Date and Time: 10:45 am – 12:30 am, January 17 (Fri), 2020
Location: Orland Hall 120, University of New Brunswick in Saint John
Session 1 (10:45 am – 11:30 am)
Presenter: Milad Pirayegar Emrouzeh, Ph.D. Candidate, IDST, UNB Saint John
Title: Addressing Social Issues through Identification and Application of Smart Cities Initiatives
Session 2 (11:45 am – 12:30 pm)
Gregory Fleet, Associate dean, Associate Professor, Electronic Commerce, Faculty of Business, University of New Brunswick Saint John
Daniel Doiron, Senior Teaching Associate, Business strategy & entrepreneurship, Faculty of Business, University of New Brunswick Saint John
Title: The Role of Customer Validation in Reducing Start-up Risk for Angel Investors
These presentations are open to public. Anyone who is interested in the studies is welcome (If you are not in the faculty of business or library, please R.S.V.P. to Ms. Patricia Chisholm firstname.lastname@example.org by noon on Jan. 16 (Thu), 2020. Please include your request for a parking pass in your R.S.V.P if you need one.).
Session 1 Title and Abstract
Addressing Social Issues through Identification and Application of Smart Cities Initiatives
The smart city concept has been conventionally employed to address the technical dimension of urban projects. Smart cities studies frame their work across six major categories, including government, people, living, mobility, economy, and environment; as well they utilize many specific measures. Interestingly, technology is not considered as one of the main aspects of the smart city concept. Its role is more of a facilitator to enable unique analysis and opportunities within urban projects. Therefore, city authorities, urban planners, and decision-makers deem the smart city concept a tool to uncover some potential benefits to their communities in order to offer better public and private services in many aspects of life (including high-speed internet, efficient energy usage, healthcare, transportation, emergency services, and, more importantly, infrastructure and buildings). Exploring and identifying social challenges in urban communities have surprisingly been neglected in smart cities projects and literature. Yet, the smart city concept can potentially address critical social issues and challenges if researchers and planners consider relevant smart cities measures in their projects. This dissertation aims to do this by focusing on the generational poverty challenge within the city of Saint John. The main objective of this research is to introduce a new problem-solving process in urban social projects using smart cities initiatives. Therefore, this dissertation is based on a three-step process: (1) identification – to investigate the main perceptions of causes of poverty in the city; (2) exploration – to recognize smart cities measures related to the poverty challenge, as well as the role of key stakeholders; and (3) recommendation – to suggest practical smart solutions that can address and, potentially, overcome the issue. In addition to a thorough analysis of past projects, a two-phase survey (including both quantitative and qualitative information) was conducted to obtain key stakeholders’ opinions on past, ongoing, and future poverty-reduction projects at local and provincial levels. Through this process, the dissertation has shown that the smart city concept can be applied to urban social projects. Future studies can employ the three-step problem-solving process of this study to address social challenges in their communities using smart cities initiatives.
Session 2 Title and Abstract
The Role of Customer Validation in Reducing Start-up Risk for Angel Investors
Angel investors, or business angels, are individuals who bring their own financial and human capital to assist early stage start-ups and nascent entrepreneurs. These investments typically occur during the very early stage of start-up growth (that is, pre-revenue), where market position is not established and their product/service value proposition is still under development. Therefore, their decision process must rely less on quantified, historical performance or market data, and more on past experience, qualitative assessments and even “gut feel” (Huang, 2018; Morrissette, 2007).
At the same time, it is not uncommon for researchers to identify angel investor criteria that is based on earlier work with venture capitalists (Mason & Rogers, 1997; Zacharakis & Meyer, 1997). In these, and more recent studies, while the entrepreneur’s product/service may be identified as a top factor in an angel’s assessment, it tends to be more defined around quality or growth (insufficient quality, differentiation or scalability potential; Mason et al., 2016). and rarely about customer fit.
In other words, criteria studies that examine the factors that angels use to evaluate potential investment opportunities, and their related risk(s), often discover that assessments of management team, experience and market potential as key reasons for rejection, yet few look closely at the product/service factors such as early customer validation feedback or the inherent decision making biases of the entrepreneur.
This seems unusual given that start-ups are frequently admonished to be “ready to pivot” (i.e., quickly make changes to their product/service offering and/or target market to better meet the need(s) of potential customers). They are told they need to “fail fast” in order to succeed; essentially suggesting that pivoting is almost a required part of the start-up process, and that the sooner an entrepreneur gets to a pivot, the less chance they will fail. According to this approach, success arrives sooner for the start-up, and at a lower cost to the angel investors. Therefore, knowing that angel investors play a key role in the success of early stage entrepreneurial ventures, one of the goals of this study will be to understand the extent to which investors are aware of and support the notion of pivoting.
Recently, Fleet & Doiron (2016) suggested that customer validation of a company’s value proposition is a key driver to the success (or failure) of a start-up venture, along with the number and nature of pivots these ventures experience. Given this link between pivoting and evolving their value proposition, entrepreneurs and their investors should be hyper-focused on defining and testing their value proposition with customers early in the start-up process. Understanding the extent to which angel investors see the value of future pivots at the pre-investment stage, should prove insightful to understanding the relationship between angel investors and successful investments.
This study effectively continues the working hypothesis that start-ups focus too much of their early attention, and capital, on their technology (or products), and not enough of their time engaged in early validation of their solutions with potential customers. In short, there is too much focus on the technology and not enough on customer validation, leading to “great” solutions that customers do not value. This in-turn leads to an increased number of pivots.
The primary research question of this study explores the notion that there will be materially fewer pivots for angel investor funded start-ups when upfront customer validation of the value proposition takes place (directly through the angel investor(s), and/or indirectly via the entrepreneur), prior to making the investment.
The goal of this paper is to continue the work started by Fleet & Doiron (2018) using a larger sample of angels, and focusing questions more specifically on (a) how early stage customer validation was used or not used in their pre-investment decision-making; and (b) how pivots were perceived in relation to customer validation work -- essentially investigating these two elements together to assess investment risk at the early stage (pre-revenue) of a start-up.
A survey was conducted with angel investors represented through a national angel investment association in Canada. The short survey examined the degree and type of customer validation, as well as whether that validation was directly assessed as part of the angel’s initial investment acceptance criteria or experienced by the start-up after their investment.
Angel investors, even those considered to be experienced or successful, recognize that only some of their investments will provide returns (often well below 50%). Shane (2012) reported that less than 10% of their investments account for 75 per cent of financial returns. Equally, failure is rampant in the tech start-up space with upwards of 85 per cent of these start-ups failing to provide a return for their investors. Therefore, investing at this very early stage of a start-up comes with much greater risk.
Understanding and educating angel investors of the value associated with stronger early stage customer validation may provide for better investment decisions, lower overall investment risk and the potential for greater returns.
This study will expand our earlier study by exploring the investor’s view on the development of new ventures, and the perceived relationship between risk, pivoting and pre-investment customer validation activities. Few studies have looked specifically at the role of these factors in how investors make their decisions.
Implication for practice
This study begins to build an understanding of how investors can lower the inherent risk of investing in early-stage start-ups. Building and executing effective customer validation practices is not difficult or complex for entrepreneurs to implement, yet should prove quite valuable when raising angel investment. Customer validation matters in the early stages of building a start-up and is now a proven method to lower risk.
In addition, this study will not only provide a better understanding of how investors identify risk and choose where to invest, but will be most helpful for pre-incubator education programs, and for entrepreneurs themselves when learning how to pitch their ideas to investors.