Today’s Topic:Today’s Topic:

Creating “Winning”Creating “Winning”

Business & Product PlansBusiness & Product Plans

First Course ModuleFirst Course Module

Companies’ objectivesCompanies’ objectives

Financial measuresFinancial measures

How companies bring products to How companies bring products to market (roles/process/compensation)market (roles/process/compensation)

Creating “winning” business plans - Creating “winning” business plans - todaytoday

Second Course ModuleSecond Course Modulethe next four weeksthe next four weeks

Market/customer analysis Market/customer analysis (DLJdirect case – online brokerage)(DLJdirect case – online brokerage)

Competitive analysis Competitive analysis (Airborne Express case – package delivery)(Airborne Express case – package delivery)

Making product decisions Making product decisions ((THINK case – electric cars)THINK case – electric cars)

Midterm examMidterm exam on product decisions on product decisions (Mathsoft – engineering analysis software)(Mathsoft – engineering analysis software)

Today’s AgendaToday’s Agenda

Business/product plansBusiness/product plans: audience, content, : audience, content, and and key aspects of a key aspects of a winningwinning plan plan

HomeworkHomework: addressing some key business plan : addressing some key business plan aspects (FHP Wireless case)aspects (FHP Wireless case)

Preparation for next weekPreparation for next week: : reading/assignment on target customers reading/assignment on target customers (DLJdirect case)(DLJdirect case)

Business/Product Plan LearningsBusiness/Product Plan Learnings

Content/scopeContent/scope of a business/product planof a business/product plan

Critical aspectsCritical aspects of a “winning” plan of a “winning” plan

DifferentiationDifferentiation: importance, definition, : importance, definition, identificationidentification

Start-upsStart-ups: success factors, funding requirements, : success factors, funding requirements, success profilessuccess profiles

Uses of a PlanUses of a Plan

To To decide decide what to do what to do

(planning = making decisions)(planning = making decisions)

To To obtain funding/resources obtain funding/resources for for execution of the plan (funding)execution of the plan (funding)

To To directdirect the various parts of the the various parts of the business (execution/communication)business (execution/communication)

Business vs. Product PlanBusiness vs. Product Plan

Business PlanBusiness Plan:: a plan for an a plan for an overall overall businessbusiness (company), used to obtain (company), used to obtain funding from funding from externalexternal sources sources

Product PlanProduct Plan:: a plan for a a plan for a productproduct (one of a company’s offerings), used (one of a company’s offerings), used to obtain funding/resources from the to obtain funding/resources from the company’s company’s senior managementsenior management ( (and and possibly the possibly the board of directorsboard of directors))

Objective Objective of a of a “Winning” Plan“Winning” Plan

Create a business/product thatCreate a business/product that

provides potential provides potential customerscustomers

a better a better ”value minus price” proposition”value minus price” proposition

than than competitorscompetitors

while managing while managing costs and expensescosts and expenses

so as to so as to make profits (earnings)make profits (earnings)

Business/Product Plan: Business/Product Plan: ContentsContents

The company or teamThe company or team The product or serviceThe product or service Market opportunity & customersMarket opportunity & customers CompetitionCompetition Sales and marketing planSales and marketing plan Operations and support plan Operations and support plan Financial projectionsFinancial projections

Business/Product Plan: Business/Product Plan: KeyKey ContentsContents

Company/Team: Company/Team: people, skills, resourcespeople, skills, resources Product: Product: “whole” product & its benefits“whole” product & its benefits Market: Market: attractiveness & target customersattractiveness & target customers Competition: Competition: differentiation !!differentiation !! Sales and marketing plan: Sales and marketing plan: sales channelssales channels Operations plan: Operations plan: cost & quality, servicecost & quality, service Financials: Financials: investor liquidity investor liquidity

Uses of a PlanUses of a Plan

To decide what to do (planning = To decide what to do (planning = making decisions)making decisions)

To obtain funding/resources for To obtain funding/resources for execution of the plan (funding)execution of the plan (funding)

To direct the various parts of the To direct the various parts of the business (execution/communication)business (execution/communication)

Obtaining Funding & ResourcesObtaining Funding & Resources

Existing companyExisting company • from from management management • through through budget authorization and staff budget authorization and staff

assignment assignment • based on a based on a product planproduct plan • money available to management comes from money available to management comes from

operating cash flow, interest received, sale of operating cash flow, interest received, sale of stock, or increased debtstock, or increased debt

New company/start-upNew company/start-up • from from investors and creditorsinvestors and creditors • through through formal documents/contractsformal documents/contracts • based on a based on a business planbusiness plan• money comes from the founders, friends & money comes from the founders, friends &

family, agencies, angels, venture capitalists, family, agencies, angels, venture capitalists, and/or banksand/or banks

Information and Information and Advice on Starting a Advice on Starting a

BusinessBusiness

See course website underSee course website under

““Supplementary Materials”Supplementary Materials”

useful websites and texts, useful websites and texts,

including www.bplans.comincluding www.bplans.com

Source: The Industry Standard, 2000

Long Term Venture Long Term Venture PerformancePerformance

1980 – 2007 : 24,000 companies received 1980 – 2007 : 24,000 companies received venture financingventure financing

3,800 (16%) still private3,800 (16%) still private 3,400 (14%) went IPO3,400 (14%) went IPO 3,800 (16%) were acquired3,800 (16%) were acquired 13,000 (54%) returned zero for investors13,000 (54%) returned zero for investors

Source: Moneytree, PriceWaterhouse Coopers and Source: Moneytree, PriceWaterhouse Coopers and National Venture Capital AssociationNational Venture Capital Association

Types of Start-up FundingTypes of Start-up Funding

GrantGrant: : “money for nothing”“money for nothing”

LoanLoan: : money to be paid back, with money to be paid back, with interestinterest

EquityEquity: : money in return for equity (a money in return for equity (a portion of your company; portion of your company; ppreferred or referred or ccommon stock), to be “paid back” by making ommon stock), to be “paid back” by making the stock the stock valuable valuable and and liquid (sellable)liquid (sellable)

Sources of FundsSources of Funds Your (founders’) savings Your (founders’) savings equity-cequity-c

““Friends and family” Friends and family” equity/loanequity/loan

Research grants Research grants grantgrant

Economic development agencies Economic development agencies all (grant)all (grant)

Angels Angels equity-p/cequity-p/c

Venture capitalists (VCs) Venture capitalists (VCs) equity-pequity-p

Private equity firms Private equity firms equity-pequity-p

Banks Banks loanloan time

SomeSome SomeSomeAgenciesAgencies Angel GroupsAngel Groups

NJ Economic Development NJ Economic Development AuthorityAuthority

NJ Technology Council NJ Technology Council (reference source)(reference source)

US gov’t – Defense, EPA, US gov’t – Defense, EPA, Homeland Security, NSF,…Homeland Security, NSF,…

US Small Business US Small Business Association/SBA Association/SBA

(SBIR and STTR grants)(SBIR and STTR grants)

Jumpstart NJ Angel Jumpstart NJ Angel NetworkNetwork

AngelVineAngelVine

Tri-State Private Investors Tri-State Private Investors NetworkNetwork

NYNMA AngelsNYNMA Angels

Common Angels (NY)Common Angels (NY)

Angel Capital AssociationAngel Capital Association (nat’l network directory)(nat’l network directory)

Angels and VCsAngels and VCs AngelsAngels = part-time investors, acting = part-time investors, acting

individually or in “networks,” using their individually or in “networks,” using their own money (personal assets); 234,000 own money (personal assets); 234,000 active angel investors in US during 2006active angel investors in US during 2006

VCsVCs = professional full-time investors, = professional full-time investors, working within a VC firm, investing other working within a VC firm, investing other people’s money (the VC fund); 5,000 VC people’s money (the VC fund); 5,000 VC investors in US during 2006investors in US during 2006

Angels invest Angels invest smaller amountssmaller amounts of money in of money in earlier stageearlier stage companies companies

Source: Jeff Sohl, Center for Source: Jeff Sohl, Center for Venture ResearchVenture ResearchUniversity of New University of New

HampshireHampshire

Angel

$22.5 bn48,000 deals$468k/deal

Angel

$23.1bn49,500 deals$467k/deal

Angel

$25.6bn51,000 deals$501k/deal

$20.9bn2,876 deals$7.2M/deal

VC

$21.7bn2,939 deals$7.4M/deal

VC

$25.5bn3,416 deals$7.5M/deal

VC

2004 2005 2006

Angels Invest Early and Oftencompany

lifetime

Angels (2010): $20.1B; 61,900 deals

Typical Financial Profile Typical Financial Profile for for SuccessfulSuccessful New Ventures New Ventures

Loss Profit

Years

1 2 3 4 5 6

7 80

10

20

-10

-20

-30

-40

-50

-60

-70

Profit breakeven: 30 months

Equity breakeven: 75 months

Average of 157 companies

Source: Timmons (1998)

Net

val

ue

( %

of

inve

stor

s’ e

qu

ity)

Where Is The Value Created?Where Is The Value Created?R

elat

ive

Val

ue

Product Development Phases

1%

10%

100%

Idea Patent Practice Product Successful Business

Source: Bela Musits, High Peaks Ventures

Which is why it’s said Which is why it’s said that….that….

““Good ideas are Good ideas are worth their weight in worth their weight in

gold” gold” (until?)(until?)

Objective of a “Winning” PlanObjective of a “Winning” Plan

Create a Create a businessbusiness that that

provides potential provides potential customerscustomers

a better a better “value minus price” proposition“value minus price” proposition

thanthan competitorscompetitors

while while managingmanaging the business the business

(costs and expenses)(costs and expenses)

to to attain targeted profits attain targeted profits

(earnings)(earnings)

Business Plan: ContentsBusiness Plan: Contents The company The company The product or serviceThe product or service Market opportunity & customersMarket opportunity & customers CompetitionCompetition Sales and marketing planSales and marketing plan Operations and support plan Operations and support plan Financial projectionsFinancial projections

Business/Product Plan: Business/Product Plan: KeyKey ContentsContents

Company/Team: Company/Team: people, skills, resourcespeople, skills, resources Product: Product: “whole” product & its benefits“whole” product & its benefits Market: Market: attractiveness & target customersattractiveness & target customers Competition: Competition: differentiation !!differentiation !! Sales and marketing plan: Sales and marketing plan: sales channelssales channels Operations plan: Operations plan: cost & quality, servicecost & quality, service Financials: Financials: investor liquidity investor liquidity

The “Whole” Product:The “Whole” Product:The Customer’s PerspectiveThe Customer’s Perspective

TheProduct

The “Whole” Product:The “Whole” Product:Everything Customers Really Care AboutEverything Customers Really Care About

The product itself Auxiliary or related

products Price and cost-in-

service Awareness and

information Where it is sold Ease of choice,

purchase, ordering Delivery

Installation Payment method Storage/movement Aesthetics/style Advice on use Help in use (e.g.,

hotline) Returns/exchanges Service/repair Disposal and…

Differentiation Differentiation from Competitors’ Productsfrom Competitors’ Products

Whole product differentiation Whole product differentiation is the answer to:is the answer to: Why do customers choose your product Why do customers choose your product instead of somebody else’s ?instead of somebody else’s ? (or buying nothing at all?)(or buying nothing at all?) Product differentiators are the things that are Product differentiators are the things that are

unique or best unique or best about the whole product, about the whole product, compared to the customers’ other alternativescompared to the customers’ other alternatives

Potential areas for differentiation = Potential areas for differentiation = dimensions of the whole product (product dimensions of the whole product (product features, price, sales, marketing, customer features, price, sales, marketing, customer service/support, brand, etc)service/support, brand, etc)

Competitive Products include:Competitive Products include:

Like-products: products of the Like-products: products of the same same “type”“type”

e.g., airline flights provided bye.g., airline flights provided by

different competitorsdifferent competitors

Substitute products: Substitute products: other ways other ways the the customer can obtain a customer can obtain a similarsimilar benefit benefit

e.g., bus, train, auto, boat, e.g., bus, train, auto, boat,

video conferencing, lettervideo conferencing, letter

Opportunity Assessment :Opportunity Assessment :Identifying Good IdeasIdentifying Good Ideas

see course website for detailssee course website for details

Is this an attractive Is this an attractive market opportunitymarket opportunity ? ? Can you attain a Can you attain a sustainable advantagesustainable advantage ? ? Can you beat or co-opt Can you beat or co-opt competitorscompetitors ?? Market entryMarket entry: can you find a way to “start” : can you find a way to “start”

your business ?your business ? Do you have the Do you have the ability to executeability to execute (to profit) ? (to profit) ? Can you acquire the necessary Can you acquire the necessary

funding/resourcesfunding/resources??

Opportunity AnalysisOpportunity Analysis

MarketsMarkets: size/growth, substitutes, : size/growth, substitutes, customer characteristics, need/benefit customer characteristics, need/benefit analysis, buyer power, costs to analysis, buyer power, costs to acquire/serve/retain customers acquire/serve/retain customers

(more on this next week)(more on this next week)

CompetitorsCompetitors: incumbents, rivalry, : incumbents, rivalry, strengths and weaknesses, competitive strengths and weaknesses, competitive response, co-opting possibilities response, co-opting possibilities

(more on this in two weeks)(more on this in two weeks)

FHP Wireless caseFHP Wireless case Timeframe is late 2002Timeframe is late 2002 FHP has invented a unique (?) technology for FHP has invented a unique (?) technology for

building wide-area wireless data networksbuilding wide-area wireless data networks Their first-year sales efforts have been mostly Their first-year sales efforts have been mostly

unsuccessfulunsuccessful They need to decide which customers to target: They need to decide which customers to target:

current targets, telecommunications companies, or current targets, telecommunications companies, or public safetypublic safety

…………and whether they need to change/enhance and whether they need to change/enhance their producttheir product

They are just about out of money, and are looking They are just about out of money, and are looking for additional investorsfor additional investors

Homework QuestionsHomework Questions

What are the reasonWhat are the reasonss FHP Wireless is having FHP Wireless is having difficulty in getting sales and revenues?difficulty in getting sales and revenues?

How can they make their How can they make their (whole) product (whole) product more more appealing to potential customers?appealing to potential customers?

How is FHP’s solution How is FHP’s solution differentiateddifferentiated from from customers’ other alternatives?customers’ other alternatives?

Which customer(s) should they pursue? Why? Which customer(s) should they pursue? Why?

Market AlternativesMarket Alternatives

Enterprise: Enterprise: warehouse/factory, warehouse/factory, gaming industry, hospitals, education gaming industry, hospitals, education campusescampuses

Service provider: Service provider: telephone and telephone and wireless carrierswireless carriers

Government: Government: local public safetylocal public safety

Customers’ Competitive Customers’ Competitive AlternativesAlternatives

Substitute productsSubstitute products

- wired networks- wired networks

- CDPD- CDPD

- Motorola radio- Motorola radio

Like-productsLike-products

- Hotspot Wi-Fi- Hotspot Wi-Fi

- - Wireless meshWireless mesh

What are the reasonWhat are the reasonss FHP Wireless is having FHP Wireless is having difficulty in getting sales and revenues?difficulty in getting sales and revenues?

Enabling environment problematic?Enabling environment problematic?

Target customer benefit insufficient?Target customer benefit insufficient?

Marketing and/or sales issues?Marketing and/or sales issues?

Inability to deliver (installation, service)?Inability to deliver (installation, service)?

How is FHP’s solution How is FHP’s solution differentiateddifferentiated from customers’ other alternatives?from customers’ other alternatives?

Which customer(s) should they pursue? Which customer(s) should they pursue? Why?Why?

Selecting Target Customers: Selecting Target Customers: some considerationssome considerations

Segment size and revenue opportunitySegment size and revenue opportunity Customer benefitsCustomer benefits Customer interestCustomer interest Customer ability-to-pay and leverageCustomer ability-to-pay and leverage Competition/market coverageCompetition/market coverage Sales issues: Sales issues: sale time/complexity, cost, sale time/complexity, cost,

channel and associated profit marginchannel and associated profit margin Cost to serve/supportCost to serve/support Customer loyalty/lock-inCustomer loyalty/lock-in Strategic value Strategic value

How can they make their How can they make their (whole) product (whole) product more appealing to potential customers?more appealing to potential customers?

( it depends on the target customer ! )( it depends on the target customer ! )

Business/Product Plan LearningsBusiness/Product Plan Learnings

Content/scopeContent/scope of a business/product planof a business/product plan

Critical aspectsCritical aspects of a “winning” plan of a “winning” plan

DifferentiationDifferentiation: importance, definition, : importance, definition, identificationidentification

Start-upsStart-ups: success factors, funding requirements, : success factors, funding requirements, success profilessuccess profiles

Next Week:Next Week:

Choosing target markets and Choosing target markets and target customerstarget customers

DLJdirect caseDLJdirect case

Readings for Next WeekReadings for Next Week

DLJdirect: “Putting our Reputation DLJdirect: “Putting our Reputation Online”Online” (topic: deciding on “target (topic: deciding on “target customers”)customers”)

DLJdirect Case: SummaryDLJdirect Case: Summary

Case timeframe: 1999-2000Case timeframe: 1999-2000 DLJdirect has a successful online DLJdirect has a successful online

brokerage business brokerage business targeting targeting “aggressively affluent” customers“aggressively affluent” customers

Other customer segments are Other customer segments are growing growing fasterfaster

DLJdirect has to decide whether to DLJdirect has to decide whether to address additional customer segmentsaddress additional customer segments and whether to and whether to significantly increase its significantly increase its advertising to attract those customersadvertising to attract those customers

Since 2000…..Since 2000…..

Early 2001: DLJ acquired by Credit Suisse Early 2001: DLJ acquired by Credit Suisse First Boston; DLJdirect becomes First Boston; DLJdirect becomes CSFBdirectCSFBdirect

Late 2001: CSFB sells CSFBdirect to Bank Late 2001: CSFB sells CSFBdirect to Bank of Montreal; CSFBdirect becomes of Montreal; CSFBdirect becomes HarrisdirectHarrisdirect

2005: Harrisdirect sold to E*TRADE 2005: Harrisdirect sold to E*TRADE Securities; Harrisdirect merged into Securities; Harrisdirect merged into etradeetrade

Online Stock TradingOnline Stock Trading

Customer(trader)

Online Broker

Market-maker

Clearing-house

StockExchangecustomer’s

account

Important Hint: there areImportant Hint: there are6 6 sources of revenuesources of revenue

From End-customersFrom End-customers• Trading commissionsTrading commissions• Account management feesAccount management fees• Interest on margin purchasesInterest on margin purchases

From partnersFrom partners• Order flow rebatesOrder flow rebates• Mutual fund and money market feesMutual fund and money market fees• iNautix revenues (software development for other iNautix revenues (software development for other

companies)companies)

You will find other hints and useful informationYou will find other hints and useful informationin the class materials for next weekin the class materials for next week

Advice on Case ReadingAdvice on Case Reading It’s long…..It’s long…..don’t waitdon’t wait until the last minute; until the last minute;

scanscan it first, then read it it first, then read it twicetwice

Make sure you understand the Make sure you understand the four four customer segmentscustomer segments identified (size, identified (size, characteristics, needs, serving characteristics, needs, serving requirements)requirements)

Understand the company’s Understand the company’s financial financial situationsituation (Exhibits 16 and 17) (Exhibits 16 and 17)

Assignment for Next ClassAssignment for Next Class

see questions on next two slidessee questions on next two slides

The first 5 questions represent a The first 5 questions represent a ““methodologymethodology” for making target ” for making target customer decisions!customer decisions!

Assignment QuestionsAssignment Questions Are DLJdirect’s Are DLJdirect’s financial results financial results “good”“good”? Stable?? Stable?

Does DLJdirect have the Does DLJdirect have the financial capabilityfinancial capability to to address new segments, e.g. to modify it’s whole address new segments, e.g. to modify it’s whole product, or to do more advertising to attract new product, or to do more advertising to attract new kinds of customers? How much money might be kinds of customers? How much money might be available in 2000?available in 2000?

Identify the ways DLJdirect’s service is Identify the ways DLJdirect’s service is differentiateddifferentiated from competitorsfrom competitors

What are the What are the key key needsneeds of each of the four customer of each of the four customer segments? Which are segments? Which are well-matchedwell-matched to DLJdirect’s to DLJdirect’s differentiators and other capabilities?differentiators and other capabilities?

Use your judgment to rank the customer segments Use your judgment to rank the customer segments according to the according to the profit potentialprofit potential in serving them (hint: in serving them (hint: consider both size of the segment and the average consider both size of the segment and the average profit/customer in that segment)profit/customer in that segment)

Assignment Questions Assignment Questions (continued)(continued)

Assuming DLJdirect continues to target the Assuming DLJdirect continues to target the aggressively affluent aggressively affluent segment: segment:

Should DLJdirect also target the Should DLJdirect also target the Get Rich FastGet Rich Fast (day trader)(day trader) segment? Why? segment? Why?

In your opinion, is there In your opinion, is there anotheranother customer customer segment that DLJdirect should target? Why?segment that DLJdirect should target? Why?