innovation & entrepreneurship - qubb.mccollum/csc4004/download/mengweek8.pdf · 2013-11-25 ·...

Innovation & Entrepreneurship CSC4004

Dr. Barry McCollum

Opening slide option 1

Queens University Belfast

Dr. Barry McCollum




Presentations

Queens University Belfast Innovation & Entrepreneurship CSC4004

Week 10 9:00-10:00 am M.Alexander, S.Curran, C.Grey, J.Hamill, R.Leonard, 10:15-11:30 am J.Lockhard, S.Madden, M.McCaigue, B.McCartey, D.McCullion, J.McMullan Topics

- innovation and Good Business

- Risk and Uncertainty

- Markets

Presentations


Marketing Model Financial Model Growth and Finance Barriers to setting up Graduate Business


Marketing Model: Things to Consider


Marketing Model and Plan


Summary/Overview Target Customers - Demographic profile of institutions/wants-needs Product USP - Concisely, what makes you absolutely unique Pricing and Positioning Strategy - inc. customer expectations, value added proposition Distribution Plan - Direct Web Sales or not



Offers - Promotions/trials Marketing Material - what/when Promotions Strategy - Advertising / trade shows/ events Online Marketing Strategy - SEO / Social Conversion Strategy



Partnering - Possible partners in colleges sector Referral Strategy - Possible referral deals Retention Strategies - Regular comms/updates Financial Projections - Sales


Financial Model: Things to Consider


Financial Model


It is a Model - How a business works The End Result - a set of financial statements, - key operational metrics, - and a set of key drivers and assumptions Scenarios - product, marketing, organisational and strategic decisions - helps determine key milestones, capital needs and types of

potential investors. Focus - your process, assumptions and key drivers and build a detailed

month-by-month model that you can modify and update over time.

Focus on Expenses


Hiring Plan - How many, Salary, Benefits, Equity Key Expenditure - Office Rent, insurance, legal, accounting, taxes, equipment, and

travel and entertainment costs.

Operation Budget - sales staff, website and marketing plan and how your budget for

translates to visitors, trials and sales.

Product Delivery


Chain of events - Development, Implementation, Maintenance, Development Business Model - Are you B2B or B2C?

- Are you pursuing a freemium model?

- Do you have different levels of service at different price points?

- Are sales one-time or subscription-based?

- How long will the average customer keep using your product?

- Consider pricing, discounts, sales, coupons and free trials, when customers pay, and how long it will take to collect invoices.

Operational Considerations - consider your partners, commissions, affiliate fees, monthly and

per-transaction costs. What kind of hosting and customer support do you need to support your estimated level of sales?

Analyse Assumptions


The Market - How big is the addressable market for your product or service, and

is it growing or declining?

- Who are your major competitors and what portion of the market do they currently have?

- What percentage of the market are you estimating you’ll be capturing within 3 months, 6 months and a year? Is it reasonable?

Analyse Key Metrics and Drivers? - Which assumptions have the most impact on your projections?

- Will a small change in price have a big impact on profits?

Iterate and Refine - testing, analyzing, benchmarking and running your model by people

you trust.

Business Model - Are you B2B or B2C?

- Are you pursuing a freemium model?

- Do you have different levels of service at different price points?

- Are sales one-time or subscription-based?

- How long will the average customer keep using your product?

- Consider pricing, discounts, sales, coupons and free trials, when customers pay, and how long it will take to collect invoices.

Operational Considerations - consider your partners, commissions, affiliate fees, monthly and

per-transaction costs. What kind of hosting and customer support do you need to support your estimated level of sales?


Growth and Finance


The Growth Headache


“Hard to grow fast and be profitable. As grow need to

spend money on infrastructure and staff to support

growth. This spending necessarily reduces profits. Can

have cash flow problems as increase sales and work in

progress but money not collected from customers”

Venture Capital


Finance Acceleration Requirements

- Good management team (energetic, ambition, track record)

- Need to be making a profit

- Good business proposition

Venture Capital


• VC’s can typically only invest over £500k.

• Meridian fund will do < £250K deals.

• If need smaller sums go to ‘Angels’ who are just as demanding

• VC’s need to invest large sums otherwise their business model

does not work. Their management time is expensive.

• VC’s must make money: risky, sell or die, team capable of

executing their plan, VCs will aggressively manage their

investment.

• ‘In – Grow – Out’ in a fixed time period (usually 5 years). Make

sure you understand their need to exit and are planning for this.

Case Study – What Can go Wrong

A Large Amount of Management Time

Expensive money

- Looking for 40% return per annum.

- For each £1 looking for £3 to £7 in 5 years.

- Bank money is much cheaper but need assets and cash flow to

secure this.

Reduce Flexibility

Stressful

Development of a Relationship


The Dating Game

• Cosy up to management and are encouraging. But use this

opportunity to identify your vulnerabilities to exploit in the

future.

• They make promises of the added value they can bring in

terms of contacts and credibility.

• Present their best people at this time.


Engagement - shareholders subscription agreement

• Once in ‘exclusivity’ use their knowledge of your

vulnerabilities against you.

• Off / on interest to wear you down for a better deal.

• Delays and complexities arise; these are very stressful

as you are burning cash while these negotiations are

going on. The longer they can delay the more their

power increases; so the better deal they get.

• VCs have done these negotiations lots of times, while

you have only done them once. This gives them an

advantage.


Marriage

• initial sponsor in the VC company may change

• Inherent cynicism is common; very undermining and

negative.

• Promised added value seldom materialises.

• Just a job for a VC but the entrepreneur is more

committed.


Divorce

• Trade sales forced by VC not management

• VC focus is to maximise what they can get

• VC will not give any warranties or guarantees in any form

for the business they are selling. They will take on no

long term liability.

• VC’s need to sell out ‘exit’ after a few years to get their

cash – regardless of business prospects.


Preparation – Don’t Say


• Our business plan projections are conservative. (they can sue if you don’t meet / exceed projections)

• A key senior guy is just about to join; get talent first.

• Market research shows a 3 trillion $ market in 5 years. Talk

about your specific niche.

• If we get 2% of a big market – no use because they don’t want a

business with only a 2% share.

• Don’t talk about a big deal until signed.

• We have no competition – shows you have no idea.

• Our patents make our business model secure. Want to fund

continuous innovation not litigation.

Preparation – Do Say


• We will invest capital in X and Y, and Z is for contingency.

• We will be attractive for someone to buy because ….

• Customers will buy our product / service because …

• Our customers will be … (describe a typical one)

• We think an investment of £X warrants a Z% because …

• Discount back from their need for a 40% pa return and connect

to your business plan. Provide a logical rationale.

General Points


• You will need 2 or 3 funding stages.

• Allow 9 months for each funding round

• Each funding round will take at least 40% of senior management

time.

• Seeking funding often left too late.

• VC needs to get to know company.

• Handling the fast pace of technology and market growth while doing

funding negotiations is tough.

• If more complex deals with several investors who came in at different

times on different terms, then more difficult to sell / restructure

company.

• With each investment received your equity stake will be diluted. You

may end up not making much money, even if the business is

successful.

Starting a Company after Graduation?


No money or savings.

Have Student Loan debt and have no income to support them

selves to start a business. How to survive?

Fear of failure.

If they fail (which is likely) will their career be damaged. There is

a high perceived personal risk.

Too much responsibility too soon.

Working for someone else looks a much easier and safer option.

They can get a well paid interesting job with Microsoft or Intel –

why take on the risk and worry?

High opportunity cost.

Currently are eligible for good graduate jobs and may have

difficulty getting onto the career ladder later on, if don’t take these

now. Have made a big 4 year investment by doing the degree.



Lack of faith in their abilities and ideas.

Little framework to know if what you are planning to do is realistic

or sensible.

Lack of security.

Lack of business experience

Not properly equipped to set up own company. Lack of relevant

business knowledge.

Feel need 5 years work experience.

Would be taken advantage of by angels, customers, suppliers as

lack experience.

What would be a fair salary to pay themselves?

No contacts to enable the building up of ‘social’ and ‘information’

capital.



Feel no credibility with experienced business people. Would they

take them seriously as potential suppliers, customers or partners?

They would not have the respect of others and would be patronised.

Just seen as ‘students’.

Do not know how to handle failure. In detail, how do you structure a

new business so that you are not left with debt to pay off for years to

come?

Too close to their business plan. how good it actually is?

Feel you are not ‘entrepreneurs’ and given their personality this would

not be a sensible career choice for them.

innovation & entrepreneurship - qubb.mccollum/csc4004/download/mengweek8.pdf · 2013-11-25 ·...

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