1. Creating “Winning” Business & Product Plans
Today’s Topic:
Creating “Winning”
Business & Product Plans

2. First Course Module Companies’ objectives Financial measures
How companies bring products to market (roles/process/compensation)
Creating “winning” business plans - today

3. Second Course Module the next four weeks
Market/customer analysis
(DLJdirect case – online brokerage)
Competitive analysis
(Airborne Express case – package delivery)
Making product decisions
(THINK case – electric cars)
Midterm exam on product decisions
(Mathsoft – engineering analysis software)

4. Today’s Agenda
Business/product plans: audience, content, and key aspects of a winning plan
Homework: addressing some key business plan aspects (FHP Wireless case)
Preparation for next week: reading/assignment on target customers (DLJdirect case)

5. Business/Product Plan Learnings
Content/scope of a business/product plan
Critical aspects of a “winning” plan
Differentiation: importance, definition, identification
Start-ups: success factors, funding requirements, success profiles

6. Uses of a Plan To decide what to do (planning = making decisions)
To obtain funding/resources for execution of the plan (funding)
To direct the various parts of the business (execution/communication)

7. Business vs. Product Plan
Business Plan: a plan for an overall business (company), used to obtain funding from external sources
Product Plan: a plan for a product (one of a company’s offerings), used to obtain funding/resources from the company’s senior management (and possibly the board of directors)

8. Objective of a “Winning” Plan
Create a business/product that
provides potential customers
a better ”value minus price” proposition
than competitors
while managing costs and expenses
so as to make profits (earnings)

9. Business/Product Plan: Contents
The company or team
The product or service
Market opportunity & customers
Competition
Sales and marketing plan
Operations and support plan
Financial projections

10. Business/Product Plan: Key Contents
Company/Team: people, skills, resources
Product: “whole” product & its benefits
Market: attractiveness & target customers
Competition: differentiation !!
Sales and marketing plan: sales channels
Operations plan: cost & quality, service
Financials: investor liquidity

11. Uses of a Plan To decide what to do (planning = making decisions)
To obtain funding/resources for execution of the plan (funding)
To direct the various parts of the business (execution/communication)

12. Obtaining Funding & Resources
Existing company
from management
through budget authorization and staff assignment
based on a product plan
money available to management comes from operating cash flow, interest received, sale of stock, or increased debt
New company/start-up
from investors and creditors
through formal documents/contracts
based on a business plan
money comes from the founders, friends & family, agencies, angels, venture capitalists, and/or banks

13. Information and Advice on Starting a Business
See course website under
“Supplementary Materials”
useful websites and texts,
including

14. Source: The Industry Standard, 2000

15. Long Term Venture Performance
1980 – 2007 : 24,000 companies received venture financing
3,800 (16%) still private
3,400 (14%) went IPO
3,800 (16%) were acquired
13,000 (54%) returned zero for investors
Source: Moneytree, PriceWaterhouse Coopers and National Venture Capital Association

16. Types of Start-up Funding
Grant: “money for nothing”
Loan: money to be paid back, with interest
Equity: money in return for equity (a portion of your company; preferred or common stock), to be “paid back” by making the stock valuable and liquid (sellable)

17. Sources of Funds Your (founders’) savings equity-c
“Friends and family” equity/loan
Research grants grant
Economic development agencies all (grant)
Angels equity-p/c
Venture capitalists (VCs) equity-p
Private equity firms equity-p
Banks loan
time

18. Some Some Agencies Angel Groups
NJ Economic Development Authority
NJ Technology Council (reference source)
US gov’t – Defense, EPA, Homeland Security, NSF,…
US Small Business Association/SBA
(SBIR and STTR grants)
Jumpstart NJ Angel Network
AngelVine
Tri-State Private Investors Network
NYNMA Angels
Common Angels (NY)
Angel Capital Association
(nat’l network directory)

19. Angels and VCs
Angels = part-time investors, acting individually or in “networks,” using their own money (personal assets); 234,000 active angel investors in US during 2006
VCs = professional full-time investors, working within a VC firm, investing other people’s money (the VC fund); 5,000 VC investors in US during 2006
Angels invest smaller amounts of money in earlier stage companies

20. Angels Invest Early and Often
company
lifetime
Angel
$22.5 bn
48,000 deals
$468k/deal
$20.9bn
2,876 deals
$7.2M/deal VC
Angel
$23.1bn
49,500 deals
$467k/deal
$21.7bn
2,939 deals
$7.4M/deal VC
Angel
$25.6bn
51,000 deals
$501k/deal
$25.5bn
3,416 deals
$7.5M/deal VC
2005
2006
2004
Source: Jeff Sohl, Center for Venture Research University of New Hampshire
Angels (2010): $20.1B; 61,900 deals

21. Typical Financial Profile for Successful New Ventures
Profit breakeven: 30 months 20 10 1 2 3 4 5 6 7 8
Years
-10
Net value ( % of investors’ equity)
Equity breakeven: 75 months
-20
-30
New Ventures: It’s a long hall.
The dot com world of the last several years is not representative of reality.
Don’t confuse market conditions (Market Cap., Stock Price) with the real long term value of the business.
-40
-50
Average of 157 companies
-60
-70
Loss
Profit
Source: Timmons (1998)

22. Where Is The Value Created?
100%
Relative Value
10%
BLUE The Technology Phase
RED The Entrepreneurial Phase
GREEN The Business Operations Phase 1%
Idea Patent Practice Product Successful Business
Product Development Phases
Source: Bela Musits, High Peaks Ventures

23. Which is why it’s said that….
“Good ideas are worth their weight in gold”
(until?)

24. Objective of a “Winning” Plan
Create a business that
provides potential customers
a better “value minus price” proposition
than competitors
while managing the business
(costs and expenses)
to attain targeted profits
(earnings)

25. Business Plan: Contents
The company
The product or service
Market opportunity & customers
Competition
Sales and marketing plan
Operations and support plan
Financial projections

26. Business/Product Plan: Key Contents
Company/Team: people, skills, resources
Product: “whole” product & its benefits
Market: attractiveness & target customers
Competition: differentiation !!
Sales and marketing plan: sales channels
Operations plan: cost & quality, service
Financials: investor liquidity

27. The “Whole” Product: The Customer’s Perspective

28. The “Whole” Product: Everything Customers Really Care About
The product itself
Auxiliary or related products
Price and cost-in-service
Awareness and information
Where it is sold
Ease of choice, purchase, ordering
Delivery
Installation
Payment method
Storage/movement
Aesthetics/style
Advice on use
Help in use (e.g., hotline)
Returns/exchanges
Service/repair
Disposal
and…

29. Differentiation from Competitors’ Products
Whole product differentiation is the answer to:
Why do customers choose your product
instead of somebody else’s ?
(or buying nothing at all?)
Product differentiators are the things that are unique or best about the whole product, compared to the customers’ other alternatives
Potential areas for differentiation = dimensions of the whole product (product features, price, sales, marketing, customer service/support, brand, etc)

30. Competitive Products include:
Like-products: products of the same “type”
e.g., airline flights provided by
different competitors
Substitute products: other ways the customer can obtain a similar benefit
e.g., bus, train, auto, boat,
video conferencing, letter

31. Opportunity Assessment : Identifying Good Ideas see course website for details
Is this an attractive market opportunity ?
Can you attain a sustainable advantage ?
Can you beat or co-opt competitors ?
Market entry: can you find a way to “start” your business ?
Do you have the ability to execute (to profit) ?
Can you acquire the necessary funding/resources?

32. Opportunity Analysis
Markets: size/growth, substitutes, customer characteristics, need/benefit analysis, buyer power, costs to acquire/serve/retain customers
(more on this next week)
Competitors: incumbents, rivalry, strengths and weaknesses, competitive response, co-opting possibilities
(more on this in two weeks)

33. FHP Wireless case Timeframe is late 2002
FHP has invented a unique (?) technology for building wide-area wireless data networks
Their first-year sales efforts have been mostly unsuccessful
They need to decide which customers to target: current targets, telecommunications companies, or public safety
……and whether they need to change/enhance their product
They are just about out of money, and are looking for additional investors

34. Homework Questions
What are the reasons FHP Wireless is having difficulty in getting sales and revenues?
How can they make their (whole) product more appealing to potential customers?
How is FHP’s solution differentiated from customers’ other alternatives?
Which customer(s) should they pursue? Why?

35. Market Alternatives
Enterprise: warehouse/factory, gaming industry, hospitals, education campuses
Service provider: telephone and wireless carriers
Government: local public safety

36. Customers’ Competitive Alternatives
Substitute products
- wired networks
- CDPD
- Motorola radio
Like-products
- Hotspot Wi-Fi
- Wireless mesh

37. What are the reasons FHP Wireless is having difficulty in getting sales and revenues?
Enabling environment problematic?
Target customer benefit insufficient?
Marketing and/or sales issues?
Inability to deliver (installation, service)?

38. How is FHP’s solution differentiated from customers’ other alternatives?

39. Which customer(s) should they pursue? Why?

40. Selecting Target Customers: some considerations
Segment size and revenue opportunity
Customer benefits
Customer interest
Customer ability-to-pay and leverage
Competition/market coverage
Sales issues: sale time/complexity, cost, channel and associated profit margin
Cost to serve/support
Customer loyalty/lock-in
Strategic value

41. How can they make their (whole) product more appealing to potential customers? ( it depends on the target customer ! )

42. Business/Product Plan Learnings
Content/scope of a business/product plan
Critical aspects of a “winning” plan
Differentiation: importance, definition, identification
Start-ups: success factors, funding requirements, success profiles

43. Next Week:
Choosing target markets and target customers
DLJdirect case

44. Readings for Next Week
DLJdirect: “Putting our Reputation Online” (topic: deciding on “target customers”)

45. DLJdirect Case: Summary
Case timeframe:
DLJdirect has a successful online brokerage business targeting “aggressively affluent” customers
Other customer segments are growing faster
DLJdirect has to decide whether to address additional customer segments and whether to significantly increase its advertising to attract those customers

46. Since 2000…..
Early 2001: DLJ acquired by Credit Suisse First Boston; DLJdirect becomes CSFBdirect
Late 2001: CSFB sells CSFBdirect to Bank of Montreal; CSFBdirect becomes Harrisdirect
2005: Harrisdirect sold to E*TRADE Securities; Harrisdirect merged into etrade

47. Online Stock Trading Online Broker Stock Exchange Market- maker
Customer
(trader)
customer’s
account
Clearing-
house

48. Important Hint: there are 6 sources of revenue
From End-customers
Trading commissions
Account management fees
Interest on margin purchases
From partners
Order flow rebates
Mutual fund and money market fees
iNautix revenues (software development for other companies)
You will find other hints and useful information
in the class materials for next week

49. Advice on Case Reading
It’s long…..don’t wait until the last minute; scan it first, then read it twice
Make sure you understand the four customer segments identified (size, characteristics, needs, serving requirements)
Understand the company’s financial situation (Exhibits 16 and 17)

50. Assignment for Next Class
see questions on next two slides
The first 5 questions represent a “methodology” for making target customer decisions!

51. Assignment Questions Are DLJdirect’s financial results “good”? Stable?
Does DLJdirect have the financial capability to address new segments, e.g. to modify it’s whole product, or to do more advertising to attract new kinds of customers? How much money might be available in 2000?
Identify the ways DLJdirect’s service is differentiated from competitors
What are the key needs of each of the four customer segments? Which are well-matched to DLJdirect’s differentiators and other capabilities?
Use your judgment to rank the customer segments according to the profit potential in serving them (hint: consider both size of the segment and the average profit/customer in that segment)

52. Assignment Questions (continued)
Assuming DLJdirect continues to target the aggressively affluent segment:
Should DLJdirect also target the Get Rich Fast (day trader) segment? Why?
In your opinion, is there another customer segment that DLJdirect should target? Why?