Assessing Your Venture What the Business Is For? Create Value - - PowerPoint PPT Presentation

Assessing Your Venture

Value

Deliver Capture Create

What the Business Is For?

Offering Product Service Content Delivery Process Channel Fulfilment

Factors for Creating Value

• Quality
• Price
• Location
• Selection
• Service
• Speed/turnaround

What Is Your USP?

• Unique Selling Proposition—what

attracts customers away from the competition and toward a business?

• Compare what your business
• ffers to what competitors offer.
• Are you at a cost advantage or

disadvantage?

Elements of a New Venture

Opportunity

Customers Strategy Business Model People The team Capabilities Attitude Reputation

Deal

Rewards and risks Incentives Ownership Harvest

Resources

Financial Physical Intellectual Business Plan

+

People & Opportunity

People

 Entrepreneurs  Others

Opportunity

 Profile of business

What it will sell and to whom Whether it can grow and how fast What is the economics Who and what stand in the way of success

Context and Risk & Rewards

Context

 The big picture

Factors that inevitably change but

cannot be controlled by the entrepreneurs Risk and Rewards

 Assessment of everything that can go

right and wrong

 A discussion of how the team will

respond

Core Strategy of the Venture

 Core Strategy

The first component of a business is the

core strategy, which describes how a firm competes relative to its competitors

 Primary Elements of Core Strategy

Mission statement Product/market scope Basis for differentiation

Primary Elements of Core Strategy

Mission Statement Product/Market Scope A company’s product/market scope defines the products and markets on which it will concentrate A firm’s mission, or mission statement, describes why it exists and what its business model is supposed to accomplish Basis of Differentiation It is important that a new venture differentiate itself from its competitors in some way that is important to its customers If a new firm’s products or services aren’t different from those of its competitors, why should anyone try them?

Defining an Organization

 Core Values  Mission  Vision  Culture

Organizational Core Beliefs

 Beliefs entrepreneurs use to guide organizations.

Example: My restaurant will support local organic farmers.

 Core beliefs affect:

 materials used in production  prices charged  how customers are treated

Mission Statement

A concise statement of



Target customers



Products & services



Markets served



Use of technology



Importance of public issues & employees



Focus on survival, profitability, & growth

Vision

 Overall view of

desired company future state

 Built upon core

values & beliefs

 Compelling across

the organization

 Employees need to

be empowered to fulfill it

Culture

 Largely shaped by leadership  Core values in action  Includes

Risk tolerance & innovation Orientation with respect to

people, teams, & outcomes

Attention to detail Communication norms

Strategic Resources

• A firm is not able to implement a strategy

without defining its specific resources

• For a new venture, its strategic resources

may initially be limited to the competencies of its founders, the

• pportunity they have identified, and the

unique way they plan to serve their market

• The two most important strategic resources

are:

• A firm’s core competencies
• Strategic assets

Primary Elements of Strategic Resources

Core Competencies Strategic Assets A core competency is a resource or capability that serves as a source of a firm’s competitive

• advantage. Examples include Dell’s competence

in supply chain management or Google’s search algorithm Strategic assets are anything rare and valuable that a firm owns. They include plant and equipment, location, brands, patents, customer data, a highly qualified staff, and distinctive partnerships

• New ventures ultimately try to combine their core competencies

and strategic assets to create a sustainable competitive advantage

• This factor is one that investors pay close attention to when

evaluating a business

• A sustainable competitive advantage is achieved by implementing

a value-creating strategy that is unique and not easy to imitate

Concerns of Stakeholders

Concerns of Stakeholders

Family and Friends

Amounts and schedules for returns Stability of firm Funds use

Silent Partners/ Angel Investors

Growth rate Market Business team Amounts and schedules for returns

Venture Capitalists

Team Composition Market growth Strategy for competitive advantage Expected returns

 Joint venture

partners

Fit between the firms Competitive advantage Benefits Intellectual property protection R&D

Bankers

Cash flow and cash cycle Asset/ collateral base Long-term prospects

Concerns of Stakeholders

 Government

agencies and institutions

Compliance with regulations and laws Monitoring compliance

Potential Customers

Service/ product quality Benefits Competitive advantage Responsiveness to customers

Key employees

Stability of firm Growth (applies to increased

• pportunities within the firm)

Long-term prospects

Concerns of Stakeholders

Stage-wise Requirements of Funds

Stage

 Seed  Series A  Series B  Series C

Milestone = expected outcome

 Formulation of initial team &

completion of business plan

 Product development

completed

 Product test and customer

acceptance proven

 Launch product into market

What Investors Look For

 How does the team think?  How detail oriented is the team?  How big is this market?  Is there sustainable competitive

advantage?

 What’s the growth plan?  What does the technology roadmap

look like, short term or long term play

What Investors Look For

Mindset

 Staying power  Ability to handle risk  Verbal ability  Detail orientation  Compatible personality

Past Experience

 Market knowledge  Track record  Leadership

10 Must Answer Questions

 How large is your addressable market?  How fast is the market growing?  Who’s make up your management team?  What’s your “secret sauce?”  What are the barriers to entry/competitive

advantage?

 What do your 5 year financials look like?  What’s your path to profitability?  Why is this a company versus a product/service?  Who’s your competition and how do you beat them?  Why can’t Apple do this? (or name any big,

established company…)

Evaluating a New Venture

Due Diligence

 Market assessment is initial focus  Customer market validation next  Team references and resumes critical  Secondary:

Financials and assumptions Corporate structure and legal docs Patent applications

Key Determinants of New Venture Success

Strength of Business Idea Industry-related issues Target market and customer-

related issues

Founder-related issues Financial issues

Strength of Business Idea

Low Potential (-1) Moderate Potential (0) High Potential (1) Extent to which idea #Takes advantage of environmental trend #Solves a problem #Addresses unfilled gap Weak Moderate Strong Timeliness of entry to market Not timely Moderately timely Very timely Extent to which the idea adds value for its buyer Low Medium High Extent to which customer is satisfied by existing products Very satisfied Moderately satisfied Ambivalent or dissatisfied Degree to which the idea requires customers to change their basic practices Substantial changes required Moderate changes required Small to no changes required

Industry-Related Issues

Low Potential (-1) Moderate Potential (0) High Potential (1) Number of competitors Many Few None Stage of industry life cycle Maturity phase Growth phase Emergence phase Growth rate of industry Little or no growth Moderate growth Strong growth Importance of industry’s products and/or services to customers Ambivalent Would like to have Must have Industry operating margins Low Moderate High

Target Market and Customer Issues

Low Potential (-1) Moderate Potential (0) High Potential (1) Identification of target market for proposed new venture Difficult to identify Hazy Identified Ability to create barriers to entry for potential competitors Unable to create May not be able to create Can create Purchasing power of customers Low Moderate High Ease of making customers aware of the new product or service Low Moderate High Growth potential of target market Low Moderate High

Founder-Related Issues

Low Potential (-1) Moderate Potential (0) High Potential (1) Founder’s experience in the industry No experience Moderate experience Experienced Founder’s skills as they relate to the proposed new venture’s product or service No skills Moderate skills Skilled Extent to which the new venture meets founder’s personal goals and aspirations Weak Moderate Strong Extent of the founder’s professional and social network in the relevant industry None Moderate Extensive Likelihood that a team can be put together to launch and grow the new venture Unlikely Moderately likely Very likely

Financial Issues

Low Potential (-1) Moderate Potential (0) High Potential (1) Initial capital investment High Moderate Low Number of revenue drivers One Two or three More than three Time to break even More than two years One to two years Less than one year Financial performance of similar businesses Weak Modest Strong Ability to fund initial product development or initial start-up expenses from personal funds Low Moderate High

Overall Potential

Score (-5 to +5) Overall potential of the business idea Suggestions for improving potential

Part 1: Strength of business idea High potential [] Moderate potential [] Low potential [] Part2: Industry-Related issues High potential [] Moderate potential [] Low potential [] Part 3: Target market and customer issues High potential [] Moderate potential [] Low potential [] Part 4: Founder-related issues High potential [] Moderate potential [] Low potential [] Part 5: Financial issues High potential [] Moderate potential [] Low potential [] Overall Assessment High potential [] Moderate potential [] Low potential []