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?

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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

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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

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http://www.inc.com/resources/startup/articles/20050801/process.html

http://www.inc.com/resources/startup/articles/20051001/analysis.html

http://www.inc.com/resources/startup/articles/20051101/bplans.html

http://www.ey.com/global/Content.nsf/UK/_FG_-_Library_-_Guide_to_producing_a_business_plan

http://www.ey.com/global/Content.nsf/UK/_FG_-_Library_-_Guide_to_producing_a_business_plan

http://www.inc.com/resources/startup/articles/20060201/venture.html

http://www.inc.com/resources/startup/articles/20060301/tfaley.html

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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

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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

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Dare to Dream encourages

..the thoughtful development of student-led businesses

AND

..the development of student entrepreneurial skills and understanding

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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

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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

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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?)

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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

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Outputs of each portion


Product Idea(starter concepts)



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



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

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• 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

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What is your product or service?

• What specifically does your company do?

Distribution Sales Marketing Mfg Product Design

Technology

Raw Materials

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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

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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

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Refining the top of the Pyramid





Influences

BusHypothesis

ProductOffering










underlying enabler)


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Business Positioning Evaluation Loop

BusinessHypothesis

InfluenceDiagram

BusinessPositioning

Assessment

ProductOffering

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BusinessHypothesis

InfluenceDiagram

BusinessPositioning

Assessment

ProductOffering

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Where• Where is your proposed company in

the value chain?

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Value Chain: Material, Money, and information flow

Design

Manufacture

Sales

Consumer

Distribution

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Value Chains can be complicated….

The Commercialization of drugs

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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)

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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?

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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)

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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

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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

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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?

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BusinessHypothesis

InfluenceDiagram

BusinessPositioningAssessment

ProductOffering

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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

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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

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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



Threat of New Entrants Threat of New Entrants



• Who hold the “value capture” power?

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Can you Shift the equilibrium of the Industry’s Balance of Power?


BusinessHypothesis

InfluenceDiagram

BusinessPositioning

Assessment

ProductOffering

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Innovative New Business Design Process Pyramid


Influences


Product Idea(Starter Concept)


Solution(Positioning Statement)

BusHypothesis

ProductOffering


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

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BusinessHypothesis

InfluenceDiagram

BusinessPositioning

Assessment

ProductOffering

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The Innovation Process Pyramid


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)


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)

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Outputs of each portion





Influences

BusHypothesis

ProductOffering










underlying enabler)


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

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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)

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Opportunity AssessmentBuilding the foundation for the assessment phase

The Business Hypothesis

Market Domain Industry Domain

Macro-level

Micro-level



Target segments


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

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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

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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!!

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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

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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?

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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?

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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

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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?

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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

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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?

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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

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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)

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Mullins’ Assessment Framework AppliedMarket Domain Industry Domain

Macro-level

Micro-level

REF: The New Business Road Test, John Mullins © 2003.



Target segments


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

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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)

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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

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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

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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

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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

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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!!

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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

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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

http://www.osha.gov/pls/imis/sicsearch.html

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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

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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?

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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?

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Bus. Model: What do you do?

Distribution Sales Marketing Mfg Product Design

Technology

Raw Materials

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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

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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

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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

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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?

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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

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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

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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?

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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

http://www.ipomonitor.com/

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The Document

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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

Idea To Business

Business

bargaining

moving forwardnot

financial

business road

actual customersforyour

marketattractivenessindustryattractivenesstarget

business make

target market