EntrEprEnEurshipvi

Detailed Contents

Acknowledgments xvi

Introduction xviiA Market- and Customer-Driven Process xviiiWhat’s Ahead in This Book? xixPathways to Success xxi

Part I: DefInIng the Venture ConCePt 1Defining and Testing Your Venture (Before Writing the Business Plan!) 2

Chapter 1: Identifying Your Industry, the target sector in the Industry, and type of Business 7

The Purpose of the Chapter 7Learning Objectives 8Selecting a Target Industry 8Taking Stock: Your Internal Factors 13

Starting From Ground Zero 13Investigating the External Dimension: The Potential of the Target

Industry 14Industries and Their Sectors 14Size, Growth Rates, and Profitability 15Concentration and Intensity of Competition 15Life Cycle Stage 16

Life Cycle Implications for New Ventures 17Exceptions to the Rule 18

Barriers to Entry 18Capital and Time 19Manufacturing 19Marketing 19

Additional Environmental Scanning Can Also Uncover Rich Entrepreneurial Opportunities 19

Three Steps to Industry Analysis 21Step 1: Correctly Identify the Industry 22Step 2: Determine Market Size, Growth, and Profitability in a Sector 22Step 3: Assess Industry Dynamics 23

Mapping Out the Key Players in an Industry Sector 26

The Last Step Toward Defining Your Venture Scope: Deciding Which Type of Business You Want to Be Within Your Target Industry 28

Different Types of Business Possibilities for the Same Target Industry Sector 29

Making Money Is Different Based on the Type of Business 29Making the Choice of the Business Type for Your Venture 30

Reader Exercises 31Step 1: Each Team Member Needs to Complete Figure 1.8 31Step 2: Conduct a Target Industry Analysis 32Step 3: Conduct an Environmental Scan for Your Target Industry 32Step 4: Draw the Ecosystem Map for Your Target Industry 33Step 5: Have Breakfast or Lunch With an Experienced Entrepreneur, Investor,

or Executive in Your Target Sector 33Step 6: Bring All This Learning Together:

Create Your Venture Scope 34

Chapter 2: Developing the Venture Concept 36The Purpose of the Chapter 36Learning Objectives 37Building Upon the Prior Chapter: Determining Your

Market Niche Within a Target Industry 37These Three Steps in Action 38

Creating a Picture of Your Market Segmentation 39Keep Your Market Segmentation Simple Yet Powerful 42Established Market Niches Versus Emerging Niches 42The Importance of Identifying Segments With

Innovative Customers 43Digging Deeper: Defining Major Customer Groups

Within Your Target Market Segment 44Application of Customer Segmentation to Farming of the Future 46

With Segment and Target Customers in Hand, Now Look at Their Different Uses 48

Defining Your Market Niche as a Function of Customers and Their Uses 48

Digging Deeper Into Customers’ Uses 50Reader Exercises 54

Apply the Methods to a Sports Venture 54Apply the Methods to Define the Addressable Market for Your Venture

Idea 54

Chapter 3: getting Into the hearts and Minds of the target Customers 55

The Purpose of the Chapter 55Learning Objectives 56Getting Ready to Jump Into the Hearts and Minds of the

Customers in Your Target Segment 56

Arm Yourself With a Few Innovative Ideas 57You Are a Representative Customer and Have Been Frustrated for

Years 57A Customer in Your Target Market Has Already Created the

Innovation! 57The Ideas Exist as Technology in Companies and Universities Waiting to

Be Applied 58Take an Idea That Works in One Geography and Adapt It to

Another 59Doing the Field Research: Learning About the Attitudes, Behaviors, and Core

Needs of Target Customers 59Further Appreciating the Differences Between Target End-Users and

Buyers 60Structuring Your Field Research 61What Is the Correct Number of Interviews for This

Stage of the Process? 61Most Important: Work With Target Customers in

Their Places of Use 62The Mindset and Approach for an Effective Conversation With Target

Customers 62Within Core Needs, Look for Latent Needs and Clear Customer

Frustrations 64Look at the Before, the During, and the After of Each Use Case 67

Creating the Initial Product or Service Offering 68Understanding Value for Users 70Creating an Initial Positioning for the Venture 71

Creating the Venture Concept Statement 72Get Your Information Organized and Keep

Track of the Unanswered Questions 74Where We Go Next 74Reader Exercises 75

Step 1: Hit the Streets! Apply Figure 3.1 75Step 2: Develop Use Cases. Apply Figure 3.8 75Step 3: Develop the Product, System, or Service Idea 75Step 4: Bringing It All Together 77

Chapter 4: Defining the Business Model for a Venture 78The Purpose of the Chapter 78Learning Objectives 79Defining a Business Model 79Key Elements of the Business Model 80

Business Models and Financial Outcomes 82Cohesion Within the Business Model 82

Revenues 82Revenue Does Not Necessarily Mean Cash 83The Structure and Nature of Revenues 83

Pricing/Volume 84Recurring Revenue 85

The Product–Service Mix 86The Venture’s Approach to R&D: Where to

Create the “Secret Sauce” 89Production: In-House or Outsourced? 91Go-to-Market Approach 91

Different Types of Business Models 92A Manufactured Product Venture 93A Software and Systems Venture: Health Monitoring Systems 95A Technical Services Venture: Telestructures 97Comparing the Three Business Models 99

Now for the Advanced Class: Business Model Innovation 101Repositioning Products as Services 102Designing a Win-Win Solution 102

Closing Thoughts on Business Model Innovation 103Reader Exercises: Your Turn—A Business Model for Your

Venture 105Step 1: Define the Revenue Model 105Step 2: Define the Models for R&D, Production, and Sales 106Step 3: Integrate 106Step 4: Financial Outcomes From the Business Model 106Step 5: Internal Corporate Venture Business

Model Difference Template 106

Chapter 5: transforming a Product or service Idea Into a Product line and service strategy 108

The Purpose of the Chapter 108Learning Objectives 109Principles for Success 109The Product Portfolio: The Importance of Choice—Single Versus Multiple

Offerings 110Product Line or Service Architecture 111The Importance of “Good, Better, Best” for a Product

or Service Strategy 113Defining “Good, Better, Best” 113How Offshore Markets Affect Product Design Variety 115

Establishing a Beachhead Strategy for Venture Launch 116A Beachhead and Growth in Software 118

More on Modularity 119Modularity in Physical Products 120Modularity in Software 121

Platforms for Products and Services 123Innovation and Platforming in Services 124

Reader Exercises 126Step 1: Define Your Beachhead and Growth

Strategy 126Step 2: Define “Good, Better, Best” 127Step 3: Define an Improved Workflow for

Your Customers (optional) 127

Chapter 6: Positioning Your Venture: thinking Deeply about Competitors and Customers 129

The Purpose of the Chapter 129Learning Objectives 130The Importance of Positioning for New Ventures 130

A Product Example 131A Software Example 131A New Drug Example 131

Positioning Against Direct Competitors 132Competitive Intelligence 133

Competitive Analysis 134Assessing Your Competitive Position 134

Competitive Advantage 135Using a Perceptual Map to Examine Competitive Positioning 136

A Manufactured Product 136Software 138Services 138

Customer Positioning: Again, Find the White Space 139Make Your Own Rules 142Be Prepared for a Competitive Response 143Key Takeaways for Competitor and Customer Positioning 143Reader Exercises 144

Step 1: Do Your Homework on Competitor Strengths and Weaknesses 144

Step 2: Prepare a Customer Perceptual Map 144Step 3: Revisit Your Venture Concept Statement, the

Business Model, and the Product/Service Strategy 145

Chapter 7: a reality Check on the Venture Concept and the Business Model 146

The Purpose of the Chapter 146Learning Objectives 148Developing the Field Research Instrument for the Reality Check 148

The Venture Concept Summary for Customers 151Questions Following the Venture Concept Summary 152

Organizing Customer Panels 154Structure Customers Into Distinct Potential Groups and Ask Members of Each

Group for Their Thoughts on Your Venture Concept 154Deciding the Number of Customers to

Target for Reality Checking 155Conducting the Field Research 155Analyzing Your Data and Interpreting the Results 157

The Goal: Validate Your Customer Insights and Business Model Vision 157

Validating the Core Needs, Attitudes, Behaviors, and Demographics of Your Target Market 159

Validating Your Product or Service Strategy and Its Positioning 163

Validating Your Go-to-Market Strategy 165Getting a Handle on Revenue for a Scaled-Up Business 168

Reader Exercises 176Step 1: Create the Venture Concept Statement 176Step 2: Create the Discussion Guide 176Step 3: Conduct the Field Research 176Step 4: Analyze the Data 176Step 5: Create a Rich Profile of the Target Customer 176Step 6: Take a First Crack at Revenue Projections for a Scaled-Up

Business 177Step 7: Summarize Your Reality Check 177

Part II: WrItIng the BusIness Plan anD MakIng the PItCh 179

Developing Financial Projections, Writing the Business Plan, and Making the Pitch 180

Chapter 8: sources of finance for startups and Corporate Ventures 183

The Purpose of the Chapter 183Learning Objectives 184The Stages of Venture Development and the Relevant Funding Types 184

Seed/Startup Stage 184Development and Initial Launch Stage 185Expansion (Growth) Stage 186Later (Maturity) Stage 186Exit 187

The Sources and Types of Venture Funding 190Equity Versus Debt 190Sources of Venture Financing 191

Founder Self-Financing 192Friends and Family 193Angel Investors 194

Venture Capitalists 198Corporate Financing 203

Corporate Innovation Programs 205How Investors Make Money From Ventures 205

Angels, VCs, and Other Private Equity Investors 205How Corporations Make Money From Internal

Corporate Ventures 209How Investors Value Your Business 210Ways You Can Improve the Valuation of the Venture 211The Dos and Don’ts of Raising Capital 213

Dos 213Don’ts 215

Closing Thoughts: Getting Funded Is Not for the Faint of Heart 217Reader Exercises 218

Step 1: Find Angel Investors 218Step 2: Get a Feel for Deals in Your Industry Sector 218Step 3: Learn About the Venture Capital Industry 218Step 4: Learn About Local VC Firms 218Step 5: Learn About Local Angels 218Step 6: Learn About Potential Corporate

Investors in Your Region 218Step 7: Develop a Strategy to Raise Funds 218

Chapter 9: Projecting the financial Performance and requirements for the Venture 219

The Purpose of the Chapter 219Learning Objectives 220The Whiteboard Approach 220The Financial Projections Necessary for a Business Plan 221Creating Realistic, Granular Projections 223

The Top-Down, Share of Market Approach 232Being Specific About the Assumptions Driving

the Revenue Model 233Revenue Recognition 234Shortening the Sales Cycle 235Last, but Not Least: Identify and Show the Recurring Revenue 236

Generating the P&L 237Management Salaries (Including Your Own Paycheck!) 240

Spending Money on Office Space and Furniture 241Hiring Engineers 242Hiring and Compensating Salespeople 244Spending Money on Lawyers 244Spending Money on Accountants 245Spending Money on PR Firms 246Closing Comments on the P&L 246

Digging Into the Cash Flow of the Venture 247Revenue Rich, Cash Broke 249Showing an Understanding of the Cash Conversion Cycle 249

A Capital Plan for Investing in New Machines for a Corporate Venture 250

How These Financial Projections Impact Investor Valuations of New Firms 251

A Closing Thought: Realistic Revenue, Please! 253Reader Exercises 255

Step 1: Develop a Granular Projection of Revenue 255Step 2: Develop a Proforma P&L (i.e., a

Projected Income Statement) 255Step 3: Develop a Cash Flow Projection 255Step 4: Develop a Balance Sheet 256Step 5: Establish Financial Goalposts 256

Chapter 10: organizing the Venture team 257The Purpose of the Chapter 257Learning Objectives 257The Characteristics and Skills of Venture Founders 258

Entrepreneurial Characteristics 258The Team That Writes the Business Plan: Guard Your Founder’s Stock

Carefully 260Building the Team That Builds the Venture 261

Strive for a Balanced Management Team 261The Importance of Building a High-Performance

Culture of A Players 264Creating a Shared Vision and Culture of

Teamwork and Success 265Boards in a Venture 266

Create an Advisory Board From the Get-Go 266The Board of Directors: Proceed With Care

(If You Are Given a Choice) 267Revenue Creation 268

Form a Customer Advisory Board 269The Legal Organization of the Venture 270Providing Rewards and Incentives for the Venture Team 272Reader Exercises 274

Step 1: Conduct a Personal Characteristics Audit 274Step 2: Business Skills Audit 274Step 3: An Aggregated Business Skills Audit for the Team 275Step 4: Begin Building an Advisory Board 275

Chapter 11: Writing the Business Plan! 276The Purpose of the Chapter 276Learning Objectives 277 The Outline of the Business Plan and Where Your Prior Work Fits In 277Appreciating Your Reader: The Professional Venture Investor 279Before Writing, “Storyboard the Plan” 283The Business Plan Sections 286

The Title Page 286Executive Summary 286The Business Model and Financial Goals 288

Revenue Model 289R&D Strategy 289Production/Manufacturing Strategy 290Distribution Strategy 290Financial Goals 290

Market Analysis 291The Addressable Market: The Industry, Target Segment, Size, and

Growth 291The Customer Profile and the

Compelling Applications/Solutions That They Need 292

Competitive Assessment 292Final Checklist for the Market Analysis Section 293

Solutions: Technology, Products, and Services 294Product Strategy 294Product or Service Design 295Proprietary Technology, Intellectual Property 297Underlying Platforms 298Development Plan and Key Milestones 299Development Costs 300Final Checklist 300

Sales Plan: Customer Targets, Distribution, Branding, and Pricing 301

Customer Targets 306Trade/Channel Strategy 306Branding, Advertising, and Promotion 308Pricing Strategy 308Layout and Merchandizing (for Retail

Ventures or Retailed Product Ventures Only) 309Final Checklist 309

Operations, Production, and Supply 310Managing Suppliers 310Managing Production 311Managing Logistics/Fulfillment 312Managing Customer Service 312

Organization Plan 313The Management Team 313The Staffing Plan 314Board of Advisors/Directors 314Final Checklist 317

Major Milestones With Funding 317Financial Projections 318

Closing Thoughts 321Reader Exercises 322

Step 1: Storyboard Your Plan 322Step 2: Fill in the Activities/Roles/Status Table

for Each Section 322Step 3: Write the First Draft of the Sections and Assemble 322Step 4: Review and Critique 322Step 5: Get Even More Specific on the Assumptions for the Financial

Section 322Step 6: Review “Milestones With Funding” Section as a Team 322Step 7: Polish—Formatting and Graphics 323

Chapter 12: Making the Pitch 324The Purpose of the Chapter 324Learning Objectives 325

There Are Presentations, and Then, There Are Investor Presentations 325The Foundations for a Great Investor Presentation 326

An Outline for the Presentation 327Create a Compelling Story 328

The Story of Serving the Customer 329Define the Customer, the Customer’s Problem 329Define the Addressable Market 329The Solution to the Customer’s Need, the “Secret

Sauce,” and the Competitive Positioning 330The Story of Your Business 332

Describe the Business Model 332Describe the Go-to-Market Strategy 333Describe the Major Milestones and the Funding 334

Use Graphics and Illustrations, but Avoid Sensationalism 335Presentation Style 335Prepare for a Grilling (Where You Are the Meat) 336Understand That No Matter How Good the Pitch, It Just

Might Be the Wrong Investor for Your Venture 341The Last Important Step: Go Get That Meeting! 342

Getting a Meeting With Angels 343Getting a Meeting With VCs 343Getting a Meeting With Corporate Strategic Investors 344

The Bottom-Line for Making Investor Presentations 344

Venture Cases 345SilverRail Technologies, Inc.: Sizing the Market and Business

Opportunity 346Ready Seafood: Creating a New Business Model in a Startup 359Evergreen Memories: Growing a Venture Into Adjacent Markets 368My M&M’S®: Creating a New Business Model in a Corporate Venture to

Leverage Core Brands 371In Search of a Viable Business Model: The Ups and Downs of

Web-Based Entrepreneurship 379Generate, Inc.: Creating an Information Services Venture With Strategic

Corporate Investment 394Sentillion, Inc.: A Corporate Spinoff in Software 405mInfo: Venturing Into China 415Bioblood: The Trials and Tribulations of Achieving Exit 422

Index 439

About the Authors 443