Module 4 Core Advantage and The Team PDF

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Core Advantage 1. Core (sources of advantage) long-term and sustainable advantages a. Network effect  value of product depends on how many people use i. Products with network effects can have very high switching costs (I.e. phone, social media, eBay  more users, more value) b. Customer service ii. Can be a powerful advantage iii. Seems to be easy to copy in theory but in practice not the case (I.e. Ritz-Carlton Hong Kong) c. Low cost  design entire business to fulfill this goal (different from low pricing) iv. Low-cost model that build efficiency d. User experience (UX) v. software and hardware have seen this become a growing trend= e. Manufacturing/ design expertise vi. Technology leader who can design/develop products consistently ahead of the competition vii. Manufacturing operations that can produce items far better than the competition 2. Core is NOT a. First mover advantage !!! (short-term advantages)  the first company that starts the products/services i. Often stated by entrepreneurs ii. May provide network effect but isn’t sustainable but itself Challenges first-to-market i. High cost of building supplier network ii. High cost of setting up distribution and support iii. High cost of customer education iv. High cost of fixing errors v. High cost of brand-building Advantages fast followers  suppliers already identified and vetted copy distribution and support from first mover (first market mover already done most of error, educated customer..) b. Locking up suppliers i. Rare that there is a single provider ii. Even rarer that they will be happy with an exclusive distributor/customer c. Low pricing i. Low pricing is different than low cost producer ii. Accepting less profit is often easy to match ***Value proposition is linked to core

3. Comparing your offering to the competition a. Define market b. Define attributes you think customers will care about the most c. Include status-quo d. Include direct competitors e. Comparison of legal entities 4. Startup competition a. Framework i. no scale economies ii. little leverage over suppliers iii. little leverage over customers iv. unknow brand/reputation b. Small firm advantages i. High powered incentives ii. Idea ** iii. Speed ** direct tie to customers iv. Fit with environment v. No legacy costs **disruption of disc drives-example of the innovator’s dilemma c. Switching cost disadvantages i. Cognitive/ user level ii. Complementary assets iii. Search costs iv. Network effects v. Incremental financial costs (e.g. breaking a lease) d. Overcome switching costs (entrant should provide solutions that remove switching costs) i. Technologically better than the incumbent ii. Sufficiently better that it over comes the risk and uncertainty of switching iii. Fits customer purchase logics 5. Porter’s generic Strategies (choose your route to success)  generic strategies apply to non-profit organizations too a. cost leadership strategy (no frills) i. increasing profit by reducing operation costs, while charging industryaverage prices  invest new technology, and efficient logistics ii. increasing market share by charging lower prices, while still making a reasonable profit on each sale because you have reduced costs iii. successful cost leadership companies 1. access to the capital needed to invest in technology that will bring costs down 2. very efficient logistics

3. a low-cost base (labor, materials, facilities), and a way of sustainably cutting costs below those of other competitors 4. *** important to continuously find ways of reducing costs b. Differentiation strategy (creating uniquely desirable products and services) i. Making your products and services special and unique compared to your competitors ii. Be creative and innovative, high-quality, brand image (sales and marketing are a focus) iii. Successful differentiation strategy 1. Good research, development, and innovation 2. The ability to deliver high-quality products or services 3. Effective sales and marketing, so that the market understands the benefits offered by the differentiated offerings c. Focus strategy (offering a specialized service in a niche market) i. Carefully meet the customer niche market ii. Subdivided into two parts: 1. cost focus  cost-minimization within a focused market 2. differentiation focus pursing strategic differentiation within a focused market 6. Choosing the right generic strategy a. SWOT analysis i. Strengths ii. Weaknesses iii. Opportunities iv. Threats b. Five Forces analysis (key sources of competitive pressure within an industry, permanent parts of an industrial structure) i. Competitive rivalry  the strength of competition in the industry ii. Supplier power  the ability of suppliers to drive up the prices of your inputs iii. Buyer power  the strength of your customers to drive down your prices iv. Threat of substitution  the extent to which different products and services can be used in place of your own v. Threat of new entry  the ease with which new competitors can enter the market if they see that you are making good profits (and then drive your prices down)

c. Compare SWOT analyses of the viable strategic options with the results of your five forces analysis i. Reduce or manage supplier power ii. Reduce or manage buyer power iii. Come out on top of the competitive rivalry iv. Reduce or eliminate the threat of substitution v. Reduce or eliminate the threat of new entry 7. Why porter’s model no longer works a. Generic v.s. distinct  for organizations wanting to thrive in the social era, being distinct is key to both profitability and winning b. Social era rewards the gazelles- the ones that are fast, fluid, and flexible 8. There are still only two ways to compete a. Ways to successfully compete i. Low cost  Gain a relative market share advantage over all competitors so as to have lower costs that all of them ii. Differentiation b. Two-sided markets (which the firm gets paid for putting two other groups together e.g. eBay, Uber) c. Competitive advantages have become more fragile, but it is important that there are till just two fundamental forms of competitive advantages: low cost or differentiation advantages 9. Competitive advantage (2 dimensions)  higher profit that competitors in the market i. Scope of the strategy (reach/ customer base) 1. Broad market 2. Narrow market ii. Source of competitive advantage 1. Differentiation 2. Low cost ** X a balance  stucking in the middle b. Overall cost  become the lowest priced provider for a broad customer base i. Efficient/lean production ii. Closer relationship with suppliers iii. Investment in newer technologies c. Overall differentiation  doing something different/ unique/ more efficient to make the customers pay more i. Higher quality ii. Better brand value

iii. Wider distribution d. Cost focus  cost leadership in a narrow of focused market e. Differentiation focus  differentiation strategy in a narrow or focused market

The Team 1. building the team: solo versus team a. Attributes of founding teams i. Financial capital ii. Social capital iii. Human capital b. Attributes of the business i. Complexity ii. Importance of speed iii. Need to signal that others think it is a promising idea 2. Selection of co-founders a. Previous experience working together b. Complete strangers c. Previous experience is social 3. Jungle phase  need to build in flexibility and assume change will be required a. Phases of a new company i. Jungle  dirt road  highway b. Jungle phase driven by two forces i. Startups change ii. People change 4. Process to recruit a team a. Determine the capital needs of your startup teams and current coverage from existing team i. Capital 1. Human 2. Social 3. Financial ii. Existing team 1. Founder 2. Attorney/ accountant 3. Board members 4. Consultants iii. Generic human capital requirement for startup team in software 1. Hustler (business) 2. Hacker (engineer)

3. Hipster (designer) b. Write a “job description” i. Title- (be flexible/ fuzzy) ii. Key responsibilities iii. Skills (required/ preferred) iv. Location v. Target company/ industry experience vi. Don’t be afraid to copy from other startups but important to customize for your situation c. Share with your network and beyond (e.g. LinkedIn, AngelList, Events, Startup weekend, etc…) d. Expect to compromise 5. Share/ Ownership distribution in startups a. Past contributions i. Idea premium ii. Capital contribution iii. Work contribution b. Opportunity cost  if a person give up a lot should be rewarded c. Future contributions i. Serial/ experienced founder ii. Level of commitment iii. Title d. Founder motivations & preferences i. Wealth motivations ii. Tolerance for conflict iii. Negotiating skill and desire iv. Prior relationships (expected norms) e. Equity/Ownership approaches (make sure compensation program works out to keep people aligned and provides for a way out when people leave) i. Restricted stock limitations regrading when you take ownership and your ability to sell your shares ii. Stock options provide option to buy shares at a set price over a certain number of the years iii. Vesting equity/options are granted but actual ownership takes place on a schedule (spreading over time  more complex) 1. early vesting if company is sold 2. different outcomes if person quits, fired for cause, fired without cause, etc 6. Networking

a. Benefits of networking i. Large number of jobs are never posted ii. Most venture capital investment are made from a “warm” introduction iii. Can save you a huge amount of time b. How to network i. Have a clear idea of both your long- and short-term goals 1. Advice 2. Job 3. Investment 4. introduction ii. Use various approaches to reach out someone who can help you 1. LinkedIn 2. Badger bridge 3. Human connections iii. Be genuine and respectful of the persons time 1. Be prepared and organized (do your homework) 2. Don’t lead with an ask iv. Other best practices 1. Thank them and offer to help them if appropriate 2. Follow-up with how things turned out 3. Ask them if they could recommend others that could be helpful c. Process to join a team i. Determine what you want? 1. Geography 2. Industry 3. Stage (jungle/ dirt road/ highway) 4. Role/ function where you can add value 5. Be willing to look at companies you don’t recognize ii. Find and close on your targeted opportunity 1. Research potential opportunities (databases, newsletters, blogs, etc) 2. Attend events and talk to people so you can learn about different companies 3. Timing is everything so hiring happens around key events 4. Try to build an initial connection 5. Be willing to help out/work for free to prove you can add value 6. Don’t be afraid to apply for jobs that are not posted 7. Think like an investor (due diligence, likelihood of success) 7. Ten steps to finding the right co-founder a. Write a “job description” for the ideal partner i. Friend, spouse, or family member is that least likely candidate ii. Write down partner skills and experiences that would best complement yours b. Network to find co-founders just as your network to find investors

c. d. e. f. g. h.

Join online “matchmaking” sites for business partners Attend local university entrepreneur activities Attend local university entrepreneur activities Look for a partner from a different background Follow up with associates from prior job assignments Relocate to a more likely geography i. Silicon valley and Boston are hubs for high-tech startups i. Explore candidate common interests outside of work j. Jointly define major milestones and key metrics for the startup k. Negotiate and document roles early, including who is the boss 8. The rewards and risks of partnership a. Pros i. Shares the burdens and responsibilities ii. Someone else can do jobs that don’t play to your strengths or interests iii. Opens up opportunities that otherwise would be beyond your grasp, including greater success iv. You can move faster to take advantage of opportunities v. You can enjoy camaraderie with an equal instead of feeling alone at the top vi. There’s the potential for synergy and better decision making at the very top of the company b. Cost of conflict i. Personal emotional toll on the partners, their spouses, and others close to them ii. The toll on the relationships among the partners iii. The loss from having a partner underperform iv. The time lost by partners who must spend hour and days away from management and income-generating activities v. Job dissatisfaction, high absenteeism, and lost productivity among employees who get swept up in owners’ battles vi. Costs associate with the departure of employees who want to escape the conflict vii. Mediation, arbitration, or litigation costs viii. The expense of buying out a partner’s interest ix. Recruiting expenses and time to find a new partner or employee x. Lost productivity for owners and executives who must integrate a new partner or employee into the company xi. Litigation after a breakup related to broken noncompete clauses c. Essential elements of successful partnership i. A good fit between the partners’ personalities ii. Similar values iii. The ability to be a team player iv. Compatible goals and clear expectations v. Mutual trust and respect...