Administrivia

1. Administrivia • PowerPoint slides due Wednesday. • Executive summaries handed back… • Today for those presenting on Thu 3/6 • Wed for those presenting on Tue 3/11 • It’s ok if your ppt changes from what you hand in this Wednesday. • Office hours at Muddy Charles tonight after class • Ken virtual OH: Tue 11:30 am – 1 pmzolot@mit.edu or 617-354-6565

2. class 8 prefix...

3. Comment on Ethics • We’ve discussed some creative techniques for building excitement around an up-until-now unexciting idea. • It’s critical to know how distinguish a good magician from a con artist. • Those who can “make a silk purse out of a sow’s ear” are admired. Those who falsify the label on a sow’s ear and sell it for the price of a silk purse are incarcerated. • Calls upon on deep character issues, which you have to know how to sense. • Think Muhammad Ali: • fancy footwork, a loud-mouth, but... • was an amazing athlete, never hit below the belt

4. The Next Big Thing • “Americans love being part of the next big thing”

5. From Adrian’s PowerPoint • Nice graphic: “The Pyramid” Cisco next wave our market

6. Jargon check: • “Limiteds”, i.e. “we asked our VCs to ask their limiteds for sales leads” • The limiteds are the people from whom the VCs get their money. • VCs are partnerships, and “limited partner” is the legal jargon for the people who supply the money to the VCs • Often are big corporations and pension funds

7. Example of Numbers Analysis

8. 15.390 class 8The Competition Section

9. Aspects of Marketing and Sales • Market Analysis and Segmentation (26-Feb) • How big is the market, what are the trends, what have similar companies done before, what are analysts saying about the future? (identifying a group of buyers) • Competitive Analysis (3-Mar) • who are the other players in this market, where are they strong and weak, what options do your buyers have? • Marketing and Sales Strategy (12-Mar) • How are you going to identify individual buyers, how are you going to make the product appealing to and get it in front of these buyers? Are you going to sell direct or through a distributor? • Salesmanship (5-Mar) and Sales Tactics (10-Mar) • How are you going to send salespeople to call upon and close (or use distributors for) each of these buyers?

10. What you’ll be submitting: • By Mon the 17th, you’re to submit the “Competition” Section of your business plan. • Sales and Marketing submitted separately (April 2). • The Competition section should include much of the overall market segmentation section, and save the tactical marketing and sales strategy for April 2. • Competition section: • Who are your competitors (and if they’re not companies, what are your customers’ substitute options, i.e. where do they spend their money now)? • How do you plan to beat them?

11. What to accomplish in the Competition Section • Define who the competition is • Handicap which companies you are going to compete against – and those you are not • Discuss the strengths and weaknesses of the major competitors – honestly • Discuss how you are going to compete with them.

12. Competition “If you think you have have a ‘Killer Idea’ - and if five other companies aren’t already working on the same idea - it’s probably a lousy idea” - Guy Kawasaki (garage.com)

13. Your Competitors are not idiots They have ... • Customers • Customer service • Hardworking employees • Products that work • R&D you probably don’t know about • The ability to sustain a loss for longer than you can • Residual good will

14. But they are not invulnerable… • They may be low cost…. but can’t be high touch • They may be technically obsolete • They may have disaffected employees • They may have profit pressures • They may be suffering from their own success • They may be unable to admit that a disruptive technology is about to hit them • Or other agendas...

15. Sun Tsu Pick Your Battlefield • Define who you want to compete against, and who you do not • Use PR to force them to show metrics in areas where you will win • Amass your strengths against your competition’s weaknesses. • Distribution? Delivery? Service? Features? Quality? Price? • “The goal of strategy is to upset the business equilibrium and to re-establish it on a more favorable basis”

16. Pick your competition • Don’t fight all wars, be selective • Example: DEC wanted to compete in office automation against IBM. But figured it was easier to compete against Wang first, build a beachhead then go onto IBM

17. Go Where They’re Not • If they are feature poor, then you are feature rich • If they go direct (Dell), then you can use channels… or vice versa… • If they own the operating system, then perhaps you do not fight them directly, but adopt their operating system.

18. Going where they’re not • Markets sometimes take time to mature. • Consider why, up until now, the competition has not seen this market as attractive. • What is it that now makes it ripe?

19. Why Now? “processing at the edge”, build-out shifts from bandwidth, through content,to transactions Intel processors andother commoditycomponents matureto enterprise-levelquality and capacity egenera ASPs and network- service models emerge as data centers become increasingly hard to manage, expensive to staff The Linux revolutionISV mass adoption IT staff craving Linux Egenera Confidential - Do Not Copy

20. Writing the plan... • In the “market segmentation” discussion, you address: • What is the segment of the market you are attacking. • What is the size of the market of the top 10 competitors? • Who in the market has what sector, how are they growing?

21. Now address their strengths and weaknesses Example: Competitor A +’s. Has direct sales force Strongest in software -'s. Not strong in communications Bias towards Microsoft Viewed as arrogant, won’t take client calls High Priced

22. Put The Competitors on a Grid • Price vs. Quality • Customer Oriented vs. Customer Agnostic • Global vs. National • Credible vs. Non credible. • Entrenched vs. non entrenched.

23. Who are their customers? • Name the ten largest customer of your major one competitor (if industrial) • Or the major demographic groups of the buyers (if consumer/retail)

24. WHY are they customers? • What do they like about their supplier? Dislike? Who is the buying influence? What other vendors do they buy from? Who is the buying influence? What are the criteria that the buyer will use to make a decision.

25. Example: Buying Decision A. Local Service 25% B. Open Architecture 20% C. Performance 30% D. Price 25% How will you stack up?

26. How is your competitor organized? • Number of salespeople? Location? Service people? • What has been the economic performance? • Where is the R&D going at your Number one competitor? • Which products in the line are growing fastest? Slowest? Where is a major upgrade expected? What would that do to your product plan? • What does his balance sheet look like?

27. Pricing and Cost of Goods Sold Do you have a manufacturing advantage? (probably not) Do you have a speed advantage? (maybe) How do you match up with competitor #1?

28. Competition has several forms • Geographical • Price • Distribution • Quality • Features • Service

29. Distribution • Has C#1 just gone from distributors to direct….. And can you replace him with those distributors? • Has C#1 changed the terms of margin of his distributors from 40 - 30% - and are they miffed? • Has C#1 lost … or is about to lose…his OEM agreement with a distributor?

30. What improvements has C#1 made in his product? How often does he make these improvements? How long to respond to improvements in others? When is his new improvements due? Are the improvements substantial or cosmetic? What parts of the market is C#1 ignoring? Product

31. Financing • What does his balance sheet look like? Income statement? Is he public or private? How is his stock doing? Are his people restive? Have they signed non competes? Do his people have stock options? At what price? Who’s under water? What is the pressure point?

32. 1:1 Marketing • Will always beat mass marketing. Are their ways that you could use 1:1 marketing • “When he concentrates, prepare against him; where he is strong, avoid him” • “Appear at places to which he must hasten; move swiftly where he does not expect you”

33. Soft customization can be done easier…. New England package Language or segment Hard customization changes the basic product... ex: Cat Food for the Indoor Overweight Cat, ages 8 years or older Hard customization vs. soft

34. Competing on Price • Not a great idea for startups: you need to have a better story than just being low-cost • Yes, you can underprice your competitor. But for how long and for how much. • Most leaders understand that they are the Price Umbrella. At a 10% discount, you will most likely not disturb the beast. • At 40% your Competitor A may decide he has had enough. And underprice you by 20%…. And hope to drive you out

35. Alliances • “The enemy of my enemy is my friend”-think through alliances that might work because of a commonality of interest. • Ex: if they have a tight relationship with Sears, you might propose a relationship with Walmart

36. Bottom Line: • Pick three competitors that you want to compete with • Line up your strengths against their weaknesses • Gain a foothold; build on that foothold • Try and not use price as the lever; you may be outmatched

37. How would you compete with you? • If you started a company to compete with your company, where would you begin? Where are you vulnerable? • What new service could a hypothetical company offer that you would be “unable or unwilling to compete with”. • Companies have different vulnerabilities at different times.

38. The End