starterseminaries
15-12-2009
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   analysis of a company’s ‘ profit engine ’
   uncover whether the business concept can be translated into a viable, profitable business venture
   uncover how much cash it will take to achieve that result
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Facets of that analysis
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Revenues
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Cash flows and their timing
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Revenue drivers
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Expenses
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Cash flows and their timing
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Investment required through cash flow breakeven
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Working capital
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Maximum financing required and cash flow breakeven timing
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Sensitivity analysis
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Key success factors
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   narrative test: telling the story
–   is it a compelling story?
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   how do you create value?
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who’s the customer? what’s his pain? Your solution? his alternatives? are you better?
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what complementary assets are needed? who posesses them? how do you capture value?
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how do you position yourself, in the value chain, in the ecosystem?
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how do you appropiate the value you created ?
–   does the story make sense?
   the numbers test: adding up the numbers
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can you quantify the revenue sources & define a revenue model?
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what are the biggest cost drivers & can you define a cost structure?
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what is the required investment size in order to break-even or keep operating?
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do you understand the critical succes factors and their (financial) impact? source: Magretta, HBR 2002 3

business model
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   business models are stories that explain how enterprises work by answering the following questions
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who is the customer? what does he value?
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how do we make money in this business?
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what is the underlying economic logic that explains how we can deliver value to customers at an appropiate cost?
   a succesful business model represents a better way than the existing alternatives
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by offering more value to a discrete group of customers
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by completely replacing the old way of doing things and becoming the standard for the next generation of entrepreneurs to beat source: Magretta, HBR 2002 5

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Priceline Webhouse Club, the online power broker for individual consumers
“how much would you like to pay for .. let’s say a jar of peanut butter?”
   let consumers specify the price, not the brand
   webhouse will aggregate the bids and go to companies like P&G,
Kraft, Bestfoods, etc. to make the deal
   let consumers buy on price alone
   do companies like P&G, Kimberly-Clark, Exxon.. want to negotiate volume discounts directly with with the end-user ?
   haven’t they invested heavily in brand loyalty?
   you need a big consumer base before you launch your powerbroker and this can only be obtained by first getting the discounts from consumer product manufacturers who aren’t willing to do so..
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technology
What are the unique assets your venture is based on?
Can you claim intellectual property rights on them? opportunity product & market
Who is your customer?
What is his pain?
What are his alternatives?
Why are you better? environment
What is your place in the business ecosystem?
*how we look at business development projects organization
What resources do you need, how do you plan to get them?
Can you build a viable business?
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Who is your customer, what is his pain?
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For [target customer]
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Who [statement of need or opportunity]
–
The [product/service name]
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is a [product/service category]
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That [statement of benefit].
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What are his alternatives, why are you better?
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Unlike [primary competitive alternative]
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our product [statement of primary differentiation]. source: Stanford University Technology Ventures Program, entrepreneurial marketing, Byers & Kosnik 2008 8

   example Palm Treo for busy individuals who need a way to organize, manage and communicate the Palm Treo is an all-purpose handheld computer, camera and mobile telephone, all based on the proven
Palm operating system
that offers simplicity of use, portability, personalization connectivity and functionality.
Unlike pure personal digital assistants our product offers expandibility due to the springboard technology and benefits of an all-in one capability. source: Stanford University Technology Ventures Program, entrepreneurial marketing, Byers & Kosnik 2008 9

   example Apple iPhone
for anyone who wants to travel in style who loves to communicate and mix work and play, anywhere, anytime the Apple iPhone is a smart phone AND an iPod, that offers Apple’s legendary ease-of-use, elegance, intuitive integration and cool.
Unlike Blackberries, Treos and other smart-phones, our product offers better talking, faster browsing, music and movies, and photos that come to life, all on the big screen in the palm of your hand. source: Stanford University Technology Ventures Program, entrepreneurial marketing, Byers & Kosnik 2008 10

business model
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“a business model is a summation of the core business decisions and trade-offs employed by a company to earn a profit” revenue sources
 money coming from sales, service fees, advertising..
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   cost drivers
 any factor that affect costs such as labor, goods purchased, energy..
investment size
 the measurable level of investment to get off the ground and to keep operating critical succes factors
 depending on the business, this might be the ability to roll out new products on a sustained basis, success in reaching some critical mass of business within a certain time..
source: Hamermesh, Marshall, Pirmohamed, HBR Jan 2002 12

   a business model can incorporate one or several different revenue streams , depending on the product, industry and customers
   examples of integrating revenue streams into the business model are,
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subscription/membership: fixed amount at regular intervals
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volume or unit-based: fixed price per unit
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advertising-based:
end-user pays a fee equivalent to only a fraction of the true value
–
licensing & syndication:
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   one-time licensing royalty fee
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transaction fee source: Hamermesh, Marshall, Pirmohamed, HBR Jan 2002 13

   revenue stream
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is the business model based on a single, multiple or a loss leader revenue stream?
   if the company has a loss leader revenue stream, how likely are the losses to be covered by other reveneue streams?
   revenue model
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is the business model based on a single or hybrid revenue model?
   in case of a hybrid model, what are the underlying revenue models
(i.e. subscription, transaction, advertising..)?
–
how quickly will the revenues increase?
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are there many barriers to revenue growth?
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how long does it take to collect cash following a sale?
14 source: Hamermesh, Marshall, Pirmohamed, HBR Jan 2002

   never assume there’s only one way to price a product
–
film videotapes sold at about $80 when they came out; Blockbuster
Video changed the pricing model from selling to renting at a few dollars a rental
–
Hewlett-Packard trades high-powered servers to Silicon Valley startups for a share of their revenues. The customers get immediate acces to key capabilities and HP stands to earn a lot more than the price of the machine
15 source: Kim and Mauborgne (2000)

   four primary types of cost drivers
–   fixed
–
variable
–   semi-variable
–
non-recurring
= do not vary at all with volume
= vary in total, directly and proportianely with volume
= combination
= appear irregularly of infrequently
 the dominant cost driver of a business model usually characterizes the overall cost structure
examples:
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payroll-centred (direct) : semi-variable cost driven by employees directly involveed in the output of the firm
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payroll-centred (support): fixed costs driven by employees indirectly involved in the output of the firm
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inventory: primary cost venter related to maintenance of raw materials and/or finished goods inventory
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space/rent: costs driven by the high cost per m ² of office or retail space
–   marketing/advertising: costs driven by total marketing or advertising expenditures required to attract and retain customers source: Hamermesh, Marshall, Pirmohamed, HBR Jan 2002 16

   eBay
–   online auction company
   creation of infrastructure that allows people to communicate for a modest fee
   company takes no part in transactions, has no responsibility for the goods offered at auction, nor for collecting the payments, nor for shipping the goods
–
recieves revenues from seller fees
–
pays the cost of building and maintaining the online infrastructure, marketing, product development and general and administrative expenses
   heavy reliance on fixed costs over variable costs gives the company enormous operating leverage
   small number of salaried employees can handle huge and growing volume of business
   a doubling of transaction volumes (and revenue) can be accommodated with relatively modest extra investments
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   cash flow diagram
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maximum financing needs: what is the maximum financing need of the business model (i.e. how deep is the cash through?) over what period of time is the investment required?
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positive cash flow: at what point does the cash flow of the company turn positive? how long does it take to arrive at this point?
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cash break even : when does the company achieve cash breakeven
(i.e. what does time equal when the curve crosses the x-axis?) how does the slope of the cash curve change after breakeven?
18 source: Hamermesh, Marshall, Pirmohamed, HBR Jan 2002

source: Hamermesh, Marshall, Pirmohamed, HBR Jan 2002 19

   medical device start-up
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sale of two interdependent products
   equipment or instruments, priced from $50,000 - $100,000
   consumables, priced from $500 - $2,000
–
sales of the consumables is dependent upon the installed base
(total number of instruments installed at hospitals)
–
cost of equipment >> cost of disposables
   impact on cash requirements !!
–
equipment can be sold at a profit, sold at cost or given away free
–
disposables are always sold at a profit
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
Facets of analysis
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Revenues
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Cash flows and their timing
Revenue drivers
–
Expenses

Cash flows and their timing
–
Investment required through cash flow breakeven

Working capital
–
Maximum financing required and cash flow breakeven timing
–
Sensitivity analysis

Key success factors
22

Haiku
5/7/5 syllables

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Why Write a Business Plan?
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Because I have to...
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Needed for financing
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Strategic partnering
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To explain business to customers/suppliers
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To attract key people
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Because I Need to Understand My Business
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The Business Plan is a result of a PLANNING PROCESS
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People don’t Plan to Fail; they Fail to Plan

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   a business plan describes your current thinking on your company’s objectives and on how to get there.
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it is a collective, structured “braindump” of the management team’s ideas on how to move forward, and why. describe a integrated vision that is consistent between the different levels of planning
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mission, strategy, business model, and concrete, tactical plans spell plans out explicitly and unambiguously
–   or if your thoughts are ambiguous, spell that out then include both qualitative and quantitative objectives
Peter Camps

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The Plan is a SELLING DOCUMENT
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Don't lose sight of the vision
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The excitement must come through
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The Plan should project your image
BUT: The Plan Must Be Defensible

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   don’t over-promise
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differentiate between what you will do under this plan, and what you might do (to indicate the upside potential) but don’t mix these up provide concrete motivation (other than your own belief) of why your objectives and plans seem to be realistic
–
for example, market research for projected sales numbers, feasibility study for technological challenges
Peter Camps

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Who should write the Plan?
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CEO alone?
–
The team?
–
A hired writer/consultant?
You need to OWN the Plan

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   at a minimum, get help and participation from all the key players in your company
–   to complement your skill set, and to get the much needed interaction and brainstorming seek external feedback from different perspectives
–   (potential customers, industry experts, or friends – even if they are not really in your industry) who can help you find the weaknesses in your plan, and add new ideas seek external help for areas outside your collective skills
–   for many entrepreneurs with a technical background this means the marketing research area enfocus example:
–   thad mcilroy brought a hole new dimension to our strategic thinking and market research efforts when he came on board when we wanted to prepare in earnest for securing funding
Peter Camps


Have an Independent Reader Review the Plan.
One or more independent readers for feedback:
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Retired industry pro?
–
Customer(?)
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Consultant?
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Professor?
–
Accountant-yes definitely
–
Lawyer-yes definitely

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An Executive Summary is
–   NOT an introduction
–
NOT a preface
–   NOT a random collection of highlights
An Executive Summary IS the Business Plan in miniature
Size
–   Two pages (preferable) to five pages (max)
The Executive Summary must be
–   Logical
–
Clear
–
Interesting/Exciting
The Executive Summary is like a RESUME
–
If it gets the reader’s attention, the rest gets read
–   The Elevator Speech is to the Exec Summary as the Exec Summary is to the Full Plan

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The Executive Summary tells
–   Who you are
–
What your strategy/vision is
–   What you are doing and/or propose to do
–   What is the market
–
How many $$$$ do you need and what will you do with them
–   What your SUSTAINABLE COMPETITIVE ADVANTAGE is
When the reader is finished he or she should be able to tell someone what you are up to.
The Executive Summary Should Contain:
–   Description of the Business Concept and the Business
–
The Opportunity and Strategy
–   The Target Market and Projections
–
The Competitive Advantages
–
The Economics, Profitability and Harvest Potential
–   The Team

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VIZID heeft als hoofddoel een sterk merk op te bouwen. Dit zullen we voornamelijk via de opbouw van een community trachten te bereiken.
Vanaf dat deze gelanceerd is kunnen we er de resultaten van plukken dankzij mond-tot-mond-reclame en ons affiliate-programma.
Als dit succesvol is zal automatisch ook een verder doel, een van de belangrijke Belgische hosters worden, binnen bereik komen.
Onze unique selling proposition is een combinatie van een lage prijs, goede kwaliteit, en persoonlijkheid. Een lage prijs aanbieden is iets wat in de hostingmarkt geen probleem vormt, net als kwaliteit, maar persoonlijkheid ontbreekt te vaak bij andere bedrijven.
Wat ook van belang is, is de kostminimalisatie. Dit willen we na het bereiken van enige schaal doen via verticale integratie:
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agent worden bij DNS zou onze Belgische domeinnamen aanzienelijk goedkoper maken
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een eigen server aankopen maakt ons minder afhankelijk van de vaste configuratie bij de reseller services en heeft ook een veel lager prijskaartje
Dit alles zal uiteindelijk leiden tot het doel dat bij de meeste bedrijven centraal staat, winstmaximalisatie.

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Executive Summary
The Opportunity and the Company and its Services/
Products
Market Research/Analysis
Economics of the Business
Marketing Plan
Design and Development Plan
Manufacturing and Operations Plan
Management Team
Schedule
Critical Risks, Problems and Assumptions
The Financial Plan
Appendices
Notice That “Technology” Is NOT A Section

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
The Opportunity
–
What is the Market / Opportunity?


How big is it now?
What are the trends-how fast is it or will it grow?
–
Why Is This Time The Right Time For Your Product/Service?

Convergence of Opportunity and Solution
Market Analysis
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Existing and planned products in marketplace
–
Market segments
–
Market players/competition

Competitive Advantages
–
Estimated Market Shares
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Current Players
You

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Marketing Plan
–   What is your Marketing Strategy?
–
Pricing and Distribution

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Pricing and margin erosion
Distribution must match strategy/pricing
–   Sales Tactics

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Who will be the first customer, second customer etc.?
How will you reach the customer?
–   Advertising and Promotion
Development Plan
–   Where is development today-product status
–
What development is needed?
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Time and resources needed for development
Do you have to produce a complete product to get going? Avoid “Nuclear
Fusion”
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Difficulty and Risks
–
Product Pipeline Plans

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
Action Plan–What Will You Do and When?
–   Identification of “Credibility Testers”
–
Sequencing to build VALUE
–   Eliminate or Reduce Dependencies

Coordination of Schedule, Value Recognition Events and Financing
Requirements
Appendices
–   Separately Bound Volume
–
Resumes of Principals
–   Product Literature
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Trade Press/Business Press
–
Patents (front page)
–   Testimonials Letters
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Technical Information
–   Confidentiality
–
Technical person to technical person discussion

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   the executive summary
–
‘hang gewichten aan uw woorden’ ch ch changes!
–   postscript
–
doublecheck >3 pages, PitStop ¼ of a page
–   marketing
–
org chart
‘er zijn twee dingen’
‘big enough’
–
market size assessment validation
–
EFI, Agfa, RR Donelly, Boy Souts
–   OEM customers focus on what is important
–   adobe
–
exit scenario’s the patent?

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First Reading: Like a Resume
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Make The Cut, So That You Get An Opportunity To Tell Your Story
Second Reading: Justify The Investment
Third Reading: Commit To A Plan
–
That You And The Investors Can Live With.
REMEMBER:
–
If you don’t make the FIRST CUT, B and C never happen.


MAKING THE FIRST CUT
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An Idea Too Good To Ignore
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A Financial Promise Too Good To Turn Down
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A Team Good Enough To Believe In
–
An Action Plan That’s
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
Credible
Focused
Details That Give Assurance of Insight, Commitment and Follow
Through
–
Format and Style That Show
–
Passion
–
Sanity

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Insufficient Market
Non-Credible Technology
–
Too Wild
–   Too Blue-Sky (Unproven)
–   Not Protectible
–   Too Mundane
Investment Too Large
For The Promise
Failure to Understand
The Market
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Action Plan Not Credible
–
Too Optimistic
–
Naïve About The Hurdles
–
Runs Off In All Directions
–   Not Ambitious Enough
–   Regulatory Barriers
Insufficiently Addressed
–   Gaps Filled By
Handwaving
–   No Promises At All
Team Not Credible


COSMETIC” REASONS FOR FAILING THE FIRST
CUT
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I Can’t Understand It.
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Filled With Market Or Technology-Specific Jargon
   i.e., WHAT IS THE BUSINESS?
–
Naïve Projections
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Sloppy: Misspellings, Poor Grammar, Poor Quality Printing
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Too Damn Long
–
Ignores The Basics
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“Forget Marketing, My Technology Is Best”
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Naïve (or Terrible) Writing


First think about the project

Start with the powerpoint presentation

Be to the point
–
Address concerns

Consistency

The plan changes (slightly) after nearly every meeting

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
Plans are nothing, planning is everything
–
Dwight D. Eisenhower
Everything must be explained as simple as possible, but not any simpler than that
–
Albert Einstein

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
   free online resource that mirrors the major sections of a business plan and provides insight into the fundamentals of writing an effective business plan each section of the virtual business plan includes:
–   bizbasics – the business plan fundamentals to consider and incorporate into each section of your plan.
–
common mistakes to avoid – highlights the most common mistakes that business plan writers make. avoid these mistakes to add credibility and power to your business plan.
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section-specific tips – other advice, articles, tips, tools and links related to each section of a business plan. www.bizplanit.com/vplan.html

what do VC’s look at when analysing a project?

   such as
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industry sector (biotech, IT...)
–
investment size
–
stage of investment (early stage capital, ..)
–
geographical focus
–
...
   this functions as a filter for VC’s
–
It enables them to provide ‘smart money’: allows them to leverage their expertise and networks within a certain domain
69


Two schools of thought:
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‘ I invest in people first and foremost. Smart people will find great opportunities and I will never know the sectors or technologies as well as smart people.’
–
‘I don’t care about people, I care about markets . I look for big painful problems that customers have. If management doesn’t work out, I can always fix management.’
The truth is somewhere in between.
(Robert Simon)
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Product/technology
Strategy/ business model
Market
Marketing (customer/target)
People/ team
Organisation business ecosystem
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Financial
71


1995
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just peter, ignace and 2 board members
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in 3 years sales of 1.000 copies of tailor into an installed base of
75.000 seats
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revenue stream barely sufficient for personal survival, and decreasing; zenfocus is running out of money fast
–
next does not gain traction in a world dominated by apple, moves away from publishing

   zenfocus looses its target market
(publishing users who own next computers) tailor heavily uses the display postscript facilities only offered by nextstep
–
plans to port tailor to mac
–
funding: business angel, private funds, iwt
-> reponse of VC’s: we do not fund turnarounds!
72


1998
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team of 9 (plus board members)
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senior management team
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run-rate of € 200.000+ per quarter
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flirting with break-even
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some brand recognition
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riding the wave of pdf
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innovating and well-received products
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promising opportunities
–
contacts with potential oem customers
-> project was validated!
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