INFORMATION TECHNOLOGY ENTREPRENEURSHIP

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INFORMATION TECHNOLOGY ENTREPRENEURSHIP

• CLASS SIX IDEA GENERATION AND OPPORTUNITY
  ANALYSIS
• (BUILD OR BUY?)

Elikem Nutifafa Kuenyehia Management consultant
Corporate Lawyer
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Agenda for class 6

• Recap of class 5
• Guest Speaker Ehi Benitie, Chief Technology
  Strategist, Rancard Solutions
• Idea generation
• Opportunity analysis
• Build or buy?

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Idea Generation

• The first step in establishing an entrepreneurial
  venture
• Success as an entrepreneur depends on how well
  the idea is executed

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Sources of Ideas

• Consumer insights
• Competitive response
• Personal or professional experience
• Hobbies or interest
• Franchises
• Media
• Exhibitions
• Brainstorming

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• A good idea ? success
• It must be developed into a good concept

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Criteria for a good concept

• Consumer taste
• Number of potential buyers
• Purchasing power of potential buyers
• Return on investment
• Individual values and interest
• Value proposition
• The entrepreneurs resources skills

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Researching the opportunity

• Market research
• Customer research
• Concept validation
• Industry analysis
• Competitive analysis
• Trade area analysis

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Market research

• Helps you understand
• macro/micro economic environment
• competitive set
• Potential customers
• Marketing channels

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Customer research

• Define the customer
• Have conversations with potential customers
• Speak to potential suppliers

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Know your customers needs

• Observable needs explicit needs people can and
  are willing to tell you about
• Tacit needs customers know the need but are
  unwilling to voice it
• Latent needs hidden needs that people may be
  unconscious of

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Concept validation

• Expose target customers to the concept and get
  their reactions
• Commission prototypes where necessary and show
  them to the customer
• Create a concept board or concept sheet where
  prototypes are not possible (readable in less
  than a minute)
• Encourage the customer to use it and to comment
  on how to improve it
• Data must be as objective as possible

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Objective of concept validation

• To determine if the product or service meets an
  unmet need
• To determine if the product or service meets
  needs the customer did not know he had
• To determine if the product or service meets
  customer needs in a way that exceeds or is at
  least equal to what is provided by the competition

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Concept validation-capturing the customers voice

• Conversations with the customer
• One-to-one
• Focus groups
• Questionnaires
• Rank products and services on a number of
  attributes
• Purchase intent (probability of purchase)
• Definitely would buy
• Probably would buy
• Neutral
• Probably would not buy
• Definitely would not buy

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Concept validation-capturing the customers voice

• Purchase frequency (how often would you expect to
  buy
• Everyday
• Every week
• Once a year
• Twice in my lifetime
• Purchase magnitude (how many will you expect to
  buy)
• One
• A dozen
• A crate
• A carton

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Advantages/disadvantages of concept validation

• Advantages
• Prevents costly mistakes down the line
• Gives the entrepreneur opportunities to feed back
  customer insights into his products/services
• Disadvantages
• Time consuming
• Opponents may beat you to the market when they
  know your intentions

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Industry analysis

• Michael Potters five forces framework
• Rivalry
• Numerous or equally balanced competitors
• Slow industry growth
• Lack of differentiation or switching costs for
  customers
• High exit barriers
• Barriers to entry
• Economies of scale
• Product differentiation
• Capital requirements

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Industry analysis II

• Switching costs
• Government policy
• Threat of substitute products or services
• Buyer power
• Discounts
• Additional services
• High quality
• Supplier power
• More concentrated suppliers industry
• Fewer substitute products available

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Competitive analysis

• How do the major players in the industry make
  their profits?
• Their strengths and weaknesses
• Their target customer, key customers and
  positioning
• Their sales, volume, market share and growth
• Their pricing and marketing strategy
• Product lines and distribution channels
• Their business models
• Management style and goals, their ethos
• Their entire value chain

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Advantages of competitive analysis

• Shows opportunity areas in the industry
• Helps anticipate potential problems
• Helps in structuring the entrepreneurs business
  and business strategy

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Trade area analysis

• Which part of the country to locate in
• Proximity to markets
• Proximity to raw materials
• Labour supply
• Business climate
• Population growth trends, density and shifts
• Competition
• Transportation networks and other infrastructure

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Trade area analysis II

• Where to locate in a particular city, town or
  village
• Customer traffic
• Adequate parking
• Visibility
• Competition
• Cost
• Size and layout

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• Build or buy?

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Pros of buying vs building

• Faster route to entrepreneurship
• Experience of the previous owner can be leveraged
• Easier to find finance

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Difficulties of buying vs building

• Cultural/Employee related issues
• Customer and supplier relationships may not be
  inherited
• Business may be overpriced

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• Due diligence!!!

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Due diligence guidelines

• Ask, ask, ask
• When you hear an answer, make sure you also see
  the answer
• Use the Colombo method
• When co-investing, do your own due diligence
• Painstakingly review all information about all
  aspects of the company

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Franchising

• A form of licensing by which the owner (the
  franchisor) of a product, service or business
  method obtains distribution through affiliated
  dealers (the franchisee)

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Advantages for the franchisor

• Fast growth
• Economies of scale
• Cashflow
• Motivation market knowledge
• Does not dilute ownership

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Disadvantages for the franchisor

• Loss of control over operation
• Loss of contact with customers
• Free riding
• Sharing income stream

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Advantages for the franchisee

• Safety net hence lower risk of failure
• Support in terms of training, RD, etc
• Economies of scale

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Disadvantages for the franchisee

• Lack of control
• Quasi-employment
• Can be expensive in the long run
• Limit on exit strategy

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Build or buy? II

• Mom Pop/ life style entrepreneurs
• Informal systems
• Not concerned about growth
• High growth entrepreneur
• Seeks exponential growth
• Formal systems for cashflow planning, financial
  management, strategic planning, marketing

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• Questions????

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• Thank you!!!