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New technology ventures Dr. Marina Ranga

New technology ventures Dr. Marina Ranga. University of Warsaw Faculty of Management 6 June 2019. Outline. New technology ventures (start-ups) – The Startup Genome project. New technology ventures (start-ups).

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New technology ventures Dr. Marina Ranga

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  1. New technologyventures Dr. Marina Ranga University of Warsaw Faculty of Management 6 June 2019

  2. Outline • New technology ventures (start-ups) – The Startup Genome project

  3. New technology ventures (start-ups) • Start-up: an new entrepreneurial venture growing at a fast rate to meet a marketplace need • Tech start-ups are a subset of startups, whose concepts, products or services that use an innovative technology to meet a marketplace need • Typically hosted by incubators & accelerators that provide facilities (e.g. working space, small investments, eligibility for major discounts on great products and services often needed by tech startups), • Funding Rounds for startups generally comes from: • Business Angels (support most seed funding) • VC funding, for most Series A and subsequent funding rounds. • Crowdfunding for tech startups not frequent – this option is still in a nascent stage due to high relative expense and limitations on amount raised, though some small tech startups may want to or need to go this route.

  4. The Startup Genome Project • A new research framework by Berkeley & Stanford faculty members and other contributors for understanding why Internet startups in Silicon Valley succeed • Data from 650+ web startups. • Goal: assessing startups more effectively by measuring the thresholds and milestones of development that Internet startups move through. • Three key ideas set out to test: • 1. Startups evolve through discrete stages of development. Each stage can be measured with specific milestones and thresholds. • 2. There are different types of startups. Each type evolves through the developmental stages differently. • 3. Learning is a fundamental unit of progress for startups. More learning should increase chances of success.

  5. Main results • Internet startups move through similar thresholds and milestones of development, which were segmented into 6 stages; • Discovery; • Validation • Efficiency • Scale • Profit Maximization; • Renewal (5 and 6 not covered). • Startups that skipped these stages performed worse.

  6. Discovery: • Startups are focused on solving a meaningful problem and finding who would hypothetically be interested in their solution. • Founding team is formed, many customer interviews are conducted, value proposition is found, minimally viable products are created, team joins an accelerator or incubator, Friends and Family financing round, first mentors & advisors come on board. • Time: 5-7 months (average for all types) • 2) Validation: • Find if people are interested in their product through the exchange of money or attention. • Refinement of core features, initial user growth, metrics and analytics implementation, seed funding, first key hires, first paying customers, product market fit. • Time: 3-5 months (average for all types)

  7. 3) Efficiency • Refine their business model and improve the efficiency of their customer acquisition process. • Efficiently acquire customers in order to avoid scaling with a leaky bucket. • Value proposition refined, user experienced overhauled, conversion funnel optimized, viral growth achieved, repeatable sales process and/or scalable customer acquisition channels found. • Time: 5-6 months (average for all types) • 4) Scale: • Startups step on the gas pedal and try to drive growth very aggressively. • Events: Large A funding round, massive customer acquisition, back-end scalability improvements, first executive hires, process implementation, establishment of departments. • Time: 7-9 months (average for all types)

  8. 2. Three major types of Internet startups (defined along a spectrum of 100% marketing to 100% sales), • Various sub types segmented based on how they perform customer development and customer acquisition. • Each type has varying behavior regarding factors like time, skill and money. • Type 1 (The Automizer) • Type 1N (The Social Transformer • Type 2 (The Integrator) • Type 3 (The Challenger

  9. Type 1 - The Automizer • Self-service customer acquisition, consumer-focused, product-centric, fast execution, often automize a manual process. • Technology-heavy founding teams perform better than other teams • Market size is 2x bigger for Type 1 (The Automizer) than Type 2 (The Integrator) • More likely to tackle existing markets • Need the least capital of all types • Examples: Google, Dropbox, Eventbrite, Slideshare, Pandora, Kickstarter, Zynga, Playdom, Modcloth, Basecamp, Hipmunk, etc.

  10. Type 1N - The Social Transformer • Self-service customer acquisition, critical mass, runaway user growth, winner-take-all markets, network effects, typically create new ways for people to interact. • Need 50% longer than Type 1 (The Automizer) and Type 2 (The Integrator) to reach scale stage • Business-heavy and balanced teams perform better than technology-heavy teams • Market size is 2x bigger for Type 1N (The Social Transformer) compared to Type 2 (The Integrator) • More likely to tackle new markets • More likely to have large team growth at the scale stage • Need more capital than Type 1 (The Automizer) and Type 2 (The Integrator) • More likely to have large user growth • Examples: Ebay, Skype, Airbnb, Craigslist, Etsy, Flickr, LinkedIn, Yelp, Aardvark, Facebook, Twitter, Foursquare, Youtube, MyYearbook, Prosper, Paypal, Quora, etc.

  11. Type 2 - The Integrator • Lead generation with inside sales reps, high certainty, product-centric, early monetization, SME focused, smaller markets, often take innovations from consumer Internet and rebuild it for smaller enterprises. • Business-heavy and balanced founding teams perform better than technology heavy teams • More likely to tackle existing markets with a product that is cheaper • More likely to maintain small teams even when they scale • Monetize a high percentage of their users • Examples: PBworks, Uservoice, Kissmetrics, Mixpanel, Dimdim, HubSpot, Marketo, Xignite, Zendesk, GetSatisfaction, Flowtown, etc.

  12. Type 3 - The Challenger • Enterprise sales, high customer dependency, complex & rigid markets, repeatable sales process. • To reach scale stage they need about 2x more time compared to 1N and 3x more time compared to Type 1 and Type 2 • Business-heavy founding teams perform better than technology and balanced founding teams • Market size is 6-7 times bigger than all other types • More likely to either tackle existing markets with a better product or tackle a new market • More likely to either pivot a lot or not at all • More likely to have large team growth at the scaling phase • Need significantly more capital than the other types • Monetize a high percentage of their users • Examples: Oracle, Salesforce, MySQL, Redhat, Jive, Ariba, Rapleaf, Involver, BazaarVoice, BuddyMedia, Palantir, Netsuite, Passkey, WorkDay, Splunk, SuccessFactor, Yammer, Postini, etc.

  13. Entrepreneurial Learning • Learning from best practice • Companies that follow startup thought leaders like Steve Blank, Paul Graham, etc. are 80% more likely to raise money. Almost all companies that raised money had helpful mentors. Companies without helpful mentors almost always failed to raise funding. • 2. Ability to listen to customer feedback • Companies that are tracking metrics average a monthly growth rate that is 7x companies that are not tracking metrics and are 60% more likely to raise funding than companies that don't track metrics. • c) Ability to act on feedback • Companies that fail to listen and act on feedback tend to scale without validating the size and interest of the market. These companies tend to either pivot not at all or more than 2 times. They also have a harder time raising money and growing the team.

  14. How premature scaling adversely impacts startups • Nearly 70% of companies scale too quickly, which can contributes to the high failure rate of tech startups. • Hiring a large staff, offering generous compensation before stable revenues are established • Hiring specialists or managers too early • Failing to bring on skilled salespeople to establish an initial revenue stream • Focusing on growing the wrong segment of the market or cultivating users who do not greatly impact profitability • Sustaining or growing marketing spending without established metrics of success • Pursuing growth efforts prematurely, without truly understanding the market • Lacking a mechanism to monitor the market's reaction to the product, or being unable to adapt and capture a larger segment of the market in a cost-effective manner • Attempting to increase revenue or capture additional customers at the expense of the profit margin

  15. THANK YOU! marina.ranga@gmail.com

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