Tse bus model_teece_analysis_2014

Teece Analysis
Entrepreneurial Strategy Matrix
1
The Smart Entrepreneur

Essentially...
The Teece model assesses:
• Can your business enter the market independently and
compete effectively with other companies?
• Or should you enter a partnership with an established
company in order to successfully reach the market?
This means sharing some value with the partners, but also
accessing their complementary assets instead of building
your own.
• Are you likely to make any money?
Copyright of Bart Clarysse and Sabrina Kiefer

And further...
Clarysse’s Entrepreneurial Strategy Matrix goes a step
further and assesses:
• Should you go into a Market for Products or a Market for
Technology? (Or a Hybrid strategy?)
• What sort of resources will you need to develop?

The Teece model
Assessing your business based on:
•Protectability of the idea
•Ease of accessing complementary assets
Route to market
•Cooperation vs competition strategies

Teece model: why?
• Start-up entrepreneurs usually have limited resources and risk giving
away value or seeing competitors or other partners profit from their
inventions.
• Teece’s approach attempts to identify a viable business strategy by
assessing two of the most critical threats:
 A business idea’s protectability (formal IP, secrecy, complexity?)
 How hard it is to acquire the complementary assets that are needed
to get to market.

How to use a Teece matrix: protectability
For instance:
Idea is not protectable or can be easily imitated or reverse
engineered
For instance:
There is a clearly defendable patent
APPROP-
RIABILITY
L
o
w
h
i
g
h
How protectable is your business idea from imitation (low or high)?
(See Protection Mechanisms in IE&D Toolbox )
•Patents and other Intellectual Property rights?
•Complexity?
•Secrecy?

Teece: what Complementary Assets do you need?
“Those assets necessary to
translate an innovation into
commercial returns”

What Kinds of Complementary Assets are important in competition?
• Things you own
• Brand name
• Distribution channels
• Customer relationships
• Things you can do
• Manufacturing capabilities
• Sales and service expertise
Resources
Capabilities

Comp. Assets: look at your value chain
•Which players in your value chain hold the important complementary
assets to reach your customers?
• Usually downstream players who have relationship with the end market
•How tightly are these assets held?
• e.g. If there are only a few companies with established assets, or those
assets are highly specialised, their bargaining power with respect to you is
high
Technology Product
development
Production Marketing Distribution
DOWNSTREAMUPSTREAM

Teece matrix: complementary assets
COMPLEMENTARY ASSETS
Freely available or
unimportant
Tightly held and
important
For instance:
Access to manufacturing,
distribution channels, or
specialised marketing may
be difficult or expensive to
obtain, particularly if there
are only a few established
specialist players
(monopoly or oligopoly) .
For instance:
• The customer can be
accessed easily
• There are many
alternative players to
work with, so
competition is fair and
anyone can enter the
market easily

Teece matrix: where and how?
APPROP-
RIABILITY
L
o
w
h
i
g
h
Freely available or
unimportant
Tightly held and important
Difficult for new entrant
to make money – anyone
can copy you
Inventor is powerful–
you can reach market
easily and create barriers
to entry
Company which holds
complementary assets
– it controls the
relationship with captive
customers
The Inventor or the party
with more bargaining
power - Depends how
strong the IP is or how
crucial the assets are
Where are you in the matrix, and how can you make money?

Teece matrix: choice of strategy?
APPROP-
RIABILITY
L
o
w
h
i
g
h
Freely available or
unimportant
Tightly held and
important
Established companies can
imitate easily.
So success is dependent on
finding a blind unaddressed
niche and ‘going under the
radar’
You have Choice between
going alone to market or
entering a contract with
partner
Some possibilities to contract with
partners
Success is dependent on the
existence of a willing and
principled partner
Can contract with established
companies
Success is dependent on
the negotiating power of
the inventor/entrepreneur
Gans and Stern (2003)
The attacker’s
advantage
Greenfield
competition
Reputation-
based ideas
trading
Idea factory

Teece model: strategy
• Depending on the venture’s position in the matrix and its
competitive advantage, there is a strategic choice between:
• Competition strategy
 The company goes it alone plays on the market for products
• Cooperation strategy
 The company partners with other entities and plays on the market
for ideas

Teece: Competition or cooperation?
Choosing between:
• Competition:
• Integrate downstream: investing money to set up your own production,
distribution and/or marketing in-house
• Partially integrate– retain certain functions in-house and outsource
others.
• Cooperation:
• Partner with companies that already have established complementary
assets
• e.g.: joint venture, licence agreement,…
• Bargaining power: if specialist investment is needed (e.g. new
manufacturing processes), partners will take some risk, and are likely
to negotiate an agreement at a risk level they can accept

Teece matrix: competition vs cooperation
APPROP-
RIABILITY
L
o
w
h
i
g
h
Freely available or
unimportant
Competition
Competition or
cooperation,
inventor decides
(vb. Xerox/Nintendo)
Cooperation with reputed
players is preferable
(players who will not
expropriate skills & IP)
Cooperation is necessary
to access the value chain
Gans and Stern (2003)

Pros and cons of going Solo vs. types of cooperation
Speed Cost Control Potential for
Leveraging
Existing
Competencies
Potential for
developing
new
Competencies
Potential for
Accessing
Other Firms'
Competencies
Solo internal
development
Low High High Yes Yes No
Strategic
Alliances
Varies Varies Low Yes Yes Sometimes
Joint
Ventures
Low Shared Shared Yes Yes Yes
Licensing In High Medium Low Sometimes Sometimes Sometimes
Licensing Out High Low Medium Yes No Sometimes
Outsourcing Medium/
High
Medium Medium Sometimes No Yes
Collective
Research
Organisations
Low Varies Varies Yes Yes Yes

Types of cooperation: Strategic alliances
• Between firms with similar capabilities. Why?
• Pooling of knowledge, IP and resources
• Not useful if there is a complete overlap of capabilities, only when there is
complementarity
• Large firms seek alliances with smaller ones. Why?
• Smaller firms often have more innovation capability and are nimble
• Large firms are organised to preserve existing business lines
• Small firms seek alliances with larger ones. Why?
• For access to complementary assets, experience and resources/facilities
• Disadvantages
• Lack of shared language, routines and coordination that facilitate the
transfer of knowledge
• Require a pool of dedicated people willing to travel, test-bed facilities and
active procedures for internalising what has been learnt

Types of cooperation: Joint Ventures
• Significant equity investment from each partner
• Often results in establishment of a new separate business entity

For examples of Teece model analysis showing several
types of company, see Appendix slides.
Teece model: examples

Choice between competition and cooperation is not always
straightforward for start-ups
• e.g. Cambridge Display Technologies (CDT):
• Polymer technologies, one of the applications being light emitting
plastics (for mobile phones, calculators) = worldclass
• Nearly went bankrupt when producing the displays themselves
• New business model: license technology to existing manufacturers
(Philips Electronics, DuPont,…)
• e.g. CropDesign
• Choosing right application and whether to integrate vertically or partner
• Started with idea of integration, encountered market problems, then
partnered with BASF, which ultimately became its acquirer
• See chapter 3 of The Smart Entrepreneur for full story
Teece model is relevant to real life!

Clarysse: Entrepreneurial Strategy Matrix
Clarysse takes Teece a step further...
1. A clear and compelling market segment can somewhat
compensate for lack of IP:
 (’going under the radar’)
1. A complex sales process is also a challenge, even when
complementary assets are not:
 In a given B2B situation, how complex is the typical customer’s
decision cycle?
• Economic buyer, Technical Buyer, User Buyer, etc.
See Entrepreneurial Market Research in Toolbox
• How long does it take to acquire a customer, how hard is it?
(Procurement cycle, risk aversion, switching costs, etc.)
• Consumer buying decisions are generally simpler
(though not easy!)

Clarysse/Kiefer: Choosing a strategy
Assess Environmental
factors
Assess Environmental
factors
Choose best Market
approach (Strategy)
Choose best Market
approach (Strategy)
Foresee Resources
needed
Foresee Resources
needed
What’s your competitive
position like?
Should you enter a
market for products or
a market for
technology?
What resources will
you need? Will you
develop them yourself
or partner with others?
Will you aim to grow
profits quickly, or to
grow human and
intellectual capital?
What quadrant of the matrix
are you in?
Source: Clarysse & Kiefer, The Smart Entrepreneur (2011).

Clarysse: The Teece Matrix revisited
1. Value Proposition based on Product Offer
(or standardised service)
•Specific product / market niche
•Control over the value chain
•Diverse founding team with experience in industry
•Funding from founders’ own capital, debt or possibly an
Angel, followed by early revenues
-> Revenue Growth by selling standardised products to
customer segments
2. Value Proposition based on Technology Offer
•Focus on developing one application
•Build a technology team
•Establish technology partnerships
•Source specialized VC for start-up and development
capital
-> Employment Growth to build up intellectual capital,
with view to a trade sale
4. Value Proposition for Customised Services or
Consulting (possibly a ‘Transitional’ start-up)
•Specialist knowledge or technology used in bespoke
projects for single customers
•Build team with technical ,consulting and customer
relations skills. Keep tacit knowledge confidential
•Direct access to customers (usually small businesses)
•Low capital requirements: ‘bootstrapping’
-> Organic growth through customer relationships, but not
really scalable; ‘Lifestyle’ business
3. Hybrid Value Proposition based on Technology
Offer and Market Approach
•Acquire technology
•Establish commercial partnerships
•Acquire partners in the downstream value chain
•Source specialized VC in different funding rounds, for
start-up, development and acquisition capital
-> Revenue + Employment Growth
ENVIRONMENT COMPLEXITY
(complementary assets important/tightly held
and/or a complex sales process)
Low High
ENVIRONMENT
UNCERTAINTY
(Strength of IPR
and/or
Target Market
Clarity)
L
o
w
h
i
g
h
See Ch. 7 of

Examples
1. Value Proposition based on Product
Offer
(or standardised service)
•Artica (chapter 5)
•Jean-Marc de Fety and
mummysworld.co.uk (chapter 2)
•TomTom (after 10 years – ch. 6 and 7)
-> Revenue Growth by selling standardised
products to customer segments
2. Value Proposition based on
Technology Offer
•CropDesign (chapter 3)
-> Employment Growth to build up
intellectual capital, with view to a trade sale
4. Value Proposition for Customised
Services or Consulting (possibly a
‘Transitional’ start-up)
•TomTom (during early years, a
‘transitional start-up’ – chapters 6 and 7)
-> Organic growth through customer
relationships, but not really scalable;
‘Lifestyle’ business
3. Hybrid Value Proposition based on
Technology Offer and Market Approach
•Clear2Pay
•KeyWare
See Clarysse, Bruneel & Wright, 2011,
Strategic Entrepreneurship Journal.
-> Revenue + Employment Growth
ENVIRONMENT COMPLEXITY
(complementary assets important/tightly held
and/or a complex sales process)
Low High
ENVIRONMENT
UNCERTAINTY
(Strength of IPR
and/or
Target Market
Clarity)
L
o
w
h
i
g
h
See The Smart Entrepreneur

In summary
The Teece and Clarysse matrices help you to gauge:
• Whether your business can make money independently
or is better off partnering with another player in the value
chain
• Whether you should be in the market for products or the
market for technology
• What kind of company structure, growth path and
resources are most suitable

Further Reading
• Clarysse, B. and Kiefer, S., 2011. The Smart Entrepreneur. London: Elliot
& Thompson, Ch. 7.
• Clarysse, Bruneel and Wright, 2011. Explaining growth paths of young
technology-based firms: structuring resource portfolios in different
competitive environments. Strategic Entrepreneurship Journal, Vol. 5,
Issue 2, p. 137–157.
• Teece, D.J., 1986. Profiting from technological innovation: Implications for
integration, collaboration, licensing and public policy. Research Policy, Vol.
15, Issue 6, p. 285-305.
• Gans, J.S. & Stern, S., 2003. The product market and the market for
“ideas”: commercialization strategies for technology entrepreneurs.
Research Policy, Vol. 32, p. 333-350.

Appendix: Teece model examples
1. RC Cola
• 1958: RC Cola, a small American soft drinks company introduces the first cola in a can
and the first diet cola (in 1958) to the market. The company has its own distribution
chains, but only has a limited market share in the soft drinks industry.
2. Windshield wiper
• 1960: Robert Kearns invents the first intermittent windshield wiper in his garage.
• Kearns, a Wayne State University professor, received numerous patents in 1967 for his
design for wipers that paused between swipes, making them useful in very light rain or
mist. The invention allows the driver to set the interval at which the wiper sweeps the
window.
3. New diet beer
• An entrepreneur is considering bringing a new beer to the market. This beer will have
certain dietary characteristics, and is based on a combination of a number of ingredients,
such as hop and mint.
• Tests show that the beer has a positive impact on health and may be considered a
dietary product. The entrepreneur thinks that the product should be targeted at women,
mostly those concerned about weight, and who still like to taste their (sweet) beer,
without feeling guilty.

4. Utility Cars
• Yoyco Flints, operational manager of the utility car department at a large utility company, wants
to spin off a company for utility car leasing.
• Yoyco Flints works at a large Belgian company, Belgaz, which operates the Belgian electricity
network. Yoyco is head of an operational department that manages car leasing. Yoyco is proud
of the fact that his department works so smoothly.
• There are two main sub-departments: one of these is responsible for management and sales
cars, another for utility cars.
• This latter department is very specific to the company: given that the technicians who drive the
utility cars have to take a lot of equipment with them, they rebuild ordinary vans so that all
equipment fits in them perfectly and does not move during the trip. The department has thus
built up a lot of experience transforming vans into utility cars.
• At the new year’s drinks reception, one of Yoyco’s colleagues congratulates him on the
functioning of his department and tells him about a talk he had with a friend of his, working at
another utility company, who complained about the infrastructure of their utility cars.
• As a joke, Yoyco mentions that they should sell the product and service to other companies
instead of keeping this simply as an internal department. But some days later, Yoyco cannot
resist talking about the idea of setting up a spin-off to deliver the service of transforming vans
into utility cars to external companies. Some of his colleagues are really enthusiastic and say
they believe there is a market for it. One colleague mentions that even traditional lease
companies are not in this business because they lack the know-how.
Appendix - Teece model: examples cont…

5. Child Leisure
• Ever sent your kids to athletics? Or volleyball courses? Or tennis camps? The experience many parents have
is that kids tend to get bored very quickly with most of the sports classes they take, especially when they are
young (6-12 years old). They find the techniques and exercises practiced to be to repetitive. But what should
you do as a parent, if you believe that your kids should do some sports to be healthy?
• An entrepreneur is offering a solution. A new American wave is coming our way that is offering kids “general
movement”. In each class, they are given different exercises that are targeted at moving and exercising each
muscle in their body. Your kids will be happy to follow these classes after school, during weekends or at camp.
6. Swimmate
• New inventions are coming to the sports world: a step counter, a run mate that reports on the miles run, speed
per hour etc. Some techniques already exist to measure the distance swum by swimmers, but these
techniques demand a lot of investment by the swimming pool operators, and therefore, most opreators have
not installed such systems. An entrepreneur, who swims frequently himself, has developed a technology to
measure the length and speed swum. The technology consists of a watch, to be worn by the swimmer, and two
receivers, to be placed at both ends of the swimming pool. The system is low-cost, both for the swimming pool
operators and the swimmer. Furthermore, the accuracy of measurement is better than in the systems that are
already on the market.
7. Iced Yoghurt
• An entrepreneur has the idea of bringing iced yoghurt ice to the market. The product can be manufactured by
freezing yoghurt and adding some ingredients.
8. Netscape
• 1995 : Netscape develops its Navigator browser .
Appendix - Teece model: examples cont..

Appendix - Teece examples: Appropriability (strength of IP rights)
APPROPRIABILITY
(patents,
copyright, etc.)
L
o
w
h
i
g
h
Utility Cars
NetscapeSwimmate
Yoghurt Ice
Windshield
wiper
Child Leisure
Diet Beer
RC Cola

Appendix - Teece examples: value chain and comp assets
(capabilities, relationships, etc.)
Freely available or
unimportant
Utility Cars
Diet Beer
Child Leisure
RC Cola
Diet Beer
Netscape
Swimmate
Windshield
wiper
Yoghurt Ice

Cases: Teece matrix – who makes money?
APPROP-
RIABILITY
L
o
w
h
i
g
h
Freely available or
unimportant
Difficult to make
money
Holder of
compl assets
Inventor
Inventor or party with bargaining power
Swimmate
Netscape
Windshield wiper
Yoghurt Ice
RC Cola
Child Leisure
Diet Beer
Utility Car
Diet Beer

Tse bus model_teece_analysis_2014

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