Transcript Sequoia Capital Overview

THINK BIG
BUT START SMALL
FEBRUARY 27, 2008
FROM IDEA TO BUSINESS PLAN
IDENTIFY A COMPELLING MARKET NEED
HUMBLE BEGINNINGS (THINK BIG, START SMALL)
WHAT WE HOPE TO HEAR FIRST
HI-TECH MARKETING CAN BE DIFFICULT. SOME RESOURCES
A COUPLE OF ANECDOTAL EXAMPLES
WHAT WE HEAR WAY TOO OFTEN
GETTING TO TECHNOLOGY, TEAM, and FINANCE
MEETING MANAGEMENT WITH VCs
SOME COMMON PITFALLS
ENJOYING THE JOURNEY
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HUMBLE BEGINNINGS
Jerry & David
Larry & Sergey
Steve
Chad
Jawed
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HUMBLE BEGINNINGS
Steve & Steve
Trip
Sandy & Len
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NEW PRODUCT STRATEGY
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WHAT WE HOPE TO HEAR FIRST…
3.
PRODUCT
&
TECHNOLOGY
2.
MARKET
STRATEGY
(UNFAIR
ADVANTAGE)
4.
DEFINING
TEAM
5.
CAPITAL
EFFICIENCY
1.
MARKET
POSITIONING
ENTREPRENEUR’S CHALLENGE
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1.
MARKET
POSITIONING
THE BIGGEST CHALLENGE….
A.K.A.
THE “ELEVATOR” PITCH
“
“
We networks networks.
Sandy Lerner/Len Bozak
Cisco
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1.
MARKET
POSITIONING
HELP FROM GEOFFREY MOORE
For
[target customers]
Who have
[compelling reason to buy]
Our product is a
[new product category]
That provides
[key benefit (which solves problem)]
Unlike
[competitor in new product category]
We have
[key point of differentiation]
*Source: Crossing the Chasm
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1.
MARKET
POSITIONING
TWO DECLARITIVE SENTENCES
For
movie producers
Who have
post-production special effects
Silicon Graphics
provides computer workstations
That
integrates digital fantasies with film footage
Unlike
IBM or Sun Microsystems
SGI
has made a no compromise commitment to
meeting film makers’ post-production needs.
*Source: Crossing the Chasm
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2.
MARKET
STRATEGY
INTIMATE WITH TARGET MARKET
& BULLSEYE CUSTOMER?
TRENDS
STRUCTURE
SPEED
LEVERAGE
VITAMIN?
OR
ASPIRIN?
HOW
PLUGGED
IN ARE YOU?
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2.
MARKET
STRATEGY
CHANGE OR CREATE CATEGORY?
JOIN EXISTING CATEGORY
DEFINE NEW CATEGORY
MARKET DYNAMICS
Large Size, Strong Growth
Small Size, Explosive Growth
ADVANTAGE
Price/Performance
IP, Functionality, Brand
CUSTOMERS
Opportunistic
Loyal
MARKET SHARE
Lower (often less than 10%)
Higher (often greater than 50%)
GROSS MARGIN
Lower (often less than 50%)
Higher (often greater than 65%)
ACHIEVABLE GOAL
Acquisition
Public Company
LEGACY
Single Generation Reign
Dynasty
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2.
MARKET
STRATEGY
YOUR PLAN OF ATTACK?
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2.
MARKET
STRATEGY
CREDIBLE DIFFERENTIATION?
Competitor 10
Y1
Competitor 9
Competitor 11
Competitor 7
Competitor 1
Competitor 6
Y2
New Co
Competitor 2
Competitor 3
Competitor 8
Competitor 5
Competitor 4
X1
X2
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3.
PRODUCT
&
TECHNOLOGY
DEFENSIBLE BARRIERS?
PARTNERSHIPS
TECHNOLOGY
NETWORK EFFECT
SIMPLICITY
DOMAIN KNOWLEDGE
BUSINESS PROCESS
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4.
DEFINING
TEAM
MAGNETS? SCARS? PASSION?
NewCo.
555 Main Street
Anywhere, USA
(415) 555-5552
[email protected]
NewCo.
Bob Smith
Chairman
NewCo.
555 Main Street
Anywhere, USA
(415) 555-5553
[email protected]
Tim Jones
CEO
NewCo.
Barney Baker
CFO
NewCo.
555 Main Street
Anywhere, USA
(415) 555-5555
[email protected]
555 Main Street
Anywhere, USA
(415) 555-5552
[email protected]
555 Main Street
Anywhere, USA
(415) 555-5554
[email protected]
Ajay Singh
COO
NewCo.
Vlad Krunis
General Counsel
555 Main Street
Anywhere, USA
(415) 555-5556
[email protected]
Karen Williams
President
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4.
DEFINING
TEAM
CENTRAL CASTING
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5.
CAPITAL
EFFICIENCY
DO THE #S MAKE SENSE?
REVENUE TRAJECTORY
GROSS MARGIN
EBITDA
%’S & RATIOS
CASH REQUIREMENT VS. OPEX
CASH FLOW TO BREAK EVEN
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5.
CAPITAL
EFFICIENCY
GRASPING UNIT ECONOMICS?
REVENUE BY DAY/WEEK/SEASON
COST OF CUSTOMER ACQUISITION
LIFETIME VALUE
GROSS PROFIT/TRANSACTION
COST PER SKUS
INCENTIVE PROGRAMS
INVENTORY TURNS
PRODUCT/BRAND ASSORTMENT
SHRINKAGE
FREQUENCY PURCHASE TRENDS
CUSTOMER CHURN/MO.
NEW CUSTOMERS/MO.
#ITEMS PURCHASE TRENDS
PICK RATES
DELIVERY TIME
MRR
COST OF CUSTOMER SERVICE
# CLICKS TO CHECK-OUT
CUSTOMER CONTACT RATE
ABANDONED CART RATE
TICKET SIZE PURCHASE TRENDS
ACTIVE CUSTOMERS/MO.
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5.
CAPITAL
EFFICIENCY
TAKES LONGER, COSTS MORE
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5.
CAPITAL
EFFICIENCY
FINANCIALS SAY A GREAT DEAL
ABOUT HOW YOU THINK…
FRUGALITY
MARKET
SIZE
MARKET
STRATEGY
SALES
TACTICS
MARKET
UPTAKE
MARKET
VELOCITY
REALISM
NOT A TIME TO
BE NAÏVE
UNREALISTIC OR
MISLEADING
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MEETING MANAGING WITH VCS
CONTROLLED?
CHAOS?
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MOST COMMON PITFALLS
GORILLA ALUMNI &
AIRCRAFT CARRIERS
LACK OF FOCUS
OPPORTUNITY EXISTS BEFORE
THE MARKET ARRIVES
TOP HEAVY
COMPELLING?, UNIQUE?
SALES MODEL AND ASP
DIVERGENCE
INCINERATOR SCHEMES
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LEARN FROM OUR MISTAKES
MISREAD TEA LEAVES
TOO EARLY
A FEATURE, NOT A PRODUCT
CLUTTERED MARKETS
TOO LATE
A PRODUCT, NOT A BUSINESS
CAPITAL INTENSIVE
DECEIVED BY COMPARABLES
LACK OPERATING CONTROLS
SLOPPY DUE DILIGENCE
DILUTIVE IPOs
GROWING TOO FAST
MOMENTUM INVESTING
FEELING TOO WEAK
WRONG DNA
WEAK SYNDICATE
FEELING TOO STRONG
BAD LISTENERS
UNPREDICTABLE DIRECTORS
POOR CUSTOMER SELECTION
POOR CUSTOMER SERVICE
DAZZLED BY SCIENCE
STRETCHED TOO THIN
DECEIVED BY SUCCESSES
BOY SCOUT REFERENCES
NOT ADDRESSING A TRUE PAIN
DRUNKEN PARADE LEADERS
TOO MUCH MONEY
CAN’T ARTICULATE THE BUSINESS
EYEBALLS CONVERTS TO $s
LONG EVALUATION CYCLES
SMALL GROSS MARGINS
CAPEX CONVERTS TO $s
SLOW PAYING CUSTOMERS
SMALLER OPERATING MARGINS
IGNORING FUNDAMENTALS
GOING NATIVE
NO MODEL FOR MAKING MONEY
REPEATING HISTORY
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WHAT WE LOOK FOR IN A PLAN
1. UNIQUE VALUE PROPOSITION/MARKET POSITIONING
CLEAR, CONCISE, ABOVE THE NOISE; CUSTOMER
VALIDATION?
2. EXPLOSIVE MARKET SECTORS, FULL OF DISCONTINUITIES
AMBIGUITY AND CONFUSION ARE GOOD. HOW BIG?
DEFINING? STRUCTURE/ACCESSIBILITY? READINESS?
DISCONTINUITY—WHAT’S DIFFERENT? VALUE CAPTURE
POTENTIAL? NO COMPETITION – OFTEN NO MARKET;
ENTRENCHED PLAYERS: INNOVATOR’S DILEMMA? STARTUPS:
HOW MANY? OUR TEAM? SOURCES FOR DIFFERENTIATION?
3. BREAKTHROUGH PRODUCTS/TECHNOLOGY
SOURCES FOR DEEP SEPARATION AND ADVANTAGE? ORDER
OF MAGNITUDE? DEGREE OF DIFFICULTY? ADOPTABILITY?
COMPLETENESS? DEFENSIBILITY?
4. DEFINING TEAMS
MAGNET QUALITIES? DOMAIN EXPERTISE? INTENSITY? DNA
BLEND? SCAR TISSUE?
5. CAPITAL EFFICIENCY
WHAT IS THE FULLY FUNDED PLAN? MARGIN? BUSINESS
MODEL? DIRECT VS INDIRECT? EXPENSE MODEL? REVENUE
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ASSUMPTIONS?
WE’RE ONLY
AS GOOD AS OUR
NEXT
INVESTMENT.
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