Presentation on theme: "Starting or Joining a High-Tech Start-up Business – Is it for you, the recent college graduate? This presentation and the related book are published at."— Presentation transcript:
About the speaker -Mike Baird n Past V.P. Eng. Ask Jeeves, Inc. ask.com one of most successful Internet IPOs in history n Past CTO Snap-on Inc. $2 billion co. n Partner, Los Altos Incubator firstonline.com n PhD Computer Science, MBA n Author: Engineering Your Start-Up: A Guide for the High-Tech Entrepreneur (Professional Pubs. Inc., 1992, 2 nd Ed. 2003); Starting a High-Tech Company (IEEE Press, 1995) eysu.org
Career choices – Workplace Perspective Series n Start a small business n Start a large business n Join a start-up n Get a real job n Do consulting work
Every page of this book is now available online for free at eysu.org Original title: Before Your Join a Start-up
Requirements of Basic Entrepreneurship n Basics for business success for the entrepreneurial engineer n Creating a compelling business plan n Getting funded, Q & A
New graduate... n Is a start-up for you? Are you a hunter or a farmer? n Internalizing the five fundamental success factors for launching and funding(or otherwise identifying) a successful technology-fueled start-up. n How to identify killer products or services for exploiting growing lucrative protected niche markets.
Reasons Cited for Starting One's Own Business 29% 19% 12% 8% 7% 5% 4% 2% 1% 9% Self-employment /Autonomy Income /Wealth The challenge To pursue an idea Utilize skills Build estate for family No better alternative Meet other's expectations Build an organization Respect/Recognition Contribute to society To live in the area Other (specified by respondent)
Big Career Picture Lifestyle consultancy Income substitution business High-growth team-driven business SalesEmployees (millions) > $20> 50 $1 – $205 – 50 $0 – $10 – 4
The Income-Substitution Wealth-Creation Spectrum Business size smalllarge slow fast Income Substitu- tion Wealth Building Growth rate
Business Size, Risk, and Reward P(survival) = p(failure) Low High Low Medium High Risk P(Survival) is inversely proportional to risk Retail stores Technology-based products (high-growth objective) Technology-based consulting (low growth objective) P(failure) High Low Reward Low High Low
Effort Allocated by Founders During First Six Months 0% 5% 10% 15% 20% 25% 30% 35% EngineeringSales/ marketing ManufacturingFinance/ administration 31% 28% 25% 16%
5 Basics for Success Beyond "The Big Idea, the Passion, the Vision" … making it real … involves … n Management n Markets and Customers n Proprietary Products, Technology, Services n Attractive Financing and ROI n Compelling Business Plan
Products or Services Markets and Customers Management Teams Business Plan Financing Identifiable customers. Not a missionary sale. Market – Pull. Not Technology – push. Market niche with 15% – 30% market share possible. Know 5 prospects by name, ready to buy. Short procurement cycle. First of Five Elements of Start- Up Success
benefits customers financial controls management market engine technology fuel rapid profitability products 2 1 3a 3b m a r k e t s 5 4 business plan money (ROI) Market- and Customer- Driven Technology-Fueled Business Machine
Competitive Forces in Your Marketplace Customer base Existing competitors Competitors: Who? Growing? How long in business? What sales volumes? How big? How many customers? Market share? Product niche? Similarities/dissimilarities? How will you compete with them? – product superiority? – price? – advertising? – innovation/technology? How is your business better? What is your "distinctive competence?" – price? – management? – product? – service, delivery? – operations? Barriers to entry for new competitors? New competitors? Your niche?
Markets versus Marketing n Gillette introduces The Sensor razor for men ¦ Retail price: $3.75 with three blades ¦ R&D costs: $200 million ¦ First-year advertising budget: $110 million ¦ Estimated annual retail sales: $390 million n Even if you could invent a superior razor blade, would you want to compete in this game?
Second of Five Elements of Start- Up Success Markets and Customers Management Teams Business Plan Financing Board of Directors CEO CFO VP-Engineering (CTO) VP-Marketing & Sales Products or Services
Management Completeness- Experience Grid Inexperienced (0) Very experienced (2) Complete team (2) Partial team (1) No team (0) Experienced (1) 2 2 2
Team Size and Product Status in Business Plan Reception Management status Most desirable Level 4. All members on board and experienced = = = = 8 Level 3. All members identified; some on board only after funding = = = = 7 Level 2. Two founders; others not identified = = = = 6 Level 1. Single entrepreneur = = = = 5 Product status=> Level 1. Idea only; market assumed. Level 2. Prototype operable but not developed for production; market assumed. Level 3. Product fully developed; few or no users; market assumed. Level 4. Product fully developed; satisfied users; market established.
Third of Five Elements of Start-Up Success Product Family. Easily understandable. Easily Sold. Short Development Time. Markets and Customers Management Teams Products or Services Business Plan Financing Proprietary Technology.
Cost versus Perceived Differentiation Model Perceived cost versus competition LowHigh Low Perceived differentiation versus competition Market success likely Market failure likely Success highly uncertain
Fourth of Five Elements of Start- Up Success Markets and Customers Management Teams Products or Services Business Plan Financing Form. Content. How many pages? How much time to write? When to write it? What's in it? Written for whom? Types of plans: Funding; Operational
Fifth of Five Elements of Start- Up Success Markets and Customers Management Teams Products or Services Business Plan Financing Never run out of money. Fair Valuation. Attractive ROI
Writing a compelling business plan n Elements of a successful and fundable plan n Some sample plan outlines n Analysis of a classic venture capital- funded business plan n Fatal flaws and deal killers – how to avoid them n "Tips and Tricks" for writing the plan
Elements of a successful and fundable plan n Markets and Customers (compelling … ) n Management Team (proven … ) n Products and Services (proprietary … ) n Business Plan (content, format, presentation) n Financing (ROI, pro-formas … )
Genus, Inc. Case Study ($9.5M, 1981) Section name Number of pagesComments Executive Summary 2It is compelling and powerful. Marketing Analysis 15 The section is comprehensive. Product Analysis 4 Says what the product will do,nothing about how it will be developed or invented. Technology is not being sold here. Operations Plan 1 The strong management team, with proven track records, can administer operations. Management and key personnel 8 Three two-page r é sum é s for the president/general manager, the V.P. finance, and the V.P. engineering, plus an organization chart says it all.No mention is made of any key engineerswho might design the product. Financial Data12 Tells investors how much money the business is going to make, when, and what will be spent to make it happen.
Some fatal flaws and deal killers – how to avoid them n Lofty Mission Statement (e.g., reduce world hunger, plow 10% of profits into charity … ) n Missing any of the 5 basics of success w/o acknowledging the fact n Imputed ROI not attractive n Fixation on "control," overt greed n "Distributed leadership," or professed"socialist" management philosophies
Case Study: One Business Plan that Will Never be Funded n Entrepreneur looking for $500,000 for 15% of the company (Implied pre-money valuation = $2.83 million; post-money valuation = $3.3 million) n Projected Sales of $1 million in 3 years n Management team is one person n Market is "everyone"
Operational Stages of Company Growth When to Write Your Plan Concept Market development Steady state Product development Seed Still working, you formulate your ideas in a business plan outline, and you start to build your management team You quit your job to pursue business planning full time. Your co-founders may remain working Funding is obtained. Your team members join you in the business launch Concept
Getting Funded n Sources of start-up capital n "Shopping the plan n Venture capital – is it for you?
Sources for Seed Capital for High-Tech Companies 0% 10% 20% 30% 40% 50% 60% 70% 80% Personal savings Private investors (angels) Non-financial corporations Family and friends Venture capital funds Public stock offerings 74% 7% 6% 5% 3% Percent by number of deals Note: "Family and friends" plays a smaller role in high-tech start-ups than for most other small businesses Personal savings dominates!
VCs versus Angels Angels support ~30,000 deals per year Venture funds back ~2,000+ deals per year
Venture capital – is it for you? n Who is getting funded? (read, attend … ) n What's your "score" (on the 5 success factors) n Outside advice (seek it, and listen)
"Shopping"the VC plan n Unsolicited "Over the transom" plans: % funded ~= 0 n Use VC directories only as a road map (WAVC is good) n Strong partners are well-connected (work on developing, or joining, a team)
Summary n Commit (make the right decision for yourself) n Educate yourself (read, network, explore, experiment, invest time and money, build relationships, build prototypes, cultivate potential customers) n Plan (what will result in success for you?) n Execute (persist, but know when to call a loss)