bye80180_fm_i-xxiv.qxd 11/26/09 2:21 PM Page i Confirming Pages Technology Ventures From Idea to Enterprise These preliminary pages are prepared for students of Dr. Thomas Byers. Any other use is prohibited . bye80180_fm_i-xxiv.qxd 11/26/09 2:21 PM Page ii Confirming Pages These preliminary pages are prepared for students of Dr. Thomas Byers. Any other use is prohibited . bye80180_fm_i-xxiv.qxd 11/26/09 2:21 PM Page iii Confirming Pages Technology Ventures From Idea to Enterprise Thomas H. Byers Stanford University Richard C. Dorf University of California, Davis Andrew J. Nelson University of Oregon These preliminary pages are prepared for students of Dr. Thomas Byers. Any other use is prohibited . bye80180_fm_i-xxiv.qxd 11/26/09 2:21 PM Page iv Confirming Pages TECHNOLOGY VENTURES: FROM IDEA TO ENTERPRISE, THIRD EDITION Published by McGraw-Hill, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY 10020. Copyright @ 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Previous edi- tions © 2008 and 2005. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning. Some ancillaries, including electronic and print components, may not be available to customers outside the United States. This book is printed on acid-free paper. 1 2 3 4 5 6 7 8 9 0 DOC/DOC 1 0 9 8 7 6 5 4 3 2 1 0 ISBN 978–0–07–338018–6 MHID 0–07–338018–0 Vice President & Editor-in-Chief: Martin Lange Vice President EDP & Central Publishing Services: Kimberly Meriwether David Global Publisher: Raghothaman Srinivasan Sponsoring Editor: Debra B. Hash Developmental Editor: Lora Neyens Senior Marketing Manager: Curt Reynolds Project Manager: Melissa M. Leick Senior Production Supervisor: Laura Fuller Design Coordinator: Brenda A. Rolwes Cover Designer: Studio Montage, St. Louis, Missouri (USE) Cover Image: © Punchstock/ Getty Images RF Compositor: Laserwords Private Limited Typeface: 10.5/12 Times Roman Printer: R. R. Donnelley All credits appearing on page or at the end of the book are considered to be an extension of the copyright page. These preliminary pages are prepared for students of Dr. Thomas Byers. Any other use is prohibited . Library of Congress Cataloging-in-Publication Data Byers, Thomas (Thomas H.) Technology ventures : from idea to enterprise / Thomas H. Byers, Richard C. Dorf, Andrew J. Nelson. — 3rd ed. p. cm. Dorf’s name appears first on the earlier editions. Includes bibliographical references and index. ISBN 978-0-07-338018-6 (alk. paper) 1. Information technology. 2. Entrepreneurship. 3. New business enterprises. I. Dorf, Richard C. II. Nelson, Andrew J. III. Dorf, Richard C. Technology ventures. IV. Title. HC79.I55D674 2010 658.1’1--dc22 2009043315 www.mhhe.com bye80180_fm_i-xxiv.qxd 11/26/09 2:21 PM Page v Confirming Pages DEDICATION For our spouses: Michele Mandell, Joy Dorf, and Ann Carney Nelson. We warmly recognize their love and commitment to this publication that will help others create important enterprises for the benefit of all. THOMAS H. BYERS, RICHARD C. DORF, ANDREW J. NELSON These preliminary pages are prepared for students of Dr. Thomas Byers. Any other use is prohibited . bye80180_fm_i-xxiv.qxd 11/26/09 2:21 PM Page vi Confirming Pages ABOUT THE AUTHORS Thomas H. Byers is professor of management science and engineering at Stanford University and founder of the Stanford Technology Ventures Program, which is dedicated to accelerating technology entrepreneurship education around the globe. After receiving his B.S., MBA, and Ph.D. from the Univer- sity of California, Berkeley, Dr. Byers held leadership positions in technology ventures including Symantec Corporation. His teaching awards include Stan- ford University’s highest honor (Gores Award) and the Gordon Prize from the National Academy of Engineering. Richard C. Dorf is professor of electrical and computer engineering and pro- fessor of management at the University of California, Davis. He is a Fellow of the American Society for Engineering Education (ASEE) in recognition of his outstanding contributions to the society, as well as a Fellow of the Institute of Electrical and Electronic Engineering (IEEE). The best-selling author of Intro- duction to Electric Circuits (8th ed.), Modern Control Systems (11th ed.), Handbook of Electrical Engineering (3rd ed.), Handbook of Engineering (2nd ed.), and Handbook of Technology Management, Dr. Dorf is cofounder of seven technology firms. Andrew J. Nelson is assistant professor of management at the University of Oregon’s Lundquist College of Business. Dr. Nelson holds a Ph.D. in man- These preliminary pages are prepared for students of Dr. Thomas Byers. Any other use is prohibited . agement science and engineering from Stanford University, an M.S. from Oxford University, and a dual B.A. from Stanford. He is a Kauffman Founda- tion Junior Faculty Fellow in Entrepreneurship and has received research awards from the Institute for Operations Research and the Management Sci- ences (INFORMS) and the T&J Meyer Foundation. He is well known for his studies on technology diffusion networks and the commercialization of uni- versity research. bye80180_fm_i-xxiv.qxd 11/26/09 2:21 PM Page vii Confirming Pages BRIEF CONTENTS Foreword, xiii Preface, xv PART I VENTURE OPPORTUNITY, CONCEPT, AND STRATEGY 1 Economic Growth and the Technology Entrepreneur 3 2 Opportunity and the Concept Summary 25 3 Vision and the Business Model 51 4 Competitive Strategy 75 5 Innovation Strategies 107 PART II VENTURE FORMATION AND PLANNING 6 Risk and Return 137 7 The Business Plan 161 8 Types of Ventures 179 9 Knowledge, Learning, and Design 209 These preliminary pages are prepared for students of Dr. Thomas Byers. Any other use is prohibited . 10 Legal Formation and Intellectual Property 231 PART III DETAILED FUNCTIONAL PLANNING FOR THE VENTURE 11 The Marketing and Sales Plan 251 12 The New Enterprise Organization 281 13 Acquiring and Organizing Resources 307 14 Management of Operations 329 15 Acquisitions and Global Expansion 349 vii bye80180_fm_i-xxiv.qxd 11/26/09 2:21 PM Page viii Confirming Pages viii Brief Contents PART IV FINANCING AND BUILDING THE VENTURE 16 Profit and Harvest 367 17 The Financial Plan 391 18 Sources of Capital 415 19 Presentations and Deal Negotiations 455 20 Leading Ventures to Success 467 References, 489 Appendices, 509 Glossary, 656 Index, 666 These preliminary pages are prepared for students of Dr. Thomas Byers. Any other use is prohibited . bye80180_fm_i-xxiv.qxd 11/26/09 2:21 PM Page ix Confirming Pages CONTENTS Foreword, xiii 3.4 The Business Model 59 Preface, xv 3.5 Business Model Innovation in Challenging Markets 63 3.6 Core Competencies 65 3.7 Sustainable Competitive Advantage 66 PART I VENTURE OPPORTUNITY, 3.8 AgraQuest 70 CONCEPT, AND STRATEGY 3.9 Summary 72 Chapter 1 Chapter 4 Economic Growth and the Technology Competitive Strategy 75 Entrepreneur 3 4.1 Venture Strategy 76 1.1 The Entrepreneur’s Challenge 4 4.2 The Industry and Context for a Firm 79 1.2 The Entrepreneur 7 4.3 Strengths and Opportunities—SWOT 1.3 Economics and the Firm 12 Analysis 83 1.4 Creative Destruction 17 4.4 Barriers to Entry 85 1.5 Innovation and Technology 19 4.5 Achieving a Sustainable Competitive 1.6 The Sequential Case: AgraQuest 21 Advantage 86 1.7 Summary 22 4.6 Alliances 89 4.7 Matching Tactics to Markets 94 Chapter 2 4.8 The Socially Responsible Firm 97 Opportunity and the Concept Summary 25 4.9 AgraQuest 101 These preliminary2.1 Opportunity pages Identification are prepared 26 for students of 4.10Dr. ThomasSummary Byers. 102 Any other use is prohibited . 2.2 Trends and Convergence 32 2.3 Opportunity Evaluation 34 Chapter 5 2.4 The Concept Summary 42 Innovation Strategies 107 2.5 AgraQuest 47 5.1 First Movers Versus Followers 108 2.6 Summary 48 5.2 Imitation 114 5.3 Creativity and Invention 115 Chapter 3 5.4 Types and Sources of Innovation 118 Vision and the Business Model 51 5.5 Technology and Innovation Strategy 122 3.1 The Vision 52 5.6 New Technology Ventures 127 3.2 The Mission Statement 55 5.7 AgraQuest 130 3.3 The Value Proposition 56 5.8 Summary 132 ix bye80180_fm_i-xxiv.qxd 11/26/09 2:21 PM Page x Confirming Pages x Contents Chapter 9 PART II VENTURE FORMATION Knowledge, Learning, and Design 209 AND PLANNING 9.1 The Knowledge of an Organization 210 9.2 Managing Knowledge Assets 211 Chapter 6 9.3 Learning Organizations 212 Risk and Return 137 9.4 Product Design and Development 217 6.1 Risk and Uncertainty 138 9.5 Product Prototypes 222 6.2 Scale and Scope 146 9.6 Scenarios 225 6.3 Network Effects and Increasing Returns 150 9.7 AgraQuest 227 6.4 Risk Versus Return 155 9.8 Summary 228 6.5 Managing Risk 156 6.6 AgraQuest 157 Chapter 10 6.7 Summary 158 Legal Formation and Intellectual Property 231 Chapter 7 10.1 Legal Form of the Firm 232 The Business Plan 161 10.2 Company Name 235 7.1 Creating a New Business 162 10.3 Intellectual Property 237 7.2 The New Venture Story 163 10.4 Trade Secrets 238 7.3 The Business Plan 167 10.5 Patents 239 7.4 An Annotated Table of Contents 170 10.6 Trademarks 242 7.5 AgraQuest 174 10.7 Copyrights 243 7.6 Summary 176 10.8 Licensing 243 10.9 AgraQuest 244 Chapter 8 10.10 Summary 245 Types of Ventures 179 8.1 Independent Versus Corporate These preliminaryVentures 180pages are prepared for studentsPART of Dr.