Beta Golf

Opportunity Identification

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

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

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 lets try it here
Source: Mullins, J.W. (2003). The New Business Road Test. Prentice-Hall: London.

Sources of Ideas
Prior Job

43%

Hobby / Interest

18%

Suggestion / Chance

18%

Family Business / Friends or

relatives

12%

Other

9%

Purdue study of 2994 entrepreneurs across a broad section of industries

Sweet spots
http://ecorner.stanford.edu/authorMaterialI
nfo.html?mid=1465

Technology trends and opportunities

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

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

Social / cultural trends & opportunities

Aging of the babyboom generation
Increasing diversity of
the people of the U.S.
Alternative energy
Two-working-parent
families
Rising middle class of
developing nations

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.

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 patentmay 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)

Opportunity Evaluation

Required capabilities of entrepreneurial team

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.

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.

The Logic of Analyzing New Venture Opportunities

Source: Mullins, J.W. (2003). The New Business Road Test. Prentice Hall: London

Market domain

Industry domain

Potential
Profitability
of opportunity

Is the market large enough?

What is the growth rate and
the upside potential?

Macro-level

Does the opportunity fit the teams

business mission, personal
aspirations, and risk propensity?

Market
attractiveness

Industry
attractiveness

Mission, aspirations,
Ability to execute
propensity for
risk
Team
domain

Venture
strategy

Connectedness up,
down, and across value chain
Micro-level

Target segment benefits

and attractiveness

Sustainable
advantage

What industry forces have the

strongest impact on profitability?
How are industry forces likely
to change in the future?
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

ventures 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 firmlevel capabilities create a

sustainable competitive advantage
relative to rivals or potential rivals?

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.

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

Cash Flow Implications of Strategy

Licensing

Acquire company

New company
OEM option

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

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

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

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

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