Jim Goetz of Sequoia Capital at Stanford

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

HUMBLE BEGINNINGS Larry & Sergey Steve Chad Jawed Jerry & David

HUMBLE BEGINNINGS Steve & Steve Trip Sandy & Len

NEW PRODUCT STRATEGY

WHAT WE HOPE TO HEAR FIRST… 2. MARKET STRATEGY (UNFAIR ADVANTAGE) 3. PRODUCT & TECHNOLOGY 4. DEFINING TEAM 5. CAPITAL EFFICIENCY ENTREPRENEUR’S CHALLENGE 1. MARKET POSITIONING

THE BIGGEST CHALLENGE…. A.K.A. THE “ELEVATOR” PITCH We networks networks. Sandy Lerner/Len Bozak Cisco “ “ 1. MARKET POSITIONING

HELP FROM GEOFFREY MOORE For [target customers] Who have [compelling reason to buy] Our product is a [new product category] That provides [key benefit (which solves problem)] Unlike [competitor in new product category] We have [key point of differentiation] *Source: Crossing the Chasm 1. MARKET POSITIONING

TWO DECLARITIVE SENTENCES For movie producers Who have post-production special effects Silicon Graphics provides computer workstations That integrates digital fantasies with film footage Unlike IBM or Sun Microsystems SGI has made a no compromise commitment to meeting film makers’ post-production needs. *Source: Crossing the Chasm 1. MARKET POSITIONING

INTIMATE WITH TARGET MARKET & BULLSEYE CUSTOMER? STRUCTURE SPEED LEVERAGE TRENDS VITAMIN? OR ASPIRIN? HOW PLUGGED IN ARE YOU? 2. MARKET STRATEGY

CHANGE OR CREATE CATEGORY? MARKET DYNAMICS JOIN EXISTING CATEGORY DEFINE NEW CATEGORY Large Size, Strong Growth Small Size, Explosive Growth ADVANTAGE Price/Performance IP, Functionality, Brand CUSTOMERS Opportunistic Loyal MARKET SHARE Lower (often less than 10%) Higher (often greater than 50%) GROSS MARGIN Lower (often less than 50%) Higher (often greater than 65%) ACHIEVABLE GOAL Acquisition Public Company LEGACY Single Generation Reign Dynasty 2. MARKET STRATEGY

YOUR PLAN OF ATTACK? 2. MARKET STRATEGY

CREDIBLE DIFFERENTIATION? Y 1 Competitor 1 Competitor 2 Competitor 3 Competitor 4 Competitor 5 Competitor 6 Competitor 7 Competitor 8 Competitor 9 Competitor 10 Competitor 11 Y 2 X 1 X 2 New Co 2. MARKET STRATEGY

DEFENSIBLE BARRIERS? 3. PRODUCT & TECHNOLOGY TECHNOLOGY PARTNERSHIPS SIMPLICITY BUSINESS PROCESS DOMAIN KNOWLEDGE NETWORK EFFECT

MAGNETS? SCARS? PASSION? NewCo . 555 Main Street Tim Jones Anywhere, USA CEO (415) 555-5552 [email_address] NewCo. 555 Main Street Barney Baker Anywhere, USA CFO (415) 555-5553 [email_address] NewCo . 555 Main Street Ajay Singh Anywhere, USA COO (415) 555-5554 [email_address] NewCo . 555 Main Street Vlad Krunis Anywhere, USA General Counsel (415) 555-5555 [email_address] NewCo . 555 Main Street Karen Williams Anywhere, USA President (415) 555-5556 [email_address] NewCo. 555 Main Street Bob Smith Anywhere, USA Chairman (415) 555-5552 [email_address] 4. DEFINING TEAM

CENTRAL CASTING 4. DEFINING TEAM

DO THE #S MAKE SENSE? GROSS MARGIN REVENUE TRAJECTORY EBITDA CASH REQUIREMENT VS. OPEX %’S & RATIOS CASH FLOW TO BREAK EVEN 5. CAPITAL EFFICIENCY

GRASPING UNIT ECONOMICS?
ABANDONED CART RATE
COST OF CUSTOMER ACQUISITION LIFETIME VALUE PRODUCT/BRAND ASSORTMENT INCENTIVE PROGRAMS ACTIVE CUSTOMERS/MO. CUSTOMER CHURN/MO. FREQUENCY PURCHASE TRENDS NEW CUSTOMERS/MO. TICKET SIZE PURCHASE TRENDS #ITEMS PURCHASE TRENDS # CLICKS TO CHECK-OUT REVENUE BY DAY/WEEK/SEASON GROSS PROFIT/TRANSACTION COST PER SKUS INVENTORY TURNS SHRINKAGE PICK RATES DELIVERY TIME MRR COST OF CUSTOMER SERVICE CUSTOMER CONTACT RATE 5. CAPITAL EFFICIENCY

TAKES LONGER, COSTS MORE 5. CAPITAL EFFICIENCY

FINANCIALS SAY A GREAT DEAL ABOUT HOW YOU THINK… NOT A TIME TO BE NAÏVE UNREALISTIC OR MISLEADING FRUGALITY MARKET STRATEGY SALES TACTICS MARKET SIZE MARKET UPTAKE MARKET VELOCITY REALISM 5. CAPITAL EFFICIENCY

MEETING MANAGING WITH VCS CHAOS? CONTROLLED?

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

LEARN FROM OUR MISTAKES MISREAD TEA LEAVES CLUTTERED MARKETS 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 TOO EARLY TOO LATE DECEIVED BY COMPARABLES 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 A FEATURE, NOT A PRODUCT A PRODUCT, NOT A BUSINESS LACK OPERATING CONTROLS GROWING TOO FAST 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

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 ASSUMPTIONS?

WE’RE ONLY AS GOOD AS OUR NEXT INVESTMENT.

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Jim Goetz of Sequoia Capital at Stanford

by DealHorizon.com on Jun 30, 2010

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Jim Goetz of Sequoia Capital at Stanford — Presentation Transcript