Idea To Business
-
date post
13-Sep-2014 -
Category
Business
-
view
3.384 -
download
1
description
Transcript of Idea To Business
Idea to Business(Hint: it’s a journey not a task)
Process Overview TL Faley, PhD
Managing Director, ZLIApril 3, 2008
Reality?
2
Idea Business
Plan
VentureFinanci
ng
Successful
Company
… And the steps you skip will destroy any chance of success WRONG
Non-Linear, Interdependent, Process Phases
• Phase I: Business Design– Identifying opportunities and shaping business
concepts• Phase II: Feasibility analysis and assessment• Phase III: Creating your business plan• Phase IV: Launching your business
– Aligning the necessary resources (including money) • Phase V: Growing your business• Phase VI: Exiting your business
– From succession planning to IPOs
3
Short Overview Articles• “The Process of Business Creation ,” TL Faley, Inc. Magazine (on-line),
August 23, 2005. http://www.inc.com/resources/startup/articles/20050801/process.html
• “Is your Business Idea Feasible?,” TL Faley, Inc. Magazine (on-line), October 4, 2005. http://www.inc.com/resources/startup/articles/20051001/analysis.html
• “Creating Your Business Plan,” TL Faley & PS Kirsch, Inc. Magazine (on-line), November 3, 2005. http://www.inc.com/resources/startup/articles/20051101/bplans.html
– Business Plan Guide: http://www.ey.com/global/Content.nsf/UK/_FG_-_Library_-_Guide_to_producing_a_business_plan
• “Growing Your New Venture,” TL Faley, Inc. Magazine (on-line), February 21, 206. http://www.inc.com/resources/startup/articles/20060201/venture.html
• “Making Your Exit,” TL Faley & TS Porter, Inc. Magazine (on-line), March 15, 2005. http://www.inc.com/resources/startup/articles/20060301/tfaley.html
4
5
A Staged, Gated Process to Plan
InnovationSource
BusinessHypothesis
BusinessHypothesis
BusinessFeasibility
Study
BusinessFeasibility
StudyBusiness
Plan
Other entrants
Other entrants
Hypothesis strong enough to merit deeper investigation?
Business merit planning/launching?
OpportunityWhat is the product or service?Who are your users?Why do they buy?How does your business make money?
CustomersMarketIndustryCompanyTeam
Full Plan and Investor Pitch
Assessment
Integration
Levels of Thinking/Planning• Business Design – Vector Direction
– Structured, Detailed, but Qualitative• Assessment - Vector Dimension
– Quantitative• Business Plan
– Operating document– Specific to You, Today
6
ZLI Programs that can help• Dare-to-Dream• Michigan Business Planning• Mingle ‘n Match• Others
• Details:– http://www.zli.bus.umich.edu/
events_programs/7
8
Dare to Dream encourages
..the thoughtful development of student-led businesses
AND
..the development of student entrepreneurial skills and understanding
99
ZLI Activities for 2007-08
Frankel Commercialization Fund Wolverine Venture Fund
Michigan Business Challenge& Intercollegiate Competitions
Entrepreneurial MAPdomestic & international
opportunities
Marcel Gani Internship Program(includes self-hosted internships)
Williamson CoE/RSBE-education Initiative
Entrepreneurial Studies Courses
Actio
n-ba
sed
Lear
ning
New Business Development SeminarsZLI Office Hours, Coaching and Executive Consulting
Coun
selin
g
Michigan Growth Capital Symposium
Private Equity Conference Entrepalooza: Exploration of entrepreneurship across multiple industries and business stages
Sym
posia
/Eve
nts
Zell and Mondry Entrepreneurial Scholarships
Mingle ‘n’ Match
Acad
emic
s
Where you are• Some of you have identified a compelling
unmet market need or emerging market
• Some of you have identified a product that is the embodiment of some interesting technology or other innovation source
• A rare few of you have product concepts targeted at specific users
10
Where you are not• None of you have a sustainable
business design
• So let’s first talk about how you get to a complete business design
11
12
Innovative New Business Design Process Pyramid
BusinessEnvironmental
Influences
Persona(target market segment)
Product Idea(Starter Concept)
Community Enabler(ex. technology)
SolutionPositioning Statement
BusHypothesis
ProductOffering
Innovation Source(s)
Building the Iceberg from the bottom up
Business Hypothesis• What is your product/service? (What does your company do?)• Who are your customers?• Why will they use your product? (Value proposition to the user?)• How does your company make money? (Company’s value capture mechanism?)
13
Drucker’s 7 Sources on Innovation
1. Unexpected Occurrences2. Incongruities3. Process Needs4. Industry and Market Changes5. Demographic Changes6. Changes in Perception7. New Knowledge
Business Hypothesis: Core Elements of the Business Model
Core Business Elements:Your Business Hypothesis•What is your product/service?•Who are your customers?•Why do they use your product?•How does your company make money?
Marketing StrategyDistribution Strategy Product Strategy (leading edge, service, low cost?)Business Partnerships/AlliancesCost StructuresCore competencies/capabilities
15
Outputs of each portion
Persona(target market segment)
Product Idea(starter concepts)
Community Enabler(ex. technology)
BusinessEnvironmental
Influences
BusHypothesis
ProductOffering
Business Formulation:• Explicitly determine Businesses’ Product Offering
• Determine precisely what the business does• Determine Business’ Value Proposition
• Both value creation & capture.
Product Concept Creation:• Determine core enabler benefits • Product concept brainstorming• Market segmentation (persona development for new markets) • Determine Product Benefit / Customer Need Match(es)
TimingIdentify the Innovation source that enables the opportunity now
SolutionPositioning Statement
Innovation Source(s)
BUSINESS HYPOTHESISWhat is the product or service offered? (exactly what does the company do/provide?)Who are your users?Why will they use your product?How does your business make money?
POSITIONING STATEMENTFor ... (target segment)The ... (product/brand)Is... (most important benefits)Because... (reason why,
underlying enabler)
WHY NOW?Opportunity Drivers… which 7 sources of innovation
Take an initial guess at a business hypothesis
BusinessHypothesis
InfluenceDiagram
BusinessPositioning
Assessment
ProductOffering
16
• Working through the business environmental influences
• Finding the Path to Commercialization
Business Hypothesis Elements• What precisely is your product/service?
– What precisely does the company do?• Who are your customers?
– What is your target persona? (Need-based market segment?)
• Why do they use your product?– What Value do you create/problem do you solve
for the user?• How does your company make money?
– Value capture mechanism
17
What is your product or service?
• What specifically does your company do?
Distribution Sales Marketing Mfg Product Design
Technology
Raw Materials
18
Less is more
“I have often said there are three types of business: making stuff, selling stuff, and servicing stuff. The usefulness of this for a startup is that too many business plans attempt to be in two or more different sorts of businesses... Being good at one thing is tough enough. Being good at two or more is even tougher! ” --Charles Fry, serial entrepreneur
19
How do you make money?• Product retail sales: using value chain HP • Product internet sales: direct to customer Dell• B2B: commercial purchase on terms Xerox, BASF• Advertising: provide ad space Yahoo, ABC• Licensing: per unit revenue, payable IBM,
universities• Consulting: fee for service or impact McKinsey• Services: per unit charges H&R Block• Transaction fees: per activity eBay• Subscription: content over time Consumer
Reports• Affiliate: referrals and partnerships Amazon
20
Refining the top of the Pyramid
Persona(target market segment)
Product Idea(starter concepts)
Community Enabler(ex. technology)
BusinessEnvironmental
Influences
BusHypothesis
ProductOffering
Business Formulation:• Explicitly determine Businesses’ Product Offering
• Determine precisely what the business does• Determine Business’ Value Proposition
• Both value creation & capture.
Product Concept Creation:• Determine core enabler benefits • Product concept brainstorming• Market segmentation (persona development for new markets) • Determine Product Benefit / Customer Need Match(es)
TimingIdentify the Innovation source that enables the opportunity now
SolutionPositioning Statement
Innovation Source(s)
BUSINESS HYPOTHESISWhat is the product or service offered? (exactly what does the company do/provide?)Who are your users?Why will they use your product?How does your business make money?
POSITIONING STATEMENTFor ... (target segment)The ... (product/brand)Is... (most important benefits)Because... (reason why,
underlying enabler)
WHY NOW?Opportunity Drivers… which 7 sources of innovation
21
Business Positioning Evaluation Loop
BusinessHypothesis
InfluenceDiagram
BusinessPositioning
Assessment
ProductOffering
22
Business Positioning Evaluation Loop
BusinessHypothesis
InfluenceDiagram
BusinessPositioning
Assessment
ProductOffering
23
Where• Where is your proposed company in
the value chain?
24
Value Chain: Material, Money, and information flow
Design
Manufacture
Sales
Consumer
Distribution
25
Value Chains can be complicated….
The Commercialization of drugs
26
Value Chain Assessment• Value ($-flow) versus Supply Chain (material-flow)
– ID Who has the Value Capture Power now?• Value Creation through:
– Become a New Entrant (competitor of existing products; cheaper, better, faster)
– Create a Substitute (alternative to existing solutions—different way of doing something; search engine v. yellow pages)
– Aggregation/Consolidation• Industry consolidation to shift 5-forces equilibrium
– Collapsing the Value Chain• Eliminating links out of the chain (ala Dell)
– Addressing an emerging market (see innovation sources)– Other?
• Exploit new technology (ex internet) to get economy of scale of services (ex: call centers)
27
What? • What are does your company really have?• What is the driving need/desire of the
proposed buyer ?• What complementary assess (CA) does
your company need to deliver its product that fulfills this need?
• What complementary benefits (CB) does the company’s product also need to deliver in order to satisfy the complimentary needs of the customer?
28
Teece’s Framework: Determining the optimal value-capture vehicle for your
Intellectual Asset
NicheBusinessPotential
IAs haveno capturable
value
StrongNew Business
Potential
License toor
Partner withCA holder
Inte
llect
ual A
sset
Pos
ition
is:
Strong
Complementary Assets are:
Weak
GenericSpecialized
If control the IA and the CAs, then you havethe potential to createan extremely well-positioned business.
Note: This assessment assumes that you are the IA holder, but do not currently have the complimentary assets necessary to fully commercialize your IA.
Ref: David Teece, 1986
Intellectual Assets (IAs)• Patent Basics
– Rights• Prevent others from making, using, or selling
the subject matter of the patent– Duration:
• 20 years from date of application– Three criteria
• New (novel)• Non-obvious (to someone skilled in the art)• Useful (utility)
30
Intellectual Assets continued
• Copyright Basics– Rights
• Reproduction• Creation of derivative works• Distribution to public• Public performance or display
– Duration• Life of author plus 70 years• “Work for Hire”
– 95 years from first publication – or 120 years from creation
– Subject Matter• Works of authorship• Fixed in any tangible medium• Expression, not concepts
31
Complimentary Assets• All those things necessary to transform the assets
you have into the products/services your customers desire (and delivering it to them).
• Advantaged Complimentary Assets:– Physical and intellectual assets:
• Brand name• Manufacturing Plants• Distribution channels• Customer relationships• IP that others may need (blocking their ‘freedom to practice’)• Resources (ex: deep financial pockets)
– Capabilities:• Manufacturing or design capabilities• Sales and service expertise
32
How?• How does the company plan on acquire/gaining
access to its necessary complimentary assets?– Create/Develop/Reproduce?– Buy?– Rent/Lease?– Borrow?
• How will the company pay for these?– Cash?– Equity?– % of Future Sales?
33
Business Positioning Evaluation Loop
BusinessHypothesis
InfluenceDiagram
BusinessPositioningAssessment
ProductOffering
34
Who?• Who holds the value capture power?
– Porter’s Five Forces– Use Company Operating Margins for
companies across the chain as a proxy for relative value capture strength• www.hoovers.com
35
Porter’s 5 Forces: Industry Analysis
IndustryCompetitiveness
Threat of New Entrants(Barriers to Entry)
Bargaining Power
Of Suppliers
Threat of Substitute Products/Services
BargainingPower
OfBuyers
36
Porter’s 5 Forces: Industry Value-chain Analysis
IndustryCompeti-tiveness
Threat of New Entrants
Bargaining PowerOf RM
Suppliers
Threat of SubstituteProducts/Services
BargainingPower
OfEnd users
IndustryCompeti-tiveness
IndustryCompeti-tiveness
Threat of New Entrants Threat of New Entrants
Threat of SubstituteProducts/Services
Threat of SubstituteProducts/Services
• Who hold the “value capture” power?
37
Can you Shift the equilibrium of the Industry’s Balance of Power?
Business Positioning Evaluation Loop
BusinessHypothesis
InfluenceDiagram
BusinessPositioning
Assessment
ProductOffering
38
39
Innovative New Business Design Process Pyramid
BusinessEnvironmental
Influences
Persona(target market segment)
Product Idea(Starter Concept)
Community Enabler(ex. technology)
Solution(Positioning Statement)
BusHypothesis
ProductOffering
Innovation Source(s)
What’s the difference?
Solution to Product Offering• Company Product Offering as a subset of “Solution”
– Example: Users need faster processing computer– “Solution” is a new, advanced processing chip– Intel/AMD own (expensive/specialized) complementary assets– Your Company Offering becomes a chip design and you partner with
Intel/AMD/TSMC for mfg.• Company Product Offering as a superset of “Solution”
– Example: Users need information on joint replacement therapy– “Solution” is content/information– Efficient Channel to deliver content to user does not exist– Complimentary assets to create channel are cheap/generic– Your Company Offering becomes a web portal for joint replacement
therapy information
40
Business Positioning Evaluation Loop
BusinessHypothesis
InfluenceDiagram
BusinessPositioning
Assessment
ProductOffering
41
42
The Innovation Process Pyramid
BusinessEnvironmental
Influences
PersonaSolution idea,
Starter concept
Community Enabler(ex. Technology)
BusHypothesis
ProductOffering
First Down, then up.Business Hypothesis• What is your product/service? (What does your company do?)• Who are your customers?• Why will they use your product? (Value proposition to the user?)• How does your company make money? (Company’s value capture mechanism?)
Solution(Positioning Statement)
Innovation Source(s)
Talk to people!!• Especially potential customers!!!
• Let them help you design the future
• Be aware: People adopt to their surroundings -- accept what currently is
• Need to “read between the lines”– The Why Chain– LOCA (Latent Observations / Constant Annoyances)
43
44
Outputs of each portion
Persona(target market segment)
Product Idea(starter concepts)
Community Enabler(ex. technology)
BusinessEnvironmental
Influences
BusHypothesis
ProductOffering
Business Formulation:• Explicitly determine Businesses’ Product Offering
• Determine precisely what the business does• Determine Business’ Value Proposition
• Both value creation & capture.
Product Concept Creation:• Determine core enabler benefits • Product concept brainstorming• Market segmentation (persona development for new markets) • Determine Product Benefit / Customer Need Match(es)
TimingIdentify the Innovation source that enables the opportunity now
SolutionPositioning Statement
Innovation Source(s)
BUSINESS HYPOTHESISWhat is the product or service offered? (exactly what does the company do/provide?)Who are your users?Why will they use your product?How does your business make money?
POSITIONING STATEMENTFor ... (target segment)The ... (product/brand)Is... (most important benefits)Because... (reason why,
underlying enabler)
WHY NOW?Opportunity Drivers… which 7 sources of innovation
Developing a Feasibility StudyMore Detail – More Quantitative
COPYRIGHT © 2006 THE REGENTS OF THEUNIVERSITY OF MICHIGAN ALL RIGHTS RESERVED
Feasibility Study• Introduction• The Micro-Market• The Macro-Market• The Macro-Industry• The Firm (a.k.a. Micro-Industry)• Team: Mission, Aspirations, and Risks• Team: Can you execute?• Team: Connectedness• Summary
46
47
Business Assessment Framework
TEAMDOMAIN
Connectedness up, down, and across value chain
Ability to execute
CSFs
Missions, aspiration
s,Propensity
for risk
Market Domain Industry Domain
Macro-level
Micro-level
REF: The New Business Road Test, John Mullins © 2003.
MarketAttractiveness
IndustryAttractiveness
Target segments
benefits and attractiveness
Sustainable
advantage
Large/growing?Move from Initial persona to other personas?
Personas
Porter’s 5Forces
Value-captureposition(IA vs CA)(Teece, 1986)
ProductDifferentiation(Intellectual Assets)
48
Opportunity AssessmentBuilding the foundation for the assessment phase
The Business Hypothesis
Market Domain Industry Domain
Macro-level
Micro-level
MarketAttractiveness
IndustryAttractiveness
Target segments
benefits and attractiveness
Sustainable advantage
Business Product Offering
IntermediateOutcomes
& Tools
Opp
ortu
nity
Pha
seA
sses
smen
t Pha
se
Effort
Community Map(user needs/desires & “Players”)
Technology Map(benefits of existing,
complimentary, future)
Personas Solution (“starter”) Concepts
Solution Positioning Statement
Business Environmental Influences
Introduction• Use this opportunity to set up your
audience • One or two paragraphs
– Clear elaboration of the Core Concept• Should clearly answer
– The hypothesis, model are you testing, e.g.• Integrated manufacturer• Consulting firm• Design and IP firm
• Be clear about the product or services your company sells
49
Micro-Market Pain• What customer pain will you resolve? • What are potential customers doing now?
– A current solution does exist• Does your product offer clear and
compelling benefits?• In the customers’ minds, are these benefits
superior to what’s currently offered?– Is this better, faster, cheaper, prettier, etc.
• Why now?– Connect timeliness of solution to the market pain
51
52
Micro-Market Pain• Are you offering a solution at
a price your customers will pay?– What evidence do you have?
RememberThe market need will fuel the
business growth and value– The product fills a need
– Products, companies do not create a market
Know the differencebetween customers
and users!!
53
Relationship of Market Terms• Total Addressable Market
– All microprocessors – or – • Target Market
– Electronic device manufacturers – or – • Market Segment
– Cell phone manufacturer – or – • Ideal or First Customer
– Nokia or MotorolaSize: Now & Future
Porter’s 5 Forces: Industry Analysis
IndustryCompetitiveness
Threat of New Entrants(Barriers to Entry)
Bargaining Power
Of Suppliers
Threat of Substitute Products/Services
BargainingPower
OfBuyers
54
Macro-Industry: Porter’s 5 Forces
• What is the threat of new entrants to this industry?
• How great is the power of suppliers to set terms and conditions?
• How great is the power of buyers to set terms and conditions?
• Is there a threat of substitution from other products to steal your customers?
• How intense is competitive rivalry?
55
Macro-Industry: Top-level Issues
• In what industry will you compete? – Requires careful definition
• Based on all five forces, what is your overall assessment of attractiveness of the industry?
• If your industry is a poor performer overall, are there specific and persuasive reasons why you will fare differently?
• What will likely change in response to the success of your venture?
56
The Firm: “Proprietary-ness”• What proprietary elements do you
have that other firms cannot duplicate?• Patents, copyrights, trade secrets, etc.• Key managerial personnel (see Team)
• Can your business develop a competitive advantage?– Superior processes– Access to resources, customers
57
The Firm: Financial Issues• Key issues to understanding the economic
viability of your business model• Have you identified all your revenue streams
and relationship between them?– E.g. Software sales and recurring seat licenses
• How long before you start generating revenue?• How much will it cost and how long will it take
acquire and retain customers?• Will your revenue, bootstrapping, fit with the
“start” that a capital investment will provide?
58
The Firm: Financial Issues• Key issues to understanding the economic
viability of your business model• What are the key items in your cost structure?
– Necessary technology and product development• How much cash must be tied up in working
capital, inventory, etc.?– For how long?
• How quickly will customers pay?– Accounts receivable amount and terms vs. online cc
payments
59
The Team• Mission, Aspirations, and Risks
• You must talk with your team members now• Imagine how difficult in 1, 2, 5 years
• Can you execute?• Can your team execute on each and every CSF?• If not, have you identified how you will complete
the team to address the missing CSFs?• Connectedness: Who do you and your
team know within the value chain?– Likely suppliers and technologists?– Key customers?– Most pressing competitors?
60
61
The Critical Success Factors• Which assumptions are critical to the
success of your business? • What are the “big levers”?
– Sensitivity analysis– Typically time (to develop and through
the transition)– Market size (total sales)
Summary Information• Summary: only 4 reasonable
conclusions• Feasible as proposed and moving forward• Feasible w/ changes and moving forward• Feasible (w/ or w/o changes) but not moving
forward• Not feasible (w/ or w/o changes) and not moving
forward• Not feasible and moving forward
62
References to Industry Norms
• Use Industry-specific Data to guide your projections of expenses and margins– Robert Morris Associates Annual
Statement Studies HG4050.R64 (in Kresge Library)
63
Mullins’ Assessment Framework AppliedMarket Domain Industry Domain
Macro-level
Micro-level
REF: The New Business Road Test, John Mullins © 2003.
MarketAttractiveness
IndustryAttractiveness
Target segments
benefits and attractiveness
Sustainable advantage
x
x Necessary but not sufficient
Sufficient by itself.
VC: xSB: _
VC: xSB: x
VC: xSB: x (__ if niche)
VC: xSB: _
• VC Deal-breaker if absent
Assembling The FullBusiness Plan
Paul KirschSamuel Zell & Robert H. Lurie Institute
For Entrepreneurial StudiesJanuary 25, 2008
66
Agenda• Business plan in the context of
business development• Purpose • Audience• Contents• Format• Challenges • Pitfalls
6767
Coordinated Message of Your Business
You need the right message
…for the right audience
…at the right time… clearly articulated… and delivered with
PASSION!
Business Plan
Executive Summary
Elevator Pitch
Core Concept
Investor Presentation
68
Purpose• To force the entrepreneur to do a thorough
and effective analyses• To provide a roadmap for development• To propose a new venture• To raise capital for the company• To benchmark progress• Should evaluate, not promote• Good plans take the emotion out of
decisions and focus attention on reality(continued)
69
Purpose• Always a work in progress
– About the process NOT the document• Ties all aspects of your business and
plan together• Offers clear linkage between
Visionand
ideas
Companyto make ithappen
Business Plan
70
Audience• Investors
FFF | Banks | Private investors | VCs | Grantors
• Business partnersBeta customers | Suppliers | Distributors
• Management team– Current – talking from the same script– Potential – need to understand business
71
Business Plan Contents• Executive
Summary• What is the
concept?• Market Need or
Pain• Market Size • Value Proposition• Business Model• Competitive
Advantage
• Competition and Industry
• Products and Services
• Marketing and Sales
• Management• Risk Mitigation• Action Plan,
Milestones• Key Financials• Exit Strategies
72
What Is the Concept? • Core Concept statement that defines
product and business• Can include
– The “story” behind the business?– Relationship to current solutions
• Linear development or disruptive?• Improvement or new?• Evolutionary or revolutionary?
(continued)
73
What Is the Concept? • Be clear and complete• Be brief and to the point• State the idea for the company and what it
does– Not simply a cool website or product
• Use plain English and– No MBA buzzwords or engineering geek speak– Get your head out of your assets
• Use plain English but – Use technical language, schematics where
necessary
74
Market Need or Pain• What is the pain in the market?• Market need drives business
– The product or service fills the need– Products, companies do not create a market
• What are potential customers doing now?– A current solution does exist
• Connect the listener to the problem• Why now? Connect timeliness of idea to market
pain• Staying power and permanence
– Fads can be very profitable
Know the differencebetween customers
and users!!
75
In Discussion of Market• You must size the market• You must size the segments• From credible sources
– Which databases?– Summary of primary research
• Using three credible measures– Total dollars spent– Number of customers– Number of units sold
76
Market Size• Quantify “pain” in terms of true market
opportunity - just how “big” is this?• Which market segments are in the initial
planning horizon of 3 to 5 years?• Describe your customers• Quantify the segments:
– Geographically, demographically, psychographically
– Business, economics, SIC codes• http://www.osha.gov/pls/imis/sicsearch.html
78
Relationship of Market Terms• Total Addressable Market
– All microprocessors – or – • Target Market
– Electronic device manufacturers – or – • Market Segment
– Cell phone manufacturer – or – • Ideal or First Customer
– Nokia or Motorola
79
About the Target Customer• Is there an identifiable buyer?
– Accessible to your channel?– Able to pay?
• Referring back to the market pain– Does full product address full market pain?– Are auxiliary features, products, services
needed?• Reason to buy now?
– Can customer wait a year?
80
Value Proposition• Why do your customers care?• How valuable is your idea to your customers?
– What’s your customer’s ROI?– Cost avoidance?– New revenue?– Cheaper, faster, prettier, better?
• Who else do you need to make this happen?– Value chain relationships
• How are you going to extract this value from the marketplace?
81
Value Chain PlayersExamples of value chain partners
include:• Suppliers• Technology or logistics partners• Sales partners: dealers, resellers,
retail chain• Ultimate customers• Users
82
Business Model• What is the business model?• This is really two questions
What do you do?How do you make money?
83
Bus. Model: What do you do?
Distribution Sales Marketing Mfg Product Design
Technology
Raw Materials
84
Bus. Model: How do you make money?
Product retail sales: using value chain Product internet sales: direct to customer B2B: commercial purchase on terms Advertising: provide ad space Licensing: per unit revenue, payable Consulting: fee for service or impactServices: per unit charges Transaction fees: per activity Subscription: content over time Affiliate: referrals and partnerships
HPDellXerox, BASFYahoo, ABCIBM,
universitiesMcKinseyH&R BlockeBayConsumer
ReportsAmazon
85
Competitive Advantage• What is your primary competitive
advantage?– Intellectual property
• Legal protections ≠ advantage– Management team– Exclusive customer relationships
• How are you going to act on it?– Being the “first mover” is not a sustainable
competitive advantage– What you do with the competitive advantage is
important!– Effective execution is more important than
being first
86
Competition and Industry• Who is your competition?
– Porter’s 5 Forces analysis• Threat of entry• Supplier power• Buyer power• Threat of substitutes• Competitive rivalry
– Write about the attractiveness of the industry that analysis uncovers• Do not write about the analysis
(continued)
87
Competition and Industry• Value chain issues
– How are you affected by competitors’ relationships with value chain partners?
• How will competition respond?– Always assume you will be successful
• The sincerest form of flattery• Established players are likely to be better
resourced• Then there’s the GoogleSoft approach
88
Products and Services• Detailed description• Intellectual property protection• Where in the product development
process?– R&D concerns?– Key development hurdles?
• Where in the product life cycle?
89
Marketing and Sales• Product | Price | Place | Promotion
• State the price of the product• How are your going to price your product?
– Market-based– Value-based– Cost-based
• How are you going to sell your product?• Be realistic, don’t overpromise or oversimplify
(continued)
90
Marketing and Sales• What “beta” relationships exist? Why?• Who are your first prospective paying
customers?• In discussion of promotion, remember
to tie in the relationships between target market and total market
91
Management• Highlight team’s ability to deliver
– Past success is a good indicator of future performance
– Has team worked together before?• Be honest about team’s missing skills• Can use Advisory Board to “bolster”
management skills
Risk MitigationType of Risk
What happens Example of how to address
Technology Science does not work repeatedly or in product
Utilize prototypes extensively
Market Customers aren’t paying OR adoption rates are lower
Beta products provide early customer feed back opportunities
Competition More competitors exist or they are stronger than anticipated
Alter pricing strategy
Management
People in charge have skills that are misaligned to business
Hire people with right skills for right phase; let others go
Execution Missing milestones Emphasize right prioritiesRegulatory Product won’t pass current
or pending regulationsMove on regulations as early
as possible; get “preliminaries”
Financing Insufficient funds to continue or next round is in question
Always stay in fundraising mode
92
93
Action Plan, Milestones• Overview of timeline• Demonstrates YOUR understanding
of KEY issues for YOUR business• Shows that the team knows what is
whose responsibility– Only items that are your responsibility
can be a milestone• Include product launch/first sales in
ANY discussion of milestones
94
Key Financials• Sales/revenue forecast is the starting point• Provide credible financial measures
Sales | Units | Margins | Customers | Market share• Cash flow is king• KNOW your assumptions • “The Good, The Bad and the Likely”• Be realistic: don’t overpromise or
oversimplify
(continued)
95
Financials: The Ask• How much are you seeking?• What is the money to be used for?• Most important: where are you now and what
will the money get you to?– Good: concept, prototype, beta product,
commercial product, first sales, profitabilityDevelop Technology Prototype Beta Unit First Sale Expand Sales
– Bad: “through next year”, “while we wait for our patent”
• Where will the next round of funding come from?
96
Key Financials• What do you need NOW?• What are your start-up costs?• Provide a Sources and Uses discussion
and appendix– Working capital is a legitimate use of
funds– Allowing a percentage of “cushion” is okay
• Estimate costs and revenues to the best of your ability
97
Exit Strategy• Investors don’t invest to get IN• Offer feasible exit strategies• What is “typical” in your industry?
– Acquisition– IPO– Management buyout– Dividend payments
(continued)
98
Exit Strategy• Acquisition
– Who? – How many “who’s”
• IPO– Recent market track record IPO Monitor– What performance measures are important?
• Management buyout is not necessarily a desirable exit
• Dividends are a tough sell also
99
The Document
100
Format of Document• Single or 1½ spaced within paragraphs,
double-spaced between paragraphs• Integrated graphics• 11 or 12-point font with 1-1-1-1 inch margins• Numbered pages• Hard copies of business plans should be
professionally bound• Soft copies of business plans should be in a
single .pdf document(continued)
101
Format of Content• Cover page (not included in page total)
– Company name, logo, tagline– All team member names– Full contact information for at least team leader
• Body of plan – 20 pages - includes the executive summary and summary financial data
• Appendices – not to exceed 10 pages– No new information– Include only when data support statements in the plan– Audience may not be able to read all the material in
the appendices, so the body portion must contain all pertinent information in a clear and concise manner
102
Format of Content• Presentations of information
– Stay away from text only approach– Use a variety of graphical representations
• Charts• Pictures• Diagrams
– Use, set aside and highlight quotes for experts and customers
• Use header and footers wisely– Company name, small logo– Page numbers
103
ChallengeMany plans are product/technology-centric or driven by perceived marketFocus on the intersection of market
need and technology/product benefits
Ideas andInventions
Needs andDesires
Technology Starter
Concepts
Solutions Effects
Community Personas
104
ChallengeMany plans are written in an academic
style, i.e., dry, boring
Solution• Put your passion for the business in the
plan• Think about what story you want to tell• There is no right way to organize a
business plan
105
ChallengeMany entrepreneurs address preparing the
plan and giving the pitch as a necessary evil
Solution• It’s about the process, not the document• Treat “marketing” your company as
essential as “running” your company• View opportunities for feedback as
invaluable instances that will be difficult to duplicate in the “real world”
106
Challenge“There’s no way to do this in 20 pages!”
Solution• Succinct and concise understanding AND
presentation of key issues is paramount• View assembly of plan and presentation
as much a communication challenge as it is a business issue
• Teams have NO option in competitions
107
Typical Pitfalls• Product idea not linked to market need• Over-simplification of the issues• Unrealistic goals and/or timelines• No credible go-to-market strategy• The “1% market share” objective• Under-capitalized and/or over-leveraged• Sources and uses of funds• Unclear role for the audience, investor
(continued)
108
Typical Pitfalls• One-person show• Team composition and experience • Executive summary does not have a
“hook”• Important information is hidden• No contingencies• Document not reviewed• Document not reviewed by
“uninterested” parties
109
This is YOUR story• Develop an engaging narrative• Make document readable
– Layout– Graphics– Font and spacing– Table of contents– Headings and emphasis
(continued)
110
This is YOUR story• Infuse delivery with personality and
passion• Not a “right” way to tell the story• Different aspects of a plan will be
emphasized differently for different types of businesses
• Don’t give evaluators a reason to mistrust or disbelieve you or the plan
(continued)
111
This is YOUR story• Have you demonstrated…
– Large potential market?– Logical go-to-market strategy?– Captivating idea with growth potential?– Sustainable competitive advantage?– Sound financial plan?– Strong, core team?
112112
Coordinated Message of Your Business
You need the right message
…for the right audience
…at the right time… clearly articulated… and delivered with
PASSION!
Business Plan
Executive Summary
Elevator Pitch
Core Concept
Investor Presentation
113
Questions ?
114
Estimating Startup CostsSa
les
TimeDevelopment Transition Modest Growth
Working it backwards from the Steady-state numbers:• Obtain steady state costs (GS&A, etc, as % of sales from industry data)• Make costs constant over transition• Add development costs • Ramp down develop costs while ramping up operating costs
Costs