detailed contentshow investors make money from ventures 205 angels, vcs, and other private equity...
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EntrEprEnEurshipvi
Detailed Contents
Acknowledgments xvi
Introduction xviiA Market- and Customer-Driven Process xviiiWhat’s Ahead in This Book? xixPathways to Success xxi
Part I: DefInIng the Venture ConCePt 1Defining and Testing Your Venture (Before Writing the Business Plan!) 2
Chapter 1: Identifying Your Industry, the target sector in the Industry, and type of Business 7
The Purpose of the Chapter 7Learning Objectives 8Selecting a Target Industry 8Taking Stock: Your Internal Factors 13
Starting From Ground Zero 13Investigating the External Dimension: The Potential of the Target
Industry 14Industries and Their Sectors 14Size, Growth Rates, and Profitability 15Concentration and Intensity of Competition 15Life Cycle Stage 16
Life Cycle Implications for New Ventures 17Exceptions to the Rule 18
Barriers to Entry 18Capital and Time 19Manufacturing 19Marketing 19
Additional Environmental Scanning Can Also Uncover Rich Entrepreneurial Opportunities 19
Three Steps to Industry Analysis 21Step 1: Correctly Identify the Industry 22Step 2: Determine Market Size, Growth, and Profitability in a Sector 22Step 3: Assess Industry Dynamics 23
Mapping Out the Key Players in an Industry Sector 26
The Last Step Toward Defining Your Venture Scope: Deciding Which Type of Business You Want to Be Within Your Target Industry 28
Different Types of Business Possibilities for the Same Target Industry Sector 29
Making Money Is Different Based on the Type of Business 29Making the Choice of the Business Type for Your Venture 30
Reader Exercises 31Step 1: Each Team Member Needs to Complete Figure 1.8 31Step 2: Conduct a Target Industry Analysis 32Step 3: Conduct an Environmental Scan for Your Target Industry 32Step 4: Draw the Ecosystem Map for Your Target Industry 33Step 5: Have Breakfast or Lunch With an Experienced Entrepreneur, Investor,
or Executive in Your Target Sector 33Step 6: Bring All This Learning Together:
Create Your Venture Scope 34
Chapter 2: Developing the Venture Concept 36The Purpose of the Chapter 36Learning Objectives 37Building Upon the Prior Chapter: Determining Your
Market Niche Within a Target Industry 37These Three Steps in Action 38
Creating a Picture of Your Market Segmentation 39Keep Your Market Segmentation Simple Yet Powerful 42Established Market Niches Versus Emerging Niches 42The Importance of Identifying Segments With
Innovative Customers 43Digging Deeper: Defining Major Customer Groups
Within Your Target Market Segment 44Application of Customer Segmentation to Farming of the Future 46
With Segment and Target Customers in Hand, Now Look at Their Different Uses 48
Defining Your Market Niche as a Function of Customers and Their Uses 48
Digging Deeper Into Customers’ Uses 50Reader Exercises 54
Apply the Methods to a Sports Venture 54Apply the Methods to Define the Addressable Market for Your Venture
Idea 54
Chapter 3: getting Into the hearts and Minds of the target Customers 55
The Purpose of the Chapter 55Learning Objectives 56Getting Ready to Jump Into the Hearts and Minds of the
Customers in Your Target Segment 56
Arm Yourself With a Few Innovative Ideas 57You Are a Representative Customer and Have Been Frustrated for
Years 57A Customer in Your Target Market Has Already Created the
Innovation! 57The Ideas Exist as Technology in Companies and Universities Waiting to
Be Applied 58Take an Idea That Works in One Geography and Adapt It to
Another 59Doing the Field Research: Learning About the Attitudes, Behaviors, and Core
Needs of Target Customers 59Further Appreciating the Differences Between Target End-Users and
Buyers 60Structuring Your Field Research 61What Is the Correct Number of Interviews for This
Stage of the Process? 61Most Important: Work With Target Customers in
Their Places of Use 62The Mindset and Approach for an Effective Conversation With Target
Customers 62Within Core Needs, Look for Latent Needs and Clear Customer
Frustrations 64Look at the Before, the During, and the After of Each Use Case 67
Creating the Initial Product or Service Offering 68Understanding Value for Users 70Creating an Initial Positioning for the Venture 71
Creating the Venture Concept Statement 72Get Your Information Organized and Keep
Track of the Unanswered Questions 74Where We Go Next 74Reader Exercises 75
Step 1: Hit the Streets! Apply Figure 3.1 75Step 2: Develop Use Cases. Apply Figure 3.8 75Step 3: Develop the Product, System, or Service Idea 75Step 4: Bringing It All Together 77
Chapter 4: Defining the Business Model for a Venture 78The Purpose of the Chapter 78Learning Objectives 79Defining a Business Model 79Key Elements of the Business Model 80
Business Models and Financial Outcomes 82Cohesion Within the Business Model 82
Revenues 82Revenue Does Not Necessarily Mean Cash 83The Structure and Nature of Revenues 83
Pricing/Volume 84Recurring Revenue 85
The Product–Service Mix 86The Venture’s Approach to R&D: Where to
Create the “Secret Sauce” 89Production: In-House or Outsourced? 91Go-to-Market Approach 91
Different Types of Business Models 92A Manufactured Product Venture 93A Software and Systems Venture: Health Monitoring Systems 95A Technical Services Venture: Telestructures 97Comparing the Three Business Models 99
Now for the Advanced Class: Business Model Innovation 101Repositioning Products as Services 102Designing a Win-Win Solution 102
Closing Thoughts on Business Model Innovation 103Reader Exercises: Your Turn—A Business Model for Your
Venture 105Step 1: Define the Revenue Model 105Step 2: Define the Models for R&D, Production, and Sales 106Step 3: Integrate 106Step 4: Financial Outcomes From the Business Model 106Step 5: Internal Corporate Venture Business
Model Difference Template 106
Chapter 5: transforming a Product or service Idea Into a Product line and service strategy 108
The Purpose of the Chapter 108Learning Objectives 109Principles for Success 109The Product Portfolio: The Importance of Choice—Single Versus Multiple
Offerings 110Product Line or Service Architecture 111The Importance of “Good, Better, Best” for a Product
or Service Strategy 113Defining “Good, Better, Best” 113How Offshore Markets Affect Product Design Variety 115
Establishing a Beachhead Strategy for Venture Launch 116A Beachhead and Growth in Software 118
More on Modularity 119Modularity in Physical Products 120Modularity in Software 121
Platforms for Products and Services 123Innovation and Platforming in Services 124
Reader Exercises 126Step 1: Define Your Beachhead and Growth
Strategy 126Step 2: Define “Good, Better, Best” 127Step 3: Define an Improved Workflow for
Your Customers (optional) 127
Chapter 6: Positioning Your Venture: thinking Deeply about Competitors and Customers 129
The Purpose of the Chapter 129Learning Objectives 130The Importance of Positioning for New Ventures 130
A Product Example 131A Software Example 131A New Drug Example 131
Positioning Against Direct Competitors 132Competitive Intelligence 133
Competitive Analysis 134Assessing Your Competitive Position 134
Competitive Advantage 135Using a Perceptual Map to Examine Competitive Positioning 136
A Manufactured Product 136Software 138Services 138
Customer Positioning: Again, Find the White Space 139Make Your Own Rules 142Be Prepared for a Competitive Response 143Key Takeaways for Competitor and Customer Positioning 143Reader Exercises 144
Step 1: Do Your Homework on Competitor Strengths and Weaknesses 144
Step 2: Prepare a Customer Perceptual Map 144Step 3: Revisit Your Venture Concept Statement, the
Business Model, and the Product/Service Strategy 145
Chapter 7: a reality Check on the Venture Concept and the Business Model 146
The Purpose of the Chapter 146Learning Objectives 148Developing the Field Research Instrument for the Reality Check 148
The Venture Concept Summary for Customers 151Questions Following the Venture Concept Summary 152
Organizing Customer Panels 154Structure Customers Into Distinct Potential Groups and Ask Members of Each
Group for Their Thoughts on Your Venture Concept 154Deciding the Number of Customers to
Target for Reality Checking 155Conducting the Field Research 155Analyzing Your Data and Interpreting the Results 157
The Goal: Validate Your Customer Insights and Business Model Vision 157
Validating the Core Needs, Attitudes, Behaviors, and Demographics of Your Target Market 159
Validating Your Product or Service Strategy and Its Positioning 163
Validating Your Go-to-Market Strategy 165Getting a Handle on Revenue for a Scaled-Up Business 168
Reader Exercises 176Step 1: Create the Venture Concept Statement 176Step 2: Create the Discussion Guide 176Step 3: Conduct the Field Research 176Step 4: Analyze the Data 176Step 5: Create a Rich Profile of the Target Customer 176Step 6: Take a First Crack at Revenue Projections for a Scaled-Up
Business 177Step 7: Summarize Your Reality Check 177
Part II: WrItIng the BusIness Plan anD MakIng the PItCh 179
Developing Financial Projections, Writing the Business Plan, and Making the Pitch 180
Chapter 8: sources of finance for startups and Corporate Ventures 183
The Purpose of the Chapter 183Learning Objectives 184The Stages of Venture Development and the Relevant Funding Types 184
Seed/Startup Stage 184Development and Initial Launch Stage 185Expansion (Growth) Stage 186Later (Maturity) Stage 186Exit 187
The Sources and Types of Venture Funding 190Equity Versus Debt 190Sources of Venture Financing 191
Founder Self-Financing 192Friends and Family 193Angel Investors 194
Venture Capitalists 198Corporate Financing 203
Corporate Innovation Programs 205How Investors Make Money From Ventures 205
Angels, VCs, and Other Private Equity Investors 205How Corporations Make Money From Internal
Corporate Ventures 209How Investors Value Your Business 210Ways You Can Improve the Valuation of the Venture 211The Dos and Don’ts of Raising Capital 213
Dos 213Don’ts 215
Closing Thoughts: Getting Funded Is Not for the Faint of Heart 217Reader Exercises 218
Step 1: Find Angel Investors 218Step 2: Get a Feel for Deals in Your Industry Sector 218Step 3: Learn About the Venture Capital Industry 218Step 4: Learn About Local VC Firms 218Step 5: Learn About Local Angels 218Step 6: Learn About Potential Corporate
Investors in Your Region 218Step 7: Develop a Strategy to Raise Funds 218
Chapter 9: Projecting the financial Performance and requirements for the Venture 219
The Purpose of the Chapter 219Learning Objectives 220The Whiteboard Approach 220The Financial Projections Necessary for a Business Plan 221Creating Realistic, Granular Projections 223
The Top-Down, Share of Market Approach 232Being Specific About the Assumptions Driving
the Revenue Model 233Revenue Recognition 234Shortening the Sales Cycle 235Last, but Not Least: Identify and Show the Recurring Revenue 236
Generating the P&L 237Management Salaries (Including Your Own Paycheck!) 240
Spending Money on Office Space and Furniture 241Hiring Engineers 242Hiring and Compensating Salespeople 244Spending Money on Lawyers 244Spending Money on Accountants 245Spending Money on PR Firms 246Closing Comments on the P&L 246
Digging Into the Cash Flow of the Venture 247Revenue Rich, Cash Broke 249Showing an Understanding of the Cash Conversion Cycle 249
A Capital Plan for Investing in New Machines for a Corporate Venture 250
How These Financial Projections Impact Investor Valuations of New Firms 251
A Closing Thought: Realistic Revenue, Please! 253Reader Exercises 255
Step 1: Develop a Granular Projection of Revenue 255Step 2: Develop a Proforma P&L (i.e., a
Projected Income Statement) 255Step 3: Develop a Cash Flow Projection 255Step 4: Develop a Balance Sheet 256Step 5: Establish Financial Goalposts 256
Chapter 10: organizing the Venture team 257The Purpose of the Chapter 257Learning Objectives 257The Characteristics and Skills of Venture Founders 258
Entrepreneurial Characteristics 258The Team That Writes the Business Plan: Guard Your Founder’s Stock
Carefully 260Building the Team That Builds the Venture 261
Strive for a Balanced Management Team 261The Importance of Building a High-Performance
Culture of A Players 264Creating a Shared Vision and Culture of
Teamwork and Success 265Boards in a Venture 266
Create an Advisory Board From the Get-Go 266The Board of Directors: Proceed With Care
(If You Are Given a Choice) 267Revenue Creation 268
Form a Customer Advisory Board 269The Legal Organization of the Venture 270Providing Rewards and Incentives for the Venture Team 272Reader Exercises 274
Step 1: Conduct a Personal Characteristics Audit 274Step 2: Business Skills Audit 274Step 3: An Aggregated Business Skills Audit for the Team 275Step 4: Begin Building an Advisory Board 275
Chapter 11: Writing the Business Plan! 276The Purpose of the Chapter 276Learning Objectives 277 The Outline of the Business Plan and Where Your Prior Work Fits In 277Appreciating Your Reader: The Professional Venture Investor 279Before Writing, “Storyboard the Plan” 283The Business Plan Sections 286
The Title Page 286Executive Summary 286The Business Model and Financial Goals 288
Revenue Model 289R&D Strategy 289Production/Manufacturing Strategy 290Distribution Strategy 290Financial Goals 290
Market Analysis 291The Addressable Market: The Industry, Target Segment, Size, and
Growth 291The Customer Profile and the
Compelling Applications/Solutions That They Need 292
Competitive Assessment 292Final Checklist for the Market Analysis Section 293
Solutions: Technology, Products, and Services 294Product Strategy 294Product or Service Design 295Proprietary Technology, Intellectual Property 297Underlying Platforms 298Development Plan and Key Milestones 299Development Costs 300Final Checklist 300
Sales Plan: Customer Targets, Distribution, Branding, and Pricing 301
Customer Targets 306Trade/Channel Strategy 306Branding, Advertising, and Promotion 308Pricing Strategy 308Layout and Merchandizing (for Retail
Ventures or Retailed Product Ventures Only) 309Final Checklist 309
Operations, Production, and Supply 310Managing Suppliers 310Managing Production 311Managing Logistics/Fulfillment 312Managing Customer Service 312
Organization Plan 313The Management Team 313The Staffing Plan 314Board of Advisors/Directors 314Final Checklist 317
Major Milestones With Funding 317Financial Projections 318
Closing Thoughts 321Reader Exercises 322
Step 1: Storyboard Your Plan 322Step 2: Fill in the Activities/Roles/Status Table
for Each Section 322Step 3: Write the First Draft of the Sections and Assemble 322Step 4: Review and Critique 322Step 5: Get Even More Specific on the Assumptions for the Financial
Section 322Step 6: Review “Milestones With Funding” Section as a Team 322Step 7: Polish—Formatting and Graphics 323
Chapter 12: Making the Pitch 324The Purpose of the Chapter 324Learning Objectives 325
There Are Presentations, and Then, There Are Investor Presentations 325The Foundations for a Great Investor Presentation 326
An Outline for the Presentation 327Create a Compelling Story 328
The Story of Serving the Customer 329Define the Customer, the Customer’s Problem 329Define the Addressable Market 329The Solution to the Customer’s Need, the “Secret
Sauce,” and the Competitive Positioning 330The Story of Your Business 332
Describe the Business Model 332Describe the Go-to-Market Strategy 333Describe the Major Milestones and the Funding 334
Use Graphics and Illustrations, but Avoid Sensationalism 335Presentation Style 335Prepare for a Grilling (Where You Are the Meat) 336Understand That No Matter How Good the Pitch, It Just
Might Be the Wrong Investor for Your Venture 341The Last Important Step: Go Get That Meeting! 342
Getting a Meeting With Angels 343Getting a Meeting With VCs 343Getting a Meeting With Corporate Strategic Investors 344
The Bottom-Line for Making Investor Presentations 344
Venture Cases 345SilverRail Technologies, Inc.: Sizing the Market and Business
Opportunity 346Ready Seafood: Creating a New Business Model in a Startup 359Evergreen Memories: Growing a Venture Into Adjacent Markets 368My M&M’S®: Creating a New Business Model in a Corporate Venture to
Leverage Core Brands 371In Search of a Viable Business Model: The Ups and Downs of
Web-Based Entrepreneurship 379Generate, Inc.: Creating an Information Services Venture With Strategic
Corporate Investment 394Sentillion, Inc.: A Corporate Spinoff in Software 405mInfo: Venturing Into China 415Bioblood: The Trials and Tribulations of Achieving Exit 422
Index 439
About the Authors 443