1. What did we learn on Monday?

2. Market Sizing Review Total available market (TAM) is a roll up of segments. You often change your strategy based on what the numbers tell you.  List of potential targets will emerge Shorten & prioritize Hypothesize Sometimes the data (or free data) doesn't exist. Research data gaps (interviews).

3. Intro: Revenue Projections Market Segment – size of the market segment who would/could consider your product/service  You may have multiple segments and you will enter each segment sequentially Market Share – how much of that market can you capture

4. Why Segment? Sharper segment focus means better sizing (and a more focused company) What segment will you target first? Why? Consider:  Profit potential  Fast adoption  Ease of sales  Barriers to competition If Business focused - Horizontal or vertical? Vertical: focus on specific industry; typically need to pick 1 or 2 to start * Which have biggest need? Which are early adopters? * Timing? How fast does this vertical adopt new tech? * How easy is it to sell to this vertical? Horizontal: solution that applies to multiple industries * How will you focus? You probably can't address an entire * horizontal opportunity on day one. What sales approach will you use? (Different discount levels will affect your revenue assumptions): * OEM sale? Buy pieces and put your logo on it * Value Added Reseller - sell you integrated services * Retailers What products/segments in solution stack will you provide? * Customers buy all pieces of the solution; how many come from you? * After your initial beach head segment, what segment/capability you add next? Regional focus? * Will you focus locally initially? Or focus on the U.S. initially? Then where? Market Validation You're always validating your market segmentation and market sizing. You'll collect secondary research data to validate the overall sizing. And you'll do primary market research (i.e., talk to and/or survey actual customers) to understand who will buy, how they will buy, and what they will pay. Eventually, you'll start selling your solution, which is perhaps the ultimate in market validation. You do all that the validate the assumptions you've made in developing your market sizing. It's the combination of the primary and secondary research that will give you confidence in your market segmentation and sizing - and the confidence to select the best segment to tackle first.

5. More Segments = Bigger Market What follow-on segments can you pursue later (increasing your TAM)? Business/Consumer – variation of product for each? Consumer segmentation: demographics/lifestyle/values/interests/life stage Business: Enterprise size (global, SMB, small office, home office)/Horizontal (Salesforce.com) /Vertical (Creditca)

6. Thinking About Market Share Within each segment  What adoption rates have similar products experienced?  What do customers buy now?  Things to consider re: pricing – what is the current alternative? What do similar products/services in related industries – both horizontal and vertical cost?

7. Revenue Projection Bottom Up Focus initially on the 1st year – Q by Q How will you make sales happen, step by step?  What are the associated costs?  Constraints of your sales channel  What will slow down adoption?  How will the sales cycle work? How long will the sales cycle be? Then ask the same questions for years 2 and 3

8. Revenue Projection Top Down Take your bottom up numbers and look at them as a percentage of revenue. Is it reasonable/rationale? How can you support it?

9. 10 Tips for Revenue Forecasting Start with TAM Define a first segment What other segments will you enter and when? What is your adoption rate for 1 st segment? Check adoption against comps Pick your market share in year 5 (30%) Sales double each year – work backwards and smooth the ramp (hockey stick) Sanity check (friends) Aim for the right number of 0s in Y5. First number not as important. Rinse & repeat until you run out of time.

10. Market & Revenue Summary Research Total Available Market and Segments Evaluate Segments and Decide Expansion Order Create a Total Available number for each segment and roll these up into TAM Determine pricing and sales cycle Forecast sales bottom up Compare bottom up numbers to segment numbers and TAM numbers for sanity check

11. 10 Tips for Start Up Forecasting 1. Start with TAM: Total Available Market. For instance, all the television viewers in the world. 2. Define a first segment: For instance, all the TAM that are also connected to the Internet at broadband speeds and that are in the age bracket 25-35 years of age. 3. What other segments will you define? US to Asia to Eur? Or 25- 35 ages, then 35-55 and then 55+. Pick the year you will enter each segment. They may have different growth rates. Add them all up and this is your top line market.

12. 10 Tips (cont.) 4. Choose a rate of adoption of your first product/service offering. You might begin with a modest rate sales in the first year after launch. But if you are a gaming or social networking service, you'll expect to get a rocket ride of popularity during the first 18 months after launch. 5. Compare your launch adoption rate to similar products/services. Cousins or similar startups will give you an indication of reality. Recently public companies have the details in their IPO prospectuses (find them on EDGAR database, free).

13. 10 Tips (cont.) 6. Pick your share of market in Year 5. Gorilla's own 30% share of market, 3% is for starving monkeys, the range between them is for two chimpanzees with half the share of the gorilla. You want to be the gorilla. Anchor your sales in Year 5 at the share of market for a gorilla. (This is where the top down and bottom up need to meet.) 7. Choose sales between your first year of sales and Year 5. The rule of thumb is to double sales each year. Start in Year 5, cut the number in half for Year 4 and smooth down to your starting year. Yes, it is a hockey stick curve. There are exceptions, as noted above for intense game and social networking startups. 8. Ask your friends what they think of the numbers. They will spot unreal figures and keep you from looking stupid

14. Ten Tips (cont.) 9. Aim to get the right number of zeros in the forecast of revenue for Year 5, the number in the first digit does not matter. 10. Go back to Step 1 and repeat until you run out of time. BOTTOM LINE: The marketing work comes first followed by the selling work. Who are your Ideal Customers? How many are there, where? What will be the early rate of sales ("customer adoption")? Aim for the gold (become THE gorilla of a new market category), settle for nothing less. That is how it is done. It is one of the skills that contribute to building an unfair competitive advantage. 10 Tips Adapted from Neshiem OnLine http://nesheimgroup.typepad.com/my_weblog/2010/03/forecast-startup- revenue-how-serial-entrepreneurs-do-it.html