Transcript Entrepreneurial Ventures: How do you do them? Gordon Bell 29 February 2000 High Tech Ventures: A Guide to Entrepreneurial Success C G Bell & J McNamara,

Entrepreneurial Ventures:
How do you do them?
Gordon Bell
29 February 2000
High Tech Ventures:
A Guide to Entrepreneurial Success
C G Bell & J McNamara, Addison
Wesley, 1991
http://www.research.microsoft.com/~gbell
BMD
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The Bell-Mason Diagnostic
A system based on a company development model for
• measuring risk,
• predicting the course,
• tracking the progress, and
• improving high tech,
high growth,
early stage ventures
aka startups
BMD
© Bell Mason Technologies
http://research.microsoft.com/~gbell
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The Bell-Mason Diagnostic
Founding Premise
"You don't have to understand the technology to ask
the right business questions"
The BMD provides the critical technology, product,
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marketing, and people expertise
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The Bell-Mason Diagnostic Background
•A rule-based system to assess new ventures
•Developed by Gordon Bell, and Heidi Mason, with
Coopers & Lybrand over a 5 year period
•Based on experience with 100s of ventures
•Shows "health & risk" of a new venture by:
asking a series of questions in 12 categories,
each stage of 4 stages of growth
at
•Licensed to Coopers & Lybrand (1990) for startups
•Licensed to Digital (1991) for corporate ventures
•Licensed to Australian Ventures (1997)
•Licensed to Diamond Technology Partners (1999)
for IntraVentures
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Using the Bell-Mason Diagnostic
a versatile tool to answer questions about:
Readiness - Are we (i.e. the venture) ready to start up?
Are we ready to go to the next stage?
Initial Screening - Should we look closer at investing?
Due Diligence - Should we invest now?
Ongoing tracking & planning - Is the venture on track?
External review - What is the health of the venture?
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The Bell-Mason Diagnostic
•Space: Twelve standard dimensions characterize a
venture (a chapter of High Tech Ventures)
•Time: Four, well-defined stages of company
development with 7 sub-stages of product and
market development
•Quantification: Clear, yes/no questions (i.e. rules)
incapsulate knowledge for evaluating a company
•Visualization: a relational graph shows company
position
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12 Dimensions of Analysis
Business Plan
Manufacturing
Marketing
Product
Sales
Technology/
Engineering
CEO
Team
Control
Financeability
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Board
Cash
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Four Stages of Growth
Stage 1
Stage 2
Concept
Seed
Seed
$
Stage 3
Stage 4
Product
Market
Develop
Develop
Stage I ment
Stage 2 ment
IPO
$
$
1 day to
3 to 12
12 to 48
24 to 48
12 months
months
months
months
Steady
State
Co.
Stage 1
Stage 2
Stage 3
Stage 4
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Overview
Time: Four Stages of Growth
Stage 1 Stage 2
Concept
Stage
1 day to
12 months
$
Seed
Stage
3 to 12
months
Stage 3
$
Product
Development
Stage
12 to 48
months
3A. Hire, Specify, Plan
3B. Design, Simulate,
Build Prototype
3C. Integrate and
Alpha Test
3D. Beta Test through
Product
Introduction
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Stage 4
$
Market
Development
Stage
IPO
24 to 48
months
4A. Calibrate the Market
4B. Expand the Market
4C. Achieve Steady State
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BMD Checklist Questions:
Scoring the "Ideal"
Heuristic -- It has been determined (and verified by
numerous experiments in software engineering) that by
using a method of inspection whereby one or more
persons "walk through" another person's programs,
fewer errors occur in the resulting product.
Rule -- Engineering must have a design review process
which includes code inspection or code walk-throughs.
BMD Question -- Does engineering have a design review
process which includes code inspection or code walkthroughs?
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BMD Staged Evolution of Questions
Concept -- "Does the company have evidence of product
possibilities, given the technology, that customers are
likely to buy?"
Seed -- "Does a simple product specification exist with
features and functions that can be presented to
potential users?"
Product Development -- "Are an appropriate number of
beta systems (3 for large systems, >20 for mass
marketed software) operating in real user environments
with users satisfied and testifying that the product
exhibits unique capabilities and/or significant
performance and/or performance/price benefits?"
BMD
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Evolution of the "Ideal" State
at Each Stage
Business Plan
Manufacturing
Stage IV.
Market development
Marketing
Stage III.
Product development
Sales
Product
Technolo gy/
Engineering
Stage II.
Seed
Stage I.
Concept
CEO
Team
Control
Board
Financeability
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Cash
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Business Plan at Concept & Seed
I. CONCEPT
• 6-10 page plan for technology, product, market and
development of formal business plan completed
• plan successful in raising Seed Stage financing
II. SEED
• 20 - 30 page formal business plan produced, with 8 key
components
• Verifies and refines assumptions from beginning of stage
• Funding requirements and milestones based on product
development schedule
• All key risks identified, evaluated and rationalized for
current plan
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Examples:
A Market Failure
A Product Failure
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Ovation: At Product Introduction
Product
Manufacturing
Business
Plan
Market
Marketing
Sales
Product
Technology/
Engineering
CEO
Team
Control
Finance &
Control Financeability
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Board
People
Cash
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An Example, Ovation
• Founded: 1982
• Funding: $6.8 million
• Product: Ovation, to be sold for $ 495.
Next generation integrated software with word
processing spreadsheet, database management,
and communications.
• Target Market: Fortune 1000 volume corporate
purchase
• Outcome: Chapter 11, October 1984 --- having won
BMD product of the year as "vaporware" © Bell Mason Technologies
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Analytica: Market Development
Product
Manufacturing
Business
Plan
Market
Marketing
Sales
Product
Technology/
Engineering
CEO
Team
Control
Finance &
Control Financeability
BMD
Board
People
Cash
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An Example: Analytica
• Founded 1982
• Funding: $8 million
• Product: Reflex, to be sold for $495 Next generation
microprocessor software -- relational database with
integrated,
easy to use analytical tools
• Target Market: Fortune 1000, volume corporate
purchase, departmental orientation (eg. sales)
• Outcome: Distress acquisition by Borland 10/85
BMD
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Ventures
Venture Life Cycle for e-Ventures
Stage 1
Angel $
Idea
Stage 2+3
Seed
Stage
$
Stage 4
IPO $
Concept
Stage
1 day to
6 months
Product
Development
Stage
9 to 12 months
Market
Development
Stage
12 to 18 months
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Stimulating New Companies
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Encouraging New Ventures
Understand the critical factors (people) that create wealth --not just those that store it or move it around
Reduce and eliminate bureaucracy
Some examples: SJ Center for Software Innovation
Boulder Tech Incubator ,
The Corporate Incubator: copiers to consultants
Teknikron
Singapore Industrial Development Japan's MITI
Informationalization
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ala Davis & Davidson's 2020 Vision
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Exogenous Effectors for Each Dimension
Tech workforce,
sub-contractors,
components
Reasonable expectations,
patience,
Market, infrastructure for
"complete" product, partners,
strategic alliances, PR, etc.
Competitive
Products, co-components
Customers, sales personnel,
channels to international mkt.
Eng, sci.,
tech, tech
svcs, univs,
other co.s,
consultants
Acctng,
legal,
financing
infrastructure Market
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Trained pool of gen. mgrs
successful "role models"
Trained personnel
to hire, areaspecific
consultants
Cash &
financing
experience,
"patience"
BOD with Industry,
market, product,
engineering, financial
experience
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MITI Role in Establishing Industries
I.
Development of a domestic Japanese industry.
a. Market control. Imports limited essentially to zero.
b.Borrowed technology
c.Vertical integration of most manufacturing
d. Major investments.
II.
Establishing an export market base.
a. The establishment of world-wide sales organizations.
b. Researching and understanding of the foreign markets.
c. Establishment of a reputation for quality and reasonable prices.
d. A limited focus, especially in those markets less attractive to
domestic manufacturers.
III.
Major market penetration.
a. Cooperation among the Japanese companies with respect to
models, prices, and markets.
b. Focus at the mainstream of the foreign market.
c. High inventories because of poor markets in Japan, i.e., an
export push at any cost is necessary and expedient.
d.Extremely low prices to the mass market to gain market share
IV. Market exploitation. A period marked by higher prices (e.g. TV sets)
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Does it work?
100
Averaged Diagnostic Score
90
80
70
60
50
Companies that scored 75 or over
had a business success rate of
95%
40
30
20
10
0
0
5
10
Source: Nanyang Mgmt PLC Ltd
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20
25
30
35
Company
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What do you need to do?
What are some common flaws?
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Business Plan Flaws
Unrealistic Plans
Doing Research and Calling It Product Development
Losing Touch with Reality
Lack of a Sustaining Technology or Product
Questionable Motivation (Chronic Entrepreneur, Getting Even,
Getting Rich, Lacking a Sustaining Product)
Skipping the Seed Stage
Multiple Agendas
Two or More Start-ups in One ... doing too much
Writing a plan while part of another organization is immoral
and potentially illegal!
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Business Plan Seed Questions
4.1 Has the five-year business plan (about 20-30 pages sans financial appendices)
been updated, expanded, and confirmed as a result of the seed stage? The
business plan has a five-year strategy and direction, but primary emphasis in
planning should be for the next 24 to 36 months, with:
1
executive summary with vision, mission and business statement
2
technology uniqueness for a sustaining company
3
product concept (what) with critical areas to explore and competitive scene
4
rationale (why) in terms of customers and applications
5
gross estimates of target market (who)using a simple "market map" to identify
the channels of distribution (how sold), including some consideration to
international
6
key milestones in product development for the various functions
7
year financial plan, including product cost with first two years in detail by
quarter
8
resources estimates in $'s, time and people (including their biographies)
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Business Plan Seed Questions -2
4.2 Does the plan indicate a sustainable company and initially verify the
assumptions explored in seed? (e.g. is technology implementable, is the
engineering plan valid, why will customers buy?)
4.3 Does plan refer to a detailed plan for Product Development Stage III
(objectives, schedule with milestones, $ and people resources)?
4.4 Are the product development times, product cost and performance, and
external risks (e.g. component or process) clearly identified and are they
accounted for in the funding of the plan?
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CEO Seed Questions
7.1 Has the CEO led the team to successful and timely completion of the principle
objectives of the Seed stage: proof of technology uniqueness, clear translation
of that uniqueness to the development plan for the product and a successful
financing?
7.2 Has the CEO been successful in attracting/recruiting key employees and
Directors for the Board?
7.3 Is the CEO a leader and team builder across departments and can he/she lead
and manage the team?
7.4 Has the CEO understood and resolved the content, scheduling and
management interdependencies of engineering and marketing in the early
phases, and manufacturing and sales in the later stages?
7.5 Can the CEO function actively as company missionary in pre-selling,
negotiating strategic alliances, and co-development partners during Product
Development?
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CEO Flaws
Low Energy, Low Intelligence, and/or Low Integrity
Inadequate Hiring Skills (and Inability to Attract an A team)
Poor Managerial and Team Building Skills
Inability to Build a Team or Keep a Team Together
Inability to Sell the Company to the Financial Community
(Failing the Short Socks Test)
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Team Seed Questions
8.1 Are the key people on board (core leaders who form technology and product
development, manufacturing if critical processes are required, and marketing)
functioning as an integrated team (6-8 people)?
8.2 If innovative manufacturing processes are required such as in semiconductor
or disk manufacturing, is an experienced manufacturing leader with a core
team of functional specialists on board?
8.3 Is the team orientation a balance of "do" and "manage" , i.e. can each of the
members "play" several positions on their teams, versus just being able to
manage players?
8.4 Have criteria been established for hiring and is there a systematic method in
place for recruitment?
8.5 Is everyone informed about the company via effective staff meetings where
review, direction setting, and problem identification/resolution takes place?
8.6 Has the team explicitly described their desired corporate culture and is it
compatible with recruiting and the reward structure? A corporate culture
statement should exist, and the benefits and compensation plan should be in
line with the statement.
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Team and Board Flaws
A Mercenary Team
Conflicting Egos
Lack of Respect --Incompetence in one or more groups. Love
of each other is not a criterion for team members.
The team falls apart at Concept or Seed because of their
inability to get along while preparing the Business Plan.
Board of Directors
An Investor Heavy Board with No Industry Experience
A Board That Runs the Company
No External Product/Market Review with a TAB or CAB
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The End
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How A Diagnostic Is Performed
1. Review Business Plan and Historical Material (1/2 day)
2. Select appropriate stage BMD questionnaires, and re-read
questions prior to the interview (1 hour)
3. Arrange and perform diagnostic interview session with
CEO and top-level team (1/2 day)
4. Analyze and summarize interviews using the BMD software
for comments, scoring and graphing.
Produce results package and recommendations for
company (1/2 day)
5. Present results of diagnostic to company (2 hours)
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Goals of the Bell-Mason Diagnostic
1. Understand new ventures, particularly start-ups demystify, turn art into science
2. Provide common "ground-rules" or "checklist" for
analysis, diagnosis and implied prescription for:
a. Entrepreneurs and Intrapreneurs
b. Engineers and marketeers
c. Financial community, including venture capital
d. General business community and academe
3. Encapsulate traditional and venture capital wisdom
in order to improve the start-up process
4. Alternative to cases and statistical factor analysis
(Approach is similar to medical training)
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Goals of the Bell-Mason Diagnostic -2
• To make "new venturing" a science-based,
factory-like process.
• To provide a method of "new venturing" that
is as widely acclaimed and reliable as
software engineering management
methodology is in creating and evolving new
software.
• An entrepreneurial or intrapreneurial venture
can be started up and run with a very high (>
50%) likelihood of success.
BMD
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BMD Functions and Benefits-1
Readiness
Self-diagnosis to aid the
entrepreneur or intrapreneur
Quick and accurate means of
categorizing and sifting
Initial screening
business opportunities;
of business plan
aids in making initial
decisions;
expands the number of
opportunities to review
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BMD Functions and Benefits-2
In-depth tool for
"due diligence"
Speeds and improves
accuracy and
thoroughness of due
diligence;
yields risk profiles in a
day;
improves the odds of
making good investments
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BMD Functions and Benefits-3
On-going tracking Insures position with
system at key
efficient "early warning
stages in
system" for on-going
company
assessment of
development
companies;
continued health and risk
profiles aid in mid-course
correction and
assessment of additional
funding
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BMD Functions and Benefits-4
Standard system
BMD
"Short hand" reporting
for measuring,
system to measure
tracking, and
business effectiveness,
reporting among
manage expectations, and
management,
bring responsible
directors, and
investors into high
investors
technology
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BMD Functions and Benefits-5
System and basis
for assisting each
venture
Having a common, way of
viewing and measuring
the key, critical activities,
ventures will improve
through the diagnostic
review process.
Asking the question, often
leads to a solution.
Diagnosis often suggests
prescription.
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Benefits of Using BMD at Digital
• $5 million payoff after one month use on a single joint,
venture
• Improved negotiating position on external deals
• Improvement in quality and consistency of funded
ventures
• Decision making time cut from 12 weeks to 6 weeks
• Increased the number of opportunities reviewed by a
factor of two, while increasing depth of analysis
• With consistent reporting scheme, report generation
time is reduced to 1/2 hour versus 2 hours
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Benefits of Using the BMD at Digital - 2
• A standard methodology reduces learning time for new
personnel
• A standard methodology allows a "learning curve"
* A standard methodology reduces dependence on
individual artistry and is repeatable with different
people
• Decisions are firmer and measurable
(e.g. a "no"
is not a "maybe" ...
"maybe" deals are tied to
specific action items)
• Automatically builds a database of companies,
ventures, and projects funded over time, allowing
automatic tracking and down-stream analysis
BMD
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Benefits of Using BMD at Philips
• It is likely to have a very high payoff for a single
venture. For example, Digital had a $5 million payoff
after one month use for one joint, venture.
• Improved negotiating position on external deals
• Improvement in quality and consistency of funded
ventures
• Decision making time cut from 12 weeks to 6 weeks
• Increased the number of opportunities reviewed by a
factor of two, while increasing depth of analysis
• With consistent reporting scheme, report generation
time is reduced to 1/2 hour versus 2 hours
BMD
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Benefits of Using the BMD at Philips - 2
• A standard methodology reduces learning time for new
personnel
• A standard methodology allows a "learning curve"
* A standard methodology reduces dependence on
individual artistry and is repeatable with different
people
• Decisions are firmer and measurable
(e.g. a "no"
is not a "maybe" ...
"maybe" deals are tied to
specific action items)
• Automatically builds a database of companies,
ventures, and projects funded over time, allowing
automatic tracking and down-stream analysis
BMD
© Bell Mason Technologies
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Benefits of Using BMD
• It is likely to have a very high payoff for a single
venture. For example, one large company saw a $5
million payoff for one joint, venture.
• Improved negotiating position on external deals
• Improved quality and consistency of funded ventures
• Decreased decision making time (from 12 weeks to 6
weeks)
• Increased opportunities by a factor of two, while
increasing depth of analysis
• Decreased report generation time (1/2 hour versus 2
hours) with a consistent reporting scheme
BMD
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Benefits of Using the BMD - 2
• Reduced learning time for new personnel
• Increased quality and decreased times via
"learning curve"effect
• Reduced dependence on individual artistry
(results are repeatable with different people)
• Measurable and firmer decision making (e.g. a
"no" is not a "maybe" ...
"maybe" deals are
tied to specific action items)
• Potential for improved performance via
downstream analysis on ventures that use BMD
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How Are Diagnosticians Trained
(Learn by doing)
A two-day, workshop-type training session
Workshop includes presenting the staged, start-up model and
the dimensions being diagnosed
View "role playing videotape" to understand scoring and use
of diagnostic and evaluation software
Perform 1-2 diagnostics with a trained team
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