ENT 309: Creating Value in class notes
Notes from readings on blackboard
Getting to Plan B Notes
Introduction
The sad statistics of plan A
● What separates men from boys is what they do after their first plan fails
● The entrepreneurs, and other highly motivated individuals, tend to lick their wounds,
get back on their feet, and morph their ideas into great businesses
Your Entrepreneurial Dreams
● There are numerous reasons why new entrepreneurs work so hard to pursue
entrepreneurial dreams: the opportunity to be your own boss, no more punching the
clock in your look-alike cubicle in your dead-end job, as well as the thrill and
excitement of beginning your own venture
● Some people are pulled into entrepreneurship by what they think is a great idea,
others are pushed into it for financial reasons
● Others hope that their business will make the world a better place, on a varying scale
● The vast majority of entrepreneurial dreams will fail to produce what the
entrepreneurs hopes and dreams
● A crucial question is why most entrepreneurs dreams - their plan A’s- will not work
Why Plan A- Yes, Yours- probably won’t work
● Research shows that it takes 58 new product ideas in order to come up with one that is
successful
● Given this, it's often that the entrepreneur is not pursuing what the client/customer
exactly wants
● Figuring out what a customer wants and will buy sounds easy, but it's not. It is an
entire process
● Another reason that companies will die early is that they will run out of cash
● Running out of cash is not a cause, it’s a symptom
● It’s a symptom of signal that the company’s business model did not work
● Developing viable business models means getting all the economic elements to work
together just right. Otherwise - bang - you’re out of business
Max Levchin’s Plan B
● In order for plans to work, people have to have a need for what you’re doing
● Sometimes an entrepreneur will create something that is not needed/widely used, and
then another product/service is created, which then instantly makes a need for the
product that was not popular prior
● Sometimes it takes four, five, or six tries in order to get something right
, ● With this, the idea may not be profitable at first either, and then when something else
comes on the scene, that idea can become incredibly profitable
Creating a Business Model that works
● Breaking through, getting from Plan A to Plan G, will not happen if you duplicate a
model that already exists. It’s about discovering and developing a business model that
really works
● The business model primarily refers to: economic activity- cash flowing into and out
of your business for various purposes, and the timing thereof- that dictates whether or
not you run out of cash, and whether or not you produce attractive returns for your
investors
● Your business model is the economic underpinning of your business, in all of its
facets
Street Testing Your Plan A: The Process
● Staying open minded throughout this whole process can lead to being more successful
in the future
● Being able to make your company very successful, means mixing analogs, and
antilogs, as well as identifying and addressing leaps of faith
● Being disciplined and open minded about what you’re doing is a very important
component of being successful
Be Different: Antilogs
● Antilogs: are successful predecessor companies to which you specifically choose to
do things differently than, potentially because something was unsuccessful
● Analogs: are successful predecessor companies that you choose to mimic in some
way. There are many analogs out there, and they are able to be partially
borrowed/used in order to help you understand the economics, and other facets of
your proposed business, and business model
Ask the Right Question: Leaps of Faith
● Being able to use what you have identified about both antilogs and analogs, can help
you quickly reach a consensus about certain things within your venture
● The final step in the process is being able to track and understand what you are doing,
and how it will impact you
● In order to address the leap of faith - You have to leap!
● You have to experiment in order to figure out what you’re doing, and whether or not it
is going to work
● Being able to identify your leap of faith early, and devising ways to test your
hypothesis that will either prove, or disprove it, puts you in a position to learn whether
or not your Plan A will work, before you spend too much time or too much of your
investors money
Guide and Track Your Journey: Dashboards
● The final step is to adopt a structured, disciplined, and systematic method in order to
guide your set of experiments, record and monitor the results, and provide insight into
your leaps of faith
, ● You need to generate tangible, measurable results that are capable of telling whether
or note your leaps of faith are proven or refuted
● This is done using a dashboard
● A dashboard helps to highlight your progress, as well as plan the route to take in order
to reach the goal
● A dashboard serves four key roles:
○ It forces one to think strategically about the most crucial issues at the table that
can - quickly and inexpensively - answer the most important question: “Why
won’t this work?”
○ It forces one to think rigorously about how you can test your leaps of faith by
testing hypotheses whose results can be measured quantitatively, wherever
possible. Numbers are more persuasive than naive hopes and dreams.
○ If one or more of your leaps of faith are refuted by the evidence you collect,
the results displayed on your dashboard are visible and dramatic indicators of
your need to alter Plan A or move to Plan B
○ A dashboard is a powerful tool for convincing others
Street-Test Your Plan A: A Framework to Organize the Content
● If you have a strong business model, you are unlikely to run out of cash, until the
economic environment around you begins to crumble
● There are 5 key elements that determine whether or not a business model is viable.
They determine whether or not you are likely to run out of cash. They are the content
of your business model. They are the building blocks that underlie the financial
statements that will eventually measure your company's results. These elements are:
○ Your revenue model: Who will buy? How often? How soon? At what cost?
How much money will you receive each time a customer buys? And how
often will they send you another check? The answers to these questions should
give you many elements that should be supported by one analog, or (if it’s
not), it should be properly considered
○ Your gross margin model: How much of your revenue will be left after you
paid the direct costs of what you had sold?
○ Your Operating model: Other than the cost of the goods or services you have
sold, what else must you spend money on to support the sale?
○ Your working capital model: How early are you able to encourage your
customers to pay? Do you have to tie up money in lots of inventory waiting
for customers to buy? Can you pay your suppliers later, after the customer has
paid?
○ Your investment model: How much cash must you spend up front before
customers give you enough cash to cover your expenses?
● There are 5 elements of a business that ultimately create value for customers. These
elements are: revenue model, gross margin model, operating model, working capital
model, and investment model. These elements create a pathway for the analogs,
, antilogs, leaps of faith, and dashboards to help support you as you navigate from point
A to point B
● During this course, we are going to analyze each of these elements: revenue model,
gross margin model, operating model, working capital model, and investment model,
during different chapters, and how they work together in interesting ways.
Chapter 1: Don’t Reinvent the Wheel, Make It Better
Assembling Analogs, Antilogs, and Leaps of Faith to get to Plan B
● Getting your idea to Plan B is about taking your good idea, and developing it into a
business or other organization that has high impact, makes you and your investors
money, solves the problems of customers/clients, and is sustainable in the long term
● Making sure your customers/investors know that your business is something special is
very important. They are the ones that are going to be buying from you, so they
absolutely need to be on board with what you are doing
Goal for Chapter 1: Don’t Start from Scratch
● In theatre, new plays are drawn and developed from other ideas/themes of plays.
Business can be very similar
● In business you are able to use the ideas that others had in order to inform the
decisions that you’re making
● Companies use analogs and antilogs to inform the decisions that they are making
● Different businesses are able to learn about how successful their predecessors were,
and work to base their information and operations on that
● Whatever you do, don’t start from scratch
● There are far too many examples that will help highlight the unknowns, and risks that
you need to resolve
● When someone writes a playwright, they are really just building on something that
was done before
● Analogs and Antilogs can be found both inside and outside of the industry you are in,
and they can build off of one another
● Each different story is unique for getting from Plan A to Plan B
● Analogs and Antilogs only get you so far. Real innovators mix and match, turn, and
flip them all over the place in order to get to Plan B
● Sometimes taking an old model, and putting a new twist on it, is really what will
make a huge difference with the invention that one is trying to create
Chapter 2: Will the Fish Bite?
Case 1: Apple Branches out Personal Computers
● As companies innovate, their consumer demographics change, as their new products
may appeal more so to different groups of consumers
● Along with these changes, the companies brand image shifts as well
Notes from readings on blackboard
Getting to Plan B Notes
Introduction
The sad statistics of plan A
● What separates men from boys is what they do after their first plan fails
● The entrepreneurs, and other highly motivated individuals, tend to lick their wounds,
get back on their feet, and morph their ideas into great businesses
Your Entrepreneurial Dreams
● There are numerous reasons why new entrepreneurs work so hard to pursue
entrepreneurial dreams: the opportunity to be your own boss, no more punching the
clock in your look-alike cubicle in your dead-end job, as well as the thrill and
excitement of beginning your own venture
● Some people are pulled into entrepreneurship by what they think is a great idea,
others are pushed into it for financial reasons
● Others hope that their business will make the world a better place, on a varying scale
● The vast majority of entrepreneurial dreams will fail to produce what the
entrepreneurs hopes and dreams
● A crucial question is why most entrepreneurs dreams - their plan A’s- will not work
Why Plan A- Yes, Yours- probably won’t work
● Research shows that it takes 58 new product ideas in order to come up with one that is
successful
● Given this, it's often that the entrepreneur is not pursuing what the client/customer
exactly wants
● Figuring out what a customer wants and will buy sounds easy, but it's not. It is an
entire process
● Another reason that companies will die early is that they will run out of cash
● Running out of cash is not a cause, it’s a symptom
● It’s a symptom of signal that the company’s business model did not work
● Developing viable business models means getting all the economic elements to work
together just right. Otherwise - bang - you’re out of business
Max Levchin’s Plan B
● In order for plans to work, people have to have a need for what you’re doing
● Sometimes an entrepreneur will create something that is not needed/widely used, and
then another product/service is created, which then instantly makes a need for the
product that was not popular prior
● Sometimes it takes four, five, or six tries in order to get something right
, ● With this, the idea may not be profitable at first either, and then when something else
comes on the scene, that idea can become incredibly profitable
Creating a Business Model that works
● Breaking through, getting from Plan A to Plan G, will not happen if you duplicate a
model that already exists. It’s about discovering and developing a business model that
really works
● The business model primarily refers to: economic activity- cash flowing into and out
of your business for various purposes, and the timing thereof- that dictates whether or
not you run out of cash, and whether or not you produce attractive returns for your
investors
● Your business model is the economic underpinning of your business, in all of its
facets
Street Testing Your Plan A: The Process
● Staying open minded throughout this whole process can lead to being more successful
in the future
● Being able to make your company very successful, means mixing analogs, and
antilogs, as well as identifying and addressing leaps of faith
● Being disciplined and open minded about what you’re doing is a very important
component of being successful
Be Different: Antilogs
● Antilogs: are successful predecessor companies to which you specifically choose to
do things differently than, potentially because something was unsuccessful
● Analogs: are successful predecessor companies that you choose to mimic in some
way. There are many analogs out there, and they are able to be partially
borrowed/used in order to help you understand the economics, and other facets of
your proposed business, and business model
Ask the Right Question: Leaps of Faith
● Being able to use what you have identified about both antilogs and analogs, can help
you quickly reach a consensus about certain things within your venture
● The final step in the process is being able to track and understand what you are doing,
and how it will impact you
● In order to address the leap of faith - You have to leap!
● You have to experiment in order to figure out what you’re doing, and whether or not it
is going to work
● Being able to identify your leap of faith early, and devising ways to test your
hypothesis that will either prove, or disprove it, puts you in a position to learn whether
or not your Plan A will work, before you spend too much time or too much of your
investors money
Guide and Track Your Journey: Dashboards
● The final step is to adopt a structured, disciplined, and systematic method in order to
guide your set of experiments, record and monitor the results, and provide insight into
your leaps of faith
, ● You need to generate tangible, measurable results that are capable of telling whether
or note your leaps of faith are proven or refuted
● This is done using a dashboard
● A dashboard helps to highlight your progress, as well as plan the route to take in order
to reach the goal
● A dashboard serves four key roles:
○ It forces one to think strategically about the most crucial issues at the table that
can - quickly and inexpensively - answer the most important question: “Why
won’t this work?”
○ It forces one to think rigorously about how you can test your leaps of faith by
testing hypotheses whose results can be measured quantitatively, wherever
possible. Numbers are more persuasive than naive hopes and dreams.
○ If one or more of your leaps of faith are refuted by the evidence you collect,
the results displayed on your dashboard are visible and dramatic indicators of
your need to alter Plan A or move to Plan B
○ A dashboard is a powerful tool for convincing others
Street-Test Your Plan A: A Framework to Organize the Content
● If you have a strong business model, you are unlikely to run out of cash, until the
economic environment around you begins to crumble
● There are 5 key elements that determine whether or not a business model is viable.
They determine whether or not you are likely to run out of cash. They are the content
of your business model. They are the building blocks that underlie the financial
statements that will eventually measure your company's results. These elements are:
○ Your revenue model: Who will buy? How often? How soon? At what cost?
How much money will you receive each time a customer buys? And how
often will they send you another check? The answers to these questions should
give you many elements that should be supported by one analog, or (if it’s
not), it should be properly considered
○ Your gross margin model: How much of your revenue will be left after you
paid the direct costs of what you had sold?
○ Your Operating model: Other than the cost of the goods or services you have
sold, what else must you spend money on to support the sale?
○ Your working capital model: How early are you able to encourage your
customers to pay? Do you have to tie up money in lots of inventory waiting
for customers to buy? Can you pay your suppliers later, after the customer has
paid?
○ Your investment model: How much cash must you spend up front before
customers give you enough cash to cover your expenses?
● There are 5 elements of a business that ultimately create value for customers. These
elements are: revenue model, gross margin model, operating model, working capital
model, and investment model. These elements create a pathway for the analogs,
, antilogs, leaps of faith, and dashboards to help support you as you navigate from point
A to point B
● During this course, we are going to analyze each of these elements: revenue model,
gross margin model, operating model, working capital model, and investment model,
during different chapters, and how they work together in interesting ways.
Chapter 1: Don’t Reinvent the Wheel, Make It Better
Assembling Analogs, Antilogs, and Leaps of Faith to get to Plan B
● Getting your idea to Plan B is about taking your good idea, and developing it into a
business or other organization that has high impact, makes you and your investors
money, solves the problems of customers/clients, and is sustainable in the long term
● Making sure your customers/investors know that your business is something special is
very important. They are the ones that are going to be buying from you, so they
absolutely need to be on board with what you are doing
Goal for Chapter 1: Don’t Start from Scratch
● In theatre, new plays are drawn and developed from other ideas/themes of plays.
Business can be very similar
● In business you are able to use the ideas that others had in order to inform the
decisions that you’re making
● Companies use analogs and antilogs to inform the decisions that they are making
● Different businesses are able to learn about how successful their predecessors were,
and work to base their information and operations on that
● Whatever you do, don’t start from scratch
● There are far too many examples that will help highlight the unknowns, and risks that
you need to resolve
● When someone writes a playwright, they are really just building on something that
was done before
● Analogs and Antilogs can be found both inside and outside of the industry you are in,
and they can build off of one another
● Each different story is unique for getting from Plan A to Plan B
● Analogs and Antilogs only get you so far. Real innovators mix and match, turn, and
flip them all over the place in order to get to Plan B
● Sometimes taking an old model, and putting a new twist on it, is really what will
make a huge difference with the invention that one is trying to create
Chapter 2: Will the Fish Bite?
Case 1: Apple Branches out Personal Computers
● As companies innovate, their consumer demographics change, as their new products
may appeal more so to different groups of consumers
● Along with these changes, the companies brand image shifts as well
