Startup Essentials

Peter Russo (prrusso@bu.edu)

2

Today’s Topics

• Business Plans• Who Needs Them?• How to Develop One• Good and Bad Plans

• Business Models

3

Who Needs a Business Plan?• … And Why?• Some Good Ideas• …And Some Bad Ones!

4

To Successfully Launch a New Business...

• ...Requires Identifying and Bringing Together Necessary Resources• Human - Technological• Physical - Financial

• We Do This Through a Business Plan

5

What Is a Business Plan?

• It’s a Process, Not a Product• It’s Written to Develop a Successful Business

• Not Just to Raise $• Should Be Used & Updated as a Mgmt Tool

• Most Business Failures Can Be Prevented …• If You Have a Good Business Plan

6

Why Do Startups Fail?

• How Often Can We Predict?

7

Who Do We Write Plans For?

• Resource Providers• Might Be Investors• Might Be Internal Sponsors• Might Be Strategic Alliance Partners• Always for Your Team!• Many Entrepreneurs Have Multiple Versions

8

What Does the “Product” Look Like?

• Executive Summary (1-2 pages)• It’s All They’ll Read• Must Communicate and Capture Attention

• Industry & Market Opportunity• Marketing Plan• Product / Operations• Management Team• Financials• Critical Risks• Timetable / Milestones• Exhibits

9

What Are They Looking For?

• What’s the Problem?• How Big Is It?

• How Will You Solve It?• You and Who Else?

• Do I Believe You Can Do It?• The TEAM!

• Will I Make $ By Helping You?• Financials• Exit Strategy

10

So, How Do I Develop a Business Plan ?

• There Is No “Right Way”• The Following Generally Makes Sense

11

My 10 Step Process (1-4)

• Start With “Why Am I Doing This?”• Need To Define a Good Outcome to Achieve It

• Try To Answer the First 2 Questions• “What Problem Am I Solving”• “What Is My Solution?”

• Outline Your Market Analysis• What Do I Know?• What Do I Wish I Knew?

• Begin Talking to People• Advisors• Potential Customers• Friends

12

My 10 Step Process (5-7)

• Define Your Business Model• Both Revenues & Expenses• Consider Alternates (List Them)• Try to Begin a Rough Spreadsheet• Identify Critical Success Factors

• Begin Formal Market Research• What Questions DO You Need to Answer?• Where Can You Find This Information?• Consider Primary & Secondary Data

• List the Resources You Need to Succeed• Human, Physical, Financial, Etc.

13

My 10 Step Process (8-10)

• Outline the Business Plan• What Parts Can You Begin to Write?• How Much More Info Do You Need?

• Define A Successful Scenario• What Has to Happen?• What Do You Need to Do?• Simulate in Your Model

• Write the Plan• …and READ It!• Get Some Feedback• Revise and Update

14

How Will I Know When I’m Done?

• You’re NEVER “Done”!• The Environment Is Constantly Changing• You Are Constantly Gaining New Information• Your Capabilities Are Changing• How Do These Things Change Your Plan?

15

What About BP Software?

• I Do NOT Recommend• Often Gets In the Way of a Good Process

• It’s the Journey, Not the Destination!

• Plans Tend to Look “Canned”• It’s YOUR Story!

• Can Be Helpful to Collect & Organize Thoughts

16

Good & Bad Business Plans

•What Do Investors Like to Hear?•What Tends to Turn Them Off?

17

Ingredients of a Successful Plan

• Vision• Commitment• Strategy• Time to Market• Team• Passion• Customer Testimonial• Competition• Capital Need• Milestones

(What It Takes to Create Successful Enterprises – TiE)

18

What NOT to Do in a BP

• What is a “BAD” Business Plan?• What Are Some of the Common Mistakes We

See?

19

What is a “BAD” Business Plan?

• One That Doesn’t Meet Its Objectives• Fails to Help Launch a Successful Business• Fails to Identify Key Obstacles / Problems• Fails to Attract Interest:

• Of Investors• Of a Team• Of Partners• Of Other Resource Providers

20

First Clue That You’re Reading a “Bad Plan”…

You Don’t Want to Keep Reading!• It Doesn’t Capture Your Attention• It’s Hard to Get Through• You Just Don’t Get It!

21

Most Common Errors in a Plan

• Lack of Understanding of Value Proposition• …Or Significantly Overstates It

• Lack of Understanding of Customer• And How to Reach Them

• Lack of Focus• Underestimating Inertia• Underestimating Effort & Resources Required

22

Most Common Errors in a Plan (Cont’d)

• Failure to Identify Competition• Lack of a Competitive Advantage• Unproven Team• Lack of a Robust Business Model• Inconsistent Facts• Inconsistent Logic• Over-Optimistic Financial Projections

23

Understanding Your Business Model

• What IS it?• How to Look at It• What to Do About It

24

What IS a Business Model

• Description of the Key Decisions and Trade Offs That Define a Business

• How Do / Will We Make Money?• Answers the Questions:

• How Will We Charge for Our Product/Service?• Who Will We Charge?• How Will We Sell?• What Processes Will Be Managed Internally?

• Outsourced?• What Critical Factors Will Define Our Success?

25

It All Starts With a Value Proposition

• How Do We Help a Customer Get an Important Job Done?

• Value Proposition Becomes More Compelling When:• Job Is Important to Customer• Customer Dissatisfaction Is High• Our Solution Is Significantly Better Than

Alternatives• Look for Situations Where:

• Current Solutions Don’t Have Real Job in Mind• We Can design a Solution That Is a Better Fit

26

…Then We Need a Target Customer

• …and a Way to Get to Them• Distribution Channel

• …and a Way to Deliver Value to Them• Value Configuration

27

VALUEPROPOSITION

COSTSTRUCTURE

CUSTOMERRELATIONSHIP

TARGETCUSTOMER

DISTRIBUTIONCHANNEL

VALUECONFIGURATION

CORECAPABILITIES

PARTNERNETWORK

REVENUESTREAMS

gives an overall view of a company's bundle of products and services

portrays the network of cooperative

agreements with other companies

describes the channels to communicate and

get in touch with customers

describes the arrangement of

activities and resources

explains the relationships a

company establishes with its customers

sums up the monetary consequences to run a

business model

describes the revenue streams through which

money is earned

describes the customers a company wants to offer value to

outlines the capabilities required to run a

company's business model

INFRASTRUCTURE CUSTOMER

OFFER

FINANCE

Putting it All Together

28

Revenue Sources

• What Are the Revenue Streams?• Single• Multiple (Different Products / Services)• Interdependent (Razor Blades / Razor)• Loss Leader

• Revenue Models• Subscription / Membership• Volume or Unit-Based• Advertising-Based• Licensing & Syndication• Transaction Fee

29

Analysis of Revenue

• Define Revenue Streams• If Interdependent or Loss Leader:

• Likelihood of Realizing the Attractive Business

• Which Model(s) Will We Use• What Behavior Is Likely to Result?• Who Is Most Likely Attracted to Us ?• Do We Have Other Options?

• How Long Does It Take to Realize Cash Flow?

30

Analysis of Costs

• Cost Drivers• Are They Primarily Fixed, Variable, etc.• How Much Volume Can Fixed Cost Base Support?• How Will Drivers Change Over Time?

• Cost Centers• What Are Our Largest Cost Centers?• Can Any Offer Us a Strategic Cost Advantage?

Remember: This Is About How We deliver Value to Our Customers!

31

Investment Size & Timing

• How Much Cash Will We Need in Total?• When?

• When Does Cash Flow Turn Positive?• When Do We Reach Cash Break-Even?

• Then What?

32

Final Step – What Do We Want to Be When We Grow Up?

• Why Are We Doing This?• What Constraints Do We Operate

Under?• What Alternatives Do We Have?

• To Reduce Cash Required• To Speed Up Breakeven• … Or Time to Market• To Minimize Risk

• What Are the Tradeoffs?

33

Local Diagnostics Startup