Entrepreneurship

From the HSx Core Competencies collection.  Starting a new business is a very challenging endeavor. Having a method to approaching the challenges that lay ahead is essential. The following module focuses on some of the best available practical guidance for “normal” people to become entrepreneurs. There are many books and videos for entrepreneurs who have no business experience or knowledge. These Entrepreneurial Modules use the book and video series, Disciplined Entrepreneurship, by Bill Aulet as the central reference to help provide a sequential process to follow in developing a business from scratch.

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Resource List – Getting Started

This module incorporates other sources of information from various sources to help guide students to the essential resources to focus research efforts and close the knowledge gap as quickly as possible. The modules are sequenced in a specific order and the most effective when followed as they are presented. It is recommended students read Disciplined Entrepreneurship as the presentation captures the highlights of the various chapters and the book contains examples and more detailed descriptions of the steps and process.

Organizations:

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Resource List – Chapter 1: Market Segmentation

The following resources provide a roadmap to understanding market segmentation and the process of identifying the full range of potential markets in the select industry. Understanding the various segments of the market place will help enterprisers decide where to start and allow them to focus on the segment that could provide the most advantage to the business and help in gaining a foothold in the market share that will help ensure initial momentum.

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  • To run a successful business, you need to learn about your customers, your competitors and your industry. Market research is the process of analyzing data to help you understand which products and services are in demand, and how to be competitive. Market research can also provide valuable insight to help you:
    • Reduce business risks
    • Spot current and upcoming problems in your industry
    • Identify sales opportunities
  • https://www.sba.gov/starting-business/how-start-business/understand-your-market

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Resource List – Chapter 2: Selecting and Beachhead Market

Beachhead market is the portion of the identified market that once you gain a dominant market share you will have the strength to address other markets in ways that appeal to them more directly thus building you company with more of a customer base to focus on. Choosing a single market to focus on, your start up can use all available resources and time to establish a strong market position, and hopefully a state of positive cash flow, before it runs out of resources.

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Resource List – Chapter 3: Building an End User Profile

It is critically important that you recognize that to be successful, you must build your business based on the customer you are serving, rather than pushing onto the market the product or service you want to sell. Each customer actually consists of an end user and a decision-making unit. The end user very likely is an integral part of the decision-making unit but may or may not be the most important person within it. The person who will use your product is defined as the end user. The end user is usually a member of the household or organization that purchases your product. The individuals who decide whether the end user will buy your product is one of the following:

  • Champion: The person who wants the customer to purchase the product; often the end user.
  • Primary Economic Buyer: The person with the authority to spend money to purchase the product. Sometimes this is the end user.
  • Influencers, Veto Power, Purchasing Department, and so on: People who have sway or direct control over the decision of the Primary Economic Buyer.

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Resource List – Chapter 4: Calculate the Total Addressable Market for the Beachhead Market

The Total Addressable Market (TAM) for your beachhead market is the amount of annual revenue, expressed in dollars per year, your business would earn if you a 100% market share in that market. To calculate the TAM, first determine how many end users exist that fit your end user profile using a bottom up analysis based on primary market research. Then compliment this with a top down analysis to confirm your findings. Then determine how much revenue each end user is worth per year. Multiplying the two numbers results in the TAM. (Aulet, 2013)

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Summary:

Choose a single market to pursue; then, keep segmenting until you have a well-defined and homogenous market opportunity. The TAM is how much annual revenue you would accumulate if you achieved 100% market share. This is used for your first beachhead market. A bottom up analysis of the number of primary customers you can identify through primary market research coupled with a top down perspective using market analysis reports and extrapolating without direct interaction, provide a great place to start for the next step of the process. (Aulet, 2013)


Resource List – Chapter 5: Profile the Persona for the Beachhead Market

The process of developing a Persona provides specific details about the primary customer within your beachhead market. You are now selling not to some “end user profile”, but to a specific individual. Your whole team should be involved in this process to ensure everyone is on the same page and truly understands the Persona, so they can maintain a customer based focus. An important detail to understand about the Persona in his or her Purchasing Criteria in Prioritized Order. You should really understand your customer and what makes them tick, not just at a rational level but an emotional and social level as well. (Aulet, 2013)

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Resource List – Chapter 6: Full Life Cycle Use Case

Visual representation of the full life cycle of your product enables you to see how the product will fit into the customer’s value chain and what barriers to adoption might arise. The use case should include a complete use case from discovering the need of your product or service to buying more and spreading awareness. Just showing how the customer uses the product will not provide an accurate, enough picture to fully understand what obstacles will come up when trying to sell your product to your target customer. (Aulet, 2013)

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Resource List – Chapter 7: High Level Product Specification

Visually laying out your product will allow your team and your potential customers to converge around an understanding of what the product is and how it benefits customers. Staying at a high level, without too many details or a physical prototype, allows for rapid revision without investing too much time and resources this early in the process of creating your new venture. Building a visual representation of the product will likely be harder than you think, but will get everyone on the same page, which will prove extremely valuable going forward. A brochure with features, functions, and benefits to the customer further clarifies your product offering and is a great compliment to the pictures you create. (Aulet, 2013)

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Resource List – Chapter 8: Quantifying the Value Proposition

Being able to quantitatively show the detailed value of your product will make it clear in the mind of your customer and team why this product is valuable and how it will make the lives of the customer better. During this step you quantified the value your product brings to the customer by; understanding the customers need, understand how it’s currently being met, demonstrating how your product will answer this problem better. (Aulet, 2013)

How to Quantify the Value Proposition (Aulet, 2013):

  • Identify the customer’s most important need or problem they are having.
  • How is this problem being solved today or identify this as an unmet need.
  • How you can potentially solve that problem and show through quantifiable ways the amount of value you
    add.
  • Identify the customer’s most important need or problem they are having.
    • Interviewing potential customers and your Persona to deeply and intimately understand the most important issue facing them. The one issue that they worry the most about and gives them the most problems.
    • This is the reason your business exists, to focus on solving a problem or doing something better and making your customers life better and/or easier.
  • How is this problem being solved today or identify this as an unmet need.
    • Understand the current solution/answer to the problem identified in the previous step.
    • Quantify the current method (how fast is something done, capacity something has, power used, level of learning, cost, etc..)
    • Layout the process as detailed as possible and become an expert in it as much as possible.
  • How you can potentially solve that problem and show through quantifiable ways they amount of value you add.
    • After understanding the problem and how it is currently handled determine how exactly your product will make the process better or easier for the customer and by how much.
    • Being able to demonstrate in detail how and where your product can solve the problem or do it better is the essence of the step.

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Resource List – Chapter 9: Finding Your Next Ten Customers

“Identifying and interviewing your Next Ten Customers now ensures that your Persona description and other assumptions hold true for an array of customers. If you have completed this step properly, and made modifications to the other steps from what you learned here, you should have great confidence moving forward to build the plan for your new venture. While it is important to identify and develop a Persona to represent your end users, you must also be sure to identify other potential customers to ensure your product’s success. This will drastically increase your confidence that you have identified a scalable opportunity, not just a one customer solution, as well as your credibility.” (Aulet, 2013)

Why is this step necessary?

“If you are successful in this step you can be significantly more confident that your business has a high probability of success and you will be able to convince others, such as future partners, employees, customer’s advisors and investors. If you run into issues in this step, you will be able to go back, determine where the flaws in your plans are, and improve them before going forward. By listing and interviewing ten potential customers, you are directly testing every hypothesis you have built over the past eight steps. Your Primary Market Research has been designed so that you continually stay in aligned with your customer’s needs; but this is your first “systems test” where you are presenting the customer with everything you have worked on so far.” (Aulet, 2013)

How do we Find the Next Ten Customers?

  1. List 10 potential customers (aside from your Persona) and include any pertinent information you have About them from your existing research. There is no set number of customers you should list, as sometime You can complete this step with a list of 12 customers, while other times you need to list 20-30 just to get customers who match your criteria and are interested in your product. (Aulet, 2013)
  2. Contact each of the potential customers on your list and present your Full Life Cycle Use Case. (Aulet, 2013)
  3. If a customer validates your hypothesis from the previous steps, now is a good time to ask the customer if they
    consider providing a letter of intent to buy your solution once it is available. (Aulet, 2013)
  4. If your customer’s feedback is not aligned with your assumptions, take good notes and consider how this influences your analysis. (Aulet, 2013)
  5. Now that you have each customer, you may have new data. At this point, you can go back and modify your earlier assumptions and determine whether to contact additional customers. (Aulet, 2013)
  6. If you can not find 10 customers interested in your High Level Product Specification, then you may need to reconsider your Beach Head Market. (Aulet, 2013)
  7. While this step is conceptually simple, contacting customers and getting information from them will require a good amount of work, but will be invaluable as you move forward. (Aulet, 2013)

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Resource List – Chapter 10: Define Your Core

“The Core is something that allows you to deliver the benefits your customers value with much greater effectiveness than any other competitor. Your are looking for the single thing that will make it very difficult for the next company that does what you do.” (Aulet, 2013)

Why is this step necessary?

“The Core provides a certain level of protection, ensuring you don’t go through the hard work to create a new market or product category only to have someone else come in and reap the rewards with a similar business of their own. What is it that product does that your competitors can’t duplicate, or can’t duplicate easily? That is your Core.” (Aulet, 2013)

How do we Define Our Core?

“The Core is more inward-looking and less research based than the others. You will rely on this internal introspection, combined with external data gathering and analysis. While the process may seem broad and general at first, your end definition of your core should be concentrated and specific.” (Aulet, 2013)

“Eventually when deciding on a Core the exercise must move to integrate many different considerations.”

  • What the customer wants.
  • What assets you have.
  • What you really like to do.
  • What others outside your company can do.
  • Personal goals and financing of the owner.

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Resource List – Chapter 11: Chart Your Competitive Advantage

Defining your Competitive Position is a quick way to validate your product against your completion, including the customer’s status quo, based upon the top two priorities of the Persona. This will also be a very effective means to communicate your qualitative value position to the target customer audience in a way that should resonate with them.

Why is this step necessary?

Lining up the Core of your company and Value Proposition to meet the top two needs of your targeted portion of the market you are going for is the goal of this step. If these items align your company will be in a position that other companies may struggle with or completely lack the ability to provide.

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Resource List – Chapter 12: Determining the Customer’s Decision Making Unit

“Having determined how you create value for the customer, you must now look at how the customer acquires the product. To successfully sell the product to the customer, you will need to understand who makes the ultimate decision to purchase, as well as who influences that decision. The Champion and Primary Economic Buyer are most important; but those holding veto power, as well as Primary Influencers, cannot be ignored. B2B situations are easier to map out, but the process is still important in a customer situation; large consumer goods companies like Procter and Gamble have been doing this process for years.” (Aulet, 2013)

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Resource List – Chapter 13: Map the Process to Acquire a Paying Customer

“Determining the Process to Acquire a Paying Customer defines how the DMU decides to buy the product, and identifies other obstacles that may hinder your ability to sell your product. From elongated sales cycles to unforeseen regulations and hidden obstacles, selling a product can sometimes be far more difficult than meeting the Persona’s needs. This step makes sure you have identified all the potential pitfalls in the process.” (Aulet, 2013)

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Resource List – Chapter 14: Calculate the Total Addressable Market (TAM) for Follow on Markets

The calculation of the Broader TAM should be a quick validation that there is a bigger market and should reassure team members and investors that your business has great potential in both the short and long term. During this step, you will identify some follow on markets and determine the Total Addressable Market (TAM) for those markets. You should not spend much time at all on this step, approximately 1/10th of the time you did in determining you beachhead market. Likely most of the information you need for this step was already gathered when you did your initial market segmentation.

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Resource List – Chapter 15: Design a Business Model

The business model is an important decision that you should spend time focusing on. The decisions you make here will have a significant impact on your profitability, as measured by two key entrepreneurship variables: the Lifetime Value of an Acquired Customer (LTV) and Cost of Customer Acquisition (COCA). Do not focus on pricing in this step, as your choice of business model has a far larger influence on profitability than your pricing decision. Once you have established a business model, it is possible but generally not easy to change to a different model. Therefore, choose a business model that distinguishes you from competitors and gives you an advantage over them, because they cannot easily change their business model to match yours. (Aulet, 2013)

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Resource List – Chapter 16: Set Your Pricing Framework

With a business model in hand, you can now make a good first estimate on your pricing framework, understanding that it will likely change as you continue through the 24 steps. This step is the beginning of a pricing process, because you will likely end up with multiple price points and pricing strategies, and you will iterate as you experiment and get feedback from the market about price points. Your goal for the moment is to create a first pass strategy that will allow you to calculate the Life Time Value of an Acquired Customer, along with the cost of Customer Acquisition – an important variable that indicates the profitability of your business. (Aulet, 2013)

Basic Pricing Principles:

  1. Cost shouldn’t be a factor in deciding price – set the pricing based on the value the customer gets from your product, rather than your costs.
  2. Use the DMU and the process to acquire a paying customer to identify key price points – The DMU and the process to acquire a paying customer to identify key price points provide invaluable information about how your customer’s budget works.
  3. Understand the prices of the customer’s alternatives – It is imperative to understand, from the customer’s perspective, the alternative products available, and how much the customer would pay for each, including the customer’s status quo.
  4. Different types of customers will pay different prices:
    • Technology enthusiasts
    • Early adopters
    • The early majority (pragmatists)
    • The late majority (conservatives)
    • Laggard/skeptics
  5. Be flexible with early testers and “lighthouse customers”
  6. It’s always easier to drop the price than to raise the price

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Works Cited:

  • Aulet, B. (2013). Disciplined Entrepreneurship. Hoboken, New Jersey, United States of America: John Wiley & Sons, Inc.

These materials were developed as an initiative of the Advanced Thinking in Homeland Security (HSx) curriculum at the Center for Homeland Defense and Security. HSx is an 18-month collaborative program from the Center for Homeland Defense and Security.

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