Dimensions of Innovation in Entrepreneurship

The Dimensions of Innovation
in
Entrepreneurship

Chris Evdemon (易可睿)
Managing Partner
Eastern Bell Venture Capital

Today let’s talk about …

• Innovation:
Product vs. Process vs. Business Model

• The 5P’s in Starting a New Business

• Venture Capital Trends in China in 2009

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© 2009 - Chris Evdemon

Forms Of Innovation
• Product
– e.g. iPhone (Apple), Internet Search (Google), etc.
– innovation through research and development
• Process
– e.g. Toyota, Dell, Zara (Inditex), etc.
– innovation in supply chain management and
logistics
• Business Model
– e.g. iTunes (Apple), AdWords / AdSense (Google),
etc.
– innovation in customer acquisition, new revenue
streams, pricing policy, add-on services, etc.

READ THIShttp://www.gizmag.com/go/7494/

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Forms Of Innovation
• Zara’s Process Innovation
– Key is the ability to adapt the
Sourcing &
product offer to match Design
Manufacturing
consumer desire.
– For Zara, time is the most
important factor above and
beyond production costs.
– Shortened turnaround times,
Distribution &
achieved greater flexibility, Retail Sales
Logistics
reduced stock to minimum and
hence diminished fashion risk
as much as possible.
READ THIShttp://www.slideshare.net/naveedtaji/inditex-group-presentation-893804

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Innovative Start-Ups
Some personal examples:

• Product Innovation
ECitySky (www.ecitysky.com)
• Process Innovation
ECDL Hellas (www.ecdl.gr)
• Business Model Innovation
Ethos Technologies (www.ethos.com.cn)

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ECitySky

• Founded in mid 2007 in Beijing with $115,000
USD start-up capital from the three founders as
well as family and friends.
• The company is developing China’s first truly 3D,
fully web-based, immersive SNS / virtual world
technology platform.
• In May 2008 the company raised $400,000 USD
from angel investors.
• Currently in private beta-version.
VIEW THIShttp://www.tudou.com/programs/view/gcU2Rl1XDH0

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The Founders

Nov.’07

VIEW THIShttp://www.tudou.com/programs/view/gcU2Rl1XDH0

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ECitySky

HIGH TECH BARRIER – CORE COMPETENCY

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ECitySky

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ECitySky

• Current technology platform is truly
innovative, by global standards.
• “Great! We now have a cool technology, how
about getting a business model?”

Another
Virtual
World

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ECDL Hellas
• Founded in March 2000 in Athens, Greece
with €70,000 Euro start-up capital from two
founders and one angel investor.
• License to operate in Greece the ECDL digital
literacy certification program.
• Greece has a 10 million people population and
in 2000 GDP per capital was about $14,000
USD.

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ECDL Hellas

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ECDL Hellas
• When we started in March 2000, we had the
following:
– signed license agreement for ECDL in Greece;
– ECDL syllabus;
– four (4) ECDL tests for manual marking;
– a brief and generic “Standards & Guidelines”
booklet.

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ECDL Hellas
• By the end of its 3rd fiscal year (2003), company
had achieved in Greece:
– establishing ECDL as the synonym of “digital literacy”;
– €10 million Euro in revenue;
– €2 million Euro in net profit;
– 1,000+ Authorized Test Centers;
– 200,000 ECDL candidates.
– Additionally, ECDL Hellas acquired
the ECDL license for and started
operations in Turkey.

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ECDL Hellas
• In March 2000, the ECDL program:
– was already successful in the U.K., Ireland, Germany
and the Scandinavian countries …
– … but it was struggling in France, Spain and Italy.
– The examination process was largely as follows:
• a candidate registered and took test(s) at an ECDL
Authorised Test Centre (ATC) whenever he/she wanted;
• tests were supervised by ATC personnel;
• tests were marked by ATC personnel;
• results were communicated by fax or email to ECDL HQ in
that country.

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ECDL Hellas
• By the end of 2000, we had created new tools and processes,
customized for the Greek market realities:
– a proprietary simulation-based Automated Test Evaluation System
(ATES);
– a fully web-based intranet / extranet for all stakeholders in the ECDL
operations (i.e. ATCs, candidated, ECDL Hellas, etc.);
– a detailed ECDL ATC Operations Manual (~70 pages) explaining every
part of the ECDL program and relevant processes;
– full (compulsory) training program and materials for all ATC staff;
– an initial set of customisable ECDL
marketing materials in Greek which
ATCs could use in their local market;
– a daily, 9am – 9pm call centre for ATCs;
– and much more …

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ECDL Hellas
• The examination process was re-designed as follows:
– ATC determined which days / hours ECDL examinations
were to take place at its premises.
– ATC registered candidate(s) online at the intranet and
candidate(s) took test using the ATES;
– tests were supervised by official ECDL Supervisors,
members of the Greek Computer Society;
– Supervisors were assigned to specific ATCs by the intranet;
– tests were automatically marked by the ATES, results were
instantly communicated to (a) the candidate and (b) ECDL
Hellas’ central database through the intranet.

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ECDL Hellas
• From a process point-of-view, ECDL Hellas was
successful largely because:
– it took a generic, internationally licensed business and
customisedit for the local market;
– it took a licensed product and made a first-class service
out of it;
– it realised that its clients were the ATCs (not the
candidates) and focused on building and servicing a
network of “partners”;
– it protected the credibility of its product and service;
– it automated all unnecessarily manual processes thus
increasing efficiency, quality of service and reducing cost.

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Ethos Technologies
• Founded in the beginning of 2005 in Beijing
with $20,000 USD start-up capital from three
founders.
• The company is a software development
outsourcing provider with its main (back-)
office in Beijing and front-offices in Oslo,
Stockholm and Helsinki.
• For 2008, revenues where 40 million RMB and
net profit was 1.5 million RMB.

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Ethos Technologies
The Founders …

… and their “family”!

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Ethos Technologies
• Key question for founders was “how to provide customer value?”

• Their answer is to be “Global, Local and Agile”.

– Quality Solutions:
• focus on solving the real problem, not only executing according to a specification;
• the Ethos team must understand and take ownership of the solution;
• achieved by having a front office in eachoftheir target markets for both pre- and after-
sales support Ethoseliminatesusual offshore distance / language / culturebarriers.
– Time To Market:
• traditional “Waterfall” methodology separates project into serial phases whereas agile
allows parallel tracks, i.e. development and planning goes hand in hand;
• truly global development center can provide the required capacity for rapid
development.
– Reduced Risk / Cost:
• iterationsevery 2-4 weekswithtangibledeliveriesprovideearly feedback on risk factors,
reducingsignificantly overall project risk and cost.

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Ethos Technologies

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Ethos Technologies
Agile Development Global Delivery Model
• New trend in software • The world is flat –
development. potential to source
services globally.
• Dynamic and flexible – but
requires close • Leverage capacity and cost
communication and levels in remote locations.
collaboration. • China is emerging as an
+
• Frequent iterations allows alternative to India, large
for learning in the project talent pool and better
execution. infrastructure.
• Increases quality and • Need to bridge culture and
throughput time – reduces communication issues.
risk.

Ethos’ Agile Global Delivery Model (AGDM) is “the best of both worlds”.

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Ethos Technologies
Ethos is moving
ahead of
Flexible

competition by
combining Agile
and Global
Onshore Delivery Model
suppliers

Onshore
competition has
evolved through
Rigid

process Offshore suppliers
innovation in have captured the
Agile share of the
methodologies market that can
Traditional
over the last easily be supplied
Offshoring
years by traditional
Global Delivery
Model.

Onshore Offshore


• Innovation:



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Preparation
• Study and learn from best practices in foreign
markets.
• Understand your own local market.
• Add your own “secret sauce”.
• Initial strategic decisions are a crucial
component for a start-up company’s success
or failure.

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Preparation
• Remember that:
– at the beginning, a Founder of a start-up company has a
“clean sheet”, i.e. a unique opportunity to determine
everything about the company;
– as the company is growing, it is all about management of
growth and change.
• In the course of the life of the company, be prepared to
allow and encourage other people to:
– grow with the company;
– contribute to the company; and also
– decide about the future of the company.
• Be prepared to manage the transition.

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Preparation
• People – human resources are by far the most
critical success factor.
• Business Model – careful planning is important,
flexibility for and responsiveness to potential
changes is even more important.
• Execution – the best plan, the most innovative
product, the brightest team can fail if execution
fails. Ability to execute is the most sought after
quality that investors look for in entrepreneurs.

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Preparation
• Founders’ necessary ingredients:
– excellent working relationship;
– common or complementary goals;
– discuss and agree on:
• roles / responsibilities;
• the plans for the business and potential exit;
• all (majority / minority) shareholder issues.
• Think of all potential scenarios and discuss, because:
– tough times bring the best and the worst out of people;
– success also brings the best and the worst out of people.
• Know yourself, know your partners, know your
contribution to and your position in the company.

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Preparation
• People Management:
– prepare early to make your company the most
attractive, exciting and promising career prospect for
any talented young person out there;
– respect the employment laws;
– be fair in salaries, reward based on performance;
– invest in training and career development;
– set up recruitment and assessment processes from
the beginning;
– make assessment a peer process;
– ensure people understand their roles in the company
and get them involved.

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Preparation
• Business Model:
– keep it simple;
– do not forget to complement even the most
innovative and exciting new product with
excellent service;
– distribute your income wisely, allow your partners
to make money out of the business that you
create for them;
– readily adapt to changing market needs.

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Preparation for Fundraising
• Carefully prepare all your materials:
– 1’ elevator pitch
– executive Summary
– introductory slides deck (~15 slides)
– full slides deck
– full business plan
• Practice your pitch and prepare to answer difficult
questions.
• Explain in detail what you are going to do with the
money.
• Be humble while confident and dynamic, and always
honest.

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• Fundraising timeline is totally dependent on all
other aspects of the business.
• Think of different potential growth scenarios,
demonstrate that you are prepared and
understand the implications.
• Put the forecast of all critical factors of your
business evolution on the same timeline chart,
e.g. product development, customer acquisition,
staff, revenues, cost, profitability and fundraising
rounds.

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Patience & Persistence
• Timing – “being at the right time at the right
place”:
– even the best ideas backed by the most capable teams
can fail if timing is not right;
– rarely can you force your idea to the market so …
– … if the market does not respond the way you want,
adjust your business model and …
– … survive so that you can be there when the right
time comes. It will come!
• The element of luck.

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• Building a business is a continuous process – “it is a
marathon, not a 100m race”.
• Do not get carried away by the frenetic pace, make it a
point every-now-and-then to stop, take a breath and
evaluate.
Set Targets

Evaluate
Communicate
Progress

Assess Assess Your
Yourself Team
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• Corporate Culture is critical in building
patience and persistence, as well as retaining
top talent:
– Create a great work environment.
– Start-ups are intense environment that test
relationships. Diffuse tensions.
– Find your internal “champion(s)”.
– “Work hard, play hard.”

VIEW THIShttp://www.ethos.com.cn/company/ethos-story

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Patience & Persistence in Fundraising
• Boot-strapping: use your own resources to
the maximum possible effect, until the
“tipping point”.
• Understand how investors think and decide.
• Have realistic fundraising timetables.
• Continuously communicate with potential and
actual investors.
• Do not be afraid to communicate bad news.

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Persuasion
• Corporate Governance:
– Start sooner rather than later – lay the foundations early on.
– Carefully select the external members of your Board of
Directors:
• industry expert(s);
• Government or other key influential person(s);
• previous entrepreneur(s);
• investor(s).
– The Board has several very important functions.
– Select a real (!) Board of Advisors and use it.
• Senior Management’s role.
• Everyone is following your leadership.

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Persuasion

Co-Founders

Senior
Investors
Management

COMMUNICATION

Public Staff

Clients

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Persuasion in Fundraising
• Angel Investors (“Smart Money”)
– choose individuals whose contribution in the company will
be just as beneficial as the capital they will put in;
– ensure their time commitment.
• Venture Capital:
– research their previous investments and track record;
– research the General Partners’ profiles;
– select General Partner as much as selecting a fund;
– give the General Partner that is championing your deal all
the information that he / she needs.
• Excited and satisfied investors will bring more
investors.

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Persuasion in Fundraising
• What is an early stage VC looking for?
Management •An exceptional CEO.
•Core team in place.

Product •Core product ready.
•Concrete future product development plan.

Market •In-depth competition analysis and tracking.
•Well planned and cost effective marketing plan.

Revenues •Existing revenue stream(s).
•Clearly identified new revenue stream(s).

Cash •Reserve cash for at least twelve (12) months.
•Clear and realistic cash flow positive projection.

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Productivity
• “I do it all” vs. specific role:
– at the beginning you will be involved in everything;
– you will gain invaluable experiences that later on assist
management decisions but …
– … it will become counter-productive if prolonged beyond a
certain stage, when rapid growth begins.
– One of the biggest challenges is to learn how to delegate
authority, let the people around you “grow” with the company.
– Founders need to evolve together with the company.
– A true measure of success is to bring in people that do things
better than you.
– Role transition: sometimes founders need to give way to more
experienced managers.

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Productivity
• Perfectionism vs. growth:
– It is OK to make mistakes; they are part of the
learning and improvement process.
– Do not become the “bottleneck”!
• Quick decisions vs. “the paralysis of the
analysis”.
• In-sourcing vs. out-sourcing; different stages
of growth require different solutions.

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• Innovation:



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Venture Capital in China in 2008
• China’s venture capital market is already the
second largest in the world, behind the U.S.
• 2008 was a record year, despite the global
financial crisis worldwide, in terms of:
• capital raised - $7.3 billion USD
• number of new funds - 116
• total investment amount - $4.2 billion USD
• number of new deals – 607

READ THIShttp://www.zero2ipo.com.cn/en/research/2009224133246.shtml

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• But Q3/Q4 numbers
show a rapid decline.
• IPO exits also
significantly down year-
on-year.
• Traditional industries
still a very large part of
the dealflow.

READ THIShttp://venturebeat.com/2009/01/19/venture-fundraising-going-going-gone/
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• Some additional observations:
– still little attention to early stage;
– Beijing and Shanghai represent the
vast majority of deals;
– foreign investment is still more than
double of the domestic investment.

READ THIShttp://www.zero2ipo.com.cn/en/n/2009-3-18/2009318150945.shtml
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Investment Trends for 2009
Sectors attracting most attention from VCs in China will be:
– Technology:
• Enterprise software
• Logistics technology / infrastructure
– Cleantech
– Education
– Consumer Services:
• e-Commerce
• Internet communities
• Mobile applications
• Gaming
– Healthcare Services
– Medical Devices

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Online Trends for 2009 and Beyond
1. Social networksare a business but cannot survive on ad revenues alone.
Mobile social networks are the future.
2. Online communitiesare not just a teen phenomenon. Focused, target
group communities are being formed and have economic effects.
3. E-commerceis here and will be the main growth segment for the next
few years. Mobile commerce is still at a nascent stage in China but will
also grow rapidly in the next few years.
4. The amount of information available online is overwhelming. Privacy is
becoming a luxury.
5. Online gaming is already the most popular “21st century” form of
entertainment and it is just getting started! Mobile MMORPGs are also
around the corner.
6. 3D environments will start integrating with 2D - is this the definition of
Web 3.0? Several new worlds for kids, for teens, for the fashion-
conscious, for socializing, for brands, for education, etc. will start and/or
grow this year.

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Online Trends for 2009 and Beyond
7. The new mass media. Last year, Korea was reportedly the first country to
have its population spend more time online than watching TV. Who’s
next?
8. Online startups will face a strong dose of realism. You will have to show
not only usage but also revenues. Copycats will no longer get
automatically financed unless they have proven business cases – it is
time to innovate.
9. It is finally here - the impending launch of the wireless 3G mobile
networks in China. China Mobile is set to launch their 3G TD-SCDMA
network in Q2. Unfortunately, the TD-SCDMA is a China-only
standard;3G handsets from other countries will not work on the China
Mobile network. China Unicom however does use W-CDMA which is a
global standard and compatible with the Apple iPhone 3G.
10. Welcome to the “Age of Convergence”! E-commerce, SNS, virtual worlds
and online games are coming together, blurring the frontiers between
categories, web and mobile, online and offline. Lifestyle is going digital.

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Consumer Trends for 2009
• Consumers in China do not have many role models,
therefore currently open to try new products and accept
new brands.
• Still predominantly price sensitive but more and more
people are beginning to have brand awareness.
• Chinese consumer market is very fragmented in most
product lines. This is unlikely to change in the near future.
• Several opportunities to capture market share will be in
2nd and 3rd tier cities.
• Emerging middle class has already started paying
attention to diet, fitness, healthy lifestyle,
environmentally-friendly products and services, etc.

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Thank you! 谢谢你们!

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Dimensions of Innovation in Entrepreneurship

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