Thinking carefully about economics and business strategy can mean the difference between having great technology and having a great company. This lecture focuses on clearly defining your business model, including how you’re going to make money with your product or service. Case studies are used to test concepts against a specific business.

2. Business Models:
Science or Art?
NOVEMBER 16, 2011
ENTREPRENEURSHIP 101 @ MARS
PROFESSOR AJAY AGRAWAL
UNIVERSITY OF TORONTO
CO-FOUNDER, THE NEXT 36
©2011 Ajay Agrawal

3. Last Year @ MARS
— Waiting room app
¡ Problem
÷ Patients waste time waiting for doctors, dentists, etc
¡ Solution
÷ Mobile
device app that enables patients to sign in when they arrive
and then receive notification when they are on deck so they can go
elsewhere while they wait rather than sit in the waiting room
¡ Challenges
÷ Docs need to install system in their office, train staff
÷ Patients need to download app
¡ Who pays
÷ Patient? Doctor? Province? Insurance firm? Patient’s employer?

4. What is a Business Model?
— Value Proposition
¡ How the venture creates value
— Business Model
¡ How the venture appropriates value (i.e., “makes money”)

5. Types of Business Models
— Sell a product (e.g., RIM)
— License the idea, licensee will manufacture and sell the product (e.g.,
biotech)
— Sell a service (e.g., Surveymonkey)
— Give away (or heavily subsidize) a product or service
¡ Sell to third parties (e.g., newspapers, TV, discount travel)
¡ Sell complementary products (e.g., razors/blades, content/phones/phone
plans, consoles/games)
— Transaction fee (e.g., eBay)

6. Three University Start-Up Examples
— Motion Metrics
¡ Robotics for open pit mining
— D-Wave
¡ Commercial quantum computer
— Winston
¡ Mobile app for limo service

7. Motion Metrics: Broken Tooth Detection System
©2011 Ajay Agrawal

8. Motion Metrics
— Problem
¡ Broken teeth from excavators damage crusher
— Solution
¡ Vision system mounted on excavator alerts cab operator when
tooth is suddenly missing
— Business Model
¡ Sell product to mine, sell product to OEM, license technology
to someone else to manufacture and sell

11. D-Wave (founded 1999)
— Problem (?)
— Solution
¡ Powerful
÷ Vastly speeds up computation
¡ Efficient
÷ Eliminates many energy consumption problems found with current processors; energy profile
doesn't change as our computers get bigger; processors with 1000x the computing power can be
created with very little increase in power consumption. Breaking the link between energy
consumption and computing power is a revolutionary prospect in high-performance computing
¡ Intelligent
÷ Processors are architected to be highly effective at learning, rather than simply running
complex arithmetic operations like a conventional electronic circuit. By building computers in
this way, they are able to perform tasks that we find it difficult to imagine computers
undertaking - like creating art, learning to recognize faces, and writing news stories
— Business Model
¡ Sell computers, license technology for others to manufacture, sell service

12. D/+-4 GK9<$G/*9L93$M9K9<N9/*9L93O*)(:9.N8()*).()N+9P
:+4 %9&/$69**&'$MK19&/0O/:9&3N+):P
From: Haig Farris [mailto:jhaigf@gmail.com]
Sent: Sunday, October 30, 2011 3:53 PM
To: Toope, Stephen; Farrar, David; Hepburn, John; Faculty of Science, Dean; Muzyka, Daniel; Kuipers, Anton;
Anne Condon; Doug Bonn; Alejandro Adem; Bill Levine; Granot, Frieda
Cc: Philip Stamp; George Sawatzky; Doug Oldenburg; Eldad Haber
Subject: Historic Opening of the World's First Quantum Computing Centre
All
Oct 28 2011 was a historic and thrilling moment for D-Wave, its staff, board and shareholders.
These few pictures are to give you a flavour of the event. My only regret was that there was no one
there representing UBC to see how many of their graduates, led by Dr. Geordie Rose, are changing
the world and are so recognized by leading business and academic figures.
Those that attended on behalf of D-Wave were amazed and thrilled at the effort, vision, commitment
and enthusiasm that USC and Lockheed demonstrated by the high level representatives of each
organization and what they said.
In addition to buying D-Wave One, USC and Lockheed have built an impressive facility to house the
machine and organized a raft of programs, research and educational approaches to generate new
solutions to previously intractable problems.
The center director is a high energy person determined to keep USC in the forefront of quantum
computing. Dr. Daniel Lidar, one of USC's leading lights in QC, has identified many areas of
research and potential industrial collaborations and is hard at work implementing same.
For its part Lockheed has many projects planned for the machine including software verification
which is a huge issue for fly by wire machines that fly, float, walk, talk etc.
We were very pleased that The Consul General of Canada attended and as he has a background with
quantum computing efforts at Waterloo, his interest will translate into effective communication to the
Canadian government of the significance of this event
Geordie Rose was a rock star both in his presentations to the official gathering and the seminars he
gave to scientists and researchers following the ceremony. He won everybody's heart for his passion,
commitment and vision. There were even a few people seen wiping a tear or two away during his
remarks at the ribbon cutting. Vern Brownell, our CEO, did a masterful job networking with the key
players. D-Wave is on the map.
To top off the week, at the D-Wave board meeting the previous day, we learned of one of the most
significant advances our scientists have developed in making the machine useable by your
grandmother. Up to this point the programming of the machine has been extremely complex and
would be a hurdle to rapid deployment of the machine to customers not awash in physicists and

13. commitment and vision. There were even a few people seen wiping a tear or two away during his
remarks at the ribbon cutting. Vern Brownell, our CEO, did a masterful job networking with the key
players. D-Wave is on the map.
To top off the week, at the D-Wave board meeting the previous day, we learned of one of the most
significant advances our scientists have developed in making the machine useable by your
grandmother. Up to this point the programming of the machine has been extremely complex and
would be a hurdle to rapid deployment of the machine to customers not awash in physicists and
mathematicians.
Bill MacReady and his team have developed a high level "basic" language that allows users to
program the machine without using machine language. From a commercial point of view this is a
huge step forward.
All in all, it was two days for the ages.
Hopefully we can find away to have this capability at UBC.
Cheers ;&<")0)+=)00
Haig

14. RIBBON CUTTING ROOM
USC QC Center opening

15. USC QC CENTER RIBBON CUTTING VERN BROWNELL, USC DEAN RAY JOHNSON (LOCKHEED CTO)
USC PLANNED USE OF DWAVE MACHINE

17. Winston
— Problem
¡ Limo arrivals unreliable
¡ Hassle making payment at end of ride
¡ Hassle keeping receipts
¡ Expense fraud
— Solution
¡ Mobile app to order limo with one touch
¡ Track location of limo en route
¡ Track location of pick up and drop off for employer
¡ Manage receipts
— Business model
¡ Sell to limo companies? Passengers? Passenger employers? Other (e.g., American
Express)?
¡ Two-sided market problem (drivers not interested without many passengers,
passengers not interested without many drivers)
÷ Sell corporate accounts to scale quickly (focus on fraud; convenience a perk)

18. Factors to Consider
1. Relative benefit/cost for each party
2. Risk profile for each party
3. Sales cycle/costs
4. Bargaining power
1. Market structure
2. IP
5. Complementary assets
6. Two-sided market problem?
7. Network effects problem?

19. Thought Experiment
— Challenge
¡ Top business schools charge approximately $90,000 tuition
¡ Cost to students is tuition plus two years of lost income
¡ This fee schedule is particularly challenging for entrepreneurs
÷ Cash poor for at least the first few years
÷ Outcomes are highly skewed (many never earn much, a few do very well)
¡ Many business schools are charged with offering little meaningful
support to students after they graduate and have their first job
— What if a business school charged zero tuition up front, but
instead collected tuition as a small percentage of future
income?

20. Seems Impossible
— Difficulties
¡ Monitoring income is difficult and costly
¡ Select on students who have expectations of low future income
¡ Cash flow challenges for school (pay now, collect later)
— But
¡ Aligns incentives; now b-school really cares about the earnings
of each graduate for their entire career

21. Already Happening?
— Y-Combinator
¡ Entrepreneurs give 6-7% equity in their ventures in return for:
÷ Approximately $20k
÷ Coaching
÷ Services
÷ Networking
÷ Signal (status)
÷ Access to investors, partners, etc.
¡ Three months, highly applied, Demo Day at the end
— More competitive to gain entrance than Harvard Business School
— Average value of (210) companies they funded = $22m

22. Thank you