Transcript Basic Template - Chicago Booth

2007 Edward L. Kaplan
New Venture Challenge
How to Write a Feasibility Summary Workshop
Linda Darragh
Ellen Rudnick
January 10, 2007
Proudly Sponsored by:
EDWARD L. KAPLAN, '70
Chairman and CEO
Zebra Technologies Corp.
GUY P. NOHRA, ‘89
AGENDA
• Review of Timeline
• Key Elements of a Feasibility Summary
• Dos and Don’ts
• Q&A
2007 New Venture Challenge Timeline
Jan. 10
Guidelines for writing Executive Summaries
Feb.
Phase I Summaries due
5
Feb. 26
Teams advancing to Phase II announced
Mar.
Orientation Meeting in Hyde Park 6 – 9 pm
5
Mar. 26
Bus. 34104, Developing a New Venture, Begins
Apr. 27
Full Business Plans due
May 21
Finalists announced
May 24
Finals at Hyde Park Center, all day
Key Elements of a Feasibility Summary
• Company Mission or Objective
• Technology or Proprietary Aspects of the Product/Service (if
appropriate)
• Market Information
• Competitive Landscape
• Revenue Model
• Operation Issues
• Management Team
• Financial Information (if available)
• Business Risks
Key Elements for a Feasibility Summary

Mission (objective) of the business
• What are you selling?
• What business problem are you solving?
• How big is this problem?
• Why should an investor read any further? What is different?
Which is better?
Example 1:
The company has developed the SalivaSac™, a proprietary semipermeable membrane that enables the collection in saliva of biochemical
markers below 12 kilodaltons. The company will focus on finding those
applications which meet this criteria and where there is an advantage to
collecting a non invasive sample.
Example 2:
The Company’s objective is to develop non invasive medical diagnostic
tests. The first application is for using a proprietary saliva collection device
to measure glucose levels in diabetics.
Key Elements for a Feasibility Summary
Technology
• Describe technology if it is a key differentiator / element of plan.
• Is it proprietary? Are there patents?
• Are there key milestones in terms of development or product
testing?
• What are the technology risks?
Key Elements for a Feasibility Summary

Market Information
•
•
•
•
How do you define the market?
Who is the customer?
What is the potential size of the market?
How many customers? How much do they buy?
$ 2.8 Billion art supply
industry
Paint
Frames
Brushes
Surfaces: 21% or $558
Million
75% market
is price
sensitive
25% Prof
artists or
$147Million
Key Elements for a Feasibility Summary
Competitive Landscape -- Why will you win?
• Who are current players in the market?
• Who could be your competition in the future?
• What are your competitive advantages / disadvantages
• What barriers to entry will protect you?
• IP
• Customer
• Development process
• How are you positioned with respect to the competition?
Analysis
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Web-based
Search
Redaction
Tracking
Reporting
In-house
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CT Summation
Both
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NA
Concordance
*Both
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iConnect
*Both
Both
Attenex
Both
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√
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Ringtail
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Firms
kCura (Relativity)
Differentiation
Hosting/
In-house
Native
Document
Main Competitors Feature Comparison
NA
◑
*In-house, allow third party hosting
Evaluation of Competitive Advantages
xxx
Criteria/Metrics
Price
Ease of Use
Portability
Implementation Time
Integration w/other Tech
Database Integration
Functionality
Best
Std Calc
Online calc
PDA solution
Barcode
scanners
CPOE
IV Smart Pump
Key Elements for a Feasibility Summary
Operations Issues:
•
•
•
How will you deliver this product or service?
- Make internally or use external resources?
Do the costs of providing this product or service provide a sufficient profit?
Are there execution risks?
Revenue Model / Go to Market Strategy?
•
•
•
•
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How will you make money?
Why will the customer buy your product?
What will the customer pay?
- Why are you sure the customer will pay this?
- Have you spoken to customers?
How will you get to the customer? i.e., distribution channel.
How many customers will you get?
Basic Channel Segmentation
High
Sales Force
Value-Add of Sale
Value-Added
Partners
Distributors
Retail Outlet
Telemarketing
Internet
Low
Low
Cost Per Transaction
High
Source: Friedman and Furey, The Channel Advantage
Key Elements for a Feasibility Summary
Management Team/Advisors/Partners
•
•
•
•
Who are they?
Why are they relevant for this business?
Do you have any holes in the management team?
How do you plan on filling these gaps?
e.g. Frank Smith, our CTO, has extensive experience in managing and building data warehouses.
He previously served as Vice President in charge of Thompson Financial’s database
management systems, and worked as a consulting manager with IBM for organizations building
data warehouses. Frank received a B.S. in computer science from MIT and an MBA from the
Chicago GSB with a concentration in operations.
e.g. We currently are looking for a Director of Sales. We have identified several individuals in
data/information companies also selling to the Fortune 500 companies, consulting and investment
firms that would be interested once we have secured our financing.
Key Elements for a Feasibility Summary
Financial Information (if available)
• What are your economics? (use unit model analysis if appropriate)
• What are your key assumptions?
• Why will you eventually make money / go cash flow positive?
- When will this happen?
• How much money do you think you will need?
• How big will you get?
• Eventually, this section will need to get very detailed.
Business Risks
• What are you worried about / unsure of?
• What do you plan to do about it?
% of Company ABC Revenue
Unit Economics
13%
Customer Service
19%
Sales & Marketing
11%
Sensors, Gateways and Other Technology
11%
Maintenance, Insurance and Overhead
Transaction Processing and Wireless Data
8%
38%
Operating Profit
Financial Projections
$17 M
Revenue
$17 M
$15 M
$13 M
$11 M
Cash flow
positive in Q4Y2
Expenses
$9 M
$7 M
Net Income
and
Cash Flow
$4.1 M
$5 M
$3 M
$1 M
($1 M)
Management
Contracts:
Markets:
Year 1
Year 2
Year 3
Year 4
3
45
135
267
SF
LA
Seattle
Houston
Financials
Revenue
Cost of Goods Sold
Gross Income
Operating Expenses
Net Income (Loss)
2005
$122,500
$73,500
$49,000
$223,900
($186,100)
2006
$612,500
$312,500
$300,000
$283,100
$3,300
2007
$1,000,000
$555,000
$445,000
$374,000
$47,600
2008
$1,643,750
$848,750
$795,000
$529,375
$208,297
2009
$2,000,000
$1,037,500
$962,500
$622,300
$203,808
Gross Margin
EBITDA
IRR
Owner Interest
Angel Investment
40.00%
($174,900)
N/A
$75,000
$200,000
48.98%
$16,900
N/A
73.00%
27.00%
44.50%
$71,000
-27.87%
48.37%
$265,625
34.85%
48.13%
$340,200
58.38%
Assumptions
Revenue:
• Sales cycle: 6 months
• Installation: 50% at contract signing, 30% mid-term, 20% upon
completion
• Annual subscription fee: $xx per seat
• 2 contracts signed by x/x/0x; 4 by x/x/0x, …..
Expenses
• Payroll: see attached table of payroll and benefits for founders,
new hires and independent contractors
• Work virtually until x/x/ox, then move into incubator
• Marketing plan for ‘0x includes 2 trade shows in Feb and Sept.,
new trade booth purchased in January, development of collateral
material, ……..
Comparables
Are there comparables in the industry or other industries that
validate your business model?
•
•
•
•
Who are they and why have they been successful?
How are they valued and how did they get funded?
Have there been successful exits? Multiples
Also look for the ‘corpses’. Have similar businesses failed?
Why?
Dos and Don’ts
Clichés to Avoid:
• We have no competition.
• We are the low cost provider.
• We only need a 5% market share.
• Our numbers are conservative.
• We have the first mover advantage.
Avoid Acronyms (or at least explain them)
• Don’t assume everyone reading plan has your knowledge base
Make sure the car has a driver.
• Someone should be the current CEO. OK to say you will find a
permanent / better one later.
Dos and Don’ts
Be Clear and Brief
• Yes: Middleware for wireless networks
• No: Develops and delivers an integrated suite of packaged
applications for web and wireless deployment. Global enterprises
use these applications to become more competitive and profitable
by establishing and sustaining high-yield interactions and
transactions with customers, suppliers, and employees.
Be Realistic
• Avoid the hockey stick effect unless you have assumptions to back
it up
Dos and Don’ts
Capture the reader’s attention – fast
• Typical VC will not read past the first page
• Should answer the following questions in the first page
- What is the opportunity?
- Why does anyone care?
- How will it be achieved?
- What is your unique differentiator?
Provide tangible examples / experiences wherever possible:
• Reference customers,
- Actual customers best. Potential customers next best.
- TALK TO CUSTOMERS. Describe what you discovered.
- There is nothing more important than a customer! Focus
on how you are going to get that first customer.
• Credible partners, suppliers, advisors, etc.
• Identify comparable businesses or business models
Questions?