Finding fertile ground

On Finding Fertile Ground
Ziya G. Boyacigiller
This presentation was created and given by Ziya
Boyacigiller who was leading Angel Investor and a loved
mentor to many young entrepreneurs in Turkey. We have
shared it on the web for everyone’s benefit. It is free to
use but please cite Ziya Boyacigiller as the source when
you use any part of this presentation. For more about
Ziya Boyacigiller’s contributions to the start-up Ecosystem
of Turkey, please go to www.ziyaboyacigiller.com

Finding Fertile Ground
Identifying Extraordinary
Opportunities for New Ventures
by Dr. Scott A. Shane
Ziya G. Boyacıgiller
Sabanci Universitesi
Yonetim Bilimleri Fakultesi

It does not take much strength
to do things, but it requires a
great deal of strength to decide
what to do.
Ziya G. Boyacigiller (c) 2005
EMBA 3
Elbert Hubbard

EMBA 4
Making of a successful
entrepreneur…
Q: What separates successful
entrepreneur from the masses that
start businesses?
A: The selection of the right
business concept to exploit a
valuable opportunity.

EMBA 5
Improve Odds of Success…
The number one predictor of new
business failure is the industry in
which the firm is founded (with retail
businesses and restaurants having
extremely high failure rates).
Q: What to do then?

EMBA 6
Analyze Industry using “Five
Forces” model

EMBA 7
Entry & Exit Barriers
determine quality of returns (profit)
EXIT BARRIERSENTRYBARRIERS

EMBA 8
Technology & Success
Generally, entrepreneurs are more
successful if they start
technology businesses.
The professionals in the field,
venture-capitalists and serial
entrepreneurs, have a reason for
picking technology businesses to
work on…

EMBA 9
Technology
From Wikipedia
Technology is a broad concept that deals
with the usage and knowledge of tools and
crafts (processes), and how it affects the ability
to control and adapt to the environment.
…
Other species have also been observed to have
created and used technology, including non-
human primates, dolphins, and crows.

EMBA 10

EMBA 11
What is Technology?
Technology is the useage of knowledgeknowledge in
ways that make it possible to
➦ create new products,
➦ exploit new markets,
➦ use new ways of organizing,
➦ incorporate new raw materials, or
➦ use new processes
to meet customer needs.
( “new”  Significantly Differentiated  innovation)

EMBA 12
Ask yourself:
1. Is there continuous change in the
market, industry?
• Change  Problems  Solutions  Knowledge
1. Can we protect our knowledge?
2. Can we capture the value resulting from
our knowledge?

EMBA 13
Features of a Successful
Entrepreneur are…
Despite decades of effort to identify the special
features of successful entrepreneurs,
there really are NONE!
Academic research on entrepreneurship has shown
that the effect of business opportunities on the
performance of new ventures is so large that it
swamps the effect of entrepreneur’s
characteristics.

EMBA 14
First 2 Rules for
Entrepreneurial Success:
1. Select the right industry
2. Identify valuable
opportunities

EMBA 15
Rule 1:
Select the right industry
a) Knowledge conditions
b) Demand conditions
c) Industry Life Cycles
d) Industry Structure

EMBA 16
Rule 1: Select the right industry
(a) Knowledge conditions
 Level of complexity of the production process
(aerospace/higly complex vs. paper-bag/nothing to think about)
 New knowledge creation required for products and services
(%R&D spending required)
(pharmaceutical/R&D intensive vs. dry cleaning/little-to-no R&D)
 Codification of knowledge
(steel-reinforced-concrete-building design/mostly on paper vs. analog-chip
design/mostly in the brain)
 Where the innovation that supports new products and services
is made
(semiconductors [Intel/industry] vs. superconductors [MIT/universities])
 Distribution of value added from {manufacturing & marketing} vs.
{product development & innovation}
(automobiles vs internet software)

EMBA 17
Stop! Don’t Do It!
1. Don’t start a business without
investigating how favorable the
industry is to new firms.
2. Don’t fight the odds. Don’t start a
business in an industry that is
unfavorable to start-ups.

EMBA 18
(b) Demand conditions
 Magnitude of customer demand for
products or services (“marginal cost”)
(major drugs vs minor drugs)
 Rate of growth of demand
(new customers  low response from incumbents)
 Heterogeneity of that demand across
customer segments
(water vs. clothing)
(“niche segments”  growth “under the radar”)

EMBA 19
1. Don’t start a business in a small market;
you can just as easily start one in a
large market.
2. Don’t start a business in a slow growth
market, your competition will respond
fiercely.
3. Don’t start a business in an
unsegmented market; the incumbents
will kill your business.

EMBA 20
(c) Industry Life Cycles
 Early-on, competition is less  no established
leader in market yet
 Learning curve disadvantages don’t exist yet in
new markets
 Standards don’t exist in new markets, gives a
chance to new businesses to compete
(MS Office vs all others…)
 Early is bad, late is bad… Attracting customers
when there is double digit growth is easier.

EMBA 21
Sweet Spot


EMBA 22
1. Don’t wait until a business is
mature to enter it.
2. Don’t wait until after a dominant
design has emerged to start your
business.

EMBA 23
(d) Industry Structure
 Capital intensity vs labor/knowledge intensity
(steel vs. textile/game software)
 Advertising intensity
(scale & time)
 Concentration of industry
(pharmaceuticals vs. dry cleaning) (powerful incumbents,
collusion, market share from smaller competitors)
 Average firm size
(small size means lower risk, economies of scale in purchasing),

EMBA 24
1. Don’t start a business in a capital intensive
industry.
2. Don’t start a business in an advertising
intensive business.
3. Don’t start a business in a concentrated
industry.
4. Don’t start a business in an industry in which
the average sized firms are large.

EMBA 25
2. Identify valuable
opportunities
a) Changes in technology
b) Changes in political and regulatory
rules
c) Changes in social and demographic
factors
d) Changes in industry structure

EMBA 26
2.Identify valuable opportunities
(a) Changes in technology
 Magnitude of new technology
(nanotechnology)
 Generality of the change vs single-purpose
(laser)
 Commercial viability of the change
(space shuttle)
 Effect of new technology on industry dynamics–
changes how companies compete
(IP – VoIP, IPTV)

EMBA 27
(b) Political and regulatory change
 Productivity enhancing change
(deregulation of telecom)
 Shifts value from one set of economic factors to another –
from consumers to manufacturers, non-productive change
(body-bags in cars)
 Increases demand
(car-seats for babies)
 Support subsidies and other resources result in reduced
costs and make products/services common
(technoparks)

EMBA 28
(c) Social / demographic change
 Alter peoples’ preferences and creating new
demand (markets)
(women in work-force take-out and frozen food)
 Social trend
(deodorant)
 Demographic trend
(population ages  geriatric health care, or Istanbul now
is best city for young people)
 Shift in perception or demand
(chicken with hormones, red-meat raises LDL cholesterol)

EMBA 29
(d) Changes in industry structure
 Firms die or merge
 Firms split or diversify businesses
 Firms shift focus
(hub-and-spoke operation  point-to-point airlines like
Southwest)

EMBA 30
How to exploit new technology
These 4 changes can open up opportunities by
allowing older products and services to be:
i. produced with new production methods
(mini-mills for steel),
ii. using new raw materials
(plastics or ceramics replacing metals),
iii. organized in new ways
(Amazon, Dell),
iv. for sale in new markets
(shock freezing vegetables).

EMBA 31
Why is knowledge important?
Start-ups can minimize imitation by
keeping trade-secrets (knowledge), which
is done more easily when making use of
new raw materials,
new production methods,
new forms of organizing
to produce old products and services, and
by targeting new markets.

EMBA 32
Why did Bill Gates start
Microsoft?
Or, Steve Jobs start Apple?
Or, Husnu Ozyegin start
Finansbank?

EMBA 33
Why do some people but not others
identify a Valuable Opportunity:
1. Access to Information
(experts, social networks, customers)
2. Better Information Processing
(in digital watches-Swiss vs. Japanese, in operating systems-
Xerox vs. Apple)
i. Extrapolating from incomplete information
ii. Schemas (analogs/antilogs) from prior experience
iii. Seeing information as opportunity, not risk
iv.iv. CreativityCreativity (seeing what others don’t see)

EMBA 34
Idea (+ Execution)
I developed a rule over the years that if I have an
idea (no matter how creative it may be) I can
almost be sure that someone in the world has
also thought of it already.
Great ideas without the ability
to execute are useless.
Success comes as much from our ability to
execute an idea, as from the idea itself.

EMBA 35
Winning at Execution
Requires
 Strong expertise
 Strong network
 Strong motivation
• discipline and patience
• will to succeed
• will “to find a way” when faced with
challenges

Finding fertile ground

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