Class 11 n Elevator Pitches NBC 1 2008

Individual Elevator Pitch 7/8 (火) 30 -45 second “pitch” (every person) n Pitch Content (ENGLISH): ¨ Opportunity/problem being solved ¨ Target market/customer ¨ Product/service to be created n n Value being created Why it is better than competition ¨ Business model (how firm will make money) ¨ Anything else unique that will capture attention/interest n Pitch Goal: Get enough interest for a meeting ¨ Choose the most interesting parts ¨ Business idea to use for rest of the class NBC 1 2008, (c) 2008 Jay A. Smith 2

Start Pitching 30 sec (soft stop) n 45 sec (hard stop) n 1 summary sentence – “hook” n ¨ Who / produces What / for Whom ¨ Company/ Product / Customer Market No PC or powerpoint n 2 questions from class/instructor n NBC 1 2008, (c) 2008 Jay A. Smith 3

Class 12 Business Models & Business Strategy n Valuation and investors n NBC 1

Business Model Questions n How do we make money? ¨ We sell stuff to… n How do we help customers? n How do we add value? “Value Chain” Inbound Logistics > Operations > Outbound Logistics > Marketing/Sales > Service Toyota NBC 1 2008, (c) 2008 Jay A. Smith Uniqlo Amazon Mc. Donalds Amex 5

Business Model “Profit Engine” Revenue Sources (how do we get paid? ) n Key Expenses n Size (volume, scale/growth) n Profit = Year ( Sales - Product Costs Profitn= NBC 1 2008, (c) 2008 Jay A. Smith Units x Unit (Margin n Year ) Overhead Year x Volumen) - Overhead n 6

Business Model + Business Strategy n Strategy: Development, protection, adjustment of business model over time Profit ( Sales - Product Costs = Year Units x Unit Year ) Overhead Year 1, Year 2, Year 3, … n n Plan for executing on Key Success Factors Goal: Sustainable Competitive Advantage NBC 1 2008, (c) 2008 Jay A. Smith 7

Key Success Factors n n Key skills, functions, actions needed to maintain and strengthen business model and strategy Subscriptions/Memberships ¨ Get many members (acquisition effectiveness) ¨ Get members at low cost (acquisition efficiency) ¨ Keep members from leaving (retention rate) ¨ Increase spending per member (share of wallet) n Transaction-based ¨ Command above average pricing (value effectiveness) ¨ Lower product costs (production efficiency) ¨ Lower fixed overhead costs NBC 1 2008, (c) 2008 Jay A. Smith 8

Member/customer retention strategies n n n Adding value/benefits to membership Automatic renewal Increase switching costs ¨ Exit fees (early departure, cancellation) ¨ Pain (email address changes) ¨ Proprietary systems (MS Windows) n Loyalty cards (point cards, mileage cards) ¨ Makes transaction based customers more like members n Membership referrals NBC 1 2008, (c) 2008 Jay A. Smith 9

Valuation n Valuation = “price” of the whole company Value = n f( Cash Σ Flow Profit n )+ α (not a strict formula) Valuation depends on both company and market for investment in stocks ¨ Public stocks are priced in an open market ¨ Private company stock transactions are usually negotiated between company and “lead” venture capital investor NBC 1 2008, (c) 2008 Jay A. Smith 10

Many Factors Affect Valuation n Opportunity-Related ¨ ¨ n Company-Related ¨ ¨ ¨ ¨ n Is this a good business opportunity? How big a business can this be, when? Is it a good business strategy? Is this a good team? Right skills, prior success? Is there a sustainable competitive advantage? What are the business strengths/weaknesses, How risky? Biggest risks, challenges? What else is needed to make this work? How badly does the company need financing? Capital Market-Related ¨ ¨ ¨ What are prices for companies that are similar? How much VC competition is there for the investment? How are the public stock markets doing? NBC 1 2008, (c) 2008 Jay A. Smith 11

Valuation n Valuation of company = price for the whole company ¨ ¨ ¨ n Market Value = current stock price x total shares Enterprise Value = Market Value – Cash + Debt Example 1: $30. 00/share x 5, 000 total shares = $150, 000 Determined by what investor pays to own piece of company ¨ ¨ Valuation = $2, 000 / 0. 25 = $8, 000 Example 2: VC buys 25% of company for $2 mil. $6 million $2 million ¨ ¨ $8, 000 “post-money” valuation $6, 000 “pre-money” valuation (pre-money = post-money – investment amount: $8 - $2 = $6 mil. ) NBC 1 2008, (c) 2008 Jay A. Smith 12

Simple Valuation Calculation NBC 1 2008, (c) 2008 Jay A. Smith 13

Is e. Bay a better business than Amazon? NBC 1 2008, (c) 2008 Jay

Is e. Bay a better business than Amazon? Earnings Before Interest, Taxes, Depreciation & Amortization PEG= Price/Earning Growth Ratio = yoy: year over year NBC 1 2008, (c) 2008 Jay A. Smith Forward P/E Projected Growth Rate ttm: trailing twelve months Source: Yahoo! Finance 7/7/08 15

Computer Industry “Comps” NBC 1 2008, (c) 2008 Jay A. Smith 16

Homework n Prepare Business Investor Presentation ¨ Company Name (can change) ¨ Initial Business Idea ¨ Think Big! Sales > ３億円 in year 3 n Schedule ¨ 7/15 Initial presentation/workshop (English) ¨ 7/22 Final Presentations (English or E&J) n See Springboard Enterprises ¨ By 7/29 Final Report (English) n Read “Picture Perfect” 2 page business summary NBC 1 2008, (c) 2008 Jay A. Smith 17

Presentation Goal: Convince Investor to Invest Early stage investor into “seed-stage” business n 1 -2 Minute Summary of Key Points n Important, Interesting Points Early n ¨ Sample/Demonstration/Prototype is helpful Creating a COMPANY, not just a product n Strategies of business FIT each other n NBC 1 2008, (c) 2008 Jay A. Smith 18

Making a Successful Venture Business Idea Entrepreneur Team Capital Yen/ $ NBC 1 2008, (c) 2008 Jay A. Smith Business Model & Strategy R&D, Production, Operations Sales & Marketing Strategic Partners, Suppliers, Distributors Early Users, Supporters Customer Markets 19

Basic Business Plan Questions n What is the opportunity? What is happening? Why? ¨ How big can it be? When? ¨ n What is the business strategy? Does it fit? ¨ Is it sustainable? ¨ n What is the business model? ¨ n n How do they make money? Sales/Profit Years 1 -3 How much funding is needed? NBC 1 2008, (c) 2008 Jay A. Smith 20

More Strategic Questions What are the key factors for success? n No. 1 merit n Number 1 risk n Confidence of it working n When will you know if it is working? Why? n Are these the right people? n What is missing? n NBC 1 2008, (c) 2008 Jay A. Smith 21

Sample Marketing Questions n n n n n Who is target customer? How many possible customers are there? How does customer buy? Is the purchase compelling to customer? How will you reach the customer? How much does it cost to get a customer? What does it cost to support a customer? How easy is it to retain a customer? What is the pricing? What is the cost of goods? NBC 1 2008, (c) 2008 Jay A. Smith MARGIN 22

Workshop Checklist 1. Company Name 1. 2. Business Idea 1. 2. 3. 5. Competitive Advantages (defensible, sustainable) Key Success Factors (what is important to do well) Operations (How you do it, supply, scale) Financials (3 year forecast) 1. 2. 7. Market, segment, size (Who, how many? ) Place/Channel Promotion Business Model & Revenue Sources Business Strategy and Implementation 1. 2. 3. 6. Problem Being Solved Product/Service Solution (why it’s a great idea) Target Customer 1. 2. 3. 4. Your Name and Title Mission statement “catch phrase” Price, other driving factors (memberships, etc. ) Breakeven, How much money do you need, when? Risks NBC 1 2008, (c) 2008 Jay A. Smith 1. _________ 1. 2. 3. 5. __________________ 1. 2. 7. __________________ _________ 1. 2. 3. 6. __________________ 1. 2. 3. 4. __________________ _________ 23

Helpful Links n n n n www. springboardenterprises. com www. garage. com www. guykawasaki. com www. entrepreneur. com www. inc. com www. startupjournal. com http: //nvc. nikkeibp. co. jp/ Nikkei Venture www. dreamgate. gr. jp NBC 1 2008, (c) 2008 Jay A. Smith 24

Picture Perfect Inc. n n n Location/contact information Good, simple business summary Industry analysis ¨ ¨ n n n History/Progress Team Products Marketing Finance ¨ ¨ ¨ n Market Size & Growth Competition Forecast Finance needed How much raised and from whom What’s missing? NBC 1 2008, (c) 2008 Jay A. Smith 25