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JUNE 17, 2011 Abe$El$Sayed$Betty$Morin$Nancy$Sagar$Greg$Walters$Nathan$Wilson$$
$
FINAL PRESENTATION UCLA$Executive$MBA$Program$Strategic$Management$Research$$
[client name withheld]
“I thought about doing this in 1996 but couldn’t figure it out.”
2
Core Model: Services 3
BUSINESS'MODEL'
Equity'
Cash'
Discounted'Cash'+'Equity'
?'
MERGER VISION 4
BUSINESS'MODEL'
VC'referrals'
“Invest”'combined'services'in''web/mobile'startups*'
'for'cash'+'equity''
*$25B'app$revenue,$2015$
$
Strategy (Capital,$turnarounds)$
3$FTEs$
Software (Mobile/web)$$25$US$FTEs$
Project Objective
Develop an “optimized business model”
5
'''
This model is not viable. “ ”
Customers$$ 10$
Web/mobile$startups$ 91$
Attorneys$ 8$Angels$ 11$Venture$capitalists$ 33$
Competitors$ 7$
Startup$experts$ 5$
Entertainment$cash$cows$ 7$
Entertainment$experts$ 5$
177'PRIMARY'RESEARCH'SUBJECTS'
VCs not a source of dealflow 6
EXAMPLE:''VC'RESEARCH'RESULTS'
0$
2$
4$
6$
8$
10$
12$Never' Infrequently' Frequently'
Resp
onse
s$
0$
1$
2$
3$
4$
5$
6$
7$
Ratin
g$on
$1U7$scale$
How$frequently$do$you$refer$portfolio$companies$to$ENGINEERING'or'STRATEGY'SERVICES?'
Is$it$valuable$to$use$the$$SAME'FIRM'FOR'BOTH?'
Source:$Primary$research.$n=17$
Few economies of scope 7
EXAMPLE:''CUSTOMER'RESEARCH'FINDINGS'
3.1%$of$revenue$Customers'
Startups:''same'story'
8
PROJECT'PIVOT'
Raise$a$fund$ New$model$(offshore$or$incubator)$
Bolster$service$business$$to$generate$$
MORE CASH to$invest$
Options
x x
Overarching$strategy,$marketing,$operations,$structure$
0$
1$
2$
3$
4$
5$
6$
7$
0$ 1$ 2$ 3$ 4$ 5$ 6$ 7$
Strategy
'
Elite'engineering'
9 Web/Mobile Startup Segments
SEGMENTATION'/'CLUSTER'ANALYSIS'
Strategy seekers $ Nontech
Money hungry Fledglings
Confident
10 “CASH COWS”
TARGETING'CONCLUSION:'CASH'COWS'
2009$ 2010$CPG$ *$Entertainment$*$Retail$ Technology$Auto$ *$Media$*$
Entertainment$ Retail$Financial$Services$ CPG$
TOP VERTICALS IN MOBILE APP SPENDING*
*$11.6 B 'Projected$2012$US$spending$
Source:$$State$of$the$Apps$Industry$2010$and$2009$Surveys;$DIGIDAY,$Stifel$Nicolaus,$Millennial$Media.$$$
11
FIRST'CASH'COW'TARGET'
High Demand • #1$app$spending$• #1$user$category$$• New$entertainment$
formats$&$distribution$$• Multiple$business$units$$
Insufficient Supply • Engineering$shortage$• No$dominant$player$• Small$vendors$=$“hit$or$
miss”$
“Entertainment'on'mobile'has'not'even'scratched'the'surface'of'what'is'possible.”'
$
Peter$Guber,$Chairman$&$CEO,$Mandalay$Entertainment$
Entertainment & Media
Why choose ---? 12
PERCEPTUAL'MAP'OF'COMPETITION''
0$
1$
2$
3$
4$
5$
6$
7$
8$
9$
10$
0$ 1$ 2$ 3$ 4$ 5$ 6$ 7$ 8$ 9$ 10$
Spec
ializ
ed'Exp
ertis
e'
Flexibility'
In[house''teams'
Product'firms'
Elite'software'development'
Offshore'
Small'shops'
Selection'Criteria'
FLEXIBILITY'
SPECIALIZED'EXPERTISE'
REFERENCES'
Upcoming'Sponsorships'
September'2011!
Sales Strategy – Cash Cows 13
CUSTOMER'ACQUISITION'
'VP'Business'Development''Has$sold$to$entertainment$digital$media$groups$(e.g.$Razorfish).$Hire$now.$!
'Marketing'to'build'brand'Event$sponsorships,$expanded$web$presence,$promotional$budget,$speaking$engagements$(Rob).$$
Acquisition Quotas
2011' 2012' 2013' 2014' 2015'
Major$marketing$investments$(#)$ 3$ 8$ 9$ 9$ 9$
Marketing$budget$($)$ $$97$k$$ $$281$k$$ $$327$k$$ $$379$k$$ $$411$k$$$
FullUtime$BD$executives$ 1$ 1$ 2' 2' 2'
14
CUSTOMER'ACQUISITION'SCHEDULE'
Single$Projects$ 2$ 5$ 1$ 1$ 3$
NEW'CASH'COWS'PER'EXEC' 0' 3' 2.5' 2' 3'
Cash$only,$50%+$gross$margins$
0$
3$5$
4$6$
2$
5$ 1$1$
3$
2011$ 2012$ 2013$ 2014$ 2015$
Number$of$new$individual$projects$ Number$of$new$cash$cows$
$0.86'$2.00'
$2.67'
$4.50'
$5.99'
$0.0$
$1.0$
$2.0$
$3.0$
$4.0$
$5.0$
$6.0$
$7.0$(M)'
15
Cash Cow + Single Project Revenue CUSTOMER'ACQUISITION'>'REVENUE'PROJECTION'
Reference$only$–$not$used$in$projections.$$Source:$$Forrester$Research,$Feb.$2011$
US$Mobile$Application$Development$Services$Market$Projected$TAM$&$YOY$growth$
$'400M' $'1.6B' $'2.7B' $'4.1B' $'5.6B'
300%! 300%! 69%! 52%! 37%!
Reference!only!–!not!used!in!our!revenue!projection.!!Source:!!Forrester!Research,!Feb.!2011!
16
5 Year Revenue Projection (Consolidated)
$0.0$
$1.0$
$2.0$
$3.0$
$4.0$
$5.0$
$6.0$
$7.0$
$8.0$
$9.0$
$10.0$
2011' 2012' 2013' 2014' 2015'
!!!!$4.0!M!! !$5.3!M!! !$6.0!M!! !$7.9!M!! !$9.5M!
Total
17
Ops Improvement Plan
CAVEAT:''FIX'OPERATIONS'FIRST'
PROJECT'MANAGEMENT' 4.3'
Delivery$on$expectations$ 5.0'
Likelihood$of$future$work$ 5.3'
Scoping'• Tech$team$not$always$
involved$• Difficulty$evaluating$resource$
requirements$• No$formal$change$processes$$• EarlyUstage$projects$are$
ambiguous$$
Overwork'• Too$many$concurrent$projects$• Junior$engineers$not$trained$in$
project$management$• Team$can$be$difficult$to$reach$
(7!point!scale)!
18 Operations Solutions
ADD'CRITICAL'SOFTWARE'RESOURCES'
President'CEO'
Directors'(3)'
VP'Strategy'(2)'
GM/'Strategy'M'China'
China!So3ware'Engineers'
Domes:c!So3ware'Engineers'
Admin'
Dir.,'Corp.''Developmt'
Project'Admin'
Managing!Director,!So3ware'
BD!#2!!(Scenario'1,'2013)'
Project!Managers!!(1'per'3'projects)'
Director,'Finance'VP,!Biz!
Dev'
17$ 17$20$
25$31$
36$1$
3$
3$
4$
5$
0$
5$
10$
15$
20$
25$
30$
35$
40$
45$
2010' 2011' 2012' 2013' 2014' 2015'
$1.8'
$1.8'$2.1'
$2.4' $2.5'
$1.6'
$2.1'$2.4'
$3.4'
$3.9'
EOY Software Headcount 19
SOFTWARE'EXPENSES'(SCENARIO'1'IN'BUSINESS'PLAN)'
SG&A'
Engineering$Mgt,$Biz$Dev,$Exec.$Mgt,$Finance,$HR,$Admin$
Project$Managers,$$US$Engineers$
COGS'
20 Net income available for investment
CONSOLIDATED'P&L'(SCENARIO'1'IN'BUSINESS'PLAN)'
$0.08' $0.46' $0.55' $1.02' $1.65'
$0.0$
$1.0$
$2.0$
$3.0$
$4.0$
$5.0$
$6.0$
$7.0$
$8.0$
$9.0$
$10.0$
2011' 2012' 2013' 2014' 2015'
Millions
$
2%$ 9%$ 9%$ 13%$ 17%$
COGS'
NET'INCOME'
SG&A'
$0.08'$0.46' $0.55'
$1.02'$1.65'
21 Investment Division
FINAL'RECOMMENDATION:'CREATE'INVESTMENT'DISCIPLINE'
$1. Source*$/$evaluate$/$manage$deals$2. Screen$deals$as$if$they$are$cash$$3. Reimburse$software$/$strategy$
groups$for$services$
Investments
Advisory!Board!(3M5'experts)'
*$Fledglings$+$Internal$ideas$
Generate$&$evaluate$deals$for$equity$
A Framework to Realize the Vision
Recommendation Impact
CONCLUSION:''THE'OPTIMIZED'MODEL'
IMPROVE OPERATIONS by$hiring$a$managing$director$&$project$managers$
TARGET CASH COWS(entertainment$first)$with$BD$and$marketing$investments$
CREATE INVESTMENT DIVISION with$advisory$board$to$help$source$&$manage$deals$$
• Better$investment$decisions$• Greater'emphasis'on'larger'
equity'stakes'that'can'lead'to'larger'exits'
• Protect$company$by$diversifying$from$A$
• Faster$revenue$and$net$income$growth$to$fund$investments$
• Stronger$referrals$&$ability$to$land$new$business$
• Greater$profit$margins$
Q&A Thank you!