global entrepreneurial business strategies: teaching cleantech venture assessment in the us and...
TRANSCRIPT
Global Entrepreneurial Business Strategies: Teaching CleanTech Venture Assessment in the US and China
Professor Timothy Faley, Managing Director, Samuel Zell & Robert H. Lurie Institute for Entrepreneurial Studies, and
Adjunct Professor of Entrepreneurship, Ross School of Business, The University of Michigan, Ann Arbor, Michigan, USA
Professor Peter Adriaens, Department of Civil and Environmental Engineering and Ross School of Business, The University of Michigan at Ann Arbor, Michigan, USASichuan University (Suzhou Institute), Suzhou, [email protected]
ABSTRACT
The recent focus on the development of a ‘circular economy’ in China, commitments of global industries to green their supply chains in China, the availability of government underwritten ‘venture funds’ to provide a 40% match on foreign venture investment, and the on-going overhaul of China’s patent system, are driving a new CleanTech innovation pipeline in China and prompting emphasis on global entrepreneurship in courses at US and Chinese Institutions. At the University of Michigan, we have integrated a focus on technological and social enabling features in our entrepreneurship courses taught to scientists, engineers, and MBAs. The objective of this course element is to allow the students to: (i) distinguish between entrepreneurial economic value creation in the US, China and other emerging economies, (ii) discuss approaches for countries to move up the value chain, and (iii) apply this approach using living case studies in the CleanTech space, both using US and Chinese companies located at the Suzhou Industry park (SIP). At the Suzhou Institute of Sichuan University, similar course elements are taught in seminar format to weekend MBA students. The objectives here are to introduce the students to entrepreneurial business fundamentals and venture assessment tools focused on company and product positioning strategies, entrepreneurial finance, and business model evaluation. The cross-cultural entrepreneurial education experience, enabled with real time video feeds, has allowed both the instructors and the students to gain insight in the global differences in entrepreneurial business development strategies and opportunities in response to macroeconomic strategy shifts.
QuickTime™ and a decompressor
are needed to see this picture.QuickTime™ and a
decompressorare needed to see this picture.
QuickTime™ and a decompressor
are needed to see this picture.
QuickTime™ and a decompressor
are needed to see this picture.
QuickTime™ and a decompressor
are needed to see this picture.
BACKGROUND
Two major economic forces are shaping China’s economic growth, as framed by the circular economy plan:
1. Demands for energy, water and raw materials, escalating carbon and waste emissions, and mounting consumption needs of industry and a rapidly growing urban population.
2. Long-term growth strategy plan is framed by innovations up the value chain, rather than by outsourced manufacturing alone. Increasing focus in the CleanTech opportunity space, with a focus on energy efficiency, alternative energy production and clean water.
Figure 1. Shift from manufacturing (green) to product innovation (red) on a generic value chain.
Enablers: Co-location of venture funds, higher education innovation pipelines, and infrastructure in technology incubators; adaptations in business and engineering curricula.
Inputs/rawmaterials
Design/Production
Delivery/Distribution
Product/Service Use
End-userProject Finance
EMERGENCE OF ENTREPRENEURIAL ECONOMIES
TECHNICAL DRIVERS: 1. Internet: Cheap platforms for interactive businesses2. Cloud computing: Dynamically scalable and often
virtualized Internet service resources1. Mobile phone: Access to regulated markets such as telecoms, driven
by touch-screen technology and fast wireless networks
SOCIAL DRIVERS:1. Breakdown of managed capitalism: Shift in risk and security attitudes2. Institutional support: Shift towards value creation and innovation3. Media role: Shift from niche occupation to mainstream; ‘naming and
shaming’ competition (World Bank Report)4. Government support: broad-based pro-business regulatory and credit
access environment for entrepreneurial value creation
TEACHING OBJECTIVES AND APPROACH
The GOAL of integrating global entrepreneurial business strategies in US and Chinese engineering and business curricula is to discuss and identify differences in entrepreneurial business development strategies and global opportunity shifts in response to economic disequilibria.
The SPECIFIC OBJECTIVES are to:
1. Understand the enabling technological and social drivers that render entrepreneurship successful;
2. Teach entrepreneurial business tools for venture assessment; and 3. Apply these tools and drivers to the Cleantech opportunity space.
The APPROACH includes alignment of business development phases with core courses for UM-Suzhou partnership
Business Fundamentals CleanTech Venture Assessment/SISUCleanTech Entrepreneurship/SISU
ID Op. Ideate
Business Concept
Assess Business Potential
Develop Business
Plan Launch Grow Exit
Identifyemerging
opportunities
Formulate & assessinnovative business
solutions
Developactionable
plan
Align/acquire necessaryresources
Drive accelerated growth
2. Entrepreneurial business tools for venture assessment.
MOTIVATION: Technology-based entrepreneurship requires a mixture of technological and business skills.
Enhance the blended strengths of engineering and business students, not turn each into the other, and Provide the students with the flavor of the impact of regional cultural and policy incentives on the business design.
TOOLS: From opportunity to disruptive innovation: testing the business hypothesis of entrepreneurial ventures, and reposition the company and its product development.
COURSE MODULES AND STRUCTURE
EMPHASIS. Focus on the early phases, where complementary skills of engineers and the business students are crucial, and innovation opportunities are honed. For example, opportunity identification, takes: 1. Finding an optimal market opportunity for a given technology and 2. Identifying an emerging market opportunity and determining what
technology may be necessary to exploit it.
COURSES: (1) Entrepreneurial Business Fundamentals for Scientists and Engineers, (2) CleanTech Entrepreneurship, and (3) CleanTech Venture Assessment.
STUDENT EXPERTISE: UM: Business students well-steeped in market opportunity identification instruction in their standard curriculum, and engineers who tend to address technological uncertainties. UM/SISU MBA: background in management, strategy and business finance.
CHALLENGES FOR CLEANTECH BUSINESS VENTURES IN CHINA
1. No pure cleantech funds in China -> immature understanding of sector
2. Differentiation based on low cost manufacturing not sustainable-> needs technological differentiation (back to fundamentals)
3. Future focus: High margin manufacturing products-> Adopt existing commercial products to domestic markets
4. Innovative investment strategies: Start with value-creation exit-> From exit to resource allocation and technology selection
5. CleanTech dominated by PE, high bar for A round VC investment:-> Prove technology (prototyping); demonstrate customer contracts
6. Uncertainties NOT technology-related, but distribution-challenged -> How access local, fragmented markets?
Centralized power stations -->many distributed power sources ---> Smart power grids From energy conversion innovations to power management innovations
Centralized water treatment -> distributed water systems --> Energy from waterFrom water treatment innovation to energy-conserving water infrastructure systems
1. Technological and social drivers for successful entrepreneurship and application to China’s emergence as a CleanTech innovator
Strategies for developing countries to move up the value chain and transition into a more entrepreneurial economy require that key enablers are in place. The students learn the impact of these enablers have on innovation in the CleanTech space, and compare Michigan to China.
OpportunitySpace
SolutionSpace
Divergent ThinkingDivergent Thinking
Convergent Thinking Convergent Thinking
BusinessHypothesis
DifferentiallyEnabled
By
(often a tech-nology)
ViableOpportunity
New Approaches/SolutionsValue Chain
Value Chain Creation Value Chain AnalysisMacro Industry Analysis
Needs AnalysisPersona creationExisting product assessmentSolution Brainstorming
Assessment:• Teece• Finance• Marketing• Influence diagrams
Course Modules, Tools, and Assessment
Module Tool Evaluation Timeframe 1. Value Chain
Assessment Margin analysis (public sources)
Team Week 1-3
2. Product Assessment Dif ferentiation (intellectual assets, complementary assets required)
Team Week 4
3. Industry Assessment Porter’s 5 Forces (across value chain segments; modification of Porter, 1978)
Team Week 5
4. Sustainable Product Dif ferentiation Porter’s equilibrium shifts Team Week 7
5. Business vehicle assessment
Teece (1998) analysis Team Week 8
6. Market Needs Persona (specific target customer) analysis
Team Week 9
7. Market Segmentation Influence diagrams Team Week 10 8. Integrated strategy
analysis Mullins (2003) framework Team Week 12
9. Entrepreneurial finance
Capitalization tables and enterprise valuation
Individual Throughout the term
3. CleanTech Venture Assessment: US vs. China
One of the objectives of the course is to identify and communicate the impact of the Chinese industry parks on global entrepreneurship opportunities in CleanTech.
Differentiating elements between China and the US focus on the business and policy environment, the investment culture, and the strength of the IP.
At SISU, we have focused on learnings from CleanTech business development workshops that connect Chinese entrepreneurs with Chinese and US investors, and provided the context of the Chinese business environment and policies that drive investments and technology development.
Interesting differences with the US include the lower expectations for investor returns (in part because most investments are later stage), the lack of available venture risk capital, the lesser focus on IP strength, and the lack of transparency for cross-border partnerships which impacts the ability of foreign investors and entrepreneurs to calculate their risks and returns.