The document outlines an Expara business canvas workshop organized by ISM. The workshop will cover understanding the big picture, using the business model canvas tool, and discussing fundraising and financial planning. It provides background on the lecturer and their experience. Examples are given of successful startups like Facebook, Instagram, Google, YouTube, Dell, and Microsoft. The importance of failure and innovation for success is discussed. Factors for a scalable business like risk, return, and exit strategies are covered.
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About the lecturer
Wharton MBA
JP Morgan – Vice President
IB Technology, GM Internet Marketing
Parallax Capital Mgmt – Co-founder and MD Private Equity
Extream Ventures – Co-founder and MD
S$20 million seed fund
Expara – Founder and MD
IDM Ventures Incubator, advisory, training
NUS – Adjunct Associate Professor, Business School, Entrepreneurship
Sasin – Visiting Professor, Venture Capital
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Business canvas workshop
From business model canvas to investment
9:00 AM
Understanding the big picture
10:30AM
Break
10:45 AM
Business model canvas – Part I
12:15 PM
Lunch
1:30 PM
Business model canvas – Part II
3:00 PM
Break
3:15 PM
Fund raising and financial plan
5:00 PM
End
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Expara Business Canvas Workshop
Understanding the big picture
Business model canvas
Financing and fundraising
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What is a scalable business?
Small business: limited scope, complication and risk. Slow growth.
Scalable business: significant scope, complication, and risk. Rapid growth.
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This could be you: Facebook
Feb 2004: Mark Zuckerberg, 19, launches The Facebook from his Harvard dorm room, with ~10K investment. Half of Harvard signs up in the first month
June 2004: Facebook receives $500K funding from Peter Thiel
Mid 2005: Accel partners invests $12.7MM and Greylock $27.5MM
Oct 2007: Microsoft buys 1.6% of Facebook for $246MM
Nov 2007: Li Ka-shing invests $60MM
2009-10: Elevation partners invests $210MM at valuation $12 - 23B
2011: Goldman Sachs buys shares in the secondary market at an implied valuation of $50B
2012: Goes IPO at valuation ~$100B (now $67B)
“The youngest billionaire on earth” - Forbes
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This could be you: Instagram
2010 - Kevin Systrom and Mike Krieger focus their multi-featured HTML5 check- in project Burbn on mobile photography
Mar 2010 – Close $500K seed funding round from Baseline Ventures and Andreessen Horowitz; est. val. $5 MM
Oct 2010 – Product launches on Apple App Store
Feb 2012 – Raise $7MM Series A funding; valuation $25 MM
Apr 2012 – Raise $50 MM at $500 MM valuation; sold to Facebook, val $1 B
0
5
10
15
20
25
30
35
Millions of Users
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This could be you: Google
1995: Sergey Brin and Larry Page, two Stanford University graduate students develop the technology that will become the Google search engine.
1998: Sergey and Larry raise $1 million in funding from family, friends, and angel investors to start Google in a friend's Menlo Park, Calif. garage with four employees.
1999: Google raises $25MM from VCs and angel investors
2004: Google goes IPO at a valuation of US$23.1 billion. Sells 7% to public for $1.67 billion. Market cap Jan 2007 US$149 billion.
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This could be you: YouTube
Feb 2005: Chad Hurley, Steve Chen, and Jawed Karim found YouTube, Inc.
Nov 2005: YouTube receives funding from Sequoia Capital
Dec 2005: YouTube service is officially launched
Nov 2006: Google acquires YouTube for US$1.65 billion, 20 months after the company was founded
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This could be you: Dell and Microsoft
Michael Dell, who founded Dell in 1984 with $1,000 when he was 19 years old. The company now employs approximately 41,800 people worldwide and reported revenues of $38.2 billion for the past four quarters.
Bill Gates, who founded Microsoft in 1975 while still an undergraduate at Harvard. Microsoft had revenues of US$32.19 billion for the fiscal year ending June 2003, and employs more than 54,000 people in 85 countries and regions.
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Exit markets at an inflection point
Exit activity in SEA, especially in Singapore, exploded in 2013
•
Increased investment in startups since 2007 is beginning to yield results
•
Number of exits increased from 6 in 2010 to 20 in 2013
•
Singapore alone has had 30 exits since 2007, 13 in 2013
•
Value of exits increased from 51 MM in 2010 to 400 MM in 2013
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Some recent exits
Company
Country
Acquiror
Price
Year
ZopIM
Singapore
Zendesk
US$29.8MM
2014
Non-Stop Games
Singapore
King
US$ 100MM
2014
sgCarMart
Singapore
SPH
S$60 MM
2013
DS3
Singapore
Gemalto
S$50 MM est.
2013
Asian Food Channel
Singapore
Scripps Networks
Undisclosed
2013
Reebonz
Singapore
MediaCorp and Existing investors
S$250MM
2013
Yfind
Singapore
Ruckus Wireless
Undisclosed
2013
Techsailor
Singapore
TO THE NEW
Undisclosed
2013
travelmob
Singapore
HomeAway
Undisclosed
2013
Catcha Digital Media
Singapore
Opt Inc
Undisclosed
2013
GridBlaze
Singapore
Undisclosed Silicon Valley Startup
Undisclosed
2013
Viki
Singapore
Rakuten
US$200MM
2013
SGE
Singapore
Tech In Asia
Undisclosed
2013
ThoughtBuzz
India
To The New
Undisclosed
2013
AyoPay
Indonesia
MOL AccessPortal
Undisclosed
2013
Tongue in Chic
Malaysia
PopDigital
Undisclosed
2013
Ocision
Malaysia
Star Publication
US$ 4.36MM
2013
Glamybox
Vietnam
VanityTrove
Undisclosed
2013
PaymentLink
Singapore
Wirecard
US$41.2MM
2013
Dealguru
Singapore
iBuy
S$34.28 MM
2013
Buy Together
Hong Kong
iBuy
S$21 MM
2013
Dealmates
Malaysia
iBuy
S$10 MM
2013
PropertyGuru.com
Singapore
ImmobilienScout24
S$60 MM
2012
HungryGoWhere
Singapore
Singtel
S$12 MM
2012
AdMax Network
Singapore
Komli Media
Undisclosed
2012
TheMobileGamer
Singapore
Singtel
US$1.5 MM
2012
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What is the relationship between risk and return?
Risk and return are highly correlated
You cannot increase return without taking more risk
Return
Risk
Potential outcomes
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Let’s fail: the importance of failure for innovation
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Why is failure desirable?
Willingness to fail – allows risk-taking and innovation
Risk and return – high risk ventures means they are likely to fail
Innovation – key to scalable ventures – innovators will fail
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Product failures – from Apple III to Apple Newton
1980 - Apple III - 75k units sold
1983 – Apple Lisa - 40K units sold in 1984 vs. 80K forecast
1986 – Pixar Image Computer - < 300 units sold
1990 – NeXT workstation – 50K units sold
1993 – Newton – 100MM spent on development – 80K units sold
Apple clones, NeXT software
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Competitive failure – Apple vs. Microsoft
1980 – Apple’s share of PC market 15%
1996 – 4%
2005 – 2.2%
2011 – Microsoft Windows still has 92% share of operating system market
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Steve Jobs career timeline
Success - 1977
•Apple II
Failure – 1980
•Apple III
Failure – 1983
•Lisa
Success – 1984
•Macintosh
Failure – 1985
•Ousted from Apple
Failure – 1988
•Pixar Image Computer
Failure – 1990
•NeXT Workstation
Failure – 1993
•NeXT discontinues HW
Success – 1995
•Toy Story; Pixar IPO
Success – 1996
•Apple buys NeXT
Success – 1997
•Return to Apple
Success – 1998
•Apple profitable
Success 2001
•IPod
Success 2007
•Iphone
Success 2010
•iPad
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Success from failure
Pixar animated films – 1995 (Toy Story)
–
26 Oscars, 7 Golden Globes, 3 Grammies
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Films have earned > $6.3 billion worldwide
iPod - 2001
–
300 MM units sold
–
90% market share
iPhone – 2007
–
> 75 MM units sold
–
50% of profits from global mobile phone sales
iPad
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> 15 MM units sold, more than all other tablets combined
–
83% market share
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Why should companies raise investment?
Lifestyle or scalable?
Paycheck or payout?
A big piece of a small pie?
A small piece of a big pie?
Founder
Investors
Investors
Founder
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How to fund growth?
Internally generated
Debt
Hybrid
Equity
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Cost, control, growth and risk
Internal
Debt
Equity
Source of funds
Cost Lose Control Growth $ Risk
Impact of funding
Low Somewhat High
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Why invest in venture capital?
As of 31-Mar 2014 The Cambridge Associates LLC U.S. Venture Capital Index® is an end-to-end calculation based on data compiled from 1,494 U.S. venture capital funds (962 early stage, 163 late & expansion stage, 363 multi-stage and 6 venture debt funds), including fully liquidated partnerships, formed between 1981 and 2013.
1Pooled end-to-end return, net of fees, expenses, and carried interest. Sources: Cambridge Associates LLC, Barclays, Dow Jones Indexes, Frank Russell Company, Standard & Poor's, Thomson Reuters Datastream, and Wilshire Associates, Inc. *Capital change only.
Case Shiller Real Estate Index 4.1
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Impact of VC on a diversified portfolio
Private Equity and Strategic Asset Allocation. 2007 Ibbotson Associates
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How does a venture capital fund work?
Fund Investors
VC
8
$ 10 mm
2
$ 10 mm
$ 58 mm
25%
75%
Fund size10,000,000$ Life of the fund7Management fee2.5% Investable8,250,000$ Investment size1,031,250$ Companies8Fail450% Break even225% Exit225% Investor's required ROI35% Fund multiple return5.76Fund size at exit57,600,000$ Carry @ 20%9,520,000 Distribution48,080,000$ Fund return multiple4.81Fund ROI35% Required return per exit28 timesEquity per company F/D15% Required value of equity at exit28,800,000$ Required co value at exit192,000,000$
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GVMs for all first-round investments
10 years after investment. Data from Sand Hill Road Econometrics. Companies received first financing before 1 January 1999. First non-seed round investment. Returns are gross - before fees and carry
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How do VCs make money?
Trade sale – sell to another company
IPO – sell to the public through listing on an exchange
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The investor’s decision tree
Innovative?
Yes
Value proposition?
Yes
Fast-growing market?
Yes
Exit
No
No
No
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Product or service: which scales better?
Product-based start-ups
–
Value proposition is delivered via product
Service-based start-ups
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Value proposition is delivered via people
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Getting to gatekeepers
It’s not what you know; it’s who you know
Network, network, network
Strong ties and loose ties
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Connecting to my network
My company websites: www.expara.com
My blog: www.douglasabrams.com
E-mail: dka@expara.com; lanie@expara.com
Facebook: bizadk@nus.edu.sg
Linked-In: dka@parallaxcapital.com
Twitter: twitter.com/douglaskabrams
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Expara Business Canvas Workshop
Understanding the big picture
Business model canvas
Financing and fundraising
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Problem
Solution
Key Metrics
Cost drivers
Revenue model
Innovation and value proposition
Sustainable competitive advantage
Channels
Customer segments
Market size
Customer archetype
High concept
Existing solutions
Top 1-3 customer problems
How are these problems solved today?
Your solutions to customer problems
Key numbers that tell if you are succeeding
What is innovative about your solution? Why are you better than existing solutions?
One sentence that says it all
How will you create barriers to entry for followers?
How will you get your product to customers?
Who are your target customers?
How big is your market and how fast is it growing?
Characteristics of your key customers
How do you generate revenue?
What are your key cost drivers?
Expara Business Model Canvas
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Key elements for success
Develop an innovative product – Innovation
Solve a problem for customers – Value proposition
Identify your customers – Market identification and analysis
Reach your customers – Marketing strategy
Compete when others enter - Sustainable competitive advantage
Make money – Business model and financial plan
Team – A team or B team
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Writing a model business plan
1.
Executive summary
2.
Value proposition and innovation
3.
Market identification and analysis
4.
Marketing and sales strategy
5.
Sustainable competitive advantage
Overview, innovation, market
6.
Company products and services
7.
Team
8.
Expansion plan
9.
Operational plan
10.
Finances – Revenue and cash flow, valuation, funding required, equity offered, ROI
Execution and financials
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Problem
Solution
Key Metrics
Cost drivers
Revenue model
Innovation and value proposition
Sustainable competitive advantage
Channels
Customer segments
Market size
Customer archetype
High concept
Existing solutions
Top 1-3 customer problems
How are these problems solved today?
Your solutions to customer problems
Key numbers that tell if you are succeeding
What is innovative about your solution? Why are you better than existing solutions?
One sentence that says it all
How will you create barriers to entry for followers?
How will you get your product to customers?
Who are your target customers?
How big is your market and how fast is it growing?
Characteristics of your key customers
How do you generate revenue?
What are your key cost drivers?
Expara Business Model Canvas
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Value proposition – how much does it hurt?
Painkiller
Vitamin
Candy
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Value proposition – degrees of recognition
Latent problem – they have a problem but don’t know it
Passive problem – they know they have a problem but not looking for a solution yet
Active or urgent problem – they know they have a problem, are actively looking for a solution but no serious work done yet to solve
A vision – they have an idea for solving the problem and a home- grown solution but are prepared to pay for a better solution
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Disruptive business model or disruptive tech
Diamond is the first mover in portable MP3 in 1998
Apple enters in 2003 and captures 90% of the market
Business model innovation – hardware + software + service
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Disruptive models from Gillette to Google
Gillette – razor and blade
Southwest Airlines – budget airlines
Dell Computer – mass customization
Charles Schwab – on-line broker
Amazon – ecommerce
eBay – peer to peer marketplace
Google – search-based advertising
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Innovation and value proposition
1.
What is your product and what is innovative about it?
2.
What is the painful problem you are solving for customers?
3.
What are the shortfalls of the current solutions?
4.
How do you solve this problem and can you quantify your benefit?
5.
How does your innovation enable you to accomplish this?
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Problem
Solution
Key Metrics
Cost drivers
Revenue model
Innovation and value proposition
Sustainable competitive advantage
Channels
Customer segments
Market size
Customer archetype
High concept
Existing solutions
Top 1-3 customer problems
How are these problems solved today?
Your solutions to customer problems
Key numbers that tell if you are succeeding
What is innovative about your solution? Why are you better than existing solutions?
One sentence that says it all
How will you create barriers to entry for followers?
How will you get your product to customers?
Who are your target customers?
How big is your market and how fast is it growing?
Characteristics of your key customers
How do you generate revenue?
What are your key cost drivers?
Expara Business Model Canvas
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Choose an industry favorable to start-ups
Increasing returns business: up-front costs are high relative to marginal costs
Network externalities
Complementary technologies are important to use
Producer learning is strong, switching costs are high
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Look for fast-growing, segmented markets
The cost gap between new and established firms is smaller in larger markets
In fast-growing markets, new firms can serve new customers rather than customers of existing firms
Segmented market provide niches for new firms to enter and reduce retaliation by existing firms
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Market timing – entering at the inflection point
Measure of performance
Measure of effort invested
The technology adoption S curve
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Industry life cycles and structures
Choose a young industry – more demand and less competition
Enter before a dominant design has been adopted
Labor intensive rather than capital intensive
Advertising and branding less important
Less concentrated industries – smaller competitors
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Market identification and analysis
1.
What is your market type?
2.
How big is your market and how fast is it growing?
–
Top-down approach
–
Bottom-up approach
3.
What are trends in your market are favourable for you?
–
Technological, social, demographic, regulatory
4.
Who are your direct and indirect competitors?
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Types of markets
Existing markets
Re-segmented markets/niche market
New market
Clone market
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Customer segments
•
For whom are we creating value?
•
Who are our most important customers?
Key questions
•
Mass market
•
Niche market
•
Segmented
•
Diversified
•
Multi-sided platform or market
Types of customer segments
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Customer segments: who/problem
Customer problem
–
Latent
–
Passive
–
Active or urgent
–
Vision
Customer types
–
End user
–
Influencer
–
Recommender
–
Economic buyer
–
Decision maker
Customer archetype
A day in the life of a customer
Organizational/influence maps
Consumer/web influence map
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Problem
Solution
Key Metrics
Cost drivers
Revenue model
Innovation and value proposition
Sustainable competitive advantage
Channels
Customer segments
Market size
Customer archetype
High concept
Existing solutions
Top 1-3 customer problems
How are these problems solved today?
Your solutions to customer problems
Key numbers that tell if you are succeeding
What is innovative about your solution? Why are you better than existing solutions?
One sentence that says it all
How will you create barriers to entry for followers?
How will you get your product to customers?
Who are your target customers?
How big is your market and how fast is it growing?
Characteristics of your key customers
How do you generate revenue?
What are your key cost drivers?
Expara Business Model Canvas
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Competitors will enter
How to compete with followers?
How to compete with existing companies?
Sustainability of technological lead
–
Competitors cannot duplicate the technology
–
Firm can innovate as fast or faster than competitors
First-mover disadvantages
Last-mover advantage
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Creating last-mover advantage
Reputation
Preempting positioning
Switching costs/Lock-in/Network effects
Unique channel access
Move down learning curve
Favorable access to inputs
Definition of standards
Institutional barriers – IP protection
First Mover Advantages
Pioneering costs
Demand uncertainty
Changes in buyer needs
Specificity of investments to early generations
Technological discontinuities
Low-cost imitation
Disadvantages
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Strategies to create last-mover advantage
IP strategy – patents, copyrights, trademarks, trade secrets
Create barriers to entry
–
Network effects and externalities
–
Lock-in effects
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Established company strengths and weaknesses
Learning curve
Reputation effect
Cash flow
Economies of scale
Complementary assets
Advantages
Difficult to innovate
They need to satisfy existing customers, partners and supply chain
Existing organizational structure is appropriate to current tasks
Risk aversion
Weaknesses
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Opportunities that favor new firms
Existing firms frozen in the headlights
Disruptive technologies and business models
Uncertainty: existing firms’ advantages in market research are neutralized; risk propensity
Technologies: Discrete versus systemic technologies, based on human capital, general purpose rather than specific
Bad customers: Enter market that is unattractive to existing competitors due to established cost structure
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Problem
Solution
Key Metrics
Cost drivers
Revenue model
Innovation and value proposition
Sustainable competitive advantage
Channels
Customer segments
Market size
Customer archetype
High concept
Existing solutions
Top 1-3 customer problems
How are these problems solved today?
Your solutions to customer problems
Key numbers that tell if you are succeeding
What is innovative about your solution? Why are you better than existing solutions?
One sentence that says it all
How will you create barriers to entry for followers?
How will you get your product to customers?
Who are your target customers?
How big is your market and how fast is it growing?
Characteristics of your key customers
How do you generate revenue?
What are your key cost drivers?
Expara Business Model Canvas
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Sales and distribution
Great sales and distribution vs great product
Best sales is hidden
Products don’t sell themselves
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Metrics for effective distribution
CLV: total net profit earned over the course of relationship with customer
CAC: cost to acquire a new customer
CLV>CAC
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Complex sales
Seven figure deals
CEO must sell
50-100% YoY growth over 10 years
Enterprise sales must start small
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Personal sales
10K-100K
Sales team can sell
Need to establish a process so sales team can move to mass
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Sales dead-zone
Product needs a personal sales effort
Resources are not available or too expensive
Underserved SME markets
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Marketing and advertising
Work for products with mass appeal but not viral – FMCG
Can work for start-ups but
Only when CLV-CAC make all other channels uneconomical
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Viral marketing
Core functionality encourages users to invite their friends
Move first to dominate most important segment of market with viral potential
Get the most valuable users first
Paypal – initial focus on 20K Ebay PowerSellers
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Power law of distribution
Select one - one distribution channel will be more powerful than all others combined
Most businesses get zero distribution channels to work
Poor sales rather than bad product is most common cause of failure
Sell your company to the media
Everyone sells
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Problem
Solution
Key Metrics
Cost drivers
Revenue model
Innovation and value proposition
Sustainable competitive advantage
Channels
Customer segments
Market size
Customer archetype
High concept
Existing solutions
Top 1-3 customer problems
How are these problems solved today?
Your solutions to customer problems
Key numbers that tell if you are succeeding
What is innovative about your solution? Why are you better than existing solutions?
One sentence that says it all
How will you create barriers to entry for followers?
How will you get your product to customers?
Who are your target customers?
How big is your market and how fast is it growing?
Characteristics of your key customers
How do you generate revenue?
What are your key cost drivers?
Expara Business Model Canvas
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Revenue model questions
•
For what value are our customers really willing to pay?
•
For what do they currently pay?
•
How are they currently paying?
•
How would they prefer to pay?
•
How much does each Revenue Stream contribute to overall revenues?
Key questions
•
Asset sale
•
Usage fee
•
Subscription Fees
•
Lending/Renting/ Leasing
•
Licensing
•
Brokerage fees
•
Advertising
Types
•
List price
•
Product feature dependent
•
Customer segment
•
dependent
•
Volume dependent
Fixed pricing
•
Negotiation (bargaining)
•
Yield Management
•
Real-time-Market
Dynamic pricing
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Other revenue model issues
Total cost of ownership (TCO)
Return on investment (ROI)
Multi-sided markets have multiple revenue models
Distribution channel affects revenue streams
Consider lifetime value
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Cost structure
•
What are the most important costs inherent in our business model?
•
Which Key Resources are most expensive?
•
Which Key Activities are most expensive?
Key questions
•
Cost Driven (leanest cost structure, low price value proposition, maximum automation, extensive outsourcing)
•
Value Driven (focused on value creation, premium value proposition)
Is your business more
•
Fixed Costs (salaries, rents, utilities)
•
Variable costs
•
Economies of scale
•
Economies of scope
Sample characteristics
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VCs invest at multiple stages
Founder’s CapitalSeed/ AngelSeries A, B, CMezzaninePre-ExitExitVC hurdle rates60-100%40-60%20% OM F,F&FIncubators corporations governmentCustomers, suppliers, strategic partnersVCs, Banks for VC loansR&D Establishment GTM/Rollout Accelerated Expansion MaturityEnablement growth
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In the financial section of the business plan
Business model
Financial projections
Valuation
Funding required and equity offered
Use of Proceeds
Exit Strategy and ROI
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Company valuation methods
Price to earnings (p/e)
Dividend yield
Multiple of book value
Comparables
Discounted Cash Flow (DCF)
VC method
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How much equity does the investor receive?
Pre-money valuation
–
Amount invested by VC ÷ (Agreed pre-money value of business + Amount invested by VC)
–
$3MM pre + 1 MM VC = 25% VC equity
Post-money valuation
–
Amount invested by VC ÷ post-money valuation
–
$4MM post = 25% VC equity
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Entrepreneur versus investor
Maximize financial returns
Maintain option to abandon
Be able to force entrepreneur to exit and distribute proceeds
Maintain reputation
VC
Get outside capital
Maximize financial gains from equity stake
Retain control, minimize constraints on behavior and decision making
Build successful firm
Build reputation
Get outside expertise and contacts
Entrepreneur
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Key elements of the deal
Board of directors
Protective provisions
Drag-along agreement
Conversion
Control
Price-per-share
Valuation
Amount of financing
Liquidation preference
Vesting
Options pool
Anti-dilution
Pay-to-play
Economics
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Communicating with investors
Business plan
Executive summary
Investor presentation
Formal and informal presentations
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Use meaningful titles
The title of each slide should communicate the key message for that slide.
For example, if you have a slide that shows projected sales, do not make the title "Projected Sales."
Instead, make the title something like, "Projected Sales in 2003 are $3 Million."
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Less is more
Your message needs to be clear and concise
Clean visual design – avoid chart junk and “design-itis”
On presentation slides, less is more – slides, bullet points, text
If you can't explain your message simply, you need to re-formulate your message.
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How long does it take to make a first impression?
First impressions are critical
You make yours in the first 7 seconds of your presentation
How long to feel someone is trust-worthy? 0.1 second
How can people decide so quickly? Appearance and body language.
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Getting past gatekeepers
Why are presentations important?
Understand gatekeepers’ incentives
Avoid raising red flags
Attention to detail
Get it right the first time
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What causes choking?
Top performance under pressure requires focus and relaxation
Too much focus on performance causes skill to break down
Forget about your bad shots; remember your good shots
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Do not read your slides
Do not just stand and read your presentation slides.
Makes your presentation redundant and therefore uninteresting, since the audience can just then read the slides.
Try to pick out one or two important points on each slide to discuss in more detail.
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Practice and test
Analyze the details of your presentation, then master those details by practice, practice, practice.
Arrive early and if you are using any technology, test it
If you can not get in early, try to test the night before
It is OK to be nervous before you begin
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Q&A is the most important part
Audience has a chance to ask you about what is on their mind.
Q&A is do or die time.
Prepare for Q&A by studying your material in-depth
Anticipate likely difficult questions and formulate answers
Note questions you are asked and if you did not have a good answer to a specific question, formulate one for next time.
Don’t disagree - agree