06.3. tips on improving resources

The Science of StartSession 3: Key Resources

paulshawsmithscientific business strategy


Physical 1

Lease vs. buy

AMAR BHIDE


Source: Wall Street Journal Video, 2009-10-15

“When we started the airline 25 years age this year. I went to Boeing. I remember the telephone call. “Hello this is Richard Branson, wonder whether you could sell me a second hand 747?” “What is the name of your business?”“Virgin.” “What do you do?” “We have a record company and have great bands like the sex pistols the rolling Stones.“And then there was a long pause, and instead of putting the phone down. He said, “We will send a salesman over and as long as your airline goes further than your name suggests we will let you have a plane.”

The key point there is we said to Boeing we don’t know if this is going to work. We realise that this is risky, and we want to be able to hand the plane back after 12 months if it doesn’t work out. And that is the element of protecting the downside and that is the critical thing.

Barter

James Dyson & the vacuum companies

Use second rate resources (Dial up internet)

Use second rate resources (Off the shelf servers)


Intellectual 2

Partner with experts

Daniel SaksenbergDaniel Saksenberg specializes in machine learning and artificial intelligence. He has developed models for life insurance, forensics, anti-money laundering, offshore financial centers and transfer pricing. His models are use by corporations around the world.

Actuary and specialist in predictive analytics

Hire ex-employees (Fairchild & Intel)

Reverse engineering (B-29 & T-u4)


Human 3

Give employees a financial stake

Source: Hambrick and Crozier (1985)

Use affordable loss with employees

Broad search

“To get hired in this organization was a joke. If you came in and we needed a warm body, you were hired. Literally for any

position. Our turnover was high because we had to fire many employees… In a small company, unfortunately, such

problems are unavoidable. We could not afford committed professionals”

Source: Bhide (2000)

Use second rate employees


Financial4


How investors

make decisions

Marketing understanding

Market Understanding

“Start ups need 2 – 3 times longer to validate their market than most

founders expect. This underestimation creates the

pressure to scale prematurely.”

Source: Start up Genome (2011)


How investors

make decisions


Realistic forecasts

Realistic Forecasts

“Start ups that haven’t raised money over-estimate their market size by 100x and often misinterpret their

market as new.”

Source: Start up Genome (2011)


How investors

make decisions


Realistic forecasts

Experience of team

Series1


25.5 %

54.5 %

Source: Bruderl, et al. (1992)

5-year failure rate?

Industry Experience

No Industry Experience


Sales

Financial Operations

Manager


How investors

make decisions


Realistic forecasts

Experience of team

Size of founding team

Series1


3.3%

0.4%

Source: Stam and Schutjens (2004)

Twenty employees?

Series1


13.1%

54.2.%

Source: Bruderl, et al. (1992)

5-year failure rate?

+

>

paulshawsmithscientific business strategySource: Aldrich, Nancy, Carter & Ruef (2004)

48%

38%

7%4%

3%

1 founder2 founders3 founders4 founders5 + founders


How investors

make decisions


Realistic forecasts

Experience of team


Market growth rate

1996 2006

Growth in online advertising


How investors

make decisions


Realistic forecasts

Experience of team


Market growth rate

No. Of competitors

Series1


Fortune 500

(5%)

No direct competition

Small companies

Source: Bhide (2000)

(73%)

(18%)

Mid-sized companies

(4%)

Competition faced by Inc. 500 start ups


How investors

make decisions


Realistic forecasts

Experience of team


Market growth rate

No. Of competitors

Competitive advantage


Industry Number of Inc 500 firms

Firm starts Percent of Starts

Pulp mills 6 33 18.182Computer and office equipment 99 2359 4.197Guided missiles, space vehicles, parts 2 60 3.333Nonferrous rolling and drawing 14 581 2.410Railroad car rental 3 136 2.206Measuring and controlling devices 49 2482 1.974Paper mills 3 125 2.400Search and navigation devices 6 310 1.935General industrial machinery 26 2173 1.197Photographic equipment and supplies 7 646 1.084Manifold business forms 3 281 1.068Household appliances 4 390 1.026Electrical industrial apparatus 11 1080 1.019Legal services 10 129207 0.008Eating and drinking places 34 494731 0.007Carpentry and floor work contractors 4 66383 0.006Real estate operators 5 90042 0.006Hotels and motels 2 39177 0.005Painting and paper contractors 2 43987 0.005Retail bakeries 1 22165 0.005Grocery stores 5 112473 0.004Used merchandise stores 1 24442 0.004Automotive repair shops 5 124725 0.004Beauty shops 3 79081 0.004Residential care 1 27710 0.004Videotape rental 1 27793 0.004

INC 500 vs. TOTAL STARTS BY INDUSTRY Source: Shane (2009)


COMPUTER AND OFFICEEQUIPMENT


Inc 500

99

Total start ups

2,359

EATING AND DRINKING PLACES


Inc 500

34

Total start ups

494,731

INDUSTRY AND INC 500


Source: Shane (2009)

Computer and Office Equipment (1/25)

Eating and Drinking Places (1/14,550)

Glass Products 85.7Spinning, weaving and finishing of cottons, artificial and synthetic fibre 81.0Spinning, weaving and finishing of wool 76.9Slaughtering 68.0Knitting Industry 65.7 Cut Stone and Stone Products 65.6Footwear n.e.c. 65.4Iron and Steel Industry 64.6Tanning and Dressing of Leather 63.6Machinery for the industry n.e.c. 61.5Radio and TV Communication Equipment 47.4Fabricated Metal Products n.e.c. 46.7Manufacturing n.e.c. 44.4Cement Products 42.7Clay Products for Construction 42.1Pottery 41.2Household Textile Products 40.9Made-to-Measure Clothing 37.9Pastry 34.7Fish Preserving 25.0

INDUSTRY AND SURVIVAL (4 YEARS)Source: Mata and Portugal (1994)



How investors

make decisions


Realistic forecasts

Experience of team


Market growth rate

No. Of competitors

Competitive advantage

Referrals and introductions

Weak ties and funding

Being referred by indirect social ties

increased the likelihood of an entrepreneur receiving

funding.

Source: Shane and Stuart (2002)


Social5

130

Six degrees of separation

13016,900


13016,900

2,197,000


13016,900

2,197,000

285,610,000


13016,900

2,197,000

285,610,000

37,129,300,000


13016,900

2,197,000

285,610,000

37,129,300,000

4,8 x 1012


16.7%

55.6%

27.8%

At least once a week

More than once a year but less than once a

week

Once a year or less

Who did you find out about your job from?

50%

Milgram stockbroker experiment

20

108

Are you a connector?

Ask for referrals and introductions

Attend social events

Do event follow ups

Help others

Create a database of contacts

Use social networks (Vinny Lignham)

Develop a support network

Incubator average(3/20 fail)

Industry average(10/20 fail)

Source: Phillips (2002) and Audretch (1995)

Source: Watson (2007)

Advice from accountants 3< /yr (16/20 survived )

No advice from accountants(9/20 survived)

Seek advice

Source: Watson (2007)

Network range = How often an entrepreneur networks x How widely an entrepreneur networks

Don’t seek to much advice

Patrons or champions

Thought leaders

Inventory your resources

**

*

*

In groups of 3 – 4:

For each person:

Make plans on how you can acquire your dream

resourcesIs there a second rate version of your

dreamresources you could more easily acquire?Can you use your current resources to

acquire yourdream resources?

* Time: 20 mins

Plan your up coming week

*In groups of 3 – 4:

Make plans for the area of your business that needs

work: Value proposition: Customers, lead users,

thought leaders,industry expertsCustomer acquisition: Sales & marketing

experiments Customer segment: Market research, customers Revenue stream: Pricing tests, customers Distribution: Channel partners Key resources: Partners, investors, production,

developmentKey activities: Production & development

experiments Key Partners: Partners Cost structure: Suppliers, production &

developmentexperiments, CA experiment

Business

06.3. tips on improving resources