The Science of Entrepreneurship

Entrepreneurship defined#

In looking at the science of entrepreneurship, the obvious question is:

“What is an entrepreneur?”

An entrepreneur is somebody who sees something nobody else sees.

While there are other definitions of entrepreneurship, this one works. It identifies inspiration at its source, has a clear purpose, and leaves room for passion. It also hints at the inherent risk in taking a path less traveled and invites the next question: how does the entrepreneur transform a vision into reality?

What does it mean to be an entrepreneur? Is it something one can learn? Can courses, a diploma, or an undergraduate degree in entrepreneurship underwrite success? What does it take?

In his book Lean Startup, Eric Ries establishes five principles:

1. Entrepreneurs are everywhere
2. Entrepreneurship is management
3. Validated learning
4. Innovation accounting
5. Build-Measure-Learn

Build-Measure-Learn shortens product development cycles by measuring actual progress rather than vanity metrics. Lean Startup is not about being cheap. It is about being less wasteful while still doing things that are ambitious. In other words, create a minimum viable product by focusing on what works and eliminating what does not. This applies to entrepreneurship in a garage just as much as it does to a new-product division inside a global organization.

Logan, King and Fischer-Wright look at how to shift the culture of an organization from individual to group participation. This matters in entrepreneurship because the success of a great idea depends on how effectively the entrepreneur creates relationships with partners, suppliers, and customers. A culture based on a shared vision and resonant core values gives the venture a better chance of succeeding over the long term.

The success of a product or service also depends on leveraging the power of internet marketing and social media. Driving organic traffic comes from incremental gains; purchased traffic only pays out when conversion rates generate revenue above traffic costs. Financial viability is closely tied to collecting reliable data and applying analysis in a disciplined way.

Entrepreneur’s startup checklist#

1. Opportunity — Where did the idea come from?
2. Innovation — Is the innovation technical or marketing?
3. Customer — Who is the customer, and are users and payers different?
4. Competition — Who competes and who complements?
5. Sales — What is the channel that reaches the customer?
6. Marketing — How do we create end-user demand?
7. Business model — How do we organize to make money?
8. Deals, partnerships, and sales — Where does the business come from?
9. IP, patents, and regulatory matters — How and how long does it take to get this done?
10. Time to market — How long does it take to get to market?
11. Product development model — What engineering is required?
12. Manufacturing — What does it take to build?
13. Seed financing — How much and when?
14. Follow-on financing — How much and when?
15. Liquidity — When do we break even and make a profit?

First to market rarely wins#

• Ebay, Amazon, and Google were all first-best in execution.

Vertical vs. horizontal market#

• There are no average startups.
• Startups in the same vertical market differ, sometimes dramatically.
• Taking advice from one vertical can lead to failure in another.

Vertical market definition#

• Customers identify themselves in a narrow industry or group of companies.
• They sell similar products.
• They typically compete with one another.
• They buy and use similar products and services.

Horizontal markets#

• Word processing and databases are horizontal examples.
• Semiconductors and tools are vertical examples.

Is your startup at risk?#

• Technological risk: can the product be built, and are there technical issues to resolve?
• Market risk: will customers adopt it and keep buying over time?
• Or both?

Customer and market adoption#

• Is the market large enough to make it a viable business?

The entrepreneur and family#

• Startups are time-consuming.
• If you are single when doing a startup, stay single.
• If you are married, create rules that protect time with your spouse and children.

Vertical market examples#

• Web infrastructure
• Enterprise software
• Enterprise hardware
• Communications hardware
• Communications software
• Consumer electronics
• Game software
• Entertainment
• Semiconductor
• Electronic design and automation
• Clean tech
• Medical development / healthcare
• Life sciences / biotech
• Personalized medicine

Total available market (TAM)#

• How many people want it?
• How large is the vertical? How large is the market if everyone in that market bought in, both in dollars and in units?
• How do you find out? Gartner, Forrester, Wall Street, Goldman Sachs, Morgan Stanley.
• How large a share of the market, or SAM, can you get?
• Talk to potential customers and distribution partners.
• Look at specific customers.
• Review the business model checklist.
• Bowling Alone, Robert Putnam.

Few business models survive first contact with customers#

• Startups are dynamic.
• Most change their business model.
• Customers will educate you if you listen.
• Entrepreneurs have to be agile.
• Most startups go through two to three iterations of their business model, both technically and strategically.
• Being agile is what you do inside the company through constant innovation.
• Business development is what you do outside the company.
• Strategic shift is a review of the business model.

Reduce market risk#

• If there is market risk, get rid of it early.
• When there are customer or engineering problems, the solution is to deal with them directly.
• Look at Lean Startup and customer development.

Characteristics of an entrepreneur#

Are you comfortable with chaos and uncertainty? Are you:

• Resilient?
• Agile?
• Passionate?
• Driven?
• Articulate?
• Tenacious?