FIU Entrepreneur’s How To Webinar Series

Robert H. Hacker [email protected] 1Robert H. Hacker [email protected] 1© All rights reservedhttp://sophisticatedfinance.typepad.com

FIU Entrepreneur’s How To Webinar Series

How to Develop the Business Concept

ROBERT H. HACKERNovember 10, 2009


Sales 6 Years After Start-up

Sales $ Millions Number of firms %100 200 0.03%50 500 0.08%5 9,500 1.6%

<5 579,800 98.3%Total 590,000 100%


Out of Business in 5 Years

55 %


Keys to Success

• PICK RIGHT INDUSTRY AND OPPORTUNITY

• MENTORING• CAPITAL


Stages of Development

• PROOF OF CONCEPT 0-$1MM• COMMERCIALIZATION $1-3MM• SCALING $3-10MM• GROWTH $10-

30MM• PROFESSIONALIZATION $30-

100MM


The Process

STEP 2 STEP 3 STEP 4 STEP 5

GROWTH SURVIVAL

CONCEPT INDUSTRY BUSINESS MODEL FINANCIAL MODELCUSTOMER

STEP 1


Austin on CreativityStep Requirement

1 Interest You have to enjoy it to persist

2 Preparation Study it

3 Incubation Keep working

4 Illumination Solutions Will come

5 Verification Confirm Conclusions

6 Exploitation Act


1.Customer Needs Gerald Zaltman's seven metaphors for the

subconscious that explain 70 percent of human behavior

1. Balance (equilibrium) 2. Transformation (changing states or status)3. Journey (as in life) 4. Container (keeping things in and keeping things

out) 5. Connection (feelings of belonging or exclusion) 6. Resource (providing survival) 7. Control As quoted from HBS Working Knowledge)

http://hbswk.hbs.edu/item/5952.html


1.Customer NeedsExamples of Zaltman

1. Balance-Starbucks 2. Transformation-AMEX cards3. Journey-University of Phoenix 4. Container-LG refrigerators5. Connection-FaceBook6. Resource-FEMA 7. Control-TurboTaxAs quoted from HBS Working Knowledge)

http://hbswk.hbs.edu/item/5952.html


1. Customer Needs

NINTENDO APPROACH1. DO NOT FOCUS ON PRODUCT--GAMEBOY2. DO NOT FOCUS ON COMPETITION--MICROSOFT,

SONY3. FOCUS ON DEFINING THE NEED--WHAT TO DO

IN SPARE TIME


1. Customer Needs

ABUNDANCE APPROACH

1. What is abundant—CARS2. What is scarce about cars—honest,

hassle free buying3. Scarcity Solution--CARMAX


STEP 1: Customer Needs New Business Types

1. Do something better (market exists)2. Do something in a new way

(disruptive technology)3. Do something new (highest risk)


STEP 1: Customer Needs New Business Types

1. Do something better--GOOGLE2. Do something in a new way--

Amazon3. Do something new--Penicillin


A THOUGHT

Disbelief is more resistant than faith because it is sustained by the senses Gabriel Garcia Marquez


STEP 1. Customer Needs

Deliverable--Value Proposition


STEP 1. Customer Needs

Value Proposition

Product or service to satisfy a customer need for economic benefit (or social utility)


2. Solution

• Hypothesis• Iterative process• Evolving• Stalking horse


2. Solution

Hypothesis—Until $3+ million in revenue

—Until scaling begins


STEP 3: Industry AnalysisPorter’s Strategic Analysis

Source:http://www.quickmba.com/strategy/porter.shtml


STEP 3: Industry Analysis

Porter’s 3 Strategies

1.Low Cost2.Differentiation3.Focus4.Access to Capital--Hacker


STEP 3: Industry Analysis

Porter’s 3 Strategies

1.Low Cost—Wal-Mart2.Differentiation—Apple3.Focus—Cisco


STEP 3: Deliverables

• Differential Advantage– Unique, Sustainable And

Proprietary

• Target Customer– Characterize In Depth Who You Are

Going To Sell To


STEP 3 Deliverables

Barrier to Entry—What keeps out the competition from your market


STEP 4: Business Model

• Revenue Model• Pricing Model• Sales & Distribution Strategy• Capex• Headcount



GROWTH

1.Requires capital to achieve2.Not a productivity improvement



EARLY STAGE OBJECTIVESBY PRIORITY

1.Grow Revenues2.Reach Cash Flow Positive3.Profitability


STEP 4: Business ModelRevenue Model

WHAT DRIVES THE BUSINESS AND CREATES THE GROWTH

SANDS


STEP 4: Business ModelRevenue Model

GROWTH DRIVER ASSUMPTIONS

1.Explain business logic2.Demonstrate industry knowledge3.Clarify business risk4.Clarify management requirements5.Determine KPIs6.Build financial model (next step)


STEP 4: Business Model15-Pricing Models


STEP 4: Business ModelSales & Distribution

SALES STRATEGYHow are you going to reach the customer

and close

DISTRIBUTION STRATEGYHow are you physically going to deliver

the product(Web services—bandwidth, servers, etc.)


STEP 5: Financial Model

• PURPOSE OF FINANCIAL MODELS

– Demonstrate market opportunity (size)– Clarify/reinforce business model– Demonstrate industry knowledge– Present business logic– Understand cash flow


STEP 5. FINANCIAL MODEL

• PARTS OF A FINANCIAL MODEL– BUSINESS MODEL ASSUMPTIONS– SOURCES AND USES– P&L– BALANCE SHEET– CASH FLOW STATEMENT


MY CONTACTS AND ON-LINE RESOURCES

ROBERT H. [email protected]: Sophisticated Finance

mailto:[email protected]

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FIU Entrepreneur’s How To Webinar Series