Download - EPSE Module 3—Session 1
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EPSE Module 3—Session 1
Ken LiuMarch 11, 2013
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8 startups as principal since 1989◦ HNC Software, Holographix, Virage, IPivot, InfoGation,
AIRSIS, SciVee, ThreatSTOP CEO, BD, sales/marketing, do whatever needed 5 M&As worth $1.3 billion Wide-ranging experience
◦ Technologies/products◦ Business models◦ Stages & cultures
Early career: Motorola, BCG, Booz Allen Real-world approach
Who Am I?
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Basics of innovation & startups◦ Business plan◦ Financing◦ The Investor Pitch
Improving the odds of success◦ Funding & evaluating your projects at work◦ Your own startup◦ Think like a CEO/GM/founder
Not a “how-to” guide
Group project: The Investor Pitch of new business
Objectives of Module 3
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Setting the Stage
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What is Innovation?
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Innovation MatrixBusinessModel
Process
Technology
Features
Cost Access Fast/Easy Better/Diff. New Value
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Operating Margin Growth in Excess of Competitive Peers
[Source: IBM, CEOs are expanding the innovation horizon: important implications for CIOs]
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Most Innovative--It’s Not the MoneyInnovation Rank
R & D Spend 2011
Amount Rank % Sales1 Apple $2.4B 53 2.2%2 Google 5.2 26 13.63 3M 1.6 86 5.34 Samsung 9.0 6 6.05 GE 4.6 30 3.26 MicroSoft 9.0 5 12.97 Toyota 9.9 1 4.28 P & G 2.0 72 2.49 IBM 6.3 17 5.910 Amazon 2.9 48 6.1
Source: Bloomberg, Booz & Co.
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Innovators vs. Spenders
Source: Bloomberg, Booz & Co.
Top Innovators
Top R & D Spenders
Revenue Growth EBITDA % Market Cap Growth5-Yr. CAGR 5-Yr. 5-Yr. CAGR
NormalizedIndustry50
54
68
62
40
65
45
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Ideation vs. Conversion
Good
Bad
IdeaConversion
Bad GoodIdea Generation
Source: Booz & Co. Global 1000 Innovation
11%
18%
25%
46%
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Idea Generation Impact
Source: Bloomberg, Booz & Co.
Good
Bad
Revenue Growth EBITDA % Market Cap Growth5-Yr. CAGR 5-Yr. 5-Yr. CAGR
NormalizedIndustry50 46
65
52
4550
54
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Idea Conversion Impact
Source: Bloomberg, Booz & Co.
Good
Bad
Revenue Growth EBITDA % Market Cap Growth5-Yr. CAGR 5-Yr. 5-Yr. CAGR
NormalizedIndustry50 50
60
50
42
56
49
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Development times too long 32%
Lack of coordination 28%
Limited customer insight 26%
Risk-adverse culture 25%
Difficulty selecting right ideas 21%
No good way to measure 20%
A shortage of ideas 18%
Ineffective marketing 17%
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It’s a Cultural Problem
Culture &Process
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Innovation Pre/Post IPO
Study Result
1,500 tech firms that IPO’d or intended to in 1985-2003
40,000 patents 13,000 inventors Normalized for size,
age, R&D $$
40% less citations per patent
18% more inventors leave
Reasons: Product/revenue
focused Less creative/entre-
preneurial people stay
Source: Shai Bernstein, Stanford Business School
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Why Innovate?Innovation
Differentiation
Changing value proposition
Customers buy more and pay more
Otherwise competition naturally drives race to the bottom:
Commodity
Lowest price
Lowest profits
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Innovation Value
Source: Yahoo Finance, 3/3/13
$404 Billion
$234 Billion
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Adapt or Die!
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Why Companies Die
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DJIA 1979
Allied Chemical Alcoa American CanAT&T American Tobacco Bethlehem Steel Dupont ExxonMobil Eastman KodakGeneral Foods GE GMGoodyear IBM IncoInt’l Harvester Int’l Paper Johns Manville3M Merck Owens-Illinois GlassP & G Sears Roebuck Socal (Chevron)Texaco Union Carbide US Steel
United Technologies Westinghouse Woolworth
Not in 2012 (20) Still in 2012 (10)
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DJIA 2012
Survivors (10)
Replacements (14)
New Cos. (6)
Alcoa American Express CiscoAT & T Boeing Home DepotChevron Bank of America IntelDuPont Caterpillar MicrosoftExxonMobil Coca Cola VerizonGE Disney United HealthIBM HPMerck Johnson & Johnson
P & G JP Morgan Chase
United Technology McDonalds3MPfizerTravellers
Wal-mart
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The Odds
Ideas Full developmentProjects
ExploratoryProjects
ProductLaunch
Success
3,000
100 10 2 1
Source: Stevens, G A. and Burley, J. “3,000 Raw Ideas = 1Commercial Success
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The Odds
Source: SBA; Ctr. For Venture Research, Univ. of NH
50% of startups die within 5 years
1/3 survive to 10 years
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Why So Hard?
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The Business Plan
The pain Value proposition Market Who’s the
customer? IP & entry barriers Competition
Business model Go-to-Market plan Management Financing Exit strategy
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The Idea—Where from?
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Idea—Personal Need/InterestChecking out girls at Harvard
Selling girlfriend’s junk
Doesn’t like sweat
Needed marker for choir score
Needed lighter running shoes
Hassle booking rooms for SF conference
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Idea—Work/Customer
Wrong/missing/stolen meds in hospital
Manual configuration of firewalls
Empty JAL cargo planes westbound
Sun servers crashing on paydays
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Idea—Needs GapE-commerce has no online payment system
Inefficiencies in small office stores
Old process stupid
No stores in small towns
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Idea—ObserveMost popular search item in mid-1990s
Junk bond default rates lower than priced
Biggest cost is in sorting logistics
Small business works on cashflow, not accounting
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Idea—Others
Technology roadmap—Density, clock speed, heat
Why need to wait days for processing?
Making beer the 16th century way
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Business PlanMarketCustomersValue Proposition
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It’s About Buying & Selling
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Are there enough customers who are willing to pay you a price that gives you enough profit to build a business and yield a return for investors that’s worthwhile to invest in you?
It’s Not Rocket Science
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FocusOur Focus
HobbyCorporate >>>>>>>>>>
VCAngelLifestyle
Valuation($M)
1
50
10
.1
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This is the most important part of the plan.
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Market & Customer
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Market ResearchPrimary Customers Target users Resellers
Listen for complaints: Why is it…? Why can’t I…? Can you do this…? What if? I hate this… This shouldn’t be so hard
Secondary Associations Analysts Government “Experts”
Good for general info &background Outdated Not specific Backward looking
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What is the problem? How painful is it? Who are the customers? What is driving the need? Under what circumstances does the need arise? When does it arise? How often? Where? How does the pain hurt the customer? How satisfied is the customer with current solutions? How many customers have this same need &
circumstances?
Needs Analysis
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“If you asked the horse buggy owner what he wanted, he’ll say a faster one.”
--Steve Jobs
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Be Prepared to Make the Leap
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Primary, secondary, etc.
Size not as important as correct segmentation
Total vs. Served Available Market (TAM vs. SAM)
Retail vs. wholesale $$
Bottom-up projection best (not “1% of Chinese”)
If new market, use best proxy
If all fails, use gut, “feel of market”, ROMA
Market
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“50% CAGR from $100M to $2 billion from 2013-2018”
Watch Out/Reject:
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Market SegmentA subgroup of consumers sharing characteristics that cause them to have similar product needs and values.
Respond similarly to market stimuli Can be reached by market intervention Different from other segments Change over time
expectations price capabilities
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• Money center• National• Superregional• Regional• Local• “Non-bank” banks• Credit unions
FinancialServices
CommercialBanks
Segmentation
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Who are our most profitable customers? Where can we find more of them? How can we more effectively reach them? How can we tailor our message to each
segment? What segments need our services most, at
what cost? How can we better allocate our sales/
marketing resources? Who’s our competition?
Segmentation Purpose
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Geographic
DemographicAge, gender, family size and life cycle, or income
PsychographicSocial class, lifestyle,
or personality
BehavioralOccasions, benefits, uses, or responses
Nations, states, regions or cities
Segmentation Criteria
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Mass MarketingSame product to all consumers
(no segmentation)
Segment MarketingDifferent products to one or more segments
(some segmentation)
MicromarketingProducts to suit the tastes of individuals or locations
(complete segmentation)
Niche MarketingDifferent products to subgroups within segments
( more segmentation)
Levels of Segmentation
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What’s Wrong with This? Product
Photo management product designed to assist Brand Marketers, Event organizers, and Sponsorship owners to take advantage of the power of event photos to assist in quantifying ROI for a given event or sponsorship.
Market
Alternative advertising is a $26 billion business.
Branded entertainment spending increased to $52 billion annually.
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Who’s Customer?
User CFOVP/CorporateManager
Time
$$$
Effort
CEOIT BOD
Sales CycleAcquisition CostLifetime Value
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Who’s Customer?
YES Male college student
Bank teller in credit union
Owner/sales mgr. of independent clothing stores
ER nurses
NO 15-40 yr. males
Financial services worker
Retail stores
Medical/health workers
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FOCUS, FOCUS, FOCUS!
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What’s the Pain?
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Attributes of product that customers care about and willing to pay for at given price, place and time
Different for each demographic segment
Will change over time◦ Price◦ Competition◦ Product expectation◦ Etc.
Value Proposition
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Value Propositions Feature/ performance
Cult
Convenience
Faster
Vanity
Saves money
Productivity
Financing
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Customer: Payroll/benefits outsourcing firm
Pain: 1. Every pay period >> peak demand 2. Servers strain/crash doing SSL
transactions >> customers complain
3. “Sun rep wants me to buy $1M SPARC servers”
Pain—SSL Decryption
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SSL accelerator appliances 3-10x faster $25-45K New product category
Questions:
1. What markets?2. Who’s the customer?3. Value Proposition4. ROI
Solution
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“A horse! A horse! My kingdom for a horse!
--Richard IIIShakespeare
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Business PlanMarket TimingBarriers to Adoption
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Barriers to AdoptionMacro Is market ready? Too
early?
Need adoption ecosystem to exist first?
Crossing the chasm?
Product/Micro Too complicated
Not enough difference
No pain
Price
Cultural misfit
Changing habits
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Idea/Prototype Adoption
Telematics mid-1960s2010sFaxes early 1960s 1980sVideo on demand mid 1990s2011Internet late 1960s1995+PDAs early 1990s mid 2000sPoker on cable 1980s 2003Renewable energy 1970s ??
Market Incubation Period
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“Superior” product loses to ingrainedhabits & workflow
Need “10X” gain to switch
Switching Cost
Vs.
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1st Mover vs. Follower
Clones
Clones
WIN
LOSE
1st Follower
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There is a tide in the affairs of men which,Taken at the flood, leads on to fortune;Omitted, all the voyage of their lifeIs bound in shallows and miseries.On such a full sea are we now afloat,We must take the current when it servesOr lose our ventures.
--Julius CaesarShakespeare
Catch the Wave
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Making the Pitch
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You can have the greatest idea,
but if you can’t convince enough people,
it doesn’t matter.
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Message Types
1 line 1 para. 5’ 15’ white paper
Tech Expert
Analyst
Trade Press
Customer
Investor
Public
Engineering
Startup
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What? Who? When? Where? Why? How? How big?
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Elevator Pitch—5W 2H
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Get the follow-on meeting!
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Objective
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It’s the message, not the facts! Great product Customer stories Big market Unique value Great team You can make $$$
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The Story
Don’t confuse message with facts!
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Afghan “Strategy”?
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Simplicity is the ultimate
sophistication.–Steve Jobs
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BIRD
10% 65%
Retention
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Give Context to Numbers
5GB?
“You can put 1,000songs in your pocket.”
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Body LanguageVocal Tone
63%
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It’s About You!
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What Are They Looking For? Integrity
Passion
Commitment
Vision
Reality
Leadership
Experience
Knowledge
Skills
Coachable/likable
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What It Comes Down To• Can I trust this person?
• Can I work with you?
• Do you have a chance of making $$ for me?
• Would I want to have beer with you?
• Are you worth my effort & risk?
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Why They Invest in You?
“VCs do not invest with their brains. They invest with companies that they fall in love with. Then they use their brains to rationalize their decision.
“Some managers are uncomfortable with expressing emotion about their dreams, but it’s the passion and emotion that will attract and motivate others.” – Jim Collins, Built to Last
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Top 10 Lies Told to VCs1. Our projections are conservative2. Our target market is $56 billion3. We have a world class team4. Our average sales cycle is 90 days5. We have no direct competitor6. No one else can do what we do7. All we need is 2% of the market8. We’ll be cash positive in 12 months9. Our contract with [Big Company] will be signed in two weeks10. I’ll be happy to hand over the reins to a new CEO
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DiscussionsCONNECT Springboard CompaniesYour ideas