Entrepreneurship for Physicists

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1 Entrepreneurship for Physicists March 2008 Pre-Business Feasibility Analysis and Opportunity Assessment Edward CANER Innovation & Entrepreneurship Programs, Cleveland, USA

2 Notes for Lecture 3: Pre-Business feasibility analysis and opportunity assessment Duration: 45 minutes lecture, 15 minutes Q&A Lecturer: Edward M. Caner, Case Western Reserve University Note: beyond item 10 may not be covered in the 1 hour time frame, but has been included for reference and discussion. 1. Definitions 1.1. Opportunity Analysis The process of identifying and exploring a potential undertaking, usually given a set of circumstances that makes it possible for this undertaking to happen This can be done with the NABC method (see below) Feasibility Analysis An analysis that provides an initial determination of whether or not a proposed economic endeavor is within the capacity of 1) the resources that can be made available and 2) available markets Purpose of a Feasibility Analysis: To determine if you (or someone else) are willing to move forward with your technology business concept and under what conditions. Typically a 15-page document and a 10-minute PowerPoint presentation This is a more in-depth NABC 1.3. Entrepreneurship 1.4. Innovation A subset of creativity that involves the creation of a new idea, but also involves its implementation, adoption and transfer. Innovation and discovery transform insight and technology into novel products, processes, and services that create value for stakeholders and society. Innovations and discoveries are the tangible outcomes. -- NSF Workshop: The Scientific Basis of Individual and Team Innovation and Discovery, August, Feasibility Analysis Process--Two Approaches 2.1. Adapted from Kathleen R. Allen, Professor of Entrepreneurship, University of Southern California 2.2. Carlson/Wilmot Approach (adapted from Carlson, Curtis R., Wilmot, William W. Innovation- The Five Disciplines for Creating What Customers Want. Random House 2006) 3. Kathleen R. Allen Feasibility Analysis (Adapted from Kathleen R. Allen, Professor of Entrepreneurship, University of Southern California) 3.1. The feasibility analysis should contain the following major sections, with subheadings adjusted to meet the requirements of your particular business: Cover for the plan o Business name, the words Feasibility Analysis, the names of the team members, etc.

3 Executive Summary: o Provide conclusions from all sections of the feasibility analysis as well as your final decision about going forward o This should be done in no more than two pages Table of Contents Feasibility Decision The Business Concept Industry and Market Analysis Product/Service Development Analysis Founding Team Analysis Financial Assessment Timeline to Launch Bibliography or Endnotes (footnotes may be substituted) Appendices (A,B,C, etc.) o Supporting documents for Feasibility Sections, questionnaires, maps, forms, resumes, etc. 4. Carlson/Wilmot NABC (adapted from Carlson, Curtis R., Wilmot, William W. Innovation- The Five Disciplines for Creating What Customers Want. Random House 2006) 4.1. Need 4.2. Approach 4.3. Benefit/Cost 4.4. Competition/Alternatives

4 5. NEED 5.1. Identify and understand the market need ("Market Analysis" and part of the "Industry Analysis") Know the value and to how many customers Understand temporal issues (Is need increasing? Will need be met later by something else? What is the time frame to commercialization?) Think in the way of the customer: Know the customer's habits, concerns, willingness to buy or use Put things in the customer s language. 6. APPROACH 6.1. Your solution (the science, engineering, novel way of doing something, etc.) 6.2. How it is delivered to the customer so that your organization can be profitable and sustainable (the "Business Concept") 6.3. Startup capital vs. revenue sources: govt, foundatioins, revenue from customers etc Champion and Team ("Founding Team Analysis") 6.5. Timeline to Launch 7. BENEFITS VS COST 7.1. Cost to produce ("Product/Service Development Analysis" & "Financial Assessment") 7.2. Cost to buy and own: Up-front, sustained, and resultant Switching costs Other non-monetary costs 7.3. Compare Not always quantitative 8. COMPETITION/ALTERNATIVES 8.1. There is always competition direct (similar) or indirect (alternatives) 8.2. There will be more competition upon product roll-out 8.3. This is part of the "Industry Analysis" 9. Feasibility Decision

5 9.1. Story told by Curt Carlson about Frank 10. What we do in our class at CWRU Midterm Assignment: Intellectual Property Evaluation Final Assignment: Feasibility Study Weekly Assignments: Case Studies Both Science and Engineering examples Lectures Videos and audio from 11. Sample Lectures Industry Analysis Technology development (S curve) Alternative technologies Distribution lines Understanding dependencies of the technology Technology Platforms Creating Competencies Intro to entrepreneurial finance Pro Formas Developing assumptions Funding the Venture

6 11.3. Introduction to understanding distributions lines Pricing Production Strategic Partnerships Dependencies Market Research Timing of Entry First Mover Disadvantage 12. Underlying Disciplines Reading industry journals and news Direct Communication with LOTS of Primary Sources Watch general Source Credibility Lack of peer-reviewed citations is alarming Practice 13. Appendix: 14. Recommended Books Carlson, Curtis R., Wilmot, William W. Innovation- The Five Disciplines for Creating What Customers Want. Random House Allen, Kathleen R. Launching New Ventures 3rd Edition, Boston, MA: Houghton Mifflin Company, 2003 Shane, Scott A. Finding Fertile Ground: Identifying Extraordinary Opportunities for New Businesses. New York, NY Wharton Business School Publishing 2004 Ferriss, Timothy. The Four Hour Work Week, Crown Publishing, 2007 The Art of the Start, Guy Kawasaki Made to Stick, Chip and Dan Heath Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers, Geoffrey A. Moore No, Jim Camp Getting Things Done, David Allen What It Takes To Be Great, Fortune Magazine Oct. 30, 2006 (Geoffrey Colvin) Good to Great, Jim Collins 15. Notes on the definition of "Innovation": Innovation "involves the creation of a new idea, but also involves its implementation, adoption and transfer." (NSF August 2006 proceedings Some notes on this definition: See below excerpt from the SSTI Weekly Digest (3/26/07)) for an excellent description of the NSF

7 proceedings. I use the book Innovation: The Five Disciplines for Creating What Customers Want (Carlson, C. and Wilmot, W.) for my innovation class because it focuses heavily on the areas of "implementation, adoption and transfer." Many people still blur the lines between "invention" and "innovation", and misuse the term "innovation". For example, the article listed below in the NY Times makes some great points concerning invention (a critical aspect of innovation), but does not really get into the areas of "implementation, adoption and transfer.", which Carlson and Wilmot more or less argues is the heart and soul of innovation. Rae-Dupree, J. (2008 February 2). Eureka! It Really Takes Years of Hard Work. The New York Times. Retrieved Feb 3, 2008 from From SSTI newsletter March 26, The Science & Psychology of Innovation Browsing the business section of a bookstore may yield dozens of titles purporting to explain the process of innovation. This newsletter and most others serving the nation s policymakers and science and technology communities have covered reports calling for a national innovation strategy. Unfortunately, most meetings on the subject have to begin by developing a working definition of the term innovation that most can accept. The use or overuse of the word, particularly in calls for needing more of it or business books on how to do it, threatens to reduce innovation to a meaningless buzzword that loses hope of having any real value. Fortunately, slightly removed from political circles, there are those interested in understanding the basis of innovation and discovery with a scientific grounding. The National Science Foundation (NSF) recently released the proceedings of an August 2006 workshop exploring what is known about how innovation and discovery occurs on the individual and team level. The panelists' conclusion? Not much, particularly related to understanding engineering and design. After hearing the state-of-the-art on understanding innovation and discovery from three perspectives - that of cognitive scientists, social psychologists and engineers - the 24 workshop participants developed an outline of several topics of research to cultivate an interdisciplinary psychological science of individual and team innovation and discovery and laid out expectations for improved understanding of the issue over a 20-year time span. NSF will use the list to guide future investments in research on the topic. The workshop recommended NSF support: Studies that expand understanding of the cognitive mechanisms of innovation/creativity and the ways in which strategies and external tools influence these cognitive mechanisms; Computational modeling and agents simulations of innovation/creativity that allow for theoretical development across levels of individual group, and organizational analysis; Empirical studies and computational models that explore the temporal dynamics of individual and group factors on creativity/innovation; Interdisciplinary programs of research that coordinate psychology laboratory and design engineering experiments; and Empirical studies that unpack cognitive and social/motivational factors of group cognition in more realistic group settings. For those curious, the workshop began by developing a common language regarding creativity and innovation. Innovation, participants decided, is a subset of creativity that involves the creation of a new

8 idea, but also involves its implementation, adoption and transfer. Innovation and discovery transform insight and technology into novel products, processes, and services that create value for stakeholders and society. Innovations and discoveries are the tangible outcomes. The report on the August 2006 workshop proceedings into The Scientific Basis of Individual and Team Innovation and Discovery is available as a PDF at: Copies of the individual presentations are available at: