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© Bell Mason TechnologiesBMD 1
Entrepreneurial Ventures:
How do you do them?
Gordon Bell29 February 2000
High Tech Ventures: A Guide to Entrepreneurial
Success
C G Bell & J McNamara, Addison Wesley, 1991
http://www.research.microsoft.com/~gbell
© Bell Mason TechnologiesBMD 2
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
http://research.microsoft.com/~gbell
© Bell Mason TechnologiesBMD 3
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,
marketing, and people expertise
© Bell Mason TechnologiesBMD 4
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, at each stage of 4 stages of growth
•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
© Bell Mason TechnologiesBMD 5
Using the Bell-Mason Diagnostica 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?
© Bell Mason TechnologiesBMD 6
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
© Bell Mason TechnologiesBMD 7
12 Dimensions of AnalysisBusiness Plan
Marketing
Sales
CEO
Team
BoardCash
Control
Product
Manufacturing
Financeability
Technology/ Engineering
© Bell Mason TechnologiesBMD 8
Four Stages of Growth
Seed $
Stage I $
Stage 2 $
IPO
Concept Steady State Co.
Market Develop ment
Product Develop ment
Seed
Stage 1 Stage 2 Stage 3 Stage 4
Stage 1
Stage 2
Stage 3
Stage 4
1 day to
12 months
3 to 12
months
12 to 48
months
24 to 48
months
© Bell Mason TechnologiesBMD 9
ConceptStage
Stage 1
1 day to12
months
Time: Four Stages of Growth
ProductDevelopment
Stage$
Stage 3
12 to 48 months
3A. Hire, Specify, Plan
3B. Design, Simulate, Build Prototype
3C. Integrate and Alpha Test
3D. Beta Test through Product Introduction
IPO$Market
DevelopmentStage
Stage 4
24 to 48 months
4A. Calibrate the Market4B. Expand the Market
4C. Achieve Steady State
Overview
SeedStage
Stage 2
3 to 12 months
$
© Bell Mason TechnologiesBMD 12
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 walk-throughs?
© Bell Mason TechnologiesBMD 13
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?"
© Bell Mason TechnologiesBMD 14
Evolution of the "Ideal" State at Each Stage
Stage IV. Market development
Stage III. Product development
Stage II. SeedStage I. Concept
Technology/ Engineering
Product
Manufacturing
Business Plan
Marketing
Sales
CEO
Team
Board Financeability
Cash
Control
© Bell Mason TechnologiesBMD 15
Business Plan at Concept & SeedI. 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
© Bell Mason TechnologiesBMD 16
Examples:
A Market Failure
A Product Failure
© Bell Mason TechnologiesBMD 17
Ovation: At Product Introduction
Technology/ Engineering
Manufacturing
Business Plan
Marketing
Sales
CEO
Team
BoardCash
Control
Finance & Control
Product Market
FinanceabilityPeople
Product
© Bell Mason TechnologiesBMD 18
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 product of the year as "vaporware"
© Bell Mason TechnologiesBMD 19
Analytica: Market Development
Technology/ Engineering
Manufacturing
Business Plan
Marketing
Sales
CEO
Team
Board
Control
Finance & Control
Product Market
FinanceabilityPeople
Product
Cash
© Bell Mason TechnologiesBMD 20
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
© Bell Mason TechnologiesBMD 21
Venture Life Cycle for e-
Venture
s
9 to 12 months
Stage 2+3
ProductDevelopment
Stage
SeedStage
$
MarketDevelopment
Stage
12 to 18 months
Stage 4
IPO $
1 day to6 months
ConceptStage
Stage 1
Angel $
Idea
Ventures
© Bell Mason TechnologiesBMD 22
Stimulating New Companies
© Bell Mason TechnologiesBMD 23
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 InnovationBoulder Tech Incubator , The Corporate Incubator: copiers to consultantsTeknikronSingapore Industrial Development Japan's MITI
Informationalization ala Davis & Davidson's 2020 Vision
© Bell Mason TechnologiesBMD 24
Exogenous Effectors for Each Dimension
Eng, sci., tech, tech svcs, univs, other co.s, consultants
Tech workforce, sub-contractors, components
Cash & financing experience, "patience"
BOD with Industry, market, product, engineering, financial experience
Trained pool of gen. mgrssuccessful "role models"
Customers, sales personnel,channels to international mkt.
Market, infrastructure for"complete" product, partners,strategic alliances, PR, etc.
Reasonable expectations,patience,
Trained personnel to hire, area-specific consultants
Acctng, legal, financing infra- structure Market
Competitive Products, co-components
© Bell Mason TechnologiesBMD 25
MITI Role in Establishing IndustriesI. Development of a domestic Japanese industry.
a. Market control. Imports limited essentially to zero. b.Borrowed technologyc.Vertical integration of most manufacturingd. 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)
© Bell Mason TechnologiesBMD 26
Does it work?
0
10
20
30
40
50
60
70
80
90
100
0 5 10 15 20 25 30 35
Company
Avera
ged
Dia
gn
osti
c S
core
Companies that scored 75 or over had a business success rate of 95%
Source: Nanyang Mgmt PLC Ltd
© Bell Mason TechnologiesBMD 27
What do you need to do?
What are some common flaws?
© Bell Mason TechnologiesBMD 28
Business Plan FlawsUnrealistic 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!
© Bell Mason TechnologiesBMD 29
Business Plan Seed Questions4.1 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)
© Bell Mason TechnologiesBMD 30
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?
© Bell Mason TechnologiesBMD 31
CEO Seed Questions7.1 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?
© Bell Mason TechnologiesBMD 32
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)
© Bell Mason TechnologiesBMD 33
Team Seed Questions8.1 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.
© Bell Mason TechnologiesBMD 34
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
© Bell Mason TechnologiesBMD 35
The End
© Bell Mason TechnologiesBMD 37
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)
© Bell Mason TechnologiesBMD 38
Goals of the Bell-Mason Diagnostic1. 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 Intrapreneursb. Engineers and marketeers c. Financial community, including venture capitald. 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)
© Bell Mason TechnologiesBMD 39
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.
© Bell Mason TechnologiesBMD 40
BMD Functions and Benefits-1
Readiness
Initial screening of business plan
Self-diagnosis to aid the entrepreneur or intrapreneur
Quick and accurate means of categorizing and sifting business opportunities; aids in making initial decisions; expands the number of opportunities to review
© Bell Mason TechnologiesBMD 41
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
© Bell Mason TechnologiesBMD 42
BMD Functions and Benefits-3
On-going tracking
system at key
stages in
company
development
Insures position with
efficient "early warning
system" for on-going
assessment of
companies;
continued health and risk
profiles aid in mid-course
correction and
assessment of additional
funding
© Bell Mason TechnologiesBMD 43
BMD Functions and Benefits-4
Standard system
for measuring,
tracking, and
reporting among
management,
directors, and
investors
"Short hand" reporting
system to measure
business effectiveness,
manage expectations, and
bring responsible
investors into high
technology
© Bell Mason TechnologiesBMD 44
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.
© Bell Mason TechnologiesBMD 45
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
© Bell Mason TechnologiesBMD 46
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
© Bell Mason TechnologiesBMD 47
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
© Bell Mason TechnologiesBMD 48
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
© Bell Mason TechnologiesBMD 49
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
© Bell Mason TechnologiesBMD 50
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
© Bell Mason TechnologiesBMD 51
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