Today’s Topic:
Creating “Winning”
Business & Product Plans
First Course Module
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Companies’ objectives
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Financial measures
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How companies bring products to
market (roles/process/compensation)
Creating “winning” business plans today
Second Course Module
the next four weeks
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Market/customer analysis
(DLJdirect case – online brokerage)
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Competitive analysis
(Airborne Express case – package delivery)
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Making product decisions
(THINK case – electric cars)
Midterm exam on product decisions
(Mathsoft – engineering analysis software)
Today’s Agenda
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Business/product plans: audience, content,
and key aspects of a winning plan
Homework: addressing some key business
plan aspects (FHP Wireless case)
Preparation for next week:
reading/assignment on target customers
(DLJdirect case)
Business/Product Plan Learnings
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Content/scope of a business/product plan
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Critical aspects of a “winning” plan
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Differentiation: importance, definition,
identification
Start-ups: success factors, funding requirements,
success profiles
Uses of a Plan
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To decide what to do
(planning = making decisions)
To obtain funding/resources for
execution of the plan (funding)
To direct the various parts of the
business (execution/communication)
Business vs. Product Plan
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Business Plan: a plan for an overall
business (company), used to obtain
funding from external sources
Product Plan: a plan for a product
(one of a company’s offerings), used
to obtain funding/resources from the
company’s senior management (and
possibly the board of directors)
Objective of a
“Winning” Plan
Create a business/product that
provides potential customers
a better ”value minus price” proposition
than competitors
while managing costs and expenses
so as to make profits (earnings)
Business/Product Plan:
Contents
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The company or team
The product or service
Market opportunity & customers
Competition
Sales and marketing plan
Operations and support plan
Financial projections
Business/Product Plan:
Key Contents
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Company/Team: people, skills, resources
Product: “whole” product & its benefits
Market: attractiveness & target customers
Competition: differentiation !!
Sales and marketing plan: sales channels
Operations plan: cost & quality, service
Financials: investor liquidity
Uses of a Plan
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To decide what to do (planning =
making decisions)
To obtain funding/resources for
execution of the plan (funding)
To direct the various parts of the
business (execution/communication)
Obtaining Funding & Resources
Existing company
• from management
• through budget authorization and staff
assignment
• based on a product plan
• money available to management comes from
operating cash flow, interest received, sale of
stock, or increased debt
New company/start-up
• from investors and creditors
• through formal documents/contracts
• based on a business plan
• money comes from the founders, friends &
family, agencies, angels, venture capitalists,
and/or banks
Information and
Advice on Starting a
Business
See course website under
“Supplementary Materials”
useful websites and texts,
including www.bplans.com
Source: The Industry Standard, 2000
Long Term Venture
Performance
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1980 – 2007 : 24,000 companies
received venture financing
3,800 (16%) still private
3,400 (14%) went IPO
3,800 (16%) were acquired
13,000 (54%) returned zero for investors
Source: Moneytree, PriceWaterhouse Coopers and
National Venture Capital Association
Types of Start-up Funding
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Grant: “money for nothing”
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Loan: money to be paid back, with interest
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Equity: money in return for equity (a
portion of your company; preferred or
common stock), to be “paid back” by making
the stock valuable and liquid (sellable)
Sources of Funds
time
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Your (founders’) savings
equity-c
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“Friends and family”
equity/loan
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Research grants
grant
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Economic development agencies
all (grant)
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Angels
equity-p/c
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Venture capitalists (VCs)
equity-p
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Private equity firms
equity-p
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Banks
loan
Some
Agencies
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NJ Economic Development
Authority
NJ Technology Council
(reference source)
US gov’t – Defense, EPA,
Homeland Security, NSF,…
US Small Business
Association/SBA
(SBIR and STTR grants)
Some
Angel Groups
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Jumpstart NJ Angel
Network
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AngelVine
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Tri-State Private Investors
Network
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NYNMA Angels
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Common Angels (NY)
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Angel Capital Association
(nat’l network directory)
Angels and VCs
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Angels = part-time investors, acting
individually or in “networks,” using their
own money (personal assets); 234,000
active angel investors in US during 2006
VCs = professional full-time investors,
working within a VC firm, investing other
people’s money (the VC fund); 5,000 VC
investors in US during 2006
Angels invest smaller amounts of money
in earlier stage companies
Angels Invest Early and Often
company
lifetime
$20.9bn
2,876 deals
$7.2M/deal
$21.7bn
2,939 deals
$7.4M/deal
$25.5bn
3,416 deals
$7.5M/deal
VC
VC
VC
Angel
Angel
Angel
$22.5 bn
48,000 deals
$468k/deal
$23.1bn
49,500 deals
$467k/deal
$25.6bn
51,000 deals
$501k/deal
2004
2005
Angels (2010): $20.1B; 61,900 deals
2006
Source: Jeff Sohl, Center
for Venture Research
University of New
Hampshire
Net value ( % of investors’ equity)
Typical Financial Profile
for Successful New Ventures
Profit
breakeven:
30 months
20
10
0
1
2
3
4
5
6
7
-10
8
Equity
breakeven:
75 months
-20
-30
-40
-50
Average of 157
companies
-60
-70
Loss
Profit
Source: Timmons (1998)
Years
Where Is The Value Created?
Relative Value
100%
10%
1%
Idea
Patent
Practice
Product
Successful Business
Product Development Phases
Source: Bela Musits, High Peaks Ventures
Which is why it’s said
that….
“Good ideas are
worth their weight in
gold”
(until?)
Objective of a “Winning” Plan
Create a business that
provides potential customers
a better “value minus price” proposition
than competitors
while managing the business
(costs and expenses)
to attain targeted profits
(earnings)
Business Plan: Contents
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The company
The product or service
Market opportunity & customers
Competition
Sales and marketing plan
Operations and support plan
Financial projections
Business/Product Plan:
Key Contents
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Company/Team: people, skills, resources
Product: “whole” product & its benefits
Market: attractiveness & target customers
Competition: differentiation !!
Sales and marketing plan: sales channels
Operations plan: cost & quality, service
Financials: investor liquidity
The “Whole” Product:
The Customer’s Perspective
The
Product
The “Whole” Product:
Everything Customers Really Care About
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The product itself
Auxiliary or related
products
Price and cost-inservice
Awareness and
information
Where it is sold
Ease of choice,
purchase, ordering
Delivery
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Installation
Payment method
Storage/movement
Aesthetics/style
Advice on use
Help in use (e.g.,
hotline)
Returns/exchanges
Service/repair
Disposal
and…
Differentiation
from Competitors’ Products
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Whole product differentiation is the answer to:
Why do customers choose your product
instead of somebody else’s ?
(or buying nothing at all?)
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Product differentiators are the things that are
unique or best about the whole product,
compared to the customers’ other alternatives
Potential areas for differentiation =
dimensions of the whole product (product
features, price, sales, marketing, customer
service/support, brand, etc)
Competitive Products include:
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Like-products: products of the same
“type”
e.g., airline flights provided by
different competitors
Substitute products: other ways the
customer can obtain a similar benefit
e.g., bus, train, auto, boat,
video conferencing, letter
Opportunity Assessment :
Identifying Good Ideas
see course website for details
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Is this an attractive market opportunity ?
Can you attain a sustainable advantage ?
Can you beat or co-opt competitors ?
Market entry: can you find a way to “start”
your business ?
Do you have the ability to execute (to profit) ?
Can you acquire the necessary
funding/resources?
Opportunity Analysis
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Markets: size/growth, substitutes,
customer characteristics, need/benefit
analysis, buyer power, costs to
acquire/serve/retain customers
(more on this next week)
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Competitors: incumbents, rivalry,
strengths and weaknesses, competitive
response, co-opting possibilities
(more on this in two weeks)
FHP Wireless case
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Timeframe is late 2002
FHP has invented a unique (?) technology for
building wide-area wireless data networks
Their first-year sales efforts have been mostly
unsuccessful
They need to decide which customers to target:
current targets, telecommunications companies,
or public safety
……and whether they need to change/enhance
their product
They are just about out of money, and are
looking for additional investors
Homework Questions
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What are the reasons FHP Wireless is having
difficulty in getting sales and revenues?
How can they make their (whole) product more
appealing to potential customers?
How is FHP’s solution differentiated from
customers’ other alternatives?
Which customer(s) should they pursue? Why?
Market Alternatives
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Enterprise: warehouse/factory,
gaming industry, hospitals, education
campuses
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Service provider: telephone and
wireless carriers
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Government: local public safety
Customers’ Competitive
Alternatives
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Substitute products
- wired networks
- CDPD
- Motorola radio
Like-products
- Hotspot Wi-Fi
- Wireless mesh
What are the reasons FHP Wireless is having
difficulty in getting sales and revenues?
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Enabling environment problematic?
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Target customer benefit insufficient?
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Marketing and/or sales issues?
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Inability to deliver (installation, service)?
How is FHP’s solution differentiated
from customers’ other alternatives?
Which customer(s) should they pursue?
Why?
Selecting Target Customers:
some considerations
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Segment size and revenue opportunity
Customer benefits
Customer interest
Customer ability-to-pay and leverage
Competition/market coverage
Sales issues: sale time/complexity, cost,
channel and associated profit margin
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Cost to serve/support
Customer loyalty/lock-in
Strategic value
How can they make their (whole) product
more appealing to potential customers?
( it depends on the target customer ! )
Business/Product Plan Learnings
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Content/scope of a business/product plan

Critical aspects of a “winning” plan

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Differentiation: importance, definition,
identification
Start-ups: success factors, funding requirements,
success profiles
Next Week:
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Choosing target markets and
target customers
DLJdirect case
Readings for Next Week
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DLJdirect: “Putting our Reputation
Online” (topic: deciding on “target
customers”)
DLJdirect Case: Summary
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Case timeframe: 1999-2000
DLJdirect has a successful online
brokerage business targeting
“aggressively affluent” customers
Other customer segments are growing
faster
DLJdirect has to decide whether to
address additional customer segments
and whether to significantly increase its
advertising to attract those customers
Since 2000…..
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Early 2001: DLJ acquired by Credit Suisse
First Boston; DLJdirect becomes
CSFBdirect
Late 2001: CSFB sells CSFBdirect to Bank
of Montreal; CSFBdirect becomes
Harrisdirect
2005: Harrisdirect sold to E*TRADE
Securities; Harrisdirect merged into etrade
Online Stock Trading
Customer
(trader)
Online
Broker
customer’s
account
Marketmaker
Stock
Exchange
Clearinghouse
Important Hint: there are
6 sources of revenue

From End-customers
• Trading commissions
• Account management fees
• Interest on margin purchases
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From partners
• Order flow rebates
• Mutual fund and money market fees
• iNautix revenues (software development for other
companies)
You will find other hints and useful information
in the class materials for next week
Advice on Case Reading
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It’s long…..don’t wait until the last minute;
scan it first, then read it twice
Make sure you understand the four
customer segments identified (size,
characteristics, needs, serving
requirements)
Understand the company’s financial
situation (Exhibits 16 and 17)
Assignment for Next Class
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see questions on next two slides
The first 5 questions represent a
“methodology” for making target
customer decisions!
Assignment Questions
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Are DLJdirect’s financial results “good”? Stable?
Does DLJdirect have the financial capability to
address new segments, e.g. to modify it’s whole
product, or to do more advertising to attract new
kinds of customers? How much money might be
available in 2000?
Identify the ways DLJdirect’s service is differentiated
from competitors
What are the key needs of each of the four customer
segments? Which are well-matched to DLJdirect’s
differentiators and other capabilities?
Use your judgment to rank the customer segments
according to the profit potential in serving them
(hint: consider both size of the segment and the
average profit/customer in that segment)
Assignment Questions
(continued)
Assuming DLJdirect continues to target the
aggressively affluent segment:
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Should DLJdirect also target the Get Rich Fast
(day trader) segment? Why?
In your opinion, is there another customer
segment that DLJdirect should target? Why?