Starting or Joining a HighTech Startup Business Is
Starting or Joining a High-Tech Start-up Business – Is it for you, the recent college graduate? This presentation and the related book are published at eysu. org Mike Baird contact info at mikebaird. com, firstonline. com, and eysu. org Contents of Engineering Your Start-up: A Guide for the High-tech Entrepreneur -- Copyright © 2003 by Professional Publications, Inc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Copyright © 2003, 2004 James A. Swanson and Michael L. Baird Rev. 11/6/2020 1: 09: 50 PM
About the speaker -Mike Baird n n n Past V. P. Eng. Ask Jeeves, Inc. ask. com one of most successful Internet IPOs in history Past CTO Snap-on Inc. $2 billion co. Partner, Los Altos Incubator firstonline. com Ph. D Computer Science, MBA Author: Engineering Your Start-Up: A Guide for the High-Tech Entrepreneur (Professional Pubs. Inc. , 1992, 2 nd Ed. 2003); Starting a High-Tech Company (IEEE Press, 1995) eysu. org
Career choices – Workplace Perspective Series n n n Start a small business Start a large business Join a start-up Get a “real” job Do consulting work
Every page of this book is now available online for free at eysu. org Original title: Before Your Join a Start-up
“Requirements” of Basic Entrepreneurship Basics for business success for the entrepreneurial engineer n Creating a compelling business plan n Getting funded, Q & A n
New graduate. . . n n n Is a start-up for you? Are you a “hunter” or a “farmer? ” Internalizing the five fundamental success factors for launching and funding(or otherwise identifying) a successful technology-fueled start-up. How to identify killer products or services for exploiting growing lucrative protected niche markets.
Reasons Cited for Starting One's Own Business Self-employment /Autonomy 9% Income /Wealth 1% 1% 1% 2% 2% The challenge 29% To pursue an idea 4% Utilize skills Build estate for family 5% No better alternative Meet other's expectations 7% Build an organization Respect/Recognition 8% 19% 12% Contribute to society To live in the area Other (specified by respondent)
Big Career Picture High-growth team-driven business Income substitution business Lifestyle consultancy Sales Employees (millions) > $20 > 50 $1 – $20 5 – 50 $0 – $1 0– 4
The Income-Substitution Wealth-Creation Spectrum fast Growth rate Wealth Building Income Substitution slow small Business size large
Business Size, Risk, and Reward P(Survival) is inversely proportional to risk P(failure) 0. 5 0. 3 Low High Retail stores Medium Technology-based products (high-growth objective) Low Technology-based consulting (low growth objective) Low Risk 0. 7 High Low 0. 3 0. 5 0. 7 High P(survival) = 1. 0 - p(failure) Reward
Effort Allocated by Founders During First Six Months 35% 31% 30% 28% 25% 20% 16% 15% 10% 5% 0% Engineering Sales/ marketing Manufacturing Finance/ administration
5 Basics for Success Beyond "The Big Idea, the Passion, the Vision"… making it real… involves… Management n Markets and Customers n Proprietary Products, Technology, Services n Attractive Financing and ROI n Compelling Business Plan n
First of Five Elements of Start-Up Success Markets and Customers Financing Identifiable customers. Business Plan Not a missionary sale. Market–Pull. Products or Services Not Technology–push. Market niche with 15%– 30% market share possible. Management Teams Know 5 prospects by name, ready to buy. Short procurement cycle.
Market- and Customer- Driven Technology-Fueled Business Machine rapid profitability money (ROI) 5 m 3 b 2 1 market engine ts technology fuel benefits ke management ar financial controls customers 4 business plan products 3 a
Competitive Forces in Your Marketplace Existing competitors Competitors: • Who? Your niche? • Growing? • How long in business? • What sales volumes? • How big? • How many customers? • Market share? • Product niche? • Similarities/dissimilarities? • How will you compete with them? – product superiority? – price? – advertising? – innovation/technology? • How is your business better? What Customer base is your "distinctive competence? " New competitors? – price? – management? – product? – service, delivery? – operations? • Barriers to entry for new competitors?
Marketing Strategy
Markets versus Marketing n n Gillette introduces The Sensor™ razor for men ¦ Retail price: $3. 75 with three blades ¦ ¦ ¦ R&D costs: $200 million First-year advertising budget: $110 million Estimated annual retail sales: $390 million Even if you could invent a superior razor blade, would you want to compete in this game?
Second of Five Elements of Start. Up Success Markets and Customers Financing Business Plan CEO CFO VP-Marketing & Sales VP-Engineering (CTO) Products or Services Management Teams Board of Directors
Management Completeness. Experience Grid Complete team (2) 2 3 4 1 2 3 No team (0) 0 1 2 (1 Ve ex ry pe rie nc ed (2 ) nc ed pe rie Ex In e xp e rie nc ed (0 ) ) Partial team (1)
Team Size and Product Status in Business Plan Reception Management status Level 4. All members on board and 4 + 1 =5 experienced. Level 3. All members identified; some on board only after funding. 3 + 1 = 4 Level 2. Two founders; others not identified. 2+1=3 Level 1. Single entrepreneur. 1+1=2 Level 1. Idea only; market assumed. Product status=> Most desirable 4+2=6 4+3=7 4+4=8 3+2=5 3+3=6 3+4=7 2+2=4 2+3=5 2+4=6 1+2=3 1+3=4 Level 2. Level 3. Prototype Product operable fully but not developed; developed few or no for users; production; market assumed. 1+4=5 Level 4. Product fully developed; satisfied users; market established.
Third of Five Elements of Start-Up Success Markets and Customers Financing Business Plan Products or Services Proprietary Technology. Product Family. Easily understandable. Easily Sold. Short Development Time. Management Teams
Cost versus Perceived Differentiation Model ce ss h ig h ly un ce rt ai n Market success likely Su c Perceived differentiation versus competition High Market failure likely Low Perceived cost versus competition High
Fourth of Five Elements of Start. Up Success Markets and Customers Financing Form. Content. Business Plan How many pages? How much time to Products or write? Services When to write it? What's in it? Written for whom? Types of plans: Funding; Operational Management Teams
Fifth of Five Elements of Start. Up Success Never run out of money. Fair Valuation. Attractive ROI Markets and Customers Financing Business Plan Products or Services Management Teams
Writing a compelling business plan Elements of a successful and fundable plan n Some sample plan outlines n Analysis of a classic venture capitalfunded business plan n Fatal flaws and deal killers – how to avoid them n "Tips and Tricks" for writing the plan n
Elements of a successful and fundable plan Markets and Customers (compelling…) n Management Team (proven…) n Products and Services (proprietary…) n Business Plan (content, format, presentation) n Financing (ROI, pro-formas…) n
Genus, Inc. Case Study ($9. 5 M, 1981) Section name Executive Summary Marketing Analysis Product Analysis Number of pages Comments 2 It is compelling and powerful. 15 The section is comprehensive. 4 Says what the product will do, nothing about how it will be developed or invented. Technology is not being sold here. Operations Plan 1 The strong management team, with proven track records, can administer operations. Management and key personnel 8 Three two-page résumés for the president/general manager, the V. P. finance, and the V. P. engineering, plus an organization chart says it all. No mention is made of any key engineers who might design the product. Financial Data 12 Tells investors how much money the business is going to make, when, and what will be spent to make it happen.
Some fatal flaws and deal killers – how to avoid them Lofty Mission Statement (e. g. , reduce world hunger, plow 10% of profits into charity…) n Missing any of the 5 basics of success w/o acknowledging the fact n Imputed ROI not attractive n Fixation on "control, " overt greed n "Distributed leadership, " or professed"socialist" management philosophies n
Case Study: One Business Plan that Will Never be Funded n n Entrepreneur looking for $500, 000 for 15% of the company (Implied pre-money valuation = $2. 83 million; post-money valuation = $3. 3 million) Projected Sales of $1 million in 3 years Management team is one person Market is "everyone"
Operational Stages of Company Growth —When to Write Your Plan Steady state Market development Product development Seed Concept Still working, you formulate your ideas in a business plan outline, and you start to build your management team You quit your job to pursue business planning full time. Your co-founders may remain working Concept Funding is obtained. Your team members join you in the business launch Seed
Getting Funded Sources of start-up capital n "Shopping” the plan n Venture capital – is it for you? n
Sources for Seed Capital for High-Tech Companies 80% 74% 70% Percent by number of deals Note: "Family and friends" plays a smaller role in high-tech start-ups than for most other small businesses 60% 50% 40% 30% 7% 6% 5% 5% 3% Non-financial corporations Family and friends Venture capital funds Public stock offerings 10% Private investors (angels) 20% Personal savings dominates! Personal savings 0%
VCs versus Angels Venture funds back ~2, 000+ deals per year Angels support ~30, 000 deals per year
Venture capital – is it for you? Who is getting funded? (read, attend…) n What's your "score" (on the 5 success factors) n Outside advice (seek it, and listen) n
"Shopping"the VC plan Unsolicited "Over the transom" plans: % funded ~= 0 n Use VC directories only as a road map (WAVC is good) n Strong partners are well-connected (work on developing, or joining, a team) n
Summary Commit (make the right decision for yourself) n Educate yourself (read, network, explore, experiment, invest time and money, build relationships, build prototypes, cultivate potential customers) n Plan (what will result in success for you? ) n Execute (persist, but know when to call a loss) n
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