Startnowhow - Planning, Developing and Testing a Business Model

PLANNING, DEVELOPING AND TESTING A BUSINESS MODEL Dr. Joachim Behrendt

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StartNowHow

• Open seminar series for active and prospective entrepreneurs

• 10 sessions on monthly basis until summer 2015

• Covers relevant theoretical and practical aspects of entrepreneurship

• Based on lecture „entrepreneurship“ @Bogazici University

• Based on experiences of entrepreneurs, investors, mentors and consultants

• Each session with guest speaker (entrepreneurs, investors, mentors, etc.)

• Each session will end with test elevator pitch by seminar participant

• Seminar materials can be downloaded after the event

• Mondays 17.15h – 19.30h

• Next session: Thu, February 19th, 2015 (tbc)

• TOPIC: Market and Competitor Research

• SPEAKER: Hikmet Özgözen, Business Development Manager, BIC Angels

• Certificate provided for participants joining at least 7/10 sessions

• Early registration for each session required (eventbrite), capacity 50 people!

• Priority for regular participants

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StartNowHow - Seminar Topics (preliminary)

1. Mon, 20.10.: The entrepreneurial ecosystem in Turkey

2. Mon, 10.11.: Entrepreneurship as a profession

3. Mon, 8.12.: Opportunity recognition and evaluation

4. Mon, 12.1.: Planning, testing and developing a business model

5. Thu, 19.2. (tbc): Market and competitor research

6. Thu, 19.3. (tbc): Financial planning for startups

7. Thu, 16.4. (tbc): Marketing planning and control – the role of key performance indicators

8. Thu, 14.5. (tbc): Funding the startup – stage financing for ventures

9. Thu, 11.6. (tbc): The investment process – pitching, negotiations and termsheet

10. Thu, 9.7. (tbc): Success and failure as an entrepreneur


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EL What Is a Business Model?

• Core of the business plan, key element of the business plan - how will the venture create money?

• Definitions:

• „A business model explains how a venture is expected to create a profit“ (Fiet, J.O. / Patel, P.C., Forgiving Business Models for New Ventures, in: Management Science 48 (1), 2008, pp.105-121)

• „A business model describes the rationale of how an organization creates, delivers, and captures value.“ (Osterwalder, A. / Pigneur, Y., Business Model Generation, 2009, p.14)

• „A business model is a concise representation of how an interrelated set of decision variables in the areas of venture strategy, architecture, and economics are addressed to create sustainable competitive advantage in defined markets.“ (Morris, M.H. et. al., The Entrepreneur‘s Business Model: Towards Conceptualization, in: International Journal of Business Research 58 (6), 2005, pp. 726-735)

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EL Types of Business Models


(adopted from Amit, R, / Zott, C., Value Creation in E-Business, in: Strategic Management Journal 22 (6/7),

2001, pp. 493-520)

Value Creation

Efficiency

Complementarity

Innovation Lock-In

• Innovation-centered business models: Create new possibilities for transactions among economic subjects – Example: Location-based mobile commerce

• Efficiency-centered business models: Increase efficiency for already existing transactions among economic subjects – Example: Use of internet in touristic industry, Amazon

• Lock-in-centered business models: Increase volume of existing transactions between existing economic subjects by binding them closer together – Example: 2-year-contracts for mobile phone usage and value-added services, Google search engine, Loyaltycard programs

• Complementarity-centered business models: Combining own services with complementary services for increasing attractiveness of transactions among economic subjects – Example: App stores, Computer + operating system bundle

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EL Characteristics of Superior Business Opportunities

• Added value

• Venture creates or adds significant value to a customer or end user

• Venture solves a significant problem

• Venture adds value by solving a significant problem, removing a serious pain, or meeting a significant want or need

• Someone is willing to pay a premium for solving this problem

• Venture has robust market, margin, and money-making characteristics

• Large enough market (min. 50 Mio $)

• High growth expectation (min. 20% p.a.)

• High gross margins (min. 40%)

• Strong and early cash flow (recurring revenue, low assets, low working capital)

• High profit potential (min. 10% - 15% after tax income)

• Attractive, realizable return for investors (Internal Rate of Return IRR min. 25% - 30%)

• Venture fits to skillset

• Good fit with founder(s) and managment team skills for that time and marketplace

• Attractive risk-reward balance

• Source: Timmons / Spinelli, New Venture Creation, p.150


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EL Design of Business Models


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EL Design of Business Models

• Cost Structure C$ - Resulting from cost contribution for building blocks of the business model:

• Key partners KP: Resources necessary for producing and offering the products / services, and to be purchased from outside

• Key resources KR: Necessary key assets for producing and offering products / services

• Key activities KA: Key activities to be performed for producing and offering the products / services

• Revenue Streams R$ - Resulting from successful offer of VP to the customer:

• Customer segments CS: Relevant customer segments to be served

• Customer relationships CR: Development and maintenance of relationships for each relevant CS

• Channels CH: Channels through which products / services will be offered to customers

• Value Proposition VP – Way in which organization will solve customer problems and fulfill customer needs by providing value-adding products / services

• (from: Osterwalder, A, Pigneur, Y., Business Model Generation, 2009)


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What Is a Business Plan?

• Definition: The business plan is a written document prepared by the entrepreneur that describes all the relevant external and internal elements involved in starting a new venture. (Hisrich / Peters / Shepherd, Entrepreneurship, p.189)

• Integration of functional plans (e.g. Marketing, finance, manufacturing, HR)

• Planning horizon: 3-5 years

• „Like a road map“ when travelling from A to B on different possible routes

• Types of Business Plans

• „Business plans, like entrepreneurs, come in all shapes and sizes“ (Harper, Extraordinary Entrepreneurship, p.182)

• Summarized business plan: around 15 pages, contains only key information, not for external communication / communication to potential / new business partners

• Complete business plan: Most frequent form, 30-50 pages + 10-30 pages attachments, especially needed for obtaining external funding

• Operational business plan: More than 100 pages, mainly for already existing companies (example: sale of business), extensive quantitative part, used for internal planning process

• (Translated from Fischl / Wagner, Der perfekte Businessplan, pp. 17-20)


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Overview: The Purpose of a Business Plan


Source: Stokes / Wilson, Small Business Management and Entrepreneurship, p.179

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Why Preparing a Business Plan?

• Even without the need for an external investor, entrepreneurs should force themselves to carefully prepare a business plan

• „In preparing for battle I have always found that plans are useless, but planning is indispensable.“ (Dwight D. Eisenhower)

• Helps you learning about details of your business, your market and your operations

• Supports gaining critical insights into your intended partner‘s styles, strenghts, weaknesses, and ways of cooperation

• Gives you intimate knowledge of the opportunity, buyer and user, market and competition, and financial characteristics

• Serves as tool for communication to outside parties interested in the venture, and as a medium for discussion with them, revealing their knowledge, creativity, and suit for their intended roles

• Prevents you from jumping ahead prematurely, limits sloppiness with regard to necessary research, creative problems solving, and „hard thinking“

• Tests your commitment and prevent your heart from getting too far ahead of your head

• Saves time during operations, helps avoiding common mistakes, helps creating order for a, in general, chaotic and unpredictable event

• Helps you creating the best possible roadmap from where you are, to where you want to be

• (Adopted from Timmons / Spinelli, New Venture Creation, pp. 270-271)


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Structure of a Business Plan – Example, page 1


Source: Hisrich / Peters / Shepherd, Entrepreneurship, p.201

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Structure of a Business Plan – Example, page 2


Source: Hisrich / Peters / Shepherd, Entrepreneurship, p.201

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K StartNowHow - Outlook

• Today‘s materials will be made available to participants for downloading

• Next Seminar: „Market and Competitor Research“

• Guest Speaker: Ömer Erkmen, Ideasoft / Mekanist, Angel Investor and Mentor

• Thursday, 19.2.2015, 17.15 – 19.30h

• Don‘t forget to register early (eventbrite) - capacity 50 people!

• Priority for participants / registrants from today‘s session

• General rule: Allocation of seats according to participation

• Regular participation = certificate (70% participation)

• Be prepared to pitch!


• Status

• Idea Stage, Product / Service not yet / not fully developed

• No / limited market test, no users, no customers yet

• Limited business know-how, limited knowledge about market, monetization

• Legal unit not yet created, organization not defined

• Too developed for continuing in incubation center, too underdeveloped for angel investment

• Special Needs – “Continued incubation”

• Development and testing of minimum viable product, support for product / service development

• Support for market analysis, market testing, initial market access

• Mentorship (not only monthly but weekly or more frequent support), continuous management consulting needed

• Limited financial support (normally up to 50,000 TL)

• Setup of legal unit and establishment of backoffice services should only happen if startup progresses to next round (seed round)

• If promising, preparation of investor pitch, access to investors for seed round PR

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Characteristics of Early Stage Startups

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BIC Angel Support


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BIC Angel Support

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Source: Timmons, J.A./Spinelli, S., New Venture Creation, p.433

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Investor Role in STARTNOW Pre-Seed Track

• Passive

• 1-2 times a year.

• You invest with others and receive information on the company like all other shareholders. A shareholder meeting is usually held once a year.

• Active

• Average 0.5-2 days a month alone or as a group.

• Usually as a Board Member or Advisor. When you make the investment you have to decide whether or not you want to be on the Board and negotiate it as a term.

• Very Active

• 1 day a week alone or as a group.

• Usually playing an operational role. Need to discuss upfront if you will be compensated for it and if yes, how much and split of cash and equity.

• Adopted from: GoBeyond, Early Stage Investing, Business Angel Training, September 2012


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Pre-Seed Track

• Pre-Seed Track: The Investment Process

• Initial funding by BIC and lead investor (or group of lead investors) to founders

• Provides option right for BIC and lead investor(s) to participate in incorporation (foundation of company) at predefined conditions

• No repayment in case of failure

• Investment driven by strong lead investor, “personalized deals”

• No formal pitching to group but individual sessions with potential leads

• Very active but informal role of lead investors, BIC and other mentors before incorporation

• Target: Development and testing of minimum viable product

• Target: Development and testing of scalable and profitable business model

• If promising, incorporation of business

• Setup of AS with 50,000 TL share capital

• BIC and lead investors become founding shareholders at predefined conditions

• No BKS investment, no BKS angel investing advantages!


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Pre-Seed Track

• Pre-Seed Track: The Deal (1)

• Duration of program: Normally 3 + 3 months, maximum duration 1 year

• Phase 1 (first 3 months): Build your minimum viable product

• Evaluation and investor approval for Phase 2 necessary

• Phase 2 (second 3 months): Gain initial traction

• Evaluation and investor approval for “fast track” to angel investment necessary

• “Fast track” to BIC seed program (2nd round meetings) if both phases are completed successfully, access to other other investors if meaningful

• No further review by BIC or BIC selection committee needed

• Direct access to 2nd round meeting, presentation to full investor group

• Preparation of investor pitch with founders, BIC team and mentors

• Market and competitor analysis provided by BIC

• Fast track for 3rd round (business / financial planning) and deal closing

• Support for access to other angels / investors outside of BIC


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Pre-Seed Track

• Pre-Seed Track: The Deal (2)

• Investment of 50,000 TL (cash & noncash services) against option to participate in incorporation / company foundation at predefined conditions

• Phase 1: Normally 10,000 TL cash + 10,000 TL services

• Phase 2: Normally 10,000 TL cash + 20,000 TL services

• Investment by lead investor (or lead investor group) and BIC

• 25,000 TL provided by lead investor or lead investor group

• 25,000 TL provided by BIC Angel Investments

• Custom-made deals, start and end possible at every time

• Individual program and individual mentorship (at least 1 day / week) for each startup

• Key: Active lead investor knowledgeable and connected in startup’s market

• Focus: Commercialization and market / customer access


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BIC ANGEL INVESTMENTS Dr. Joachim Behrendt

Phone: +90 212 328 1939 Fax: +90 212 328 1933

www.bicangels.com http:/twitter.com/joachimbehrendt http://tr.linkedin.com/pub/joachim-behrendt/18/706/a7a

Email: [email protected]

http://twitter.com/joachimbehrendt

http://tr.linkedin.com/pub/joachim-behrendt/18/706/a7a



Startnowhow - Planning, Developing and Testing a Business Model

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