to Android and allows a tablet to be used like a laptop, running multiple apps .... Your Own Business, and the seminars
Jide Technology co-founders Ben Luk and Jeremy Zhou
APR
Inside Startups - Former Google trio target Windows in tablet war - Hong Kong start-ups ‘must focus on China, not US’ - ‘Lucky seven’ domains model can avert disaster
www.educationpost.com.hk/is-apr15
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CONTENTS The rulebreaker
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Ex-Google engineers market Android device to rival Windows Surface ADRIAN WAN
Insight
8
Turning new ventures into dynamic success stories ANDREA ZAVADSZKY
Start-up doctor
12
Vision of future is the key to making dreams a reality JOHN CREMER
The region
16
Accelerator leverages strengths of three cities for entrepreneurs ALICE WOODHOUSE
Inside Startups is published by Education Post, South China Morning Post Publishers Ltd. All rights reserved. ISBN: 978-962-8148-35-6
Talking point
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Hong Kong businesses told: ‘look to China, not US’ to grow ALICE WOODHOUSE
The trends
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Property search start-up targets wealthy Asian investors with London sales listings ALICE WOODHOUSE
Paper
24
‘Lucky seven’ domains can save a start-up from disaster JOHN MULLINS
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The rulebreaker
Ex-Google engineers market Android device to rival Windows Surface Text: Adrian Wan Photo: SCMP Pictures
For former Google software engineer Jeremy Zhou, the idea began when his father handed back a Windows 8 laptop the younger Zhou had given him. “I thought he’d be fine using it because he had been using Windows for many years, but after two days he gave it back to me, saying he couldn’t use it,” the 38-year-old Zhou said in a recent interview. The result was Beijing-based Jide Technology, co-founded by Zhou and two other former Google engineers with US$4 million of their own money. It has developed a modified version of Android 4.4.2 KitKat that brings the look and feel of the Windows desktop operating system to Android and allows a tablet to be used like a laptop, running multiple apps in small windows. Having attracted the backing of Taiwan’s Foxconn, the world’s biggest contract electronics maker, the start-up has begun producing its own tablet, the Remix Ultra Tablet. The device uses the new OS, comes with a keyboard and offers, the company says, the same productivity as a laptop. “We keep asking ourselves: why are people still using laptops? We think 95 per cent of people still use them for three things only, namely the browser, e-mail, and office software,” Zhou said.
Jide Technology co-founder Ben Luk
The Remix Ultra allows apps to open in different windows, similar to a desktop operating system.
Inside Startups
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The rulebreaker
The OS, which Jide is offering to other makers for free, and the tablet put the company head-to-head with Microsoft’s Surface device, and reviewers have been quick to point out the similarities with the Surface, except in processing power. Mobile tech website Liliputing said in a review of the Remix Ultra the device was “intriguing”, but noted that it was still an Android tablet, so any software used would be the Android version. Zhou however sees the future in Android. “People don’t actually care about the operating system. They use Windows because it lets them access other apps, not because it is Windows. We’re gambling on the fact that many years from now, most of the new apps will be on Android or iOS.” The tablet has an 11.6 inch, 1920 X 1080 screen and a 1.8 GHz Nvidia Tegra 4 chip. It has 2GB of RAM, either 16GB or 64GB of storage, a pair of 5 megapixel front/rear cameras and dual-band Wi-Fi (a/b/g/n). Weighing 860 grams, it comes with a magnetic keyboard and a stand that can be positioned at either 40 or 80 degrees. The tablet is on sale in China at prices from 2,288 yuan (US$370) and will be available in the US later this year for an estimated price of US$399. Jide is the latest venture for China-born Zhou, who was educated in Hong Kong. He was Google’s 103rd employee, but quit the company in 2008 and plunged into angel investing in China. Most of the companies he has invested in failed, he said, though one, an international online retail company called LightInTheBox, went public in 2013. In mid-2013, Zhou and former Google colleagues Ben Luk and David Ko formed Jide. Luk, 36, had run the Google Maps operation in the Asia-Pacific region and had been working for Google in the US for 10 years. The decision to leave Google wasn’t hard for him. “I decided I had to do something I was truly passionate about when I was still young,” Luk said.
Jide Technology co-founder Jeremy Zhou
Ko, 37 and born in Hong Kong, had worked at Google in Shanghai as a software engineer. Their venture caught the attention of Terry Gou, the billionaire founder of Foxconn, best known as the main manufacturer of Apple products and which also runs an incubator programme for start-ups. “We convinced him by showing that we were determined in the field. We weren’t just random guys hoping to join a trend, but we quit our full-time jobs at Google and put our own money into it at the beginning,” Zhou said. The company has recently completed a funding round, bringing in US$16 million from investors including Foxconn, and has raised an additional US$200,000 on crowdfunding website Kickstarter in a project that began on March 26 and was due to end this week. The Taiwanese company manufactured their prototype for free, and gave them advice on hardware design, Zhou said. “Manufacturers work with a lot of partners and they can see what’s coming in the industry. They could see that this was something that might work, and we gambled on it and it looked like it might be the future,” Zhou said.
The Jide Remix Ultra tablet promises to offer the ease of a tablet and the productivity of a laptop.
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Insight
Professor Tony Chan President HKUST
Turning new ventures into dynamic success stories Text: Andrea Zavadszky Photo: Jupiter Wat
Whether on the level of the community, national government or international forums, technology’s rapid development is changing the narrative. It disrupts industries and builds new ones, increasingly creating horizontal, multidisciplinary platforms of co-operation for research, and speeding up innovation. Education is among those areas most affected: it has to ensure forward-looking teaching that supports development at a time when this is almost too swift even to follow. Sparking innovation is more important than ever, and supporting entrepreneurship that can put new inventions into practice quickly and efficiently is the only way forward. Hong Kong University of Science and Technology (HKUST) fully supports the changing scientific and industrial landscape, according to its president, Professor Tony Chan. “The big change in culture regarding entrepreneurship only happened two to three years ago, but it has been our vision from day one,” Chan says. “We have an Entrepreneurship Centre where we can incubate start-ups until they can move to the Science and Technology Park.” Beyond the three-year incubation programme offered by the centre, an e-Academy helps students plan, build and manage innovative start-ups, while a training camp offers the chance to form potential partnerships, and bi-weekly Friday Dreamers seminars introduce them to the concept of entrepreneurship. “BYOB, one of the Entrepreneur Centre’s flagship seminar series, has been very well-attended by the university community. BYOB doesn’t mean Bring Your Own Booze,” jokes Chan. “It means Build Your Own Business, and the seminars are given by seasoned industrialists on practical aspects of building a business.” Chan also points to the university’s annual One Million Dollar Entrepreneurship Competition, which this year takes place in June,
THE BIG CHANGE IN CULTURE REGARDING ENTREPRENEURSHIP ONLY HAPPENED TWO TO THREE YEARS AGO, BUT IT HAS BEEN OUR VISION FROM DAY ONE Inside Inside MBA Startups
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Insight
with several student start-ups in biotech, health and environmental technology among the 12 shortlisted teams in with a chance to win seed money, complimentary use of an office and services in-kind. The recent emergence of the entrepreneurial ethos in Hong Kong has several causes, Chan says: “Now there are role models in Asia and we are just starting to see some in Hong Kong. In addition, alternatives [such as banking and finance] are not so appealing. In Silicon Valley they want to change the world, and there is this ethos of: ‘I’m out there to change the world’ here too.” Chan too part in a recent pitch night staged by co-working space Cocoon with more than 300 young people in the audience, watching start-ups compete. “Young people think: ‘It’s okay now, I can do it’. In two years, participants have changed from expatriates and returnees to local [youth]. So I’m very encouraged,” Chan says, adding that Hong Kong has great potential but that there are worrying signs of “closing the doors and building a castle”, rather than focusing on how to make the SAR the best possible place for start-ups. While HKUST is globally appreciated for its high standards, Chan is also well-known as an academic and thought leader. Before joining the university, he was an assistant director of the Mathematical and Physical Sciences Directorate at the U.S. National Science Foundation (NSF), managing research funding in astronomy, physics, chemistry, mathematical science, material science and multidisciplinary activities. Recognised for his contributions, he became an invited member of the Global University Leaders’ Forum (GULF), which unites 25 universities into a community under the umbrella of the World Economic Forum held in Davos, in Switzerland, every winter.
IN SILICON VALLEY THEY WANT TO CHANGE THE WORLD, AND THERE IS THIS ETHOS OF: ‘I’M OUT THERE TO CHANGE THE WORLD’ HERE TOO
Representing one of just seven Asian member universities, Chan participated in the prestigious GULF, which chose to discuss a topic in its 2015 programme very much aligned with his experience: “How university-industry partnership can help boost high-tech economic growth, create jobs, nurture innovation and drive entrepreneurship”. “The World Economic Forum is committed to improving the state of the world. It focused on the rich-and-poor divide, scarcity of natural resources and resolving geopolitical crises,” Chan says, adding, however: “The Forum does not have any authority to move the agenda; it’s not something that comes up with a to-do list.” The different programmes – including a special session with Nobel laureates and one-on-one interviews – are so numerous that it is impossible to attend more than about 10 per cent of it. China featured heavily, representing about 10 per cent of the topics. For HKUST, the most interesting part was taking part in the IdeasLab organised by GULF, where they were one of seven universities – and the first from Asia – to be invited to stage a presentation on the merging of the physical and virtual worlds. Four HKUST professors talked about 5G and the tactile internet, the future of machine translation, computer graphics and artificial intelligence to an audience who were not scientists. The presentations were not too technical but all touched on the new frontiers of technology. The audience had an open mind and asked many questions about the human dimensions and implications of the new technologies, something the professors found refreshing. Chan says: “It is a very global platform. If you make a big speech here, a lot of people can hear it.”
Inside Startups
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Start-up doctor
Vision of future is the key to making dreams a reality Text: John Cremer Photo: K. Y. Cheng As someone who received up to 1,000 business proposals a year when he was based in Beijing, Peter Hsieh has a sharp eye for what a new venture and the entrepreneurs behind it need to succeed. Therefore, as chief judge of the recent Battle Silicon event at Cyberport, the chief strategy officer of Coretronic Corporation was ideally equipped to run the rule over some of Hong Kong’s brightest start-up prospects and offer sage words of advice along the way. “The companies in the competition are in the early stages of development, but I asked where they saw themselves and the market five years from now,” says Hsieh, who has been in venture capital
since 1997 and, these days, operates from Taipei. “To build a successful company, you need not just a product or service, but also the vision –and sometimes that is what’s lacking.” With the businesses under review generally having a significant high-tech element, he also questioned whether their plans took due account of such factors as human capital and relevant IT skills, which might be in short supply. Hong Kong has it obvious strengths in fields such as finance and property, and the advantage of being able to bring together different talents. However, entrepreneurs working to expand a recently launched venture must face the fact that attracting suitable staff may pose a problem and, in terms of generating revenue, reliance on the local market alone may not be enough. That said, looking for future development opportunities in Shenzhen, Guangdong and further afield may put unforeseen strains on the current business model and dilute the product’s appeal. “A good idea is one thing, but the other ingredients also have to be correct,” Hsieh says. “You need to plan for the upside and the downside, which means understanding sales, market competition and even how to fit into the demography.” More generally, he notes that while it obviously takes time and practice to build an innovative high-tech environment like Silicon Valley, Hong Kong is on the right track. Evident plus points are the existing infrastructure, proximity to the vast mainland market, the variety of start-up ideas, and the international outlook of many young entrepreneurs. In need of improvement, though, is the communication with potential backers and the mechanism for securing funds. “It surprises me that Hong Kong entrepreneurs don’t seem to know the investor community so well,” Hsieh says. “They should be aware which venture capital companies or private equity firms are investing in a particular sector and should know who to call.” Steps are being taken to address this issue. For instance, Cyberport’s incubation programmes help by arranging introductions and networking opportunities. And other separate initiatives are also
YOU NEED TO PLAN FOR THE UPSIDE AND THE DOWNSIDE, WHICH MEANS UNDERSTANDING SALES, MARKET COMPETITION AND EVEN HOW TO FIT INTO THE DEMOGRAPHY Inside Startups
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Start-up doctor
taking shape to align new ventures with mentors, senior executive advisers and experts on the financing side. “As an ongoing platform, that will help very nicely: it is like bamboo shoots coming out in spring,” Hsieh says. “I always remind entrepreneurs that it is sometimes easy to identify a gap in the market, but your idea needs to ‘work’ for fund managers and investors. You can have an interesting technology, but the timing has to be right for the market and the stars must be aligned. That is what venture capitalists want to see and they may be looking five to 10 years ahead.” Hsieh learned that lesson as a Stanford engineering PhD working on his own Silicon Valley start-up in 1993. The basic concept was to make plasma displays, but in an economic slump, the timing was not propitious. The experience, though, was invaluable and led him to do an MBA before getting into venture capital. In the years since, some of the projects considered – such as a wireless payment system for consumers – were ahead of their time, but may yet have their day. Others were obvious winners. And perhaps too many were long on innovation and optimism, but short on practicalities and business essentials. “When people think they have a great idea or product and ask for funding, I tell them everything is about sales,” Hsieh says. “If you can’t sell the idea to me by describing it clearly and compellingly in less than three minutes – that is a test for every Stanford engineer – then how will you sell the product to customers? Sales and networking skills are very important and you are unlikely to get funding without them.”
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The region A number of start-up accelerators have opened up in Hong Kong in the past two years, including Blueprint in Quarry Bay. Photo: Edward Wong
Accelerator leverages strengths of three cities for entrepreneurs Text: Alice Woodhouse
New Hong Kong start-up accelerator Brinc will draw on the resources of three Pearl River Delta cities to nurture companies creating smart devices. The company was founded in 2014 by serial entrepreneur Manav Gupta, who has spent more than seven years running software firms in China. Start-ups will be given access to the Hong Kong’s legal and business community, Shenzhen’s manufacturing expertise and Guangzhou’s strong distribution hub. “We’re leveraging the strengths of every city based on the value these teams can derive from those cities,” Gupta said. Hong Kong is the first stop for Brinc’s local and international start-ups where they register their companies and intellectual property, develop business plans, and learn from mentors in workshop sessions. They then move on to Shenzhen, where entrepreneurs can link up with manufacturers and software developers before visiting trading hub Guangzhou to find potential buyers. Gupta said his network and experience of working in China provides a base for the start-ups to build on. “China’s definitely difficult if you don’t have the right access or understanding of how to do business there,” Gupta said. “Having done business there for many years, we’ve already worked through a lot of the hard challenges that a lot of companies would [face] in their early infancy of entering the Chinese market.” Hong Kong’s start-up scene is home to an increasing number of accelerators supported by both private companies and the government, including Swire’s Blueprint and Cyberport’s Accelerator Support Programme.
CHINA’S DEFINITELY DIFFICULT IF YOU DON’T HAVE THE RIGHT ACCESS OR UNDERSTANDING OF HOW TO DO BUSINESS THERE
Inside Startups
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The region
Housed on the seventh floor of PMQ in Sheung Wan, Brinc’s Hong Kong office is currently the base for seven start-ups and will welcome a further 10 companies in the next few months. Brinc hopes to work with up to 200 companies in the coming years. Brinc invests in start-ups developing products under the Internet of Things, which encompasses wearables, smart devices and products for smart cities. “It’s about taking any product, anything you’ve ever owned, anything you’ve ever used and in essence making it smarter by combining a set of sensors and technologies and unlocking the data for those devices,” Gupta explained. It is estimated there will be 50 million connected devices by 2020, although Gupta believes this figure is conservative. Brinc provides start-ups with office space, covers living costs such as rent and helps start-up founders apply for visas with help from Invest HK.
Brinc will connect smart device startups with factories, distributors and legal experts in Shenzhen, Guangzhou and Hong Kong. Photo: AFP
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Talking point Edith Yeung (right), a partner at the 500 Mobile Collective Fund, joins a discussion session at the Digital Entrepreneur Leadership Forum at Cyberport.
Hong Kong businesses told: ‘look to China, not US’ to grow Text: Alice Woodhouse Photo: SCMP Pictures Hong Kong’s entrepreneurs should turn their sights to mainland China rather than the United States or Europe to expand their markets, according to entrepreneur-turned-investor Edith Yeung. Yeung, a partner at the 500 Mobile Collective Fund, which focuses on investing in mobile phone apps, said the vibrant mainland market has a lot to offer tech start-ups, particularly in mobile internet and e-commerce. “I want to challenge any Hong Kong entrepreneur, just being so close to China, to really take some time to learn what is going on in the China market. It’s very fascinating, especially in mobile internet,” Yeung said during a visit to Hong Kong for the Digital Entrepreneur Leadership Forum at Cyberport. “Understanding this landscape [in the mainland] would position Hong Kong really well, but I think that most of the young entrepreneurs end up just wanting to look at Hong Kong… or many of them will start thinking about the US,” Yeung said.
Hong Kong’s limited market size has already seen some local startups, including custom mobile phone case firm Casetify, move part of their operations to the US. A lack of investment in Hong Kong start-ups was identified as a limiting factor for entrepreneurs in the city, according to a study by Chinese University Centre for Entrepreneurship and Google released earlier this month. Between 2007 and 2012, local start-ups received 3 per cent of institutional investments made by Hong Kong-based corporations against 16 per cent in the US, the report said. Yeung was born in Hong Kong, moved to the US at the age of 16 and is now based in San Francisco. She spent 10 years building software for companies including computer technology firm Oracle before deciding at the age of 30 to switch to a career she felt passionate about. In 2011, she joined Dolphin Browser, an internet browser for the android operating system with more than 150 million installs. She later founded angel investment firm RightVentures. Yeung said one challenge for mobile start-ups seeking investment is the mindset of traditional investors in Hong Kong who are more familiar with the concept of price-per-square-foot than monthly active user figures. “A lot of traditional businesses or investors are really curious as to what’s going on, but the same time very uncomfortable with the business model,” she said.
Hong Kong’s Cyberport high-tech cluster.
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The trends London property is high on the shopping lists of wealthy Asian investors.
Property search start-up targets wealthy Asian investors with London sales listings
Text: Alice Woodhouse Photo: Bloomberg
Hong Kong-based property search start-up Spacious.hk has expanded to offer sales listings in Miami and is set to feature London residences aimed at Asian investors. Founded in 2013 by Londoner Asif Ghafoor, Spacious.hk was designed to provide reliable and user-friendly rental and sales listings for the Hong Kong market and has now expanded internationally. Properties for sale in London through real estate firm Keller Williams will soon be added to Spacious.hk site. Miami listings through Brokers International Realty, such as a US$19.5 million waterside villa, can already be viewed. “People in a place like Hong Kong are always looking for investment properties and real estate is the most important asset class in Asia,” Ghafoor said.
Investors will be able to learn about individual neighbourhoods through the Spacious.hk website as well as average prices in the area and the investment potential, Ghafoor explained. Ghafoor founded Spacious.hk because he felt Hong Kong’s property rental websites were difficult to use, featured little information and often had advertisements for flats that had already been let. The site includes information on average rental prices in individual developments and neighbourhoods, as well as mapping school catchment areas. Ghafoor, a former equity technology developer for international banks who has lived in Hong Kong since 2007, has real estate in his blood as his parents run a property business in East London. Two months ago, Spacious.hk expanded to offer rental listings to Singapore, Taipei and Shanghai. More than 9,000 rental listings from 15 agents in Singapore have so far been placed on the site, as well as 3,000 rental listings in Shanghai from 20 agents in the city. Spacious.hk has seen 30 per cent month-on-month growth since its establishment and now has 70,000 users monthly, Ghafoor said. The company is in the process of raising its next round of funding following on from its US$500,000 in seed funding. A graduate of the Hong Kong Science and Technology Park’s flagship start-up incubator scheme, Ghafoor said the greatest barrier for the city’s start-up scene is the cost of living. “In a place like Hong Kong, the salaries a typical start-up will pay are not enough to live on,” Ghafoor said, citing high rental prices as the biggest problem. Pay at start-ups is normally comparatively low as employees are offered a mixture of a shares in the company and a salary, Ghafoor said.
PEOPLE IN A PLACE LIKE HONG KONG ARE ALWAYS LOOKING FOR INVESTMENT PROPERTIES AND REAL ESTATE IS THE MOST IMPORTANT ASSET CLASS IN ASIA
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‘Lucky seven’ domains can save a start-up from disaster Text: John Mullins Photo: Reuters Successful entrepreneurs insistently ask why their idea will or won’t work. Passion. Conviction. Tenacity. Without these traits, few entrepreneurs could endure the challenges, setbacks and twists in the road that lie between their often path-breaking ideas – opportunities, as they call them – and the fulfilment of their entrepreneurial dreams. But the very best entrepreneurs possess something even more val-
uable: a willingness to wake up every morning and ask a simple question: “Why will or won’t this work?” Aspiring entrepreneurs – whether contemplating a raw start-up or buried deep in the bowels of an established company – ask this question for a simple reason. They understand the odds. They know most business plans never raise money. They know most new ventures fail. Most of all, they don’t want to end up starting and running what long-time venture capitalist Bill Egan would call a “lousy business”, one that consumes years of their energy and effort, only to go nowhere in the end. Despite asking this crucial question every day, their passion remains undaunted. So committed are they to showing a reluctant world that their vision is feasible that they want to know why they might be wrong before bad things can happen. Haste makes waste If the entrepreneur can find flaws before they launch or before the flaws take down their new business, they can often work around them. They can modify their idea, shaping the opportunity to better fit the hotly competitive world in which it seeks to bear fruit. If the flaw they find appears to be truly fatal, they can abandon the idea before launch in some cases, or soon enough thereafter to avoid wasting months or years in pursuit of a dream that simply won’t fly. Better yet, if after asking their daily question and probing, testing, and experimenting, the signs remain positive, they pursue their opportunity with renewed passion and conviction. This evidence translates to new-found confidence that the facts – not just intuition – confirm their prescience. Their idea really is an opportunity worth pursuing. In today’s lean start-up world, the urge to launch right away and just learn as you go is appealing. It gets you out into the marketplace, which is the best place to learn. And it provides a release for your entrepreneurial energy that is probably bubbling over. But it’s all too likely to result in a waste of your entrepreneurial energy and talent. Why? As the 20th century’s most incisive management thinker, Peter Drucker, observed about new ventures: “If a new venture does succeed, more often than not it is: • In a market other than the one it was originally intended to serve • With products and services not quite those with which it had set out • Bought in large part by customers it did not even think of when it started
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• And used for a host of purposes besides the ones for which the products were first designed.” “OK,” you might ask. “Is there a better way to go?” There is, and there’s a framework to help entrepreneurs avoid missing the obvious pitfalls in their ventures: the seven domains. An idea that worked Consider this entrepreneurial story. In 2004, Paul and Alison Lindley were facing a bit of a challenge in getting their six-year-old daughter Ella to eat. In his Caversham kitchen, 40 miles west of London, Lindley concocted blends of natural and organic fruits and vegetables that were fun, colourful, and fitted the family’s onthe-go lifestyle. Realising that there might be a market for his tasty creations – which Ella loved – Lindley soon moved his lean start-up out of his kitchen and into a couple of barns nearby. Before long, Ella’s Kitchen baby and toddler food pouches – filled with all-natural purées of organically grown fruits and vegetables – began finding their way into the homes of many British families with young children. Organic smoothies in four child-friendly colourful favours – red, green, purple and yellow – followed, as did a range of toddler-sized fruit snack bars and a host of other products. Lindley then expanded internationally; after all, eating should be fun, tasty, and cool for children, and healthy, too, no matter where they live. Ella’s Kitchen was then acquired by Hain Celestial, a leading US marketer of natural foods and beverages, in 2013. Assessing opportunities Was Lindley’s idea for Ella’s Kitchen an attractive opportunity? Opportunities are best understood in terms of three crucial elements: markets, industries, and the one or more key people that make up the entrepreneurial team. The seven domains model (see below), articulated in my book, The New Business Road Test: What Entrepreneurs and Executives Should Do Before Launching a Lean Start-Up, brings these elements together to offer a clearer way to answer the crucial question that aspiring entrepreneurs must ask themselves every morning: “Why will or won’t this work?” The model offers a toolkit for assessing and shaping market opportunities and a better way for entrepreneurs to assess the adequacy of what they bring to the table as individuals and as a team. The model also outlines a customer-driven feasibility study to guide entrepreneurs’ assessments before they invest precious time and effort in writing a business plan.
Let’s put the seven domains to use and examine Lindley’s opportunity. Macro market: The trend toward natural and organic foods has been an attractive wave to ride for Ella’s Kitchen. Numerous other organic and natural entrepreneurs now ride the same wave. Micro market: Lindley, having gained a good understanding of children as consumers from his nine years at Nickelodeon, the youngsters’ cable TV channel, was able to work out that his daughter Ella and others like her would love healthy organic fruit and vegetables prepared in child-friendly ways. If they loved the products, Lindley reasoned, parents would buy them. Macro industry: The prepared food industry was, and still is, hotly competitive – a drawback for Lindley’s nascent company. But he reasoned that his clearly differentiated products would catch on. Micro industry: Could Lindley sustain a competitive advantage for long? Other fruit and vegetable processors could copy him, he knew, and competitors such as Heinz, Danone and Nestlé’s Gerber had deep pockets. So he had to move fast. Selling the company just seven years after inception, to a buyer with a substantial market presence and resources he lacked, made good sense, giving Lindley and his UK team the free-power they needed to compete on a global scale. The goal was never to sell the company,” he says. “The goal was to use our products to improve children’s health.” The entrepreneurial team As with many entrepreneurs, Lindley brought relevant skills to the table, skills he’d built at Nickelodeon, where he had been deputy managing director of its UK business. Where there were gaps, he built a team that complemented his skills and brought connections the business would need. Hain Celestial thought so much of the team Lindley assembled that it kept them in charge post-acquisition and asked them to manage the company’s children’s product line in the US too. So, was Lindley’s entrepreneurial opportunity an attractive one? It wasn’t perfect, in seven domains terms. But they never are. Wisely, Lindley crafted a strategy that capitalised on his opportunity’s strengths in market terms, and mitigated the risks on the industry side. Putting the seven domains to work At first glance, the seven domains model simply summarises what everybody already knows – or claims to know – about assessing opportunities. Upon more careful scrutiny, however, the model goes further to highlight three crucial distinctions
THE MODEL OFFERS A TOOLKIT FOR ASSESSING AND SHAPING MARKET OPPORTUNITIES AND A BETTER WAY FOR ENTREPRENEURS TO ASSESS THE ADEQUACY OF WHAT THEY BRING TO THE TABLE AS INDIVIDUALS AND AS A TEAM Inside Startups
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and observations that most entrepreneurs – not to mention many investors – overlook: • Markets and industries are not the same. • Markets and industries must be examined at both macro- and micro-levels. • The keys to assessing entrepreneurs and entrepreneurial teams aren’t found on their résumés, in character surveys or psychological tests. Moreover, the model’s seven domains are not equally important. Nor are they additive. A simple checklist won’t do. In fact, the wrong combinations of them can kill your venture. On the other hand, sufficient strength in some factors can mitigate weaknesses in others. Attractive opportunities – such as the one Lindley identified – can be found in less attractive industries such as prepared foods. As the seven domains graphic shows, the model is comprised of four market and industry domains, including both macro- and micro-levels, and three additional domains related to the entrepreneurial team. These seven domains (everybody knows at least some of these, too, but I found that most don’t think of them in this way) address the central elements in the assessment of any market opportunity: • Are the market and industry attractive? • Does the opportunity offer compelling customer benefits as well as a sustainable advantage over other solutions to the customer’s needs? • Can the team deliver the results they seek and promise to others? Why won’t my idea work? In examining your opportunity through the seven domains lens, concerns will inevitably crop up: the potentially fatal flaws that can render your opportunity a non-starter. The key task in answering the question: “Why won’t my idea work?” is to find any major flaw that cannot be resolved, the opportunity’s Achilles heel. Thus, the crucial things to look for on the downside are elements of the market, industry, or team that simply cannot be fixed by shaping the opportunity in a different way. If flaws that cannot be fixed are found, the best thing to do is to abandon the opportunity at this early stage and move on to something more attractive. Persisting with a fundamentally flawed opportunity is likely to have one of two outcomes, both of which are exceedingly unpleasant:
IF THE SEVEN DOMAINS ROAD TEST LOOKS POSITIVE, YOU WILL HAVE JUMP-STARTED YOUR JOURNEY, AND YOU WILL HAVE GATHERED A BODY OF EVIDENCE WITH WHICH TO GUIDE YOUR LAUNCH
• Best case – the best and most likely outcome is that experienced investors or other resource providers – suppliers, partners and so on – will see the flaws that you have ignored and refuse to give you the resources you need, despite your business plan that papers over these flaws. Fortunately, their refusal will save you the agony of investing months or years of your life in a “lousy business”, though your efforts in preparing and pitching your business plan will have been wasted. The harsh reality is that this is the case for the majority of business plans, which seek to develop opportunities that are fatally flawed. Most business plans should have been abandoned before they were written. • Worst case – the second, though less likely, outcome of pursuing a fundamentally flawed opportunity through the business planning stage is that, in spite of the flaws, you are able to secure the resources you need and actually start the business. At some point, the flaws will rear their ugly heads, and you’ll need to scramble to recast the business before it goes under. Some readers of this article may find themselves in this unhappy predicament today, and it’s not a pretty place to be. Why will my idea work? The good news is that opportunities are not static. They can be shaped in many ways. Potentially fatal flaws are sometimes fixable. You can choose a different target market that is more receptive to your proposed offering. The offering can be adapted to better fit market needs. The opportunity can be pursued at a different level in the value chain – as a distributor, rather than retailer or manufacturer, for example – if a different industry setting would be more hospitable. Adding individuals to help the team deliver on the critical success factors or who bring connections up, down, or across the value chain can strengthen the entrepreneurial team. So, take heart. Road test your entrepreneurial dream before you even think about launching a lean start-up. If the seven domains road test looks positive, you will have jump-started your journey, and you will have gathered a body of evidence with which to guide your launch. And what if you’ve found fatal flaws? You can redirect your entrepreneurial time and talents to another opportunity with greater potential. Enjoy the drive! John Mullins is Associate Professor of Management Practice in Marketing and Entrepreneurship, London Business School.
Inside Startups
