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Jg stanford business_plans_02_08,Sequoia Capital format
- 1. THINK BIG BUT START SMALL FEBRUARY 27, 2008
- 2. 2 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
- 3. 3 HUMBLE BEGINNINGS Larry & Sergey Steve Chad JawedJerry & David
- 4. 4 HUMBLE BEGINNINGS Steve & Steve Trip Sandy & Len
- 6. 6 WHAT WE HOPE TO HEAR FIRST… 2. MARKET STRATEGY (UNFAIR ADVANTAGE) 3. PRODUCT & TECHNOLOG Y 4. DEFINING TEAM 5. CAPITAL EFFICIENCY ENTREPRENEUR’S CHALLENGE 1. MARKET POSITIONING
- 7. 7 THE BIGGEST CHALLENGE…. A.K.A. THE “ELEVATOR” PITCH 1. MARKET POSITIONI NG We networks networks. Sandy Lerner/Len Bozak Cisco “ “
- 8. 8 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 HELP FROM GEOFFREY MOORE1. MARKET POSITIONI NG
- 9. 9 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 TWO DECLARITIVE SENTENCES1. MARKET POSITIONI NG
- 10. 10 STRUCTURE SPEED LEVERAGE TRENDS VITAMIN? OR ASPIRIN? HOW PLUGGED IN ARE YOU? 2. MARKET STRATEGY INTIMATE WITH TARGET MARKET & BULLSEYE CUSTOMER?
- 11. 11 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
- 12. 12 YOUR PLAN OF ATTACK?2. MARKET STRATEGY
- 13. 13 CREDIBLE DIFFERENTIATION? Y1 Competitor 1 Competitor 2 Competitor 3 Competitor 4 Competitor 5 Competitor 6 Competitor 7 Competitor 8 Competitor 9 Competitor 10 Competitor 11 Y2 X1 X2 New Co 2. MARKET STRATEGY
- 14. 14 3. PRODUCT & TECHNOLOGY TECHNOLOGY PARTNERSHIPS SIMPLICITY BUSINESS PROCESS DOMAIN KNOWLEDGE DEFENSIBLE BARRIERS? NETWORK EFFECT
- 15. 15 4. DEFINING TEAM NewCo. 555 Main Street Tim Jones Anywhere, USA CEO (415) 555-5552 chief2@newco.com NewCo. 555 Main Street Barney Baker Anywhere, USA CFO (415) 555-5553 chief3@newco.com NewCo. 555 Main Street Ajay Singh Anywhere, USA COO (415) 555-5554 chief4@newco.com NewCo. 555 Main Street Vlad Krunis Anywhere, USA General Counsel (415) 555-5555 chief5@newco.com NewCo. 555 Main Street Karen Williams Anywhere, USA President (415) 555-5556 chief6@newco.com NewCo. 555 Main Street Bob Smith Anywhere, USA Chairman (415) 555-5552 chief2@newco.com MAGNETS? SCARS? PASSION?
- 17. 17 DO THE #S MAKE SENSE? GROSS MARGIN REVENUE TRAJECTORY EBITDA CASH REQUIREMENT VS. OPEX %’S & RATIOS 5. CAPITAL EFFICIENC Y CASH FLOW TO BREAK EVEN
- 18. 18 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 EFFICIENC Y
- 19. 19 TAKES LONGER, COSTS MORE5. CAPITAL EFFICIENC Y
- 20. 20 FINANCIALS SAY A GREAT DEAL ABOUT HOW YOU THINK… NOT A TIME TO BE NAÏVE UNREALISTIC OR MISLEADING FRUGALITY MARKET STRATEGY SALES TACTICS 5. CAPITAL EFFICIENC Y MARKET SIZE MARKET UPTAKE MARKET VELOCITY REALISM
- 21. 21 MEETING MANAGING WITH VCS CHAOS? CONTROLLED?
- 22. 22 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
- 23. 23 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 LEARN FROM OUR MISTAKES
- 24. 24 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
- 25. 25 WE’RE ONLY AS GOOD AS OUR NEXT INVESTMENT.
- 26. 26
Editor's Notes
- DO YOU UNDERSTAND HOW THE PIECES FIT TOGETHER?Don’t assume we’re expert in your markets (although, we do apply previous experience in yours or related markets to make sure what you’re saying makes sense). We’re looking to be educated and inspired (if not deluded). Do you understand the underlying market dynamics and how those different pieces work together? What is occurring in the market that sets the stage for your opportunity? ARE YOU PLUGGED INTO THE PROBLEM? IS THE PROBLEM BIG ENOUGH? To then be able to clearly, succinctly, compellingly articulate the agonizing pain being experienced by the customer. Maybe you’ve been the customer. Maybe you’ve served the customer. Maybe you’ve researched the heck out of the customer. We’re looking for a penetrating, insightful and thoughtful understanding of the customer’s needs. Because, for a business to have a chance, your offering must be a “must have” not a “nice to have”. Otherwise, you’ll be spending significant time and money convincing them that they need the product.
- We’re tired of seeing these BCG grids.
- We’re looking for hard to do and hard to replicate. It’s the only thing a little company has in the face of an inhospitable environment. And, even if you have this, it only gives you a 6 to (maybe) 18 lead. Explain each section. WHEN YOU CLICK - ANIMATION It is a red flag to hear “there is unlimited demand for our unreleased product.” There are plenty of embarrassing examples, some of them ours, that had a big splash and a big crash – WebVan. They were built in advance of demand. The spent millions upon millions promoting and creating brands in an effort to convince customers that they needed this product.
- Do you really understand the business? Explain each section.
- Now that we’ve read the entire plan or listened to the entire presentation (the claims you’ve made), we’re now going to look at the numbers to see if you were telling the truth. Does it all make sense? Does it all tie together? Will the line items in the financials correlate with everything you’ve said about the market, the business and the model?