© bell mason technologies bmd 1 entrepreneurial ventures: how do you do them? gordon bell 29...

© Bell Mason TechnologiesBMD 1

Entrepreneurial Ventures:

How do you do them?

Gordon Bell29 February 2000

High Tech Ventures: A Guide to Entrepreneurial

Success

C G Bell & J McNamara, Addison Wesley, 1991

http://www.research.microsoft.com/~gbell


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


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


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


Using the Bell-Mason Diagnostica 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?


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


12 Dimensions of AnalysisBusiness Plan

Marketing

Sales

CEO

Team

BoardCash

Control

Product

Manufacturing

Financeability

Technology/ Engineering


Four Stages of Growth

Seed $

Stage I $

Stage 2 $

IPO

Concept Steady State Co.

Market Develop ment

Product Develop ment

Seed

Stage 1 Stage 2 Stage 3 Stage 4

Stage 1

Stage 2

Stage 3

Stage 4

1 day to

12 months

3 to 12

months

12 to 48

months

24 to 48

months


ConceptStage

Stage 1

1 day to12

months

Time: Four Stages of Growth

ProductDevelopment

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

DevelopmentStage

Stage 4

24 to 48 months

4A. Calibrate the Market4B. Expand the Market

4C. Achieve Steady State

Overview

SeedStage

Stage 2

3 to 12 months

$


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?


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?"


Evolution of the "Ideal" State at Each Stage

Stage IV. Market development

Stage III. Product development

Stage II. SeedStage I. Concept


Product

Manufacturing

Business Plan

Marketing

Sales

CEO

Team

Board Financeability

Cash

Control


Business Plan at Concept & SeedI. 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


Examples:

A Market Failure

A Product Failure


Ovation: At Product Introduction


Manufacturing

Business Plan

Marketing

Sales

CEO

Team

BoardCash

Control

Finance & Control

Product Market

FinanceabilityPeople

Product


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"


Analytica: Market Development


Manufacturing

Business Plan

Marketing

Sales

CEO

Team

Board

Control

Finance & Control

Product Market

FinanceabilityPeople

Product

Cash


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


Venture Life Cycle for e-

Venture

s

9 to 12 months

Stage 2+3

ProductDevelopment

Stage

SeedStage

$

MarketDevelopment

Stage

12 to 18 months

Stage 4

IPO $

1 day to6 months

ConceptStage

Stage 1

Angel $

Idea

Ventures


Stimulating New Companies


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 InnovationBoulder Tech Incubator , The Corporate Incubator: copiers to consultantsTeknikronSingapore Industrial Development Japan's MITI

Informationalization ala Davis & Davidson's 2020 Vision


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. mgrssuccessful "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 infrastructure Market

Competitive Products, co-components


MITI Role in Establishing IndustriesI. Development of a domestic Japanese industry.

a. Market control. Imports limited essentially to zero. b.Borrowed technologyc.Vertical integration of most manufacturingd. 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)


Does it work?

0

10

20

30

40

50

60

70

80

90

100

0 5 10 15 20 25 30 35

Company

Avera

ged

Dia

gn

osti

c S

core

Companies that scored 75 or over had a business success rate of 95%

Source: Nanyang Mgmt PLC Ltd


What do you need to do?

What are some common flaws?


Business Plan FlawsUnrealistic 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!


Business Plan Seed Questions4.1 Has 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:

1 executive summary with vision, mission and business statement

2 technology uniqueness for a sustaining company

3 product concept (what) with critical areas to explore and competitive scene

4 rationale (why) in terms of customers and applications

5 gross estimates of target market (who)using a simple "market map" to identify the channels of distribution (how sold), including some consideration to international

6 key milestones in product development for the various functions

7 year financial plan, including product cost with first two years in detail by quarter

8 resources estimates in $'s, time and people (including their biographies)


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?


CEO Seed Questions7.1 Has 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?

7.2 Has the CEO been successful in attracting/recruiting key employees and Directors for the Board?

7.3 Is the CEO a leader and team builder across departments and can he/she lead and manage the team?

7.4 Has 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?

7.5 Can the CEO function actively as company missionary in pre-selling, negotiating strategic alliances, and co-development partners during Product Development?


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)


Team Seed Questions8.1 Are 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)?

8.2 If 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?

8.3 Is 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?

8.4 Have criteria been established for hiring and is there a systematic method in place for recruitment?

8.5 Is everyone informed about the company via effective staff meetings where review, direction setting, and problem identification/resolution takes place?

8.6 Has 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.


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


The End


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)


Goals of the Bell-Mason Diagnostic1. 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 Intrapreneursb. Engineers and marketeers c. Financial community, including venture capitald. 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)


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.


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



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



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



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



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.


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


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


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.


• 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


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


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 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


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


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

© bell mason technologies bmd 1 entrepreneurial ventures: how do you do them? gordon bell 29...

Documents

bell mason technologies

concept stage stage

market development stage

bellmason diagnostic

gordon bell

operations stage slide

heidi mason

outcomes of stage