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“Lessons from the MIT $50K Trenches”

MIT Sloan Presentation

S. Jason Salfen

May 4, 2000

395 Oyster Point Blvd, Suite 505South San Francisco, CA 94080T: (650) 416-3329F: (650) 742-6211C: (650) 208-0592jsalfen@corp.edentalstore.comwww.edentalstore.com

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Presentation Overview

Lessons Learned

a Funding

b Management

c Recruiting

d Technology

e Operations

g Initial Steps

h Silicon Valley / San Francisco

f Marketing

i Contact Information

Company Overview

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B2B e-commerce provider and ASP for the professional dental industry• $50K finalist May 5, 1999• Opened doors June 1, 1999• Financing:

• First round May, 1999 from Bill Porter & family

• Second round December, 1999 from multiple angels and strategic investors

• Web site launched Oct 15, 1999• Grown from 5 to 45 employees• Revenue almost doubled 4Q99 to 1Q00, and

April ’00 was almost as large as entire 1Q00

Company Overview

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11 Choosing the correct investors is critical• Smart, Brand Name, Strategic, Money is Money, Friends & Family• Smart and brand name money is worth a lower valuation

22 Tension between time, valuation, and money• Raising as much as possible immediately – lower valuation, faster

progress, more time devoted to execution• Raise minimum necessary initially – give up less equity, prove concept,

slower progress, more time devoted to fund raising

44 VCs can help you refine your strategy and business model

33 Meeting with potential investors• Do not e-mail business plans• Mail an executive summary to interested investors. If interested, request

an in-person meeting• Acceptable to ask for business plans back after a meeting• Be careful about divulging VCs names to other potential investors• Set limits on what you are willing to discuss during initial conversations• Rejection is part of the game• VCs fund the management team and the plan, not just the idea

Funding

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11 Choosing the right founding team is critical

22 Founders deserve extra protections, but their shares should vest• E.g., 2 – 3 years, no cliff, immediate vesting if dismissed without cause, legal

protection from liabilities incurred during course of business

33 Stepping down or aside is very difficult• Reducing the role that you play within “your” company is a difficult and

emotionally trying experience

44 It’s not fair and it’s not all fun• Delineation of responsibilities is key to rapid execution

55 Motivating employees becomes progressively more difficult

66 Senior management must be both internally and externally focused• Outward CEO – inward President• Outward CEO/President – inward COO

• Trust completely, dynamic, and willing to do whatever necessary to ensure the company’s success

Management

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Recruiting

11 Hire someone to assist with recruiting• Junior level person for posting job descriptions, screening resumes, etc.

22 Immediate hiring needs:• Office manager / administrative assistant• If business people, a committed technical person• If technical people, several business people

33 Business people hiring technical employees require assistance• Use an independent consultant to evaluate potential employees’ skill-sets

44 Use a top-down approach when building your technical team• Initial hire is a Director of VP of Engineering – manager as a 2nd choice• Build team of junior people lead by a few experienced ($$$) engineers

55 Do not immediately hire an HR manager• Need someone part-time initially until approximately 45 - 50 employees

66 Planning for hires is critical• Must be able to move immediately on a desired candidate, especially

engineers

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11 Integrate technology managers into business decisions

22 Hire a consultant for package selection and RFP• Do not allow business people to choose company’s technology direction• Use outside consultant to choose initial package and write RFP

33 Overcoming potential problems with consultants:• Better to be a big fish in a small pond• Create an exhaustive functionality list for your RFP• Choose a package that uses open technology and supports Java• Only expect results from the consultant in their area of expertise• Managing the consultant requires a business and a technical person• Co-manage the consultant’s package implementation• Continuously QA the site• Consultant should provide detailed documentation throughout the process• Customizations developed by the consultant should be included in your

upgrades• Include system redundancy in the contract• Provide the technical resources necessary to ensure the consultant’s

success• Build an in-house technical team while working with the consultant

Technology

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11 Integrate your back-end• Do not focus solely on marketing• A consultant may provide valuable expertise when developing initial strategy,

process and systems

22 Traditional distribution concepts often still apply to .coms• “Click & mortar”• Vertical integration can increase control over customer experience and

improve margins

33 A staged approach is often the most successful fulfillment strategy• Distributor – broad product selection, expensive, partner with multiple

distributors• Individual suppliers – sign-up on an individual basis, acquire multiple

relationships immediately by acquiring a competitor• In-house via 3rd party or company owned warehouse(s) – low fulfillment cost,

requires significant forecasting ability, ties up working capital, may dilute “.com message”

Operations

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11 Initial marketing needs are likely only part-time• Use consultant initially – can potentially become full-time in future

22Identify sell out dates, not just registration deadlines, for trade shows and journals

33 Cross functional cooperation is crucial• Develop multi-functional group to analyze and approve marketing promotions

44 Hire the right marketing person for a start-up• Understands the needs of your customer base• Can develop low-cost marketing strategies and promotions

Marketing

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11 Incorporate and sign founder’s agreement• 3 weeks from incorporation to become a founder• Agreement should include vesting schedule, job protection, and

indemnification clauses

22 Research and choose your company’s name• Do not tell anyone until registered URL and trademarked if possible

33 Choose law firm

44 Research desired real estate market

55 Hire office manager on first day

66 Research potential packages• E-commerce, accounting, order processing, MRP, etc.

77 Develop operational plans for implementing business plan• Include multiple scenarios based upon funding raised

88 Develop recruiting plan• Key initial hires• Research potential recruiting channels

Initial Steps

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11 Strengths• Large pool of workers willing to work for a start-up• VCs prefer to invest in local companies• Great networking opportunities with potential partners

22 Weaknesses• Numerous start-up and technology companies competing for same pool

of workers• Recruiting technical talent is extremely difficult• Outrageous rents (may have to give up equity stake)

Silicon Valley / San Francisco

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S. Jason SalfenBusinessDirector, Business DevelopmenteDentalStore, Inc395 Oyster Point Blvd, Suite 505South San Francisco, CA 94080T: (650) 416-3329F: (650) 742-6211C: (650) 208-0592jsalfen@corp.edentalstore.comwww.edentalstore.com

Personal357 HermannSan Francisco, CA 94117(415) 252-8570sjasonsalfen@yahoo.com

Contact Information