It’s a full house tonight for the first New Ventures BC seminar. Tonight’s topic is “Conceiving and Evaluating Entrepreneurial Opportunity”. Dr. Daniel Muzyka, Dean of SFU’s Sauder School of Business, introduces himself quite exuberantly; this should be an interesting presentation. He states that he is a professor of entrepreneurship, but admits that you can’t teach someone how to be a good entrepreneur. You can, however, teach them skills and tools that will increase their chances of success.
What is a good opportunity? Based on four areas: 1) Customer need. Technology by itself won’t sell unless there is a need. Need can be created. 2) Resources. Competing with big players will require resources. 3) Desire. You have to really want to succeed, to “get out of bed at 3 AM for it” (Dr. Muzyka jokingly strangles an audience member). You’ll run into “monsters, dragons, and bankers”. 4) Capabilities. A skilful and knowledgeable team is essential.
There are different flavours of opportunity. Firstly, a new market. New markets expand fast, so you have to grow fast to keep up with it. They’re the type most pointed to for new ventures, but he doesn’t recommend going into one. Second, market imperfections. Unresponsive competitors or changes in need produce a opening for new ideas. While these ventures may seem that they lack longevity, Dr. Muzyka emphasizes that no business lasts forever, and no business needs to last forever for you to gain from it (”Three most important letters: IPO”). Third, international arbitrage: an idea has been successful in another country but hasn’t been moved to a new country.
Some realities: There is no “absolute opportunity”, opportunity requires a person that sees things differently. There is no symmetric opportunity, what works for one person won’t work for everyone. You don’t have to be the first mover, “Pioneers get arrows in their back”. The first person usual gets it wrong, so be a fast follower. “Boring is beautiful”, the simplest ideas can be the most lucrative.
Three factors to consider: Scale: is it big enough to satisfy everyone, in terms of customer need, identifiability, and financial returns. Scope: does it have enough value? Window: is the timing right, and is it going to last long enough to return value? Market decline can be an ideal time for a new venture, positioning yourself for the next market upswing.
Audience question: Opinion on intellectual property and patents, are they worth persuing?
Answer: Yes. Do your homework to ensure your idea isn’t already patented. Get patents as you invent; it doesn’t stop anyone, only slows them down. Effectiveness varies in different industries: less effective with software, quite effective for biotech. Defensive patenting is a good strategy.
Next section, “Venture Capitalists: Selection Criteria”. Dr. Muzyka helped conduct of study of what factors are most important to venture capitalists when selecting new ventures. He goes through the groups of factors they identified: product, management team, management competencies, strategic/competitive, financial, and fund-related. The results: management team factors unanimously came in first, followed by management competencies. Product/market factors came in fifth. Conclusion: The quality of your team is most important, even more important than the product.
Question: If the team is most important, are those of us without prior experience screwed?
Answer: No, you aren’t. Cultivate skilled people around you.
Question: An earlier slide mentioned seasonality as a risk, could you elaborate on that?
Answer: It’s not an overly important point. In industries that are very seasonal, like toys, you have to build up a large inventory before selling it off, which makes it a higher risk.
Wrap up slide: Ten Commandments of Entrepreneurship
Obsolete: Make your own products obsolete, its better than someone else doing it.
Pivot: take a known (to you) technology to a new customer, or an new technology to an old customer.
Roll out: don’t go for the broad market. Target a segment, then move into adjacent markets.
Segment: understand every set of customers. Go where they are and watch them.
Sequence: don’t try and fix all problems at once, first get the product to work.
Switch: don’t compete with others, offer a unique value proposition.
Protect: use proper legal and patent defence.
Surge: introduce constantly, improve constantly.
Morph: be willing to change your business model
Adapt: embrace change
Question: With a one in ten success rate, why are VCs doing so badly? Is there any indication that what they do works?
Answer: The success rate reflects reality. VCs aim for a high rate of average return, which can still be high if one in ten is a great success.
Question: With mainstream media talking of a recession, will that effect the attitude of VCs?
Answer: VC tends to operate counter-cyclically, investing when the economy is down. They might bargain hunt; since banks will be acting more conservative and new ventures will have fewer sources of funding. Thus, it’s not a bad time at all to be starting a new venture.
That wraps up this seminar, see you next week for seminar #2: “Managing your Intellectual Property”.
