Beta Golf

1. Beta Golf

2. Opportunity Identification

3. Brainstorming Best Practices • Arrange for appropriate space • Have a clear objective • Keep track of all ideas • Use a moderator • Assign tasks and circulate ideas • Use a small group of five(5) to ten(10) people • Establish time limits • Suspend criticism • Postpone evaluation • Encourage people to combine and build on other ideas

4. Classes of Opportunities • Increasing the value of a produce or service • New applications of existing means or technologies • Creating mass markets • Customization for individuals • Increasing reach • Managing the supply chain • Convergence of change • Process innovation • Increasing the scale of the firm

5. Where do great ideas come from? • Opportunities created by macro-trends • Technological, legislative, societal, economic • “The overwhelming majority of successful innovations exploit change.” - Peter Drucker. • Living and experiencing the customers pain • The fertile ground of scientific research • If it works in Italy – let’s try it here Source: Mullins, J.W. (2003). The New Business Road Test. Prentice-Hall: London.

6. Sources of Ideas Purdue study of 2994 entrepreneurs across a broad section of industries

7. Sweet spots • http://ecorner.stanford.edu/authorMaterialInfo.html?mid=1465

8. Life sciences: genetic engineering, genomics, biometrics Information technology: internet, wireless devices Food preservation: improved distribution of food Video gaming: Learning, entertainment Speech recognition: Interface between computers and people Security devices and systems: Identification devices, baggage checkers, protective clothes Nanotechnology: Devices 100 nanometers or less for drug delivery, biosensors Technology trends and opportunities • Fuel cells: electrochemical conversion of hydrogen or hydrocarbon fuels into electric current • Superconductivity: energy savings on utility power lines • Designer enzymes: Protein catalysts that accelerate chemical reactions in living cells for consumers and health products • Smart cards: wallet-sized personal information cards • Software security: blocking unsolicited e-mail • Robots: teams of small, coordinated robots for monitoring safety functions

9. Aging of the baby-boom generation Increasing diversity of the people of the U.S. Alternative energy Two-working-parent families Rising middle class of developing nations Social / cultural trends & opportunities • Changing role of religious organizations • Changing role of women in society • Pervasive influence of the media – televisions, DVDs, Internet • Growth of the Latino population in the U.S.

10. How important is the idea itself? • Conventional view: idea is the basis of competitive advantage • However, consider the example of patents as the codification of an idea: • Generally, firms that generate patented ideas, license them to large firms (Hsu & Stern) • Even if patent—may not be able to defend • Have to disclose to get resources • Venture Capital view: • “Very few businesses succeed as original idea” • “Every good idea they see they see 30 times” (Kaplan) • Ranks 10th out of 25 VC decision criteria (Macmillan)

11. Opportunity Evaluation

12. Has talent, knowledge, and experience within the industry where the opportunity occurs. Seeks important opportunities with sizable challenges and valuable potential returns. Able to select an opportunity in a short period: timely Able to convert an opportunity into a workable and marketable enterprise. Achievement-oriented; wants to succeed. Connected to others up and down the value chain. Required capabilities of entrepreneurial team • Able to accommodate uncertainty and ambiguity • Flexibly adapts to changing circumstances and competitors. • Seeks to evaluate and mitigate the risks of the venture. • Creates a vision of the venture to communicate the opportunity to staff and allies. • Attracts, trains, and retains talented, educated people capable of multidisciplinary insights.

13. The Logic of Analyzing New Venture Opportunities Source: Mullins, J.W. (2003). The New Business Road Test. Prentice Hall: London Potential Profitability of opportunity Market domain Industry domain Is the market large enough? What is the growth rate and the upside potential? Market attractiveness Industry attractiveness Macro-level Venture strategy Does the opportunity fit the team’s business mission, personal aspirations, and risk propensity? Mission, aspirations, propensity for risk Ability to execute Team domain Connectedness up, down, and across value chain Micro-level What industry forces have the strongest impact on profitability? How are industry forces likely to change in the future? Sustainable advantage Target segment benefits and attractiveness Does the team have what it takes, in a human sense – in experience and industry know-how – to deliver superior performance for this particular opportunity? To which target market Is the venture’s value proposition particularly compelling? Is the target market large enough to support the business model? Does the target market provide an Option to grow into other markets? Is the team well connected up, down and across the value chain so it will be quick to notice any opportunity or need to change its approach if conditions warrant? What entrepreneurial or firm- level capabilities create a sustainable competitive advantage relative to rivals or potential rivals?

14. Their Criteria (Investment Strategy) • Funded investments on a deal-by-deal basis with corporate and financial partners • Focused on sectors in which it had little or no investment competition • Only pursued opportunities for which it had a superior technology, process, or other significant competitive advantage • Customized approach to developing a business (JV, license, acq, startup) to maximize best chance for long-term success. • Conducted rigorous feasibility study of concept and market opportunity, focusing on steps, timeline, and prioritizing key risks • Adopted a hands-on management relationship.

15. Strategy and Risk/Reward • Each option had different risk / reward implications • What was invested? • When did the firm turn project cash flow positive? • How much control did Beta Group have? • How likely was success

16. Cash Flow Implications of Strategy Acquire company Licensing New company OEM option

17. Assess the probability of success • What are the expected probability of succeeding under any scenario? • What about risks associated with each scenario? • Risk (usually) translates into higher expected return

18. What Happened (1)? • Beta Group decided to pursue an OEM agreement with Ping • Beta knew how to manufacture to precise tolerances • Lower capital requirements (and risk) than new company or buyout. • Actually bid for Hogan, but KKR outbid them. • No one had previously received a royalty in the golf industry

19. What Happened (2)? • Initial club market targeted was putters. • National Golf Show in Fall 1997 • Complete sell-out of Ping putters with HXL technology • Called the Isoforce Putter • Sold out Isoforce Putters in 1998 and 1999

20. What Happened (3)? • Launched Pixl Golf in 2000 • Selling complete line of HXL clubs • Putters - $225 • Irons - $999 / set • Wedges - $160 • Hired a president, Art Chou, former Head of R&D for Titleist and a Golf Digest technical editor • Putter named “Best Putter” by PGA • Clubs now distributed widely • 2008 • Estimated annual sales - $120,000 • 2 employees

21. Prep Work • Tuesday • R&R • Calculate break even for each party • Start with writing down the business model (value chain) • Look at fixed and variable expense for each party • Trivia Inc • Bob Reiss • Sam Kaplan • TV Guide (Royalty Basis and They Own Goods) • Alan Charles • Swiss Colony • Assume TV Guide has $20,000 of overhead in each scenario • Assume Alan Charles has $15,000 of fixed cost