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Jim Goetz of Sequoia Capital explains to Stanford students what they look for in business plans - great pres.
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THINK BIGBUT START SMALL
FEBRUARY 27, 2008
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FROM IDEA TO BUSINESS PLAN
IDENTIFY A COMPELLING MARKET NEED
HUMBLE BEGINNINGS (THINK BIG, START SMALL)
WHAT WE HOPE TO HEAR FIRST
HI-TECH MARKETING CAN BE DIFFICULT. SOME RESOURCES
A COUPLE OF ANECDOTAL EXAMPLES
WHAT WE HEAR WAY TOO OFTEN
GETTING TO TECHNOLOGY, TEAM, and FINANCE
MEETING MANAGEMENT WITH VCs
SOME COMMON PITFALLS
ENJOYING THE JOURNEY
3
HUMBLE BEGINNINGS
Larry & Sergey Steve Chad JawedJerry & David
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HUMBLE BEGINNINGS
Steve & Steve Trip Sandy & Len
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NEW PRODUCT STRATEGY
6
WHAT WE HOPE TO HEAR FIRST…
2.MARKET
STRATEGY(UNFAIR
ADVANTAGE)
3.PRODUCT
&TECHNOLOG
Y
4.DEFINING
TEAM
5.CAPITAL
EFFICIENCY
ENTREPRENEUR’S CHALLENGE
1.MARKET
POSITIONING
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THE BIGGEST CHALLENGE….
A.K.A.
THE “ELEVATOR” PITCH
1.MARKET
POSITIONING
We networks networks.Sandy Lerner/Len Bozak
Cisco
“
“
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For [target customers]
Who have [compelling reason to buy]
Our product is a [new product category]
That provides [key benefit (which solves problem)]
Unlike [competitor in new product category]
We have [key point of differentiation]
*Source: Crossing the Chasm
HELP FROM GEOFFREY MOORE1.MARKET
POSITIONING
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For movie producers Who have post-production special effects Silicon Graphics provides computer workstations That integrates digital fantasies with film
footage Unlike IBM or Sun Microsystems SGI has made a no compromise commitment
to meeting film makers’ post-production needs.
*Source: Crossing the Chasm
TWO DECLARITIVE SENTENCES1.MARKET
POSITIONING
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STRUCTURE
SPEED
LEVERAGE
TRENDSVITAMIN?
OR
ASPIRIN?
HOW
PLUGGED
IN ARE YOU?
2.MARKET
STRATEGYINTIMATE WITH TARGET MARKET & BULLSEYE CUSTOMER?
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CHANGE OR CREATE CATEGORY?
MARKET DYNAMICS
JOIN EXISTING CATEGORY DEFINE NEW CATEGORY
Large Size, Strong Growth Small Size, Explosive Growth
ADVANTAGE Price/Performance IP, Functionality, Brand
CUSTOMERS Opportunistic Loyal
MARKET SHARE Lower (often less than 10%) Higher (often greater than 50%)
GROSS MARGIN Lower (often less than 50%) Higher (often greater than 65%)
ACHIEVABLE GOAL Acquisition Public Company
LEGACY Single Generation Reign Dynasty
2.MARKET
STRATEGY
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YOUR PLAN OF ATTACK?2.MARKET
STRATEGY
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CREDIBLE DIFFERENTIATION?
Y1
Competitor 1
Competitor 2Competitor 3
Competitor 4Competitor 5
Competitor 6Competitor 7
Competitor 8
Competitor 9
Competitor 10
Competitor 11
Y2
X1 X2
New Co
2.MARKET
STRATEGY
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3.PRODUCT
&TECHNOLOGY
TECHNOLOGY
PARTNERSHIPS
SIMPLICITY
BUSINESS PROCESSDOMAIN KNOWLEDGE
DEFENSIBLE BARRIERS?
NETWORK EFFECT
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4.DEFINING
TEAM
NewCo.
555 Main Street Tim Jones Anywhere, USA CEO (415) 555-5552 chief2@newco.com
NewCo.
555 Main Street Barney Baker Anywhere, USA CFO (415) 555-5553 chief3@newco.com
NewCo.
555 Main Street Ajay Singh Anywhere, USA COO (415) 555-5554 chief4@newco.com
NewCo.
555 Main Street Vlad Krunis Anywhere, USA General Counsel (415) 555-5555 chief5@newco.com
NewCo.
555 Main Street Karen Williams Anywhere, USA President (415) 555-5556 chief6@newco.com
NewCo.
555 Main Street Bob Smith Anywhere, USA Chairman (415) 555-5552 chief2@newco.com
MAGNETS? SCARS? PASSION?
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CENTRAL CASTING4.DEFINING
TEAM
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DO THE #S MAKE SENSE?
GROSS MARGIN
REVENUE TRAJECTORY
EBITDA
CASH REQUIREMENT VS. OPEX
%’S & RATIOS
5.CAPITAL
EFFICIENCY
CASH FLOW TO BREAK EVEN
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GRASPING UNIT ECONOMICS?
ABANDONED CART RATE
COST OF CUSTOMER ACQUISITION
LIFETIME VALUE
PRODUCT/BRAND ASSORTMENT
INCENTIVE PROGRAMS
ACTIVE CUSTOMERS/MO.
CUSTOMER CHURN/MO.FREQUENCY PURCHASE TRENDS
NEW CUSTOMERS/MO.
TICKET SIZE PURCHASE TRENDS
#ITEMS PURCHASE TRENDS
# CLICKS TO CHECK-OUT
REVENUE BY DAY/WEEK/SEASON
GROSS PROFIT/TRANSACTION
COST PER SKUS
INVENTORY TURNS
SHRINKAGEPICK RATES
DELIVERY TIME
MRRCOST OF CUSTOMER SERVICE
CUSTOMER CONTACT RATE
5.CAPITAL
EFFICIENCY
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TAKES LONGER, COSTS MORE5.CAPITAL
EFFICIENCY
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FINANCIALS SAY A GREAT DEALABOUT HOW YOU THINK…
NOT A TIME TO BE NAÏVE
UNREALISTIC OR MISLEADING
FRUGALITY
MARKET STRATEGY
SALES TACTICS
5.CAPITAL
EFFICIENCY
MARKET SIZE
MARKETUPTAKE
MARKETVELOCITY
REALISM
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MEETING MANAGING WITH VCS
CHAOS?
CONTROLLED?
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MOST COMMON PITFALLS
GORILLA ALUMNI & AIRCRAFT CARRIERS
LACK OF FOCUS
OPPORTUNITY EXISTS BEFORE THE MARKET ARRIVES
TOP HEAVY
COMPELLING?, UNIQUE?
SALES MODEL AND ASP DIVERGENCE
INCINERATOR SCHEMES
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MISREAD TEA LEAVES
CLUTTERED MARKETS
CAPITAL INTENSIVE
SLOPPY DUE DILIGENCE
MOMENTUM INVESTING
WEAK SYNDICATE
UNPREDICTABLE DIRECTORS
DAZZLED BY SCIENCE
BOY SCOUT REFERENCES
TOO MUCH MONEY
LONG EVALUATION CYCLES
SLOW PAYING CUSTOMERS
GOING NATIVE
TOO EARLY
TOO LATE
DECEIVED BY COMPARABLES
DILUTIVE IPOs
FEELING TOO WEAK
FEELING TOO STRONG
POOR CUSTOMER SELECTION
STRETCHED TOO THIN
NOT ADDRESSING A TRUE PAIN
CAN’T ARTICULATE THE BUSINESS
SMALL GROSS MARGINS
SMALLER OPERATING MARGINS
NO MODEL FOR MAKING MONEY
A FEATURE, NOT A PRODUCT
A PRODUCT, NOT A BUSINESS
LACK OPERATING CONTROLS
GROWING TOO FAST
WRONG DNA
BAD LISTENERS
POOR CUSTOMER SERVICE
DECEIVED BY SUCCESSES
DRUNKEN PARADE LEADERS
EYEBALLS CONVERTS TO $s
CAPEX CONVERTS TO $s
IGNORING FUNDAMENTALS
REPEATING HISTORY
LEARN FROM OUR MISTAKES
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WHAT WE LOOK FOR IN A PLAN
1. UNIQUE VALUE PROPOSITION/MARKET POSITIONING CLEAR, CONCISE, ABOVE THE NOISE; CUSTOMER VALIDATION?
2. EXPLOSIVE MARKET SECTORS, FULL OF DISCONTINUITIES AMBIGUITY AND CONFUSION ARE GOOD. HOW BIG? DEFINING? STRUCTURE/ACCESSIBILITY? READINESS? DISCONTINUITY—WHAT’S DIFFERENT? VALUE CAPTURE POTENTIAL? NO COMPETITION – OFTEN NO MARKET; ENTRENCHED PLAYERS: INNOVATOR’S DILEMMA? STARTUPS: HOW MANY? OUR TEAM? SOURCES FOR DIFFERENTIATION?
3. BREAKTHROUGH PRODUCTS/TECHNOLOGY SOURCES FOR DEEP SEPARATION AND ADVANTAGE? ORDER OF MAGNITUDE? DEGREE OF DIFFICULTY? ADOPTABILITY? COMPLETENESS? DEFENSIBILITY?
4. DEFINING TEAMS MAGNET QUALITIES? DOMAIN EXPERTISE? INTENSITY? DNA BLEND? SCAR TISSUE?
5. CAPITAL EFFICIENCY WHAT IS THE FULLY FUNDED PLAN? MARGIN? BUSINESS MODEL? DIRECT VS INDIRECT? EXPENSE MODEL? REVENUE ASSUMPTIONS?
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WE’RE ONLY AS GOOD AS OURNEXTINVESTMENT.
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