Sequoia
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Sequoia
- 1. THINK BIG BUT START SMALL FEBRUARY 27, 2008
- 2. FROM IDEA TO BUSINESS PLAN IDENTIFY A COMPELLING MARKET NEED HUMBLE BEGINNINGS (THINK BIG, START SMALL) WHAT WE HOPE TO HEAR FIRST HI-TECH MARKETING CAN BE DIFFICULT. SOME RESOURCES A COUPLE OF ANECDOTAL EXAMPLES WHAT WE HEAR WAY TOO OFTEN GETTING TO TECHNOLOGY, TEAM, and FINANCE MEETING MANAGEMENT WITH VCs SOME COMMON PITFALLS ENJOYING THE JOURNEY 2
- 3. HUMBLE BEGINNINGS Jerry & David Larry & Sergey Steve Chad Jawed 3
- 4. HUMBLE BEGINNINGS Steve & Steve Trip Sandy & Len 4
- 6. WHAT WE HOPE TO HEAR FIRST… 3. PRODUCT & TECHNOLOG Y 2. MARKET STRATEGY (UNFAIR ADVANTAGE) 4. DEFINING TEAM 5. CAPITAL EFFICIENCY 1. MARKET POSITIONING ENTREPRENEUR’S CHALLENGE 6
- 7. 1. MARKET POSITIONI NG THE BIGGEST CHALLENGE…. A.K.A. THE “ELEVATOR” PITCH “ “ We networks networks. Sandy Lerner/Len Bozak Cisco 7
- 8. 1. MARKET POSITIONI NG HELP FROM GEOFFREY MOORE For [target customers] Who have [compelling reason to buy] Our product is a [new product category] That provides [key benefit (which solves problem)] Unlike [competitor in new product category] We have [key point of differentiation] *Source: Crossing the Chasm 8
- 9. 1. MARKET POSITIONI NG TWO DECLARITIVE SENTENCES For movie producers Who have post-production special effects Silicon Graphics That provides computer workstations integrates digital fantasies with film footage Unlike IBM or Sun Microsystems SGI has made a no compromise commitment to meeting film makers’ post-production needs. *Source: Crossing the Chasm 9
- 10. 2. MARKET STRATEGY INTIMATE WITH TARGET MARKET & BULLSEYE CUSTOMER? TRENDS STRUCTURE SPEED LEVERAGE VITAMIN? OR ASPIRIN? HOW PLUGGED IN ARE YOU? 10
- 11. 2. MARKET STRATEGY CHANGE OR CREATE CATEGORY? JOIN EXISTING CATEGORY DEFINE NEW CATEGORY MARKET DYNAMICS Large Size, Strong Growth Small Size, Explosive Growth ADVANTAGE Price/Performance IP, Functionality, Brand CUSTOMERS Opportunistic Loyal MARKET SHARE Lower (often less than 10%) Higher (often greater than 50%) GROSS MARGIN Lower (often less than 50%) Higher (often greater than 65%) ACHIEVABLE GOAL Acquisition Public Company LEGACY Single Generation Reign Dynasty 11
- 12. 2. MARKET STRATEGY YOUR PLAN OF ATTACK? 12
- 13. 2. MARKET STRATEGY CREDIBLE DIFFERENTIATION? Competitor 10 Y1 Competitor 9 Competitor 11 Competitor 7 Competitor 1 Competitor 6 Y2 New Co Competitor 8 Competitor 5 X1 Competitor 2 Competitor 3 Competitor 4 X2 13
- 14. 3. PRODUCT & TECHNOLOGY DEFENSIBLE BARRIERS? PARTNERSHIPS TECHNOLOGY NETWORK EFFECT SIMPLICITY DOMAIN KNOWLEDGE BUSINESS PROCESS 14
- 15. 4. DEFINING TEAM MAGNETS? SCARS? PASSION? NewCo. 555 Main Street Anywhere, USA (415) 555-5552 chief2@newco.com NewCo. Bob Smith Chairman NewCo. 555 Main Street Anywhere, USA (415) 555-5553 chief3@newco.com Tim Jones CEO NewCo. Barney Baker CFO NewCo. 555 Main Street Anywhere, USA Counsel (415) 555-5555 chief5@newco.com 555 Main Street Anywhere, USA (415) 555-5552 chief2@newco.com 555 Main Street Anywhere, USA (415) 555-5554 chief4@newco.com Ajay Singh COO NewCo. Vlad Krunis General 555 Main Street Anywhere, USA (415) 555-5556 chief6@newco.com Karen Williams President 15
- 17. 5. CAPITAL EFFICIENC Y DO THE #S MAKE SENSE? REVENUE TRAJECTORY GROSS MARGIN EBITDA %’S & RATIOS CASH REQUIREMENT VS. OPEX CASH FLOW TO BREAK EVEN 17
- 18. 5. CAPITAL EFFICIENC Y GRASPING UNIT ECONOMICS? REVENUE BY DAY/WEEK/SEASON COST OF CUSTOMER ACQUISITION LIFETIME VALUE GROSS PROFIT/TRANSACTION COST PER SKUS INCENTIVE PROGRAMS INVENTORY TURNS PRODUCT/BRAND ASSORTMENT FREQUENCY PURCHASE TRENDS CUSTOMER CHURN/MO. NEW CUSTOMERS/MO. #ITEMS PURCHASE TRENDS # CLICKS TO CHECK-OUT SHRINKAGE PICK RATES DELIVERY TIME MRR COST OF CUSTOMER SERVICE CUSTOMER CONTACT RATE ABANDONED CART RATE TICKET SIZE PURCHASE TRENDS ACTIVE CUSTOMERS/MO. 18
- 19. 5. CAPITAL EFFICIENC Y TAKES LONGER, COSTS MORE 19
- 20. 5. CAPITAL EFFICIENC Y FINANCIALS SAY A GREAT DEAL ABOUT HOW YOU THINK… FRUGALITY MARKET SIZE SALES TACTICS MARKET STRATEGY MARKET UPTAKE MARKET VELOCITY REALISM NOT A TIME TO BE NAÏVE UNREALISTIC OR MISLEADING 20
- 21. MEETING MANAGING WITH VCS CONTROLLED? CHAOS? 21
- 22. MOST COMMON PITFALLS GORILLA ALUMNI & AIRCRAFT CARRIERS LACK OF FOCUS OPPORTUNITY EXISTS BEFORE THE MARKET ARRIVES TOP HEAVY COMPELLING?, UNIQUE? SALES MODEL AND ASP DIVERGENCE INCINERATOR SCHEMES 22
- 23. LEARN FROM OUR MISTAKES MISREAD TEA LEAVES TOO EARLY A FEATURE, NOT A PRODUCT CLUTTERED MARKETS TOO LATE A PRODUCT, NOT A BUSINESS CAPITAL INTENSIVE DECEIVED BY COMPARABLES LACK OPERATING CONTROLS SLOPPY DUE DILIGENCE DILUTIVE IPOs GROWING TOO FAST MOMENTUM INVESTING FEELING TOO WEAK WRONG DNA WEAK SYNDICATE FEELING TOO STRONG BAD LISTENERS UNPREDICTABLE DIRECTORS POOR CUSTOMER SELECTION POOR CUSTOMER SERVICE DAZZLED BY SCIENCE STRETCHED TOO THIN DECEIVED BY SUCCESSES BOY SCOUT REFERENCES NOT ADDRESSING A TRUE PAIN DRUNKEN PARADE LEADERS TOO MUCH MONEY CAN’T ARTICULATE THE BUSINESS EYEBALLS CONVERTS TO $s LONG EVALUATION CYCLES SMALL GROSS MARGINS CAPEX CONVERTS TO $s SLOW PAYING CUSTOMERS SMALLER OPERATING MARGINS IGNORING FUNDAMENTALS GOING NATIVE NO MODEL FOR MAKING MONEY REPEATING HISTORY 23
- 24. WHAT WE LOOK FOR IN A PLAN 1. UNIQUE VALUE PROPOSITION/MARKET POSITIONING CLEAR, CONCISE, ABOVE THE NOISE; CUSTOMER VALIDATION? 2. EXPLOSIVE MARKET SECTORS, FULL OF DISCONTINUITIES AMBIGUITY AND CONFUSION ARE GOOD. HOW BIG? DEFINING? STRUCTURE/ACCESSIBILITY? READINESS? DISCONTINUITY—WHAT’S DIFFERENT? VALUE CAPTURE POTENTIAL? NO COMPETITION – OFTEN NO MARKET; ENTRENCHED PLAYERS: INNOVATOR’S DILEMMA? STARTUPS: HOW MANY? OUR TEAM? SOURCES FOR DIFFERENTIATION? 3. BREAKTHROUGH PRODUCTS/TECHNOLOGY SOURCES FOR DEEP SEPARATION AND ADVANTAGE? ORDER OF MAGNITUDE? DEGREE OF DIFFICULTY? ADOPTABILITY? COMPLETENESS? DEFENSIBILITY? 4. DEFINING TEAMS MAGNET QUALITIES? DOMAIN EXPERTISE? INTENSITY? DNA BLEND? SCAR TISSUE? 5. CAPITAL EFFICIENCY WHAT IS THE FULLY FUNDED PLAN? MARGIN? BUSINESS MODEL? DIRECT VS INDIRECT? EXPENSE MODEL? REVENUE 24 ASSUMPTIONS?
- 25. WE’RE ONLY AS GOOD AS OUR NEXT INVESTMENT. 25
- 26. 26
Notas del editor
- DO YOU UNDERSTAND HOW THE PIECES FIT TOGETHER?Don’t assume we’re expert in your markets (although, we do apply previous experience in yours or related markets to make sure what you’re saying makes sense). We’re looking to be educated and inspired (if not deluded). Do you understand the underlying market dynamics and how those different pieces work together? What is occurring in the market that sets the stage for your opportunity? ARE YOU PLUGGED INTO THE PROBLEM? IS THE PROBLEM BIG ENOUGH? To then be able to clearly, succinctly, compellingly articulate the agonizing pain being experienced by the customer. Maybe you’ve been the customer. Maybe you’ve served the customer. Maybe you’ve researched the heck out of the customer. We’re looking for a penetrating, insightful and thoughtful understanding of the customer’s needs. Because, for a business to have a chance, your offering must be a “must have” not a “nice to have”. Otherwise, you’ll be spending significant time and money convincing them that they need the product.
- We’re tired of seeing these BCG grids.
- We’re looking for hard to do and hard to replicate. It’s the only thing a little company has in the face of an inhospitable environment. And, even if you have this, it only gives you a 6 to (maybe) 18 lead. Explain each section. WHEN YOU CLICK - ANIMATION It is a red flag to hear “there is unlimited demand for our unreleased product.” There are plenty of embarrassing examples, some of them ours, that had a big splash and a big crash – WebVan. They were built in advance of demand. The spent millions upon millions promoting and creating brands in an effort to convince customers that they needed this product.
- Do you really understand the business? Explain each section.
- Now that we’ve read the entire plan or listened to the entire presentation (the claims you’ve made), we’re now going to look at the numbers to see if you were telling the truth. Does it all make sense? Does it all tie together? Will the line items in the financials correlate with everything you’ve said about the market, the business and the model?