Peter Thiel ”Competition is for losers” – Entrepreneurship class @Stanford

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Stanford has currently a “wildly overcrowded” How to Start a Startup course, which in many ways is similar to the one we are about to round off at KTH. Even though we have had good enthusiasm by most students, some seem to have had a tough time loosing up adapting to the more entrepreneurial way of learning and sharing experiences (c.f. engingeering classes). I suppose the temperature lowers the farer you get from the heat/cluster/mecca of entrepreneurship aka. Silicon Valley..

Just as we have had the great opportunity to welcome guest lecturers such as NY-based world-wide brand guru Erich Joachimsthaler and 2014 Tech Woman of the year Karin Nilsdotter, Peter Thiel here talks about the importance of creating monopoly. (hope you all got the Blue Ocean Strategy right on the exam, huh?)

Most things mentioned in his lecture we already know as entrepreneurship students, and you should recognize most key points from the video such as “skeptical of all the Lean Startup methodology”/ compete on price and “You want to go after small markets if you’re a startup, Big piece of a Small Pie”.

A somewhat new way of thinking however, at least for me even though the rationals are logic/obvious, is his coining of last mover advantage- in opposite to the econ 101 notion of first movement advantage. You should aim at being “[…] the last company in a category. Those are the ones that are really valuable.” As examples; Microsoft was the last OS at least for a decade, Google last search engine, Facebook would be valuable if it turns out to be the the last social networking site etc. One way of thinking of this last mover advantage, is that the most of the value of these companies exist in the far future. If you do sort of a DCF analysis of the businesses profit streams, with growth rate much higher than the discount rate- we see that most of the value is in the future- which to some extent  also explains some of the at first sight crazy tech valuations. This would be the same for all emerging internet companies, such as Airbnb and Twitter, where math tells us that ~¾ of the money will come from cash flows in 10 years and beyond. The most common mistake of investors, he points out, is overestimating growth rate and underestimating durability. Durability actually dominates the money equation, and you “simply” need to find/create the survivors! …

If you feel that this KTH Entrepreneurship course ended too quickly, I highly recommend you to follow this link and take part of the ongoing video lectures- updated 2-3 times a week. (One of their guest speakers is Paul Graham, included in our reading list.)

On a last note, and as comment to some of the light complaints. Even the globally recognised course at Stanford/ Silicon Valley, which get overfull every semester, gets comments on youtube such as: “I’m sorry, i think i entered the wrong classroom. it was supposed to be how to start a startup class. This seems to me more of theoretical lecture with no tips and tricks for startups.” with answers such as “It tells you which markets you might have best chances in. Quite relevant if you’re not over the positioning phase yet. And if you did make your choice, it tells you what your threats are and the imperatives you have to follow.” and “This is a very common thing in programming classes, where some students question why don’t they just get into coding instead of talking about methodologies first. First you have to understand the context of the startup world, to be able to start one, not just want to “hack” a startup into success, which as previous lectures have pointed out, it just doesn’t work.“

Surely you can’t satisfy all expectations , but me myself has definately gained relevant insights, network and feedback for my ongoing start up- and I hope most of you have taken the chance and found value in this more pragmatic learning. Please comment if you agree/ disagree on any of this, or write your own blog post and link it.

Have a good one and hope to see you around! 🙂

//Benjamin Wahlberg

Vasilis Macroudis and Guerilla office

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This Thursday we had an extra guest lecturer in our class, entrepreneur Vasilis Macroudis.

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Vasilis has been doing startup for most of his life and wanted to share some of his experiences with us. Here is some of his thoughts.

Three important keys to successful entrepreneurship

  1. Think of it as a project. Use milestones, the pyramids was not built in a day.
  2. Communication. Take every opportunity to talk to people about our idea. To get feedback and understand your target market is vital.
  3. Be lucky. Every breakthrough project needs a stroke of luck. Make sure you are able to seize every opportunity. If you meet Bill Gates in an elevator tomorrow, would you have anything to say? – “the harder I practice the luckier I get”.

Only work on projects that matter to you. – “If you don’t care about cats in Guatemala, maybe you should not create a startup about that.”

“You want them to buy, you don’t want to sell” – Always strive to create an appealing product.

Vasilis is currently engaged in forming a new start-up community known as Guerilla Office. Where members setup makeshift offices once a week in public areas such as coffee shops and hotel lobbies utilizing that the only things an entrepreneur needs is a place to sit, free wifi and a power outlet.

guerilla office

http://guerillaoffice.com/

Thank you Vasilis for an engaging 15 minute lecture.

Raising angel capital

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Today was the day of Elevator Pitches, and 30 students or so had the chance to present their idea to “potential investors”. Inspiring!

As you all would know, a short pitch format is typical when trying to get first attention from an angel investor- and a small discussion was raised regarding how much to prepare for these 60 seconds. Personally, I would have wished not to trust my freestyle skills as much- you  need to know the timing and use your time well. On the other hand, you should not trust the audience to be as passive and nice to you as they were this time. It is easy to get lost in your script, knowing it too well, when being interrupted by an impatient/ interested investor. A 60 second pitch is good to memorize if recording a video for a start-up contest, aiming for perfection, (see some examples at http://www.svd.se/naringsliv/framtidens-entreprenor/), but in reality- no pitches are the same!

Most of you have probably seen some international version of the Dragons’ Den, which is a reality serie of entrepreneurs pitching their ideas in front of actual investors. If not, I would highly recommend you to benchmark your personal performance of today with the videos to be found on youtube. Would you be ready for follow-up questions? How well do you actually know your business?

During my studies at KTH I have worked for the venture capital firm of one of the Swedish dragons/investors, Mats Gabrielsson (Draknästet). He is being known as a strong capitalist, and his voice echoed in my head during the presentations today “Why don’t you give me a business plan? What are your budget? Forecast? How will the money be realized, and when?”. The most common mistake, I have learned, is too much focus on the actual product or service. The company would surely exist thanks to what you sell, and investors need to be sure it functions as it should, but the greatest interest will most always be on the actual outcome (also in line with the neoclassical economics of maximization). This may be obvious, but is sometimes easy to forget as an entrepreneur- being proud of what you have developed for many years.

However, to get those non-capitalists out there in a better night mode- you can of course get investments playing on other strings than the “Greed inducing” one (inducing expectation of high business success). Here is an example of philanthropy, from the same serie and with Mats as one of the investors. English subtitles, 2 parts. I was actually very lucky meeting this young girl with cerebral palsy, seen in the video, in the office about two years after- walking all by herself thanks to the elektrodess. Happy watching!

And let me know if you have any comments or questions 🙂

// Benjamin Wahlberg

Key partnerships and dependencies – how do you know if it is a trap or not?

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We came across an interesting subject the other day in class; the importance of partnerships when forming a business model vs. not being dependent on one single actor.

The issue presented and that has been vividly studied in media is the massive enterprise Amazon that has disrupted the sales of book sales for firms like Barnes & Noble. This has been an enormous opportunity for smaller writers to put their product in stock on the shelf of the e-commerce giant. What has happened now is that these writers are dependent on Amazon in order to sell their products; the huge retailer has a very strong bargaining power and can easily drop prices to directly compete with the smaller writers – loosing a couple of hundred thousand dollar won’t matter much if you are the biggest player.

This is a position that you do not want to find yourself and your business in. So in order to reduce the risk of dependency, is it enough to just increase the number of partnerships?

Another interesting, and very contemporary, subject is the music distribution industry. Spotify, one of the largest actors in the industry has somewhat reincarnated the idea of music distribution – but it has been around for several decades. Despite the, excuse my objectivity, louse pay-checks that has been paid out to record labels and musicians, somehow Spotify has lured big players in the music industry and millions of active users have followed their value proposition.

Now, I have had a couple of friends that have worked for Spotify here in Sweden. When asked about the future and their business model the response is this:

‘There will be a dominant player in the music distribution industry within the next 5 years. The focus of Spotify is not profitability, but “users, users, users”. Spotify must come out on top and then we can make money.’

It will be interesting to see how the dynamics between Spotify and the labels/musicians will develop, but it seems like they will be dependent on one large actor in the end and that their music won’t get a long reach without that actor. According to the history and how other markets have developed (read the book industry, mentioned above), then this is a bad sign for the musicians. Just as the consumers brought this down upon the book-wholesalers, so it will be brought down on the musicians.

I would like to discuss how musicians could work against the dominant player and, in the end, save their industry. Any thoughts anyone? 🙂

BR Ludwig Widén

Elon musk, space and big challenges

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Society faces many great challenges today, our environmental impact, depletion of resources and aging populations to mention a few. These are indeed great challenges and maybe our most important challanges, yet almost nothing is done on an individual individual level; the problem is bigger than me. This of course extends to the entrepreneurial realm, where there is a problem or a pain there is also an opportunity, but the point of entry to these areas are immense.

Elon Musk, an entrepreneur who actively develops industries which are holding us back from facing these big questions. He is co-founder of Paypal, SolarCity, Tesla and SpaceX.  If you’re interested in his story:

Elon Musk, initially a secluded kid from South Africa, shows us that the private sector and entrepreneurs can affect the big picture.

SpaceX is one of the major private actors in the Space industry (as we learned from Karin Nilsdotter during her lecture titled “How about opportunities in Space?”), and has been the source of several innovations. Innovations which often aims to lower the cost to orbit trough reusability of equipment such as rockets and space crafts. Here is Elon musk revealing a new space capsule.

My question to you, Karin Nilsdotter and Spaceport Sweden is: Do we have an Elon Musk whom will make the spaceport possible or do we even need an Elon Musk?

 

//Sverker

 

https://twitter.com/elonmusk/

Business Model Generation

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Two and a half years ago a couple of friends and the two of us read Business Model Generation by Timothy Clark, Alexander Osterwalder, Yves Pigneur.

It seemed that the purpose of the book was to convey to the masses that everyone can create and manage business models; and the Business Model Canvas (BMC) is the way to do this.

There are 9 dimensions described in BMC:

  1. Customers Segments: An organization serves one or several Customer Segments.
  2. Value Propositions: It seeks to solve customer problems and satisfy customer needs with value propositions.
  3. Channels: Value propositions are delivered to customers through communication, distribution and sales Channels.
  4. Customer Relationships: Customer relationships are established and maintained with each Customer Segment.
  5. Revenue Streams: Revenue streams result from value propositions successfully offered to customers.
  6. Key Resources: Key resources are the assets required to offer and deliver the previously described elements…
  7. Key Activities: … by performing a number of Key Activities.
  8. Key Partnerships: Some activities are outsourced and some resources are acquired outside the enterprise.
  9. Cost Structure: The business model elements result in the cost structure.

As you can imagine, the Key Resources we posses or have access to should correlate to our Key Activities, and regardless of how you want to view these two aspects, none of them would exist without the mentoring and assistance of your Key Partners.

This is the basis of your offering, but it is also the basis of your Cost Structure. What your business is good at, what means you have to achieve these and how much it will cost you add up to the center of your business model; what do you offer you customer segments, what is your Value Proposition?

So when does Revenue Streams enter the business model? There are a couple of components, as with Cost Structure, that composes Revenue Streams.

In an ideal world, a Customer Segment is a mass of people or firms that are seen as an organism. When there are different Customer Segments, and often there should be, these respond to different stimuli; you must approach them in a specific way. Your firm’s way of handling each Customer Segment should be as unique as the Customer Segment itself, and so the Customer Relationships tie your Value Proposition together with your Customer Segment.

There is also the need to reach your Customer Segments with your Value Proposition and BMC use the term Channels for this. Your Revenue Streams depend on what Customer Segments, how you have chosen to interact with these through Customer Relationships, what they are willing to pay for your Value Proposition and how your firm delivers this. This neatly ties up the BMC and creates a platform for entrepreneurs to interact with their business model and simulate changes in the business model as a result from external forces as Customer Segments or shortages of resources.

As we read this book, we did not think this was anything new. But as years have gone by, it seems like BMC is better motivated and that the authors of Business Model Generation have contributed to the masses. We believe that the framework and techniques presented in this book are, especially, suitable for agile project management methods where adaption, pivoting and sprints happen at a fast pace, the kind of management that we are here to learn and apply.

 

// Ludwig and Svesjo

Force Majeure and a new scenario

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During our last exercise with ME2603 we discussed responsibility and profit distribution in a business.

What happens to a business when it is affected by “the will of God”; Force Majeure?

First off, what is the will of God? The best translation I can come up with is something that is out of our control. It is an independent scenario, where no one can be blamed for the consequences. This could be a hurricane, snowstorm, earthquake or some other large, independent and in some sense unpredictable event.

An example:

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I have purchased a train ticket bound south from SJ (swedish railways) for this christmas. In SJ’s purchasing conditions it is stated that if a train is delayed by 30 min when arriving, then I am eligible for a 50 % refund. If it is over 60 min late, 100 % refund. But this is also dependent of force majeure.

Sadly, someone jumps in front of a train at T-centralen, 5 min before my departure and there is a pile-up; my train can’t leave.

In the end, my train is delayed by 65 min, but SJ claims that I am not eligible for a refund due to the situation being force majeure; they could not have prevented this.

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The scenario presented in the exercise was that a friend of mine took care of my business for a day, there was a storm, everything was destroyed and now I have a business I can’t make any money from. Also, I am probably knee-deep in debt because I have invested in inventory and machines.

This storm was so nasty, that there was nothing that my friend could do to prevent it causing damage to my business. Should he be held responsible for this? Would the outcome have been different if it was I in the store that day and not my friend? I don’t think that it would.

Lets assume that there is a low probability for storms like this, but that I have established my business in an area where this is known to happen. If this was the case, then shouldn’t I have included this in my risk analysis prior to starting my business and prior to setting the price on my orange juice?

It would mean that I already get paid for this low probability risk each time I sell a cup of orange juice, and therefore I shouldn’t hold my friend accountable for the damage that was caused to my business when I was out during the day.

What could be discussed is whether my friend should be held responsible for the damage or not, if he could have prevented it. How about this:

My friend closes the store for the day because I am busy elsewhere. He leaves a window open, by mistake of course, and it rains all night. When I open up the store the next day, I find that my floor is water-damaged and I will need to close the store for the next 2 weeks to get the issue taken care of. The loss of profit is $1000 and the reparation will cost $1500.

Lets assume that the reparation isn’t covered by insurance, because they claim it is my business’ fault (“drulle” in Swedish?). Should I hold my friend responsible and let him pay for 2 weeks lost profits and the costs of reparation? Should he be accountable for the loss of profit, only, or perhaps the reparation?

Please, if you have any thoughts about this, write in the comment section below!

/Ludwig Widén