GROWING A BUSINESS IN GROWING A BUSINESS IN NEW JERSEY NEW JERSEY

PRESENTED AT THE VENTURE ASSOCIATION OF PRESENTED AT THE VENTURE ASSOCIATION OF NJ’s ENTREPRENEUR EXPO AND ELEVATOR NJ’s ENTREPRENEUR EXPO AND ELEVATOR PITCH OLYMPICS 5/16/2005PITCH OLYMPICS 5/16/2005

-Randy Harmon, Co-founder--Randy Harmon, Co-founder-

Foundations Business Development Group, LLC,Foundations Business Development Group, LLC,

Consultant-NJ Small Business Development Consultant-NJ Small Business Development Centers of Rutgers Business SchoolCenters of Rutgers Business School

GROWING A BUSINESS IN GROWING A BUSINESS IN NEW JERSEYNEW JERSEY

-Are you an entrepreneur?-Are you an entrepreneur?

-Research and Planning-Research and Planning

-Financing-Financing

-Strategic Alliances-Strategic Alliances

-Business plans-Business plans

-Business development resources-Business development resources

““BUSINESSES DON’T FAIL,BUSINESSES DON’T FAIL, PEOPLE DO.” PEOPLE DO.”

--Businesses fail because entrepreneurs and their Businesses fail because entrepreneurs and their personal characteristics, skills and experience, as personal characteristics, skills and experience, as well as their allocated resources fail to satisfy the well as their allocated resources fail to satisfy the requirements for a successful business.requirements for a successful business.

-Step 1 is to look at yourself and your experience to -Step 1 is to look at yourself and your experience to identify likes and dislikes, as well as your identify likes and dislikes, as well as your strengths and weaknesses and see how you strengths and weaknesses and see how you match up with the requirements for a successful match up with the requirements for a successful business.business.

-Compensate for deficiencies.-Compensate for deficiencies.

““BUSINESSES DON’T FAIL, BUSINESSES DON’T FAIL, PEOPLE DO.”PEOPLE DO.”

-Honestly evaluate your motivation and suitability for -Honestly evaluate your motivation and suitability for launching your own business, especially when:launching your own business, especially when:

-You were recently laid off or early retired-You were recently laid off or early retired

-You fear being laid off-You fear being laid off

-You have been unemployed for a period of time-You have been unemployed for a period of time

-Entrepreneurship generally cannot be your -Entrepreneurship generally cannot be your salvation, it has to come out of who you are and salvation, it has to come out of who you are and how you are made up and motivated.how you are made up and motivated.

INVENTORSINVENTORS

-Include scientists, engineers, technologists, -Include scientists, engineers, technologists, mechanics and “tinkerers”mechanics and “tinkerers”

-Creative, idea people-Creative, idea people-Love to explore and implement ideas-Love to explore and implement ideas-Tend to view every aspect of life as a problem to be -Tend to view every aspect of life as a problem to be

solved or a product to be improvedsolved or a product to be improved-Typically have multiple ideas for inventions-Typically have multiple ideas for inventions-Often don’t have a clue regarding how to bring them -Often don’t have a clue regarding how to bring them

to marketto market

ENTREPRENEURSHIPENTREPRENEURSHIPTHE ACT OF CREATING A BUSINESSTHE ACT OF CREATING A BUSINESS

-MANAGING THE DEVELOPMENT OF AN IDEA -MANAGING THE DEVELOPMENT OF AN IDEA INTO A VENTUREINTO A VENTURE

-Perception of a market opportunity-Perception of a market opportunity

-Ability to identify markets and niches-Ability to identify markets and niches

-Assessment of potential and risk-Assessment of potential and risk

-Procurement and allocation of resources-Procurement and allocation of resources

-Creating value-Creating value

INVENTORS/TECHNOLOGISTS INVENTORS/TECHNOLOGISTS BEWAREBEWARE

-An inventor is not necessarily an entrepreneur-An inventor is not necessarily an entrepreneur

-A successful entrepreneur does not have to be an -A successful entrepreneur does not have to be an inventorinventor

-An inventor may not be able to become a successful -An inventor may not be able to become a successful entrepreneurentrepreneur

-GOOD TECHNOLOGIES CAN FAIL TO BECOME -GOOD TECHNOLOGIES CAN FAIL TO BECOME GOOD BUSINESSES BECAUSE THE FOUNDER GOOD BUSINESSES BECAUSE THE FOUNDER WAS AN INVENTOR AND NOT AN WAS AN INVENTOR AND NOT AN ENTREPRENEUR AND WAS UNABLE TO ENTREPRENEUR AND WAS UNABLE TO COMPENSATE BY BUILDING A TEAMCOMPENSATE BY BUILDING A TEAM

CHARACTERISTICS OF THE CHARACTERISTICS OF THE AVERAGE ENTREPRENEURAVERAGE ENTREPRENEUR

-Innovative-Innovative-Married-Married-Need for achievement “the burning gut”-Need for achievement “the burning gut”-Comfortable with risk-Comfortable with risk-Calculated risk takers-Calculated risk takers-Don’t need or like structure and definition-Don’t need or like structure and definition-Comfortable with ambiguity and uncertainty-Comfortable with ambiguity and uncertainty-Value independence-Value independence-Don’t easily fit traditional company mold-Don’t easily fit traditional company mold-Sense of control over environment and destiny-Sense of control over environment and destiny-Most start several ventures before age 20-Most start several ventures before age 20-Often the first child of a parent who was an entrepreneur-Often the first child of a parent who was an entrepreneur

ASSESS YOURSELF AGAINST REQUISITE ASSESS YOURSELF AGAINST REQUISITE BUSINESS ROLES AND TASKSBUSINESS ROLES AND TASKS

-Sales-Sales-Marketing-Marketing-Strategic planning-Strategic planning-Financial planning-Financial planning-Accounting-Accounting-Advertising-Advertising-Administration-Administration-Personnel management-Personnel management-Research & Development-Research & Development-Manufacturing-Manufacturing

SOONER OR LATER, MOST ENTREPRENEURS SOONER OR LATER, MOST ENTREPRENEURS WILL HAVE TO BUILD A MANAGEMENT TEAMWILL HAVE TO BUILD A MANAGEMENT TEAM

-Few people have or can develop all the skills required for a -Few people have or can develop all the skills required for a successful technology-based businesssuccessful technology-based business

-There is not going to be enough of you to go around-There is not going to be enough of you to go around-Management, Management, Management-Management, Management, Management-Equity investors invest in people, particularly teams of people, at -Equity investors invest in people, particularly teams of people, at

least as much as they do the business conceptleast as much as they do the business concept-All venture capital backed businesses will have to build a -All venture capital backed businesses will have to build a

management teammanagement team-Typical technology-based business is launched by technologists, -Typical technology-based business is launched by technologists,

with little business experiencewith little business experience-Entrepreneur’s dilemma-Entrepreneur’s dilemma-Business advisory boards-Business advisory boards-Creative teambuilding-Creative teambuilding

I DID IT! I’VE GOT IT!I DID IT! I’VE GOT IT!MAYBE I SHOULD GO INTO BUSINESSMAYBE I SHOULD GO INTO BUSINESS

-Technology Entrepreneurs and particularly inventors who -Technology Entrepreneurs and particularly inventors who think they are entrepreneurs are vulnerable to think they are entrepreneurs are vulnerable to overemphasizing the technologyoveremphasizing the technology

-First step in considering a new venture is to ask yourself: -First step in considering a new venture is to ask yourself: Who is going to care about this and why?Who is going to care about this and why?

-What CUSTOMER problem am I going to solve, what -What CUSTOMER problem am I going to solve, what unmet need am I going to fill?unmet need am I going to fill?

-Whose pain am I going to ease?-Whose pain am I going to ease?-Will they care enough to pay for my solution/product at a -Will they care enough to pay for my solution/product at a

price at which I can afford to make it available?price at which I can afford to make it available?-Get a marketing/sales advisor ASAP -Get a marketing/sales advisor ASAP

RESEARCH, RESEARCH, ANDRESEARCH, RESEARCH, ANDMORE RESEARCHMORE RESEARCH

-Preliminary market research including the industry you are in and -Preliminary market research including the industry you are in and the industries you are targeting, customers, and competitorsthe industries you are targeting, customers, and competitors

-Determine approximately how much money you are going to need -Determine approximately how much money you are going to need to launch the business and carry it to the break-even pointto launch the business and carry it to the break-even point Begin thinking about where this money is going to come Begin thinking about where this money is going to come

from and the requirements for accessing this moneyfrom and the requirements for accessing this money-Conduct a preliminary patent search to make sure that you are not -Conduct a preliminary patent search to make sure that you are not

about to set out to reinvent someone else’s wheelabout to set out to reinvent someone else’s wheel-Consider the legal aspects and implications of setting up a -Consider the legal aspects and implications of setting up a

businessbusiness-YOUR OBJECTIVE IS TO CONDUCT SUFFICIENTLY -YOUR OBJECTIVE IS TO CONDUCT SUFFICIENTLY

DETAILED AND COMPREHENSIVE RESEARCH TO ENABLE DETAILED AND COMPREHENSIVE RESEARCH TO ENABLE YOU TO COMPLETE A WRITTEN BUSINESS PLANYOU TO COMPLETE A WRITTEN BUSINESS PLAN

MISSION STATEMENTMISSION STATEMENT

-What the company does, what business you -What the company does, what business you are inare in

-What industry you are in-What industry you are in

-Customers and markets-Customers and markets

-What the company aspires to become-What the company aspires to become

-Maximum of 2-4 sentences-Maximum of 2-4 sentences

VALUE PROPOSITION:VALUE PROPOSITION:WHERE’S THE BEEF?WHERE’S THE BEEF?WHAT’S COMPELLING?WHAT’S COMPELLING?

-What unmet need does this fill?-What unmet need does this fill?

-Why is this important?-Why is this important?

-Why will customers care?-Why will customers care?

-Why should investors care?-Why should investors care?

-Sustainable competitive advantage?-Sustainable competitive advantage?

-Spouse test-Spouse test

ELEVATOR PITCHELEVATOR PITCH

-Generally a 45-60 second description of the -Generally a 45-60 second description of the BUSINESS OPPORTUNITY in LAYMAN’S BUSINESS OPPORTUNITY in LAYMAN’S termsterms

-No more than 15 seconds on the technology and -No more than 15 seconds on the technology and productproduct

-Entrepreneurs should also have a 10-15 second -Entrepreneurs should also have a 10-15 second networking pitch, which can be elaborated on if networking pitch, which can be elaborated on if the listener is interestedthe listener is interested

ELEVATOR PITCHELEVATOR PITCH

ADDRESS EACH POINT BELOW WITH 1 OR 2 SENTENCES AND ADDRESS EACH POINT BELOW WITH 1 OR 2 SENTENCES AND THEN COMBINE AND SELECT YOUR BEST 10-14:THEN COMBINE AND SELECT YOUR BEST 10-14:

-What the company does/what business you are in-What the company does/what business you are in

-Who you do it to- customers and markets-Who you do it to- customers and markets

-What the company aspires to become-What the company aspires to become

-What unmet need/customer problem do you solve?-What unmet need/customer problem do you solve?

-Brief product/service description, 2 sentences max, non-technical terms-Brief product/service description, 2 sentences max, non-technical terms

-Why this is important/why customers will care/customer benefits-Why this is important/why customers will care/customer benefits

-Why should investors care/what is compelling?-Why should investors care/what is compelling?

-One or two exceptional milestones that demonstrate momentum is -One or two exceptional milestones that demonstrate momentum is building.building.

-What you are presently looking for (i.e. financing, guidance, team -What you are presently looking for (i.e. financing, guidance, team members)members)

SET UP A BOOKKEEPING SYSTEMSET UP A BOOKKEEPING SYSTEM

-Record expenses-Record expenses

-Keep receipts -Keep receipts

-Set up a business checking account-Set up a business checking account

-Get an accountant-Get an accountant

MARKET RESEARCHMARKET RESEARCH

-Total demand and sales potential within targeted market-Total demand and sales potential within targeted market-Competing products and what customers think about them-Competing products and what customers think about them-Perceptions of prospective customers regarding how your -Perceptions of prospective customers regarding how your

product compares with the competitionproduct compares with the competition-Unique value proposition-Unique value proposition-Sustainable competitive advantage-Sustainable competitive advantage-Identify market segments and niches where you can compete -Identify market segments and niches where you can compete

most effectivelymost effectively-Barriers to entry-Barriers to entry-Profiles of targeted customers-Profiles of targeted customers-Distribution channels-Distribution channels-Pricing structure-Pricing structure

NETWORKING & NETWORKING & INFORMATION NETWORKSINFORMATION NETWORKS

-Networking is one of an entrepreneur’s most important -Networking is one of an entrepreneur’s most important activitiesactivitiesHelps get the word out about your businessHelps get the word out about your businessEnables you to learn information and meet people who Enables you to learn information and meet people who

can be helpful to you in building your businesscan be helpful to you in building your businessMeet prospective investorsMeet prospective investors

-Information networks enable you to monitor industry and -Information networks enable you to monitor industry and market developments, as well as the competitive landscape, market developments, as well as the competitive landscape, in search of threats and opportunitiesin search of threats and opportunities

-Prospective investors are going to expect you to know, -Prospective investors are going to expect you to know, understand, and be able to discuss your targeted markets, understand, and be able to discuss your targeted markets, prospective customers, and competitors at least as well as prospective customers, and competitors at least as well as anyoneanyone

INFORMATION NETWORKSINFORMATION NETWORKS

PUBLISHED SOURCESPUBLISHED SOURCES

-Newspapers-Newspapers

-Business periodicals-Business periodicals

-Trade press-Trade press

-Professional journals-Professional journals

-Speeches and -Speeches and announcementsannouncements

-Annual reports-Annual reports

-Testimony, lawsuits, -Testimony, lawsuits, antitrust informationantitrust information

FIELD/HUMAN SOURCESFIELD/HUMAN SOURCES

-Customers-Customers

-Suppliers-Suppliers

-Trade associations-Trade associations

-Entrepreneur organizations-Entrepreneur organizations

-Chambers of commerce-Chambers of commerce

-Journalists-Journalists

-Former employees-Former employees

VENTURE CAPITALVENTURE CAPITAL

-Typically invest $1,000,000 or more-Typically invest $1,000,000 or more

-Fund 1% or less of the deals they see-Fund 1% or less of the deals they see

-Generally dislike early stage deals and pre-sales -Generally dislike early stage deals and pre-sales businesses, because of their level of risk and lack of businesses, because of their level of risk and lack of market validationmarket validation

-Some firms specialize in seed and early stage investments-Some firms specialize in seed and early stage investments

-Seed stage and early stage funds invest smaller amounts -Seed stage and early stage funds invest smaller amounts earlierearlier

-MAKE SURE YOU ARE READY-MAKE SURE YOU ARE READY

-GET REFERRED-GET REFERRED

-Pratt’s Guide to Venture Capital-Pratt’s Guide to Venture Capital

ANGEL INVESTORSANGEL INVESTORS

-High net worth individuals:-High net worth individuals:-Typically invest smaller sums earlier and have a -Typically invest smaller sums earlier and have a

higher tolerance of riskhigher tolerance of risk-Tend to invest $300,000 or less and like to be -Tend to invest $300,000 or less and like to be

actively involvedactively involved-Invest in industries they are familiar with -Invest in industries they are familiar with -Collectively do more deals and invest more-Collectively do more deals and invest more-Tend to invest within a couple of hours drive-Tend to invest within a couple of hours drive-Can be difficult to find-Can be difficult to find-Often Invest as a group-Often Invest as a group

HUNTING DOWN ANGELSHUNTING DOWN ANGELS

-Attorneys and accountants-Attorneys and accountants-Entrepreneur/Investor networking organizations-Entrepreneur/Investor networking organizations

NJ Entrepreneurial Network-www.njen.comNJ Entrepreneurial Network-www.njen.com NJ Entrepreneurs Forum-www.njef.orgNJ Entrepreneurs Forum-www.njef.org NJ Technology Council-www.njtc.orgNJ Technology Council-www.njtc.org Venture Association of NJ-www.vanj.comVenture Association of NJ-www.vanj.com

-Venture fairs, forums, and expos-Venture fairs, forums, and expos-Flying and yacht clubs-Flying and yacht clubs-Angel Investor Networks-Angel Investor Networks

REGIONAL ANGEL GROUPSREGIONAL ANGEL GROUPS

NJTC JUMPSTART NJ ANGEL NETWORKNJTC JUMPSTART NJ ANGEL NETWORK

WWW.NJTC.ORGWWW.NJTC.ORG

JERSEY ANGEL NETWORKJERSEY ANGEL NETWORK

WWW.JERSEYANGELNETWORK.COMWWW.JERSEYANGELNETWORK.COM

TRI-STATE PRIVATE INVESTORS NETWORKTRI-STATE PRIVATE INVESTORS NETWORK

WWW.ANGELINVESTORFUNDING.COMWWW.ANGELINVESTORFUNDING.COM

DON’T COUNT ON OUTSIDE FINANCINGDON’T COUNT ON OUTSIDE FINANCINGCOMING OUT OF THE GATECOMING OUT OF THE GATE

--Raising debt and equity financing is all about perceptions of Raising debt and equity financing is all about perceptions of risk and opportunityrisk and opportunity

-Early stage and pre-sales companies are generally -Early stage and pre-sales companies are generally perceived as too riskyperceived as too risky

-The further along you can develop the venture before formal -The further along you can develop the venture before formal financing, the better your chances and the better the termsfinancing, the better your chances and the better the terms

-Plan for the process of raising financing to take 3-6+months, -Plan for the process of raising financing to take 3-6+months, if you are very fortunateif you are very fortunate

-BOOTSTRAPPING- Everything else that an entrepreneur -BOOTSTRAPPING- Everything else that an entrepreneur does to both raise and minimize the resources needed to does to both raise and minimize the resources needed to launch their business and carry it through its early stageslaunch their business and carry it through its early stages

BOOTSTRAPPINGBOOTSTRAPPING

--Cleaning out your personal savings or retirement accountsCleaning out your personal savings or retirement accounts

-Home equity loans and second mortgages-Home equity loans and second mortgages

-Credit cards-Credit cards

-Friends & family plan/4 Fs-Friends & family plan/4 Fs

-Research and development grants-Research and development grants

-Strategic alliances-Strategic alliances

-Outsourcing activities requiring large up-front investments-Outsourcing activities requiring large up-front investments

-Purchasing used equipment-Purchasing used equipment

-Bartering your product/service for someone else’s-Bartering your product/service for someone else’s

-Advances from professional service providers-Advances from professional service providers

-Suppliers-Suppliers

-Advance payments from customers -Advance payments from customers

DOWNSIDE- There is often a trade-off between time and money and the delay DOWNSIDE- There is often a trade-off between time and money and the delay can sometimes be detrimental or fatalcan sometimes be detrimental or fatal

STRATEGIC ALLIANCESSTRATEGIC ALLIANCESBUSINESS PARTNERSHIPSBUSINESS PARTNERSHIPS

-You partner with another company to gain access to resources -You partner with another company to gain access to resources that you need but don’t havethat you need but don’t have

-For most young businesses this typically means partnering with a -For most young businesses this typically means partnering with a larger, more established businesslarger, more established business

-More important than ever given current risk adverse venture -More important than ever given current risk adverse venture capital environmentcapital environment

-SPEED ENTRY TO MARKETPLACE AND REDUCE REQUIRED -SPEED ENTRY TO MARKETPLACE AND REDUCE REQUIRED FINANCINGFINANCING

-Loss-Loss of controlof control-Several Types-Several Types

FinancingFinancing Marketing and salesMarketing and sales ManufacturingManufacturing LicensingLicensing

FINANCINGFINANCING

-Large companies may invest in smaller entrepreneurial -Large companies may invest in smaller entrepreneurial ventures to supplement or substitute for their own R&Dventures to supplement or substitute for their own R&D

-Less risky and more cost effective means of accessing -Less risky and more cost effective means of accessing cutting edge technologycutting edge technology

-Strategic partners most likely to understand and -Strategic partners most likely to understand and appreciate valueappreciate value

-Potentially more favorable terms of investment-Potentially more favorable terms of investment

MARKETING AND SALESMARKETING AND SALES

-Partner with a company selling similar but non-competing -Partner with a company selling similar but non-competing products to your prospective customersproducts to your prospective customers

-No marketing/sales employees to recruit, hire and train; -No marketing/sales employees to recruit, hire and train; no payrollno payroll

-Access to partner’s network of customer contacts-Access to partner’s network of customer contacts-The value to the larger company is that your product may -The value to the larger company is that your product may

fill a gap in or extend their product line.fill a gap in or extend their product line.

Downside: Less control, lower priorityDownside: Less control, lower priority

MANUFACTURINGMANUFACTURING

-Identify regional manufacturer-Identify regional manufacturer

-Eliminates or defers costly equipment purchases-Eliminates or defers costly equipment purchases

-No manufacturing employees to recruit, hire and train; no -No manufacturing employees to recruit, hire and train; no payrollpayroll

Downside: Less controlDownside: Less control

LICENSINGLICENSING

--Transfer of rights to commercialize a technology, or an Transfer of rights to commercialize a technology, or an application of a technology to another company in return application of a technology to another company in return for financial considerationfor financial consideration

-Typically some combination of up front cash, consulting -Typically some combination of up front cash, consulting contract and longer term royalty paymentscontract and longer term royalty payments

-There is typically a tradeoff-There is typically a tradeoff-Particularly useful for first application of a platform -Particularly useful for first application of a platform

technology or the first technology of a company with technology or the first technology of a company with multiple technologiesmultiple technologies

-Use cash and validation generated from the license to -Use cash and validation generated from the license to commercialize other applications and build a companycommercialize other applications and build a company

Downside: Lower rate of return, loss of control, time lag Downside: Lower rate of return, loss of control, time lag before royalty payments flowbefore royalty payments flow-Build in performance milestones-Build in performance milestones

MUST BE PREPAREDMUST BE PREPARED

-Entrepreneurs often approach prospective partners too -Entrepreneurs often approach prospective partners too earlyearly

-A good idea won’t be enough, strategic partners will -A good idea won’t be enough, strategic partners will want to see many of the same milestone want to see many of the same milestone achievements that equity investors look forachievements that equity investors look for

-Typically will want to see at least a prototype and often -Typically will want to see at least a prototype and often some testing and market validationsome testing and market validation

SMALL BUSINESS INNOVATIONSMALL BUSINESS INNOVATIONRESEARCH PROGRAM (SBIR)RESEARCH PROGRAM (SBIR)

--Largest Federal R&D Largest Federal R&D grants program targeted grants program targeted to small business-more to small business-more than $2 billion annuallythan $2 billion annually

-Best source of risk capital-Best source of risk capital-Pathway to equity-Pathway to equity-All Federal agencies with -All Federal agencies with

large external R&D large external R&D budgets participatebudgets participate

-Authorized through 08-Authorized through 08

Dept. of AgricultureDept. of Agriculture Dept. of CommerceDept. of Commerce Dept. of DefenseDept. of Defense Dept. of EducationDept. of Education Dept. of EnergyDept. of Energy Dept. of Health and Human Dept. of Health and Human

Services (NIH)Services (NIH) Dept. of Homeland SecurityDept. of Homeland Security Dept. of TransportationDept. of Transportation Environmental Protection Environmental Protection

AgencyAgency NASANASA Nat. Science FoundationNat. Science Foundation

THREE PHASE PROGRAMTHREE PHASE PROGRAM

-Typically annual solicitations in which agencies define -Typically annual solicitations in which agencies define areas in which they are interested in sponsoring areas in which they are interested in sponsoring researchresearch

-Phase I- up to $100,000, runs 6 months -Phase I- up to $100,000, runs 6 months ---Demonstrate technical/scientific merit and feasibility-Demonstrate technical/scientific merit and feasibility

Phase II- up to $750,000, runs 2 yearsPhase II- up to $750,000, runs 2 years-Continue research or R&D efforts-Continue research or R&D efforts-Development of a prototype-Development of a prototype

Phase III- no new fundingPhase III- no new funding-Commercialization of the technology-Commercialization of the technology

ELIGIBILITY FOR SBIR ELIGIBILITY FOR SBIR PARTICIPATIONPARTICIPATION

-Must be for profit business operating primarily in U.S.-Must be for profit business operating primarily in U.S.-Can be proprietorship, partnership, LLC, corporation, -Can be proprietorship, partnership, LLC, corporation,

joint venture, association, trust or cooperativejoint venture, association, trust or cooperative-51% owned and controlled by individuals who are U.S. -51% owned and controlled by individuals who are U.S.

citizens or permanent resident alienscitizens or permanent resident aliens-Not more than 500 employees, including affiliates-Not more than 500 employees, including affiliates

-All Phase I and Phase II work must be performed in -All Phase I and Phase II work must be performed in U.S.U.S.

-Don’t have to have company in place to submit -Don’t have to have company in place to submit successful proposalsuccessful proposal

PRINCIPAL INVESTIGATOR PRINCIPAL INVESTIGATOR INVOLVEMENTINVOLVEMENT

-As the -As the SMALL BUSINESSSMALL BUSINESS Innovation Research Innovation Research Program, SBIR is faculty unfriendlyProgram, SBIR is faculty unfriendly

-Must be primarily employed by the company -Must be primarily employed by the company (>50% of time during the contract, but not (>50% of time during the contract, but not necessarily all on this project)necessarily all on this project)

-Cannot work full time for another organization-Cannot work full time for another organization

-Co-PI’s not allowed-Co-PI’s not allowed

-Other agency-specific requirements-Other agency-specific requirements

SMALL BUSINESS TECHNOLOGY SMALL BUSINESS TECHNOLOGY TRANSFER PROGRAM (STTR)TRANSFER PROGRAM (STTR)

--Younger, poorer sister of SBIR programYounger, poorer sister of SBIR program-5 largest Federal Agencies participate-5 largest Federal Agencies participate

Department of DefenseDepartment of Defense NASANASA Department of EnergyDepartment of Energy National Science FoundationNational Science Foundation Department of Health & Human ServicesDepartment of Health & Human Services

-.03% set aside-.03% set aside-3 Phase program similar to SBIR-3 Phase program similar to SBIR-More faculty friendly-requires 30-60% of contract to go to a -More faculty friendly-requires 30-60% of contract to go to a

collaboration with a nonprofit research organizationcollaboration with a nonprofit research organization-NIH and NASA remove restriction on Principal Investigator-NIH and NASA remove restriction on Principal Investigator

CLOSEST THING TO CLOSEST THING TO “HOLY GRAIL” OF FREE MONEY“HOLY GRAIL” OF FREE MONEY

--No loans, no equityNo loans, no equity

-Entrepreneur maintains ownership of the technology-Entrepreneur maintains ownership of the technology

-Good odds-Good odds 1 in 8 Phase I proposals are funded1 in 8 Phase I proposals are funded 2 in 5 Phase II proposals are funded2 in 5 Phase II proposals are funded Odds currently better under STTROdds currently better under STTR

PATH TO EQUITY FINANCINGPATH TO EQUITY FINANCING

-SBIR/STTR provide up to $850,000 in -SBIR/STTR provide up to $850,000 in financing over approximately 3 years to financing over approximately 3 years to develop a technology reduce its technical develop a technology reduce its technical risk.risk.

-If the company simultaneously works to reduce -If the company simultaneously works to reduce market and business risk it can become a market and business risk it can become a prospect for equity financing. prospect for equity financing.

BUSINESS PLANBUSINESS PLAN

-The FINAL EXAM test of the adequacy of your research-The FINAL EXAM test of the adequacy of your research-One of the most important steps in preparing to launch a -One of the most important steps in preparing to launch a

new businessnew business-Describes what a business does, where it is going, how -Describes what a business does, where it is going, how

it is going to get there, and the resources it is going to it is going to get there, and the resources it is going to requirerequire

-It will only be as good as the depth and the quality of -It will only be as good as the depth and the quality of your researchyour research

-Generally a prerequisite for formal debt and equity -Generally a prerequisite for formal debt and equity investorsinvestors

-

3 PURPOSES3 PURPOSES

-Extraction: Extracts, translates and expands upon an -Extraction: Extracts, translates and expands upon an idea for a company from the entrepreneur’s head idea for a company from the entrepreneur’s head turning it into a written outline and roadmap for how turning it into a written outline and roadmap for how to run a businessto run a business-Most effective exercise you will go through-Most effective exercise you will go through

-Communication: Communicates business to -Communication: Communicates business to prospective advisors, management team members, prospective advisors, management team members, investors, strategic partners and employeesinvestors, strategic partners and employees-Sales document-Sales document

-Management: Effective management tool-Management: Effective management tool-Serves as a benchmark-Serves as a benchmark-Dynamic, living document-Dynamic, living document

BUSINESS PLAN OUTLINEBUSINESS PLAN OUTLINE

-Executive Summary-Executive Summary-Company Description-Company Description-Market Analysis-Market Analysis-Product/Technology/ Service-Product/Technology/ Service-Competitive Analysis-Competitive Analysis-Marketing and Sales Plan-Marketing and Sales Plan-Management and Operations-Management and Operations-Long Term Development and Risk Analysis-Long Term Development and Risk Analysis-Financial Plan-Financial Plan

-Avoid computer based outlines-makes plan difficult to read-Avoid computer based outlines-makes plan difficult to read-Business Plan Article-www.njbiz.com/guide-Business Plan Article-www.njbiz.com/guide

EXECUTIVE SUMMARYEXECUTIVE SUMMARY

-Most important component of plan, provides snapshot overview-Most important component of plan, provides snapshot overview-Should convey the essence of your business IN LAYMAN’S -Should convey the essence of your business IN LAYMAN’S

LANGUAGE and summarize the most important information LANGUAGE and summarize the most important information contained in each section of the plancontained in each section of the plan

-Starts with the mission statement-Starts with the mission statement-Value Proposition- What’s compelling?-Value Proposition- What’s compelling?-Identifies how much money you are looking to raise, your planned -Identifies how much money you are looking to raise, your planned

use of the funds, earnings projections and an exit strategyuse of the funds, earnings projections and an exit strategy-Typically read first by investors and bankers-Typically read first by investors and bankers-Screening tool -Screening tool -Must arouse curiosity and be compelling-Must arouse curiosity and be compelling-Should be completed last and run no more than 2 to 3 pages in -Should be completed last and run no more than 2 to 3 pages in

lengthlength

COMPETITIVE ANALYSISCOMPETITIVE ANALYSISCREDIBILITY BUILDER OR KILLERCREDIBILITY BUILDER OR KILLER

-Identify and discuss your competitors-Identify and discuss your competitors-EVERY PRODUCT HAS COMPETITION-EVERY PRODUCT HAS COMPETITION-At a minimum, your competition is NO SOLUTION -At a minimum, your competition is NO SOLUTION -What is the basis for competition? (technology, price, features, -What is the basis for competition? (technology, price, features,

quality, service, advertising)quality, service, advertising)-Competitors strengths and weaknesses-Competitors strengths and weaknesses-What are your strengths and weaknesses compared to your -What are your strengths and weaknesses compared to your

competitors?competitors?-What is your competitive advantage and how sustainable is it?-What is your competitive advantage and how sustainable is it?-How may your competitors respond to your entry to the market?-How may your competitors respond to your entry to the market?-Are there any developing technologies which could disrupt the -Are there any developing technologies which could disrupt the

competitive field?competitive field?

COMPETITIVE MATRIXCOMPETITIVE MATRIX

-Matrixes allow the presentation of lots -Matrixes allow the presentation of lots of information in a useable formatof information in a useable format

-X Axis-Critical evaluation criteria-X Axis-Critical evaluation criteria

-Y Axis-Key competitors or groups-Y Axis-Key competitors or groups

COMPETITIVE MATRIXCOMPETITIVE MATRIX

Criteria 1 Criteria 1 Criteria 2 Criteria 2 Criteria 3 Criteria 3

PricePrice Speed Speed Useful lifeUseful life

Competitor 1Competitor 1 $ 28,000$ 28,000 8 units/hr 8 units/hr 7 years 7 years

Competitor 2Competitor 2 $ 37,000$ 37,000 10 units/hr10 units/hr 10 years10 years

Competitor 3 Competitor 3 $ 31,000$ 31,000 10 units/hr10 units/hr 8 years 8 years

You Inc.You Inc. $ 33,000 $ 33,000 12 units/hr12 units/hr 10 years10 years

MARKET VALIDATIONMARKET VALIDATION

-Sales-Sales

-Beta testing-Beta testing

-Business Partnerships-Business Partnerships

-Testimonies from prospective -Testimonies from prospective customers and industry leaderscustomers and industry leaders

MILESTONESMILESTONES

-Significant achievements to date-Significant achievements to date

-You want to be able to demonstrate -You want to be able to demonstrate that a momentum is buildingthat a momentum is building

-The number and significance of them -The number and significance of them determines their placement in the plandetermines their placement in the plan

MARKETING AND SALES PLANMARKETING AND SALES PLAN

HOW YOU WILL SPREAD THE WORD ABOUT YOUR HOW YOU WILL SPREAD THE WORD ABOUT YOUR PRODUCT, GET IT INTO THE HANDS OF YOUR PRODUCT, GET IT INTO THE HANDS OF YOUR CUSTOMERS AND CLOSE THE SALECUSTOMERS AND CLOSE THE SALE

-How you will penetrate the market-How you will penetrate the market

-Marketing communications strategy-Marketing communications strategy

-Pricing strategy-Pricing strategy

-How you will distribute your product-How you will distribute your product

-Will you have your own sales force?-Will you have your own sales force?

-How you will maintain and increase market share-How you will maintain and increase market share

FINANCIAL ANALYSISFINANCIAL ANALYSIS

What is the company’s current financial status?What is the company’s current financial status? Capital requirements- both short and long termCapital requirements- both short and long term Use of fundsUse of funds Sources of funding (R&D grants, bank loans, equity, Sources of funding (R&D grants, bank loans, equity,

other)other) Projected net income and cash flow for the first 3 yearsProjected net income and cash flow for the first 3 years Explanation of assumptions underlying projectionsExplanation of assumptions underlying projections Break-even pointBreak-even point Discuss financial ratios- are they in line with industry Discuss financial ratios- are they in line with industry

standards?standards?

FINANCIAL ANALYSISFINANCIAL ANALYSIS

-Introduce and discuss company’s revenue model including all -Introduce and discuss company’s revenue model including all revenue streams included in the financial projections and revenue streams included in the financial projections and their scheduled starttheir scheduled start

-Discuss company’s current financial status?-Discuss company’s current financial status?-Capital requirements- both short and long term-Capital requirements- both short and long term-Use of funds-Use of funds-Sources of funding (R&D grants, bank loans, equity, other)-Sources of funding (R&D grants, bank loans, equity, other)-Source of repayment-Source of repayment-Projected net income and cash flow for the first 3 years-Projected net income and cash flow for the first 3 years-Not worth the paper they’re written on-Not worth the paper they’re written on-Explanation of assumptions underlying projections-Explanation of assumptions underlying projections-Bottom up versus top down financial projections-Bottom up versus top down financial projections-Break-even point-Break-even point-Discuss financial ratios- are they in line with industry norms?-Discuss financial ratios- are they in line with industry norms?

FINANCIAL ANALYSISFINANCIAL ANALYSIS

-Introduce and discuss company’s revenue model including all -Introduce and discuss company’s revenue model including all revenue streams included in the financial projections and revenue streams included in the financial projections and their scheduled starttheir scheduled start

-Discuss company’s current financial status?-Discuss company’s current financial status?-Capital requirements- both short and long term-Capital requirements- both short and long term-Use of funds-Use of funds-Sources of funding (R&D grants, bank loans, equity, other)-Sources of funding (R&D grants, bank loans, equity, other)-Source of repayment-Source of repayment-Projected net income and cash flow for the first 3 years-Projected net income and cash flow for the first 3 years-Not worth the paper they’re written on-Not worth the paper they’re written on-Explanation of assumptions underlying projections-Explanation of assumptions underlying projections-Bottom up versus top down financial projections-Bottom up versus top down financial projections-Break-even point-Break-even point-Discuss financial ratios- are they in line with industry norms?-Discuss financial ratios- are they in line with industry norms?

READY, SET,… STOP!READY, SET,… STOP!

-Avoid approaching investors directly, get referred-Avoid approaching investors directly, get referred

-Avoid approaching investors too early-Avoid approaching investors too early

-Milestones-Milestones

-Market validation-Market validation

-Okay to approach early if you are reasonably certain -Okay to approach early if you are reasonably certain about your path to and timeline for market entryabout your path to and timeline for market entry

NJ SMALL BUSINESS DEVELOPMENT CENTERS NJ SMALL BUSINESS DEVELOPMENT CENTERS (NJSBDC)(NJSBDC)OF RUTGERS BUSINESS SCHOOLOF RUTGERS BUSINESS SCHOOL

Part of a national public, private and academic partnershipPart of a national public, private and academic partnership Free business counseling, consulting, and affordable business Free business counseling, consulting, and affordable business

trainingtraining Funded in part by the U.S. Small Business Administration and Funded in part by the U.S. Small Business Administration and

the NJ Commerce and Economic Growth Commissionthe NJ Commerce and Economic Growth Commission 11 regional centers and 26 satellite offices across NJ11 regional centers and 26 satellite offices across NJ More than 200,000 small business owners, prospective More than 200,000 small business owners, prospective

entrepreneurs and business professionals served since 1979entrepreneurs and business professionals served since 1979 Serve businesses from pre-startup stage to those with 500 Serve businesses from pre-startup stage to those with 500

employeesemployees Specialty programs in international trade, government Specialty programs in international trade, government

procurement, manufacturing, E-business, & technology procurement, manufacturing, E-business, & technology commercializationcommercialization

NJ SMALL BUSINESS DEVELOPMENT NJ SMALL BUSINESS DEVELOPMENT CENTERS (NJSBDC)CENTERS (NJSBDC)

Services include help with:Services include help with: Business plansBusiness plans Marketing plansMarketing plans Financial statementsFinancial statements Loan packagesLoan packages Record keepingRecord keeping Taxes Taxes E-commerceE-commerce

NJSBDC Web Site: NJSBDC Web Site: www.NJSBDC.comwww.NJSBDC.comSBA Web site: SBA Web site: www.sba.gov www.sba.gov

RUTGERS RESOURCESRUTGERS RESOURCES

-NJSBDC DIRECTOR OF E-BUSINESS-NJSBDC DIRECTOR OF E-BUSINESSReviews and evaluations of small Reviews and evaluations of small

business web sitesbusiness web sitesNat Bender 973-353-1924Nat Bender 973-353-1924

NEW JERSEY INCUBATORSNEW JERSEY INCUBATORS

-10 public incubators, www.state.nj.us/scitech-10 public incubators, www.state.nj.us/scitech-Lease office and light manufacturing space, sometimes wet labs-Lease office and light manufacturing space, sometimes wet labs-Targeted to start-ups and graduates of an entrepreneur’s home-Targeted to start-ups and graduates of an entrepreneur’s home-Rents typically at or slightly below commercial rates-Rents typically at or slightly below commercial rates-Shared administrative support services-Shared administrative support services-Free on site management assistance services-Free on site management assistance services-Access to a network of volunteer business professionals-Access to a network of volunteer business professionals-Referrals to business resources and education and networking events-Referrals to business resources and education and networking events-Supportive environment-Supportive environment-Visibility and credibility-Visibility and credibility-Objective is to build the business to the point where it is increasing -Objective is to build the business to the point where it is increasing

sales, generating new jobs, and ready to graduate to larger sales, generating new jobs, and ready to graduate to larger commercial space within three yearscommercial space within three years

LESSONS LEARNEDLESSONS LEARNED

-Market entry takes more time and costs more than planned-Market entry takes more time and costs more than planned-The better and more comprehensive your planning, the -The better and more comprehensive your planning, the

better your chances for success, minimize your surprisesbetter your chances for success, minimize your surprises-Reader should know after the first sentence what the -Reader should know after the first sentence what the

company does.company does.-A great technology may not be good enough, Thou shalt -A great technology may not be good enough, Thou shalt

know thy markets and customers and their needsknow thy markets and customers and their needs-Readability/ Layman’s terms, Don’t make reader work hard to -Readability/ Layman’s terms, Don’t make reader work hard to

understand the technology and the business opportunityunderstand the technology and the business opportunity-Differentiate yourself from your competitors in a way that -Differentiate yourself from your competitors in a way that

provides the perception of value to your prospective provides the perception of value to your prospective customers, and that you can sustain over timecustomers, and that you can sustain over time

LESSONS LEARNEDLESSONS LEARNED

-First business hire or advisor should usually be a marketing -First business hire or advisor should usually be a marketing and sales professional who knows your marketsand sales professional who knows your markets

-Validate market demand and be able to demonstrate -Validate market demand and be able to demonstrate momentum before approaching venture capitalistsmomentum before approaching venture capitalists

-Venture capitalists will expect you to understand your -Venture capitalists will expect you to understand your markets and customers at least as well as anyonemarkets and customers at least as well as anyone

-Management, management, management-Management, management, management-Develop a bootstrapping strategy which you can fall back on-Develop a bootstrapping strategy which you can fall back on-Develop your venture as far as you can before quitting day -Develop your venture as far as you can before quitting day

jobjob-Network-Network-If the reader is not EXCITED by the end of the executive -If the reader is not EXCITED by the end of the executive

summary, you have lost themsummary, you have lost them