1. BOOTSTRAP INTELLIGENCE
WEEK 4 : FEB. 9
MBAX 6860 : Bootstrap Tactics for Entrepreneurs
BOOTSTRAP INTELLIGENCE
February 9, 2007
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2. OVERVIEW Competitive intelligence
What it is
What it is not
Key bootstrap market research to perform
How the heck do I uncover needed information?
Bootstrap equity detailed discussion
My take on it…
Consulting / Resource forum
February 9, 2007
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3. WHAT CI IS NOT… Spying A crystal ball Database search Paper
A job for 1, smart person
Software
A news story
A spreadsheet
February 9, 2007
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4. WHAT CI IS… Information for decision-making Early-warning tool
Assessment
Many flavors
Improve bottom line
A way of life, a process
Part of best-in-class co’s
Exec driven
External focus
Short & long term
February 9, 2007
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5. BOOTSTRAP RESEARCH Market/industry size Market segmentation
Revenue basis and/or total # of potential customers – domestic & international
Market segmentation
Break down into manageable/target segments
Growth rate
Know for decision-making as well as selling vision to bankers, investors, employees, etc.
February 9, 2007
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6. BOOTSTRAP RESEARCH Competition Trends Customers Know ‘em!
Maintain pulse on industry/market
Customers
Most important! Obvious, but….
Talk to potential customers and LISTEN and LEARN!
February 9, 2007
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7. BOOTSTRAP RESEARCH SOOOO…how do you secure this information? People!
Sales personnel
Trade groups and associations
Technical groups and forums
Trade shows and conferences
Partners and affiliates
Analysts
Competitor’s and competitor's customers
Industry publications
February 9, 2007
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8. BOOTSTRAP RESEARCH Internet Trade associations Industry publications
Company websites, 10K’s, search engines
Trade associations
Industry publications
Wall St. analysts
Databases – Lexis/Nexis, ABI, etc. (Leeds library resources)
February 9, 2007
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9. ADDITIONAL RESOURCES The CI Resource Index
Bizminer Industry Analysis & Trends
InvisibleWeb.com
Databases, archives, & search engines
TSCentral.com
Directory of trade-shows
MarketResearch.com
Society of CI Professionals
February 9, 2007
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10. MY TAKE ON IT… CALL PEOPLE!!!! Associations Industry publications
Competitive companies
Benchmarking
February 9, 2007
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11. TEAM COMPENSATION Work for hire Salaries Stock Stock options
Payment as a independent contractor for specified work
Salaries
Ongoing payments for doing a job
Deferred salaries
Stock
Grants of stock for work performed
Stock options
Options to purchase stock for work performed
February 9, 2007
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12. WORK FOR HIRE Advantages Disadvantages
Flexible; best suited for project work
Easy to start and stop
Avoid many employment law issues
Disadvantages
Must conform to employment law for independent contractors
Not suitable for ongoing management work
Can be expensive
February 9, 2007
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13. SALARIES Advantages Disadvantages Provide steady income to founders
Protection and benefits of employment law
Workers comp, social security, etc.
Disadvantages
Significant cash flow or cash resources required
Setting up payroll is cumbersome
Employment laws can be restrictive
More difficult to terminate or start/stop employment
February 9, 2007
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14. STOCK DISTRIBUTIONS Provide stock in lieu of cash payments Advantages
Give founders an increased stake in company
Do not diminish cash resources
Disadvantages
Dilute ownership of investors
Change balance of ownership and governance
Must pay taxes on value of stock ( ! )
February 9, 2007
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15. STOCK OPTIONS
Provide right or option to purchase stock at some future time
Advantages
Avoid immediate tax liabilities
Provide incentives to make company successful
Motivates!
Do not diminish cash resources
Disadvantages
Change ownership structure of company (long term)
Tax consequences when options are exercised
February 9, 2007
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16. TYPES OF OPTIONS Incentive Stock Options Employee Stock Purchase Plans
Generally used for ongoing companies
Many mandated restrictions; some tax advantages
Employee Stock Purchase Plans
For ongoing companies to incent workers
Not appropriate for start-ups
Nonqualified (Nonstatutory) Stock Options
Best suited for startups
February 9, 2007
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17. NONQUALIFIED OPTIONS No limit on number of options granted
No qualification rules regarding who gets options
Employees, investors, advisors, contractors, etc.
Option exercise price can be any amount (1¢)
No tax liability upon grant of option (unless the option has a “readily ascertainable” market value)
Taxed as ordinary income based on fair market value at time of exercise
February 9, 2007
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18. KEY EQUITY POINTS FOR BOOTSTRAPPERS
Know difference between stock distribution and option granting
Tax, valuation, incentive
Authorize appropriate # of shares
Ex = 10,000,000
Maintain diligent record of equity – both stock distribution and option grants
Run exercise scenarios
February 9, 2007
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19. KEY EQUITY POINTS FOR BOOTSTRAPPERS
Create an equity plan right from the beginning
Ownership structure, present & future
Executives offered X% shares, mgrs X%…
Fair and consistent – just like any other form of compensation
Know and present exit options to equity stakeholders
Acquisition, go public, merger, buyback…”how are these things going to be worth anything?”
February 9, 2007
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20. STEP-BY-STEP Authorize shares – Articles of Inc./LLC
Create equity plan
Create template for stock distributions and stock options
Company letterhead
Boiler-plate language – make look sexy
Signed/authorized by CEO and Treasurer
Notarized
February 9, 2007
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21. STEP-BY-STEP Determine exercise price Complete option grant document
Balance btwn incentive and cash flow to co.
Determined by stage of company
Complete option grant document
Record in equity log
Continuously monitor equity log
Manage to this amazing incentive
February 9, 2007
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22. EQUITY PITFALLS
Handing out options to everyone and anyone with no plan
Does not incent, you look bush league
Not having a good story for how options will be worth something
Not proactively managing the status
Forgetting to manage to them
February 9, 2007
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23. MY TAKE ON IT… Team compensation Stock options
It depends…resources available, desire of adding team member, new team member’s flexibility
Overall…options are a GREAT compensation tool
Motivates, no cash hit, favorable tax
Think of cash flow!
Stock options
Great tool!
Nonqualified
February 9, 2007
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24. WEEK 5 Bootstrap Marketing All tasks to be reviewed by next week
Speaker = Mark Mitchell
All tasks to be reviewed by next week
Tasks to complete:
Readings
Research
Competitive Intelligence
February 9, 2007
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25. “Whatever you are, be a good one.”
--Abraham Lincoln
February 9, 2007
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