FIU Entrepreneur’s How To Webinar Series

FIU Entrepreneur’s How To Webinar Series How to Develop the Business Concept ROBERT H. HACKER November 10, 2009

Sales 6 Years After Start-up

Out of Business in 5 Years 55 %

Keys to Success • PICK RIGHT INDUSTRY AND OPPORTUNITY • MENTORING • CAPITAL

Stages of Development • PROOF OF CONCEPT 0-$1MM • COMMERCIALIZATION $1-3MM • SCALING $3-10MM • GROWTH $10-30MM • PROFESSIONALIZATION $30-100MM

The Process

Austin on Creativity

1.Customer Needs Gerald Zaltman's seven metaphors for the subconscious that explain 70 percent of human behavior • Balance (equilibrium) • Transformation (changing states or status) • Journey (as in life) • Container (keeping things in and keeping things out) • Connection (feelings of belonging or exclusion) • Resource (providing survival) • Control As quoted from HBS Working Knowledge)

1.Customer Needs Examples of Zaltman • Balance-Starbucks • Transformation-AMEX cards • Journey-University of Phoenix • Container-LG refrigerators • Connection-FaceBook • Resource-FEMA • Control-TurboTax As quoted from HBS Working Knowledge)

1. Customer Needs NINTENDO APPROACH • DO NOT FOCUS ON PRODUCT--GAMEBOY • DO NOT FOCUS ON COMPETITION--MICROSOFT, SONY • FOCUS ON DEFINING THE NEED--WHAT TO DO IN SPARE TIME

1. Customer Needs ABUNDANCE APPROACH • What is abundant—CARS • What is scarce about cars—honest, hassle free buying • Scarcity Solution--CARMAX

STEP 1: Customer Needs New Business Types • Do something better (market exists) • Do something in a new way (disruptive technology) • Do something new (highest risk)

STEP 1: Customer Needs New Business Types • Do something better--GOOGLE • Do something in a new way--Amazon • Do something new--Penicillin

A THOUGHT

STEP 1. Customer Needs Deliverable--Value Proposition

STEP 1. Customer Needs Value Proposition Product or service to satisfy a customer need for economic benefit (or social utility)

2. Solution • Hypothesis • Iterative process • Evolving • Stalking horse

2. Solution Hypothesis—Until $3+ million in revenue —Until scaling begins

STEP 3: Industry AnalysisPorter’s Strategic Analysis Source:http://www.quickmba.com/strategy/porter.shtml

STEP 3: Industry Analysis Porter’s 3 Strategies Low Cost Differentiation Focus Access to Capital--Hacker

STEP 3: Industry Analysis Porter’s 3 Strategies Low Cost—Wal-Mart Differentiation—Apple Focus—Cisco

STEP 3: Deliverables • Differential Advantage • Unique, Sustainable And Proprietary • Target Customer • Characterize In Depth Who You Are Going To Sell To

STEP 3 Deliverables Barrier to Entry —What keeps out the competition from your market

STEP 4: Business Model • Revenue Model • Pricing Model • Sales & Distribution Strategy • Capex • Headcount

STEP 4: Business Model GROWTH • Requires capital to achieve • Not a productivity improvement

STEP 4: Business Model EARLY STAGE OBJECTIVES BYPRIORITY • Grow Revenues • Reach Cash Flow Positive • Profitability

STEP 4: Business ModelRevenue Model WHAT DRIVES THE BUSINESS AND CREATES THE GROWTH SANDS

STEP 4: Business ModelRevenue Model GROWTH DRIVER ASSUMPTIONS • Explain business logic • Demonstrate industry knowledge • Clarify business risk • Clarify management requirements • Determine KPIs • Build financial model (next step)

STEP 4: Business Model15-Pricing Models

STEP 4: Business ModelSales & Distribution SALES STRATEGY How are you going to reach the customer and close DISTRIBUTION STRATEGY How are you physically going to deliver the product (Web services—bandwidth, servers, etc.)

STEP 5: Financial Model • PURPOSE OF FINANCIAL MODELS • Demonstrate market opportunity (size) • Clarify/reinforce business model • Demonstrate industry knowledge • Present business logic • Understand cash flow

STEP 5. FINANCIAL MODEL • PARTS OF A FINANCIAL MODEL • BUSINESS MODEL ASSUMPTIONS • SOURCES AND USES • P&L • BALANCE SHEET • CASH FLOW STATEMENT

MY CONTACTS AND ON-LINE RESOURCES ROBERT H. HACKER rhhfla@mindspring.com 305-742-8222 Blog: Sophisticated Finance

FIU Entrepreneur’s How To Webinar Series