FIU Entrepreneur’s How To Webinar Series How to Develop the Business Concept ROBERT H. HACKER November 10, 2009 Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 1 1 Sales 6 Years After Start-up Sales $ Millions Number of firms 100 200 50 500 5 9,500 <5 579,800 Total 590,000 Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com % 0.03% 0.08% 1.6% 98.3% 100% © All rights reserved 2 2 Out of Business in 5 Years 55 % Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 3 3 Keys to Success • PICK RIGHT INDUSTRY AND OPPORTUNITY • MENTORING • CAPITAL Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 4 4 Stages of Development • • • • • PROOF OF CONCEPT COMMERCIALIZATION SCALING GROWTH PROFESSIONALIZATION Robert H. Hacker rhhfla@mindspring.com Robert 0-$1MM $1-3MM $3-10MM $10-30MM $30-100MM H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 5 5 The Process GROWTH SURVIVAL STEP 1 STEP 2 STEP 3 CUSTOMER CONCEPT INDUSTRY Robert H. Hacker rhhfla@mindspring.com Robert STEP 4 STEP 5 BUSINESS MODEL FINANCIAL MODEL H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 6 6 Austin on Creativity Step 1 Interest Requirement You have to enjoy it to persist 2 Preparation Study it 3 Incubation Keep working 4 Illumination Solutions Will come 5 Verification Confirm Conclusions 6 Exploitation Act Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 7 7 1.Customer Needs 1. 2. 3. 4. 5. 6. 7. Gerald Zaltman's seven metaphors for the subconscious that explain 70 percent of human behavior Balance (equilibrium) Transformation (changing states or status) Journey (as in life) Container (keeping things in and keeping things out) Connection (feelings of belonging or exclusion) Resource (providing survival) Control As quoted from HBS Working Knowledge) Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 8 8 1.Customer Needs Examples of Zaltman 1. 2. 3. 4. 5. 6. 7. Balance-Starbucks Transformation-AMEX cards Journey-University of Phoenix Container-LG refrigerators Connection-FaceBook Resource-FEMA Control-TurboTax As quoted from HBS Working Knowledge) Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 9 9 1. Customer Needs NINTENDO APPROACH 1. 2. 3. DO NOT FOCUS ON PRODUCT--GAMEBOY DO NOT FOCUS ON COMPETITION--MICROSOFT, SONY FOCUS ON DEFINING THE NEED--WHAT TO DO IN SPARE TIME Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 10 10 1. Customer Needs ABUNDANCE APPROACH 1. What is abundant—CARS 2. What is scarce about cars—honest, hassle free buying 3. Scarcity Solution--CARMAX Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 11 11 STEP 1: Customer Needs New Business Types 1. Do something better (market exists) 2. Do something in a new way (disruptive technology) 3. Do something new (highest risk) Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 12 12 STEP 1: Customer Needs New Business Types 1. Do something better--GOOGLE 2. Do something in a new way--Amazon 3. Do something new--Penicillin Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 13 13 A THOUGHT Disbelief is more resistant than faith because it is sustained by the senses Gabriel Garcia Marquez Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 14 14 STEP 1. Customer Needs Deliverable--Value Proposition Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 15 15 STEP 1. Customer Needs Value Proposition Product or service to satisfy a customer need for economic benefit (or social utility) Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 16 16 2. Solution • • • • Hypothesis Iterative process Evolving Stalking horse Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 17 17 2. Solution Hypothesis—Until $3+ million in revenue —Until scaling begins Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 18 18 STEP 3: Industry Analysis Porter’s Strategic Analysis Source:http://www.quickmba.com/strategy/ Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com porter.shtml © All rights reserved 19 19 STEP 3: Industry Analysis Porter’s 3 Strategies 1.Low Cost 2.Differentiation 3.Focus 4.Access to Capital--Hacker Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 20 20 STEP 3: Industry Analysis Porter’s 3 Strategies 1.Low Cost—Wal-Mart 2.Differentiation—Apple 3.Focus—Cisco Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 21 21 STEP 3: Deliverables • Differential Advantage – Unique, Sustainable And Proprietary • Target Customer – Characterize In Depth Who You Are Going To Sell To Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 22 22 STEP 3 Deliverables Barrier to Entry —What keeps out the competition from your market Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 23 23 STEP 4: Business Model • • • • • Revenue Model Pricing Model Sales & Distribution Strategy Capex Headcount Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 24 24 STEP 4: Business Model GROWTH 1. Requires capital to achieve 2. Not a productivity improvement Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 25 25 STEP 4: Business Model EARLY STAGE OBJECTIVES BY PRIORITY 1. Grow Revenues 2. Reach Cash Flow Positive 3. Profitability Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 26 26 STEP 4: Business Model Revenue Model WHAT DRIVES THE BUSINESS AND CREATES THE GROWTH SANDS Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 27 27 STEP 4: Business Model Revenue Model GROWTH DRIVER ASSUMPTIONS 1. 2. 3. 4. 5. 6. Explain business logic Demonstrate industry knowledge Clarify business risk Clarify management requirements Determine KPIs Build financial model (next step) Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 28 28 STEP 4: Business Model 15-Pricing Models Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 29 29 STEP 4: Business Model Sales & Distribution SALES STRATEGY How are you going to reach the customer and close DISTRIBUTION STRATEGY How are you physically going to deliver the product (Web services—bandwidth, servers, etc.) Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 30 30 STEP 5: Financial Model • PURPOSE OF FINANCIAL MODELS – – – – – Demonstrate market opportunity (size) Clarify/reinforce business model Demonstrate industry knowledge Present business logic Understand cash flow Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 31 31 STEP 5. FINANCIAL MODEL • PARTS OF A FINANCIAL MODEL – – – – – BUSINESS MODEL ASSUMPTIONS SOURCES AND USES P&L BALANCE SHEET CASH FLOW STATEMENT Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 32 32 MY CONTACTS AND ON-LINE RESOURCES ROBERT H. HACKER rhhfla@mindspring.com 305-742-8222 Blog: Sophisticated Finance Robert H. Hacker rhhfla@mindspring.com Robert H.http://sophisticatedfinance.typepad.com Hacker rhhfla@g.com © All rights reserved 33 33