Today’s Topic:

1. 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 Modulethe 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/scopeof 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: KeyContents • 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 www.bplans.com

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. 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) SomeSomeAgenciesAngel Groups

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 Source: Jeff Sohl, Center for Venture ResearchUniversity of New Hampshire 2005 2006 2004 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 0 7 8 Years -10 Equity breakeven: 75 months Net value ( % of investors’ equity) -20 -30 -40 -50 Average of 157 companies -60 -70 Loss Profit Source: Timmons (1998)

22. Where Is The Value Created? 100% Relative Value 10% 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 thancompetitors 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: KeyContents • 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 The Product

28. 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… The “Whole” Product:Everything Customers Really Care About

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 Ideassee 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 differentiatedfrom 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/scopeof 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: 1999-2000 • 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 Market- maker Online Broker Stock Exchange Customer (trader) customer’s account Clearing- house

48. Important Hint: there are6 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!