Spreadsheet that embodies growth

TIMG 5002 Technology Entrepreneurship Winter 2018 Session 6: Scale system Monday October 29 Tony Bailetti 50% of course finished by end of class 2 Agenda Objectives Recap Assignments Customer-base and model to grow it Sales channels Growth formulas and spreadsheets Takeaways Objectives Upon completion, you will know about: Traction channels Customer benefits Growth formulas Spreadsheet that embodies growth assertions And will be able to: Examine your offer from customers perspectives Improve your answer to: Why me? Experiment with growth spreadsheets 3 Recap: To grow new company, earn right to exist 4 Hubris Stories 1 2 3 Ideas Where you want to be: $1M/yr Need to have: Customers Team Infrastructure Intermediaries Capital Growth engine transforms opportunity into a growth business 5 1. SMART growth objectives: Customer base $1M/yr revenue Execution capability Organization Company value 3. Growth blueprint 4. Scale system Customers Team Infrastructure Intermediaries Capital Other 5. Progress controls 6. Talent 2. Opportunity Jobs to be done or problems to be solved Innovation program affects growth 6 Innovation program Select market Identify customer needs Determine which needs to fulfill Formulate growth strategy Design/develop products/services Growth Customer base Revenue Capability to execute Organization Ideas-first Needs-first Define Locate Prepare Confirm Execute Monitor Modify Conclude Improve customer-defined metrics at each step of process to do job or solve problem Attractive opportunities Good opportunities Investors Size of addressable market is big enough Original, not derivative Used internally to solve real problems Rides a great wave, not a duck in calm pond Hard to execute Academics Solves a real customer problem Fits one of: Attribute dependency Component control Replacement Displacement Division Y Combinator (2016) 7 Goldenberg et al. (2001) Practitioners Customer not satisfied with current solution to an important problem Ulwick (2014) Compelling when: Expected benefit >>> Investment 8 Side 1 actors Your new company Investment (cash & in-kind) Expected benefit (cash & in-kind) Actors are busy, have options, and others compete for their attention, mindshare, and priority 9 Slide 9 Value propositions with resonating focus All Benefits Favorable Points of Difference Resonating Focus Consists of: All benefits stakeholder receives from an offer All favorable points of difference a market offer has relative to next best alternative Few points of difference whose improvement will deliver the greatest value to stakeholder Answers stakeholder question: Why should our firm buy your offer? Why should our firm buy your offer instead of your competitors? What is most worthwhile for our firm to keep in mind about your offer? Requires: Knowledge of our own market offer Knowledge of our own market offer and next best alternative Knowledge of how our own market offer delivers superior value to stakeholder compared with next best alternative Anderson et al., 2006. Ways a new company operates Way New company Example 1 Input supplier Provides specialized input to suppliers who incorporate them into higher-value products or services Provides chips to suppliers of PCs 2 Supplier Provides goods and services that are needed Provides PCs 3 Reseller Sells what it buys to others Buys and sells used PCs 4 Multi sided platform Enables contractual relationships between buyers and sellers Enables PC owners and professionals who service PCs to interact Assignments due Nov 5 Not graded CBQ2 Individual SM2 Individual Graded 11 How do you grow a new company? 1.Make venture growth a priority 2.Set SMART growth objectives 3.Grow customer base 4.Grow venture value 5.Grow ability to execute 6.Stimulate growth 7.Support growth 12 To make venture growth a priority, Create a growth-oriented culture make growth a characteristic feature of everyday existence shared by everyone Design venture to grow early, rapidly and securely upon inception Act to increase ventures revenue, value and importance within participating networks Develop a growth plan to grow venture that resonates with customers and stakeholders 13 To make venture growth a priority, Demonstrate extent to which ventures growthorientation has produced tangible results Hire right growth-oriented people Work with growth-oriented customers, channels, partners and suppliers Recruit people with experience growing transnational ventures to Board of Advisors and Board of Directors 14 To set growth objectives, Aim at operating venture with sustainable growth Make each growth objective specific, measurable, attainable, relevant, and timely (SMART) Ensure that growth objectives are consistent with venture founders needs and capabilities Set growth objectives and concurrently grow: Annual revenue | Annual revenue from foreign markets | Customer base Value of venture | Ability to execute | Organization 15 To grow customer base, Differentiate configure specialized actors and resources to add compelling value to customers and agents and are difficult for others to replicate Co-create with customers and agents a global core product and a portfolio of local offers that extend and adapt core product Affiliate with thought leaders who are able and willing to help startup make money as well as provide referrals and feedback Develop internet-based sales capabilities, build sales force, and then build an agent network that includes multinationals, representatives, and re-sellers Incentivize local and global agents 16 To grow customer base, Work with high-quality, growth-driven local agents who Operate in offer-receptive locals and are part of international networks Understand local problems and needs and are willing and able to address them Place customers success criteria first Identify what customers are trying to accomplish and their constraints Link ventures activities to metrics that customer cares about, Deliver metrics that are better than your competitors metrics at each of steps of process used to solve a problem or do a job Make interactions with customers simple and easy 17 To grow customer base, Reduce cost of attracting customers to buy from you Reduce cost of retaining and servicing customers Sell a service before a product Use your current capabilities First attract customers who are future thinking innovators (i.e., visionaries who accept promises of future benefit of technology) then quickly move to attract mainstream customers who buy for present needs (i.e., pragmatic buyers such as procurement staff who are sensitive to risk, price and service) 18 To grow venture value (theory), Increase gap between price customers are willing to pay and cost of producing and delivering what customers are willing to pay Establish a position in inter-organizational networks that improves access to privileged information Implement affiliations that increase demand for products that complement ventures product Increase judgement of decision makers 19 To grow venture value, Create value for customers in a global niche and capture as much of it as possible o Align internal initiatives with external initiatives o Anchor value creation model on venture Invest in resources, processes and priorities that increase value of venture 20 To grow venture value (practitioners claims), Increase social capability Develop ability to acquire and use knowledge to capture value for venture Harness external innovation Leverage ecosystems that have experience and knowledge needed to create value for venture 21 To grow ability to execute, Develop venture specific capabilities to compete Build market-oriented partnerships with both large and small companies Build technology partnerships with small companies in ventures own industry Engage with organizations from different countries Increase capacity to find and engage potential customers as well as retain existing customers 22 To grow ability to execute, Encourage diversity in population, content, technology and policies Attract experienced multinational talent Upgrade skills of employees Attract employees who: o Work in rapidly growing companies, o Learn and adapt quickly, o Work in flat decision-making structures, o Cope with versatility in job tasks, o Can handle uncertainty, and o Enjoy working 23 To stimulate growth, Develop ventures ability to recognize value of new information, assimilate it, and apply it to commercial ends Commit to research and development, and employee development, including mentoring Develop innovative new products and processes with customers Increase technical competence Increase foreign affiliations Increase sales channels 24 To support growth, Access resources controlled by others and raise funding Pay attention to what needs to be done today to achieve tomorrows growth objectives Design an organization that scales Develop skills required to manage growth Subcontract workers or outsource production Adopt and develop systems and procedures that support attainment of growth objectives Target growth-oriented customers and work with growth-oriented suppliers, channels and alliance partners 25 Inventory of growth models 1. Operate as a multi-sided platform 2. Introduce new products and services that leverage a technology base 3. Build a customer factory in stages 4. Create a new open source project and meet requirements of customers it attracts 5. Leverage relationships and others resources to satisfy needs of a new niche 6. Sell new product or service in an untapped market space 7. Reduce complexity and cost of a product and its production and sell it in a broader market 8. Sell good enough product at a lower price to over-served customers 26 Bailetti, 2016. Inventory of growth models 9. Sell light versions of existing products and services or completely different offers to non-consumers who have gone without product or service 10. Change one thing at a time, hold all other variables constant 11. Sell new technology that complements incumbents value proposition 12. Co-develop offer and leverage large companies assets 13. Sell services to niche first and then develop and sell product 14. Fill gaps that occur when companies migrate from an old to new system 15. Resell services 27 Bailetti, 2016. Two options 28 Option 1 Understand how to grow new company Sales execution Sales channels Growth models Growth spreadsheets Option 2 Mode of operation (one of: supplier, input supplier, MSP, reseller) Lessons from theory Lessons from practice Growth principles Values of parameters Results on spreadsheet Growth formula parameters Show how your startup will generate $1M annual revenue Examine: Inventory of growth formulas Customer base is VERY important New firms success depends on maintaining and growing its customer base Customer base includes information on: Customers who have purchased already new firms most important assets Potential customers focus of new firms marketing efforts 30 Customers who have purchased from firm already includes Customers who are likely to continue buying (active customers) Customers who have defected (inactive customers) Customers who are likely to defect 31 Customer base is used to 32 Predict purchase volume Determine active customers who should be targeted with regular marketing activities Generate transaction forecasts for individual customers Compute customer lifetime value Identify inactive customers who should be reactivated Remove inactive, unprofitable customers Two settings Contractual setting, a contract governs buyerseller relationship (e.g., telephone and Internet flat-rate services, magazine subscriptions) Non-contractual setting, buyerseller relationship is not governed by a contract (e.g., purchase a meal at a restaurant) 33 Question Why do certain new firms grow their customer base at or near their founding while others do not? Answer is of core importance to entrepreneurship research and practice 34 Uber Dawnsuite Year launched 2009 2009 Type Private Private Service Taxi for hire Online services for event and meeting planners Cities served 2015 Ottawa and 545 other cities Ottawa Annual revenue 2015 $1.6 Billion US NA Valuation 2014 $40 Billion US NA Employees 2016 6,700 1-10 Factors that influence growth in customer base at or near new firm founding 35 Knowledge and fast learning Customers Channels Markets Competitors Cultures Tariffs/transpo + Growth in customer base Strategic growth orientation Customers acquired Customers retained Investment in growth Growth emphasis Add value to stakeholders + + References used to develop model: Bianchi & Mathews, 2016, 428; Gabrielsson & Gabrielsson, 2011, 89-90. Hennart, 2013, 119-129; rt Business contacts and trust building Internet-based sales channel capability Intense use of Internet and intermediaries in promotion, customer acquisition and retention, product fulfillment and other growth related activities and processes New and existing relationships + + + + + Mathews et al., 2016, 823; Renko et al. 2016, 36-37. Growth in customer base is more likely for new firms that Hire employees, contractors, trainers and coordinators to support sales channels and customers Are led by individuals with knowledge about target customers and social contacts with potential customers Commit to learn fast about customers, channels, market, competitors, and cultures Actively pursue trust building and information brokering with customers 36 Internet Cost-effective means for growing customer base (i.e., acquiring and retaining customers) Tool to reduce uncertainty associated with growth and increase commitment to grow Techno-social system that stores human knowledge objects 37 Benefits What new firms do with Internet Benefits derived 1 Quickly and easily access information sources to support decision making on market conditions; opportunities; and behaviours, resources, capabilities of potential customers, suppliers, intermediaries, and competitors Reduces cost of closing gap between knowledge needed to grow and knowledge possessed 2 Identify and connect with potential customers and partners Reduces cost of reaching customers and partners and busiding social capital 3 Assess credits Reduces risk of doing business globally 4 Disseminate information Reduces cost of building awareness about the new firm and its market offers 5 Distribute products and services Reduce cost of fulfillment 38 Internet as a sales channel Use Internet as a sales channel to increase market responsiveness, acquire customers, provide advertising and delivery support, and complement channel partners Rely on channel partners for knowledge of local customers and markets and value-added services Greater use of Internet as a sales channel when: Greater entrepreneurial orientation and competitive aggressiveness Low environmental turbulence Similar business culture and technology 39 Sinkovics et al., 2013. 9 sales channels 21 new firms that used Internet 1. Only Internet 2. Direct sales and Internet 3. Direct sales, multinationals and Internet 4. Direct sales, distributors and Internet 5. Direct sales, resellers and Internet 6. Referrals to direct sales via Internet 7. Multinationals and Internet 8. Distributors and Internet 9. Re-sellers and Internet Yoos, 2013; p. 62. 40 Indirect sales 9 sales channels of 21 new firms that used Internet 41 Direct sales Distributor s Referrals Multinationals Reseller Only Internet 5 Direct sales 4 Indirect sales 2 Multinationals 1 Distributor 1 Reseller 2 Referrals to direct sales 6 Direct sales plus 3 Multinationals 2 Distributors 1 Resellers 4 Only Internet 4 1 1 2 1 Yoos, 2013; p. 62. 2 5 3 2 Airbnb Atlassian GPEG Groupo Zendesk GoodData Mojang Papaya Mobile Sellaband Ansarada Conduit Sproxil Eagleyard Photonics NOJA Power Tufin Dropbox Canonical eToro Griaule Biometrics 360 Cities Dewak S.A. Direct and indirect sales channels Gabrielsson & Gabrielsson. 2011, 89-9042 Multinationa l, distributor or reseller Promo Custo acquis Custo Produ ti m iti m ct on r on r retention fulfilment Customers Direct sales Indirect sales Startup Use of Internet shown with: Direct sales Promotion Customer acquisition Customer retention Product fulfilment New firm Customers Direct sales plus multinational, distributor or reseller 43 Dual sales Startup Multi distr n l i ationa butor or re on er ion er retention fulfilment Pr C ac eller motion tomer uisition o q Customers Dir sal ect es Promoti Custom acquisit Custom Product Hybrid sales Customers n n retention Startup Multi l, dis & re n tri s tiona butor eller Dir sa ect les Promotio Customer acquisitio Customer Product fulfilment Use of Internet shown with: Gabrielsson & Gabrielsson. 2011, 89-9043 Customer retention Product fulfilment Referrals to direct sales and Only Internet D irect sales Promot Custom generat Produc ion er ion t fulfilment Ref errals Startup Customers Use of Internet shown with: Promotion Customer generation Product fulfilment Only Internet Startup Customers Referrals to direct sales Programs to support sales channels and customers 1. Communications Website in multiple languages Interact using Facebook, Twitter, Google+, Blogs, Feed Center, Skype, Live chat, or video conference Meet face to face to support large projects Provide remote access 247 Prepare product reviews 2. Networks and alliances Establish a network to acquire information on local markets, economic environment, regulations, competitors, business, and culture Partner with internationally renowned clients Secure referrals from well-established organizations Partner with leading vendors 45 Programs to support sales channels and customers, 21 new firms 46 3. Education Establish university relationships Deliver technical training Provide access to trainers and other educational resources Deliver certification programs 4. Promotion Design and deliver co-promotional campaigns Provide free access to tools Provide free licenses Provide tools to locate companys partners 5. Marketing Provide marketplace visibility, mention products in blogs and social media, or organize launch events Attract leads from customers websites Place company links on clients websites Invest in joint events, webinars, and lead-generation campaigns Deliver free post-sales services Programs to support sales channels and customers, 21 new firms 47 6. Financial Offer price discounts 7. Commitment Uniqueness Guarantee against damage 8. Logistics Inventory Warehouses Yoos, 2013; p. 71-72 Profile of Internet use: 21 born globals 48 Internet Use Examples 1 Distribute content about products, services, and company, newsletters, and press releases All 21 new firms 2 Provide free access to specialized facilities and individuals GPEG provides online access to its Technology Showcase located in London and to its engineering team GoodData provides free access to all features and connectors to other applications and user support 3 Make available downloadable software, which is free to use for a limited period and which allows a potential customer to do virtual product testing Atlassian, Griaule Biometrics, Tufin 4 Schedule demonstrations of new firms offer Tufin 5 Sell via an online store Atlassian, Griaule Biometrics, Mojang 6 Locate customers, exchange product development information, develop product, and deliver service support Dewak S.A. finds customers on online forums and blogs, exchanges information required to develop custom solutions, and provides post-sales services Profile of Internet use (continued) 49 Internet Use Examples 7 Deliver hosting services to consumers and small organizations and allow users to interact Dropbox allows users to bring their photos, documents, and videos anywhere and share them easily Groupon offers a deal-of-the-day website that features discounted gift certificates usable at local or national companies 8 Deliver hosting services to enterprises for the purpose of improving productivity Ansarada provides groups access to virtual data rooms that are simple and intuitive to use Conduit provides tools that enable publishers to engage with their users Zendesk allows enterprises to manage customer services 9 Develop open source software and sell services Canonical leads co-development of Ubuntu and sells engineering services to enterprises and original equipment manufacturers 10 Crowdsource, receive feedback, and increase brand recognition 360Cities maintains the webs largest collection of geo-referenced panoramic photos, created by thousands of expert panorama photographers 11 Crowdfund, receive feedback, and increase brand recognition Sellaband allows artists to raise money from their fans and a SellaBand community for the purpose of recording a professional album Profile of Internet use (continued) 50 Internet Use Examples 12 Engage millions of game users and enable social media interactions Papaya Mobile allows game developers to reach more than 50 million mobile device users 13 Operate a market exchange and enable social media interactions eToro operates an electronic marketplace to trade currencies, commodities and indices Airbnb operates a marketplace to rent accommodation from people in more than 30,000 cities in 192 countries 14 Deliver product authentication services Sproxil provides product authentication solutions to mobile users 15 Deliver training Atlassian, GoodData, Noja Power 16 Register and support partners as well as reduce potential for fines and mandatory audits Tufins programs that support channel, development, and technology alliances 17 Manage material returns Eagleyard analyses product failures and manages returns of materials Bailetti, 2012, p. 13. Finnish born globals by channel intermediary Relations with Direct sales Indirect sales Dual sales Hybrid sales Non-Internet based Total Small local channels 1 8 1 11 21 Multinationals and other large channels 2 4 3 7 16 No intermediaries 1 1 2 Total 1 3 12 4 19 39 51 Two channel intermediaries: small local and multinationals/large channels Of 21 that used small local channels, 10 used Internet-based channels Of 16 that used multinationals/large channels, 9 used Inter-based channels Of 39 born globals, 20 used Internet-based channels Dual sales was most frequently used, 12 of 20 Intermediary channels are important Growth spreadsheets Legitimate Customer mechanism Increase value to customer mechanism Cash mechanism Distinctive Distinctiveness mechanism 52 Examine: Growth formula inventory Note for supplier spreadsheet dated Oct 30, 2017 Takeaways 53

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