Technology Entrepreneurship

MANU 4211

Part 3: Into the Breach

By Dr. Aishah Najiah Dahnel & Dr. Ricca Rahman Nasaruddin

OUTLINE
3.1 Capital Management & Capital Sources

3.2 Launching the Venture

3.3 Marketing & Selling Your Products

 3.1: Capital
Management &
Capital Sources

a) Capital Management Plan & Capital Sources

b) Regulation of Financing Activities
 a. Capital Management Plan & Capital Source

• All new ventures need some cash resources to start.

• For example, Tesla Motors required a huge outlay of original capital
to begin building its brand of electric vehicles.
• On the other hand, some technology ventures can be launched with
very little capital. Examples: Dropbox and Airbnb were launched via
the technology accelerator Ycombinator with less than $30 thousand
of investor capital.
• Technology entrepreneurs have a number of options when it comes
to how and where they obtain the capital they need to launch and
operate their ventures.
 a. Capital Management Plan & Capital Source

• Tools to raise capital:

– Develop and routinely update business plan, so it is ready to investors or
lenders
– Fundraising which is also considered as “deal”
• Capital needs change over time, and the potential sources of capital also
change as the venture grows and matures.
• The pros and cons, the benefits and costs of capital differ depending upon
the particular type and source of capital raised by the venture.
• Getting capital is also depending on the stages of development:
– initial startup phases of a venture (e.g., seed stage), where there is no
income stream may face difficulties to meet lender’s criteria
– At growth stage of development, if there is positive market reaction, the
venture may well qualify for a loan and debt financing
 a. Capital Management Plan & Capital Source

In the seed stage, most

ventures are funded by
the founders, and
anyone
else they can convince
of the potential for
their success
a. Capital Management Plan & Capital Source

• The capital management plan should address four basic issues:

If external capital is
Whether to self-
sought, what type
fund or seek
of capital to seek
external capital
(e.g. debt / equity)

When to seek How much capital

capital to seek
a. Capital Management Plan & Capital Source

• Self-funding, if feasible, permits you to avoid the cost of external

capital, as well as various potential securities laws considerations -
Problem: Not sufficient
• Venture can seek for external capital.
• There are 2 basic types of capitals: Equity or Debt.
• Equity financing entails “selling” an ownership interest in the
venture. A capital contribution is made by an equity investor in return
for a percentage of ownership  Shares of company
• Debt financing involves taking out a loan or selling “bonds” to raise
capital; the venture gets the use of the lender’s money in return for a
relatively inflexible obligation to repay the money plus an additional
fee (interest)

• .
 a. Capital Management Plan & Capital Source
Read by your own
• An equity co-venturer shares proportionately in both the risk and the rewards.
(The ownership percentage taken by an equity investor is reflected as the
dilution of the ownership percentages of the pre-investment principals.)
• Equity financing is particularly advantageous in the short term; there is no
expectation of payments in the short term, and the venture is given flexibility
to manage its cash flow.
• Equity co-venturer shares the risk; if the venture fails, their capital
contribution will not be repaid.
• Typically, an equity co-venturer is not able to get their contribution back from
the venture, unless and until there is a “liquidity event,” such as the
acquisition of the venture by a third party or a public offering.
• However, “equity is forever.” The long-term cost of “equity money” contributed
to a successful venture is potentially infinite.
• Equity investors share in the rewards (and, typically anticipate that the long-
term returns may be substantial)
 a. Capital Management Plan & Capital Source
Read by your own
• monetary cost of debt financing is finite–ultimately, the loan is paid off
• If the venture is successful, the ultimate long-term cost of debt financing is
typically considerably less than the ultimate cost of a comparable amount of
equity financing
• lenders do not assume risk; the debt must be repaid irrespective of the
success of the venture
• debt financing can place significant short-term stresses on the venture; it may
subject the venture to difficult payment obligations and restrictive loan
covenants
• The obligation to service the loan is typically inflexible and repayment is
required irrespective of the success or cash flow requirements of the venture.
• Repayment of the loan principal, with interest, often begins immediately upon
receiving the loan.
a. Capital Management Plan & Capital Source

• Comparison between Equity Financing and Debt Financing

a. Capital Management Plan & Capital Source

• Comparison between Equity Financing and Debt Financing

 a. Capital Management Plan & Capital Source

• The are 2 competing concerns for the entrepreneur in determining when and how
much capital to raise:
– The adequacy of the amount raised to meet the venture’s needs
– The cost of the money raised
• For a start-up venture, the goal may be to bring the business to “self-
sufficiency," or to a point where it is feasible to raise additional funds at a lower
cost
• But the entrepreneur should not pay too steep a price for something that it
doesn’t immediately need.
• The cost factor is particularly important if the capital is obtained in return for
equity interests in the business. Raise enough capital to avoid a cash shortage but
raise too much “equity money” too early, and you will unnecessarily dilute the
ownership of your business.
 a. Capital Management Plan & Capital Source

• How to avoid dilution in ownership of your business?

– Fundraising should be correlated with critical growth stages and
milestones in the development of the venture. Ideally, you identify
specific milestones or events that would cause a significant increase
(appreciation) in the valuation of the venture, and raise only enough
money to get the venture to the next milestone that significantly
increases its value.)
– In other words, you build up the value of the venture as much as
possible before each successive round of financing and do not raise
money until the venture actually needs it (taking into account the lead
time necessary to raise funds).
– In this way, the cost (dilution) of bringing in equity investors can be
minimized.
 a. Capital Management Plan & Capital Source

• They are also non-traditional sources of capital. For example, the federal
government has grant programs in key technology areas that have funded a large
number of start-up ventures.
• Problems of over-capitalizations:
1. With too much capital on hand the entrepreneur may not develop disciplined
internal cost controls and operational efficiencies. There is nothing that
motivates the entrepreneur to manage costs more than the threat of running
out of cash.
2. the venture has sold more equity (ownership shares) in the company than it
needed to, or it has taken on more debt than necessary
b. Regulation of Financing Activities
QUESTION 1: What are the examples of the grant/fund provided
by the government of Malaysia or other countries?

QUESTION 2: Find an example of start-up company that use

equity financing and debt financing. What do you learn from
their capital management plan?

QUESTION 3: Find examples of regulation of financing activities

in Malaysia
OUTLINE
3.1 Capital Management & Capital Sources

3.2 Launching the Venture

3.3 Marketing & Selling Your Products

 3.2: Launching
the Venture

 Strategy for Launching the Venture

 Value Chain Analysis
 Developing a Contingency Plan
 Growing Beyond a Startup
 a. Strategy for Launching the Venture

• Strategies for launching of the venture exists at 4 different levels:

1. Enterprise-level  focus on relationships between the technology
venture & society
2. Corporate-level  focus on diversification and managing the portfolio
of products and markets of technology venture. Usually come into play
after the venture has been launched
3. Business-level  come into play right away because it is involved in
competing within a single industry or a few industries. Involve the
acquisition an employment of resources to launch and grow the
venture.
4. Functional-level  base of all the other strategies and involves
marketing, accounting, finance, and human resource policies that
directly impact the technology venture throughout its existence
 a. Strategy for Launching the Venture

• Strategies for launching of the venture :

1. Market Entry Positioning Strategy
2. Market Penetration Strategy
• Market Entry Positioning Strategy  It is a not fully developed strategy, but it
is a way to get an initial foothold in a market
• The first sale and then the few sales to follow are the hardest to obtain. Yet it
is necessary to get those initial sales as quickly as possible, so that more
sales follow, with more and more revenue. In that way a positive cash flow is
achieved as quickly as possible.
• New technology ventures launch employing one or more of 4 major
positioning strategies:
1. a focus on aspects of the new product or service
2. parallel competitive parity
3. customer orientation
4. and/or government information.
 a. Strategy for Launching the Venture

• New technology having Market Entry Positioning • This is an attempt by the

distinctive features will, at technology entrepreneur to
least, get the attention of fill a niche, a position in the
potential customers. market not presently being
• Unique selling propositions served.
• Often a prominent and • this entry strategy usually
sometimes permanent Parallel does not receive a strong
New product
leadership position can be competitive market leadership position.
/ service
parity
created.

• Focuses on the customer and

• Often, information on
Customer Government
its changing attitudes and orientation information
new government rules or
purchasing behaviour. laws can provide the
• This can be an excellent launch opportunity and
entry strategy when there is entry strategy.
not significant uniqueness in
the product or service being
offered.
 a. Strategy for Launching the Venture

Market Penetration Strategy

• A useful way to launch the technology product/service

• The goal is to penetrate one particular market with the existing product by
encouraging customers to buy more, and, through satisfied customers and
word of mouth, have additional customers in that market buy more.
• Get frequent customers and offer rewards for customers who get others in
the market to purchase through their referrals.
• Once market is saturated, the follow-up product can be offered in the
existing market or the same product can be introduced into a new market
(market rollout)
• A new technology product or service provides the technology entrepreneur
with the first mover advantage—being the first with the product or service on
the market.
a. Strategy for Launching the Venture

Market Penetration Strategy

 b. Value Chain Analysis

• To successfully enter a market, a technology entrepreneur needs to

understand and untangle the value web in a particular market.
• A value chain is the sum of all the business activities that create value for
the firm in an industry.
• These activities include engineering, design, marketing, production,
shipping, warehousing, servicing, and support.
• The value chain activities are supplemented by the activities of their
suppliers and channel members to create value for the consumer.
• To untangle the value risk:
1. Identify the market leaders and their activities which add value in the
value chain
2. Identify the key customers, suppliers, channel members and strategic
partners in the market
b. Value Chain Analysis

Identify Identify the key

the market leaders in customers, suppliers,
the industry and their channel members, and
activities that add strategic partners in
value the market.

• Is it their product features, • These should be carefully

their distribution, their examined to better understand
warranty, or their quality of the major costs and cost
service? structures in the value chain.
• Examining these cost structures
will indicate a problem that can
be solved by the technology
entrepreneur
 c. Developing a contingency plan

• Regardless of the quality of the value chain established, and the launch
strategy employed, there is no crystal ball for predicting success.
• Consider many different scenarios and contingency plans in case changes
are needed.
• It is essential that the technology entrepreneur establishes and maintains
product or service quality.
• A high-quality standard can be sustained and used as a competitive
advantage through
– continuous improvement  the process of setting higher standards of
performance with each interaction of the quality cycle
– benchmarking  identifying and imitating the best in the world at various
tasks and functions
– outsourcing  procuring the best quality from outside organizations
 d. Growing Beyond the Start-Up

• Forces beyond the control of the technology entrepreneur always occur and
push the venture in new directions.
• Thus need new plans in order for the venture to survive and grow
• One of the corporate cultures that encourage change and innovation is
corporate entrepreneurship  also been called intrapreneurship or
corporate venturing, is the process by which individuals inside an
organization create and pursue opportunities that will better the
organization.
• The basic aspects of corporate entrepreneurship, which can vary in
intensity, or even presence, from organization to organization are indicated
in the formula below:
 d. Growing Beyond the Start-Up
• Innovation is highly valued and necessary for the survival and growth of a
technology venture. Innovation can take 3 basic forms:
• Smallest no of events
• Cause radical transformation from the way things are
presently done and can impact life styles of the purchaser
• E.g. PC, smartphone, internet, social networks & digital
media
• Medium incident rate
• Advance the process, product or service beyond
what is presently available
• Protected by patent, trade secret (confidentiality
agreements) or trademark that cover the IP
• Highest incident rate
• Smallest change
• Eg: change in packaging & the
way of counting inventory
 d. Growing Beyond the Start-Up

• Ownership (O) is actually a result of, corporate entrepreneurship because it

reflects the overall organizational environment or culture of the technology
venture.
• It means that individuals in the company “own” or feel responsible for the job
to such an extent that they want to make sure they do their jobs in the best
way possible.
• They strive to perform in the most efficient and effective manner.
• They love to go to work.
• When this is part of the culture of a technology venture, it makes it very
difficult for competition to enter.
 d. Growing Beyond the Start-Up

• Creativity (C) is the first C of the C2 of the corporate entrepreneurship

formula.
• Encourages individuals in the technology venture to bring into being from
one’s imagination something that is unique.
• Examples of creative problem-solving techniques:

1. Brainstorming 1. Forced relationships

2. Reverse brainstorming 2. Collective notebook method
3. Brainwriting 3. Attribute listing method
4. Gordon Method 4. Big-dream approach
5. Checklist method 5. Parameter analysis
6. Free association
 d. Growing Beyond the Start-Up
Read by your own

1. Brainstorming  Focus on a defined problem under the guidance of a moderator. All

the ideas mentioned in the meeting are recorded, and no criticism is allowed.

2. Reverse brainstorming  Given that it is easier for people to be positive rather than
negative, reverse brainstorming is often used instead of brainstorming. Focus on the
negative aspects of a product, service, idea, or concept.

3. Brainwriting  a form of written brainstorming, is a silent, written generation of ideas

by a group of people.

4. Gordon Method  starts with participants not knowing the exact nature of the
problem. Someone will start by mentioning the general concept associated with the
problem. The group then gives ideas to develop a concept. The actual problem is
then revealed, with the group discussing and developing a final solution.

5. Checklist method  develops a new idea through the use of a list of related issues or
suggestions.
 d. Growing Beyond the Start-Up
Read by your own

6. Free association  Simplest yet effective. A word or phrase related to the problem is
written down, eliciting a new word or phrase in response, and then another and
another. Each new word or phrase attempts to add to the process of creating a chain
of new ideas

7. Forced relationships  Forcing relationships among some product combinations in

order to get new ideas.

8. Collective notebook method  A small, easy-to-carry notebook, given to participating

individuals, contains a statement of a problem with any needed background and
blank pages. Participants consider solutions to the problem and recording the
responses. At the end of the week, the list of ideas are gathered and summarized,
and the group meets to select the best idea

9. Attribute listing method  is a collective notebook technique where an item or

problem is listed and then the group looks at it from a variety of viewpoints.
 d. Growing Beyond the Start-Up
Read by your own

10. Big-dream approach  each individual to think big without constraints. Every
possible idea needs to be recorded without worrying about any negative aspects or
the resources required. Ideas are conceptualized without any restraints

11. Parameter analysis  focus first on identifying the parameters that have to be
considered in solving the problem. Once these have been identified, the relationships
between them are examined developing the underlying issues. The solutions within
these parameters are developed within these parameters—creative synthesis.
 d. Growing Beyond the Start-Up

• Change (C) is the second C of the C2 of the corporate entrepreneurship

formula.
• Change must continuously be allowed and encouraged, for a technology
venture to survive and grow
• This change should be constant, with continuous small steps to achieve
greater organizational change.
• Individuals in a technology venture tend to be more accepting of change
when they can see, experience, and understand the change slowly and in
small amounts.
• The change occurs incrementally and collectively, meaning that the
technology venture should be continuously experimenting and modifying
ideas and processes.
 d. Growing Beyond the Start-Up

• Some benefits to technology venture of • Some benefits to

implementing corporate entrepreneurship: employees:

– High performance culture and better – Feeling of self-

morale established achievement
– Employee turnover reduction – More job satisfaction
– Motivated workforce – Increased skills
– New business concepts – Financial and
– New ways of doing things nonfinancial rewards
– More flexible organizational structure – Excitement toward
– Organizational learning their work
– Positive impact on revenues and – Increased creativity
profits
 QUESTION:
Find any examples of start-up company that have grown from
Technology Entrepreneurship into Corporate Entrepreneurship.
Write a summary (in a point form) about it. You can follow the
style of article in the Mini Case (Apple) shown in this slide.
Please submit in the next class.
 3.3: Marketing &
Selling Your
Products

 Target Market Selection

 Purchasing the Product Service
 Marketing
OUTLINE
3.1 Capital Management & Capital Sources

3.2 Launching the Venture

3.3 Marketing & Selling Your Products

 a. Target Market Selection

• Target market segmentation should be identified for an effective marketing

• In target marketing, not only does the who need to be addressed, but also the how
and for what.
• The degree of customer satisfaction depends on the perceived performance of the
product or service in filling the customer’s expectation.
• The key is to match the performance of the company and its product or service with
these expectations, making sure not to promise more than can be delivered.
• Customers form their expectations of a product or service from:
– past buying experiences
– competition information
– their experience of the performance of the product or service, and
– the opinion of others.
• A company satisfying these expectations creates value for the customer. Customer
value is basically the difference between the values gained from the product or
service and the costs of its obtainment.
 b. Purchasing the Product Service

• The purchasing process can be looked at in terms of five stages:

Need Information Information Purchase Postpurchase

recognition search evaluation decision behavior

• Need recognition can be instantly satisfied with an immediate purchase or taking a

longer period of time to fulfill, which often occurs in disruptive technologies.
• This information usually comes from one of four sources: (1) personal sources, (2)
personal experience, (3) public information, or (4) commercial information.
• This information must then be evaluated, the most critical stage in the process, which
forms the customer’s expectation.
• Based on this information evaluation, a customer selects a product or service and
decides whether or not to purchase it. Social factors influence how long it will take to
purchase, and if indeed a purchase will even be made.
• The postpurchase behavior - The feelings of concern and perhaps not receiving
satisfaction go on after the purchase
 b. Purchasing the Product Service

• The adoption curve is a

summation of customers
making an initial purchase
decision over time

• These customers can be

classified into five groups
1. Innovators
2. early adopters
3. late adopters,
4. conservatives, and
5. laggards

• In the case of disruptive technologies, there is often a gap between the more
innovative and early adopting groups purchasing the product and the remaining bulk
of the market.
 c. Market

• Definition of marketing depends on the perspective of the individual and the

discipline
• Technology marketing is the process of making decisions in a totally interrelated,
changing business environment, or the activities that facilitate exchange satisfying
the targeted customer while achieving the objectives of the company.
• Focuses on the satisfaction of the target market as an essence of the marketing
concept.
• The controllable marketing activities (Marketing Mix) includes:
1. product mix,
2. price mix,
3. placement (distribution) mix, and
4. promotion mix
c. Market – Market Mix
 c. Market - Branding

• Branding is creating a name, design, logo, symbol, or a combination of these that

identifies your company as the source of the product or service.
• One goal of a successful company is to turn that brand into a protectable
trademark.
• In choosing a brand name, the technical entrepreneur must make sure that it is not
already registered in the market where the product will be offered.
• A brand name should usually avoid all geographic words because this may limit the
expansion of the brand to other markets and, from a trademark perspective, is not
inherently protectable.
• A brand name needs to have the attributes of pronunciation (easy to say),
connotation (related to the product area and not a negative one), and memorability
(easily remembered).
 c. Market - Packaging

• Two packages: one for the final product and one for shipping.
• A package needs to not only protect the product, but also be attractive, adhere to
any applicable legal aspects and be adaptable to production line speeds.
• When a package is designed for sales, it needs to have the following features:
1. Apparent size (given the perception of size without being deceptive)
2. Attitude—drawing power (capture and hold the attention of a customer)
3. Quality (convey the feeling of quality)
4. Readability (the name and logo should be easily read)
5. Aesthetically appealing (should have a good appearance)

• These last additions to the product offering can include such things as guarantee,
delivery, credit, installation, and after sales service.
• The guarantee is often very important, particularly for a disruptive technology that is
new to the customer
 c. Market - Pricing

• The area that most poorly done by entrepreneurs is pricing.

• Two internal factors affect overall pricing decisions:
– One is the objectives for the product  acquiring sales as quickly as possible;
maximizing cash flow and profits; acquiring a strong market share and market
position; indicating a level of product quality; and survival. The first objective—
acquiring some sales as quickly as possible  is often a primary factor; it
provides the technical entrepreneur with some needed cash and allows more
funding to be raised, which is often needed in a technology venture.
– The second internal factor  other elements of the marketing mix: product,
distribution, and promotion  in order to develop a consistent, effective
marketing mix
• The three fundamental aspects of pricing (sometimes referred to as the 3 C’s)
1. Cost  fixed (costs that do not vary with the production or sale of the product)
and variable costs (referred to as “Cost of Goods Sold” (COGS), are those
costs that do vary with the level of production)
2. Competition
3. Consumer
 c. Market - Pricing

• Channel members and price:

 c. Market - Pricing

• Two overall general pricing strategies are often used when introducing new products:
1. market-skimming pricing and
2. market-penetration pricing
• Most technological products are introduced through market-skimming  Higher
price is set so that more revenues can initially be skimmed from the market. Prices
later are lowered as economies of scale occur and competition enters the market.
This pricing strategy is most appropriate when: the image and quality of the
technology product supports the price, such as, e.g., the Apple iPhone 5.
• Market penetration pricing  A new technology product is introduced at a low price
in order to capture more quickly a larger market share. This strategy tends to work
best when:
– a higher price would cause potential buyers not to purchase
– volume production of the product will quickly and significantly lower the costs
– any overhead costs are best allocated over more units
– or the product has a very short life cycle and loses its distinctiveness very
quickly.
 c. Market - Distribution

• The management of the distribution mix is called supply chain management.

• This is a management method for providing better customer service at a lower cost
for the technology product or service through teamwork inside the company and
among all the members of the channel system.
• Inside the technology company, each functional department needs to work closely
together to maximize the logistics performance.
• Outside, the company needs to integrate its logistics system with those of suppliers,
channel members, and customers to maximize the performance of the entire
distribution system.
 c. Market - Promotion
• Promotion involves managing and integrating five areas:
1. Advertising (paid-for communication of the technology product or service)
2. Personal selling (personal presentation of the technology product or service)
3. Publicity (nonpaid presentation of the technology product or service)
4. Sales promotion (non-securing activities promoting the technology product or
service)
5. Social media (promotion in the Internet age)
 c. Market – Promotion Budget

• Several key factors should be considered in planning promotion budget: the product,
its features, and stage in the life cycle; the channels of distribution; the promotion and
company objectives; and most important, the target customer and characteristics.
• There are five methods that can be used for determining the promotion budge:
1. arbitrary determination method  unsophisticated method and rely on intuition
and past experience
2. competitive parity method  promotion expenditures of competitors to establish
their own budget with a drawbacks - it employs historical data of competitive
expenditures and assumes that all have very similar marketing situations.
3. objective and task method  you establish definitive promotion objectives and
then determine the amount and cost of the promotion to reach these objectives
4. percent-of-sales method  easy to use as this method involves applying a fixed
percentage to either past or future sales figures
5. affordable method  is simplest to employ. Setting the total revenues, deducting
operating expenses and other capital outlays, and devoting some part of the
remaining funds to promotion
CONCLUSION

Part 3: Into the Breach

3.1 Capital Management & Capital Sources

3.2 Launching the Venture
3.3 Marketing & Selling Your Products