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EPSE Module 3—Session 1

EPSE Module 3—Session 1. Ken Liu March 11, 2013. Who Am I?. 8 startups as principal since 1989 HNC Software, Holographix, Virage, IPivot, InfoGation, AIRSIS, SciVee, ThreatSTOP CEO, BD, sales/marketing, do whatever needed 5 M&As worth $1.3 billion Wide-ranging experience

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EPSE Module 3—Session 1

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  1. EPSE Module 3—Session 1 Ken Liu March 11, 2013

  2. Who Am I? • 8 startups as principal since 1989 • HNC Software, Holographix, Virage, IPivot, InfoGation, AIRSIS, SciVee, ThreatSTOP • CEO, BD, sales/marketing, do whatever needed • 5 M&As worth $1.3 billion • Wide-ranging experience • Technologies/products • Business models • Stages & cultures • Early career: Motorola, BCG, Booz Allen • Real-world approach

  3. Objectives of Module 3 • Basics of innovation & startups • Business plan • Financing • The Investor Pitch • Improving the odds of success • Funding & evaluating your projects at work • Your own startup • Think like a CEO/GM/founder • Not a “how-to” guide • Group project: The Investor Pitch of new business

  4. Setting the Stage

  5. What is Innovation?

  6. Innovation Matrix Business Model Process Technology Features Cost Access Fast/Easy Better/Diff. New Value

  7. Operating Margin Growth in Excess of Competitive Peers [Source: IBM, CEOs are expanding the innovation horizon: important implications for CIOs]

  8. Most Innovative--It’s Not the Money Source: Bloomberg, Booz & Co.

  9. Innovators vs. Spenders 68 65 62 54 Normalized Industry 50 45 40 Top Innovators Top R & D Spenders Revenue Growth EBITDA % Market Cap Growth 5-Yr. CAGR 5-Yr. 5-Yr. CAGR Source: Bloomberg, Booz & Co.

  10. Ideation vs. Conversion Good 11% 25% Idea Conversion 46% Bad 18% Bad Good Idea Generation Source: Booz & Co. Global 1000 Innovation

  11. Idea Generation Impact 65 54 52 50 Normalized Industry 50 46 45 Good Bad Revenue Growth EBITDA % Market Cap Growth 5-Yr. CAGR 5-Yr. 5-Yr. CAGR Source: Bloomberg, Booz & Co.

  12. Idea Conversion Impact 60 56 50 50 Normalized Industry 49 50 42 Good Bad Revenue Growth EBITDA % Market Cap Growth 5-Yr. CAGR 5-Yr. 5-Yr. CAGR Source: Bloomberg, Booz & Co.

  13. It’s a Cultural Problem Development times too long 32% Lack of coordination 28% Limited customer insight 26% Risk-adverse culture 25% Difficulty selecting right ideas 21% No good way to measure 20% A shortage of ideas 18% Ineffective marketing 17% Culture & Process

  14. Innovation Pre/Post IPO • 1,500 tech firms that IPO’d or intended to in 1985-2003 • 40,000 patents • 13,000 inventors • Normalized for size, age, R&D $$ • 40% less citations per patent • 18% more inventors leave Reasons: • Product/revenue focused • Less creative/entre- preneurial people stay Study Result Source: Shai Bernstein, Stanford Business School

  15. Why Innovate? Innovation Differentiation Changing value proposition Customers buy more and pay more Otherwise competition naturally drives race to the bottom: Commodity Lowest price Lowest profits

  16. Innovation Value $404 Billion $234 Billion Source: Yahoo Finance, 3/3/13

  17. Adapt or Die!

  18. Why Companies Die

  19. DJIA 1979 Allied Chemical Alcoa American Can AT&T American Tobacco Bethlehem Steel DupontExxonMobil Eastman Kodak General Foods GE GM Goodyear IBMInco Int’l Harvester Int’l Paper Johns Manville 3M MerckOwens-Illinois Glass P & G Sears Roebuck Socal (Chevron) Texaco Union Carbide US Steel United Technologies Westinghouse Woolworth Not in 2012 (20) Still in 2012 (10)

  20. DJIA 2012

  21. The Odds 3,000 100 10 2 1 Exploratory Projects Full development Projects Product Launch Success Ideas Source: Stevens, G A. and Burley, J. “3,000 Raw Ideas = 1Commercial Success

  22. The Odds 50% of startups die within 5 years 1/3 survive to 10 years Source: SBA; Ctr. For Venture Research, Univ. of NH

  23. Why So Hard?

  24. The Business Plan • The pain • Value proposition • Market • Who’s the customer? • IP & entry barriers • Competition • Business model • Go-to-Market plan • Management • Financing • Exit strategy

  25. The Idea—Where from?

  26. Idea—Personal Need/Interest Checking out girls at Harvard Selling girlfriend’s junk Doesn’t like sweat Needed marker for choir score Needed lighter running shoes Hassle booking rooms for SF conference

  27. Idea—Work/Customer Wrong/missing/stolen meds in hospital Manual configuration of firewalls Empty JAL cargo planes westbound Sun servers crashing on paydays

  28. Idea—Needs Gap E-commerce has no online payment system Inefficiencies in small office stores Old process stupid No stores in small towns

  29. Idea—Observe Most popular search item in mid-1990s Junk bond default rates lower than priced Biggest cost is in sorting logistics Small business works on cashflow, not accounting

  30. Idea—Others Technology roadmap—Density, clock speed, heat Why need to wait days for processing? Making beer the 16th century way

  31. Business Plan Market Customers Value Proposition

  32. It’s About Buying & Selling

  33. It’s Not Rocket Science Are there enough customers who are willing to pay you a price that gives you enough profit to build a business and yield a return for investors that’s worthwhile to invest in you?

  34. Our Focus Focus Valuation ($M) 50 10 1 .1 Hobby Lifestyle Angel VC Corporate >>>>>>>>>>

  35. Market & Customer This is the most important part of the plan.

  36. Market Research Primary • Customers • Target users • Resellers Listen for complaints: • Why is it…? • Why can’t I…? • Can you do this…? • What if? • I hate this… • This shouldn’t be so hard Secondary • Associations • Analysts • Government • “Experts” Good for general info & background • Outdated • Not specific • Backward looking

  37. Needs Analysis • What is the problem? How painful is it? • Who are the customers? • What is driving the need? • Under what circumstances does the need arise? • When does it arise? How often? Where? • How does the pain hurt the customer? • How satisfied is the customer with current solutions? • How many customers have this same need & circumstances?

  38. Be Prepared to Make the Leap “If you asked the horse buggy owner what he wanted, he’ll say a faster one.” --Steve Jobs

  39. Market • Primary, secondary, etc. • Size not as important as correct segmentation • Total vs. Served Available Market (TAM vs. SAM) • Retail vs. wholesale $$ • Bottom-up projection best (not “1% of Chinese”) • If new market, use best proxy • If all fails, use gut, “feel of market”, ROMA

  40. Watch Out/Reject: “50% CAGR from $100M to $2 billion from 2013-2018”

  41. Market Segment A subgroup of consumers sharing characteristics that cause them to have similar product needs and values. • Respond similarly to market stimuli • Can be reached by market intervention • Different from other segments • Change over time • expectations • price • capabilities

  42. Segmentation Financial Services • Money center • National • Superregional • Regional • Local • “Non-bank” banks • Credit unions Commercial Banks

  43. Segmentation Purpose • Who are our most profitable customers? • Where can we find more of them? • How can we more effectively reach them? • How can we tailor our message to each segment? • What segments need our services most, at what cost? • How can we better allocate our sales/ marketing resources? • Who’s our competition?

  44. Segmentation Criteria Geographic Nations, states, regions or cities Demographic Age, gender, family size and life cycle, or income Psychographic Social class, lifestyle, or personality Behavioral Occasions, benefits, uses, or responses

  45. Mass Marketing Same product to all consumers (no segmentation) Segment Marketing Different products to one or more segments (some segmentation) Levels of Segmentation Niche Marketing Different products to subgroups within segments ( more segmentation) Micromarketing Products to suit the tastes of individuals or locations (complete segmentation)

  46. What’s Wrong with This? Product Photo management product designed to assist Brand Marketers, Event organizers, and Sponsorship owners to take advantage of the power of event photos to assist in quantifying ROI for a given event or sponsorship. Market • Alternative advertising is a $26 billion business. • Branded entertainment spending increased to $52 billion annually.

  47. Who’s Customer? Sales Cycle Acquisition Cost Lifetime Value Time $$$ Effort User Manager IT VP/Corporate CFO CEO BOD

  48. Who’s Customer? YES • Male college student • Bank teller in credit union • Owner/sales mgr. of independent clothing stores • ER nurses NO • 15-40 yr. males • Financial services worker • Retail stores • Medical/health workers

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