Tuesday, October 01, 2013

Notes on entrepreneurship (Part 1)

In this semester, I am taking ENGI 540, an entrepreneurship class offered by Rice Center for Engineering Leadership that focuses on lean startup and effectuation principles. It follows "reverse classroom" approach where we are supposed to go through preparatory readings and watch online lectures before every class. In the class, we discuss what we accomplished every week and also interact with guest entrepreneurs, venture capitalists and IP lawyers. I thought it might be nice to blog about my experience and share few insights I got from taking this class.

In the first class and after reading through first few chapters of Effectual Entrepreneurship, I found following concepts very intriguing:
1. Defining one's "means", which my professor defines as "who you are, what you know, what you have and who you know". The core idea in a startup is to start with your mean and create opportunities; sometimes expanding one's means through partnership.

2. Ideation: One interesting habit that a budding entrepreneur can practice is make an idea journal, where you force yourself to come up with 1 new idea every week (or if you are ambitious every day). There are various tools available for idea generation like mind mapping, lateral thinking, brainstorming, ... (will leave this for some other blogpost). Here are some of the tips for generating business ideas:
(2.a) Look into areas of change: Eg: opportunities in healthcare domain (because of ObamaCare) and energy field (because of increase in oil/gas prices & environmental impact). You can also analyze the consumption habits based on demographics [3], especially in market that is rapidly changing, i.e. BRIC countries (Brazil, Russia, India and China).
(2.b) Pain points: Is there a problem that is bothering you that is not solved by any existing solutions ?
(2.c) Cross-domain: Can you apply your expertise in one field into other ? For example: if you have expertise in end-user/consumer marketing, you can find an opportunity in a field which only focuses on corporate services (by delivering those services to end-user).

3. Opportunity evaluation: It is not possible to know a priori whether an idea will turn out to be good business or not. Most successful entrepreneurs and investors claim there is only one way to see good business opportunity: Go ahead, implement it creatively with very low levels of investments and either find real customers who are willing to buy the product or service at reasonable price or locate partners who are willing to commit real resources to the ventures early on or ideally both [1]. Still there are few high-level checklist that you can use to check if your idea is good or not:
(3.a) Does your idea have unique value proposition; if yes, what is it ?
(3.b) Is your idea profitable and sustainable (i.e. profitable over long period of time) ?
(3.c) Is your idea defensible ? People protect their idea either by patents/copyrights/trade-secrets, etc. Sometimes early entry into the market and strong user-base also makes an idea defensible.
(3.d) Does it have a clearly defined customer ?
(3.e) Other questions: Is it feasible ? Is it scalable ?

4. Causal reasoning states: To the extent we can predict the future, we can control it; whereas effectual reasoning states: to the extent we can control the future, we don't need to predict it. So, instead of creating elaborate predictive business model before beginning a startup (which can be frightening), it might be a nice idea to follow the effectual strategy: focus on what is controllable about the future and only commit what you can afford to lose (i.e. "affordable loss" principle [2]). For extremely risk-averse people who might prefer inaction, I would like to cite Sarasvathy's quote: "20 years from now, you will be disappointed with things you didn't do than things you did do".

[1] Effectual Entrepreneurship - Saravathy et al.
[2] A good application of affordable loss principle for iPhone development is given in this youtube video.
[3] Procter & Gamble changed the delivery mechanism of shampoo in India ... small packets instead of large bottles.

No comments: