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New Venture Competition 2019

Join us for the New Venture Competition 2019 events, a guide on Market Sizing and Forecasting. Learn how to quantify your market opportunity and define TAM, SAM, SOM. Attend workshops and plan your strategy for success.

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New Venture Competition 2019

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  1. New Venture Competition 2019 Market Sizing Forecasting Announcements / Reminders

  2. Important Dates New Venture Fair • Thursday May 2, 2018 • Corwin Pavilion • Plan to be available 3:30PM to 8PM (main event 5:00 to 8:00PM) New Venture Finals • Thursday May 29, 2018 • Corwin Pavilion • Plan to be available 1:30PM to 7PM (main event 3:00 to 6:30PM) New Date !!

  3. Resources • Mentors • Mixer tomorrow night – 6PM – The Garage Incubator at Mosher • Strategic Planning Session with Stuart Jenkins and his new startup, Monday Feb 11, 4:30PM to 6:30PM, the Garage • Trusted Peer • MVP Grant • Up to $500 for development of your Minimum Viable Product • Wilcox Incubator (The Garage) • For team meetings

  4. Upcoming NVC Events

  5. Winter Events

  6. Spring Events

  7. Defining and Quantifying Your Market Opportunity Why? Highlight the business opportunity for your stakeholders Develop and display knowledge of the business and the market Establish credibility and confidence Develop internal benchmarks

  8. Identify / Quantify your Market • Total Available Market (TAM) • The total $$ potential within your market that your product/service serves • Serviceable Addressable Market (SAM) • The segment of TAM for which the value proposition of your product/service is strongest • Serviceable Obtainable Market (SOM) • AKA Target or “Launch” Market • The segment of SAM with the maximum potential given the current business model • Identifiable “traction”

  9. Identify / Quantify your Market • TAM, SAM, SOM • Very useful for thinking about and segregating your market • Not always ideal for explaining or presenting it • Don’t feel restricted to using these labels !!

  10. Total Available Market (TAM) • The total $$ potential within your market that your product/service could theoretically serve • Broad by definition • Not likely attainable • Distribution limitations, resource limitations, launch timelines, initial focus of product line, etc. • Important to capture only the market related to your business

  11. Total Available Market (TAM) • Example • New seatbelt for airplanes • What’s the TAM? • The air travel market? • The airplane market? • The airplane accessories market? • The seatbelt market for all types of vehicles? • Total airplane seats X the price of your product?

  12. Serviceable Addressable Market (SAM) • The segment of TAM for which the value proposition of your product/service is strongest • Sharpens the focus on a particular segment of the market • Theoretically 100% attainable, not practical to attain it now • Likely not attainable by a startup with limited resources

  13. Serviceable Addressable Market (SAM) • Example • New seatbelt for airplanes • Initial design is for luxury private jets jets • What’s the SAM? • The luxury private jet market ? • The luxury private jet accessories market? • The luxury private jet seatbelt market?

  14. Serviceable Obtainable Market (SOM) (AKA - Initial Target or Launch Market) • Further refinement of the Servable Market • Might be a demographic or geographic sub-segment of a market • Fully attainable with 100% market share • Enables focus given limited startup resources Your revenue forecast should be based on a percentage of your defined SOM!

  15. Serviceable Obtainable Market (SOM) • Example • New seatbelt for airplanes • Initial design for luxury private jets jets • Only have resources for US distribution • What’s the SOM? • The US luxury private jet market ? • The US luxury private jet accessories market? • The US luxury private jet seatbelt market?

  16. Total Available Market (TAM) • Example 2 • iPhone aftermarket camera accessory, fits only the X • What’s the TAM? • The cell phone market? • The iPhone market? • The iPhone X market? • The iPhone accessories market? • Total iPhones in the world X the price of your product? • Total iPhone Xs in the world X the price of your product?

  17. Serviceable Addressable Market (SAM) • Example 2 • iPhone aftermarket battery accessory, fits only the X • Initial design is a bit large & heavy • What’s the SAM? • The iPhone market? • The iPhone X market? • The “heavy user” iPhone X market? • The “heavy user” iPhone X owners X the price of your product?

  18. Serviceable Obtainable Market (SOM) • Example 2 • iPhone aftermarket battery accessory, fits only the X • Initial design is a bit large & heavy • Have resources only for internet sales • What’s the SOM? • The on-line iPhone market? • The on-line iPhone X market? • The on-line iPhone X market for “heavy users”? • The on-line iPhone X market for “heavy users” X the price of your product?

  19. Total Available Market (TAM) • Example 3 • New app for grocery food shopping • Transaction fee revenue model • What’s the TAM? • The food market? • The grocery market? • The grocery delivery market? • Avg. transaction fee X number of grocery purchases? • Avg. transaction fee X number of delivered grocery purchases?

  20. Serviceable Addressable Market (SAM) • Example 3 • New app for grocery food shopping • Transaction fee revenue model • App targets premium grocery buyers • What’s the SAM? • The premium grocery market? • The premium grocery delivery market? • Transaction fee X number of premium grocery purchases? • Transaction fee X number of premium delivered grocery purchases?

  21. Serviceable Obtainable Market (SOM) • Example 3 • New app for grocery food shopping • Transaction fee revenue model • App targets premium grocery buyers • Roll-out strategy starts with western states • What’s the SOM? • Transaction fee X number of premium grocery purchases in western states? • Transaction fee X number of premium delivered grocery purchases in western states?

  22. Example: Bulbs-R-Us Bulbs-R-Us has new technology to make high-efficiency low-cost LED light bulbs First Product is a non-dimmable bulb Initial market identified = commercial • TAM = worldwide LED lightbulb market • SAM = worldwide non-dimmable LED lightbulb market • SOM (Target) = non-dimmable commercial LED lighting in the US

  23. What if we’re disrupting a market?

  24. Example: NewKnee Therapeutics NewKnee offers a novel treatment that eliminates the need for knee replacement surgery • TAM • Knee replacement market? • Knee replacement patients X annual cost of treatment? • Will new, simple treatment grow the number of patients? • Will lower pricing (treatment vs. surgical) reduce the $$ market? • SAM • Assume only appeals to private pay insured today (non-medicare) • Knee replacement patients - private pay X annual cost of treatment • SOM (Initial Target = teaching hopsitals) • Private pay knee replacement patients in teaching hospitals X annual cost of treatment

  25. Takeaways • There is often times no single right answer • You have to develop a case, and justify it • Justification may require top-down and bottoms up analysis • Top-down • Utilize market research to determine how many users meet your different characteristics • What is the industry? What is its growth rate? • Possible Resources • Thompson One (Thompson Reuters Database) • Lexis Nexis • Bottoms-Up • Customer lists, trade associations, other sources of customer information • Identify how many customers there are, and how many end users each customer has • Use industry data and market validation feedback to determine pricing Your assessment of market size (SOM especially) will change as you perform market validation and acquire new information from customers

  26. Financial Forecasting

  27. Financial Forecasting • Our main objective for the New Venture Fair: • Forecast revenue for three year horizon after launch • Units and dollars • Forecast cost of revenue • Cost of product or service being sold • Forecast gross profit • Demonstrate reasonable Gross Margin for products / services offered • Address key operating cost metrics • Customer acquisition cost • Customer churn rate (if applicable) • Lifetime value of customer

  28. Building a Revenue Forecast • Revenue forecast • Tells the story of how your business makes money • Demonstrates your go to market / growth strategy • Identifies various products / services offered • Includes key assumptions and inputs • Market penetration • Pricing • Revenue model • Growth rates

  29. Building a Revenue Forecast • Key inputs and assumptions • Quantity • Based on your SOM / target markets • Assumed market penetration rates (must justify) • “Go to Market” strategy • Average selling price • May change over the planning horizon • May differ for additional products • Market growth rates • Be able to defend your assumptions • Industry benchmarks, historical products, market validation

  30. Forecasting Cost of Revenue / Gross Profit • Cost of Revenue • The cost of providing your product / service to your customer • For hardware / hard goods: • Material, labor, overhead to produce the product • For software • Costs related to providing / supporting the product • Customer support hotline, server infrastructure, etc. • Gross Profit (Gross Margin %) • Revenue minus Cost of Revenue (divided by Revenue = GM%) • Example: Revenue = $1M, COGS or COR of $300K Revenue: $1,000,000 COGS / COR: 300,000 Gross Profit: $700,000 Gross Margin 70%

  31. Key Operating Metrics • Customer acquisition cost • Cost to acquire a new customer • Costs related to finding and winning a new customer divided by the number of new customers • Sales, marketing costs related to customer acquisition • Customer churn rate (if applicable) • What is the rate of customer retention, year after year? • The inverse is your churn rate • Lifetime value of the customer • How much revenue is made from one customer, before they churn • The goal: Lifetime value > Customer acquisition cost

  32. Other Operating Costs • R&D • G&A • Optional to forecast these for the New Venture Fair • If we can demonstrate a healthy enough Gross Profit Margin, we can make a reasonable assumption (under most circumstances) that will be able to absorb these operating costs to make an acceptable Operating Profit Margin What if cost of revenue in the launch phase does not demonstrate a healthy Gross Profit Margin?

  33. Financial Forecast – For the NV Fair • Revenue, Cost of Revenue, Gross Profit, Gross Margin % • Revenue and COGS for all products sold • Gross Profit and Gross Margin % in aggregate • Key Operating Metrics • Three-year time horizon (forecast by year, not quarter) • Template will be provided • Not mandatory to use – your model may be different • State key assumptions • Unit sales quantity, pricing, growth rates • Office hours will be offered

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