1. © Bell Mason Technologies BMD 1 Entrepreneurial Ventures: How do you do them? Gordon Bell 29 February 2000 High Tech Ventures: A Guide to Entrepreneurial Success C G Bell & J McNamara, Addison Wesley, 1991 http://www.research.microsoft.com/~gbell

2. © Bell Mason Technologies BMD 2 The Bell-Mason Diagnostic A system based on a company development model for measuring risk, predicting the course, tracking the progress, and improving high tech, high growth, early stage ventures aka startups http://research.microsoft.com/~gbell

3. © Bell Mason Technologies BMD 3 The Bell-Mason Diagnostic Founding Premise "You don't have to understand the technology to ask the right business questions" The BMD provides the critical technology, product, marketing, and people expertise

4. © Bell Mason Technologies BMD 4 The Bell-Mason Diagnostic Background A rule-based system to assess new ventures Developed by Gordon Bell, and Heidi Mason, with Coopers & Lybrand over a 5 year period Based on experience with 100s of ventures Shows "health & risk" of a new venture by: asking a series of questions in 12 categories, at each stage of 4 stages of growth Licensed to Coopers & Lybrand (1990) for startups Licensed to Digital (1991) for corporate ventures Licensed to Australian Ventures (1997) Licensed to Diamond Technology Partners (1999) for IntraVentures

5. © Bell Mason Technologies BMD 5 Using the Bell-Mason Diagnostic a versatile tool to answer questions about: Readiness - Are we (i.e. the venture) ready to start up? Are we ready to go to the next stage? Initial Screening - Should we look closer at investing? Due Diligence - Should we invest now? Ongoing tracking & planning - Is the venture on track? External review - What is the health of the venture?

6. © Bell Mason Technologies BMD 6 The Bell-Mason Diagnostic Space: Twelve standard dimensions characterize a venture (a chapter of High Tech Ventures) Time: Four, well-defined stages of company development with 7 sub-stages of product and market development Quantification: Clear, yes/no questions (i.e. rules) incapsulate knowledge for evaluating a company Visualization: a relational graph shows company position

7. © Bell Mason Technologies BMD 7 12 Dimensions of Analysis

8. © Bell Mason Technologies BMD 8 Four Stages of Growth

9. © Bell Mason Technologies BMD 9 Concept Stage Stage 1 1 day to 12 months Time: Four Stages of Growth Product Development Stage $ Stage 3 12 to 48 months 3A.Hire, Specify, Plan 3B. Design, Simulate, Build Prototype 3C.Integrate and Alpha Test 3D. Beta Test through Product Introduction IPO $ Market Development Stage Stage 4 24 to 48 months 4A. Calibrate the Market 4B. Expand the Market 4C. Achieve Steady State Overview Seed Stage Stage 2 3 to 12 months $

10. © Bell Mason Technologies BMD 10 Outcomes of stage-to-stage transition Move to the next stage Loop within a stage by receiving more funds License technology or product for funds to complete the stage Return to an earlier stag, finish requirements (e.g. redesign product or address a different market) Acquisition by or merger with a stronger company Cease operations Stage

11. © Bell Mason Technologies BMD 11 Stages and sub-stages of a Venture IConcept I 0-? Months IISeed (Plan the Company) 3 - (6) -12 IIIProduct Development6- (23) - 37 Hire and Plan, IIIa 0 - (3) - 6 Design and Build, IIIb 4 - (14) - 24 Alpha (internal) Test, IIIc1 - (3) - 5 Beta (external) Test, IIId 1 - (3)`- 5 IVMarket Development 2 - (3) - 4 years Calibrate Market, IVa 3 - (6) - 9 Market Expansion, IVb (mkt. beta)6 - (9) - 12 Steady-State Operation, IVc12 - 18 VSteady-state Company...

12. © Bell Mason Technologies BMD 12 BMD Checklist Questions: Scoring the "Ideal" Heuristic -- It has been determined (and verified by numerous experiments in software engineering) that by using a method of inspection whereby one or more persons "walk through" another person's programs, fewer errors occur in the resulting product. Rule -- Engineering must have a design review process which includes code inspection or code walk-throughs. BMD Question -- Does engineering have a design review process which includes code inspection or code walk- throughs?

13. © Bell Mason Technologies BMD 13 BMD Staged Evolution of Questions Concept -- "Does the company have evidence of product possibilities, given the technology, that customers are likely to buy?" Seed -- "Does a simple product specification exist with features and functions that can be presented to potential users?" Product Development -- "Are an appropriate number of beta systems (3 for large systems, >20 for mass marketed software) operating in real user environments with users satisfied and testifying that the product exhibits unique capabilities and/or significant performance and/or performance/price benefits?"

14. © Bell Mason Technologies BMD 14 Evolution of the "Ideal" State at Each Stage

15. © Bell Mason Technologies BMD 15 Business Plan at Concept & Seed I. CONCEPT 6-10 page plan for technology, product, market and development of formal business plan completed plan successful in raising Seed Stage financing II. SEED 20 - 30 page formal business plan produced, with 8 key components Verifies and refines assumptions from beginning of stage Funding requirements and milestones based on product development schedule All key risks identified, evaluated and rationalized for current plan

16. © Bell Mason Technologies BMD 16 Examples: A Market Failure A Product Failure

17. © Bell Mason Technologies BMD 17 Ovation: At Product Introduction

18. © Bell Mason Technologies BMD 18 An Example, Ovation Founded: 1982 Funding: $6.8 million Product: Ovation, to be sold for $ 495. Next generation integrated software with word processing spreadsheet, database management, and communications. Target Market: Fortune 1000 volume corporate purchase Outcome: Chapter 11, October 1984 --- having won product of the year as "vaporware"

19. © Bell Mason Technologies BMD 19 Analytica: Market Development

20. © Bell Mason Technologies BMD 20 An Example: Analytica Founded 1982 Funding: $8 million Product: Reflex, to be sold for $495 Next generation microprocessor software --relational database with integrated, easy to use analytical tools Target Market: Fortune 1000, volume corporate purchase, departmental orientation (eg. sales) Outcome: Distress acquisition by Borland 10/85

21. © Bell Mason Technologies BMD 21 Venture Life Cycle for e-Ventures 9 to 12 months Stage 2+3 Product Development Stage Seed Stage $ Market Development Stage 12 to 18 months Stage 4 IPO $ 1 day to 6 months Concept Stage Stage 1 Angel $ Idea Ventures

22. © Bell Mason Technologies BMD 22 Stimulating New Companies

23. © Bell Mason Technologies BMD 23 Encouraging New Ventures Understand the critical factors (people) that create wealth --- not just those that store it or move it around Reduce and eliminate bureaucracy Some examples:SJ Center for Software Innovation Boulder Tech Incubator, The Corporate Incubator: copiers to consultants Teknikron Singapore Industrial DevelopmentJapan's MITI Informationalization ala Davis & Davidson's 2020 Vision

24. © Bell Mason Technologies BMD 24 Exogenous Effectors for Each Dimension Eng, sci., tech, tech svcs, univs, other co.s, consultants Tech workforce, sub-contractors, components Cash & financing experience, "patience" BOD with Industry, market, product, engineering, financial experience Trained pool of gen. mgrs successful "role models" Customers, sales personnel, channels to international mkt. Market, infrastructure for "complete" product, partners, strategic alliances, PR, etc. Reasonable expectations, patience, Trained personnel to hire, area- specific consultants Acctng, legal, financing infra- structure Market Competitive Products, co-components

25. © Bell Mason Technologies BMD 25 MITI Role in Establishing Industries I.Development of a domestic Japanese industry. a. Market control. Imports limited essentially to zero. b.Borrowed technology c.Vertical integration of most manufacturing d. Major investments. II.Establishing an export market base. a. The establishment of world-wide sales organizations. b. Researching and understanding of the foreign markets. c. Establishment of a reputation for quality and reasonable prices. d. A limited focus, especially in those markets less attractive to domestic manufacturers. III.Major market penetration. a. Cooperation among the Japanese companies with respect to models, prices, and markets. b. Focus at the mainstream of the foreign market. c. High inventories because of poor markets in Japan, i.e., an export push at any cost is necessary and expedient. d.Extremely low prices to the mass market to gain market share IV. Market exploitation. A period marked by higher prices (e.g. TV sets)

26. © Bell Mason Technologies BMD 26 Does it work? 0 10 20 30 40 50 60 70 80 90 100 05101520253035 Company Averaged Diagnostic Score Companies that scored 75 or over had a business success rate of 95% Source: Nanyang Mgmt PLC Ltd

27. © Bell Mason Technologies BMD 27 What do you need to do? What are some common flaws?

28. © Bell Mason Technologies BMD 28 Business Plan Flaws Unrealistic Plans Doing Research and Calling It Product Development Losing Touch with Reality Lack of a Sustaining Technology or Product Questionable Motivation (Chronic Entrepreneur, Getting Even, Getting Rich, Lacking a Sustaining Product) Skipping the Seed Stage Multiple Agendas Two or More Start-ups in One... doing too much Writing a plan while part of another organization is immoral and potentially illegal!

29. © Bell Mason Technologies BMD 29 Business Plan Seed Questions 4.1Has the five-year business plan (about 20-30 pages sans financial appendices) been updated, expanded, and confirmed as a result of the seed stage? The business plan has a five-year strategy and direction, but primary emphasis in planning should be for the next 24 to 36 months, with: 1executive summary with vision, mission and business statement 2technology uniqueness for a sustaining company 3product concept (what) with critical areas to explore and competitive scene 4rationale (why) in terms of customers and applications 5gross estimates of target market (who)using a simple "market map" to identify the channels of distribution (how sold), including some consideration to international 6key milestones in product development for the various functions 7year financial plan, including product cost with first two years in detail by quarter 8resources estimates in $'s, time and people (including their biographies)

30. © Bell Mason Technologies BMD 30 Business Plan Seed Questions -2 4.2 Does the plan indicate a sustainable company and initially verify the assumptions explored in seed? (e.g. is technology implementable, is the engineering plan valid, why will customers buy?) 4.3 Does plan refer to a detailed plan for Product Development Stage III (objectives, schedule with milestones, $ and people resources)? 4.4 Are the product development times, product cost and performance, and external risks (e.g. component or process) clearly identified and are they accounted for in the funding of the plan?

31. © Bell Mason Technologies BMD 31 CEO Seed Questions 7.1Has the CEO led the team to successful and timely completion of the principle objectives of the Seed stage: proof of technology uniqueness, clear translation of that uniqueness to the development plan for the product and a successful financing? 7.2Has the CEO been successful in attracting/recruiting key employees and Directors for the Board? 7.3Is the CEO a leader and team builder across departments and can he/she lead and manage the team? 7.4Has the CEO understood and resolved the content, scheduling and management interdependencies of engineering and marketing in the early phases, and manufacturing and sales in the later stages? 7.5Can the CEO function actively as company missionary in pre-selling, negotiating strategic alliances, and co-development partners during Product Development?

32. © Bell Mason Technologies BMD 32 CEO Flaws Low Energy, Low Intelligence, and/or Low Integrity Inadequate Hiring Skills (and Inability to Attract an A team) Poor Managerial and Team Building Skills Inability to Build a Team or Keep a Team Together Inability to Sell the Company to the Financial Community (Failing the Short Socks Test)

33. © Bell Mason Technologies BMD 33 Team Seed Questions 8.1Are the key people on board (core leaders who form technology and product development, manufacturing if critical processes are required, and marketing) functioning as an integrated team (6-8 people)? 8.2If innovative manufacturing processes are required such as in semiconductor or disk manufacturing, is an experienced manufacturing leader with a core team of functional specialists on board? 8.3Is the team orientation a balance of "do" and "manage", i.e. can each of the members "play" several positions on their teams, versus just being able to manage players? 8.4Have criteria been established for hiring and is there a systematic method in place for recruitment? 8.5Is everyone informed about the company via effective staff meetings where review, direction setting, and problem identification/resolution takes place? 8.6Has the team explicitly described their desired corporate culture and is it compatible with recruiting and the reward structure? A corporate culture statement should exist, and the benefits and compensation plan should be in line with the statement.

34. © Bell Mason Technologies BMD 34 Team and Board Flaws A Mercenary Team Conflicting Egos Lack of Respect --Incompetence in one or more groups. Love of each other is not a criterion for team members. The team falls apart at Concept or Seed because of their inability to get along while preparing the Business Plan. Board of Directors An Investor Heavy Board with No Industry Experience A Board That Runs the Company No External Product/Market Review with a TAB or CAB

35. © Bell Mason Technologies BMD 35 The End

36. © Bell Mason Technologies BMD 36 Who Are the Users? entrepreneurs intrapreneurs management employees board investors bankers equipment lessors government infrastructure

37. © Bell Mason Technologies BMD 37 How A Diagnostic Is Performed 1.Review Business Plan and Historical Material (1/2 day) 2.Select appropriate stage BMD questionnaires, and re-read questions prior to the interview (1 hour) 3.Arrange and perform diagnostic interview session with CEO and top-level team (1/2 day) 4.Analyze and summarize interviews using the BMD software for comments, scoring and graphing. Produce results package and recommendations for company (1/2 day) 5.Present results of diagnostic to company (2 hours)

38. © Bell Mason Technologies BMD 38 Goals of the Bell-Mason Diagnostic 1. Understand new ventures, particularly start-ups - demystify, turn art into science 2. Provide common "ground-rules" or "checklist" for analysis, diagnosis and implied prescription for: a. Entrepreneurs and Intrapreneurs b. Engineers and marketeers c. Financial community, including venture capital d. General business community and academe 3. Encapsulate traditional and venture capital wisdom in order to improve the start-up process 4. Alternative to cases and statistical factor analysis (Approach is similar to medical training)

39. © Bell Mason Technologies BMD 39 Goals of the Bell-Mason Diagnostic -2 To make "new venturing" a science-based, factory-like process. To provide a method of "new venturing" that is as widely acclaimed and reliable as software engineering management methodology is in creating and evolving new software. An entrepreneurial or intrapreneurial venture can be started up and run with a very high (> 50%) likelihood of success.

40. © Bell Mason Technologies BMD 40 BMD Functions and Benefits-1 Readiness Initial screening of business plan Self-diagnosis to aid the entrepreneur or intrapreneur Quick and accurate means of categorizing and sifting business opportunities; aids in making initial decisions; expands the number of opportunities to review

41. © Bell Mason Technologies BMD 41 BMD Functions and Benefits-2 In-depth tool for "due diligence" Speeds and improves accuracy and thoroughness of due diligence; yields risk profiles in a day; improves the odds of making good investments

42. © Bell Mason Technologies BMD 42 BMD Functions and Benefits-3 On-going tracking system at key stages in company development Insures position with efficient "early warning system" for on-going assessment of companies; continued health and risk profiles aid in mid-course correction and assessment of additional funding

43. © Bell Mason Technologies BMD 43 BMD Functions and Benefits-4 Standard system for measuring, tracking, and reporting among management, directors, and investors "Short hand" reporting system to measure business effectiveness, manage expectations, and bring responsible investors into high technology

44. © Bell Mason Technologies BMD 44 BMD Functions and Benefits-5 System and basis for assisting each venture Having a common, way of viewing and measuring the key, critical activities, ventures will improve through the diagnostic review process. Asking the question, often leads to a solution. Diagnosis often suggests prescription.

45. © Bell Mason Technologies BMD 45 Benefits of Using BMD at Digital $5 million payoff after one month use on a single joint, venture Improved negotiating position on external deals Improvement in quality and consistency of funded ventures Decision making time cut from 12 weeks to 6 weeks Increased the number of opportunities reviewed by a factor of two, while increasing depth of analysis With consistent reporting scheme, report generation time is reduced to 1/2 hour versus 2 hours

46. © Bell Mason Technologies BMD 46 Benefits of Using the BMD at Digital - 2 A standard methodology reduces learning time for new personnel A standard methodology allows a "learning curve" * A standard methodology reduces dependence on individual artistry and is repeatable with different people Decisions are firmer and measurable (e.g. a "no" is not a "maybe"... "maybe" deals are tied to specific action items) Automatically builds a database of companies, ventures, and projects funded over time, allowing automatic tracking and down-stream analysis

47. © Bell Mason Technologies BMD 47 Benefits of Using BMD at Philips It is likely to have a very high payoff for a single venture. For example, Digital had a $5 million payoff after one month use for one joint, venture. Improved negotiating position on external deals Improvement in quality and consistency of funded ventures Decision making time cut from 12 weeks to 6 weeks Increased the number of opportunities reviewed by a factor of two, while increasing depth of analysis With consistent reporting scheme, report generation time is reduced to 1/2 hour versus 2 hours

48. © Bell Mason Technologies BMD 48 Benefits of Using the BMD at Philips - 2 A standard methodology reduces learning time for new personnel A standard methodology allows a "learning curve" * A standard methodology reduces dependence on individual artistry and is repeatable with different people Decisions are firmer and measurable (e.g. a "no" is not a "maybe"... "maybe" deals are tied to specific action items) Automatically builds a database of companies, ventures, and projects funded over time, allowing automatic tracking and down-stream analysis

49. © Bell Mason Technologies BMD 49 Benefits of Using BMD It is likely to have a very high payoff for a single venture. For example, one large company saw a $5 million payoff for one joint, venture. Improved negotiating position on external deals Improved quality and consistency of funded ventures Decreased decision making time (from 12 weeks to 6 weeks) Increased opportunities by a factor of two, while increasing depth of analysis Decreased report generation time (1/2 hour versus 2 hours) with a consistent reporting scheme

50. © Bell Mason Technologies BMD 50 Benefits of Using the BMD - 2 Reduced learning time for new personnel Increased quality and decreased times via "learning curve"effect Reduced dependence on individual artistry (results are repeatable with different people) Measurable and firmer decision making (e.g. a "no" is not a "maybe"... "maybe" deals are tied to specific action items) Potential for improved performance via downstream analysis on ventures that use BMD

51. © Bell Mason Technologies BMD 51 How Are Diagnosticians Trained (Learn by doing) A two-day, workshop-type training session Workshop includes presenting the staged, start-up model and the dimensions being diagnosed View "role playing videotape" to understand scoring and use of diagnostic and evaluation software Perform 1-2 diagnostics with a trained team