Turning an Idea into a Business

1. Turning an Idea into a Business

2. WELCOME Participants! TOP DAWG Business Plan Competition Sponsored by : ABESE Outline of Presentation: Intro---CEnIT What is a Business Plan? Sources of information Brainstorming for Value

3. What does CEnIT do? • we want what you want—more business! Mission: • Conduct research and develop new technologies that will advance IT capabilities in the nation. • Conduct research on entrepreneurship development in technologically under-developed communities. • Provide an infrastructure to stimulate an entrepreneurial culture. Vision: • To create an entrepreneurial culture for expanding education, research, intellectual property, and economic development opportunities in IT.

4. What is a Business Plan? • Its as much for you as it is for anyone else—maybe more… The SBA says:: A business plan precisely defines your business, identifies your goals and serves as your firm's resume. Its basic components include a current and pro forma balance sheet, an income statement and a cash flow analysis. It helps you allocate resources properly, handle unforeseen complications, and make the right decisions. Because it provides specific and organized information about your company and how you will repay borrowed money, a good business plan is a crucial part of any loan package. Additionally, it can tell your sales personnel, suppliers and others about your operations and goals.

5. B.P. is NOT Just Financial Numbers and NOT just for Loans • Bootstraping—your own money (including loans), friends & family • Angels—seed money and “hands on” advice-----Competition presentations to • VC’s—La. SBIC being formed • Suppliers & customers— innovation in financing • Mix of various above—you have to plan which/when

6. Business Plan Info • Inc Magazine’s Business Plan Guidance http://www.inc.com/guides/write_biz_plan/20660.html • American Express Outline http://home3.americanexpress.com/smallbusiness/Tool/biz_plan/elements/index.asp SBA http://www.sba.gov/starting/indexstartup.html

7. B. P. Info. continued • Two Books used around here lately: • The Art of Innovation-Tom Kelly-Innovative Product Design Class-IDEO- http://www.ideo.com/ • High Tech Start-up-John Nesheim-Entrepreneurship for Scientists & Engrs • http://www.startupweb.com/tools_business.html

8. Which comes first:The idea or the plan? • Question: The idea comes first. Right? • Answer: YES… and… NO • The first patent Thomas Edison was ever granted (of 1087), at the age of 22, was for a ballot machine designed to instantly record votes made by members of Congress. It was a flop. • The machine worked very well, and Edison had found a financial backer willing to invest $100 in it. Yet when he demonstrated his new device in Washington, he was told that it would only destroy the time-honored congressional device of filibustering, for example, stalling for time. "Young man, that is just what we do not want," a committee chairman told the future Wizard of Menlo Park. "Your invention would destroy the only hope that the minority would have of influencing legislation." • Crushed - and nearly flat broke - the young Edison left the nation's capital determined from then on to invent only things that would be in "commercial demand.“ source: Machine Politics, By Kevin Baker, Issue Date: Nov 20 2000

9. Who gives a hoot? Ford’s Edsel Coke’s formula fiasco “Examples of costly failures are legion. In today's dollars, Federal Express lost $294 million on Zap Mail. NeXt lost $250 million on its computer workstation. GM lost $420 million on the Wankel Rotary Engine. DuPont lost over $1 billion on Corfam. Ford lost over $2 billion on the Edsel. Polaroid wrote off $197 million in inventory alone for Polarvision instant movies. Xerox invented the personal computer ahead of Apple but failed to commercialize it. Motorola invested over a decade and more than $360 million in its cellular telephone project before taking a single major order.” G.S. Lynn and R.R. Reilly in “Growing the Top Line Through Innovation”, Chief Executive; New York; Fall 2002 Learn from “Uncle” Thomas (Edison): Don’t Assume people will want it-prove it -as you develop it !!!!!!!

10. Quality problems and high costThe Edsel • "To this day, it’s still pretty embarrassing to be broken down on the side of the road with one." • Learn Vicariously: Skip LeFauve, who was the president/CEO of the Saturn Corporation, bought a case of the books entitled ‘The Edsel Affair , gave a copy to all his executives and had them underline everything that Ford did wrong with the Edsel." http://www.edsel.com/reviews/failure.htm

11. Ford lost 2 billion on this beautiful car! $250 million in 1958 dollars

12. New Ideas- but more hype than substance and introduced in a recession • For all the criticism of the Edsel's appearance, the car did have some interesting -- if not long-lasting -- technical innovations. • One was a speedometer that rotated on a vertical axis like a roulette wheel and was called the rolling dome. There was also a "teletouch" transmission, a series of buttons set in the center of the steering wheel by which one changed gears. • The ads said that such a light touch was required to push the buttons that you could shift gears with toothpick -- something that apparently did not impress the millions who don't keep toothpicks in their cars. • Source CNN August 11, 1997 - Web posted at: 10:25 p.m. EDT (0225 GMT) • Moral: Don’t KID the market or yourself • Is the product all you want to say it is – does design meet requirements you set/committed

13. The Coke fiasco---Don’t fix it if it ain’t broke • In April of 1985, the most widely known and best selling soft drink on the market was going to be reinvented – “New Coke” • Within weeks of the switch, loyal and dedicated fans of the original formula became so vocal that the rest of the nation followed along, calling the switch in formula Un-American, some stating that Coke had no right to take away something so intricately ingrained in Americana. Essentially, it was tanking. • "Coca Cola Classic" was revived, and reintroduced to the marketplace. An apology was made, more or less, but in the spirit of experimentation, New Coke was renamed Coke 2 and remained on the market for some time in limited quantities. Time has swept the incident under the rug, and no mention of the product is made on the official Coca Cola website, even in the history section that cites new products released in the 1980's Source—Danger-seekers.com

14. An idea, A plan & a market “These days, start ups must have more to offer than just a good idea to build a successful company. There’s plenty of risk for start ups which need the experience of angels who have already taken businesses to maturity or public. From her perspective, entrepreneurs need:” • A Great Idea, but this is only the beginning, • A rock solid business plan, • A terrific management team, • An intense desire to succeed Shirley Eis, co-partner of Rigo Telecommunications Remember: BP’s are for someone else besides you-OPWM

15. Why Prepare a Business Plan • Sixty percent of Inc 500 CEOs did not have a formal business plan before launching their company • Forty-one percent of the group started their companies with less than $10,000. Source: Inc. Magazine • SO……Who needs one?-----Do you need more than $10,000? • Also, what isn’t said is how many Inc 500 wannabes there were.

16. The purpose of a business Plan/Feasibility Study: Is there really a market for HOOT n GIGGLES? An idea is good if there is a NEED for it. At least a “perceived need” Another word for NEED: Market • “Identifying, anticipating and satisfying customer needs profitably” (the Institute of Marketing’s definition of Marketing). • The four P’s of marketing: Product, Price, Place, Promotion

17. 4 P’s of Marketing Thanks to Ashley Bienvenue • Promotion • Strategy –Web based? • Advertising • Personal Selling • Sales Promotion • PR • Budget –is there enough margin to afford? • Place • Distribution Channels • Logistics • Distribution Costs • Order Processing • Distribution Centers • Manufacturing Centers • Market Coverage ---just a niche? • Inventory Management • Transportation • Warehousing • Possibility for Long-term Integration (Forward or Backward) • Product • Brand —exclusive, elite • Packaging —easy to remove • Aesthetics • Safety • Quality • Characteristics • Warranty • Support • Price • Pricing Strategy —great idea but will they pay that much for it? • Bundling • Wholesale and volume price • Medicare/Medicaid • Cash and Early Payment Discounts • Seasonal Pricing • Long-term Price Forecast–when will competition force reductions? More on this next time ……..maybe

18. So….There’s a place for: • “Brainstorming” But combine with… • Market Research Disregard for the limitations of market realities can be trouble !!!!!!!!! You do them simultaneously-feedback

19. Why a business plan?Another Reason--We need a strategy for: • Connecting / Linking the idea with • the market “Strategy leads to the continuous creation of real value. Real value requires sustained competitive advantage. Leaping at opportunities without strategy consistently produces failure” –The Boston Consulting Group

20. Brainstorming:Some things the Innovative Product Design Class did and you should do: • Understanding the problem------including the market Are perceived constraints really constraints? WNDITTWB • Observing—how problem/need is satisfied currently—weaknesses of current solution. How much is the current solution worth to the market? ---size of the market—speed of adoption • Visualizing—how your new product will overcome weaknesses including marketing/distribution weaknesses • Evaluating and refining--- dealing with “the limitations of reality” Doing what hasn’t been done. • Implementing—a product is not a desirable (hence “finished”) product just because it has been physically created – it has to be “packaged” ---described/ presented to the buyer in such a way that the buyer AGREES it’s a product to be desired.

21. Secrets to BrainstormingIDEO (a successful product design company)—Innovative Product Design Class • Clearly defined focus—not too broad, not too narrow • Go for quantity of ideas to solve the problem –at first--- ”Creating innovative products can be a challenge like going down a road with rocks and ruts the whole way. Out of approximately 3,000 raw ideas come 125 small projects, 9 that will go to early development, 4 that continue to major development, and fewer than 2 that actually make it to market. One recent study found that newly launched industrial products failed 33 percent of the time; new consumer packaged goods fail to live up to management s expectations 80 percent of the time.”---G.S. Lynn and R.R. Reilly in “Growing the Top Line Through Innovation”, Chief Executive; New York; Fall 2002 24:1 • Minimize critique until all ideas are out • Facilitator should enforce rules but not dominate • Free movement around the meeting area and free use of paper/sketches/labels-physical triggers---get physically involved in idea. • Team members must Prepare For Meetings-do homework

23. If a product or service is “INNOVATIVE” : • It has an “edge” in the market place that will not quickly disappear (John Nesheim author of High Tech Start UP calls this “edge” part of your “Unfair Advantage”): What limits COMPETITION? What makes you better? Legal---Patents, copyrights / Trade secrets Natural Monopoly---single firm can supply the product at lower cost than two or more firms. Examples: Networks (cable systems, pipeline, wire) and Large data bases - Human Genome---see J. Nesheim’s example B.P Huge cost of Re-inventing the wheel--Microsoft

24. Initial Advantages continuedJohn Nesheim author of High Tech Start UP calls this “Sustainable Competitive Advantage” • Key Personnel-Choosing your initial team –building on its strengths---”core competencies” Experience-----VC’s contribute here more than with their money. Abilities - complementary Compatibility • Getting there “Firstest with the mostest”— • Gen. Nathan Bedford Forrest— millionaire cotton speculator Capital for “capturing “ the market quickly Service name/brand recognition - “fortification” your brand is the “generic” ----Advil - Ibuprofen • How Long will initial advantages last?---What every VC/Angel wants to know…. and is not afraid to ask. “In war you win by outwitting, outflanking, and overpowering the enemy—your competition” See Marketing Warfare, by Al Ries and Jack Trout

25. Summary Challenge: • Dream up “Brainstorm” a product or service (and method of delivery/distribution) that: 1)satisfies market need(s) 2)With an “unfair” and “sustainable” competitive advantage …..and 3)which appeals to you ….and… 4)…to those who provide funding

26. What is our product? need(s) are satisfied makes it unique? can go wrong? Are the risks? selling price? Things to Brainstorm for a Description/Boundaries of your idea Who is We? does what? is our customer(s)? Botox---people with wrinkles people with migraines is our competition?

27. How… can we minimize risks? big is the market? will we produce? Much will it cost? Will it be sold/delivered? Where… Is the market? advertise? will you locate? When… Will it pay off? Things to Brainstorm for a Description of your idea, continued

28. See J. Nesheim’s example B.P. • http://www.startupweb.com/pdf/DataMedBPlan.pdf

29. Do you really want to break a habit? • Flip top Toothpaste containers • Selling insurance on-line “The insurance market is huge”…..but……. How big is your market when for the foreseeable future it contains only “innovators”? When will the habituated try your product or service”?----Surveys-would you buy?…at what price?…how much do you use?

30. Tom Kelly-IDEO • “Make a checklist of the essentials before you begin a project, the minimal elements your product or service needs in order to be accepted in the marketplace. Periodically check to make sure you haven’t forgotten one of these basics” • P. 273, The Art of Innovation.

31. Make a Check List Brainstorm a product or service that meets or exceeds requirements --answers to: Who, What, How, Where, When (Or see the 4 P’s) If product evolves to violate constraints, then: Change Product or … Change Constraint?

32. Linking the market with the product idea—Cooper.com • A good website on the subject of matching requirements to product innovation http://www.cooper.com/newsletters/2002_08/turning_requirements_into_product_definition.htm http://www.cooper.com/who_we_are.htm

33. Thanks for your time!QUESTIONS ?

34. Contact Information Dr. Jon D. Pratt Center for Entrepreneurship and I.T. 208A Bogard HallLouisiana Tech UniversityRuston, LA 71272318 257 3191 jpratt@latech.edu