Lecture 9-2 Start Ups

Course Description:
IT INNOVATION & ENTERPRENEURSHIP
Course Code : IST 4078
Lecturer : A. Maina
Lecture 9:2 Start ups

Lecture 12-1: Start ups
Objectives
 Start-ups
 Guiding factors before a start-up
 Step-by-Step guide to starting a business
 The right questions to ask as a software/IT entrepreneur.
 Software business models
 Value creation
 Business Modelling
 Industry-Driven Business Models
 Business Modelling for Competitive Advantage
 Business Plan
 IT and software start-up management

 The software start-up
 Technology vs business strategies
 Growth Metrics
2
IST4078: IT Innovation & Entrepreneurship : Instructor _ Ann.Maina
What is a startup?
 The term startup refers to a company in the first
stage of its operations. Startups are founded by one
or more entrepreneurs who want to develop a product
or service for which they believe there is a demand.
 the typical startup tends to be a shoestring operation, with initial
funding from the founders or their friends and families.
 In the early stages, startup companies' expenses tend to exceed
their revenues as they work on developing, testing and marketing
their idea.
 A company may be considered a startup if the target is not achieved
 Def 2: A startup can also be referred to as a young
company founded by one or more entrepreneurs to
develop a unique product or service and bring it to
market. 3
 Def 3: A startup company is a newly formed business

with particular momentum behind it based on
perceived demand for its product or service. The
intention of a startup is to grow rapidly as a result of
offering something that addresses a particular market
gap (Techtarget,2020).
 What is the difference between a startup and a small
business?
 Startups are typically online or technology-oriented businesses that can
easily reach a large market.
 To operate a small business, on the other hand, you don't need a big
market to grow into. You just need a market and you need to be able to
reach and serve all of those within your market in an efficient way.
4
 How does a software start-up survive and

grow?
 Why do software ventures fail? No funding,
outdated, poor leadership/comm
Tips on How Your Startup Can Avoid a Failure
 Walk in the shoe of the customer. “Get closer than ever to
your customers.
 Unique proposition. You need to create a unique brand
proposition of your product.

 Effective calculations.
 Invest in the right team.
 Enhance leadership skills.

5
Important guiding factors to consider before a start-up

 1. A great idea
 “No business can develop in the absence of a great and
unique idea that stands out.”
 2. Funding and budget
 What are the options for funding your business?
 There is need to properly identify the sources through which
you will be able to get the funding for your business.
Moreover, it is better to have a plan so that the budget of a
company can be properly maintained.”
 3. Analysis of competitors
 Know what your competitors are doing and what their strategies are, So
you are able to take appropriate decisions about your company, As well
as developing more effective strategy for your business.”
6
 4. An effective business plan

 No business can develop fully in the absence of a
business plan.
 Writing a business plan can help you determine if your
idea is feasible and provide direction.
 With a business plan, you will be able to know every
next step that should be taken.
 5. Legal documentation
 Completion all legal documents for your business. For
the sale of some specific products and services, there
are some requirements for the preparation of legal
documents.
7
 6. Positive attitude
 How do you overcome all the challenges and difficulties?
There will be a lot of risks and hurdles you will face in
this process and the only thing that may save you will
be your positive attitude. You will have to work hard to
develop a company of your own.
 7. Know when you need help
 The development of a business is not a matter of
seconds, it will involve a lot of time that is spent with
hard work. However, in this process, you will be needing
the help of some experts. Make sure you already have
an adviser who can provide you with the best advice at
the hour of need. 8
Step-by-Step guide to starting a business

10 Key Things You May Need To Consider;

01 | Write a business plan
Field research is a key part of analyzing your market and will help
you build a successful business plan and brand.
02 | Choose a business structure


Sole trader or limited company? Partnership or LLP? look at the
pros and cons and comparisons for your start-up
03 | Name your business

How do you choose a business name? Choosing a business name

is a vital first step in bringing your business to life.
04 | Develop branding

 How do you create a logo that properly represents your business? Find out
key fundamental points your logo should convey to your customers 9
05 |Find finance


Eg applying for a startup loan, using your networks etc
06 | Get an accountant


How do you pick the right accountant for your business?
07 | Set up premises

What exactly do you need to consider when choosing office

space for your business?
08 | Get software


Free and low-cost software options available to help you
start a business and save money

09 | Understand legal issues
10 | Learn how to sell

10
Software/IT entrepreneur-formative questions
 What should a software or IT professional know and

understand about entrepreneurship?
 Whereas engineers are good at understanding how to
build software, and IT managers good at organizing IT
services in companies and government institutions,
here we will need to understand the value of software.
 This is because our fundamental job as entrepreneurs is to
create value.
 Our venture must be valuable to our customers and
stakeholders otherwise they will not support it by investing
in it or by buying our products and services. Therefore we
need to understand (see formative questions;)
11
 Some formative questions for software and

entrepreneurship
 what forms of value can software create?
 Software not protected by copyright can be freely
copied, which diminishes its value for its developers, so
we should ask
 how do you recognize your intellectual property in
your software work and protect it? (see earlier
chapter)
 how do you leverage open source software and
the open source development model?
12
Software business models

 The value of IT applications is articulated in business
models – these specify how services and products are
translated into value which can earn income
(revenues). We need to understand ;
a) how do you make a business out of a software product
idea?
Turn your idea into a plan. Every entrepreneurial journey starts with an idea
a) what business models do young software and software-
dependent firms use?
b) how do you commercialize and market a new product?
c) how do you understand the market you are in, or create a
market if it does not exist?
d) how do you find the necessary resources to develop your13
firm or product
IST4078: IT idea?
Innovation & Entrepreneurship : Instructor _ Ann.Maina
IT and software start-up management
 Who becomes a software entrepreneur, and what

skills and capabilities do you need?
 How do you manage a start-up?
 What engineering and development practices do
you need to develop software in a very young
firm?
 how do you manage competitors and customers?
 how do young software firms grow through
networking and partnering?
 what is the role of innovation in software
entrepreneurship? 14
The software start-up

 Companies where the primary value creation is
achieved through writing software.
Giarratana mentions three types of entrepreneurs:
 The innovator creates new products
 The arbitrageur exploits market inefficiencies
 The coordinator introduces an alternative use of
resources
 In each case the entrepreneur will have to
understand something of the business positioning
of the new company.
 Cusumano suggests that there are some basic questions
that need to be answered: 15
Basic questions that need to be answered:
 The answers to these questions may (in an Analyse, Design, Enact

perspective), serve to help build strategies for service and market 16
development IST4078: IT Innovation & Entrepreneurship : Instructor _ Ann.Maina
Technology vs business strategies

 Start-ups may have both technology and business
strategies. Generic technology strategies include:
17
Software firm business models
 If you're starting a software

business, what type of business
will it be? What will it offer in
terms of products and services
and how will it generate value?
18
CREATING VALUE
Creating Value
 Value proposition: suggestion to customers on
how a new product or concept will meet their
needs and create value.
 Value configurations: tells how resources and
activities need to fit together in order to create
and sustain value.
 Value chain (Porter, 1985)
 Value shop (Stabell and Fjeldstad, 1998)
 Value network (Stabell and Fjeldstad, 1998)
19
CREATING VALUE
Creating Value
Value Key Examples Why is it
configuration characteristics valuable
Value chain The sequential and Product Increasing scale
interdependent manufacturers and maximising
process of capacity leads to
transforming inputs decreasing
into products production costs
and greater profits
Value shop Solving customer Hospitals; Focuses on the
problems through Consulting firms; customer with
sequential and R&D Centres dependence on
cyclical processes expertise and
reputation
Value network Facilitating an Telephone services; Successful linkages
exchange and Postal services; add value to the
advantages by Facebook other members of
linking customers the network, which
who are or wish to then receives better
be interconnected service 20
CREATING VALUE
The Business Model
 Business plans for new ventures and start-ups are
often based on unproven assumptions such as:
 How big is the market opportunity?
 What market penetration can the new venture achieve?
 What is the tie-to-market for a new product?
 Investors typically seek evidence along:
 The Entrepreneurial team
 Business idea merit
 Evidence of commitment
21
CREATING VALUE
Business Modelling
Figure : Business model dynamics
22
CREATING VALUE
Business Modelling
 Creating value (value proposition) and
capturing value (revenue model)
 Bringing the product to market
 Target customers
 Channels
 Scope
 Activities
 Value networks and Partnerships
23
Lecture 12-1: Start ups CREATING VALUE
Industry-Driven Business Models

 Constraints of an industry
 Industrial capacity
 Novel products
 Regulation
 Social norms
 Financial constrains
 Logic behind experimentation
 Small initial investment
 Prototype fast
 Get customer feedback
 Greater investments
 Vigorous scale-up
24
Lecture 12-1: Start ups CREATING VALUE
Business Modelling for Competitive Advantage
 The Business Model Dynamics

 Perspectives on Developing Competitive
Advantage
 Resource Based View (RBV) of the firm (Barney,
1991): firms in the same industry perform

differently because they differ in their resources
and capabilities
 Dynamic Capabilities View (DCV) of the firm (Teece
et al., 1997): the dynamic process of capability
building in gaining competitive advantage
25
 A software business model consists of four

elements
 A product strategy (what kind of software and
applications do we write)
 A revenue logic (how do we earn money out of them)
 A distribution model (how do we get them to our
customers)
 A service and implementation model (how do we keep
them working when our customers are using them)
26
Types of business model

 This elements yields four types of business model:
1. Software tailoring –
 building tailor-made software for specific customers;
example Logica developing the clearing system (CHAPS)
for the British banking system
2. Applied formats –
 customized solutions based on common platform;
example SAP offering solutions based on the its
Enterprise Resource Planning (ERP) software
27
Types of business model

3. Resource provisioning –
developing software components or middleware designed
to integrate with other software; example Red Hat
developing their own version of Linux and offering
software and services around it
4. Standard offerings –
 own products sold widely and used without
customization; example Apple selling integrated
hardware and software products direct to private users
28
Types of business model cont..
29
The Business Plan

 Pitching and negotiating with
investors/institutional support organisations
 Clarifying goals and analysing the market
 Presented for key partners in establishing the
business/start-up company is trustworthy and
has potential
30
The Business Plan

 Opportunity analysis and market validation
 The Venture’s vision, value proposition and business
model
 Product/service, product life cycle, IP protection
 Marketing strategy and sales plan
 Talent and team capabilities
 Resourcing and operational plan
 Financial plan and harvest
 Critical risks
 Start-up schedule
 Appendices
31
The Business Plan

 Executive summary
 Principles involved in venture
 The Product/Service
 Target Market
 The Business Model
 Level of Profitability
 Funding Required and Return on Investment
32
Growth Metrics
 How do you know if the company is progressing or
not?
 What was the real reason for growth? Will it last?
 What factors are important in driving the progress?
Innovation metrics
 Measure what matters
 Metrics are people
 Measure the Macro
33
Analysing and Managing for Growth

 Internal Conditions for Growth
 Technology entrepreneur may be limited by:
 his ability to understand and interpret market
opportunities;
 Insufficient industry experience;
 Weak connections between strategy, leadership and
organisational culture.
 Start-up have limited resources and limited access to
capital
 Too much capital may mislead entrepreneur towards
faster growth
34
Analysing and Managing for Growth

 External Conditions for Growth
 Start-ups may meet different barriers to growth:
 Hard to find profitable position in the value chain;
 Institutional conditions may be more or less
supportive for business-growth;

 Company’s network may be more or less able to
provide access to resources.

 Engaging with potential users during the innovation
period.
 A growth-oriented crisis: firm run out of cash; mismatch
between market growth and organisational capacity.
35
Learning from Success and Failure

 Rapid Growth challenges:
 Prioritising between too many alternative opportunities.
 Evaluation the use of financial resources because it starts becoming
amply available.
 Too much of the critical competencies is with the entrepreneur, and
there are too little routines and structure, making the frim
vulnerable.
 Lack of preparation for the challenges of growth and expansion.
 Crisis. The main reasons are often one of the
following:
 Weak strategic planning
 General leadership problems
 Weak economic understanding in management
36

 Organisational culture and climate in a company
are important through growth and crisis.
 Basic dimensions of organisational culture
(Timmons and Spineelli, 2009):
 Clarity
 Commitment
 Responsibility
 Encouragement
 Community
37

 It is essential to develop culture and strategy for
learning from mistakes:
 The courage to confront one’s and others’ mistakes and
shortcomings;
 Different attitudes to different types of errors
(inevitable, unavoidable and intelligent failures);
 Employees need to feel safe to admit and report errors;
 Top and middle management play key roles in the
development of learning culture.
38
 Read further on software start-ups from (rose

Jeremy,2012,Pg 40) ie;
 The software product
 Bringing the first product to market
 Management and Leadership
 Innovation speed and time-to-market
 Software revenue generation models
 Entry and growth
 Networks, partnerships and alliances
 Internationalisation
Finance: venture capital or bootstrapping
39
 IST4078: IT Innovation & Entrepreneurship : Instructor _ Ann.Maina
 What are the best software tools to run a start up.

 How do you determine software that is right for your
startup?
 Read further on:
 The Best Software Tools to Run a Startup
 https://www.entrepreneur.com/article/233994
40
Summary
 How to expand the business concept from
thinking about:
• the idea,
technology and
• product,
 into thinking what kind of business to build

around your product and value proposition?
41
Summary
 How do you implement the world view practical
day to day business problem solving?
 The need to understand the basic ideas of running a
new business.
 Understand, who are you? What do you know? Who do
you know ie your networks?
 Think though in deciding what to do with what you
have.
 Working with people- getting people to tell you what to
do with what they have, allowing people to put full skills
in what they have, giving them an opportunity to view
the idea in a different way, the motivation maybe
different but with the same logic. 42
Summary..
 How do you looks at the World Through
Entrepreneurial Glasses?
 Be action oriented.
 Understand how entrepreneurial world is from other
worlds
 If u do not do something, nothing will happen.
 Push- keep doing the doable!
43
Next Lesson…
Intellectual Property Rights
Patents
 END
ANY QUESTIONS
OR COMMENTS?
45

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Course Description:

IT INNOVATION & ENTERPRENEURSHIP

Course Code : IST 4078

Lecture 9:2 Start ups

 Industry-Driven Business Models

 Business Modelling for Competitive Advantage

 IT and software start-up management

 Def 3: A startup company is a newly formed business

 How does a software start-up survive and

proposition of your product.

 Invest in the right team.

 Enhance leadership skills.

Important guiding factors to consider before a start-up

 4. An effective business plan

Step-by-Step guide to starting a business

How do you choose a business name? Choosing a business name

What exactly do you need to consider when choosing office

Software/IT entrepreneur-formative questions

 What should a software or IT professional know and

 Some formative questions for software and

Software business models

IT and software start-up management

 Who becomes a software entrepreneur, and what

The software start-up

Basic questions that need to be answered:

 The answers to these questions may (in an Analyse, Design, Enact

Technology vs business strategies

Software firm business models

 If you're starting a software

Industry-Driven Business Models

Business Modelling for Competitive Advantage

 The Business Model Dynamics

1991): firms in the same industry perform

 A software business model consists of four

Types of business model

Types of business model

Types of business model cont..

The Business Plan

The Business Plan

The Business Plan

 Metrics are people

 Measure the Macro

Analysing and Managing for Growth

 Weak connections between strategy, leadership and

Analysing and Managing for Growth

 Institutional conditions may be more or less

supportive for business-growth;

provide access to resources.

Learning from Success and Failure

Learning from Success and Failure

Learning from Success and Failure

 Read further on software start-ups from (rose

 What are the best software tools to run a start up.

 into thinking what kind of business to build

Intellectual Property Rights

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