The process outlined in this document is intended to be generic, that is, to apply broadly to many different kinds of ventures. There are, however, important differences between ventures in different industries. This brief essay offers some thoughts on some fundamental strategic choices and how the entrepreneur might consider making these choices.
Although there are a myriad of detailed differences in different start-up companies, we suggest that there are fundamentally two different models that can be chosen as a path to commercializing a new idea:
This is the familiar model of creating a self-sufficient corporate entity that can operate indefinitely. The elements of this model are:
- Product (including service)
- All traditional functional areas where relevant
- Financial sustainability (i.e. ongoing operations are funded through operations at some point)
This model applies where the company regardless of the form of the product (including IP or component technology). It is also applicable regardless of how the firm intends to perform various functions (i.e., internally, outsourced or through a form of partnership).
On this model, the entrepreneurs do not contemplate building a sustainable corporation. Rather, the intent is to create an asset that will be acquired in its entirety by a buyer. In most cases, the buyer would be an operating company, but it might also be a financial buyer. In this case, the buyer would acquire all the assets of the venture including employees as desired.
Some examples where the marketable asset model might be appropriate are:
- A movie
- A drug/therapeutic
- A development plan and contract to develop an energy plant and deliver energy to a utility
The industries that are the focus of the Fuqua Program for Entrepreneurs are:
- IT – consumer
- IT – corporate
- Health care – pharmaceuticals / biotechnology
- Health care – other (e.g., device, diagnostics)
- Energy / natural resources
The unique aspects of these various industries fall under broadly under the heading of customer and value chain.
The concept of customer may be as simple as the notion of an individual buyer and user of a simple, stand-alone product. Or the various aspects of the customer may be played by different actors. To clarify, we distinguish the basic customer roles:
- Who is the user?
- Who determines value and makes the buying decision?
- Who pays?
- Who approves or regulates the use (or can forbid or constrain the use)?
- Do public perception or political considerations enter into the buying process?
The value chain reflects the relative complexity of the industry. It reflects a structure of complementary or required products and services that enable the customer to use or derive value from the product in question. For example, a social networking service requires the internet infrastructure and a new fuel for automobiles requires a distribution network. Different links in the value chain may represent different levels of power. Navigating and proper positioning in the value may determine success or failure for the entrepreneur.
Brief characterization of target industries
The descriptions below are somewhat over-simplified, and should serve primarily to stimulate critical thinking.
IT – consumer
The customer here is a single individual, who buys and uses the product him or herself. (An exception is when the user is a child and the buyer a parent.) The buying environment is simple, although the chain of influence may be complex. The one area that may constitute a challenge is obtaining access to channels of distribution.
The value chain is also relatively straightforward. Products may depend on other systems as infrastructure or platforms, but these systems are generally standard, open and stable.
IT – corporate
The corporate customer for IT is relatively complex. In any organization of significant size, three separate groups: the business unit whose problem is to be addressed by the new technology, the IT organization which will usually be called upon to install and support the new system and the Finance organization which may have ultimate authority to approve purchase. In this environment, the needs of all groups will have to be addressed. In particular, the value proposition will have to be compelling to all groups. The entrepreneur will have to answer a number of questions clearly. Does the value derive from increased revenue or reduced cost? Is the solution an improvement to the customer’s business infrastructure or is it a new application? Does the solution improve existing business processes or does it require changed or new processes? Does it enhance or threaten organization competences? Is the problem addressed a strategic priority? If so, where does it rank on the customer’s priority list?
Generally, the corporate customer determines its own value chain. The corporate IT environment is determined by a set of decisions regarding technology, IT management practices and vendor relations. Successful penetration of this environment will require meeting technical standards, implementing the appropriate user interface and management capabilities and also, possibly, building business relationship with strategic third parties.
Healthcare – pharmaceutical / biotechnology
Here the “user” is a combination of patient and treating physician, each with his or her own needs and concerns. As therapies are more elective or even cosmetic, perception of need among patients may vary. Perceptions of effectiveness among the community of treating physicians are usually critical, but access to physicians is both limited and controlled. The payer and determiner of economic value is generally the insurer, either public or private. Moreover, there is a carefully controlled government regulatory process that must be satisfied. Finally, the set of actors that constitute the “customer” may differ dramatically by country
The field of therapeutics does not represent a complex “system” with a multi-level hierarchy, notwithstanding possible interactions of distinct therapies.
Healthcare – other
This category varies from implantable medical devices to products involving much less intimacy. This reality is reflected in a wide range of regulatory controls and possible patient / physician relationships. As in the previous case, there is the dimension of third party payer and possibly dramatic differences by country.
A complex value chain is generally not an issue with medical devices or diagnostics.
Energy / natural resources
The user and ultimate beneficiary is usually the individual or corporate consumer. The environment of use is very complex (see below), so many actors can influence the buying decision. This area is also politically charged, and public perception may play an important role.
In the field of energy, there is a system of supply, distribution and use (i.e., design of using products). A significant improvement in one of those dimensions may be a nonstarter if it impacts the other dimensions in an unacceptable way or even if it requires changes for which there is no motivation. Moreover, distribution (of the resource) is often controlled by government or private corporations with near monopoly control. The electrical power grid is established and controlled by government or government regulated organizations. In the case of fuels for internal combustion engines, major oil companies control the distribution network.