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  1. Matt Barrie 4 11331123 ELEC5701 Disrupting Markets sdfl Matt Barrie Bill Bartee Chief Executive Managing Director SXVP

  2. What are we looking for Problems – “No problem, no market” (VinodKhosla) Big markets- the size of Texas ($1bn++) Through exercise: which would you compromise out of Product, Team or Market? Scalable businesses – unbounded capacity to grow revenue without a corresponding increase in costs or complexitye.g. hotel (unscalable) vs (scalable)Thought exercise: How do you make $1 million? Pain killers, not vitamins

  3. What do we mean by DISRUPT? 10x

  4. Better, faster, longer, stronger 10x better 10x faster 10x cheaper 10x better customer service 10x better distribution 10x more convenient …

  5. Why 10x? Switching costs are too high for 20% improvement Cost of customer acquisition will be too high and the rate you can acquire too slow Competitors can take defensive moves to lock inor leapfrog Your competitive advantage is unlikely to be sustainable

  6. Disruption in the Music Industry

  7. Disruption in the Music Industry

  8. Disruption in the Music Industry

  9. Disruption in the Music Industry

  10. Disruption in the Music Industry

  11. Disruption in the Music Industry

  12. Competitive advantage We are looking for sustainable competitive advantages A lot of consumer Internet businesses you see today have no sustainable competitive advantage; they are betting on first to market and a quick flip. Hope is not a strategy. Does the idea lend itself to building a company or is it a one hit wonder? What is the “secret sauce” that competitors can’t replicate?

  13. 9 Ways for Opportunities to Disrupt Increasing the value of a product or service New applications of existing technologies (e.g. Magstripe) Creating mass markets (e.g. Model T) Customisation for individuals (e.g. Dell) Increasing reach (e.g. Kogan, Spotify) Supply chain dominance (e.g. Apple, Walmart) Convergence of industries (e.g. Genetic engineering) Process innovation (e.g. Fedex) Economies of scale (e.g. US railroads)

  14. Industries to Disrupt Look for inefficiency – there’s opportunity Look for people with job descriptions that can be described (and replaced) by algorithms Humans are inefficient, expensive, error prone and unreliable- look for businesses with lots of humans Code is scalable, efficient and has global reach Look for industries that are not yet dominated by a software business - “Software is eating the world” (Andreessen) Look for industries that haven’t innovated forever, that are lazy, bloated, with fat profits and don’t employ rocket scientists (classic example: real estate)

  15. Industries to Disrupt Find incumbents, pick off a vertical and do it better (e.g. as OKCupid, Airbnb and Freelancer has done to Craigslist, Etsy has done to eBay) Look for industries with lots of infrastructure (e.g. Harvey Norman, LJ Hooker) and do it without it (e.g. Kogan, Leasate) Look for industries where their business model has made them unable to innovate (e.g. Harvey Norman, LJ Hooker and their franchise models) Dirty industries are great (less competitors). Vice is nice.

  16. Look for discontinuities • Opportunities can be found where there are discontinuities • Capture opportunity by creating a response to it • Works best when there is a good fit with the team’s experience, skills and passion

  17. Look for trends 3-5 years out “I skate to where the puck is going to be, not where it has been” - Wayne Gretzky

  18. Evaluating Opportunities How do you make money? How large is the market? How large is it really? (segment) Who will buy the dog food? Why will they buy? How much will they pay? How long does is the sales cycle? Is the sales process repeatable and scalable? Where will the market be in 3-5 years? Will the customer enable you to profit? Can your team execute on the idea? What’s missing? If it doesn’t work, can you fail fast with minor losses?

  19. Evaluation Frameworks P, S, E out of 10 D = demerit points Value = P * S * E – D See the course blog for frameworks for the top VCs

  20. Things I personally want to disrupt Real Estate Legal Accounting & Tax Recruiters Craigslist Paypal eBay Telecoms (PSTN) Media Guns Keys Wallet …

  21. What to do next Describe the problem Write the elevator pitch Write the vision for the company Write the mission statement What is the business model? Why is your solution compelling and does it have a sustainable competitive advantage? Write up an executive summary Do some basic modelling (e.g. how do you make $1m?)

  22. Homework Read “Don’t Mean to be Alarmist, But The TV Business May Be Starting to Collapse”