Validating Your Great Business Idea

You’re Here Because

You Have a Great Idea for a New Business

We’re Here Because

We Can Help You Validate

Your Great Idea

And Show You

How to Get it Investor-Ready!

What do you have to do to validate your idea?

• Is the market right?• Is the industry right?• Will you make money?• Do you need money?

To answer this, let’s explore answers to these 4 supporting questions

Is the Market Right? Answer these questions about your target market:

How large is the target market? (#customers, $ spent, units purchased)

How easily can you find potential customers?

How big is the pain felt by the customer?

Is there a clear and compelling message?

Is the Industry Right? Answer these questions about your industry:

Who is the competition?◦ Direct

◦ Substitute (e.g., pen and paper for electronic note taker)

How do you compare?◦ Unique product?

◦ New market for existing product?

◦ New delivery mechanism for existing product?

◦ See next page for one example of how to show this

Is the Industry Right?

Prod Quality

Mfg. Channels Mgmt. Tech Di-versi-fica-tion

Mkt Share

Culture

You 10 10 2 3 9 2 1 9

Competitor #1

5 8 9 8 2 8 7 3

Competitor #2

10 1 1 6 9 1 4 1

Competitor #3

unkn unkn unkn unkn 8 unkn unkn unkn

Competitor #4

2 unkn 4 unkn unkn 7 7 unkn

Will You Make Money? Two basic types of companies

Requires modeling of finances◦ Based on myriad assumptions

Only three ways to grow revenue

Life style◦ #1 Goal: Income

High growth◦ #1 Goal: Growth

Will You Make Money? Two basic types of companies

Requires modeling of finances◦ Based on myriad assumptions

Only three ways to grow revenue

Predict Financial Outcome

“Modeling”

You make abunch of

assumptions

Pro formafinancial

statements

Will You Make Money? Two basic types of companies

Requires modeling of finances◦ Based on myriad assumptions

Only three ways to grow revenue

What products

Prices

How many sold & when

Cost of goods sold

Employees

Expenses

Will You Make Money? Two basic types of companies

Requires modeling of finances◦ Based on myriad assumptions

Only three ways to grow revenue

“Pay” for new customers

Referrals (“viral”)

Get existing customers to buy more by increasing AOS, periodicity, and retention (“sticky”)

Will You Make Money? Two basic types of companies

Requires modeling of finances◦ Based on myriad assumptions

Only three ways to grow revenue

Life style◦ #1 Goal: Income

High growth

◦ #1 Goal: Growth

What products

Prices

How many sold & when

Cost of goods sold

Employees

Expenses

“Pay” for new customers

Referrals (“viral”)

Get existing customers to buy more by increasing AOS, periodicity, and retention (“sticky”)

Let’s see if your company will make money.First let’s look at a life style using Offtoa.

Life Style Company Along left side are all the business assumptions

Life Style Company Let’s examine some of the business assumptions

Let’s press Products to see what products this company sells

Life Style Company Let’s examine some of the business assumptions

This company sells sandwiches

Life Style Company Let’s examine some of the business assumptions

Let’s press Pricing

Life Style Company Let’s examine some of the business assumptions

And here are the prices

Life Style Company Let’s examine some of the business assumptions

Finally, let’s look at how many we expect to sell

Life Style Company Let’s examine some of the business assumptions

And here are the expected unit sales

Life Style Company Now let’s look at the financial reports produced by Offtoa

Life Style Company Now let’s look at the financial reports produced by Offtoa

Let’s start with by pressing Income Statement

Life Style Company Now let’s look at the financial reports produced by Offtoa

Here’s the Income Statement,plus you can press the Analysis Findings button at the bottom and get a detailed “investor hat” analysis of the income statement.

Outline for the Workshop How to validate your idea?

◦ Is the market right?

◦ Is the industry right?

◦ Will you make money?

◦ Do you need money?

How to convince others?◦ Who are these investors?

◦ What do they expect?

◦ How to get ready for them?

Now let’s look at a high growth company using Offtoa.

High Growth Company This is a SaaS company.

Let’s go right to the Cash Flow Statement to see if it needs cash.

We can clearly see that wewill need over $500K to stay alive through the first two years.

High Growth Company This is a SaaS company.

Let’s press Investments to plan for a $600K investment round and see what happens

High Growth Company This is a SaaS company.

Currently we have no investments (others than the founders’ round), so let’s create one.

Press to create a newinvestment round

High Growth Company This is a SaaS company.

We created an investment round of $600K at $1/share.

Now let’s look again at the cash flow statement.

High Growth Company This is a SaaS company.

As you can see, the cash problem has been fixed.

But are we happy with equity distribution? Let’s press the Cap Table button and see.

High Growth Company This is a SaaS company. As you can see, the $600K

investment sold 35.3% of the company. Only you can decide if that is acceptable.

Summary That gives you an idea of

◦ Some of the features of Offtoa

◦ How you can use Offtoa to validate your business idea

◦ How Offtoa can generate your financials for you from your business assumptions