Managing Technological IEOR 4998

Fridays 10:10AM - 12:40PM

Innovation
Jerry Neumann
• Columbia BS EE 1988, MS EE 1990, NYU MBA 1993
• Engineer, consultant, finance director
• VC: 26 companies 1997-2003, 7 IPOs, bunch of trade sales
• Startup, 2003-2007, raised $15m VC
• Angel investor: 44 companies 2008-now, 10 board seats, 1 IPO, 10
trade sales (so far)

• Contact:
gan15@columbia.edu
@ganeumann
ReactionWheel.com
 What

Starting and running a high-growth-potential

company with the opportunities that arise from
technological innovation
Why might you care?
We’re here to put a dent in the universe. Otherwise why
else even be here?
—Steve Jobs
How to Become Fabulously Wealthy
1 Bill Gates Entrepreneur
2 Jeff Bezos Entrepreneur
❖ Inherit 3 Warren Buffett
4 Mark Zuckerberg
Finance
Entrepreneur
5 Larry Ellison Entrepreneur
6 Michael Bloomberg Entrepreneur
❖ Be a top athlete or entertainer 7 Charles Koch
8 David H. Koch
Inheritance
Inheritance
9 Larry Page Entrepreneur
10 Sergey Brin Entrepreneur
❖ Go to the casino with someone else’s 11 Jim Walton
12 S. Robson Walton
Inheritance
Inheritance
money, keep most of the winnings (aka 13 Alice Walton
14 Sheldon Adelson
Inheritance
Finance
15 Steve Ballmer Entrepreneur
finance) 16 Jacqueline Mars
17 John Franklyn Mars
Inheritance
Inheritance
18 Phil Knight Entrepreneur
19 George Soros Finance
❖ Control something they’re not making 20 Michael Dell
21 Paul Allen
Entrepreneur
Entrepreneur
more of 22 Len Blavatnik
23 Laurene Powell Jobs
Finance
Inheritance
24 James Simon Finance
25 Ray Dalio Finance
❖ Start a successful high-growth startup 26 Carl Icahn
27 Donald Bren
Finance
Real Estate
28 Charles Ergen Entrepreneur
29 Abigail Johnson Inheritance
30 Harold Hamm Entrepreneur
Forbes 400, 2016
How to Become Fabulously Wealthy
1 Bill Gates Entrepreneur
2 Jeff Bezos Entrepreneur
❖ Inherit 3 Warren Buffett
4 Mark Zuckerberg
Finance
Entrepreneur
5 Larry Ellison Entrepreneur
6 Michael Bloomberg Entrepreneur
❖ Be a top athlete or entertainer 7 Charles Koch
8 David H. Koch
Inheritance
Inheritance
9 Larry Page Entrepreneur
10 Sergey Brin Entrepreneur
❖ Go to the casino with someone else’s 11 Jim Walton
12 S. Robson Walton
Inheritance
Inheritance
money, keep most of the winnings (aka 13 Alice Walton
14 Sheldon Adelson
Inheritance
Finance
15 Steve Ballmer Entrepreneur
finance) 16 Jacqueline Mars
17 John Franklyn Mars
Inheritance
Inheritance
18 Phil Knight Entrepreneur
19 George Soros Finance
❖ Control something they’re not making 20 Michael Dell
21 Paul Allen
Entrepreneur
Entrepreneur
more of 22 Len Blavatnik
23 Laurene Powell Jobs
Finance
Inheritance
24 James Simon Finance
25 Ray Dalio Finance
❖ Start a successful high-growth startup 26 Carl Icahn
27 Donald Bren
Finance
Real Estate
28 Charles Ergen Entrepreneur
29 Abigail Johnson Inheritance
30 Harold Hamm Entrepreneur
Forbes 400, 2016
How to Become Fabulously Wealthy
1 Bill Gates Entrepreneur
2 Jeff Bezos Entrepreneur
❖ Inherit 3 Warren Buffett
4 Mark Zuckerberg
Finance
Entrepreneur
5 Larry Ellison Entrepreneur
6 Michael Bloomberg Entrepreneur
❖ Be a top athlete or entertainer 7 Charles Koch
8 David H. Koch
Inheritance
Inheritance
9 Larry Page Entrepreneur
10 Sergey Brin Entrepreneur
❖ Go to the casino with someone else’s 11 Jim Walton
12 S. Robson Walton
Inheritance
Inheritance
money, keep most of the winnings (aka 13 Alice Walton
14 Sheldon Adelson
Inheritance
Finance
15 Steve Ballmer Entrepreneur
finance) 16 Jacqueline Mars
17 John Franklyn Mars
Inheritance
Inheritance
18 Phil Knight Entrepreneur
19 George Soros Finance
❖ Control something they’re not making 20 Michael Dell
21 Paul Allen
Entrepreneur
Entrepreneur
more of 22 Len Blavatnik
23 Laurene Powell Jobs
Finance
Inheritance
24 James Simon Finance
25 Ray Dalio Finance
❖ Start a successful high-growth startup 26 Carl Icahn
27 Donald Bren
Finance
Real Estate
28 Charles Ergen Entrepreneur
29 Abigail Johnson Inheritance
30 Harold Hamm Entrepreneur
Forbes 400, 2016
“Entrepreneurship is a self-actualizing and a self-transcending
activity that—through responsiveness to the market—
integrates the self, the entrepreneur, with society. Unavoidably,
therefore, entrepreneurship is an exercise in social
responsibility. To suppress or constrain innovation and
improvement—and their implementation—ignores a society’s
needs and wants, holds it back, and diminishes its future.
Entrepreneurship is the unique process that, by fusing
innovation and implementation, allows individuals to bring
new ideas into being for the benefit of themselves and others.
It is sui generis, an irreducible form of freedom.”
- Kauffman Foundation, Entrepreneurship in American Higher Education, 2008
“Entrepreneurship is a self-actualizing and a self-transcending
activity that—through responsiveness to the market—
integrates the self, the entrepreneur, with society. Unavoidably,
therefore, entrepreneurship is an exercise in social
responsibility. To suppress or constrain innovation and
improvement—and their implementation—ignores a society’s
needs and wants, holds it back, and diminishes its future.
Entrepreneurship is the unique process that, by fusing
innovation and implementation, allows individuals to bring
new ideas into being for the benefit of themselves and others.
It is sui generis, an irreducible form of freedom.”
- Kauffman Foundation, Entrepreneurship in American Higher Education, 2008

-Shane, Scott. The Illusions of Entrepreneurship. New Haven: Yale University Press, 2008. pp. 43.
Why does anyone else care?
-From A Farewell to Alms, Gregory Clark

- Clark, Gregory, A Farewell to Alms, Princeton: Princeton University Press, 2007.

From the sixteenth century [to 1930], with a cumulative crescendo
after the eighteenth, the great age of science and technical
inventions began, which since the beginnings of the nineteenth
century have been in full flood--coal, steam, electricity, petrol,
steel, rubber, cotton, the chemical industries, automatic machinery
and the methods of mass production, wireless, printing, Newton,
Darwin, and Einstein, and thousands of other things and men too
famous to catalogue.
What is the result? In spite of an enormous growth in the
population of the world, which it has been necessary to equip with
houses and machines, the average standard of life in Europe and
the United States has been raised, I think, about fourfold.
- Economic Possibilities for our Grandchildren, John Maynard Keynes (1930)
More Income Means More Money for “Non-necessities”

- BLS, “100 Years of Consumer Spending”, retrieved from https://www.bls.gov/opub/uscs/report991.pdf

But “Non-necessities”
Includes Some Good
Stuff

- Ibid, BLS, “CONSUMER EXPENDITURES--2015”, retrieved from https://www.bls.gov/news.release/cesan.nr0.htm

 -From The Kauffman Foundation’s The Importance of Startups in Job Creation and Job Destruction, Tim Kane, July 2010

- Kane, Tim, “The Importance of Startups in Job Creation and Job Destruction”, July 2010, retrieved from http://www.kauffman.org/~/media/
kauffman_org/research%20reports%20and%20covers/2010/07/firm_formation_importance_of_startups.pdf
 Not to mention
Life%Expectancy%at%Birth,%US/Western%Europe%
90"
Genetic engineering?
Treatment of heart disease?
80"

70" Introduction
of Antibiotics
60"
Second generation of
50" vaccines introduced by
Louis Pasteur
40"

30"

20"

10"

0"
1600" 1650" 1700" 1750" 1800" 1850" 1900" 1950" 2000"
 OK so, This Class

Q: How do you start and run a high-growth-

potential company with the opportunities that
arise from technological innovation?
 Let’s narrow it down

❖ High-growth-potential
❖ Opportunities from technological innovation
❖ Start and run
 Why this, exactly?
Startups are amazing, right?

“…you build a team and you work to turn it into reality, and you launch
products and companies and entire industries that transform the world.
That’s the power of entrepreneurship. And it’s never been more important.

“In today’s world…entrepreneurship remains the engine of growth. That

ability to turn an idea into reality -- a new venture, a small business -- that
creates good-paying jobs; that puts rising economies on the path to
prosperity, and empowers people to come together and tackle our most
pressing global problems, from climate change to poverty.”

- Barack Obama, June 25, 2016 at the Global Entrepreneurship Summit

 Except…
In the US
❖ Only 25% of new firms have even one employee
❖ Of the firms with employees, only 29% survive 10 years
❖ Of the firms with employees that survive, they have an average of
only 9 employees each
❖ The median revenue of an owner-managed firm is $90,000
❖ 81% of founders have no desire to grow their new business (1/3
don’t expect their new business to replace their job)

-Shane, Scott. op cit. pp. 65-67.

 Because most founders…

❖ “…just trying to make a living, not trying to build a

high-growth business.”
❖ “…start firms in industries where there are a lot of firms
already in operation.”
❖ ”…report they have no competitive advantage”

-Ibid. pp. 36, 41, 67.

Very few (successful) startups look like this

Average VC-backed Public Company as of 2014

Employees 6,182

Revenue $2.2b

Market Cap $7.3b

- data from Gornall, Will, and Ilya A. Strebulaev. “The Economic Impact of Venture Capital: Evidence from Public Companies.”
SSRN Electronic Journal 2015 22.
But these unusual startups create most of the benefits
Ten most valuable companies in the world, by market cap
as of September 29, 2017, Financial Times

Rank Company Founded Market Cap ~Employees

1 Apple 1976 $792b 115,000
2 Alphabet (Google) 1998 665 70,000
3 Microsoft 1975 569 114,000
4 Amazon.com 1994 459 269,000
5 Berkshire-Hathaway 1839 452 331,000
6 Alibaba Group 1999 437 50,000
7 Tencent 1998 405 39,000
8 Facebook 2004 400 16,000
9 ExxonMobil 1870 348 75,000
10 Johnson & Johnson 1886 347 127,000
Outline of the Class

Size

Time
Q: How do you start and run a high-growth-
potential company with the opportunities
that arise from technological innovation?
Q: How do you start and run a high-growth-
potential company with the opportunities
that arise from technological innovation?

Q2: What makes some startups high-growth job and wealth-

creation engines while most startups are not?

Q3: What are the implications of these characteristics?

Q4: How do you create and implement strategies given these

implications?
 What We Will Cover

❖ Startups and exploiting uncertainty

 What We Will Cover

❖ What business strategy looks like in an uncertain

environment
 What We Will Cover

❖ How markets are created and evolve and the

implications for ideation and commercialization
 What We Will Cover

❖ How products are developed when you don’t

know what customers really want, and neither do
the customers
 What We Will Cover

❖ How do you hire and manage people when the

goals of the organization are still unknown
 What We Will Cover

❖ How do you gather resources to execute on your

vision when you can’t prove it will work
 Theory and Practice
❖ Markets
❖ Selecting
❖ Researching
❖ Sizing
❖ Business models
❖ Products
❖ Customer development
❖ Customer archetypes & stories
❖ Product development (MVP, iteration, metrics, product management, etc.)
❖ Financial feasibility
❖ Financial modeling
❖ People
❖ Hiring
❖ Managing

❖ Partnering

❖ Company
❖ Corporate structure

❖ Fund raising
 What We Won’t Cover

❖ How to run a large business

❖ How to run a small normal business
❖ How to run a normal startup
❖ Starting and running a non-tech business
 Running a large business

Running a
“normal” small
business

Running a

high-growth-
potential
business
 How We Will Learn
❖ Guest lectures from working entrepreneurs and venture capitalists
❖ Readings
❖ Case studies
❖ Assignments
❖ Group project
❖ In-class discussion
❖ Lectures
 Teaching method

❖ Read to learn concepts

❖ Guided discussion in class
❖ Use concepts in assignments
 Cases

❖ Case studies are descriptions of actual events that we

will reason about in class
❖ Each case will have a set of questions we will use as a
basis for class discussion; everyone will write up one
question (1-2 pages) and hand it in at the start of class
❖ Case discussions are a great place to participate
 Group Projects

❖ Form your own group of 3-4 people

❖ There will be two group papers, exploring an
opportunity
❖ It will be easier if it’s the same opportunity for both
papers
 Final Paper

❖ Done individually
❖ An analysis of a business proposal
 Grading

15% Participation/attendance

10% Case write-ups/assignments

50% 2 Group Papers (25% each)
- First due October 13
- Second due December 8

25% Individual final paper

- Due December 15
 What We Expect

❖ Guest speakers
❖ You will have read up on them before class
❖ You will arrive on time
 What We Expect

❖ Readings and Discussion

❖ Readings will be read
❖ We will use them to inform our discussions in class
 What We Expect

❖ Assignments & Case questions

❖ Done and handed in before class
❖ Don’t go by Syllabus, go by assignments in
Courseworks
 What We Expect

❖ Group Projects
❖ All group members participate in each project
❖ Learning to work as a group is one of the skills you
will need in the business world
❖ Communication is important
 What We Expect
❖ Participation/attendance
❖ We don’t believe you can learn this stuff by just reading it or
hearing it. You need to use it in your own thinking.
❖ You have to be part of the conversation. So no laptops, no
smartphone use.
❖ You can’t participate if you’re not in class. You might need to miss
some classes, but if it’s more than three, it’s a problem.
❖ If you need to miss a class, let me know beforehand. You should
write a short paper on that week’s readings in addition to the
assignment.
 What We Hope For

❖ Learn how to think like an entrepreneur

❖ Work at a startup
❖ Start a company (someday)
 Readings

1. Alexander Osterwalder, and Yves Pigneur, Business Model Generation

2. Rob Fitz, The Mom Test

3. Case Packet (http://cb.hbsp.harvard.edu/cbmp/access/68717062)

4. Posted each week, including internet links

 Outside of Class
❖ Columbia Entrepreneurship (http://entrepreneurship.columbia.edu/)
❖ Read:
❖ Mattermark Daily (email newsletter)
❖ Term Sheet (email newsletter)
❖ Techmeme (tech news aggregator)
❖ Hacker News
❖ VC blogs (https://www.cbinsights.com/research/venture-capital-
blogs-periodic-table/)
❖ The news
❖ Industry-specific media
 For Next Week

❖ Form a group of 3-4 people

❖ Start thinking about industries you would like to
evaluate for opportunities
❖ Do the readings (on Courseworks, in Assignments)
❖ One page assignment on Courseworks (introduce
yourself)
❖ ARRIVE ON TIME, WE HAVE A SPEAKER COMING