them

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The TA Life Cycle Landscape

Early Market – great excitementThe Chasm – great despairThe Bowling Alley – niche based adoptionThe Tornado – mass-market adoptionMain Street – after market developmentEnd of Life – obsolescence and retirement

Early Market

The Chasm

The Tornado

Main Street

End of Life

The Bowling

Alley

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The TA Life Cycle Strategy

Early Market – find the problem/pain of the customer innovationThe Chasm – good luck if you didn’t find the pain, but thought your idea said it allThe Bowling Alley – service a niche with high technology and low cost to serveThe Tornado – mass-market, set the standard and drive low cost for adoption by allMain Street – understand the persona of the customer – pain and motivationEnd of Life – you should have been looking for the new customer pain/problem when times were good!

Early Market

The Chasm

The Tornado

Main Street

End of Life

The Bowling

Alley

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Let’s pause for a moment…so this is the situation…how does it write the story?

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The Venture Context Today

“It is not just about selling instruments to your

stakeholders; You have to teach them to read the music”

Who did your entrepreneur have to teach to read the music?

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The External Drivers

What were the external drivers to help grow their businesses?

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The Ecosystem and Value Chain

What was the context of your entrepreneur’s new venture?

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The Story – The First Character

The EntrepreneurWhat makes them tick?

We know we can assess their personalityWe know we can look at their experienceWe know we can see their academic record

What gives you confidence that they will be able to do it?

Who had confidence in your entrepreneur? Why so?

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Myth of the Entrepreneur 1

Knowing how to do the technical work does not mean you know how to build a business

Working IN the business, not ON it makes a differenceThe business is a product too – for the characters are in the story and business is on stage!

If you did not have an outright failure, then failure to meet full potential can be failure enoughBeing your own boss is not an entrepreneurEntrepreneur, manager, technician

Technician is dominant because that is how we have been trained to thinkThinking like a technician, keeps a business smallThinking as an entrepreneur, makes it grow

It is about smart persistence and perseverance, not stubbornness

How did your entrepreneur fail? What did they learn?

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Myth of the Entrepreneur 2

Entrepreneur: replicates the core capabilities or competencies, this builds the businessManager: constructs business processes and practices; find the vital fewBusiness plan: about “What do I want?”; it is a lifestyle choiceMarketing: telling the story to build enthusiasm and inspiration; all stakeholders need to see themselves and play a role in the storyThe dreaming room: the customer space: the problem space; you need to be comfortable with ambiguityThinking you can do it alone: comfortable delegating responsibility to others while minimizing risk

How did your entrepreneur think to grow their businesses?

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The Deal – Elements of the Story

The start-up game: an elaborate contest to find resources and knowledge and transform into wealthIdeas are called intellectual property; it is anything unique!Stock is the currency of the entrepreneur; the goal is to make 5 to 10 times the original investment in 5 years

This is equivalent to borrowing money at 50% / yearIdeas can be leveraged by stock into investment dollars (cash)Value is the amount of one item that is equal to another itemMilestone: justifies to investors that the entrepreneur can deliver on the promises; it is important because it increase value and attracts additional investorsIPO: you did it!

But don’t buy the Jaguar just yet!

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The Deal – Details of the Story

Who are all the characters? What roles do they have to play? What is the plot? How are all the characters interrelated?What is the intellectual property?Where do we find the valueWhat is the ending? How do you write the story?

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Writing the Story – First Draft

What was your entrepreneur’s opportunity?What was it in the entrepreneur’s opportunity that had value for the entrepreneur’s customerWhat attributes about the value were your entrepreneur’s customers attracted to? Proportional to? Must have? Indifferent to?What dream did your entrepreneur have?What context did your entrepreneur have to operate in before the story started?How is all this interconnected?