Session 1 - Introduction and Uncertainty (16 Files Merged)

ENTREPRENEURIAL
MINDSET AND ACTION

SESSION 1: INTRODUCTION AND
UNDERSTANDING UNCERTAINTY
ARE YOU THINKING THAT …
 This course is not for me because

 I don’t think I will ever be an entrepreneur
 I am interested to work in a large corporation
 I don’t have entrepreneurial ‘traits’
 I don’t have the resources
 Hold your thoughts for a little while!
© RAMYA K MURTHY March 19, 2024 2

What is a common (sometimes implicit) assumption across
strategy, marketing, accounting, and operations
management?
They all assume that the firm already exists!
But how do firms come into being in the first place?

FIVE PHASES OF
GROWTH OF
FIRMS
Domain of
Entrepreneurship
Source: Greiner (1998)

WHAT IS ENTREPRENEURSHIP?
 Pursuit of opportunity disregarding the Domain of
Resource constraints
Entrepreneurship
resources under control1
 Creating something new with limited resources2
 Discovery of opportunities and subsequent
creation of new economic activity3
 Entrepreneurship is a field of business that seeks to
Decision making under
understand how opportunities to create future goods uncertainty
and services are discovered, evaluated, and exploited4
1 Stevenson, 2006; 2 Venkataraman, 2003; 3 Reynolds, 2005; 4 Shane & Venkataraman 2000
CREATIVE DESTRUCTION
 Established ventures will be threatened by newcomers (e.g., Uber,

Lyft vs. taxis)
 New ways to build ventures (e.g., Apps on App Stores)
 New technology (Digital, AI, etc.)
 Schumpeter (1944) terms it ‘creative destruction’

 Process of industrial mutation that incessantly revolutionizes the economic
structure from within, destroying the old one, and creating a new one.
CREATIVE DESTRUCTORS IN INDIA

WHAT DOES IT
MEAN FOR YOU?
But ...
 Entering a rapidly changing business
world
 Being entrepreneurial even as an

employee in a large firm
 Across fields and industries
 Developing an entrepreneurial
mindset is imperative
Source: https://spencerauthor.com/entrepreneurial-mindset/
DEVELOPING AN ENTREPRENEURIAL MINDSET AND
TAKING ACTION
Some examples
Idea >>> Opportunity Lean Canvas
Reducing self doubt with Opportunity Techniques, tools, processes

entrepreneurial thinking for value creation
EMA
Processes
Person
& Tools Effectuation
Select an outcome based

on what one has

CORE COURSE
ENTREPRENEURIAL MINDSET AND ACTION
New Venture
Viable Social
Intrapreneurship
venture Entrepreneurship
Venture Corporate Corporate

development Entrepreneurship Venture Capital
Value creation • Matching skills,
resources and ideas Other CE business
• Lean Canvas • Equity models
• Customer • Venture financing
Entrepreneurial discovery • Bootstrapping
thinking • Hypothesis-driven
• Uncertainty entrepreneurship
• Effectuation
• Idea &
Opportunity

UNDERSTANDING ENTREPRENEURSHIP
DIFFERENT APPROACHES TO ENTREPRENEURSHIP

SOME EXAMPLES
 Dr. Venkataswamy, an  Byju Raveendran was a

opthamologist, was in private math tutor.  Co-founded by Deepak
government service. Garg, a former
 He aced CAT more
McKinsey consultant,
 Ran several programs to than once and and Gazal Kalra, an
fight blindness; awarded thereafter began MBA graduate
Padmashree. conducting classes
 Rivigo operates a relay
 Upon retirement, setup  Byju’s parents were model for truck drivers.
Aravind Eye Hospital as a 11- teachers.
bed facility.
EVOLUTION OF ENTREPRENEURSHIP
Traits-based Entrepreneurship as Entrepreneurship as

Entrepreneurship a process a method
• “Entrepreneurs • Linear predictable • “Think and act

are born, not steps from idea entrepreneurially”
made” to exit • Experimentation
• Need for • Dominant logic is • Effectuation
achievement, risk planning and
taking propensity prediction

REALITY CHECK: TRAITS-BASED ENTREPRENEURSHIP
Entrepreneurial • 43% of family businesses don't have a succession plan
gene • Only 3% survive into the fourth generation
 No fixed/unique trait
distinguishing • Survey of small businesses showed that successful
Education
entrepreneurs had varied education levels
entrepreneurs from
non-entrepreneurs1
• E.g., Harland Sanders started KFC at age 65, and Dr.
Age
 Cofounded ventures are Venkataswamy founded Aravind Eye hospitals at age 58
more common (84%)

• 51% of unicorns in the US are founded by immigrants
Networks • E.g., Amagi (tech for geographic targeting of TV
advertisements) was founded by three college graduates
1Gartner 1985, 1989
ENTREPRENEURSHIP AS A PROCESS
 Core to this approach Research skills, from

is the development of ethnography,
Large to market,
and growing
qualitative interviews to – costs
a business plan inimitability,
data
profitability
analytics.
of accessing
Business planand
for retaining
startups
 Involves linear • – How
customers,
People, costsI fundproduction,
of
Opportunity,
should this
distribution,
Context,
venture:Risk versus
andand
Family what
Reward
process for customers
(Sahlman are
friends? 1997) willing
Banks? Businessto pay.
• How do I transition from
preparation and angels? Venture capital
doing and discovering a
firms? Can I bootstrap, so I
prediction • don’t need a Valuation.
business model to
Exit options, financier at
managing it?
all?
 Entrepreneurship can • Managing cash-flow in a
• How should I hire?:
growing business.
be taught Tradeoff between salary
versus equity
compensation, tradeoff
between diversity of skills
© RAMYA K MURTHY versus cohesion. March 19, 2024 16
Do you find anything wrong with this approach to
entrepreneurship?

REALITY CHECK: ENTREPRENEURSHIP AS A PROCESS
• The entrepreneurial process loops; often skips a stage or two in the lifecycle.
• Discovering an attractive opportunity may not happen in the first attempt.
• Assessing opportunities may be iterative and involve reshaping, reassessment,
or even abandoning them.
• Gathering resources never ends, nor do the challenges of managing growth.
• Entrepreneur may not exit after harvesting the value (remains on the board)
Source: Mullins 2006

ENTREPRENEURSHIP AS A METHOD
 Core to this approach is a portfolio of techniques and skills to

enable thinking and acting entrepreneurially
 Examples include tools (e.g., Lean Canvas), ways of thinking (Effectuation
versus Causation), and rubrics (Rich vs King tradeoffs in fundraising)
 “Using, applying, and acting” as opposed to “understanding,
knowing, and talking”
 The “method” can be applied to any level of organization
Source: Neck & Greene 2011; Sarasvathy & Venkataraman 2011

PROCESS VS. METHOD
Entrepreneurship as a process Entrepreneurship as a method
Known inputs and outputs Body of skills or techniques
Steps Toolkit
Predictive Creative
Linear Iterative
Precision Experimentation
Tested Practiced
 ‘Entrepreneurship as a method’ approach most suitable for decision-

making under uncertainty
Source: Neck & Greene 2011; Sarasvathy & Venkataraman 2011

UNCERTAINTY
UNDERSTANDING RISK AND UNCERTAINTY

WHAT IS UNCERTAINTY?
Domain of
Jar experiment Entrepreneurship
 Scenario 1
https://youtu.be/s-hQ6w2BkGo
 Scenario 2
https://youtu.be/xfShWC8EfQM uncertainty

RISK AND UNCERTAINTY
Entrepreneurs
operate here
Source: Sarasvathy & Kotha 2001

Why would you want to deal
with and operate under
Knightian uncertainty?

MANAGING UNCERTAINTY
“For opportunities that create the most value, uncertainty rules the
day” – Folta (2007)
 Developing an entrepreneurial mindset is imperative to deal with

Knightian uncertainty
 Ways of thinking, tools, and skills to better manage within the context of
high uncertainty

Does uncertainty exist in large organizations?

ENTREPRENEURIAL MANAGERS
 Driven by perception of opportunity than resources at hand
 Commit to those opportunities often very quickly and for short time frames
 Stage their commitment with minimal exposure at each stage
 Use resources only episodically (often renting instead of buying)
 Tend to organize with minimal hierarchy and along informal networks
 Focus compensation on value creation
Administrative managers do the opposite!
Source: Weiss & Henkes 2019

QUESTIONS TO PONDER
Are you going to be an entrepreneurial or administrative manager?

What are the implications of your choice?

KEY TAKEAWAYS
 Developing an entrepreneurial mindset is imperative

 Entrepreneurship as a field seeks to understand how opportunities can
be discovered (or created), evaluated, and exploited.
 Managing the incipient stage (zero to one) requires encountering
uncertainty – applies to new ventures and large organizations
 Uncertainty: One cannot gauge the probabilities of occurrences despite repeated
trials

WHAT TO EXPECT DURING THE COURSE?
COURSE ETIQUETTE
 Learning through discussion – come prepared to class

(cases/readings) and remain engaged
 Learning by doing – entrepreneurship as a method!
 Class participation
 Quality and NOT quantity of “airtime”
 Cold/warm calling
 Surprise quizzes

COURSE ON MOODLE
Component Weightage
Class Participation 10%
Group Project 40%
 Most questions may have been already Mid Term Exam 20%
answered in the syllabus Final Exam 30%
Total 100%
 Course enrollment details on email

GROUP PROJECT
Deliverables:
New venture Lean canvas, customer
exploration discovery interviews,
MVP, pitch deck, report
Group Project
Deliverables:
Study of a new venture Lean canvas, customer
discovery interviews,
MVP, pitch deck, report
 Choice of groups to be made before Jan 03, 2023 (No extensions permitted)
 Founders will be available 1 hr every week; important to pace yourselves!

REFERENCES
 Greiner, L. E. (1998). Evolution and Revolution as Organizations Grow. Harvard Business Review, 76(4), 12.
 Shane, S., & Venkataraman, S. (2000). The Promise of Enterpreneurship as a Field of Research. The Academy of
Management Review, 25(1), 217.
 Alvarez, S. A., & Barney, J. B. (2005). How Do Entrepreneurs Organize Firms Under Conditions of Uncertainty? Journal
of Management, 31(5), 776–793.
 Sarasvathy, S. D., & Venkataraman, S. (2011). Entrepreneurship as Method: Open Questions for an Entrepreneurial
Future. Entrepreneurship: Theory & Practice, 35(1), 113–135.
 Neck, H. M., & Greene, P. G. (2011). Entrepreneurship Education: Known Worlds and New Frontiers. Journal of Small
Business Management, 49(1), 55–70.
 Presentations by Professors K Kumar, Sai Chittaranjan, Ludvig Levasseur, and Dalhia Mani.

NAVIGATING
UNCERTAINTY
Session # 2
Recap of Session 1
• Everybody can be an entrepreneur and/or develop an entrepreneurial

mindset!
• Entrepreneurship as a field seeks to understand how opportunities can

be discovered (or created), evaluated, and exploited.
• Uncertainty: Not possible to gauge the probabilities of occurrences

despite repeated trials / unknown distribution
© Ramya K Murthy 2
Causal Reasoning
• A way of reasoning in most

functional areas of business
(marketing, finance, HRM, etc.)
• Causal reasoning:
• Begins with predetermined goal and
a given set of means
• Seeks to identify the optimal way to
achieve the given goal
© Ramya K Murthy Source: Sarasvathy (2005) 3

Causal Reasoning and Uncertainty
• Causal reasoning may not yield the best outcome in a situation of uncertainty
• Causal logic is predictive
• To the extent you can predict the future, you can control it
• We can control the outcome by

• Setting clear goals
• Making accurate predictions
• Avoiding or protecting against risks
• But how about uncertainty?
© Ramya K Murthy 4
Navigating uncertainty
through Effectuation
© Ramya K Murthy 5
Effectuation
• Professor Saras Sarasvathy’s research question: What commonalties exist in

how expert entrepreneurs make decisions and solve problems?
• Interviewed 27 entrepreneurs (founders of firms worth $200M to $6.5B)
• Result: Over 63% of the subjects used effectuation (as opposed to causal
reasoning) more than 75% of the time.
• Effectuation begins with a given set of means and allows goals to

emerge contingently over time from the varied imagination and diverse
aspirations of founders and the people they interact with1.
1 Sarasvathy (2005, 2006, 2012)
© Ramya K Murthy 6
Where to start?
Risky situation (Causation) Uncertain situation (Effectuation)

• Set a goal. Goals • Assess your means
determine action. • Who you are,
• What you know
• Whom you know
Navigating Uncertainty: Make an inventory of your means, revisit your

goals considering this inventory, and experiment with possibilities
© Ramya K Murthy 7
Risk, return, and resources

• Calculate expected return, pursue • Affordable Loss: pursue interesting
opportunities that can provide the opportunities without investing more
highest risk-adjusted return resources than you can afford to lose
(limit downside potential)
Navigating Uncertainty: Failure is part of the process in dealing with

uncertainty. Setting an affordable loss allows you to ‘design’ failure and
experiment.
© Ramya K Murthy 8
Attitude towards others

• Perform competitive analysis: • Form partnerships: Market is co-
Market exists, competitive created with partners and is a
positioning against rivals. result of your actions.
Navigating Uncertainty: Form partnerships to co-create the opportunity

that neither of you could have done alone. Partners bring complementary
skills and have common values.
© Ramya K Murthy 9
Handling surprises

• Avoid surprises. Careful planning • Leverage surprises. Surprises
and focus on specific targets to trigger imaginative rethinking of
avoid contingencies. possibilities and transformation
of targets.
Navigating Uncertainty: Surprises can offer new opportunities and trigger

innovation. Important to nurture positive surprises.
© Ramya K Murthy 10
Attitude toward the future

• Predictive: Future is a reliable • Design and control for a
continuation of the past ‘desirable future’
Navigating Uncertainty: Future is a product of our action. So, it can be

controlled, at least partially, through creative cooperation.
To the extent we can predict the future, we To the extent we can control the future, we
can control it. So, plan! don’t need to predict it. So, co-create!
Source: Sarasvathy (2005)

Case: Cold Opportunity
The Nils Bergqvist story
Questions (answer individually)
1. Before you began discussing as a group, in your mind, was

Nils in a ‘risky’ situation or an ‘uncertain’ situation?
2. Did your assessment of the above change as a group?
3. With your chosen idea, did your strategy lean more towards:
a) controlling the damage and making the exhibition a reality?
b) replacing the exhibition with something else?
Effectuation or Causal?
• Starting with an inventory of your means and think about what you can
do
• Actions to:
• Minimize your risk
• Leverage partnerships
• Manage contingency
Cold Opportunity (C)
What happened next?
• ICE HOTEL made press releases to outlets in

US and Europe
• Marketing manager of Absolut called: “Are we
involved in that project? Everyone here is
asking about it.” Berqvist said: “No. But that is
our wish.”
• Bergqvist later set up ICE BAR in Stockholm
and then franchises in Tokyo, London, and
Copenhagen
Effectuation in Action
EXPANDING CYCLE OF RESOURCES

MEANS
NEW
MEANS
MEANS CHANGES
WHO I AM GOALS INTERACT NEW
STAKEHOLDER IN THE
WHAT I KNOW WHAT CAN WITH PEOPLE GOALS
COMMITMENTS ENVIRONMENT
WHO I KNOW I DO? I KNOW
NO COMMITMENT CONSTRAINTS
DEAD END
OPPORTUNITY
ON HOLD
CONVERGING CYCLE OF CONSTRAINTS ON GOAL
Source: Sarasvathy (2005) NEW FIRMS, NEW PRODUCTS OR NEW MARKETS

The Effectual logic
PREDICTION
Positioning Shaping
Five principles of Effectuation
Visionary
Causal logic
Risky
logic
Pick
Persist
Evolutionary Effectual
Uncertainty
logic logic
Adapt Co-create
CONTROL
Causal vs Effectual Reasoning
CAUSAL EFFECTUAL
Future cannot be predicted due to

View of the future Future can be reliably predicted
uncertainty
With given goals Subject to resource constraints: Who I am,
Where to start?
With readily available means What I know, Whom I know
Should: Focus on optimal scenarios Can/Could: Focus on doing what is doable

Basis for action
and reaching for present ideals (with what you have) and then pushing it
Attitude towards risk, Set affordable loss (you do not lose more
Calculate expected return
return, and resources than you can afford to)
Attitude towards others Competitive Co-operational/Co-creational
Attitude toward the ‘Leverage’ surprises and other

Avoid surprises
unexpected contingencies as sources of opportunities
To the extent we can predict the To the extent we can control the future, we
Underlying logic
future, we can control it do not need to predict it
Summarizing
Effectuation

Key Takeaways
• Causal and effectual are two world views; expert entrepreneurs often
deploy effectual thinking.
• Causal and effectual thinking are not mutually exclusive but
complementary.
• Effectual entrepreneurs have a guiding north star.
References
• Sarasvathy. (2005). What Makes Entrepreneurs Entrepreneurial? University of Darden Note.

UVA – ENT-0065.
• Alvarez, S. A., & Barney, J. B. (2005). How Do Entrepreneurs Organize Firms Under Conditions
of Uncertainty? Journal of Management, 31(5), 776–793.
• Sarasvathy, S. D. (2001). Causation and Effectuation: Toward a Theoretical Shift from Economic
Inevitability to Entrepreneurial Contingency. The Academy of Management Review, 26(2), 243–
263.
• Presentations from Professors Srivardhini Jha, Sai Chittaranjan, and Ludvig Levasseur
IDEA AND
OPPORTUNITY
Session # 3
SO FAR IN THE COURSE
• Entrepreneurship as a field seeks to understand how opportunities
can be discovered (or created), evaluated, and exploited.
• Uncertainty: One cannot gauge the probabilities of occurrences
despite repeated trials
• Entrepreneurial mindset is key for decision making in uncertainty
• Causal and effectual are two world views; expert entrepreneurs
often deploy effectual thinking.
© Ramya K Murthy 2024-03-19 2

FROM LAST CLASS
• Can effectuation be applied within a corporate setting? What are some examples?
• Pilot projects or proof of concepts before the commitment of resources from the top
management
• Collaboration for standard setting and open innovation
• Bottom-up intrapreneurship (more in Module 3)

NEW VENTURE TYPOLOGIES
Radical product/service Invention/radical New-to-the-world
innovation innovation business
Incremental Incremental
product/service product/service
innovation innovation
Existing product or Market paradigm

service
Copycat Market expansion
shift
Existing market Incrementally new Radically new market

market
Source: Burns (2022)

FINDING AN IDEA
• Spotting a gap in the market where customers' needs are not fully met
• Existing market, incremental innovation
• Lower risk if estimating market demand is possible
• Developing a radically new market or product

• Unproven market – uncertain
• New product requires a deep understanding of new technology
• New market requires understanding of customer needs and market potential

IDEA DISCOVERY
Idea discovery skills:
• Associating: Connect seemingly unrelated
Expertise questions, problems, or ideas
Creativity
• Questioning: Ask questions that challenge
status quo
• Observing: Scrutinize common phenomena
Creative-
Motivation
thinking • Networking: Cultivate a network with diverse
perspectives and experiences
• Experimenting: Reduce uncertainty with
Source: Applegate & Carlson (2014)
“learn by doing”

SOURCES OF NEW IDEAS Social &
demographic
(Consumers)
• Recognizing trends / patterns before

others and acting on them. Technology
R&D
• At the intersection of markets,
change
industries, and emerging technologies Ideas

(e.g., ride hailing apps)
• Listening to customers but informing
the market about new approaches Existing
products &
Policies &
regulation
(e.g., iPhone) services

IDEA GENERATION TECHNIQUES
• Brainstorming: Don't put on your evaluating hat
• Painstorming: Identify a list of problems you or those around you
face, and that you think are interesting to be solved
• Hobbystorming: Think about your hobbies or passions and use that
as the source of your business idea
• Whacky ideas

BRAINSTORMING
• Group method of generating ideas
• Brainstorming works well when:
• No negative comments on each others’ ideas
• Freewheeling – the wilder the idea, the better it gets
• Quantity of ideas is desired
• Working together – improve or build over other’s ideas
• E.g., Amagi – SaaS-based media tech startup focused on targeted ads

solutions and broadcast services

PAINSTORMING
• Talk to people about potential problems they have
and that you could solve
• Observe people, situation, transactions, etc.
• Identify a list of potential problems that you can
and are interested to solve.
• E.g., Portea
• Problem – Nuclear families struggle to care for sick
family members, especially the elderly.
• Solution – Medical care brought to the patient’s home
at affordable cost

HOBBYSTORMING
• Your hobby is the source of ideas
• E.g., Investoasia
• Smriti Tomar’s hobby as a teenager was to make equity
investments using her father’s Demat account
• Later graduated from NIT Bhopal but remained
interested in finance
• Combined expertise in AI/blockchain with interest in
investing to create Investoasia
• Company enables retail investors to invest in
international markets, particularly China and S. Korea.

WHACKY IDEAS?
• Diedinhouse.com (in US)
• For $11.99 the company will tell if someone died in your house
• Potential buyers as consumers

IDEA GENERATION MYTHS
 Good Ideas often use existing
• Good Ideas usually involve high technology
technology
• External constraints kill ideas  External constraints are breeding
grounds for ideas
• Ideas are scarce
 Ideas are everywhere
• Ideas should not be shared, or they will be stolen
 Ideas become better when shared
• Brilliant people create brilliant ideas  Create 100 ideas and you will hit a
• Brilliant ideas lead to success/fame/money few brilliant ones
• If I failed, my idea must be stupid  “Doing” leads to
success/fame/money
• If I failed, I must be stupid

IDEAS ARE PLENTY, BUT…
… ACTION IS WHAT MATTERS!
• Try to sell to a potential customer

• Try to get commitment from a potential partner
• Build a prototype (with what you have)
• Try to bring committed stakeholder employees into the venture

RECOGNIZING &
EVALUATING
OPPORTUNITIES

ARE IDEAS AND OPPORTUNITIES THE
SAME? OPPORTUNITY
Take the idea, craft a business
IDEA model that identifies a strategy
Originates by seeing patterns for targeting a market segment
that suggest a promising with a solution to attract
solution to a compelling customers, partners, investors,
market need – one that key employees, and other
customers may not have resources needed to enter and
identified. gain traction in the market
creating value for all
stakeholders.

OPPORTUNITY RECOGNITION & SHAPING
PROCESS
Sensing and perceiving an unmet market need, or a new technology or capability
that could meet a need that has yet to be identified
Discovering the fit between market needs and the resources and capabilities
available to the entrepreneur
Creating a product/service/hybrid “solution” that can be delivered to a specific

market to address a specific need while generating value for all stakeholders

HOW CAN WE EVALUATE
AN OPPORTUNITY?
Opportunity evaluation is subjective!

SOME HISTORIC FAILS IN OPPORTUNITY
EVALUATION
• “While theoretically and technically television may be feasible, commercially and
financially it is an impossibility, a development on which we need waste little time
dreaming” – Lee de Forest, “father of radio”, 1926
• "I think there is a world market for as many as 5 computers." - Thomas Watson,
head of IBM,1943.
• "There is no reason anyone would want a computer in their home." - Ken Olsen,
founder of Digital, 1977
• "The horse is here to stay, but the automobile is only a novelty." - President of
Michigan Savings Bank, 1903, advising Henry Ford's lawyer not to invest in the
Ford Motor Company.
TOOLS TO EVALUATE
OPPORTUNITIES

IDEA EVALUATION
Idea
Business Analysis
• Durability of the opportunity
• Securing resources
Customer / • Is it technically feasible?
societal needs • Is it profitable?
• What is the price I can command?
• What is the cost at which I can deliver Possibility
the offering?
Technical /
Personal Personal Analysis
Economic • Do I have the capability?
satisfaction Opportunity
feasibilities • Can I develop the capability?
• Do I know people who have the capability?
• Do I want to do it?
• Does it offset my opportunity cost?
• Am I passionate about this idea?
• Why do I want to do it?
Source: Stevenson & Spence (2007); Prof. Jha’s presentation

OPPORTUNITY IDENTIFICATION MATRIX
High
Discontentment
Consider the Good potential Highest potential

For success For success
relationship between
customer Low Criticality High Criticality
discontentment and Not for Challenges in

now innovation
problem criticality
Low
Source: Ramachandran & Devarajan (n.d.)
Discontentment
ASSESSING OPPORTUNITIES
Feasibility Value
Is it doable? Is it worth doing?

Financial Feasibility
Market Technical Feasibility
Market Feasibility
Can I do it? Do I want to do it?
Personal What will it take to do it? What turns me on about it?
Whom else do I need? Why do I want to do it?

ENTREPRENEURIAL ACTION AND
OPPORTUNITY
Viable
Venture
Prior Feasibility
knowledge assessment
Opportunity
Third-person First-person
Action
opportunity Opportunity
Motivation /
Idea Personal Desirability
strategy assessment
Source: Shepherd & McMullen (2006)

IN A NUTSHELL …
Viable
Venture
• IDEA = ANYTHING +YOU

Opportunity
• OPPORTUNITY = IDEA + ACTION

• ACTION = Function of MONEY,
Action
PRODUCTS, PARTNERS, CLIENTS

• VIABLE VENTURE = OPPORTUNITY Idea
+ COMMITMENT

KEY LEARNINGS
• Constantly shifting environment provides an impetus for new ideas.
• Ideas are plenty.
• Everyone can ideate; they reflect your experiences and world views.
• The more you ideate, the better you get at it.
• Idea evaluation is subjective and error-prone.

• Ideate passionately, Evaluate dispassionately; Beware of confirmation bias.
• Evaluate ideas based on:
• Is there a market?
• Is there a sufficient profit potential and durability?
• Is it doable – technically and personally? Moreover, can I and do I want to?

REFERENCES
• McMullen, J. S., & Shepherd, D. A. (2006). Entrepreneurial Action and the Role of
Uncertainty in the Theory of the Entrepreneur. The Academy of Management Review, 31(1), 132–
152. https://doi.org/10.2307/20159189
• Applegate, L. & Carlson, C. (2014). Recognizing and Shaping Opportunities. Harvard Business
Publishing, 8056
• Ramachandran, K., & Devarajan, T. P. How Entrepreneurs Exploit Global Opportunities. n.d.
• Presentations from Professors Srivardhini Jha, Sai Chittaranjan, and Ludvig Levasseur

Lean Canvas
Session # 4
Roadmap New Venture
Viable Social
Intrapreneurship
Value • Matching skills,
creation resources and ideas Other CE
• Lean Canvas • Equity business models
• Effectuation
• Idea &
Opportunity
2024-03-19 2
Assume you have found
“your” opportunity …
What should you do next?
2024-03-19 3
Business Plan
Evaluate the competitive landscape

Analyze data about the market and the consumer
Make predictions about market potential, expected growth rate, etc.
Establish a strategic plan
Set specific milestones, goals, and objectives
Devise a detailed implementation plan
2024-03-19 4
Business Plan and the Analytical Approach
Analyze Decide Act
The analytical approach works well in stable and

predictable environments where one can identify trends.
What characterizes the entrepreneurial environment?

2024-03-19 5
The Entrepreneurial Environment
Domain of
Entrepreneurship
constraints
Resource

uncertainty
2024-03-19 6
Business Plans – some evidence
• What percentage of Inc 500 founders wrote formal business plans before they
launched their companies?
Approximately 40% (Source: Inc Survey 2008) ; Approximately 28% (Source: Bhide, 2000)
• How many of those strayed from their original conceptions?

Approximately 65% (Source: Inc Survey 2008)
• What percentage of Inc 500 founders did formal market research of any kind?
Approximately 12% (Source: Inc Survey 2008); Approximately 4% (Source: Bhide, 2000)
• How many took more than a few months to plan?

Approximately 32% (Source: Bhide, 2000; Honig, 2004)
2024-03-19 7
The Planning Fallacy
Business plans rarely survive first contact with customers. As the

boxer Mike Tyson once said about his opponents’ prefight
strategies: “Everybody has a plan until they get punched in the
mouth.”
- Steve Blank, Serial Entrepreneur
So, what works in an uncertain environment?
2024-03-19 8
The Test and Learn Approach (TLA)
• “Test and Learn” approach

Build works under:
Conditions of rapid change,
Launch uncertainty, and ambiguity
Adapt
• You cannot predict under
uncertainty
Evaluate
• You must “learn by doing”!
2024-03-19 9
Think big but start small
• Launch small experiments

• Prototype rapidly and inexpensively
• Tolerate failures and learn quickly from them
• Invest increasingly after testing and learning
2024-03-19 10
Disciplined Prototyping
• Test and Learn Approach is not random trial and error

• Effective prototyping begins with some analysis that informs your
prototype and let’s you start testing.
• TLA necessitates the willingness to walk away from initial ideas and plans
• Prototyping is effective when:
We avoid the sunk cost trap and continue to invest
We adapt quickly when we fail (affordable loss)
2024-03-19 11
Why do we resist prototyping?
• We hate to fail
• We fall in love with our initial idea
• We worry about opportunity costs
• We obsess over first mover advantage (Who are the successful
players in social media, browsers, VCRs and more?)
2024-03-19 12
What is the utility of a business
plan?
Do we not plan at all? What about

Just do it? market research?
How do we implement “test and

learn”?
2024-03-19 13
Relevance of Planning
• Plans certainly have a place

Is an important communication device
Helps clarify your own thoughts; gives the confidence to move ahead
Provides a starting point
• Business plans tend to be too static

They focus on the finer details while the big questions remain unanswered
• So, what kind of business plans should we have?

How elaborate should they be?
How much time do I need to spend creating one?
2024-03-19 14
Lean Method
3/19/2024 15
Principles of the Lean Method
• Document your Plan A (Lean Canvas)

• Identify the riskiest parts of your plan (Hypotheses)
• Systematically test your plan (Build-Measure-Learn Loop)
2024-03-19 16
Lean Method vs. Traditional approach
Lean Method Traditional Approaches
Strategy Business model, hypothesis-driven Business plan, implementation-

driven
New product Customer development, test Product management, linear
development hypotheses process
Engineering Agile, iterative development Agile or waterfall
Financial Customer acquisition cost, lifetime Income statement, balance sheet,

Reporting customer value, churn cash flow statement
Failure Expected; fix by iterating and Failure is an exception; to be
pivoting avoided
Speed Rapid Measured
Source: Plank (2013) 2024-03-19 17

Build-Measure-Learn loop
Idea
Learn Build
Data Product
Measur
e
Source: Plank (2013) 2024-03-19 18

Lean Canvas: Document your plan
2024-03-19 19
Source: Maurya (2010)
1 – Customers and Problems
Customers
• Identify the customer segment(s) you want to serve. Separate lean canvas for each
customer segment.
• Note that customers are different from users.
• Who are your early adopters?
Problems
• Identify 3 problems that your potential customers face.
2024-03-19 20
2 - Unique Value Proposition
• Derive the UVP from the #1 problem you are trying to solve.
• Target early adopters.
• Focus on relevancy: Explain how your product solves customers’
problems or improves their situation.
• Consider quantified value: Deliver specific benefits.
• Communicate differentiation: Tell the ideal customer why they should
buy from you and not from your rivals.
• Pick your words carefully. Try to answer what, who and why.
2024-03-19 21
3 - Solution
• For each of the three problems outlined, articulate:

Capability or feature that solves the problem
• Solution in the initial stages are just hypotheses
2024-03-19 22
4 - Channels
• The “path” to your customers: How can you reach them?

• Inbound versus Outbound
• Direct versus Automated
First sell manually, then automate
• Direct versus Indirect

First sell directly, then let others do it
• Referrals are important, but so is retention
2024-03-19 23
5 – Revenue Streams and Cost Structure
• Revenue Streams (examples)

Down payment
Licensing fee
Subscription fee
Free trial
• Cost Structure
Significant/important costs (hosting, people/HR, real estate etc.)
Costs over time
2024-03-19 24
6 – Key Metrics
• Choose metrics that’ll tell you if your startup is progressing.

• This is likely to differ from (1) business to business and (2) startup stage.
• Examples
Click-through rate and Conversion rate (Online commerce)
30-day, 60-day retention (subscription businesses)
Monthly active users (MAU) (social media platforms)
2024-03-19 25
7 – Unfair advantage
• This may be difficult to articulate upfront.

• It is any critical aspect of your business that is difficult to imitate.
• Emerges over time as the business matures.
• Could take the form of:
Patents
Exclusive Partnerships
Logistics
2024-03-19 26
Lean Canvas as a starting point
• Unresolved questions in any of the elements can give rise to

hypotheses that can be tested later (more in sessions 6 and 7).
• Examples of unresolved questions:

Who is your “ideal customer”?
What channel is best to reach this customer?
What is our unique value proposition?
2024-03-19 27
Summary of Lean Canvas and BML
2024-03-19 28
Lean Method Pitfalls (Optional material)
1. Lean principles of ‘learning, continuous improvement, and waste

reduction’ may lead to incremental innovation rather than radically
new products and ventures.
2. Experimentation to get customer feedback assumes the customer
knows better. (iPhone and Steve Jobs?)
3. Mechanically filling out the Lean Canvas does not help theorize on
how value may be created!
Source: Felin et al. (2020) 2024-03-19 29

Value Lab: Theorizing Value Creation for your Firm
(Optional material)
Source: Felin et al. (2020) 2024-03-19 30

Key Learnings
• Test and Learn Approach (TLA) to plan under uncertainty.

• Lean Canvas helps map different aspects of the opportunity
and venture.
• Lean Canvas exercise can help identify testable hypotheses
and perform iterations of the venture.
2024-03-19 31
References
• Maurya, A. (2012). Running Lean: Iterate from Plan A to a Plan That Works. O’Reilly Media,
Inc.
• Blank, S. (2013). Why the Lean Start-Up Changes Everything. Harvard Business Review.
• Felin, T., Gambardella, A., & Zenger, T. R. (2020). Value Lab: A Tool for Entrepreneurial
Strategy. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3684428
• Felin, T., Gambardella, A., Stern, S., & Zenger, T. (2020). Lean startup and the business
model: Experimentation revisited. Long Range Planning, 53(4), 101889.
https://doi.org/10.1016/j.lrp.2019.06.002
• Presentations from Professors Srivardhini Jha, Sai Chittaranjan, and Dalhia Mani
2024-03-19 32
Customer
Discovery and
Development
Session # 5
Lean Method - Recap
2024-03-19 Ramya K Murthy 2

Lean Method Pitfalls (Optional material for students)
1. Lean principles of ‘learning, continuous improvement, and waste

reduction’ may lead to incremental innovation rather than radically new
products and ventures.
2. Experimentation to get customer feedback assumes the customer knows
better. (E.g., Steve Jobs and iPhone)
3. Mechanically filling out the Lean Canvas does not help theorize on how
value may be created!
Source: Felin et al. (2020)

Value Lab: Theorizing Value Creation for your Firm
(Optional material for students)
Source: Felin et al. (2020)

Key Learnings from Session #4
• Test and Learn Approach (TLA) to plan under uncertainty.

• Lean Canvas helps map different aspects of the opportunity
and venture.
• Lean Canvas exercise can help identify testable hypotheses
and perform iterations of the venture.

Session # 5
Customer Discovery and Development

Sociable Labs
Case Study

Sociable Labs (1)
• What is Gabbay’s idea?

• ‘Sociable Labs’ that leverages social integration
• How did Gabbay conceive of Sociable Labs?

• Technology trends, status quo observation
• Need/Problem: ROI for social media, users don’t like to switch context
• Is it a good idea? Why or why not?

• Should we analyze customer, competition, or technology?

Sociable Labs (2)
Domain of
• What are Gabbay’s ‘means’?
Entrepreneurship
• Prior app experience, FB Connect

• Any resource constraints?
• What do we know about the market?

uncertainty
• Sources of uncertainty – FB connect dependency, customer preferences,

data privacy issues?

Sociable Labs
Case Study Part B

What happened next?
• Gabbay began interviewing potential customers

• Ideal interviewee: person responsible for driving traffic to an e-
commerce site – social marketing executive
• Interview focus was to understand what e-commerce marketers
need
• Gabbay sought to capture the interviewee’s thoughts on Sociable
labs
• What should Gabbay do next?

Sociable Labs
Case Study Part C

What happened next?
• Gabbay got some positive early feedback, developed a SaaS-

based MVP and tested it with potential early customers.
• More about MVP and testing in future sessions!
• Why did Gabbay choose to interview customers?

• Targeting B2B customers
• B2B selling – complex buyers and preferences
• Understand how to reach customers

Should Gabbay continue the same strategy?
• Gabbay understood from early customers that:

• Driving ROI was not the emphasis – run experiments for customers
• Packaged solution was not of interest – customizable features
• Early adopters vs. mainstream users

• Early users are looking for solutions to problems
• Often have an interim home-grown solution
• Mainstream users look for stable products and are key to scale the venture

Customer Discovery

Customer Discovery
• Customer discovery is the initial and iterative process of understanding

customers’ situations, needs, and pain points.
• Customer discovery involves:

• Understanding customer pain points
• Defining and prioritizing your customer personas
• Interviewing your potential customers
• Lo-fi testing – simple low-cost testing

Why engage in customer discovery?
• Traditional market research tools

inadequate under uncertainty: Domain of
Entrepreneurship
• Technological uncertainty, new markets, etc.

• Survey against known benchmarks futile
• Resource constraints make extensive

market research difficult to accomplish Decision making under
uncertainty

Customer Discovery
• A process for turning our intuitions and enthusiasm into market-

driven facts that can be used to corroborate, pivot, or abandon an
initial business model.
• The process:
• Involves developing coherent falsifiable hypotheses
• Is an efficient means to investigate these hypotheses

Customer Discovery Process
• Customer discovery process begins with hypotheses for:

1. Customer Problem and Product
• Informs ‘value proposition’ of the venture
• To verify if a market could exist AND whether the product should be built
2. Demand Creation and Buying Process

• Informs ‘go-to-market’ component of the business model
• To understand how potential customers will find and buy your product

Customer Problem and Product Hypotheses (1)
• Problems versus Products
“Nobody really pays for a product – they pay for a satisfactory

solution to their problems” - Peter Drucker
• Avoid marketing myopia - mistake of defining a business by

product features rather than by customer benefits
• Customer development process and product development process
run in parallel
• Benefits versus Status Quo

• Customers evaluate new products relative to a reference point – perceived gains
& losses (Kahneman & Tversky, 1979)
• Perceived losses have greater impact than perceived gains – loss aversion
• Customers are biased towards status quo

• Understanding status-quo behavior is crucial
• New products incur switching costs that increase perceived losses
• Entrepreneurs overvalue their offerings/solutions
• Early adopters versus Mainstream customers

• Identify early adopters who find solution valuable than status quo
• Early adopters are important to survive past the early stage
• Early adopters are customers who:
i. have a problem and understand that they have a problem
ii. are actively looking for solutions
iii. have cobbled together an interim solution
iv. can pay for the solution
Demand Creation and Buying Process
Hypotheses
• How will potential customers find and buy your product?

• Purchase activity: Awareness  Trial  Repeat
• Assessed value of product/solution differs based on the customers roles
(particularly in B2B context):
• Initiators
• Gatekeepers
• Influencers
• Deciders
• Purchasers
• Users
Customer Interviews

Principles for Customer Interviews (1)
• Customer interviews most suited for early-stage hypothesis testing

• Abstract everything by a level, do not assume anything
• If you building a health app, then ask about what they think about health
• If potential customers start talking about your problem or solution

before you ask them about it specifically, you can be more confident
you are on the right track

• Have two - three qualifying questions to assess whether the people you are
talking to could be your customer
• Often people think you are trying to sell. So, ask for advice or feedback
• People enjoy being in a position as an expert and will feel flattered that you want to
hear their opinion
• Don’t pitch your idea at first, it will lead to biased responses

• Testing the solution would mean that you are right about solving a
worthwhile problem
• Get them to be a partner in the process and not a buyer
• Ask open ended questions instead of a ‘yes’ or ‘no’ question

• E.g., “What is hard about being a freelancer?” rather than “do you find it hard to
get clients?
• What are 3 challenges you face in your job?
• What tasks take the most time during your day?
• What product or service you wish you had that does not exist yet?
• Talk less, listen more

• Ask if you can record the interview

• When in doubt dig deeper:

• Ask why or how
• Ask them to tell a story about a time they experienced the problem you are solving
• Be quiet and wait for them to fill the silence with more of that information you need
• If you hear something important, repeat it to clarify

• Close the interview
• Paraphrase and Summarize
• “so based on our conversation, it sounds like x is really hard for you, but y is not”.

Customer Development

Typical Product Development Process
Product Alpha/Beta Launch/ 1st

Concept
Development Test Ship
Where is the customer in the traditional process?

Customer Development Process
• A companion to product development process
Source: Blank (2020)

Customer Discovery vs. Validation
• Customer Discovery
• Who are your customers?
• Is the problem you are trying to solve important for them?
• Are there enough of them? What is the TAM?
• Customer Validation
• Can you reach these customers?
• Is your product/service perceived as being valuable?
• Can you fulfil the demand?
• How much are customers willing to pay?
Customer Validation Tools
Technique Benefits Limitations Usage
Surveys Low cost, easy to implement Hard to write objective Gather initial information,
questions and get not for validation
representative sample
Letters of Intent Increase commitment of Not legally binding, one-off Early concept stage
potential customers purchases
Usability Tests Determine problems with Does not capture customer Early prototype stage
product design needs or purchase propensity
Market trials Validate demand, refine Define relevant market, manage MVP stage
product features information
Split Tests (A/B Identify key Diligence in experiment design Evaluate choices of
testing), conjoint
analysis
product/marketing variables and sample sizes specific variables
Net Promoter Avoid premature scaling Customers’ status quo biases Post launch
Score (overall
customer satisfaction) (investing before validating)
2024-03-19 Source: Cespedes et al. (2012) Ramya K Murthy 33
Key Learnings
• Customer Discovery helps use resources judiciously and make iterative

investments under uncertainty.
• Customer Discovery involves developing falsifiable hypotheses and
testing them with early adopters.
• Customer Discovery and Validation are intertwined and iterative.

References
• Blank, S. (2020). The Four Steps to the Epiphany: Successful Strategies for Products that Win. John
Wiley & Sons.
• Maurya, A. (2012). Running Lean: Iterate from Plan A to a Plan That Works. O’Reilly Media, Inc.
• Blank, S. (2013). Why the Lean Start-Up Changes Everything. Harvard Business Review.
• Cespedes et al. (2012). Customer Discovery and Validation for Entrepreneurs. Harvard Business
Review.
• Felin, T., Gambardella, A., & Zenger, T. R. (2020). Value Lab: A Tool for Entrepreneurial Strategy.
SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3684428
• Felin, T., Gambardella, A., Stern, S., & Zenger, T. (2020). Lean startup and the business model:
Experimentation revisited. Long Range Planning, 53(4), 101889.
https://doi.org/10.1016/j.lrp.2019.06.002
• Presentations from Professors Srivardhini Jha, Sai Chittaranjan, and Dalhia Mani

Venture
Creation and
Development
SESSION # 6
Roadmap
New
Venture
Viable Social
Intrapreneurship

creation resources and Other CE
• Lean Canvas ideas business models
• Customer • Equity
Entrepreneurial discovery • Venture financing
thinking • Venture creation • Bootstrapping
• Uncertainty • Hypothesis-
• Effectuation driven
• Idea & entrepreneurship
Opportunity
2024-03-19 © Ramya K Murthy 2

Meesho
CASE STUDY

Meesho (A) - Case Overview
• What is the problem that FashNear is trying to solve?
• Make shopping from the neighborhood apparel stores more
convenient
• Time/effort in making the trip, difficult to find parking, limited
items on display and difficult to view the collection, no trial room
• How is FashNear going to solve this problem?

• Consumer app to browse neighbourhood stores, choose the
product, and pay for it from the convenience of their homes
• Hyperlocal Platform for unbranded apparel

Platform Business Model
• A platform has at least Platform-dependent

two sides – neighborhood entrepreneurs Consumers
(complementors)
stores & consumers
• Network effects
• Same side – more users,
Digital Platform
better reviews
• Cross side – more sellers, Platform Sponsor
better products and price

Lean Canvas for FashNear
Lean Canvas
Designed for: FashNear (Meesho A) Designed by: Date: Version:1
Problem Solution Unique Value Unfair Customer Segments
Proposition Advantage
Inconveniences associated with the - A consumer application Shop from all your Tech-savvy people looking to
shopping experience from neighbourhood that lists neighbourhood neighborhood stores buy apparel from local stores
apparel stores stores and products from the comfort of
• time/effort in making the trip - Consumers browse and your home
• finding parking spaces place order
• limited items on display - Try at home and pay
• absence of trial rooms
Existing Alternatives Key Metrics High-Level Concept Channels Early Adopters
- App downloads Swiggy for fashion

- Orders placed
- Transactions completed
Cost Structure Revenue Structure
 Technology development and management costs ???

• Marketing expenses
• Operational costs
Lean Canvas is adapted from The Business Model Canvas (www.businessmodelgeneration.com/canvas). Word implementation by: Neos Chronos Limited
(https://neoschronos.com). License: CC BY-SA 3.0
Time for polls …
• Do you find shopping at the neighborhood store
boring/tedious?
• Are you likely to use a solution like FashNear?
• So, did FashNear have a problem-solution fit?

• Problem should be pervasive, and solution should adequately
address the problem to achieve a problem-solution fit.

What went wrong?
Where did the founders go wrong? What could they have done
differently?
• Jumped into building the product too quickly; did not do
customer discovery and validation
• Platform businesses have multiple sides – need to focus on all.
Why did FashNear not get traction?

• Customers compared them with other online retailers (Myntra,
etc) but they did not have similar variety
• They could not offer deep discounts

Meesho (B): Q#1 - The Change
• Pivot: Strategic course correction

• Moved from being a consumer platform for unbranded
retail to a B2B business
• Focused on technical and social marketing needs of small
retailers
• Built from deep understanding of the retailers' side of the
platform
• But not really a transaction platform!

Lean Canvas for Meesho
Lean Canvas
Designed for: Meesho B Designed by: Date: Version:1
Problem Solution Unique Value Proposition Unfair Customer Segments
Advantage
Inefficient retargeting of customers by A tech suite to run the We help you organize Small retailers (pivot to B2B)
retailers workflow end-to-end your business and
manage your customers
• Monthly growth (No of Indian version of Shopify

downloads of the app)
• Rate of retention
 Technology development and management costs • ?????

Lean Canvas is adapted from The Business Model Canvas (www.businessmodelgeneration.com/canvas). Word implementation by: Neos Chronos Limited (https://neoschronos.com).
License: CC BY-SA 3.0
Q#2: Problem-solution vs. Product-market fit
• Problem-solution fit: Large enough market of small retailers

that acknowledge the problem and like the solution
• Product-market fit?
• Key is to answer: “Have I built something people want?”
• Arrived at through a series of minimum viable products (MVP)
• Demonstrated demand for product with solid profit potential
• Meesho’s 25000 downloads demonstrates demand but what about profit?
• WTP not established  profit potential is unknown!

Q#3: Meesho’s metrics
• Meesho’s key metrics: no. of downloads, retention rate

Acquisition
Activation
• Is low retention rate a cause of worry?
• Higher acquisition  higher retention Retention
• Retention indicates utility and usability
Revenue
• Retention is a proxy for value creation
Referral
• Vital to focus on “value” metrics

Q#4: Next steps for Meesho
• Meesho is seeing good traction, but profitability is unclear
• Try to monetize existing customers

• Small retailers have thin margins; could affect retention further
• Get advertising revenue
• Likely small because installed base is not as large as giants like FB
or Google
• Pivot again? – to what?

Pivoting again
• Meesho has shifted from being a B2B platform to a B2B2C

platform
• Identified a new segment of customers (women micro-
entrepreneurs)
• Pivot involved redefining:
• Customer segment
• Problem statement
• Solution
• Venture creation is iterative!

Meesho 2.0 Lean Canvas
Lean Canvas
Designed for: Meesho C Designed by: Date: Version:1
Problem Solution Unique Value Proposition Unfair Customer Segments
Advantage
• Inability of micro-entrepreneurs to • Create a supply side We will manage your Micro-entrepreneurs running
manage the supply-chain properly management system for supply side operations so virtual boutiques (B2B2C)
• Issues of payment, refund etc. with the the micro-entrepreneurs that you can focus on
suppliers • Sign up/list suppliers your customers.
• Limited access to merchandise • Manage payments,
refunds and order
fulfilment
• Average delivery time

• Ratings/reviews
• Return percentage
• Income per entrepreneur
• Number of suppliers and
entrepreneurs
• Rate of retention
 Technology development and management costs • Sales commission of 10-20% on every order
Lean Canvas is adapted from The Business Model Canvas (www.businessmodelgeneration.com/canvas). Word implementation by: Neos Chronos Limited
2024-03-19
(https://neoschronos.com). License: CC BY-SA 3.0 © Ramya K Murthy 15
Meesho in numbers
Year FY 2017-18 FY 2018-19 FY 2019-20
Cities Present 1759 2478 2532
No. of Employees 15 147 455
# Active Suppliers on platform 1024 10220 27717
# Active Entrepreneurs on platform 27926 908973 2465160
No. of orders received 329547 9127545 37693864
Revenue (in millions INR) 800 3070
Advertising expenses (in millions INR) 500 2170
Distribution expense (in millions INR) 820 2540
Customer acquisition cost (CAC) in INR 561.64 1378.93
Revenue/Entrepreneur in INR 880.11 1245.36

Stages in Lean Startup Method
Finding a plan that works Accelerating that plan
17 Validate Refine
Course Correction Efficiency
Focus: Validated Learning Focus: Growth
Experiments: Pivots Experiments: Optimizations
Problem/Solution Fit Product/Market Fit Scale
Your Goal: Learning Your Goal: Growth
Investor’s Goal: Growth Investor’s Goal: Growth
Ideal time to raise funding
Product/Market Fit: “Being in a good market with a product that can

satisfy that market” – Andreessen Horowitz
Key Learnings
• Problem-solution fit does NOT NECESSARILY imply product-

market fit
• Product-market fit does NOT NECESSARILY imply
profitability
• Venture creation and development is an iterative process
• Metrics matter – acquisition can get attention/funding,
but ultimately growth and retention are vital.

References
• Blank, S. (2020). The Four Steps to the Epiphany: Successful Strategies for Products
that Win. John Wiley & Sons.
• Maurya, A. (2012). Running Lean: Iterate from Plan A to a Plan That Works. O’Reilly
Media, Inc.
• Blank, S. (2013). Why the Lean Start-Up Changes Everything. Harvard Business
Review.
• Presentations from Professors Srivardhini Jha, Ludvig Levasseur and Dalhia Mani

Hypothesis-driven
Entrepreneurship
Session # 7
Recap of last week
• Venture creation and development is an iterative process

• Customer Discovery involves developing falsifiable hypotheses and testing
them with early adopters
• Problem-solution fit does not necessarily imply product-market fit
• Product-market fit does not necessarily imply profitability

Hypothesis-driven
Entrepreneurship
Process
Source: Eisenmann et al. (2014)

Rent the Runway
Case Study

What was the inspiration for
RTR?
• Social pressure to wear new clothes on every
occasion
• Designer clothes are aspirational but very
expensive
• Not worth the spend given that women would
not wear the same outfit multiple times
• Every occasion demanded different dresses
Designer: Tanya Taylor || Price: $575 (approx. Rs. 41000)
Source: renttherunway.com
Vision for RTR
• Rental service for designer clothes

• Get the right dress, on time, and in a flawless condition
• Give a great customer experience, build a brand that women love
• Some assumptions:
• Women are willing to rent dresses online
• Designers will view renting favorably
• Clothes will be returned in good condition

Timeline
Nov 2009 - Launch

• Invitation-only website
• Beta trial
Apr-Oct 2009 • Build a customer insights
team
• Secured $1.75 million in
seed funding (Bain led)
Jan-Mar 2009 • Website development,
problems and changes
• Devised a white-label • Campus trunk shows
solution but pivoted away
• Market trials, setting up
Nov-Dec 2008 • 20 designers (customer operations
discovery) interviews
• Founders work together • Recruited BoDs
• Repositioned RTR’s value
• Cold call Diane von proposition
Furstenberg (DVF)

RTR’s BML Loop 1
PIVOT
Non-feasibility of White label

white label solution solution
DvF’s response

- Social pressure to - Rent designer
wear a new dress at clothes online Fashion-conscious
every social - Get the right dress, women
Affordable
- Designer clothes on time Fashionistas
designer wear at
too expensive
your fingertips
- Need to dress
differently for
different occasions
- WTGT Netflix for fashion

- Avelle
- Boutique outlets

RTR’s BML Loop 2
Continue to work on Dress rental value

value proposition proposition for designers
(repositioning)
Designers’ response

- Social pressure to
- Rent designer
wear a new dress at
clothes online. Fashion-
every social-do
- Get the right Affordable conscious
- Designer clothes
dress, on time. designer wear at women
too expensive
- Need to dress your fingertips
differently for
different occasions
% women renting Personal networks

- WTGT % dresses Netflix for fashion Email Fashion-conscious
- Avelle returned women in their 20s
- Boutique
outlets
Cost of purchasing dresses

Laundry
Shipping cost Rental fee + Insurance + Shipping fee
Personnel cost

RTR’s BML Loop 3
- Women are open to renting

designer wear Designer wear renting
- Price point validation service with stylish clothes
- Popular styles (first trial/spot: Harvard)
- Number of women attending

- % of women renting

RTR’s BML Loop 4
Women are open to Renting of popular designs

renting without trial without trial (second
trial/spot: Yale)
% of women renting

RTR’s BML Loop 5
A certain % of women renting is “You rent; we mail”

sufficient to build a profitable business (closest to renting on web)
% of women renting

- Social pressure to wear
a new dress at every - Rent designer clothes (Unique) relationships Fashion-conscious
social online with designers women
- Designer clothes too - Get the right dress, on Affordable designer Fashionistas
expensive time wear at your fingertips
- Need to dress
differently for different
occasions
- # Registrations Website
- % of members renting
- WTGT - Referrals Netflix for fashion Fashion-conscious
- Avelle - Repeat rentals women in their 20s
- Boutique outlets (RETENTION)
Fashionistas

Laundry cost
Shipping cost Rental fee (incl. late fees) + Insurance + Shipping fee
Personnel cost

RTR’s BML Loop 6
- Hard to maintain a (growing) waiting list Beta launch for 5,000

- Beef up and better organize the customers
customer service (inventory, website)
Demand; top issues

- Social pressure to - Rent designer clothes
wear a new dress at online
- Get the right dress, on Relationships with
every social designers
- Designer clothes too time Affordable designer
Fashion-conscious
expensive - Styling advice wear at your
women
- Need to dress fingertips*
differently for different
occasions
Website
- # Registrations
- % of members renting Netflix for fashion Fashion-conscious
- WTGT - Referrals women in their 20s
- Avelle - Repeat rentals
- Boutique outlets

Laundry cost Rental fee (incl. late fees) + Insurance + Shipping fee
Shipping cost
Personnel cost

Successful BML Execution
• Identify the right hypotheses for the venture

• Identify the key indicators / metrics
• Put some mechanisms in place to measure the key metrics (customer
insights team plus the link to product development)
• Discuss the conversion funnel that helps to turn prospects into loyal
customers (it often gives you the proxies you need to validate your
hypotheses)
• See that planning and action loops go in opposite direction

What happened next?
• Highland capital ventures and Bain capital ventures invested $14M in

RTR in Feb 2010
• In May 2011, KPCB invests $15M
• At this point, RTR had more than a million members, 25000 dresses
from over 140 designers.

Key takeaways from RTR (1)
• Process of going from idea to viable business: Fast frugal tests and quick
pivots
• Identifying the right hypotheses and testing them is vital
• “Minimum Viable Product” is necessary to test an assumption
• MVP could be constrained in:
• Product functionality: limited geographically (whole country versus one neighborhood) or
technologically (iOS &/or android)
• Operational capability
• Just a smoke test: “A test that gauges the demand for a product that does not yet exist”
(Eisenmann et al., 2013: 23)

Key takeaways from RTR (2)
• Execution thumb rules:

• Beta and launch versions should be separated by sufficient time
• Keep product launch and marketing launch separated
• Unfair advantage can be a niche with highly efficient operations

• Invest significant money (and time) in customer acquisition, operational
infrastructure, and scaling only after business model has been validated

Hypotheses & Testing
The Lean Startup Method

Identifying Hypotheses
• All value propositions, radical new ideas, business models, etc. have
elements of “leap of faith”
• Make explicit all risks associated with such leaps
• What are the assumptions that underlie your leap of faith?

• Make your assumptions as specific as possible

Types of Hypotheses
• Value hypotheses
• Is the problem identified real?
• Are there enough customers who acknowledge this problem?
• Is my product/service solving the problem?
• Are customers willing to pay?
• Growth hypotheses
• What is my margin?
• Can I scale/grow this business?
• What is the engine of growth – paid, sticky, or viral?

Testability of Hypotheses
• Hypotheses should be testable

• Examples of untestable hypotheses:
• Our company’s product will trigger word-of-mouth marketing
• Customers will use our product regularly
• Examples of better-formulated hypotheses:

• Each instance of product sold/downloaded will result in 5 referrals
• Customers will use the product two times a week for a duration of 15 min or more

Hypothesis Testing:
False positives and false negatives
• False positives can be mitigated

through credible commitments.
• False negatives can be tricky and

go/no-go decision will depend on
the extent of resources required to
make the next iteration and
entrepreneur’s confidence.

Minimum Viable Product (MVP)
• The smallest set of activities needed to rigorously disprove a hypothesis

• MVP can be a product, service, pitch etc.
• MVP facilitates an iterative process allowing you to improve its design
and reduce the probability to have false negative results later

How to test hypotheses? (Reminder)
• Customer interviews
• Focus groups
• Surveys
• Market trials
• Letters of Intent / Pre-Ordering
• Split tests
• Usability tests
Limits of Hypothesis-driven Entrepreneurship
• Boundary conditions of MVP testing

• Long product development cycles
• Vulnerability of idea theft
• Reputation risk with less developed MVP
• Impermissible costs to experimentation
• Cognitive biases
• Optimism bias
• Planning fallacy
• Confirmation bias
• Sunk cost fallacy

References
• Eisenmann, T., Ries, E., & Dillard, S. (2021). Hypothesis-Driven

Entrepreneurship: The Lean Startup. Harvard Business School Publishing, 26.
• Maurya, A. (2012). Running Lean: Iterate from Plan A to a Plan That Works.
O’Reilly Media, Inc.
• Blank, S. (2013). Why the Lean Start-Up Changes Everything. Harvard Business
Review.
• Presentations from Professors Srivardhini Jha, Ludvig Levasseur and Sai
Chittaranjan Kalubandi

GATHERING RESOURCES:
FOUNDING TEAM,
INVESTORS, AND
EMPLOYEES
Session # 8
TRADE-OFFS IN GATHERING RESOURCES
• Diversity versus homogeneity when assembling a team

• Giving up control versus attracting talent and investors
• Getting the right combination of skills for the task at hand
• Getting needed funding (not too much, not too little) without giving up
too much stake
2
DIVERSIT Y
• Startups have Exploratory or Exploitative strategies

• Exploratory: Radical innovation and new ideas
• Exploitative: Smaller improvements and fast execution
• Match strategy to employee diversity
• Diversity includes backgrounds, skills & job history
• Exploratory startups best served by diversity
• More diverse teams are better at solving hard problems
• Exploitative startups slowed down by diversity
• Less diverse teams tend to act and agree more quickly
3
RICH VERSUS KING
• Hard for founders to maintain control over their startup and maximize returns
• Rich: Maximize return by hiring high-end employees, delegating authority, and
taking on investment
• King: Maintain control and give up little equity, making it harder to get talent
and raise money
4
RICH VERSUS KING
5
SKILLS
• Getting the right mix of skills is hard, but important

• Talent differences can have large implications in many positions at startups
• The best programmers may be 20x better than the worst
• Middle managers account for 22% of firm revenue
• Important to hire the best employees early on

• Early choices about hiring have long-term effects
• Top hires help attract other top hires
6
FUNDING
• Funding involves complex trade-offs

• Funders get control and equity in return for investments
• Important to balance immediate needs for funds with the desire to get the best terms possible
• Funders can provide more than money:
• The right funders can provide prestige, access to resources, and networks
• Negotiation determines value and nature of deals
• At an early stage, valuation is more art than science, funders look at the team, market,
product, pitch and other factors
7
KEY TAKEAWAYS
• Entrepreneurial context is complex and involves decision-making under uncertainty.

• Some key decisions and trade-offs include:
• Diversity of skills, backgrounds, perspectives works best in an environment where the task is
exploratory. Homogeneous teams tend to perform better, faster when the task is exploitative.
• “Rich” versus “King” approaches reflect different preferences regarding control.
• Assembling the right set of skills/people is crucial though a less visible and quantifiable aspect of
a startup
• Funding should be need-based (not too much, and not too little). Funding and valuation is a
matter of negotiation and norms.
8
Equity
SESSION # 8
Why should we care about Equity?
• Most high-growth ventures grow through equity partnerships

Equity deals may be continually structured and restructured
• New ventures often fail because relationships among founding partners and equity
partners become conflicted and impossible to repair
• Paradox of equity:
You need to share equity to grow
But not knowing how increases probability of the venture failing / breaking up
2024-03-19 2
What is Equity?
2024-03-19 3
Understanding Equity (1)
• What is equity?
Control/Decision Rights
Compensation
Profit sharing
Ownership
2024-03-19 4
Understanding Equity (2) - Decision Rights
• Equity can be used to allocate decision rights, but it need not be!
• Examples: VCs with minority stake can still have decision rights built into
the term sheet
30% equity with veto rights on how assets of the firm will be liquidated or who funds the venture
Right to fire the CEO, seats on the board with voting rights on strategic and operational issues
Drag-along-rights: Investors can force others to co-sell
Right-of-first-refusal: Founders can refuse and buy at the same price as a third party
Redemption rights: Investors force the repurchase of shares
2024-03-19 5
Understanding Equity (3) - Compensation
• Equity can be used as compensation, but it need not be!
Idea (especially when patents or copyrights or an identification of a clear opportunity)
Time a person has spent in working on the venture, opportunity cost
Amount of money (s)he has put in (capital)
Personal network
Prior entrepreneurial experience (7-9% premium)
• These could be compensated with deferred payments of licensing fees, salary, interest
payments for deferred salary, non-voting shares
2024-03-19 6
Understanding Equity (4) – Profit Sharing
• Equity can be used for profit sharing, but it need not be!
• You can split equity unequally (say 70- 30) but divide profits equally or in a varying
manner depending on performance or milestones
2024-03-19 7
Understanding Equity (5) – Ownership
• Equity consists of residual claims – claims that have not already been
predicted/spelled out
• Ownership is NOT to use, enjoy, and destroy at will
• Ownership is to nurture and grow the venture
• Equity sharing should consider the best interest of the venture
• Equity is an instrument that deals with the uncertainties of ownership
• Equity is like joker in a deck of cards – know the game and use it!
2024-03-19 8
Equity Split Approaches
Equity Split Approach Benefits Drawbacks
Equal split Partners feel valued equally, Overvalue past and undervalue
strengthen relationship future
Transactional approach Agreement on what contributions Tricky to assign value to intangibles.

(Weighted value to assets) to value Contributions are dynamic
2024-03-19 9
• 73% of start-ups split equity right in the beginning,
Equity Split Timing before there is some revenue, before there is any
customer validation, and before they even know
each other really well (Wasserman, 2012).
Early split Late split

Negotiation before stakes get really high Learning more about venture: No point
fighting over a non-existent pie
Ability to attract new key players Gives a chance to figure out each
cofounder’s value/contribution
Best when cofounders have worked Best for rookies who are confident of their
together before being on a venture and skills and can take the extra time to prove
knowing each other’s value/contribution their value to the venture
Downsides: Misallocation, anchoring effect Downsides: Adding uncertainty
2024-03-19 10
Milestone or time-based vesting:
Founders get equity based on
milestones. Equity of non-vested
Static vs Dynamic Splits founders goes back to others
2024-03-19 11
Avoiding Pitfalls in Equity Sharing
• Spend sufficient time upfront to discuss equity splits
• Give an opportunity to all founders to share their views, plans, and

reservations/qualifications
• Defer the conversation until there is a time when you have more clarity…but not too
long!
• Discuss how you will resolve a conflict situation
• Design a flexible equity contract. Vesting founder shares over a period may be
preferable
2024-03-19 12
XFC: How much to ask for?
Case Study
2024-03-19 13
XFC Case Study
• XFC bypasses traditional currency exchange channels
• XFC is a peer-to-peer platform that matches travelers from locations A and B traveling to
B and A , respectively
• XFC is seeking to raise money from a VC investor
2024-03-19 14
How much money should XFC raise and for
what equity?
• Balance between raising money and losing control
• Valuation is inexact
• Funding depends on post-money valuation
2024-03-19 15
How would you structure ownership/equity?
Stage 1 Stage 2 (ESOP) Stage 3 (VC funding)
• Jermain - 50% (50000 • Jermain - 44% (50000 • Jermain – 35.3% (50000
shares) shares) shares)
• Western – 50% (50000 • Western – 44% (50000 • Western – 35.3% (50000
• Options – 12% (13363 • Options – 9.4% (13363
shares) shares)
• Bellwether – 20% (28340
shares)
Stage 2: X/(X+100000) = 12% | Stage 3: X/(X+113363) = 20%
Cap table shows:

- Number of shares to be allocated for a desired ownership structure
- Compare and contrast multiple ownership structures
2024-03-19 16
Tensions in
Founding Teams
3/19/2024 17
Finally …
• Irrespective of the equity split, run the partnership as though everyone is equal
and has real “emotional” ownership in the firm.
• Negotiate all three details (compensation, decision rights and profit sharing) plus
equity carefully and arrive at a mechanism to handle disagreement.
• How you negotiate can leave your co-founders feeling cautious or a deep
understanding and respect for each other.
• Mutual trust and relationships need to be carefully managed in founding teams.
2024-03-19 18
References
• Sarasvathy (2020). Ownership, Control, and the Role of Equity in New Ventures, Darden
technical note
• Kerr et al. (2014). Financing Entrepreneurial Ventures. Harvard Business Publishing
• Presentations from Professors Srivardhini Jha, Ludvig Levasseur and Dalhia Mani
• Wasserman (2012). Founders’ Dilemma. Princeton University Press
2024-03-19 19
VENTURE
FINANCING
Session # 10
TODAY’S AGENDA
Venture financing
Valuation
XFC Case Studies
Indian Startup Ecosystem
2024-03-19 2
WHAT FACTORS DRIVE
FOUNDERS TO SEEK FINANCING?
2024-03-19 3
FINANCING ENTREPRENEURIAL
VENTURES
• A venture’s financing needs depend on:
Profitability
Asset intensity
Pace of Growth
2024-03-19 4
FINANCING AVENUES
BOOTSTRAPPING DEBT EQUITY

INVESTORS INVESTORS
2024-03-19 5
HOW SHOULD AN ENTREPRENEUR
CHOOSE FROM THE FINANCING
AVENUES?
2024-03-19 6
ENTREPRENEURIAL FINANCING
FRAMEWORK
High
Capital-Intensive, Capital-Intensive,
Proven Technologies New Technologies
Capital required to reach
positive cash flow
Commercial banks; project Hard to fund without

finance; strategic investors government support
Small Businesses New Technologies

Personal credit; bank loans Angel investors; venture capital
Low High
Low Novelty of technology or business model
2024-03-19 7
DEBT VS EQUITY INVESTORS
Debt Investors Equity Investors
• Lend a fixed sum for a specified period at a • Invest specified sum/capital in exchange for
given interest rate a long-term ownership stake
• Limited upside • Upside proportional to venture performance
• Safeguards to downside through collaterals • Downside ‘managed’ with ‘home runs’
• Fund risk averse business models • Fund entrepreneurs facing uncertainty
• Largely hands-off approach to management • Influence management decisions directly or
decisions indirectly
2024-03-19 8
EQUITY INVESTORS
• Angel investors
Private Equity is an asset • Individual investors or as Angel groups
• Business expertise and connections possible
class composed of funds with due diligence
which purchase stakes in • Venture Capital investors
companies that are not • VC firms invest funds from partners
• Strategic investors
publicly traded.
• Corporations, CVCs
• Investment for strategic motives
2024-03-19 9
ANGEL INVESTORS
• What type of ventures do they invest in?

• Too small to get the attention of VC firms
• Limited revenue potential at maturity to
interest VC firms
• Too risky for bank loans and VC appetites
• $10-$15 mn revenue potential in 5 years
(Source: Chapter 7, Entrepreneur’s toolkit, HBS)

VENTURE CAPITAL
• Venture Capital is an asset class (within Private

Equity) focused on investing in small early-stage
companies with high growth potential
2024-03-19 11
VENTURE CAPITAL - HIGH RISK, HIGH
RETURN
Return
Venture Capital & PE
Hedge Funds
Equity Shares
Real Estate
Bonds
PPF
Fixed Deposit / CDs
Bank Savings Acct
Risk
Source: Sanat Rao, IDG Ventures 2024-03-19 12

HOW VCs RAISE MONEY?
Public Pension Funds
Private Pension Funds

Limited General
Partners $$ $$ Partners
University Endowments (LPs) (GPs)
Family Offices
Sovereign Funds
Venture Capital Fund
Corporations
Insurance Cos
Startup1 Startup2 Startup3
Source: Sanat Rao, IDG Ventures 2024-03-19 13

The Flow of Venture Capital (Limited life of fund: 7-10 yrs)
Investors Venture Capital Firms Portfolio companies

 Identify and screen opportunities
Provide capital  Transact and close details Use capital
 Monitor and add value
 Raise additional funds
Money Money
Gatekeeper
(1-2% annual fee)
2-3 % Annual fee
Limited partners
• Pension funds Entrepreneurs
• Endowments • Opportunity
General partners
• Foundations • Creation and
• Financial institutions recognition/discovery
• HNI/F 15-25 % of capital gains • Execution
• Non-financial cos • Value creation
• Other investors • Harvest
IPOs/mergers/alliances
Return of principal plus 75-
85% of capital gain Equity
(Source: Bygrave & Timmons, 1992 in Chapter 7, Entrepreneur’s toolkit, HBS)

TYPICAL VC FUND FINANCIAL
STRUCTURE
• LPs invest 95-98% of the fund; GPs invest 2-5%
• Fund Life: 7 to 10 years
• Capital: Fully returned to the LPs at the end of the fund life before profit can be shared
• Profits: 80% to the LPs, 20% to the GPs
• GPs’ Financial Incentive structure
• 2% annual management fee: Salaries, office space, travel, other G&A
• An individual VC firm shares the total GP profit share: “Carried Interest” (aka Carry)
2024-03-19 15
Limited Life Discipline
VENTURE CAPITAL

 Funding / Abandonment Option
 Proprietary Network
AS 

Neutrality
Added Value / Experience
INTERMEDIATION -Dollars
-Monitoring
LP Interest -Consulting
FUND $$$$$$$$ VC FUNDS INVESTEE
INVESTORS FIRMS
Returns Capital Appreciation
 Managing Uncertainty and Risk

 Filling Resource Gaps
 Mitigating
 Moral Hazard
 Agency Conflict
 Information Asymmetry
 Reducing Search & Information Costs
2024-03-19 16
Exit Options:
•Trade Sale
Exit
TYPICAL •Buy back
•IPO
•Sale to another PE
VC •Write off Post-Funding
INVESTME Contracting
NT Valuation
PROCESS Effort
Deal Structuring
Post Financing
OVERVIEW
Deal Evaluation /
Due Diligence
Deal Evaluation
Deal Screening
Pre-Evaluation
Deal Sourcing
Time
Source: Professors Kumar and Sabarinathan
2024-03-19 17
HIERARCHY
OF VC FUNDS
• Angel and Seed investors
• Fund size: 0-$50M
• Cheque size: 0-$1M
C
• Early-stage investors
• Fund size: $50M-$300M B
• Cheque size: $1-$10M A
• Mega investors (growth-stage)
• Fund size: $300M+
• Cheque size: $10M-$50M
(Source: Sanat Rao, IDG Ventures)

2024-03-19 18
INVESTMENT STAGES
Stage Funding Team Size Goals / Purpose Valn
Angel / $0 - $100K 1-3 Build functional prototype (MVP) $100K -

F&F Small scale customer testing $2M
”Someone is using it”
Seed $100K - $1M 2 – 10 Add Product features – Beta Launch $2 - $10M
Find the “Product – Problem” fit
Multiple customers already using product
Test customer revenues
“Many people using it, and paying for it”
Series A $1 - $5M 10 - 25 Find “Product-Market” Fit: scalable biz model $10 - $20M
Beta  Full Production in say 12 – 18 mths
Multiple customers are buying/paying
“Many people paying; Possible to make a lot of money”
Series B $4 - $12M 25+ Focus on Scale! E.g., get to $10M ARR (for a B2B Comp) $20M+
2024-03-19 19
POWER
LAW: 80%
RETURNS FROM
20% COMPANIES
Source: Kerr et al. (2014)
2024-03-19 20
SO, WHAT ARE VCS LOOKING FOR?
• Passionate, driven entrepreneurs

• Great storytellers, able to “change the narrative”
• Serving an unmet need in a large, growing market
• #1 reason startups die: Building a product that nobody (or very few people) wants to buy!
• With a differentiated solution
• Do one important thing 10X faster, 10X better, 10X cheaper than what exists today
• With early measurable ‘traction’ (i.e., customer validation)
Can this company get to ~$100M in revenues in 5-7 years?
2024-03-19 21
FINANCING IMPLICATIONS OF BUSINESS
DECISIONS
1. Financing options influence location decisions for startups: Investors prefer local opportunities
2. Ventures can be cleverly designed to reduce financing requirements
3. Changes in risk & uncertainty may jeopardize financing
4. Past financing decisions have implications for subsequent business decisions
5. Partnerships can shape a venture’s financing requirements
6. Business decisions that reduce uncertainty unlock financing options
2024-03-19 22
NEGOTIATION WITH VCS
INTERESTS
Entrepreneur VC firm
Solving sorting problem in selecting best

Get outside capital
entrepreneurial firm
Maximize financial gains from equity stake Minimize agency costs/problems
Retain control, minimize constraints on
Maximize financial returns
behavior and decision making
Build reputation Maintain option to abandon
Be able to influence/force entrepreneur to exit
Get outside expertise and contacts
and distribute proceeds
Build successful firm Maintain reputation
(Source: Wasserman, Robinson, 2000)

SOURCES OF NEGOTIATING POWER
Entrepreneur VC firm
•Deep expertise in hot specialty •Providing capital
•Great track record •Adding credibility to entrepreneur
•Solid team •Actions send signal to other potential VCs

•Can keep VC from investing in later
•Adding value through expertise and contacts
rounds/funds
•VC wants to lay ground for productive
•Entrepreneur’s reputation concerns
working relationship
•VC’s reputational constraints; entrepreneur as
•Imbalance between supply and demand
reference
•BATNAs*: Other VCs, angels, banks, •BATNAs*: capital/time to other startups or
corporations existing portfolio, spending time fund raising
[*BATNA: Best Alternative To Negotiated Agreement]

MECHANISMS
Ways to reduce Due diligence
information
Repeated relationships
asymmetries
Monitoring/information rights
Ways to align Entrepreneur compensation linked to value of VC’s stake
incentives Vesting of entrepreneur’s stake
Key-person agreements
Ability to fire managers
Ways for VCs to Seat on board of directors
control decision Covenants limiting entrepreneur’s ability to use capital
making Involvement in operations
Super-majority rights
Ways for VCs to Equity stake senior to that of entrepreneur
protect financial Abandonment option through staged investments across rounds
downside Forcing exit through decision-making control
Convertible debt

VALUATION
Art or Science?
2024-03-19 27
VALUATION
• Valuation is used as a synonym for “value” or “price”
• It also refers to the process of determining value of the venture
• Why is valuation difficult in early-stage ventures?

• Market mechanism that characterizes publicly-traded companies is absent
• Little operating history, confidence in forecasts low
• Often, ventures are bleeding cash
• Methods of Valuation
• NPV (not relevant for early-stage ventures)
• Comparables
• Others One of the great arts of venture capital is working
through these ambiguities to arrive at a value!
2024-03-19 28
COMPARABLES
• Comparables method assigns a value to a company based on the value known to have been
placed on ‘like’ companies.
• Identifying comparable companies
• Same industry (are there enough companies?)
• Are they similar in terms of revenue?
• Are cost structures similar?
• Are growth rates similar?
• Are distribution strategies similar?
• Publicly traded vs. M&A vs. recent venture investments.
2024-03-19 29
TERMINOLOGY & METRICS
• Terminology to keep in mind:
• Market Cap = Total number of shares * price per share
• Price per share = equity value / number of shares
• Total Enterprise value (TEV) = equity + debt – cash
• Pre money value + New money invested = Post money value
• Traditional Metrics don’t work!

• P/E – seldom available since most venture investments are in companies that are not profitable
• TEV/EBITDA – EBITDA may be negative!
• TEV/Revenue – Useful if company has revenues. Ensure cost structures are comparable
2024-03-19 30
AN EXAMPLE
Shares Out (in Market
Company Price millions) Cap Debt Cash TEV Revenue (F) TEV/REV
JDA Soft $14.28 29.2 417 0 97.1 319.9 231 1.4
Kronos $46.10 32.1 1479.8 0 159.8 1320 583 2.3
Radiant $12.94 30.3 392.1 15.6 15.1 392.6 189 2.1
Pegasus $10.86 20.8 225.5 75 22.4 278.1 193 1.4
Par Tech $33.70 9.5 321.5 4.6 3.4 322.7 242 1.3
Average 1.7
Target 5 25
Calculated TEV = $42.5 million (=25*1.7); Calculated Share Price = $8.5 (=42.5/5)
2024-03-19 31
FROM BENCHMARKS TO SPECIFICS
• The substance of negotiation on valuation
• Influenced by both the investors and investees perceptions and beliefs about the future
• Investors
• Industry outlook
• Valuation trajectories (of the space/domain/Business model)
• Expected time before exit
• Portfolio considerations/targeted return
• Further rounds of funding before exit
• Investees
• Which side of average? Why?
• Lead or lag indicators?
• Value addition apart from cash
2024-03-19 32
OTHER DEAL ‘CLINCHING’ FACTORS
• Often a ‘comfort’ number within a broad range

• What investors are willing to offer and what the investee is willing to settle for after accounting
for the exigencies on both sides
• “Chemistry” more important than spreadsheets
2024-03-19 33
XFC: STRUCTURING THE
VENTURE
Case Study
2024-03-19 34
XFC: FOUNDERS’ PROPOSAL
Stage 1 Stage 2 (ESOP) Stage 3 (VC funding)

• Jermain - 50% (50000 • Jermain - 44% (50000 • Jermain – 35.3% (50000
• Western – 50% (50000 • Western – 44% (50000 • Western – 35.3% (50000
• Options – 12% (13363 • Options – 9.4% (13363
shares) shares)
• Bellwether – 20% (28340
shares)
2024-03-19 35
VC COUNTER-OFFER
Stage 3 (Founders’ Stage 3 (VC offer)
proposal) • Jermain – 33.1% (50000 shares)
• Jermain – 35.3% (50000 shares) • Western – 33.1% (50000 shares)
• Western – 35.3% (50000 shares) • Options – 8.8% (13363 shares)
• Options – 9.4% (13363 shares) • Bellwether – 25% (37788 shares)
• Bellwether – 20% (28340 shares)
• 2.2% points drop in ownership for the founders, option pool diluted too
• Convertible Preferred stock
• After 5 yrs, dividend accrued is $1 mn (8% p.a. of $25 mn)
• Residual claims preference over common stockholders
2024-03-19 36
XFC: WHO’S IN CONTROL?
Case Study
2024-03-19 37
WHAT ARE VC’S CONTROL PROVISIONS?
• Prohibits company from taking drastic actions – liquidating, dissolving, or selling

• Prohibits company from issuing shares that are senior to existing preferred holders’ securities
• Prohibiting increase in size of board and thereby diluting VC’s power
• Are these terms fair for founders to accept?

• Yes, because these are extreme case scenarios
• VCs are paying against a much higher valuation than founders
• VCs interest may not be aligned with founders
2024-03-19 38
WHAT ABOUT VESTING?
• Vesting – Founders should give up 80% of the shares they own for a specified
number of years and earn the shares back each year within those years
• Vesting is aimed at:
• Solving the issue of a co-founder abandoning the venture whilst continuing to hold the
shares
• In such a case , they lose the unvested stock
• Unvested stock can be used to hire new employees/ co-founders
• Voting rights for founders can be independent of vesting clause
2024-03-19 39
VC KEY TAKEAWAYS
• VC works within definitional and structural boundaries
• Not suitable for every type of venture and at every stage of the venture (nascent to scale up)
• VCs don’t have a crystal ball – Early-stage financing more an art than science
• Larger VC investments come into play once ‘uncertainties’ surrounding a venture are reduced to
‘risks’ through actions of the entrepreneur
• VC has helped in creating some great companies. But not every venture that succeeded got VC
and not every VC-funded venture succeeded
• VC comes as a package – the entrepreneur voluntarily exchanges ‘decision making freedom and
flexibility’ for assured capital
2024-03-19 40
INDIAN STARTUP
ECOSYSTEM
Insights from the last decade
2024-03-19 41
PILLARS OF AN ENTREPRENEURIAL
ECOSYSTEM
Source: World Economic Forum report, 2014

2024-03-19 42
THE DOUBLE LOOP
Opportunities
Weak
Framework Entrepreneurial Economic

conditions Activity Growth
Strong
Opportunities
2024-03-19 43
INDIA’S COMPETITIVE ADVANTAGE –
HUMAN RESOURCES?
• Wide variance in quality of people coming out of the educational institutions
• Professional and business skills relatively weak when compared to technical skills
• ‘Trainable’ work force rather than ‘ready to deploy’ work force
• Risk averse behavior keeps people away from start ups and unbranded companies (though this is
changing slowly)
• Stock options are not highly valued
• Short term orientation
• Insufficient precedence of wealth creation through ESOP
• Efficiency wages and profit sharing are not common
2024-03-19 44
PE/VC
INVESTMEN
TS IN INDIA
2024-03-19 45
PE/VC
INVESTMEN
TS IN INDIA -
BREAKDOW
N
2024-03-19 46
INVESTMENT TRENDS IN START-UPS
2024-03-19 47
PE / VC EXIT TRENDS
2024-03-19 48
INDIAN
STARTUP
ECOSYSTE
M IN 2021
Source: Inc 42 Indian Startup Ecosystem Report 2021

2024-03-19 49
Source: Professor Kalubandi, Inc 42 Indian Startup Ecosystem Report 2020
2024-03-19 50
GOVERNMENT SUPPORT
• Startup India was launched by GoI in 2016

• India is 3rd largest startup hub in the world with about 31945 startups recognized by DPITT
under Startup India initiative
• New initiatives such as compliance regime based on self-certification aimed at boosting startup
ecosystem
• GoI also launched mobile app and web portal to interact with regulatory agencies
• Establishment of Fund-of-Funds for startups, Seed fund grants, and other schemes
2024-03-19 51
HISTORY OF IPOs – Active but not
numerous 1400
IPO activity in India
90
1200 80
Value (in INR billion)
70
Number of IPOs
1000
60
800 50
600 40
30
400
20
200 10
0 0
Source: Professor Kumar, Prime Database (http://www.primedatabase.com/pub_demo.asp)

2024-03-19 52
TECH VC LANDSCAPE IN INDIA
Angel & Seed Growth Stage
Early-Stage Investors
Investors Investors
Premji Invest
Individual Family Offices
Source: Professor Kumar

2024-03-19 53
KEY TAKEAWAYS (ON INDIAN STARTUP ECOSYSTEM)
• India has a vibrant Startup ecosystem; Bangalore in particular.

• Quite strong on the important pillars – Markets, Human Capital and Finance.
• VC funds in abundance; exits remain a problem.
• India market opportunity is still untapped.
• We are only skimming the layer - Many ‘desi’ problems yet to be solved.
2024-03-19 54
OTHER FINANCING
AVENUES
2024-03-19 55
STRATEGIC INVESTORS
• Corporations’ direct investment and CVCs

• Strategic motivations:
• Access to new technology or innovation
• Enter a new market
• New product development involves substantial assets
• Ventures need to understand internal dynamics of the corporation
2024-03-19 56
CROWDFUNDING
• Crowdfunding platforms connect those

who seek capital to fund an innovative
idea, a social cause or life plans with
prospective capital providers.
• Crowdfunding can serve to validate
feasibility of idea and understand market
potential
• Crowdfunded ventures are more likely to
get funded by VCs and raise more funds in
subsequent funding rounds
2024-03-19 57
VALUATION EXERCISE
(Source: Adapted from Sahlman, 2009)

WHAT DO WE KNOW?
A venture capitalist is considering an investment of USD 3.5 mn. in a company.
The company doesn’t expect any additional capital requirement through year
five. In the 5th year the company is expected to earn USD 2.5 mn. This earning
should be comparable to companies that command a PE ratio of 15. Currently,
the company has 1 million shares outstanding.
At the end of the 5th year, the VC expects to harvest the investment through stock
sale. The VC’s expected IRR is 50% for a project with this risk.
What price should the VC pay now for this stock?
WHERE TO BEGIN? (1 STAGE
FUNDING)
• Step 1: Calculate % final ownership required
Fact summary . Required Future Value(investment) = (1. 𝐼𝑅𝑅)𝑌𝑒𝑎𝑟𝑠 ×(Investment)
𝑅𝐹𝑉 𝑜𝑓 𝑖𝑛𝑣𝑒𝑠𝑚𝑒𝑛𝑡
% 𝑅𝑒𝑞. 𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝 =
Investment $3.5 mn. 𝑇𝑒𝑟𝑚𝑖𝑛𝑎𝑙 𝑣𝑎𝑙𝑢𝑒
• 𝑇𝑒𝑟𝑚𝑖𝑛𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 = 𝑃𝐸 𝑅𝑎𝑡𝑖𝑜 × 𝑡𝑒𝑟𝑚𝑖𝑛𝑎𝑙 𝑖𝑛𝑐𝑜𝑚𝑒
Term 5 yrs. • Step 2: Calculate No. of shares for the VC

1
𝑁𝑒𝑤 𝑠ℎ𝑎𝑟𝑒𝑠 + 𝑂𝑙𝑑 𝑠ℎ𝑎𝑟𝑒𝑠 = × 𝑂𝑙𝑑𝑠ℎ𝑎𝑟𝑒𝑠
Year 5 income $2.5 mn. 1 − % 𝑅𝑒𝑞. 𝑜𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝
• Share price at time of VC investment (post deal) can be calculated

Year 5 PE ratio 15
• What is post money valuation for this company?
𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
Required IRR 50% 𝑃𝑜𝑠𝑡 − 𝑚𝑜𝑛𝑒𝑦 𝑣𝑎𝑙𝑢𝑎𝑡𝑖𝑜𝑛 =
% 𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝 𝑎𝑐𝑞𝑢𝑖𝑟𝑒𝑑
Existing shares 1 mn. • What is the founders’ carried interest?

𝐶𝑎𝑟𝑟𝑖𝑒𝑑 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 𝑃𝑜𝑠𝑡 𝑚𝑜𝑛𝑒𝑦 𝑣𝑎𝑙𝑢𝑎𝑡𝑖𝑜𝑛 × % 𝑜𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝 𝑝𝑜𝑠𝑡 𝑚𝑜𝑛𝑒𝑦
Or
𝐶𝑎𝑟𝑟𝑖𝑒𝑑 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 = 𝑁𝑒𝑤 𝑝𝑟𝑖𝑐𝑒 × 𝑆ℎ𝑎𝑟𝑒𝑠 𝑜𝑤𝑛𝑒𝑑
MULTI STAGE FUNDING (CHANGES WITH
SUBSEQUENT DILUTION?)
• How much of final ownership for VCs who
enter at different stages?
Fact summary (1.55 ×1.5)
• Round 1: 𝐹𝑖𝑛𝑎𝑙 % = (15×2.5)
Investment $3.5 mn. • Round 2: 𝐹𝑖𝑛𝑎𝑙 % =
(1.43 ×1.0)
(15×2.5)
(1.251 ×1.0)
Term 5 yrs. • Round 3: 𝐹𝑖𝑛𝑎𝑙 % = (15×2.5)
Round 1 (yr 0) $1.5 mn. • How much to pick up at the funding stage?
𝐹𝑖𝑛𝑎𝑙 %
• Each round: 𝐶𝑢𝑟. 𝑜𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝 = 1−(𝐹𝑖𝑛𝑎𝑙 % 𝑜𝑓 𝑙𝑎𝑡𝑒𝑟 𝑖𝑛𝑣𝑒𝑠𝑡𝑜𝑟𝑠)
Round 2 (yr 2) $1.0 mn. (IRR 40%)
• Each round 𝑁𝑒𝑤 𝑠ℎ𝑎𝑟𝑒𝑠 = % 𝑜𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝
1−(% 𝑜𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝)
×
Round 3 (yr 4) $2.5 mn. (IRR 25%) 𝑜𝑙𝑑 𝑠ℎ𝑎𝑟𝑒𝑠
𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
Existing shares 1 mn. • 𝑆ℎ𝑎𝑟𝑒 𝑝𝑟𝑖𝑐𝑒 =
𝑁𝑒𝑤 𝑠ℎ𝑎𝑟𝑒𝑠
REFERENCES
• Kerr et al. (2014). Financing Entrepreneurial Ventures. Harvard Business Publishing

• Presentations from Professors Kumar, Srivardhini Jha, Sai Kalubandi
• Indian Startup Ecosystem Report 2021, Inc42
• PE/VC Agenda India Trend Book 2021, EY and IVC Association
• Indian Startup IPOs and Earnings Reports Q3 2021, Inc42
• Entrepreneurial Ecosystem Report 2014, World Economic Forum
• Webinar on Venture Capital, Business Angels, and Startups, 2016, INSEAD
2024-03-19 62
Generating
Resources
Session # 12
Course Roadmap
New Venture
Viable Social
Intrapreneurship

creation resources and ideas Other CE
• Lean Canvas • Equity business models
• Effectuation
• Idea & Opportunity
2024-03-19 2
What are some perils of
external venture financing?
2024-03-19 3
Perils of External Venture Financing
• VC is a poor fit for many ventures. For example, VCs require businesses to
have a certain growth/size potential ; they have a medium-long term view.
• Money from outside investors comes with strings attached.
• False sense of security leading to complacency and lack of control.
• Diminished flexibility to adopt the ‘try it- fix it’ (remember Lean Method!)
approach required in new ventures.
• Conflicts between investors and promoter managers can be debilitating.
2024-03-19 4
A Pervasive Myth of Entrepreneurship
• To be successful, an entrepreneur needs to be able to attract venture

capital.
• Only 5% of entrepreneurial funding is through venture capital (Source:

Kauffman foundation)
• More than 80% of Fortune 500 high-growth companies were

bootstrapped by the founders’ own resources
2024-03-19 5
Generating
Domain of
Resources Entrepreneurship
Bootstrapping

uncertainty
2024-03-19 6
Bootstrapping
• Bootstrapping is a collection of methods used to minimize the outside

debt and equity financing needed from banks and investors
• This includes a combination of methods to
• reduce overall capital requirements
• improve cash flows
• and take advantage of personal networks and sources of finances
• Small and young firms have trouble raising money due to liability of
newness and liability of smallness
2024-03-19 7
Case Study: R&R
2024-03-19 8
What did Bob know about the toys and
games market and industry in 1983?
• Trivia games were taking on, in particular, Trivial Pursuit

• Trivial Pursuit was turned down in the US
• Toy and Game industry – short product lifecycles, fads
• Experimentation is easy but ‘death’ before take-off
• Promotional plans were key for purchase decision – big names,
financial strength
• Highly seasonal – ‘manufacturer as the warehouse’
• Time pressure – American toy fair
2024-03-19 9
What steps did Bob take after finding the
opportunity?
• Idea and evaluation: Manufacturer’s representative business

• Seeking licensing with publishers of TV Guide
• Initial letter and phone conversation
• Follow-up detailed letter – was it a business plan or a lean canvas?
• Game development by Alan Charles

• How did Bob afford a professional game developer?
• Partnership with Sam Kaplan – Trivia Inc. was born

• Was equity split necessary here? And that too a 50-50 split?
2024-03-19 10
What after Trivia Inc.?
• Production, shipping and billing with Swiss Colony

• 30% reduction in costs and flexibility retained
• Account receivables with Heller Factoring
• Payment terms of 1% of sales
• Selling the Game
• Two channels: Department stores fuel mass merchandisers' sales
• TV Guide’s brand did most of the legwork for marketing and sales
• Cooperative Ads with store name
• Promotion on TV
2024-03-19 11
Bob’s Venture Creation Process
Effectuation or Causation?
Conventional Wisdom
Strategy/
Funding Product Sales
Business Plan
New Ventures
Strategy/
Sales Product Funding
Business Plan
2024-03-19 12
Did Bob breakeven?
Selling Price per unit $12.50

Cost per Unit $8.23
Product (including assembly): $3.10
TV Guide (10%): $1.25
Inventor (5%): $0.625
Advertising (5%): $0.625
Sales commission (20%): $2.50
Factor (1%): $0.125
Profit per unit $4.27

Initial investment $50,000
Break-even (50K/4.27) 11709 units
2024-03-19 13
$ Unit
Sales 7,250,000 12.50
Variable
COG 1,798,000 3.10
How much Sales commission (20%) 1,450,000 2.50
did Bob Factor (1%) 72,500 .13
make? Ad allowance (5%)

TV Guide royalty (10%)
362,500
725,000
.63
1.25
• In addition, R&R made Invention Royalty (5%) 362,500 .63

20% sales commission Total 4,770,500 8.24
($ 1,450,000) Contribution 2,479,500 4.36
Fixed design and launch 50,000
• Sales reps: 7%
Bad debt (est.) 15,000
• Reiss made extra 13% Inventory write-down 100,000
($ 942,500) Pretax profit 2,314,500
Bob share (50%) $ 1.15 million
2024-03-19 14
Why was Bob successful?
• Timely action to capitalize on a small window of opportunity

• Co-created (shaped) the opportunity through his interactions with stakeholders
• Managed risk
• Brought down the affordable loss by converting fixed costs into variable costs
• Spread the risk across stakeholders
• Leveraged his personal strengths and resources creatively to the maximum

• Treats people well. Gave everybody a fair deal!
2024-03-19 15
Bob Reiss Mantra:
Collaborate to create value and manage
stakeholders with fair deal
2024-03-19 16
R&R and Trivia Inc.
• The case epitomizes entrepreneurship

• Discovering/Shaping Opportunity.
• Taking swift and timely action to capitalize on it.
• Clever use of partnerships to mobilize resources and mitigate risks.
• Integrative nature of entrepreneurship

• Brings together strategy, financing, marketing and operations.
2024-03-19 17
Thumb rules for Bootstrapping
• Get operational quickly

• Look for quick break even and cash generating projects
• Offer high value products or services that can sustain personal selling
• Keep growth in check
• Focus on the customer not on VC/external finance
• Focus on cash before profits, market share or anything else
• Convert the fixed costs into variable costs as much as possible, thereby
reducing upfront costs and allowing your business to pay for itself
• Leverage social capital
2024-03-19 18
Bootstrapping Methods (1)
• Customer-related methods
• Owner-related financing and resources
• Joint utilization of resources with other firms
• Delaying payment
2024-03-19 19
• Customer related – are used to improve cash flow from customers

• Advanced payments by creating incentives
• Charging interest on overdue invoices
• Ceasing relations with late-paying customers
• Owner related finances

• Savings
• Loans by owners or from family
2024-03-19 20
• Joint utilization of resources

• Sharing employees (CFO)
• Assets
• Business space (Startup Village)
• Coordinating purchases with other firms to take advantage of economies of scale
• Delaying payments
• Paying late (with permission)
• Negotiating longer credit periods
• Leasing than purchasing
2024-03-19 21
Practical Tips for Bootstrapping
• Do not buy new what you can buy used

• Do not buy used what you can lease
• Do not lease what you can borrow
• Do not borrow when you can barter
• Do not barter when you can beg
• Do not beg when you can scavenge
• Do not scavenge what you can get for free
• Do not take for free what someone else will pay you for
• Do not take payment for something that people will bid for (create an auction)
Source: Venkataraman (2003)
2024-03-19 22
Limits to Bootstrapping
• Ideal for hustle and niche ventures

• Revolutionary ventures can’t be completely bootstrapped
• Speculative ventures are even more difficult to bootstrap
• Ventures outside the promoter’s knowledge domain are difficult to
bootstrap
• Ventures that require some critical assets to be deployed even before
testing out the business concept can’t be bootstrapped
2024-03-19 23
Key Takeaways
• Opportunities can be created

• You don’t have to own resources to control them
• You can gain extraordinary commitment and rapid ability to execute by
giving people an incentive – stake in success
• There is a great deal to be gained by making the pie bigger for everyone
rather than fighting over the size of your own piece
2024-03-19 24
References
• Bootstrap Finance: The Art of Start-ups – Amar Bhide (HBR, 2016)

• Class presentations from Professors Srivardhini Jha, Ludvig Levasseur,
and Kumar K
2024-03-19 25
Social Entrepreneurship
SESSION # 13
Course Roadmap
New Venture
Viable Social
Intrapreneurship
Venture development Corporate Corporate Venture

Entrepreneurship Capital
Value creation • Matching skills,
resources and ideas Other CE business
• Lean Canvas • Equity models
• Customer discovery • Venture financing
Entrepreneurial • Hypothesis-driven • Bootstrapping
thinking entrepreneurship
• Uncertainty
• Effectuation
• Idea & Opportunity
2024-03-19 2
Some solutions to social issues
Government Multilateral Institutions (e.g., World Bank)
◦ Inefficiencies, slow, bureaucratic, ◦ Conservative, slow, under-funded, unreliable
prone to corruption… ◦ Success is measured by:
◦ GDP (might not help the poor)
Nonprofit Orgs
◦ Volume of loans negotiated (not measuring impact)
◦ Dependent on donations (uncertain,
demand far exceeds supply) ◦ Work exclusively with the government
◦ “Compassion fatigue” Corporate Social Responsibility (CSR)
◦ Raising money takes time and energy ◦ “As long as it can be done without sacrificing
PROFITS”
2024-03-19 3
Case for Social Entrepreneurship
 Entrepreneurship is empowering!
◦ Wealth creation, access to opportunities, innovation to tackle problems
 Enterprises geared towards bridging the inequalities are the need

of the hour
 Organizations that create new models for the provision of products
and services that cater to basic human needs that remain
unsatisfied by current economic or social institutions (Seelos and Mair,
2005)
2024-03-19 4
Source: Dacin et al. (2010) TYPES OF ENTREPRENEURSHIP 2024-03-19 5
Origins of the Idea of Social Enterprises
 Born of a weariness with charity and the not-for-profit model
 Born of a belief that new innovative solutions were needed to solve
entrenched social issues
 This is also aligned with a broader movement gaining momentum in
contemporary market economies, demanding a more ethical and socially
inclusive capitalism (Dacin et al., 2010)
 Born of a belief that challenges cannot be addressed unless the business
produced significant returns
2024-03-19 6
 Social Entrepreneurship involves (Dees, 2001):
◦ Recognizing and pursuing opportunities to create social value
◦ Crafting innovative approaches to addressing critical social needs
 Social entrepreneurship is the use of start-up companies and other

entrepreneurs to develop, fund, and implement solutions to social,
cultural, or environmental issues
2024-03-19 7
 Primary goal of social entrepreneurship is adding social
value
 Could be for-profits, cooperatives, or not-for-profits
 Look at the poor as consumers and not beneficiaries
 Social enterprises focus on the ‘triple bottom line’
Triple Bottom Line
2024-03-19 8
Emerging Models for Equitable Growth
Shared
value
Social
Enterprise It’s an
CSR opportunity to
Traditional It’s our do well by
Enterprise problem. We doing good
We have some need to solve
responsibility it.
Problem needs towards
to be solved by society. Let’s
government look good.
and NGOs.
2024-03-19 9
Different Types of Social Businesses
 For-profits: Unlike traditional firms, here the surpluses are reinvested for social objectives of
the business
 Cooperative: A cooperative (also known as co-operative, co-op, or coop) is “an autonomous
association of persons united voluntarily to meet their common economic, social, and cultural
needs and aspirations through a jointly-owned and democratically-controlled enterprise”
 Producer Organization: A Producer Organization (PO) is a legal entity formed by primary
producers (e.g., farmers, milk producers, fishermen, weavers, rural artisans, craftsmen). A PO
can be a producer company, a cooperative society, or any other legal form which allows to
share profits/benefits among the members
 Section 8 Company: Not-for-profit company that promotes research, social welfare, religion,
charity, commerce, art, science, sports, education, and the protection of the environment
(NSRCEL is one such entity)
2024-03-19 10
Saahas
CASE STUDY
2024-03-19 11
Did you know?
 Saahas manages waste at IIMB
 Saahas was incubated at NSRCEL
2024-03-19 12
Why is a company like Saahas needed to
help clear waste?
 Lack of responsibility in production, usage, and disposal
 Legislation implementation is lacking
 Overall, no ownership, mental blocks/biases, and lack of rewards
 A perfect opportunity for a social enterprise!
2024-03-19 13
What does
Saahas do?
 Saahas contributes towards
moving the society to a
circular economy
 Circular economy
2024-03-19 14
Assumptions
 What are the underlying assumptions of a linear economy vs.
a circular economy?
 Linear economy:
◦ Planet has infinite resources
◦ Valuable resources cannot be extracted from waste
 Circular economy:
◦ Easy to reuse/recycle
◦ Value of resources does not deplete
2024-03-19 15
Value
creation in
Circular
Economy
3/19/2024 16
Wilma’s Journey
2000
1980s • Introduction of MSWM&HR 2008
• Witnesses problem • Expectation of state to serve • “Extended producer
2016
• Sense of responsibility • Works with SBI and authorities responsibility” in India • Govt. mandate for
and frustration • Lean startup and experimentation • Reaches out to organizations to segregation at source
• Unable to act • Stakeholder buy-in challenge create “take back loop” • Partners with CTP
1990s 2000-’05 2010

• Changes in personal life and • Explores and understands • NGO structure and tax
freedom waste better • Saahas as hybrid structure: Saahas.org & Saahas.com
• NGO • “Nature knows no waste” • Capacity building
• Build awareness and “Circular economy” • Structure
• Less to no-pay • Volunteers and employees
• Funding vs operational sustainability
2024-03-19 17
How did Wilma get product-market fit?
 Focus on waste management, but kept changing direction and
seizing opportunities (pivots?)
 Corridor principle: Establishing of a venture enables the
entrepreneur to see other opportunities that they could not see or
take advantage of until they started their initial venture.
 Wilma achieved product-market fit and created a hybrid
organization using corridor principle
2024-03-19 18
The Corridor Principle
 Enter the corridor to see other doors
◦ Unless you enter the corridor (commit through starting up), you won’t see other
open and closed doors (opportunities) in the corridor
 One vs. multiple ventures

◦ Entrepreneurs create multiple ventures to lengthen their entrepreneurial careers
 Where to start?
◦ Start one venture at least to see other venture opportunities
2024-03-19 19
(Source: Ronstadt, 1988)
Is Wilma right in running Saahas
as a hybrid social enterprise?
SAAHAS, THE NGO
SAAHAS, THE PRIVATE LIMITED COMPANY
2024-03-19 20
CLASSICAL MODEL OF CHARITABLE HYBRID CLASSICAL MODEL OF THE
ORGANIZATION BUSINESS FIRM
Core characteristics
Primary objective Social betterment Mixed objectives Economic value creation
Method of operations Affiliative relationships Relational contracting; Mixed Impersonal exchange; Arms-length
Non-pecuniary rewards rewards bargaining
Amplifying
characteristics
Funding/capital sources Philanthropy/Grants, etc. Below market rate debt and Capital market rate equity and debt
equity
Work force motivation Volunteers with high commitment to social Mixture of volunteers, Paid employees with contractual
mission professionals and paid staff commitment and focus on financial
rewards
Consumer contributions Beneficiaries not required to pay anything Partial fees Consumers pay full cost (including
return to capital
Governance/control Mission-constrained; self perpetuating Membership governed Board elected by owners; Grounded
board; Stewardship responsibilities democracy-based in property rights; Fiduciary
responsibilities
Strengths  Creates social benefits where markets have failed Not reliant on goodwill
 Builds a sense of community Builds individual responsibility
 Provides outlet for affiliative motivations Subject to strong capital and consumer
market discipline
Weaknesses  Depends heavily on goodwill Impersonal, often uninspiring
 Difficult performance assessment Markets can fail with social goods
 Potential inefficiencies Low degrees of loyalty and common
 Relies on markets with complex, heterogeneous motivations cause
 Can create dependency
2024-03-19 21
(Source: Dees, 1993)
Is Wilma right in running Saahas as a
hybrid social enterprise?
 What is a hybrid social enterprise?
◦ Organizations that combine enterprise with embedded social purpose
◦ Pursue dual mission of financial sustainability and social purpose
 Pros: creation of a subsidiary may protect the non-profit status of a charitable
organization from the liabilities of its for-profit subsidiary and the subsidiary can be sold
easily
 Cons: Difficult for the non-profit to diversify its income when for-profit part is the
primary source
◦ There may also be more overheads (we have two orgs here).
◦ Assets with the non-profit are ‘locked in’ and cannot be transferred/sold easily.
 Alternative for Wilma: Collaborate to approach the problem more holistically and
delegate to partners
2024-03-19 22
How should Saahas scale – larger footprint
locally or expand geographically?
 Growth is possible with large customers BUT a precedent with the
first one is vital
 Upcoming negotiations one such opportunity
 How should Wilma negotiate?
◦ Get stakeholders (beyond CTP?) to see the impact of circular economy
◦ On planet, resources and consumption patterns
◦ On consumer’s increasing awareness towards sustainability
◦ Highlight importance of thinking beyond cost reduction
2024-03-19 23
Is Saahas a success story?
2024-03-19 24
Why is all this important?
Blurring Organizational Boundaries
NGO
Firms Public-Private Government

Partnerships
2024-03-19 25
Social Entrepreneurs are Change Agents
 Adopt a mission to create and sustain social value (not just private value)
 Recognize and relentlessly pursue new opportunities to serve that mission
 Engage in a process of continuous innovation, adaptation, and learning
 Act boldly without being limited by resources currently in hand
 Exhibit a heightened sense of accountability to the constituencies served
and for the outcomes created.
2024-03-19 26
References
 Dacin, P. A., Dacin, M. T., & Matear, M. (2010). Social entrepreneurship: Why we don't need a
new theory and how we move forward from here. Academy of management
perspectives, 24(3), 37-57.
 Dees, J. G. (1998). The meaning of social entrepreneurship.
 World Inequality Report, 2022
 Seelos, C., & Mair, J. (2005). Social entrepreneurship: Creating new business models to serve
the poor. Business horizons, 48(3), 241-246.
 Presentations from Professors Srivardhini Jha, Sai Chittranjan Kalubandi, and Ludvig Levasseur
2024-03-19 27
Corporate Session # 14
Entrepreneurship
2
Let’s take a ride back to Term II (C&S)
 What are the sources of competitive advantage for a

firm?
Tuesday, March 19, 2024

3
Sources of Competitive Advantage

Where should Corporate
we compete? Strategy
+ Global Strategy
How do we achieve
Competitive
Advantage?
How should Business

we compete? Strategy
+ Functional Strategy
Source: Grant (2007)
4
Continuing the ride back to Term II

(C&S)
 What do we know about innovation in firms?

5
Disruptive vs. Sustaining Innovation

6
Market Uncertainty vs. Innovation
Product fit to New customers. Long

High
market needs gestation period. Lower
uncertain. revenue targets.
Market
Uncertainty
Business as usual. New customers.

Focus on present Lower revenue
Low customers. targets.
Sustaining Disruptive
Innovation
7
Ambidexterity in Firms
 Strategic management of firms mostly involves exploitation of already
identified opportunities
 But for a firm to be relevant and competitive exploration of new
opportunities is vital
 A firm should be ambidextrous – balance exploration and exploitation – to
have sustainable competitive advantage and growth
 Corporate Entrepreneurship can aid ambidexterity in firms

8
Corporate Entrepreneurship
 What is corporate entrepreneurship?
 Entrepreneurial activity within a mature firm i.e., attempts to
create products, enter markets, or introduce process
innovations that are new to the firm.
 Why should large corporations be entrepreneurial?

 To counter the gale of creative destruction
 To find new growth opportunities

9
Internal Corporate New businesses
Venturing owned by the firm
Corporate Venturing
Investments in
External Corporate
ventures outside the
Venturing
firm
Adoption of new
Strategic Renewal
Corporate strategy
Entrepreneurship
Introduction of new
Sustained regeneration
products
Reconfiguration of
Strategic
Domain redefinition existing products and
Entrepreneurship
markets
Forms of Organizational
rejuvenation
Internal innovation for
strategy improvement
Corporate
Entrepreneurship
Adapted from Kuratko and Hoskinson (2018)
Business model
reconstruction
Redesign of existing
business model
Hence, this slide from session # 1 … 10
What does it
mean for you?
But ...
world

11
How does corporate entrepreneurship

differ from new venture creation?
2024-03-19
12
Standalone vs Corporate Ventures

Standalone Ventures Corporate Ventures
Initial conditions Lack of breakthrough ideas or technology Broad technology/market base
Unavailability of funding Munificent resources
Nature of Low investment High investment

opportunities High uncertainty Low uncertainty
Low likely profit High profit potential
Approach to Largely based on intuition and personal Systematic search; Strategic needs,
research and knowledge; Rapid experimentation shareholders’ expectations and
planning sustainability of earnings
Resource Resources scarce; Liabilities of newness Resources available but difficult to access;
mobilization and smallness; Bootstrapping strategies. High margin, high growth projections to
secure resources
Critical success Entrepreneur’s tenacity; Ability to Top management support; Break away
factors experiment and converge rapidly on an from old lens
opportunity
13
Corporate New Ventures at

Proctor & Gamble
Case Study

14
Overview
 R&D intensive - $1.3B invested (R&D intensity ~4%)
 Many breakthrough innovations over the decades. New to the
world products, but pace of innovation slowing down
 Technical powerhouse with many scientists
 Presence in multiple sectors (laundry & cleaning; beauty care;
health care)

15
Need for Corporate Entrepreneurship

at P&G
 Tech-driven innovation (80-90%)
 Incremental innovations limited to category/brand-level
improvements (with no cross-category/sector synergies)
 Only two major brands in the past decade
 P&G has doubled every 10 years (~7%). US growing at 2%
 Many technologies failed to find markets
 Unable to leverage innovations across sectors (secrecy!)
 No product champions
16
What is P&G’s goal moving forward?

 To become a $100B company
 Continue to grow at 7% and double every ten years
 Introduce new disruptive/blockbuster products ($Bn brands)
 How is P&G tackling the innovation challenge to meet these goals?
 Innovation Leadership Team (ILT)
 Corporate innovation fund
 New ventures within each sector
 Corporate New Venture (CNV) group

17
Positive Aspects of the CNV Group

 Strategic fit – aligned with corporate objectives: $100B company; better utilization of
competencies; blockbuster products
 Clear goal – Developing at least one major business per year
 Blends internal and external capabilities (reports, trade shows, external thinkers,
inventory of R&D capabilities)
 High performing, cross-functional team
 Work atmosphere fostering creativity
 Systematic approach to innovation; Key success criteria for new products defined
 Management/Leadership team support; high visibility; funding support
 Open and informal work culture; flat hierarchy
 Self-selection of projects

18
Challenges of CNV (1)

 Structural/Processual
 Lack of involvement of sectors
 Who is responsible for implementation? What’s the incentive? How does it impact
P&L account?
 No mechanism for cross-sector collaborations
 Categories/brands may not have the expertise to move a new idea forward
 Will the sectors give preference to new venture group/CNV ideas?
 Political
 CNV getting too much TMT attention; others feel they are “put aside”
 CNV “creating the future of the company” (Craig’s words) may not go well with the
rest of the company.
19
Challenges of CNV (2)

 Cultural
 Competitive culture and secrecy (the company is called “the CIA of…”)
 Brand managers were not encouraged to come up with new product ideas!
And they were also the closest people to the market!
 Skepticism about NPD initiatives

20
How can CNV succeed?

 Needs to create better structures.
 Horizontal structures involving reps from sectors earlier in the cycle; create
product champions; move people across sectors; exec. level commitment to
people mobility
 Incentive alignment to accommodate growth and options at the sectoral
level
 x% of revenues to come from new products; at least one blockbuster per year
for each sector etc.
 If the above are put in place, is the CNV still needed?

21
Key Takeaways
 Corporate Entrepreneurship vital for firm growth and competitive
advantage and hence important for you!
 Corporate ventures different from standalone ventures on multiple
dimensions
 A fine balancing act is needed to manage core businesses

(exploitation) while exploring new growth drivers (exploration)
 Corporate Entrepreneurship comes with challenges that can be

overcome with horizontal structure and incentive alignment
22
References
 March, J. G. (1991). Exploration and exploitation in organizational learning. Organization
Science, 2(1), 71-87
 Kuratko, D. F., & Hoskinson, S. (Eds.). (2018). The challenges of corporate
entrepreneurship in the disruptive age. Emerald Group Publishing.
 Baghai, M., Coley, S., & White, D. (2000). The Alchemy of Growth: Practical Insights for
Building the Enduring Enterprise. McKinsey & Company. Inc. United States. First
Paperback Printing.
 Class presentations from Professors Kumar, Srivardhini Jha, and Ludvig Levasseur

Corporate Entrepreneurship:
CE Models
Session # 15
What challenges might mature firms
face in practicing corporate
entrepreneurship?
2024-03-19 2
Corporate Entrepreneurship Challenges
STRATEGIC INCENTIVES AND DECISION-MAKING

ORGANIZATIONAL
2024-03-19 3
Corporate Entrepreneurship: Strategic
Challenges
• Focus on near-term margins

• Size of business
• Cyclicality
• New businesses but old lenses
• Potential Resolution
• Outside hires
• Inorganic growth
• Three horizon framework
2024-03-19 4
Three Horizons Framework
Profits
Horizon 3 – Create viable options
Horizon 2 – Build emerging businesses
Horizon 1 – Defend the core businesses

Time
Source: Adapted from Bagai et al. 1998. The Alchemy of Growth

2024-03-19 5
Corporate Entrepreneurship: Incentives and
Organizational Challenges
• Risk and failure avoidance

• Organization design dilemma
• Emphasis on organizational harmony
• Leeway for ‘well-intentioned failure’
• Bottom-up entrepreneurship; Disciplined empowerment
• Differentiated hierarchy
• Insulation of entrepreneurial efforts
2024-03-19 6
Corporate Entrepreneurship: Decision-making
Challenges
• Rigid application of financial metrics and performance measures

• Reliance on traditional market research
• Linear stage-gate processes
• Metrics to align with the horizon of the project, type of innovation, market maturity
• ‘Make little, sell little’
• Bootstrap
• Limited, staged investments
2024-03-19 7
Corporate Entrepreneurship Models
Origin Internal Origin External Origin
Structure
Integrated Intrapreneurship Mergers and

structure acquisition
Autonomous Internal Corporate Entrepreneurial

structure Ventures Partnerships, CVCs
Tuesday, March 19, 2024 8

CE Business Models
2024-03-19 9
Internal Corporate Venturing - Process
RS1 RS2 RS3 RS4 RS5 RS6
Combine technologies and markets

(Idea Generation) Internal Venturing Process (Selection)
New New New New New

Venture Venture Venture Venture Venture
Venture Management Process
Terminate Terminate
(New) RS7 (New) RS8
*RS-Revenue Stream
Tuesday, March 19, 2024 10
CE Process
Idea or Market opportunity
CE Business Model to make

the opportunity viable
Organizational form / Corporate

Entrepreneurship form
Source: Hornsby et al. (1993)
2024-03-19 11
What is a Business Model?
• Business Model: Conception of how strategies should work together as a whole to

enable the company to achieve competitive advantage
• Business Model deals with how a company:

• selects, acquires, and keeps its customers.
• defines and differentiates its product offerings.
• creates value for its customers.
• produces goods or services and delivers to the market.
• increases productivity and lowers costs.
• organizes its resources and activities.
• achieves and sustains high profitability and growth.
2024-03-19 12
Business Model Canvas
Key Partners Key Activities Value Customer Customer
8) E.g., design, Proposition Relationships Segments
consulting, 4) How do I get
7) Who are 2) What
manufacturing, customers, keep
my partners problem am I
supplier them, and grow
and what do solving for
management,
they do? – them? Or
them?
1)Who are my
engineering?
see license, what need customers?
fees, am I Geographic,
ownership Key Resources fulfilling? Channel demographic –
etc. 6) What assets do I can I draw a
3) How do I reach
need for my my customers? picture of my
business? E.g., Distribution customer?
Physical plants, channels, mobile,
technology web, vending
licenses, skills machines, stores
Cost Structure Revenue

9) What are the fixed/variable costs, costs of Streams
5) How do I make money? E.g., Direct sales,
acquiring, growing, keeping customers? Any freemium model, license, subscription model etc.
economies of scale or scope?
2024-03-19 13
Source: Osterwalder & Pigneur, 2010
Titan Company
Case Study
2024-03-19 14
Overview of the Case Study
• Titan operates in watches, jewellery, eyewear, and youth

accessories segments
• 1300 stores, 2300 third-party retail outlets in 32 countries
• 2014-15: Revenue of Rs. 120 bn; profits of Rs. 8.2 bn
• 2020 target: Revenue of Rs. 300 bn; profits of Rs. 20 bn
• Current dilemma for Bhaskar Bhat: launch new business OR

consolidate and grow existing businesses
2024-03-19 15
Titan Watch Business
• Who was the dominant player in the
1980s? What were the customer
service practices then?
• Limited access to products, no
storefront
• Watch was not a ‘fashion’
accessory
• Titan stores – AC, open concept,
support for minor changes,
extensive advertising
2024-03-19 16
Tanishq Jewellery Business
• Have you visited a Tanishq showroom? What
stood out for you?
• Tanishq was launched to boost exports (to
Europe) and respond to govt. push during the
1990s financial crisis burden
• Exports never took off, and Tanishq
pivoted to domestic markets
• Tanishq was positioned as a fashion product
for personal adornment (not a family
investment!) with a focus on diamonds and
other precious stones
• Targeted urban upper-middle class women,
shopping as a novel experience
2024-03-19 17
Was Gold Plus entry different from Tanishq?
• Gold Plus was a result of the Future Shock program (CE effort)
• Gold Plus catered to tier 2 and tier 3 cities; middle- and lower-
income groups (67% of the market); offered more traditional
jewellery
• Low-cost, low-margin, high-turnover business
2024-03-19 18
How did Titan Eye+ enter and evolve?
• Eye+ launched in 2007 in a highly unorganized industry

• Eye+ stores on high streets, staffed with optometrists and testing facilities
• Low-turnover, high-margin, high-cost business: perception of being too
expensive and not mass-market brand
• Pivot: Opened smaller accessible stores, branding on affordability
• Takeaway: Corporate ventures take time and pivots to arrive at the right
business model, just like new ventures.
2024-03-19 19
Comparing Titan Eye+ and Tanishq
• What is common between Titan Eye+ and Tanishq?

• Both entered an unorganized market
• Both provided quality assurance using high-end equipment
2024-03-19 20
A key point
• What was different about the entry of Titan in the case of Tanishq
as compared to Titan Eye+?
• Tanishq was a reactive new entry, but Eye+ was a proactive entry
• Idea identification and evaluation was different
• But both involved pivots
2024-03-19 21
Titan’s Corporate Venturing: Generation Process
Future Shock Ignitor

• Identified 200 managers to • Any employee could suggest new
produce new ideas ideas (led to 780 applications)
• 5 teams focused on existing • 3 were selected and assigned to
businesses and 5 on new opp existing divisions
• Each team has a senior exec. • 3 more for further exploration
• Panel of TMT and experts chose • Employees housed in separate
ideas for implementation incubation center
2024-03-19 22
Titan’s Corporate Venturing: Generation Process (2)
Future Shock Ignitor

• A top-down approach to CE • A bottom-up approach to CE
• Management selected top- • An Intrapreneurship program
performers to innovate • Critical success factors: lean
• Produced Eye+ and Gold Plus startup methodology and design
businesses thinking
• Too directive, lacked widespread • Mentors assigned once idea is
employee involvement selected for implementation
2024-03-19 23
Titan’s Corporate Venturing: Evaluation Process
• What is your assessment of Titan Hexagon?

• Titan Hexagon – evaluate and decide on launch of new business
• Priority for high growth, high margin, high ROI (at least 2 of 3)
• Pros of Hexagon:
• Competencies, not cost is the driver; fit with design and style
• Focus on underserved markets; avoid intensively competitive categories
• Cons:
• High cost; pilot in metro area
2024-03-19 24
Is Titan following the right strategy?
Business Vertical Launch Nb of Outlets (2015) Revenue (INR Bn) Annual Growth
Watches 1987 19.19 7.3%
World of Titan 452
Fastrack 2003 159
Helios 2009 41
Jewellery 94.21 9.2%
Tanishq 1997 111
GP 2006 32
Others (incl. Eye+) 2007 407 5.64 13%
80% of the revenues come from Jewellery business

2024-03-19 25
Is Titan following the right strategy?
Business Model Target Growth Competitors Future

Customers Prospects
Watches Modern stores; both All ages and 7.3% Global brands Stable,
affordable and expensive segments (some also sold moderate-
products in Titan) growth
Jewellery Separate brands and Urban and rural; 9.2% Domestic and High growth
business models, modern upper + lower global brands potential
stores income
Eye+ Affordable products and All ages and 13% Domestic and Need to tap
accessible stores segments global brands price-sensitive
customers
2024-03-19 26
Exploration or Exploitation?
• Exploration can stop when some new businesses demonstrate high

growth potential.
• These businesses become the top priority for managerial attention and resource
allocation
• Titan has some established brands, a retail infrastructure, design and
manufacturing capabilities, and one partner ecosystem
• Counterpoint: Tanishq seen as high-end; Gold Plus could struggle with
viability in middle-segment.
• Need to understand size of high-end segment and growth implications.
2024-03-19 27
What happened next?
In 2017, Gold Plus merged with Tanishq:

"Given the evolution of the customers and Tanishq as well as
the need to focus all energies and resources in today's
circumstances, Titan Company has decided to consolidate its
portfolio by migrating the Gold Plus network to become part of
the Tanishq network"
2024-03-19 28
Corporate Venturing: Incubation Process
• Model for new business could be:

• Within existing business (e.g., Titan’s approach)
• Separate entity (e.g., Alphabet’s approach)
• Choice depends on:
• Distance from core business
• Capability match
• Position in the three-horizon framework
2024-03-19 29
Corporate Venturing: Exit Process
• Low growth, low margin businesses: pivot or spin-off or

terminate or franchise
• High growth, high margin businesses with fit: Internalize or
keep in incubation
2024-03-19 30
New Age CE Model
Crowdsourcing

What is crowdsourcing?
• Problem-solving by diverse uncoordinated crowds of people

• Crowdsourcing as a corporate innovation tool
• Diversity in ideas
• Provides access to resources outside firm boundaries
• Ability to evaluate and select solutions from competing ones
• Faster time to market

Types of Crowdsourcing
Purpose Challenges Best Use
Contests High value solutions to Generalized problems Technical and design

complex problems problems, creative
Collaborative Aggregate large number of Lack of control and Wikis, OSS, support
communities diverse contributions cohesiveness communities
Complementors Innovation over core product Balance access vs. Apps, content mashups
control
Labor Markets Match talent to discrete tasks Problem identification Repetitive and
and manage labor pool established tasks

What are the organizational challenges to
adopting crowdsourcing strategy?
• Input
• Problem identification and decomposition
• Problem generalization
• Process
• Manage the crowd
• Scalability issues
• Output
• Absorbing solution into existing systems
• Consensus in choice of solution

What is Open Innovation?
• Open innovation is a distributed innovation process based on

purposively managed knowledge flows across organizational
boundaries
• A process for sharing knowledge and ideas with other organizations
• Open innovation can be of two kinds:

• Inbound – opening a firm’s innovation processes to external contribution
• Outbound – external actors use a firm’s innovation

Your reflections
• What concepts of entrepreneurial mindset did you notice Ravi

mention?
• Collaboration / partnerships
• Experimentation
• Customer-centric
• Started with means and a guiding NorthStar (future-ready networks); firm
goals evolved (5 transformational projects so far and counting!)

Key takeaways
• Entrepreneurship is critical for mature companies, but poses challenges

• Conscious planning and design of organizational structures and processes can
overcome challenges
• Place multiple bets (context of uncertainty)
• Like in conventional entrepreneurship, arriving at a viable business model in CE
also takes time, continuous experimentation and pivots
• CE requires processes for generation, evaluation, incubation, and exit
• New age models of CE combine internal and external origins
2024-03-19 37
References
• March, J. G. (1991). Exploration and exploitation in organizational

learning. Organization Science, 2(1), 71-87
• Kuratko, D. F., & Hoskinson, S. (Eds.). (2018). The challenges of corporate
entrepreneurship in the disruptive age. Emerald Group Publishing.
• Baghai, M., Coley, S., & White, D. (2000). The Alchemy of Growth: Practical
Insights for Building the Enduring Enterprise. McKinsey & Company. Inc.
United States. First Paperback Printing.
• Class presentations from Professors Dalhia Mani, Srivardhini Jha, and Ludvig
Levasseur
2024-03-19 38
Session 16
CORPORAT
E VENTURE
CAPITAL
RECAP OF CORPORATE
ENTREPRENEURSHIP
• A fine balancing act is needed to manage core businesses (exploitation)
while exploring new growth drivers (exploration)
• Corporate Entrepreneurship can aid ambidexterity in firms
• Corporate Entrepreneurship vital for innovation, firm growth, and
competitive advantage
• Internal Venturing - arriving at a viable business model in CE also takes
time, continuous experimentation, and pivots

CORPORATE ENTREPRENEURSHIP
STRATEGIES
Structure



CORPORATE INVESTORS IN INDIA – INDIAN
ORIGIN
The Times Group - MobiKwik (e-wallet); Flipkart; Byju’s (through internet subsidiary Times Internet);
Delhivery; Meru Cab Company (through strategic investment division Brand Capital); Quikr.(classified’s site)
Info Edge (Noida based, online internet classifieds company) - Naukri (job portal); Jeevansathi (Matrimonial
site); Zomato ; Canvera Digital (Printing technology startup) - eventually buying it.
One97 Communications (Paytm, itself a startup) - Jugnoo (auto-rickshaw logistics startup); BigBasket
(grocery delivery); Little Internet (hyperlocal deals discovery site) - eventually One97 acquired it in 2017.
Flipkart - BlackBuck (Trucking platform); Tinystep (parenting social network)

CORPORATE INVESTORS IN INDIA – FOREIGN
ORIGIN
Intel Capital – Snapdeal; ExploreLifeTraveling (like Airbnb)
Bertelsmann India Investments (German, mass media company) - Lendingkart (loans

marketplace); Pepperfry’s (furniture marketplace)
Naspers (South African media company) – Flipkart; Swiggy
Alibaba Group + Ant Financial Services - One97 Communications; Paytm Mall; Snapdeal
Cisco - MobiKwik (e-wallet); ExploreLifeTraveling (like Airbnb)
Qualcomm Ventures - Housing.com; HouseJoy (on demand services); YourStory

CORPORATE VENTURE CAPITAL
• Equity investments of large corporations in startups

• Large corporations play VC
• Partnerships of large corporations with startups go beyond equity investments

• Incubation / Acceleration - structured programs provide space, platforms, mentorship
• Corporate accelerator/incubator partnerships – partnership with external parties who run
the accelerator/incubator – example, NSRCEL Goldman Sachs, Mphasis etc.
• Co-creation / alliances - Strategic partnerships (licensing, marketing, technology)
• Challenges, hackathons, and so on …

DUAL PERSPECTIVES
Corporation Startup
• Purpose of CVC • Why raise funds from
a CVC?
• Strategic and/or
financial • Strategic and/or
financial
• Structure of CVC • Risks and Benefits
• Engagement • Alternatives – VC,
mechanisms bootstrap, etc.

PURPOSES OF CVC INVESTMENTS
DRIVING EMERGENT
tight Advances strategy of current Allows exploration of
business potential new businesses
Link to operational
capability PASSIVE
ENABLING
Provides financial returns
loose Complements strategy of
only (not best for CVC
current business
investments)
strategic financial
Corporate investment objective
Source: Chesborough (2002)

STRUCTURE OF CVC
• Internal CVC group

• Captive funds – similar to an internal CVC group but operates as a separate legal entity
(e.g., Unilever’s Physics Ventures)
• Third party managed funds (e.g., Inventages, an independent VC managed Nestle Life
Ventures)
• Multi-corporate funds
• Independent of corporate parent
• Allows mid-sized companies to pool in and invest

BLENDED INTERNAL AND EXTERNAL
VENTURES
• Spin-along approach
• Integrates elements of spin-in and spin-out strategies
• E.g., Cisco allows employees to spin-out, invest in them and acquire them.
• Innovation Centers
• Internal R&D, CVC startups/spin-outs work in close collaboration
• E.g., Chemical/Pharma companies with long development cycles often use this model

CVC PRIMER
Case Study

OVERVIEW OF THE CASE
• What is the context of the case? What is the question facing Albert Hernandez?
• What is a desired outcome for Claudia Munce?

HERNANDEZ’S POSITION
• What questions can help Hernandez make a decision?
• GCD’s objective of investing in HealthSpeak

• Potential evolution of the relationship if HealthSpeak decides to scale up with
the Newton platform
• Pricing
• Availability
• Support
• Scalability

IF YOU WERE HERNANDEZ, WOULD YOU
ACCEPT THE OFFER? WHY?
• Pros:
• If Newton succeeds, then HealthSpeak has ensured access to technology that competitors
may not have yet (but for how long?)
• Cons:
• HealthSpeak may lose everything if Newton proves costly or difficult
• Risk of GCD not supporting Newton
• Hernandez is bearing most of the risk!

CVC VERSUS VC
CVC VC
Incentive Intensity Weaker Strong
Financial discipline on downside Weaker Strong
Monitoring Internal External, in addition to GPs
Discovering alternative business models Constrained Unconstrained
Time Horizon Indefinite Tied to fund length
Scale of capital invested Potentially large Smaller
Coordination of complementarities Extensive Limited
Retention of group learning Strong Weak
Source: Chesborough (2000)

WHY DOES GCD PREFER CVC
APPROACH?
• CVC approach is quicker than in-house R&D
• CVC can make quick pivots to new industries and geographies
• CVC team is “asset light”

• Internal R&D would involve significant cost of setting up operations
• Newton is a new platform that must attract users quickly to attain critical mass
and leverage network effects. Investment through CVCs could be to growing
that critical mass.

KEY CHALLENGES OF CVC
For Corporations For Startups
• Lack of well-defined or shifting • Risk of imitation of technology/product

missions • Insufficient corporate commitment
• Conflicting agenda/priorities of • Corporations’ processes complex and
startups and other investors time-consuming
• Inadequate compensation schemes • Slow decision making
that motivate managers correctly • Not welcome by other VCs

OVERCOMING CVC CHALLENGES
• Corporations should align CVC goals with corporate objectives

• Streamlined decision-making processes (Recall similar arguments in the P&G
and Titan cases on internal venturing)
• Provide CVC executives powerful incentives that are not tied to corporate
performance
• Create robust knowledge transfer channels between startups and corporate

WHEN SHOULD NEW VENTURES ACCEPT
CVC INVESTMENTS?
• CVCs can deliver strategic benefits to new ventures
• Access to market, scaling technology (e.g., real data for a new AI tool), etc.
• Requirements for large scale investments
• Strong complementarities exist
• New ventures’ business model and long-term objectives align with the corporate
• New ventures can learn from same or similar business models
• Intention to get acquired by the corporation

CVC - KEY TAKEAWAYS
• Understanding CVC involves a dual perspective – corporations and startups

• Corporations: CVCs are a quick and asset light way to experiment and innovate
• CVCs may differ based on investment objective and operational capabilities
• Startups: CVCs can bring strategic benefits in addition to financial ones
• CVCs are successful when corporations deliver strategic benefits to new

ventures that are aligned with the corporate objectives and business model
• CVCs and VCs differ on multiple dimensions. New ventures should assess fit.

PITCH DECK
Group Project Presentations

PITCH DECK
• Pitch deck should address:
• Pain point / problem you wish to address
• Your solution and value proposition (include a very brief journey through hypotheses testing,
MVPs, pivots,etc.)
• Your business model – recall different aspects of the business model discussed in class
• How do you plan to execute the solution? – technology, service, etc., behind the product
• Marketing and sales, competition
• Key metrics and financial projections
• Team – Management team, Board of directors, and advisors
• What is your ask?
• Be creative with your pitch deck, the above is not a template but a broad suggestion!

REFERENCES
• Chesbrough, H. W. (2002). Designing Corporate Ventures in the Shadow of Venture Capital.

California Management Review, 42(3).
• Chesbrough, H. W. (2000). Making Sense of Corporate Venture Capital. Harvard Business
Review, 10.
• Lerner. J. (2013). Corporate Venturing. Harvard Business Review.
• Class presentations from Professors Srivardhini Jha, Dalhia Mani, and Ludvig Levasseur.

Intrapreneurship
Session # 17
Today’s
Agenda
Intrapreneurship
• Entrepreneurial mindset in a large organization
Cisco India case

• ICV and Intrapreneurship

Corporate Entrepreneurship Strategies
Structure



Intrapreneurship
• Intrapreneurship is the use of entrepreneurial mindset and management

techniques within established companies to foster innovation
• Intrapreneur – one who develops new business / innovation

• Leads and guides the venture team
• Answerable to the top management
• Focal point of the entire venture

Challenges faced by Intrapreneurs
• Lack of legitimacy and credibility (in the initial stages)
• Resource consumption rather than resource generation
• Somebody else in the firm is paying for your existence!
Domain of
Entrepreneurship
• Resistance and inertia
• Lack of information and significance
• Resource starvation
• Competition for resources from mainstream activities
• Pressure to use resources efficient uncertainty
• Pressure to establish economic viability

Entrepreneurial Mindset and Action
Challenges in Intrapreneurship Principles of EMA apply to Intrapreneurs too!
• Resources are available in plenty, but • Start with available resources (means);
accessing resources is difficult redeploy slack resources for pilots
• High level of skill and knowledge, but limited • Build partnerships rather than top-down
incentives to take risks incentives to pilot new opportunities
• Viability of the venture is a necessary, but not • Build your business case on customer
sufficient condition to pursue further insights; seek approval for affordable loss
• Strategic fit, timing, significant and • Pilot, Experiment, pivot – Lean Method (e.g.
predictable returns are important Cisco case)

Cisco India (A)
Case Study

Overview
• Cisco (globally) – In 2010, employed 70000+ in 150 countries; Annual Revenues of $40
bn and profits of $7.8 bn
• Core networking capabilities and expansion to adjacent products and markets
• Targeted developed markets so far
• Focus on innovation
• 13% of revenues spent on R&D – San Jose, Boston, Raleigh, Shanghai, Durham, Tel Aviv
• 15000 patents
• Why did Cisco start India operations?

Cisco India
• R&D center executing “specific tasks”

• Low-cost R&D and English-speaking engineering talent
• Evolution of India operations (until 2006):

• Good environment for setting up more business units
• Size of teams increased because of cost and capabilities
• Increasing ownership/responsibility
• Focus on developing products for developed markets and then customize for emerging
markets

Cisco India
• 2007 – Globalization Centre East (GCE) in Bangalore

• Cisco’s 2nd largest R&D center – develop products from concept to completion in India
• $100 mn corporate venture capital fund
• 2010: ECSS setup

• Parulkar and Raghava hired

• Should Cisco invest in new product development for India?
Why or why not?
• Can India-focused products be developed from the HQ – San

Jose?

Cisco India
• Elfrink’s mandate:
• Innovative products with
strong local appeal
• Grow leadership
strength in India
• Why new product for
India?
• Substantially different
market
• TAM huge

New product development for India
Yes No
• India is a large growing market • Premium brand, low-cost, low-margin

• Potential to create new emerging product
markets • Cannibalization risk
• Product meets key customer need • Uncertain outcomes
• Adapt to local market • IP protection challenges
• To be competitive
• Technological capability

Product development for India in San Jose
In favor Against
• R&D hub, faster product development • Unique requirements of emerging

• Proximity to HQ markets
• Difficulty in grasping local needs/context
• Availability of resources – financial,
technological, human capital • Proximity to customers is key
• Cross-fertilization from other product
lines

Can Cisco India develop the product in India?

Challenges of product development in India
• Selling the product idea
within the company
• Working with a formal
approval process - needs
minimum market size and
margins
• Building local ecosystem to
support product
development

How should Parulkar pitch the idea to Elfirnk and
Patel?

Cisco India (B)
Case Study

How were the challenges overcome?
• Role of the champion

• Resource constraints,
risk, and bootstrapping
• Innovation ecosystem

Role of the Intrapreneur
• Partner development in India
• Global suppliers’ capability building
• Risk-and-reward revenue sharing model
• Funding and alignment with global process and leveraging talent pool
Intrapreneur Tactics
traits • Frequency
• Innovative • Variety Champion
• Resourceful • Individualized success
• Persistence consideration
• Persuasiveness

Key Learnings
• Process of Idea generation and conversion to revenue streams within established

businesses not very different from new ventures
• Intrapreneurship is vital for established companies.
• Established companies leverage intrapreneurship to tap into emerging trends and
technologies
• Intrapreneurship important for you to climb the corporate ladder.
• CE strategies often involve a mix of more than one type

Why be an intrapreneur?

Why be an intrapreneur?
• Large corporations are awash with ideas that are often not actioned!
• Intrapreneurs bring innovation to the firm but also “craft their own jobs” in addition to
achieving high growth
• Make your job more meaningful by aligning with your interests and values
• Intrapreneurs excel at:

• Taking dormant ideas to execution – bring vision and resilience
• Proactively take the initiative to bring change
• Building partnerships and camaraderie that enhances job satisfaction
• In short, intrapreneurs are more engaged and productive!

Source: Chamorro-Premuzic (2020)

Slide from Session # 1
What does it mean

for you?
But ...
world

© Ramya K Murthy March 19, 2024 24
Do you still think that …
• This course is not for me because

• I don’t think I will ever be an entrepreneur
• I am interested to work in a large corporation
• I don’t have entrepreneurial ‘traits’
• I don’t have the resources
• Hope not, because an entrepreneurial mindset and action are necessary, even in
consulting and large firms!
© Ramya K Murthy March 19, 2024 25

References
• Mills, K., & Dang, A. (2020). Intrapreneurship: Leading Innovation Efforts in Established
Organizations. Harvard Business School Publishing
• Class presentations from Professors Srivardhini Jha, Dalhia Mani, and Ludvig
Levasseur

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ENTREPRENEURIAL

MINDSET AND ACTION

 This course is not for me because

 Hold your thoughts for a little while!

© RAMYA K MURTHY March 19, 2024 2

They all assume that the firm already exists!

But how do firms come into being in the first place?

© RAMYA K MURTHY March 19, 2024 3

Source: Greiner (1998)

 Established ventures will be threatened by newcomers (e.g., Uber,

 Schumpeter (1944) terms it ‘creative destruction’

© RAMYA K MURTHY March 19, 2024 7

 Being entrepreneurial even as an

Idea >>> Opportunity Lean Canvas

Reducing self doubt with Opportunity Techniques, tools, processes

Select an outcome based

© RAMYA K MURTHY March 19, 2024 10

Venture Corporate Corporate

© RAMYA K MURTHY March 19, 2024 11

© RAMYA K MURTHY March 19, 2024 12

 Dr. Venkataswamy, an  Byju Raveendran was a

Traits-based Entrepreneurship as Entrepreneurship as

• “Entrepreneurs • Linear predictable • “Think and act

© RAMYA K MURTHY March 19, 2024 14

more common (84%)

 Core to this approach Research skills, from

© RAMYA K MURTHY March 19, 2024 17

Source: Mullins 2006

© RAMYA K MURTHY March 19, 2024 18

 Core to this approach is a portfolio of techniques and skills to

© RAMYA K MURTHY March 19, 2024 19

 ‘Entrepreneurship as a method’ approach most suitable for decision-

© RAMYA K MURTHY March 19, 2024 20

© RAMYA K MURTHY March 19, 2024 21

© RAMYA K MURTHY March 19, 2024 22

Source: Sarasvathy & Kotha 2001

© RAMYA K MURTHY March 19, 2024 24

 Developing an entrepreneurial mindset is imperative to deal with

© RAMYA K MURTHY March 19, 2024 25

© RAMYA K MURTHY March 19, 2024 26

© RAMYA K MURTHY March 19, 2024 27

Are you going to be an entrepreneurial or administrative manager?

© RAMYA K MURTHY March 19, 2024 28

 Developing an entrepreneurial mindset is imperative

© RAMYA K MURTHY March 19, 2024 29

 Learning through discussion – come prepared to class

© RAMYA K MURTHY March 19, 2024 31

© RAMYA K MURTHY March 19, 2024 32

© RAMYA K MURTHY March 19, 2024 33

© RAMYA K MURTHY March 19, 2024 34

• Everybody can be an entrepreneur and/or develop an entrepreneurial

• Entrepreneurship as a field seeks to understand how opportunities can

• Uncertainty: Not possible to gauge the probabilities of occurrences

• A way of reasoning in most

© Ramya K Murthy Source: Sarasvathy (2005) 3

• We can control the outcome by

• But how about uncertainty?

• Professor Saras Sarasvathy’s research question: What commonalties exist in

• Effectuation begins with a given set of means and allows goals to

Risky situation (Causation) Uncertain situation (Effectuation)

Navigating Uncertainty: Make an inventory of your means, revisit your

Risky situation (Causation) Uncertain situation (Effectuation)

Navigating Uncertainty: Failure is part of the process in dealing with

Risky situation (Causation) Uncertain situation (Effectuation)