1 00:00:00.200 --> 00:00:05.740 Welcome back to the last session of strategy, entrepreneurial strategy 2 00:00:06.140 --> 00:00:11.350 So far we have discussed about the general concept of the strategy 3 00:00:11.350 --> 00:00:16.150 and also you practiced in strategy campus 4 00:00:16.800 --> 00:00:22.850 I'm pretty sure that those are really helpful for you 5 00:00:25.110 --> 00:00:31.450 I'm going to apply this general concept of the strategy into the startup field 6 00:00:33.050 --> 00:00:36.350 In this session, we are going to talk about 7 00:00:36.350 --> 00:00:40.000 the strategy as a simple rule 8 00:00:42.700 --> 00:00:45.200 I already explained that 9 00:00:45.200 --> 00:00:46.250 What is a strategy? 10 00:00:46.250 --> 00:00:52.140 Strategy is a company's theory about where to play and how to win 11 00:00:53.000 --> 00:00:57.280 But the more important thing in the startup field 12 00:00:58.000 --> 00:01:03.080 we need to understand the concept of the simple rule 13 00:01:04.280 --> 00:01:05.830 In this session, 14 00:01:05.830 --> 00:01:09.560 I want to introduce the concept of a strategy as a simple rule 15 00:01:10.280 --> 00:01:14.700 Scholars in the field of entrepreneurship suggest this concept 16 00:01:14.700 --> 00:01:16.720 and they argue that 17 00:01:17.140 --> 00:01:21.880 when business becomes complex, strategy should be simple 18 00:01:22.460 --> 00:01:25.520 Think about the startups situation 19 00:01:25.762 --> 00:01:29.062 You don't have money, you don't have knowledge 20 00:01:29.062 --> 00:01:31.580 you don't have experience, you don't have people 21 00:01:31.840 --> 00:01:36.000 but you try to start with the unmet, opportunity 22 00:01:36.000 --> 00:01:39.320 You try to target unknown people 23 00:01:39.320 --> 00:01:44.440 You try to solve the uncertainty 24 00:01:44.620 --> 00:01:45.600 Something like that 25 00:01:45.600 --> 00:01:48.080 your situation is pretty complicated 26 00:01:48.700 --> 00:01:53.220 But think about it, although your situation is complex 27 00:01:53.340 --> 00:01:56.140 your strategy should be very simple 28 00:01:56.800 --> 00:01:58.880 Looks like a very simple advice 29 00:01:58.880 --> 00:02:01.180 Looks like a very simple principle 30 00:02:01.180 --> 00:02:04.200 Looks like a very simple, guideline 31 00:02:04.200 --> 00:02:08.680 If you have a very simple and reliable guideline, reliable advice 32 00:02:08.680 --> 00:02:12.360 then it will be very helpful for you to make a great decision 33 00:02:12.360 --> 00:02:16.000 Then you use a few simple rules 34 00:02:16.880 --> 00:02:22.460 And these simple rules enable you guys to stay agile 35 00:02:22.460 --> 00:02:25.360 and help you get the opportunity 36 00:02:25.360 --> 00:02:28.280 much faster than anybody else 37 00:02:28.800 --> 00:02:32.380 Remember, strategy as a simple rule 38 00:02:32.380 --> 00:02:35.540 Your strategy doesn't have to be complicated 39 00:02:35.540 --> 00:02:39.620 if you have a complicated strategy, it is useless 40 00:02:39.620 --> 00:02:41.580 It is meaningless 41 00:02:41.580 --> 00:02:47.000 Your strategy should be simple, just two or just one or two 42 00:02:48.380 --> 00:02:54.000 And there are different types of simple rules 43 00:02:54.080 --> 00:02:57.000 The first one is how to rule 44 00:02:57.340 --> 00:03:00.000 Second one is boundary rules 45 00:03:00.000 --> 00:03:03.000 Third one is priority rules 46 00:03:03.000 --> 00:03:05.180 And fourth one is timing rule 47 00:03:05.180 --> 00:03:08.000 And the last one is exit rule 48 00:03:08.000 --> 00:03:13.000 So the scholars suggest those five types of simple rules 49 00:03:13.000 --> 00:03:15.000 Let's look at line by line 50 00:03:15.760 --> 00:03:18.000 The first, how to rule 51 00:03:18.000 --> 00:03:24.520 How to rule defines the key features of how processes are executed 52 00:03:24.860 --> 00:03:28.340 For example, what makes our process unique? 53 00:03:29.880 --> 00:03:32.740 So I want to give you an example of how to rule 54 00:03:32.740 --> 00:03:35.000 This is Best Buy 55 00:03:35.900 --> 00:03:40.000 Not recently, many years ago 56 00:03:40.000 --> 00:03:46.000 Amazon.com attacked Best Buy throughout their strategy 57 00:03:46.000 --> 00:03:51.000 so the Best Buy became the victim of showrooming 58 00:03:51.000 --> 00:03:56.360 you already understand this story from your card news before this entire session 59 00:03:56.440 --> 00:04:01.000 Anyway, the Best Buy, what did they do? 60 00:04:01.000 --> 00:04:04.000 They adopted Geek Squad 61 00:04:04.500 --> 00:04:08.880 Geek Squad is the Best Buy in-house tech support team 62 00:04:08.915 --> 00:04:11.255 and installation team 63 00:04:11.255 --> 00:04:16.349 And this Geek Squad plays a critical role in helping 64 00:04:16.509 --> 00:04:20.029 Best Buy compete with Amazon.com 65 00:04:20.909 --> 00:04:24.180 When you got attacked from your enemy 66 00:04:25.000 --> 00:04:29.000 you need to think about how to avoid this situation 67 00:04:29.780 --> 00:04:32.120 This is how to rule 68 00:04:32.120 --> 00:04:35.260 Remember, how to rule is a very simple rule 69 00:04:38.320 --> 00:04:41.360 What about second rule, which is the boundary rule? 70 00:04:41.360 --> 00:04:45.520 Boundary rule means you should set the limitation 71 00:04:45.521 --> 00:04:48.781 limit on what kind of opportunities to pursue 72 00:04:49.000 --> 00:04:52.000 Think about, there are a bunch of different types of opportunity 73 00:04:52.040 --> 00:04:54.120 Then you cannot pursue all of them 74 00:04:54.120 --> 00:04:57.000 You just focus on your area 75 00:04:57.000 --> 00:04:59.000 this is a boundary rule 76 00:04:59.000 --> 00:05:01.240 I want to give you an example from the Cisco 77 00:05:01.240 --> 00:05:02.160 You know the Cisco? 78 00:05:02.180 --> 00:05:07.000 Cisco is one of the fastest growing companies in the world 79 00:05:07.000 --> 00:05:11.000 the main product of Cisco was kind of connecting devices 80 00:05:11.000 --> 00:05:15.340 Without Cisco's product, we cannot access the internet right now 81 00:05:15.860 --> 00:05:18.460 And then in early days of the Cisco 82 00:05:18.654 --> 00:05:22.634 Cisco faced a tremendous challenge from the market 83 00:05:22.634 --> 00:05:26.760 That's why Cisco had to develop the new types of technology 84 00:05:26.822 --> 00:05:28.362 which is the switch technology 85 00:05:28.362 --> 00:05:32.845 But Cisco realized that they were already late in this 86 00:05:32.845 --> 00:05:34.445 the new types of technology 87 00:05:34.445 --> 00:05:36.520 That's why they changed their mind 88 00:05:36.586 --> 00:05:40.826 from developing in-house about the new technology 89 00:05:41.000 --> 00:05:45.300 to acquiring existing company 90 00:05:45.428 --> 00:05:48.128 that already produced these types of product 91 00:05:48.328 --> 00:05:49.460 switch product 92 00:05:49.460 --> 00:05:54.160 That's why Cisco decided to engage in M&A activities 93 00:05:54.165 --> 00:05:56.205 with relatively small company 94 00:05:56.865 --> 00:06:00.720 But interesting is at that time 95 00:06:00.743 --> 00:06:03.623 Cisco followed the boundary rule 96 00:06:03.623 --> 00:06:06.040 They set the limit about 97 00:06:06.048 --> 00:06:11.508 what kind of company should we engage in as M&A activities 98 00:06:11.708 --> 00:06:16.580 They list down the potential the target company 99 00:06:16.580 --> 00:06:19.380 So the potential target company 100 00:06:19.380 --> 00:06:22.200 should have less than 75 employees 101 00:06:22.232 --> 00:06:26.432 and kind of engineering driven company 102 00:06:26.432 --> 00:06:30.720 the culture should be fit very well with the Cisco 103 00:06:30.899 --> 00:06:33.899 and geographically very close 104 00:06:33.899 --> 00:06:36.439 and just one hour driving close company 105 00:06:36.439 --> 00:06:39.620 So they list out those kind of criteria 106 00:06:39.663 --> 00:06:43.723 and then they try to find out the company that meet those criteria 107 00:06:43.723 --> 00:06:46.580 This is one of the example of boundary rule 108 00:06:46.580 --> 00:06:49.420 Without any boundary rule 109 00:06:49.439 --> 00:06:54.599 you cannot do anything 110 00:06:55.300 --> 00:06:58.300 So setting up the boundary is very important 111 00:06:59.900 --> 00:07:04.000 Third rule is priority rule 112 00:07:04.180 --> 00:07:05.700 So what is the priority? 113 00:07:05.700 --> 00:07:09.200 Priority is kind of a ranking order of your task 114 00:07:09.200 --> 00:07:13.240 Think about as a startup, you have a lot of tasks to do 115 00:07:13.327 --> 00:07:15.867 but you cannot do at the same time 116 00:07:16.020 --> 00:07:20.000 you must make a rank order of your task 117 00:07:20.000 --> 00:07:22.160 Which one is the top priority? 118 00:07:22.160 --> 00:07:23.960 Which one is the second priority? 119 00:07:24.000 --> 00:07:24.880 Something like that 120 00:07:25.000 --> 00:07:27.540 Your daily activities 121 00:07:27.585 --> 00:07:31.945 or your business activities is based on your priority 122 00:07:32.000 --> 00:07:34.460 For example, look at the Intel 123 00:07:35.360 --> 00:07:38.020 When Intel allocate manufacturing 124 00:07:38.052 --> 00:07:41.292 their decisions was based on grocery margin 125 00:07:41.292 --> 00:07:46.580 It means that they allocate a lot of work at the area 126 00:07:46.687 --> 00:07:49.007 where they can make a lot of money 127 00:07:49.007 --> 00:07:51.000 Which is pretty simple 128 00:07:51.000 --> 00:07:53.500 Yes, again, your business activities 129 00:07:53.500 --> 00:07:55.380 should be based on your priority 130 00:07:55.380 --> 00:07:57.980 This is a priority rule 131 00:07:59.400 --> 00:08:00.740 Let's move on 132 00:08:00.740 --> 00:08:02.140 Timing rules 133 00:08:02.900 --> 00:08:07.140 Timing rule coordinates the rhythm and speed of the action 134 00:08:07.140 --> 00:08:11.100 Let's go back to the case of Cisco again 135 00:08:11.640 --> 00:08:16.520 Cisco tried to develop a new technology which is a switch 136 00:08:17.000 --> 00:08:22.780 Then again, they tried to develop this technology in-house first 137 00:08:23.380 --> 00:08:27.820 But at that time, they realized that we are already late 138 00:08:28.000 --> 00:08:31.060 then the CEO makes a big decision 139 00:08:31.060 --> 00:08:33.860 If we don't have resources to develop 140 00:08:33.860 --> 00:08:36.700 the component or product within six months 141 00:08:36.786 --> 00:08:40.306 then we say it is already late 142 00:08:40.306 --> 00:08:44.700 Then we need to proceed to the next option 143 00:08:45.000 --> 00:08:48.036 If we cannot develop it within six months 144 00:08:48.174 --> 00:08:52.554 the next option would be we will purchase existing companies 145 00:08:52.560 --> 00:08:56.440 in order to meet the consumer need 146 00:08:57.140 --> 00:08:59.620 this is the timing rule 147 00:09:00.380 --> 00:09:04.320 Last but not least is the exit rule 148 00:09:04.320 --> 00:09:08.880 The exit rule is about kind of giving up the rule 149 00:09:08.880 --> 00:09:11.480 when to give up and what to give up 150 00:09:11.520 --> 00:09:13.820 and how to give up, something like that 151 00:09:14.160 --> 00:09:17.280 Many times we do not think about this exit rule 152 00:09:17.316 --> 00:09:19.656 but it is very critical 153 00:09:19.656 --> 00:09:23.700 This is a company that produces hearing aids 154 00:09:24.040 --> 00:09:27.240 And inside this company, there are a lot of projects 155 00:09:27.240 --> 00:09:30.680 And then this company has a very unique exit rule 156 00:09:31.340 --> 00:09:34.800 Your project will be shutting down 157 00:09:34.910 --> 00:09:37.690 if your key members leave the project 158 00:09:37.690 --> 00:09:39.340 Wow, it is pretty simple 159 00:09:39.340 --> 00:09:43.320 and there is a very clear message when to exit 160 00:09:43.320 --> 00:09:45.400 when to exit, when to give up 161 00:09:45.720 --> 00:09:47.560 Think about your startup journey 162 00:09:47.720 --> 00:09:53.040 Probably you try to make something valuable product or service 163 00:09:53.840 --> 00:09:57.000 but you cannot pursue this idea 164 00:09:57.612 --> 00:10:01.652 forever and for a long time without any performance 165 00:10:01.992 --> 00:10:04.600 In order to keep going 166 00:10:04.796 --> 00:10:08.676 you should have some kind of relevant performance 167 00:10:08.676 --> 00:10:10.200 In this case 168 00:10:10.871 --> 00:10:14.531 in this case, you should have the exit rule 169 00:10:14.531 --> 00:10:18.991 when to give up this project or how to give up this project 170 00:10:18.991 --> 00:10:20.040 and what to give up 171 00:10:20.060 --> 00:10:21.260 For example 172 00:10:21.260 --> 00:10:26.500 if you do not attract 1,000 consumers within three months 173 00:10:26.860 --> 00:10:29.980 then we will pivot this service or product 174 00:10:30.224 --> 00:10:32.504 and we target to another idea 175 00:10:32.524 --> 00:10:33.360 Something like that 176 00:10:33.360 --> 00:10:37.280 this is kind of a good example of exit rule 177 00:10:38.940 --> 00:10:44.080 so far we have discussed about strategy as simple rules 178 00:10:44.080 --> 00:10:48.600 and remember there are five different types of simple rules 179 00:10:48.600 --> 00:10:52.800 and this simple rule concept is very important 180 00:10:54.240 --> 00:10:58.780 The concept of this simple rule is very important 181 00:10:58.780 --> 00:11:01.704 considering the dilemmatic situation 182 00:11:01.704 --> 00:11:03.520 What is a dilemmatic situation? 183 00:11:03.520 --> 00:11:07.400 Dilemma refers to a situation in which 184 00:11:07.518 --> 00:11:11.678 a difficult choice has to be made between two different things you could do 185 00:11:11.720 --> 00:11:15.340 You can do A and also you can do B 186 00:11:15.340 --> 00:11:18.380 But right now you should make a decision 187 00:11:18.400 --> 00:11:19.500 Which one? 188 00:11:19.580 --> 00:11:25.300 Which one is the path that you pursue? 189 00:11:26.020 --> 00:11:30.600 As a startup, you can meet many dilemmatic situations 190 00:11:30.951 --> 00:11:32.411 In this case 191 00:11:32.420 --> 00:11:38.540 I will introduce three frequently met dilemmatic situations for startups 192 00:11:39.540 --> 00:11:43.080 although there are many dilemmatic situations 193 00:11:43.600 --> 00:11:46.340 First one, it is a funding dilemma 194 00:11:46.900 --> 00:11:49.700 The dilemma question would be, 195 00:11:49.700 --> 00:11:52.520 should we take VC funding or bootstrap the businesses? 196 00:11:52.920 --> 00:11:56.220 What do you mean by the bootstrapping the businesses? 197 00:11:56.320 --> 00:11:58.920 Bootstrapping businesses, 198 00:11:58.920 --> 00:12:01.520 you just run the businesses without the external funding 199 00:12:01.520 --> 00:12:04.170 You do everything by yourself 200 00:12:04.170 --> 00:12:06.800 with your money or with your friend's money, something like that 201 00:12:07.760 --> 00:12:12.800 The core issue about this is that the VC 202 00:12:12.827 --> 00:12:17.207 venture capital company brings the speed and capital 203 00:12:17.340 --> 00:12:18.440 But 204 00:12:18.587 --> 00:12:24.280 But it will lead to the dilution of your equity 205 00:12:24.338 --> 00:12:27.298 and the pressure about the performance 206 00:12:27.798 --> 00:12:29.898 On the other hand, bootstrapping 207 00:12:29.898 --> 00:12:33.840 offers the incredible control power for you 208 00:12:33.864 --> 00:12:36.484 but slower growth 209 00:12:37.764 --> 00:12:41.340 This is the funding dilemma 210 00:12:41.340 --> 00:12:45.580 You can do either one but you need to choose one of them 211 00:12:47.860 --> 00:12:52.040 Second dilemmatic situation is about outsourcing 212 00:12:52.115 --> 00:12:54.875 outsource versus in-house 213 00:12:55.440 --> 00:12:58.420 Dilemmatic question in this case is 214 00:12:58.460 --> 00:13:03.000 Should we build the technology in-house or outsource development? 215 00:13:03.060 --> 00:13:09.000 Or should we sell our product service by ourselves or outsource it? 216 00:13:10.460 --> 00:13:14.520 Core issue in this dilemma situation is that 217 00:13:14.549 --> 00:13:20.789 in-house development, in-house sales ensure incredible control 218 00:13:21.180 --> 00:13:24.540 and you can protect your property 219 00:13:24.880 --> 00:13:26.460 But it is time-consuming 220 00:13:26.900 --> 00:13:32.380 On the other hand, outsourcing is faster but riskier 221 00:13:33.200 --> 00:13:34.760 You can see the different 222 00:13:34.779 --> 00:13:40.099 different benefits and different disadvantages 223 00:13:43.000 --> 00:13:46.280 Let's look at the third dilemmatic situation 224 00:13:46.520 --> 00:13:48.520 Profit first or growth first? 225 00:13:48.780 --> 00:13:50.593 Your critical question would be 226 00:13:50.777 --> 00:13:56.375 Should we target the early profit 227 00:13:56.437 --> 00:13:59.733 or should we focus on growth first? 228 00:13:59.733 --> 00:14:01.440 That is a critical question 229 00:14:01.741 --> 00:14:04.261 Core issue in this case 230 00:14:04.580 --> 00:14:08.100 early profitability lower your risk 231 00:14:08.855 --> 00:14:14.055 but early growth first, increase network effect 232 00:14:14.273 --> 00:14:15.913 In the digital area 233 00:14:16.095 --> 00:14:19.555 in the digital area 234 00:14:20.315 --> 00:14:23.820 create network effect is very important for you 235 00:14:24.920 --> 00:14:27.760 So anyway, there is a percent coins 236 00:14:28.073 --> 00:14:31.013 but you need to choose one of them 237 00:14:31.013 --> 00:14:33.840 This is a kind of a dilemmatic situation 238 00:14:35.000 --> 00:14:37.000 Let's begin with the funding dilemma 239 00:14:37.000 --> 00:14:38.600 Let's look at the paper 240 00:14:39.980 --> 00:14:46.120 In 1984, Mayors and Majuloof published this interesting paper 241 00:14:47.055 --> 00:14:49.755 They argued that in reality 242 00:14:49.780 --> 00:14:52.430 there is information asymmetry 243 00:14:52.430 --> 00:14:55.120 between two parties and transaction costs exist 244 00:14:56.420 --> 00:15:00.151 When they analyzed many big companies 245 00:15:00.237 --> 00:15:05.257 they found that the companies raised the outsiding funding 246 00:15:05.281 --> 00:15:08.241 or inside funding in the following orders 247 00:15:09.381 --> 00:15:12.980 They raised just internal fund first 248 00:15:13.046 --> 00:15:16.766 and they got the debt after then 249 00:15:16.840 --> 00:15:20.540 Then later, they raised the outside equity financing 250 00:15:20.940 --> 00:15:24.000 Equity financing is the kind of a last step 251 00:15:25.180 --> 00:15:28.880 This is called as the packing order theory 252 00:15:29.180 --> 00:15:31.420 Packing order theory argued that again 253 00:15:31.479 --> 00:15:35.239 the companies follow the financing orders 254 00:15:37.440 --> 00:15:42.049 There is another research that applied packing order theory into the startup 255 00:15:42.759 --> 00:15:50.539 And the researchers interviewed 20 Scottish startups 256 00:15:50.899 --> 00:15:53.122 they concluded that 257 00:15:53.521 --> 00:16:01.226 startups also prioritize internal funding first 258 00:16:01.843 --> 00:16:04.060 They follow the internal funding first 259 00:16:04.139 --> 00:16:08.419 and then they later pursue additional funding source 260 00:16:09.320 --> 00:16:13.440 Different thing is they often cannot access the debt 261 00:16:14.000 --> 00:16:18.820 Because the bank do not like startup 262 00:16:19.040 --> 00:16:22.720 The bank do not lend the money to the startup 263 00:16:22.720 --> 00:16:26.400 that's why the startup cannot access the debt 264 00:16:26.420 --> 00:16:30.420 they move directly to the equity funding 265 00:16:30.486 --> 00:16:32.585 after the internal financing 266 00:16:32.785 --> 00:16:36.120 This is the difference between startup and big company 267 00:16:37.080 --> 00:16:40.460 the packing order theory does not apply in this area 268 00:16:41.800 --> 00:16:45.360 However, early equity financing is 269 00:16:45.360 --> 00:16:49.354 often kind of a strategic movement for the startup 270 00:16:49.354 --> 00:16:51.120 What do you mean by that? 271 00:16:51.120 --> 00:16:54.200 Although startup cannot access the bank 272 00:16:54.252 --> 00:16:59.272 so they move to the external equity financing 273 00:16:59.672 --> 00:17:04.540 But when they increase, when they raise the outside funding 274 00:17:04.868 --> 00:17:09.528 then they try to find out the great mentors at the same time 275 00:17:09.528 --> 00:17:13.480 In other words, they want to get the money from the great mentors 276 00:17:14.940 --> 00:17:16.990 Why? 277 00:17:16.990 --> 00:17:19.000 Because the great mentors can increase the company's value 278 00:17:19.000 --> 00:17:22.450 Because mentors have friends, mentors have knowledge, 279 00:17:22.450 --> 00:17:24.000 mentors have experience 280 00:17:24.000 --> 00:17:28.000 that's why startup want to partner with them 281 00:17:29.000 --> 00:17:31.000 Let's look at the graph 282 00:17:31.000 --> 00:17:34.000 there are 20 cases 283 00:17:34.000 --> 00:17:37.500 And then, one means just the first step 284 00:17:37.500 --> 00:17:39.940 when they get the money 285 00:17:39.994 --> 00:17:44.954 all of 20 startups approach the internal financing 286 00:17:45.000 --> 00:17:48.560 Internal financing means they use their own money, it's the owner's money 287 00:17:48.560 --> 00:17:50.340 And then, what about the second step? 288 00:17:50.340 --> 00:17:53.400 From the large company, from the pecking order theory 289 00:17:53.454 --> 00:17:56.994 large company probably go to the bank to get the debt 290 00:17:57.000 --> 00:18:00.260 But the startups, different case 291 00:18:00.260 --> 00:18:04.400 the startups went to the angel investor first 292 00:18:04.400 --> 00:18:05.840 Why angel investors? 293 00:18:05.914 --> 00:18:10.194 Because angel investors are good mentors 294 00:18:10.494 --> 00:18:15.440 That's why, so many startups went to the angel investor first 295 00:18:15.440 --> 00:18:20.120 How many? 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12 296 00:18:20.120 --> 00:18:25.600 12 out of 20 companies went to the angel investors first 297 00:18:25.900 --> 00:18:28.000 And what about the others? 298 00:18:28.000 --> 00:18:30.550 Some of them went to the bank luckily 299 00:18:30.550 --> 00:18:32.200 and some of them got the grant 300 00:18:32.200 --> 00:18:36.280 Some of them goes to their family members 301 00:18:36.440 --> 00:18:40.000 Anyway, this is a kind of pecking order theory 302 00:18:42.020 --> 00:18:46.280 What has to do with pecking order theory with the funding dilemma? 303 00:18:47.660 --> 00:18:51.933 We can apply the pecking order hypothesis in your startup financing 304 00:18:51.933 --> 00:18:54.393 in the dilemmatic situation 305 00:18:55.233 --> 00:18:58.000 The first, you need to expand the internal fundings 306 00:18:58.000 --> 00:19:00.520 You focused on internal funding 307 00:19:00.520 --> 00:19:04.160 Then, you can seek the debt financing 308 00:19:05.860 --> 00:19:10.620 So please reinvent your earning and you engage in bootstrapping 309 00:19:10.720 --> 00:19:13.920 and you try to get the grant outside 310 00:19:13.949 --> 00:19:17.649 and you rely on loan guarantee program, 311 00:19:17.649 --> 00:19:19.249 supported by the government 312 00:19:19.509 --> 00:19:23.920 These are all activities about 313 00:19:24.187 --> 00:19:27.167 expanding your internal funding 314 00:19:28.227 --> 00:19:32.320 Second, angel investment in the seed stage is very important 315 00:19:33.840 --> 00:19:37.260 because it is kind of a second step for you as a startup 316 00:19:37.360 --> 00:19:41.220 But in this case, your equity 317 00:19:41.251 --> 00:19:46.151 I mean, equity share for the angel investors is less than 10% 318 00:19:46.300 --> 00:19:52.000 And you'd better find out, good mentors as angel investors 319 00:19:52.000 --> 00:19:54.380 You can secure good angels 320 00:19:54.380 --> 00:19:56.430 securing good angel 321 00:19:56.430 --> 00:20:00.040 is a strategy for increasing your company values 322 00:20:00.980 --> 00:20:03.480 when you pursue outside funding, 323 00:20:03.480 --> 00:20:06.000 your movement should be strategic 324 00:20:09.240 --> 00:20:13.390 You'd better reduce information asymmetry between 325 00:20:13.390 --> 00:20:16.000 you and the investors 326 00:20:16.540 --> 00:20:21.000 If there is a huge gap between you and investors in terms of the information 327 00:20:21.000 --> 00:20:25.400 angel investors try to 328 00:20:25.494 --> 00:20:30.914 or other outside investors want to get more equity 329 00:20:30.914 --> 00:20:32.914 because they need some premium, 330 00:20:32.914 --> 00:20:35.300 because they don't have much information for you 331 00:20:35.300 --> 00:20:37.760 So that's why they want to protect themselves 332 00:20:37.760 --> 00:20:41.340 we want to avoid this kind of situation 333 00:20:41.820 --> 00:20:43.880 That's why we want to 334 00:20:43.965 --> 00:20:47.215 put the effort to reduce some information gap 335 00:20:47.215 --> 00:20:49.265 between you and the investors 336 00:20:49.265 --> 00:20:52.580 How? You build trust with investors 337 00:20:52.613 --> 00:20:54.493 and you recruit experts 338 00:20:54.580 --> 00:20:59.380 and you establish some kind of board of directors 339 00:21:00.013 --> 00:21:02.913 Those activities can reduce the information gap between 340 00:21:02.913 --> 00:21:05.860 you and your investors 341 00:21:05.860 --> 00:21:08.800 Then you can get great 342 00:21:09.133 --> 00:21:14.173 negotiation power between you and your investors 343 00:21:14.373 --> 00:21:18.220 This is how to avoid funding dilemma 344 00:21:19.080 --> 00:21:22.580 I hope that this is helpful for you to 345 00:21:22.580 --> 00:21:26.040 understand the dilemma situation in terms of funding 346 00:21:27.840 --> 00:21:30.490 Let's move on to second dilemma situation 347 00:21:30.490 --> 00:21:34.000 which is the outsource versus in-house development 348 00:21:34.380 --> 00:21:36.000 Look at this picture 349 00:21:36.000 --> 00:21:40.000 This picture is the medical devices 350 00:21:40.000 --> 00:21:44.000 And this picture, this medical device is called CT 351 00:21:45.020 --> 00:21:48.380 Have you heard about the EMI? 352 00:21:48.380 --> 00:21:52.360 EMI is a music company, British music company 353 00:21:53.100 --> 00:21:56.453 But the EMI, British music company developed 354 00:21:56.453 --> 00:22:02.153 the world's first commercial CT scanner in the early 1970s 355 00:22:02.533 --> 00:22:03.800 Did you know that? 356 00:22:03.800 --> 00:22:08.420 Wow, they developed, music company developed 357 00:22:08.567 --> 00:22:13.167 advanced medical devices which is a CT 358 00:22:13.480 --> 00:22:15.360 Wow, it's very interesting 359 00:22:15.800 --> 00:22:21.660 But the problem was EMI didn't have any knowledge about hospital 360 00:22:22.142 --> 00:22:24.982 any knowledge about medical devices 361 00:22:25.000 --> 00:22:28.080 They don't have any experience, infrastructure 362 00:22:28.124 --> 00:22:32.544 and strategy to sell medical devices at hospital 363 00:22:33.740 --> 00:22:36.520 because they don't know this field 364 00:22:37.360 --> 00:22:42.400 That's why they faced the kind of a dilemma situation 365 00:22:42.458 --> 00:22:45.258 about outsource versus in-house 366 00:22:45.258 --> 00:22:48.698 in terms of the sales and service or installation 367 00:22:49.000 --> 00:22:51.560 Again, although they developed this technology 368 00:22:51.626 --> 00:22:55.846 they don't have any experience, knowledge 369 00:22:55.944 --> 00:22:58.564 about sales, service and installation 370 00:23:00.180 --> 00:23:02.320 This is a dilemma situation 371 00:23:02.320 --> 00:23:06.640 Should the EMI develop their ability in-house 372 00:23:07.415 --> 00:23:12.855 or they outsource this capability to the other side 373 00:23:14.220 --> 00:23:18.460 EMI made a decision to outsource the sales 374 00:23:18.623 --> 00:23:23.423 and distribution of their CT scanners to a third-party company 375 00:23:24.006 --> 00:23:30.166 In other words, EMI will make CT scanners in their factory 376 00:23:30.543 --> 00:23:33.743 they will contract with 377 00:23:33.743 --> 00:23:36.260 a third-party company that distributes the product 378 00:23:36.773 --> 00:23:39.260 that distributes the product 379 00:23:39.635 --> 00:23:42.185 The third-party company will sell 380 00:23:42.185 --> 00:23:44.780 the CT scanner produced by EMI 381 00:23:44.853 --> 00:23:46.793 to the hospitals 382 00:23:47.800 --> 00:23:49.460 This is the process 383 00:23:50.500 --> 00:23:52.180 Then, what happened? 384 00:23:52.180 --> 00:23:55.330 When the third-party company distributed 385 00:23:55.330 --> 00:23:59.260 the CT scanner to the many hospitals 386 00:23:59.584 --> 00:24:02.704 and this news spread out very quickly 387 00:24:02.800 --> 00:24:05.900 Then later, GE, 388 00:24:05.900 --> 00:24:09.029 which is one of the strong competitor in the medical devices area 389 00:24:09.057 --> 00:24:10.717 and Siemens 390 00:24:10.874 --> 00:24:14.024 another strong competitor in the medical devices area, 391 00:24:14.024 --> 00:24:16.016 heard about this news 392 00:24:16.776 --> 00:24:23.000 They quickly developed the faster and much better CT scanners 393 00:24:24.960 --> 00:24:29.000 There could be strong competitors immediately 394 00:24:29.200 --> 00:24:30.740 Then later, what happened? 395 00:24:30.920 --> 00:24:35.840 GE and Siemens integrated their manufacturing, sales 396 00:24:35.850 --> 00:24:38.970 and services together because they had experience 397 00:24:39.000 --> 00:24:41.420 They had knowledge about hospitals and medical devices 398 00:24:41.420 --> 00:24:44.480 they had the previous network 399 00:24:45.520 --> 00:24:51.240 They integrated those knowledge, those capabilities together 400 00:24:51.840 --> 00:24:53.240 Then, what happened? 401 00:24:54.340 --> 00:24:56.640 EMI lost market leadership 402 00:24:56.640 --> 00:24:58.900 but GE and Siemens dominated this market 403 00:24:58.900 --> 00:24:59.600 Why? 404 00:24:59.600 --> 00:25:04.000 Because consumers like to have GE and Siemens CT scanner 405 00:25:04.000 --> 00:25:05.000 Why? 406 00:25:05.000 --> 00:25:08.050 Because they need to get the service right away 407 00:25:08.050 --> 00:25:10.000 if there is some problem 408 00:25:10.000 --> 00:25:13.380 But if they got the EMI CT scanner 409 00:25:14.184 --> 00:25:17.084 they should talk with the third-party distributor first 410 00:25:17.084 --> 00:25:19.624 and then third-party distributors talk 411 00:25:20.000 --> 00:25:24.400 And EMI made the decision what to do 412 00:25:24.400 --> 00:25:26.460 Then, back and forth 413 00:25:26.460 --> 00:25:28.720 It will take tons of time 414 00:25:28.720 --> 00:25:32.000 That's why consumers didn't like it 415 00:25:33.120 --> 00:25:36.320 Again, GE and Siemens dominated this market 416 00:25:36.320 --> 00:25:38.440 In this case 417 00:25:39.372 --> 00:25:44.552 What would have been done by EMI? 418 00:25:44.640 --> 00:25:50.760 EMI should have developed those kinds of capabilities in-house 419 00:25:51.092 --> 00:25:56.632 in order to protect their properties, protect their secrets 420 00:25:58.312 --> 00:26:00.000 Let's move on 421 00:26:00.000 --> 00:26:05.680 There are several criteria about the dilemmatic question 422 00:26:05.690 --> 00:26:08.150 of outsourced versus in-house 423 00:26:08.470 --> 00:26:11.620 Let's look at the first criteria, cost 424 00:26:12.280 --> 00:26:14.500 The first question to ask is 425 00:26:14.500 --> 00:26:17.864 Will outsourcing reduce cost without 426 00:26:17.981 --> 00:26:22.241 sacrificing your quality? 427 00:26:22.464 --> 00:26:27.464 In many cases, startups operate with a limited budget 428 00:26:27.521 --> 00:26:33.561 so if outsourcing to a third party can deliver the same 429 00:26:33.561 --> 00:26:36.904 or even better quality at low prices 430 00:26:36.904 --> 00:26:40.026 Then it may be a smart move 431 00:26:40.224 --> 00:26:42.986 So again, you can outsource 432 00:26:42.986 --> 00:26:46.866 only if savings exceed in-house costs 433 00:26:48.303 --> 00:26:50.223 In this case, 434 00:26:51.344 --> 00:26:56.263 EMI can save the money when they contract with a third party 435 00:26:57.723 --> 00:27:03.264 In terms of the money, in terms of cash, they can save the cost 436 00:27:03.664 --> 00:27:07.943 But if we consider the consumer's satisfaction 437 00:27:07.950 --> 00:27:13.030 then they lost many things 438 00:27:13.943 --> 00:27:19.583 So we need to consider those hidden factors as well 439 00:27:20.263 --> 00:27:24.864 Second criteria is strategic value 440 00:27:25.839 --> 00:27:27.119 You ask yourself 441 00:27:27.904 --> 00:27:32.643 Is this task critical to our competitive advantage or not? 442 00:27:33.063 --> 00:27:38.483 If the task is core to your businesses 443 00:27:38.526 --> 00:27:40.866 Then, what are you going to do? 444 00:27:41.363 --> 00:27:44.503 You may want to keep it in-house 445 00:27:45.703 --> 00:27:49.823 If your task is non-core, then you can outsource it 446 00:27:49.823 --> 00:27:55.483 So the outsource is possible only if your task is non-core 447 00:27:56.403 --> 00:27:58.644 Let's go back to the CT case 448 00:27:59.264 --> 00:28:04.324 When you install CT scanner in the hospital 449 00:28:04.630 --> 00:28:09.090 probably the consumer service and maintenance 450 00:28:09.165 --> 00:28:11.065 and the feedback 451 00:28:11.444 --> 00:28:15.864 those are all very critical tasks for your CT scanners 452 00:28:16.664 --> 00:28:20.383 So these tasks are not non-core tasks 453 00:28:20.383 --> 00:28:22.243 These tasks are core tasks 454 00:28:22.243 --> 00:28:27.144 You should not outsource your service sales 455 00:28:27.274 --> 00:28:30.173 and consumer satisfaction 456 00:28:30.684 --> 00:28:35.863 The EMI's decision was wrong in terms of the strategic value 457 00:28:36.783 --> 00:28:40.523 Let's move on to another criteria, expertise gap 458 00:28:41.319 --> 00:28:42.819 Ask yourself 459 00:28:42.819 --> 00:28:48.704 Do we lack the skills or technology internally? 460 00:28:49.784 --> 00:28:53.483 Start ups cannot be good at everything 461 00:28:54.367 --> 00:28:57.287 If another vendors 462 00:28:57.343 --> 00:28:59.443 or another third-party company 463 00:28:59.443 --> 00:29:03.164 have superior knowledge and better tools 464 00:29:03.164 --> 00:29:05.914 or specialized technology, 465 00:29:05.914 --> 00:29:08.663 it might be more efficient to outsource 466 00:29:10.363 --> 00:29:13.044 Outsource is available 467 00:29:13.305 --> 00:29:18.205 if your third-party company can offer superior capability 468 00:29:18.224 --> 00:29:19.204 than anybody else 469 00:29:19.464 --> 00:29:22.384 Think about the EMI CT scanners 470 00:29:22.583 --> 00:29:26.203 Although the third-party distributors 471 00:29:26.204 --> 00:29:30.203 can have some kind of sales capability or service capabilities 472 00:29:30.203 --> 00:29:33.184 but their capabilities are not as 473 00:29:33.267 --> 00:29:38.427 not as great as GE and GMEN's 474 00:29:39.032 --> 00:29:41.712 So that's why in terms of expertise gap 475 00:29:42.692 --> 00:29:45.492 the EMI should not be 476 00:29:45.492 --> 00:29:48.103 outsourcing the sales and service 477 00:29:50.223 --> 00:29:54.523 Let's move on to the last one, the last criteria, which is risk 478 00:29:54.623 --> 00:29:58.243 And you ask yourself, can we manage the potential risk? 479 00:29:58.543 --> 00:30:00.793 In this case, 480 00:30:00.793 --> 00:30:03.064 the potential risk would be your technology leaked 481 00:30:04.184 --> 00:30:06.763 The risk is often the deal breaker 482 00:30:08.454 --> 00:30:10.734 Even if outsourcing is cheaper 483 00:30:10.743 --> 00:30:16.904 you must evaluate whether sensitive data or your property 484 00:30:16.904 --> 00:30:20.864 or your technology or reputation might be exposed 485 00:30:20.864 --> 00:30:23.163 If your technology is exposed 486 00:30:23.231 --> 00:30:28.711 and if your secret is leaked and if your data is stolen 487 00:30:30.363 --> 00:30:35.763 you should not outsource your activities 488 00:30:36.423 --> 00:30:40.504 So, the outsource is available only if there is minimal risk 489 00:30:41.304 --> 00:30:42.624 Minimal risk 490 00:30:43.724 --> 00:30:45.183 What do you think? 491 00:30:45.183 --> 00:30:47.433 Is it helpful for you to understand about 492 00:30:47.433 --> 00:30:50.403 outsource versus in-house 493 00:30:50.683 --> 00:30:52.023 the dilemmatic situation? 494 00:30:53.503 --> 00:30:57.523 Let's move on to the last dilemmatic situation 495 00:30:58.105 --> 00:31:01.425 which is profit-first versus growth-first 496 00:31:02.203 --> 00:31:03.663 Let's look at eBay 497 00:31:06.383 --> 00:31:08.703 eBay started small at home 498 00:31:08.803 --> 00:31:11.623 And then the founder, Pierre Omidyar 499 00:31:11.806 --> 00:31:16.226 started eBay as his hobby 500 00:31:18.214 --> 00:31:20.034 at that time, he had a daily job 501 00:31:22.523 --> 00:31:26.143 he managed his hobby website at night 502 00:31:26.583 --> 00:31:30.433 And the only way to access eBay at that time 503 00:31:30.433 --> 00:31:32.163 was to write a check 504 00:31:32.383 --> 00:31:36.604 And then consumers sent out the check to Pierre's home 505 00:31:36.844 --> 00:31:41.183 Pierre should handle this check at night, after work 506 00:31:42.083 --> 00:31:46.784 So anyways, Pierre Omidyar never gave up the profit, never gave up money 507 00:31:48.404 --> 00:31:51.984 So, eBay was based on profit-first strategy 508 00:31:52.624 --> 00:31:57.224 The good thing is eBay was always profitable and successful 509 00:31:57.584 --> 00:32:00.404 So one year later, eBay was very successful 510 00:32:00.449 --> 00:32:03.184 and within a short period of time, eBay went to IPO 511 00:32:04.123 --> 00:32:06.963 This is the power of profit-first strategy 512 00:32:07.183 --> 00:32:09.364 And what about growth-first strategy? 513 00:32:09.364 --> 00:32:11.524 Let's look at Amazon.com 514 00:32:11.524 --> 00:32:14.223 Amazon started in 1994 515 00:32:14.323 --> 00:32:17.283 After that, within eight years 516 00:32:17.396 --> 00:32:18.583 Amazon didn't make any money 517 00:32:18.583 --> 00:32:23.023 because Amazon reinvented much on their operations 518 00:32:23.078 --> 00:32:25.418 Amazon never saved money 519 00:32:25.463 --> 00:32:31.043 and never pursued the profit and they just focused on the growth 520 00:32:31.043 --> 00:32:32.043 Why? 521 00:32:32.111 --> 00:32:34.131 Because they needed some kind of consumers 522 00:32:34.183 --> 00:32:38.403 and their only focus is to attract new consumers 523 00:32:38.403 --> 00:32:40.163 New consumers, new consumers 524 00:32:40.163 --> 00:32:42.004 They focused on market share 525 00:32:42.784 --> 00:32:45.103 What about the result of Amazon.com? 526 00:32:45.123 --> 00:32:49.304 Right now, Amazon.com is a world-top e-commerce company 527 00:32:49.304 --> 00:32:53.564 So, the growth-first strategy worked very well 528 00:32:53.564 --> 00:32:58.004 Either one is fine but your problem is, which one? 529 00:32:58.004 --> 00:33:00.043 Which one is my strategy? 530 00:33:00.043 --> 00:33:02.064 This is kind of a dilemmatic situation 531 00:33:02.624 --> 00:33:06.723 So I want to introduce some of the relevant research 532 00:33:07.321 --> 00:33:12.464 in terms of the profit-first versus growth-first dilemma situation 533 00:33:12.544 --> 00:33:13.524 Look at him 534 00:33:13.524 --> 00:33:16.324 His name is Dr. David Dixon 535 00:33:16.349 --> 00:33:20.189 and he is a well-known professor in the field of entrepreneurship 536 00:33:20.224 --> 00:33:24.003 Luckily, I took his class when I was a PhD student 537 00:33:24.123 --> 00:33:28.364 He published a lot of paper, and he's an economist 538 00:33:29.724 --> 00:33:33.063 Many years ago, he studied about the better strategy 539 00:33:33.063 --> 00:33:37.623 Which one is a better strategy for early startup, profit or growth? 540 00:33:37.623 --> 00:33:43.183 Wow, his research topic fits very well our, dilemmatic situation 541 00:33:44.004 --> 00:33:46.204 To solve this question 542 00:33:46.343 --> 00:33:51.403 he analyzed 3,500 Australian small companies 543 00:33:51.507 --> 00:33:54.087 during 1995-1998 544 00:33:55.143 --> 00:34:01.803 He analyzed 1,470 Swedish small companies during 1997 and 2000 545 00:34:03.263 --> 00:34:04.904 Then what about the result? 546 00:34:06.264 --> 00:34:07.803 Result was very interesting 547 00:34:07.943 --> 00:34:13.243 The result showed that the companies that focused on profit 548 00:34:14.008 --> 00:34:15.728 from the beginning 549 00:34:16.483 --> 00:34:21.764 Ultimately became high-gross ventures and high-profit companies 550 00:34:25.471 --> 00:34:27.091 If you are a startup 551 00:34:27.383 --> 00:34:31.283 you'd better focus on profit first, like eBay 552 00:34:32.043 --> 00:34:34.264 Do not focus on growth 553 00:34:34.604 --> 00:34:38.964 If you focus on the growth at first, it will be very dangerous 554 00:34:39.404 --> 00:34:40.643 What about Amazon.com? 555 00:34:40.643 --> 00:34:42.264 Amazon.com is successful 556 00:34:42.264 --> 00:34:45.143 Yes, Amazon.com is successful, but it is an exception 557 00:34:45.923 --> 00:34:46.643 You know what I mean? 558 00:34:46.643 --> 00:34:51.323 On average from his research, on average 559 00:34:52.089 --> 00:34:55.629 focusing on the profit first from the beginning 560 00:34:55.629 --> 00:34:58.679 would be the better strategy for you, on average, 561 00:34:58.679 --> 00:35:00.084 although there is some exception 562 00:35:01.004 --> 00:35:03.463 Wow, it's a very interesting guideline 563 00:35:05.403 --> 00:35:10.004 So many people think about 564 00:35:10.464 --> 00:35:13.124 Is it true? 565 00:35:16.404 --> 00:35:19.644 One of the scholars in France 566 00:35:20.257 --> 00:35:24.597 decided to replicate, Dr. Davidson's study 567 00:35:25.004 --> 00:35:30.644 They replicated the research of Davidson at 2009, previous study 568 00:35:31.244 --> 00:35:33.603 They analyzed, how many? 569 00:35:33.690 --> 00:35:37.670 664,000 European small companies 570 00:35:37.943 --> 00:35:42.184 representing 40% of all the European small companies 571 00:35:42.210 --> 00:35:45.090 during 2011 to 2019 572 00:35:45.324 --> 00:35:46.563 What about the result? 573 00:35:47.050 --> 00:35:48.870 The results 574 00:35:48.983 --> 00:35:53.423 the results are consistent with Dr. Davidson's study 575 00:35:53.523 --> 00:35:54.684 Results are the same 576 00:35:54.702 --> 00:35:56.022 It means that 577 00:35:56.064 --> 00:36:00.383 the focusing profit first from the beginning 578 00:36:00.812 --> 00:36:03.832 is a great strategy for the startup 579 00:36:04.523 --> 00:36:07.644 Wow, it's a problem solved 580 00:36:07.757 --> 00:36:10.717 the last dilemma situation, solved 581 00:36:11.044 --> 00:36:11.923 What do you think? 582 00:36:11.923 --> 00:36:14.383 Is it helpful for you to understand 583 00:36:14.464 --> 00:36:16.244 and understand the dilemma situation 584 00:36:16.244 --> 00:36:20.524 and helpful for you to make a critical decision 585 00:36:20.581 --> 00:36:23.181 in terms of these dilemma situations? 586 00:36:23.724 --> 00:36:26.926 This is the kind of power of the strategy 587 00:36:27.846 --> 00:36:31.346 I recommend you guys to think like 588 00:36:31.346 --> 00:36:34.592 a strategy person in all the time