Ken Morse Business plans


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Lecture on Business Plans from MIT Professor Ken Morse of the MIT Entrepreneurship Center

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Ken Morse Business plans

  1. 1. Some Suggestions for Writing Business Plans that Raise Money Notes for discussion Kenneth P. Morse Senior Lecturer and Managing Director MIT Entrepreneurship Center 55 Hayward Street, E39-115 Cambridge, MA 02142 USA phone: +1-617-253-8653 fax: +1-617-253-8633 e-mail:
  2. 2. Current Scene: B2B = Back to Basics <ul><li>The Laws of Gravity Were Never Repealed </li></ul><ul><li>Entrepreneurs need to have outstanding: </li></ul><ul><ul><li>Team </li></ul></ul><ul><ul><li>Technology </li></ul></ul><ul><ul><li>Value Proposition </li></ul></ul><ul><ul><li>Market </li></ul></ul><ul><ul><li>Customers </li></ul></ul><ul><li>Applies to Corporate VCs as well… </li></ul>IT WAS the best of times, it was the worst of times , it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way- in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only. Tale of Two Cities , Charles Dickens
  3. 3. Future Outlook: After the Shakeout <ul><li>The superficial VC gamblers are dying or dead. </li></ul><ul><li>A line of bull + .ppt is no longer enough. DAD >> MBB </li></ul><ul><li>The number of MIT spin-offs and $50K teams have not decreased significantly. </li></ul><ul><li>Serious entrepreneurs, angels, and VCs are quietly and carefully moving forward. </li></ul><ul><li>This is a great time to be starting a company </li></ul><ul><li>Expectations and time horizons are realistic. </li></ul><ul><li>Recruiting top talent is easier. </li></ul><ul><li>Office space is available, at more reasonable prices. </li></ul>
  4. 4. Our Message to Entrepreneurs: Building Your Company <ul><li>Need an “A” Team – “3K” experience </li></ul><ul><li>Serious Technology – sustainable advantage </li></ul><ul><ul><li>Solve an important, valuable problem… </li></ul></ul><ul><ul><li>For clients who have money … </li></ul></ul><ul><ul><li>Who want to pay well… </li></ul></ul><ul><ul><li>With a short sales cycle… </li></ul></ul><ul><ul><li>And will buy more, soon … </li></ul></ul>YOUR VALUE PROPOSITION MUST BE COMPELLING, QUANTIFIABLE, PROVEABLE, REFERENCEABLE, AND EASILY EXPLAINABLE…
  5. 5. Our Message to Entrepreneurs: Selecting Your Financial Partners <ul><li>Seek True Value Added – “Blue” Money </li></ul><ul><ul><li>Operating Experience </li></ul></ul><ul><ul><li>Rolodex/Network </li></ul></ul><ul><ul><li>Awesome Portfolio (in your space) </li></ul></ul><ul><ul><li>Cool Limiteds (in your space) </li></ul></ul><ul><ul><li>Deep pockets / courage to stay the course </li></ul></ul><ul><li>Keep Realistic Expectations </li></ul><ul><ul><li>Time to Market </li></ul></ul><ul><ul><li>Revenue growth </li></ul></ul><ul><ul><li>Valuations </li></ul></ul>
  6. 6. Entrepreneurs’ Funding: Many Options <ul><li>Your Personal Funds </li></ul><ul><li>“ 3F” – Friends, Family, and Fools </li></ul><ul><li>Personal Credit Cards and Other Borrowings </li></ul><ul><li>Business Angels </li></ul><ul><li>Venture Capital </li></ul><ul><li>Corporate Direct Investment </li></ul><ul><li>Venture Leasing </li></ul><ul><li>Mezzanine Financing </li></ul><ul><li>Merger and Acquisition </li></ul><ul><li>Initial Public Offering </li></ul><ul><li>Secondary/Follow-on Public Offering </li></ul><ul><li>Private Placements – Debt & Equity </li></ul><ul><li>Buyout/Acquisition Financing </li></ul><ul><li>Corporate Debt </li></ul>
  7. 7. Trends in Startups <ul><li>Need an “A” Team – 3K experience </li></ul><ul><li>Honest Bankruptcy is no shame </li></ul><ul><ul><li>Babe Ruth: home runs and strike outs </li></ul></ul><ul><li>Serious Technology – sustainable advantage </li></ul><ul><ul><li>Solve an Important, Valuable Problem… </li></ul></ul><ul><ul><li>For clients who have money … </li></ul></ul><ul><ul><li>Who want to pay well… </li></ul></ul><ul><ul><li>With a short sales cycle… </li></ul></ul><ul><ul><li>And will buy more, soon … </li></ul></ul>
  8. 8. Business Plan Suggestions (1/2) <ul><li>Executive Summary: </li></ul><ul><ul><li>Name your first ten customers </li></ul></ul><ul><ul><li>Be brief </li></ul></ul><ul><li>Business Plan: </li></ul><ul><ul><li>Be optimistic, but realistic </li></ul></ul><ul><ul><li>Know your competition’s numbers </li></ul></ul><ul><ul><li>Be brief </li></ul></ul><ul><li>Advisors: </li></ul><ul><ul><li>Get good people with gray hair (or no hair) involved early </li></ul></ul><ul><ul><li>Understand that investors will call them </li></ul></ul><ul><li>Focus on how and why prospective customers will buy from you, and pay you money. </li></ul><ul><li>Focus on milestones (more than calendar dates) </li></ul>
  9. 9. Business Plan Suggestions (2/2) <ul><li>Plan how to build your company without any outside investment (bootstrap). Then, maybe, you are ready to speak to VCs. </li></ul><ul><li>Most business plan judges focus on </li></ul><ul><ul><li>Customer needs </li></ul></ul><ul><ul><li>Value proposition </li></ul></ul><ul><ul><li>Sustainability </li></ul></ul><ul><ul><li>Team </li></ul></ul><ul><li>Your investors should bring you both customers and management talent (Akamai case). </li></ul><ul><li>Realize that this business plan competition is an educational process. It does not particularly matter if you win.* </li></ul><ul><li>*It does not matter “that you won or lost, but how you played the game .” (Grantland Rice) </li></ul>
  10. 10. Akamai: Financing Strategy (1/2)* <ul><li>$50K finalist, not winner (1998) </li></ul><ul><li>“ Value-add, not valuation” philosophy of funding </li></ul><ul><li>Financing brings: </li></ul><ul><ul><li>Credibility </li></ul></ul><ul><ul><li>Customer/partner introductions </li></ul></ul><ul><ul><li>Management expertise </li></ul></ul><ul><ul><li>Faster growth </li></ul></ul><ul><ul><li>Cash </li></ul></ul><ul><li>First round: angel investors </li></ul><ul><ul><li>First customers </li></ul></ul><ul><ul><li>Network deployment </li></ul></ul><ul><li>* Special thanks to Jonathan Seelig, Co-founder, and frequent guest lecturer at MIT Sloan School </li></ul>
  11. 11. Akamai: Financing Strategy (2/2) <ul><li>Second round: VCs </li></ul><ul><ul><li>Build operations & management </li></ul></ul><ul><ul><li>Battery Ventures & Polaris </li></ul></ul><ul><li>Third round: </li></ul><ul><ul><li>Broadband & International </li></ul></ul><ul><ul><li>Baker Communications </li></ul></ul><ul><li>Fourth round: </li></ul><ul><ul><li>Industry leadership, standards, & cachet </li></ul></ul><ul><ul><li>Apple, Cisco, Microsoft </li></ul></ul><ul><li>IPO: </li></ul><ul><ul><li>Serious company </li></ul></ul><ul><ul><li>“ Currency” for growth + acquisitions </li></ul></ul>
  12. 12. Traditional vs. Entrepreneurial Career Paths High School University Big Company Retire High School University Practical Experience Management Training Well Managed, High Growth Firm Startup Venture Another Startup? Venture Capital or Angel Investor Never really retire
  13. 13. Some Critical Success Factors in Entrepreneurship <ul><li>Believe that Startup Ventures can Succeed: </li></ul><ul><ul><li>Parent(s) who are entrepreneurs </li></ul></ul><ul><ul><li>Early contact with successful entrepreneurs </li></ul></ul><ul><ul><li>Exposure to success stories and case studies. </li></ul></ul><ul><li>Gain practical, real world experience before, during and after university studies. </li></ul><ul><li>Be willing to be Unusual/Unconventional. </li></ul><ul><li>Agree to Embrace Risk, and possibly failure. </li></ul><ul><li>Want to leave a large Company. </li></ul><ul><li>Live in a society that sees the above as normal, not a strange exception. </li></ul>