THINK BIG BUT START SMALL
FEBRUARY 27, 2008
FROM IDEA TO BUSINESS PLAN
IDENTIFY A COMPELLING MARKET NEED HUMBLE BEGINNINGS (THINK BIG, START SMALL) WHAT WE HOPE TO HEAR FIRST HI-TECH MARKETING CAN BE DIFFICULT. SOME RESOURCES A COUPLE OF ANECDOTAL EXAMPLES WHAT WE HEAR WAY TOO OFTEN GETTING TO TECHNOLOGY, TEAM, and FINANCE MEETING MANAGEMENT WITH VCs SOME COMMON PITFALLS ENJOYING THE JOURNEY
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HUMBLE BEGINNINGS
Jerry & David Larry & Sergey Steve Chad Jawed
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HUMBLE BEGINNINGS
Steve & Steve Trip Sandy & Len
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NEW PRODUCT STRATEGY
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WHAT WE HOPE TO HEAR FIRST…
3. PRODUCT & TECHNOLOGY
2. MARKET STRATEGY (UNFAIR ADVANTAGE)
4. DEFINING TEAM
5. CAPITAL EFFICIENCY
1. MARKET POSITIONING
ENTREPRENEUR’S CHALLENGE
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1. MARKET POSITIONING
THE BIGGEST CHALLENGE….
A.K.A. THE ―ELEVATOR‖ PITCH
“
We networks networks.
Sandy Lerner/Len Bozak Cisco
“
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1. MARKET POSITIONING
HELP FROM GEOFFREY MOORE
For
[target customers]
Who have
Our product is a That provides Unlike We have
[compelling reason to buy]
[new product category] [key benefit (which solves problem)] [competitor in new product category] [key point of differentiation]
*Source: Crossing the Chasm
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1. MARKET POSITIONING
TWO DECLARITIVE SENTENCES
For
movie producers
Who have
Silicon Graphics That Unlike SGI
post-production special effects
provides computer workstations integrates digital fantasies with film footage IBM or Sun Microsystems has made a no compromise commitment to meeting film makers’ post-production needs.
*Source: Crossing the Chasm
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2. MARKET STRATEGY
INTIMATE WITH TARGET MARKET & BULLSEYE CUSTOMER?
TRENDS STRUCTURE SPEED LEVERAGE VITAMIN?
OR
HOW PLUGGED IN ARE YOU?
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ASPIRIN?
2. MARKET STRATEGY
CHANGE OR CREATE CATEGORY?
JOIN EXISTING CATEGORY
DEFINE NEW CATEGORY
MARKET DYNAMICS ADVANTAGE CUSTOMERS MARKET SHARE GROSS MARGIN ACHIEVABLE GOAL LEGACY
Large Size, Strong Growth
Price/Performance Opportunistic Lower (often less than 10%) Lower (often less than 50%) Acquisition Single Generation Reign
Small Size, Explosive Growth
IP, Functionality, Brand Loyal Higher (often greater than 50%) Higher (often greater than 65%) Public Company Dynasty
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2. MARKET STRATEGY
YOUR PLAN OF ATTACK?
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2. MARKET STRATEGY
CREDIBLE DIFFERENTIATION?
Competitor 10
Y1
Competitor 9
Competitor 11
Competitor 7
Competitor 1 Competitor 2
Competitor 6
Y2
New Co
Competitor 5 Competitor 8
Competitor 3
Competitor 4
X1
X2
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3. PRODUCT & TECHNOLOGY
DEFENSIBLE BARRIERS?
PARTNERSHIPS
NETWORK EFFECT
TECHNOLOGY
SIMPLICITY
DOMAIN KNOWLEDGE
BUSINESS PROCESS
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4. DEFINING TEAM
MAGNETS? SCARS? PASSION?
NewCo.
555 Main Street Anywhere, USA (415) 555-5552 chief2@newco.com Bob Smith Chairman
NewCo.
555 Main Street Anywhere, USA (415) 555-5552 chief2@newco.com Tim Jones CEO
NewCo.
555 Main Street Anywhere, USA (415) 555-5553 chief3@newco.com Barney Baker CFO
NewCo.
555 Main Street Anywhere, USA (415) 555-5554 chief4@newco.com Ajay Singh COO
NewCo.
555 Main Street Anywhere, USA (415) 555-5555 chief5@newco.com Vlad Krunis General Counsel
NewCo.
555 Main Street Anywhere, USA (415) 555-5556 chief6@newco.com Karen Williams President
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4. DEFINING TEAM
CENTRAL CASTING
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5. CAPITAL EFFICIENCY
DO THE #S MAKE SENSE?
REVENUE TRAJECTORY
GROSS MARGIN EBITDA %’S & RATIOS CASH REQUIREMENT VS. OPEX
CASH FLOW TO BREAK EVEN
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5. CAPITAL EFFICIENCY
GRASPING UNIT ECONOMICS?
REVENUE BY DAY/WEEK/SEASON
GROSS PROFIT/TRANSACTION
COST OF CUSTOMER ACQUISITION
LIFETIME VALUE
COST PER SKUS
INCENTIVE PROGRAMS
INVENTORY TURNS
PRODUCT/BRAND ASSORTMENT
FREQUENCY PURCHASE TRENDS
SHRINKAGE
PICK RATES
DELIVERY TIME
CUSTOMER CHURN/MO.
NEW CUSTOMERS/MO.
#ITEMS PURCHASE TRENDS
MRR
COST OF CUSTOMER SERVICE
# CLICKS TO CHECK-OUT
CUSTOMER CONTACT RATE
ABANDONED CART RATE
TICKET SIZE PURCHASE TRENDS
ACTIVE CUSTOMERS/MO.
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5. CAPITAL EFFICIENCY
TAKES LONGER, COSTS MORE
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5. CAPITAL EFFICIENCY
FINANCIALS SAY A GREAT DEAL ABOUT HOW YOU THINK…
FRUGALITY MARKET SIZE SALES TACTICS MARKET STRATEGY
MARKET UPTAKE MARKET VELOCITY REALISM
NOT A TIME TO BE NAÏVE UNREALISTIC OR MISLEADING
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MEETING MANAGING WITH VCS
CONTROLLED?
CHAOS?
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MOST COMMON PITFALLS
GORILLA ALUMNI & AIRCRAFT CARRIERS LACK OF FOCUS OPPORTUNITY EXISTS BEFORE THE MARKET ARRIVES TOP HEAVY COMPELLING?, UNIQUE? SALES MODEL AND ASP
DIVERGENCE
INCINERATOR SCHEMES
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LEARN FROM OUR MISTAKES
MISREAD TEA LEAVES CLUTTERED MARKETS TOO EARLY TOO LATE DECEIVED BY COMPARABLES A FEATURE, NOT A PRODUCT A PRODUCT, NOT A BUSINESS LACK OPERATING CONTROLS GROWING TOO FAST
CAPITAL INTENSIVE
SLOPPY DUE DILIGENCE MOMENTUM INVESTING WEAK SYNDICATE UNPREDICTABLE DIRECTORS DAZZLED BY SCIENCE BOY SCOUT REFERENCES TOO MUCH MONEY LONG EVALUATION CYCLES SLOW PAYING CUSTOMERS GOING NATIVE
DILUTIVE IPOs
FEELING TOO WEAK FEELING TOO STRONG POOR CUSTOMER SELECTION STRETCHED TOO THIN NOT ADDRESSING A TRUE PAIN CAN’T ARTICULATE THE BUSINESS SMALL GROSS MARGINS SMALLER OPERATING MARGINS NO MODEL FOR MAKING MONEY
WRONG DNA
BAD LISTENERS POOR CUSTOMER SERVICE DECEIVED BY SUCCESSES DRUNKEN PARADE LEADERS EYEBALLS CONVERTS TO $s CAPEX CONVERTS TO $s IGNORING FUNDAMENTALS REPEATING HISTORY
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WHAT WE LOOK FOR IN A PLAN
1. UNIQUE VALUE PROPOSITION/MARKET POSITIONING CLEAR, CONCISE, ABOVE THE NOISE; CUSTOMER VALIDATION? 2. EXPLOSIVE MARKET SECTORS, FULL OF DISCONTINUITIES AMBIGUITY AND CONFUSION ARE GOOD. HOW BIG? DEFINING? STRUCTURE/ACCESSIBILITY? READINESS? DISCONTINUITY—WHAT’S DIFFERENT? VALUE CAPTURE POTENTIAL? NO COMPETITION – OFTEN NO MARKET; ENTRENCHED PLAYERS: INNOVATOR’S DILEMMA? STARTUPS: HOW MANY? OUR TEAM? SOURCES FOR DIFFERENTIATION?
3. BREAKTHROUGH PRODUCTS/TECHNOLOGY SOURCES FOR DEEP SEPARATION AND ADVANTAGE? ORDER OF MAGNITUDE? DEGREE OF DIFFICULTY? ADOPTABILITY? COMPLETENESS? DEFENSIBILITY?
4. DEFINING TEAMS MAGNET QUALITIES? DOMAIN EXPERTISE? INTENSITY? DNA BLEND? SCAR TISSUE? 5. CAPITAL EFFICIENCY WHAT IS THE FULLY FUNDED PLAN? MARGIN? BUSINESS MODEL? DIRECT VS INDIRECT? EXPENSE MODEL? REVENUE 24 ASSUMPTIONS?
WE’RE ONLY AS GOOD AS OUR NEXT INVESTMENT.
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