Starting Your Start Up Book 1

By Tanya Candia

IEEE-USA E-Books

Starting Your Start -Up Book 1

Book 2 Market Size and Strategy Book 3 Competitive Analysis

Book 4 Pricing Strategies

Book 5 The Launch

Published and Hosted by IEEE-USA.

Copyright 2012 by IEEE-USA. All rights reserved. Printed in the United States of America

Edited by Georgia C. Stelluto, IEEE-USA Publishing Manager, [email protected]

Cover design and layout by Josie Thompson, Thompson Design

This IEEE-USA publication is made possible through funding provided by a special dues assessment of IEEE members residing in the United States.

Copying this material in any form is not permitted without prior written approval from the IEEE.

3Starting Your Start-upBook 1: Developing a BuSineSS plan

Table of Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

What Are You Getting Yourself Into? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

The Blueprint for Success. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Part 1 of the Business Plan: The Business Concept . . . . . . . . . . . . . . . . . . . . 9

Part 2 of the Business Plan: Market Analysis and Strategy . . . . . . . . . . . . . . . .10

Industry and Key Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Examples of Industry and Market Sizing . . . . . . . . . . . . . . . . . . . . . . . .11

Target Customer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Part 3 of the Business Plan: Competitive Advantages and Pricing Strategy . . . . . . . .13

Competitive Comparison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Part 4 of the Business Plan: The Product . . . . . . . . . . . . . . . . . . . . . . . . .16

Part 5 of the Business Plan: The Go-to-Market Plan . . . . . . . . . . . . . . . . . . . .18

Sales Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

Marketing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

Part 6 of the Business Plan: Business Structure and Management Team . . . . . . . . .20

Executive Team. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

Part 7 of the Business Plan: The Financial Plan . . . . . . . . . . . . . . . . . . . . . .22

Fine-Tuning Your Two-to-Four Page Business Plan . . . . . . . . . . . . . . . . . . . . .23

Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

Finding potential investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

Next Steps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27

About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

APPENDIX 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29


Introduction

The Starting Your Startup Guides e-book series is designed for the engineer or entrepreneur who has a great product or service idea, but no real marketing expertise. With a small bud-get and big dreams, its difficult to know where to start. This book helps the reader understand all the basics of starting a startup, quickly building an initial business plan, understanding and communicating the value proposition, creating an effective elevator pitch, positioning the prod-uct and company, and speaking to potential investors and customers in a way that maximizes the chances of success.

The Startup Guides helps you build a full Business Plan by systematically completing various stages.

Book1,The Two-to-Four Page Business Plan, shows you how to develop an initial business plan that contains just enough information to get started. It helps you define your concept clearly and concisely, build an effective elevator pitch, communicate your product and company positioning, and identify your critical success factors.

Book2,Market Size and Strategy, helps build out the initial plan. It helps you find the real market size, even when dealing with disruptive technology, where market size data is hard to come by. Importantly, this book helps entrepreneurs better understand their target buyers, and how to communicate the value of their products or services, increas-ing the probability of early and ongoing sales.

Book3,Competitive Analysis, guides you through the competitive landscape, helping you to understand who your real competition is, and why its important to see the land-scape the way your customers do. This book helps you develop an effective positioning strategy, determine the true value of your product or service to your target customer, and find ways to ensure your solution is the ideal one.

Book4,Pricing Strategies, tackles one of the most difficult tasks for an entrepreneurpricing the product properly. It helps you determine which time-tested pricing approach is best for you, shows how to validate pricing, and demonstrates how to develop a long-term strategy. Book 4 helps ensure that your pricing is not too high or too low, and will satisfy customers, as well as help you meet your revenue goals.

Book5,The Launch, presents a detailed roadmap to successfully launching your com-pany and product. From setting realistic goals for the launch, determining the key messages, and preparing the sales team, to briefing the press and analysts, finding the right venue, and enlisting the help of early customers, this book takes you step by step through all the necessary stages to a successful launch.


Our experience is a combination of engineering, project management and marketing. Over the past 25 years, we have worked with literally hundreds of startups around the world, learning from their experiences, while we helped guide them to build successful companies and grow market share. This book, along with the others in The Starting Your Startup Guides, encapsulates that knowledge and experience, presenting it in a way that is easy for the busy entrepreneur to act upon and internalize. The philosophy behind this book is: Do just enough to get started; each subsequent iteration will become easier and faster, once you have laid the base.

Tanya Candia


What are you getting yourself into?

Starting your own business can be the most exciting, rewarding thing you ever do. All your creativity, innovation, drive and ingenuity combine to bring something new and different to the market. Youre no longer toiling away for someone elsenow, run your own company! Youre in control; your creative freedom knows no bounds. You can see success in your future.

At the same time, it can be the most frustrating, costly and risky thing you will ever do. You will need to invest significant amounts of time, energy and money in the business. And there is no security: you will be giving up all the comforts to which you have become accustomed over the years: a paycheck, insurance, paid vacations, and the freedom to leave your job behind at the end of the day.

Before going further, its worth it to take a minute and write down the reasons you really want to go into business. What do you hope to achieve, and in what timeframe? What are your strengths and weaknesses? How can you assemble a management team that will shore up your weak areas, and complement your strengths?

Here is a checklist of questions to ask yourself, before you take the plunge:

Whatismycommitmenttosuccess?

HowmuchtimeamIwillingtoinvestinthisventure?Howmuchmoney?Forhowmanyyears?

WhatmanagementstylewillIemploy?WillIbehands-onand,ifso,forhowlong?WhattasksandresponsibilitieswillIdelegate?

AmIwillingtotakedirectionfromotherssuchasinvestors?

WhatdoIexpectthebusinesstolooklikeinone,twoorfiveyears?Howmanyemployees?Howmuchrevenue?Howmuchmarketshare?Whatgeographieswillitcover?

Whatismyexitplan?DoIwanttoremainprivate,gopublic,orbeacquired?


Whatismyfall-backplanifthebusinessdoesntsucceed?

WhichoftheimportantcharacteristicsbelowdoIhave,andwhichcanbeprovidedbyothermembersofmystartingteam?

1. Communication skills

2. Technical ability

3. Motivation

4. Organization and systems

5. Solid financial experience

6. Good, sound business sense

7. Vision

8. Focus

9. Product management

10. Marketing know-how


The Blueprint for Success

Youre convinced that your idea is worthwhile; friends, family and colleagues are loyal supporters, and you have the drive, determination and temperament to succeed. Now its time to step away from your relentless focus on the product, and take a look at the big picturethe roadmap that will lead you to success. That roadmap is your business plan.

Many entrepreneurs shy away from developing a business planthey fear that the amount of time spent writing a 40, 50, or 60 page plan is wasted, since the plan will quickly become obsolete. Or they imagine that they can eventually hire someone who can help write enough of a plan to get funding. This avoidance almost always leads to failure. Why? Because the many aspects of running a business must be driven by the chief executive, not by a committee of others. This company is your company, and this plan must be your plan. The business plan also helps communicate your vision, direction, expectations and deliverables to those who may join your company.

Its time to hang up your developer hat for a short time, and forgetfor the momentabout working on your creation, fine-tuning it, tweaking it, or just getting it to work at all. Its time to build the plan. Dont think that you only need this step, if you are going to look for funding for your company. In reality, you need a business plan whether your company is self-funded, or if it relies on partners or investors.

Building a business plan can be simpler than most people think, especially when you understand that it can be done in phases. Experience has shown that a simple, two-to-four page business plan can be just what you need to get the process started. It can have enough meat to secure early meetings with potential investors, can easily communicate your value proposition, and can lay outin gross termsyour financial plan. Then, with the initial business plan in hand, you can flesh out various aspects to build a larger plan over time. In this way, you are developing your own blueprint of how your business will succeed in the market.


Part 1 of the Business Plan: The Business Concept

The first section of the two-to-four page business plan starts with the Business Concept. This is a single paragraph that encapsulates what you intend to do as a company: what compel-ling issue you will solve, why you are the best company to solve it, and how your company intends to make a difference in the marketand in the world. Here you discuss briefly the com-pelling need you are addressing, and any unique market timing issues that work in your favor. This statement is very close to the elevator pitch that you will develop later in this book.

An example of a Business Concept that drew impressive attention from venture capitalists:

Company X has produced a patented, cloud-based offering that secures key ex-ecutive communications desktop-to-desktop, and protects all other Internet-based corporate communications firewall-to-firewall. This product eliminates exposure to insider hacking, which makes up almost 70% of security problems today. Ease of use and low cost remove the principal barriers to adoption. The companys direct sales team will target IT and corporate compliance managers in market segments where the need for email security is most compelling: healthcare and financial services, with their stringent regulatory compliance requirements.

The reason this concept paragraph was so effective is that it starts with a strong position (patented technology), discusses the delivery mechanism (cloud-based) and problem solved (secure executive communications), and very quickly describes quantifiable benefits. It then shows a very focused sales approach and target market, with a description of why consumers will value this solution.

But be wary of overblown claims and arrogance. Potential customers, as well as potential in-vestors, quickly see through hollow statements and hyperbole. See, for example, the following Business Concept that was poorly received by industry analysts and potential investors:

This is a game-changing moment. Tomorrows enterprise will be driven by event-based systems, and Company Y is in the vanguard of this market. With our ability to filter and correlate real-time information, and provide immediate answers, we are the Holy Grail of this market. Based on our proven scalable infrastructure that allows nimble applications to be constructed for a variety of industries, we are poised to be the leading player in both developing and dominating this market.

This Business Concept contains no specifics on the target market or segments, nothing about the target buyer, no indication of which burning issue the product solves, and nothing but self-aggrandizing claims that allude to a vague market. This example is how not to write a Business Concept

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Starting Your Start-upBook 1: Developing a BuSineSS plan

Part 2 of the Business Plan: Market Analysis and Strategy

Market analysis and strategy may well be the most intimidating aspects of the business plan, since many entrepreneurs and innovators feel they have little expertise in determin-ing the market size and characteristics. While this section can take some time and effort, it is essential. And you will probably find that you know a lot more about the market, its size, and its characteristics, than you think.

This section is vitally important, because doing a good job of market analysis enables you to establish pricing, sales, distribution and marketing/promotion strategies that will lead to profit-ability. It also demonstrates and quantifies your companys, and the market sectors, growth potential; and helps you make solidly-grounded estimates about the future financial health of your business.

IndustryandKeySegments

We begin with a short description of the industry and the key segments in the industry. Tell where your company fits, which segment you will address initially, and which segments you plan to address in the future. If its a struggle to narrow your focus from a wide variety of industries and segments to just one, you are not alone. But selecting a target area is important for a number of reasons; it helps you focus scarce engineering, marketing and sales resources; limits the competition; and helps you move more quickly to market leadership. Its also important because when you identify a growing market, and/or one where the startup can gain a majority market share, your chances of success (and of getting funded) increase dramati-cally.

If your product represents disruptive technology, or a truly innovative way to solve a long-standing problem, it may be difficult to determine the industry in which you will play, and the sectors within that industry. You will need to research industries by reading industry analyst reportssuch as those from IDC or Gartner/Dataquest; and delving into reports written by financial

Forpurposesofthebusinessplan,

asegmentisanidentifiablegroupof

individuals,businessesororganizations

thathavesimilarexpectationsorneeds,

andthatwillrespondpredictablytoa

marketingorsalesoffer.

Eachofthesegroupsismadeupofin-

dividualswhoreadsimilarpublications,

attendthesameindustryevents,and

relyononeanotherforrecommenda-

tionsandadvice.Importantly,members

ofthesegmentsharethesameproblems

andpains,andhavesimilarneedswhen

itcomestosolutionstotheirproblems.

Forexample,intheautomotiveindustry,

identifiablesegmentsmightincludeauto

dealers,entertainmentsystemvendors,

embeddedsystemsdevelopers,etc.

Autodealerssharecommonconcerns

andhavesimilarrequirementsforsolu-

tions.However,peoplewholikethe

coloryellowisauselesssegment,since

theyarenotreachablethroughtypical

marketingorsalesefforts.

11


analysts, such as investment banks; and accessing other sources. For the two-to-four page Business Plan, try to find the closest match between your early product functionality and a market segment. Keep in mind that your early efforts will be augmented by more in-depth market sizing and segmentation, as will be described in Book 2: Market Size and Strategy, so for nowmake an educated assessment of which major industry, and segment within that industry, is most likely to yield sales for you.

The overall market and segment sizes you quote must be based on reliable data, which will probably come from industry analyst or financial analyst reports, or other sources, such as the U.S. Department of Commerce tables.

ExamplesofIndustryandMarketSizing

We worked with an entrepreneur who defined the target industry and segment in this way:

our company will address the memcached market that is looking for better ways to speed up dynamic web applications.

This focus on the how vs the what might be interesting to some people, but it has multiple pitfalls. It is impossible to find data on market size; segmenting such a nebulous market is difficult; potential investors do not have a frame of reference; and it is even hard to explain the value proposition to potential customers.

An example of market sizing done properly can be seen in the following overview:

Company N will provide affordable, easily-adopted Dental Billing Management Systems to the huge underserved market of small and medium-sized dental of-fices in the U.S. and Canada. While market size data show the overall market to be $1.1 billion in 2010 (growing to $1.9 billion by 2015), this number represents only large enterprise purchases. Most small and medium-sized dental offices fall outside the scope of the visible market, yet they represent some 60 percent of the total number of dental offices. The market for our solutions has the po-tential to be in the range of $1-1.5 billion.

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TargetCustomer

After describing the overall industry and segment size, describe the potential target buyer (in terms of role and title), and the characteristics of the buyers situation that will lead to early and ongoing sales. Be aware that many engineers are happy to talk to end-users about their product, but the end-user is not necessarily the person who makes the decision to buy, or has the budget to do so. To win the hearts and minds of the ultimate buyer, you need to be able to articulate your products differences and value in a way that makes good business sense, saves money, improves productivity, satisfies strategic objectives, etc. Also, include informa-tion on how you will find these customers, since this knowledge will be a key lead-in to the next sections: competitive analysis and go-to-market strategy.

You may not know with certainty which target buyers will be most likely to purchase your prod-uctand at this stage, a rough idea is fine. Later, you will be able to flesh out this section with more specific information, to accelerate sales and reduce marketing expenditures. To identify the target buyer, you will need to fully understand the magnitude, cost and importance of the problem you solve, and determine which individuals in your target industry feel the most pain relative to the problem.

Look at various aspects of customer need to fine-tune your target customer, so that you really understand what drives them, what problems are most important, and what factors will influ-ence their decision to buy:

Specificcustomerneed/problem:Howbadlydoesitaffectthemtoday?

Pricing:Whatistheirspendingthresholdtosolvethisproblem?Whatcantheypayforalternative solutions?

Companyviability:Aretheywillingtoworkwithunknownplayers/startupstosolvethisproblem?

Technology:Whatspecificallysolvestheirproblembetter/faster/cheaperthananotherapproach? Does your technology require an innovator or early adopter market, or is it applicable to mainstream buyers?

Businessmodel:On-premiselicensepurchase,software-as-a-service,leasing,renting,other ways to acquire the product. How will you generate revenue for your product?

Partnerships

Technicalaspects:Security,quality,compliance,performance,etc.

If you have already closed some sales, you will have some information on the target buyer and burning problems. However, early sales can be deceiving. Customers will probably come from a variety of industries, and may have widely divergent reasons for buying. It is important for you to speak with the customers and dig into the problems they face, determining how impor-tant those specific problems are in the overall landscape of things they worry about. Speaking with customers can give you valuable hints and sound bites that can help you articulate the value proposition. Include information on your target buyer in terms of the actual job titles and/or functions within the organization.

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Part 3 of the Business Plan: Competitive Advantages and Pricing Strategy

Competition may be straightforward, especially if the product fits cleanly into a single catego-ry. Conversely, the competition may look quite different when you evaluate your product in one market vs. another. This section briefly describes the competition and how your product is positioned to win in a competitive sales environment.

It is sometimes difficult for entrepreneurs to recognize all the competitors in the landscape, since they may take a purist approach to the problem and how it should be solved. At times, they ignore very real competitors, or practice the all-too-frequent solution of throwing a mar-ginally-similar product at the problem. They may think they know all the competitors, and their weaknesses, only to have a prospective customer, an investor, or an industry analyst come up with names that they have never heard of.

Perception is reality, and you will have to deal with the perceptions of others as you go through the process of building your plan and defining your company. The more you can articulate what you do better than the competition, the more you will be able to bring prospects to an under-standing of just how great your product is. Here, it is especially important to be able to fully de-scribe what customer problems you will solve. And keep in mind that competitors dont stand still: as you begin to do a better job of articulating your value proposition, smart competitors will begin to copy your words or even your features and capabilities. Understand their strengths in terms of technology, but also in terms of sales, marketing and relationships.

CompetitiveComparison

To help guide this effort, use the aspects of customer need (identified above) in determining the target customer, and assign a weight to each, to indicate the relative importance to your target customer. Then, determine to the best of your ability, how your top two competitors fare in the analysis. See the example on the next page.

14


Weighting Yourproduct Competitor1 Competitor2 (10=important, 1=unimportant)

Price 5 - - +

LowTCO 6 + - -

Companyviabilityyrsinbusiness,funding,liquidity 5 - + +

Hosted/on-premiseflexibility 7 + + -

Reportsavailable;adhocreportingcapability 4 - + -

Performanceabletohandle100,000txns/sec. 8 + - +

Scalabilityabletosupport125,000internalusersatpeaktimes 8 + + +

Highavailabilityloadbalancing,failoversystems 8 + - +

Easeofuse 9 + - +

Referencecustomersusingproductinsimilarenvironment 6 - + +

TOTAL 46 30 49

If you find that your product meets the needs of your target audience better than your compe-tition, you can easily articulate the competitive advantages, and you may choose to price at a premium. However, if your product is more or less equal in terms of meeting the requirements, you will need to find a way to compete: on the basis of the product itself (highlighting important values), distribution, pricing, or promotion. If your product is clearly inferior, as shown in the chart, its time to go back to the market identification and positioning, and find a better market for what you have to offer.

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An example of how to clearly articulate your competitive advantages and pricing strategy is shown below:

Company A will have a competitive advantage due to three factors:

1. The company will provide superior customer value by using the highly efficient Software as a Service (SaaS) delivery model. We remove the cost-based bar-riers to adoption presented by our principal competitors, Y and Z, since we do not require the initial capital expenditure for hardware that their on-premise solutions do, and we avoid the significant early and ongoing expenses they require for maintenance and support.

2. our solutions are extremely easy to tailor to the specific needs of each cus-tomer, a key factor in our target market, where workflows change frequently. Competitors such as A, B and C require costly customization which more than doubles the cost of the solution.

3. Unlike competitors D, E and F, with low customer loyalty, our business is ori-ented around building a community to share best practices and grow a sense of belonging. This facilitates reference selling and enhances long-term customer loyalty.

With such a strong competitive position, we have chosen to price at a premium compared to other SaaS vendors, while still presenting a low Total Cost of owner-ship (TCo) compared with on-premise solutions.

Your previous work in defining the industry and market segment may come to play here. As an example, one company found itself hard-pressed to differentiate its products from more estab-lished, better-funded competitors. However, when it focused on a specific market, it found that the competitive advantages were clear:

This company, which had developed an IT service management solution suite, understood that it could easily address a broad range of industries, but with more than 80 established competitors, it would be necessary to tighten the focus. They determined that the best approach was to focus on the automotive industry where periodic audits for software license compliance incurred huge expenditures of time and resources (with similarly huge fines for noncompliance.) With this focus, they were easily able to find which competitors played a role in the market, determine their market approaches, and fine-tune their own understanding of the competitive advantages.

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Part 4 of the Business Plan: the Product

This section is often the hardest to write, since there is so much that the product does, and the tendency is to include all the specifics. Some business plans devote the majority of pages to the product, with exhaustive detail on the technological brilliance. However, it is much more valuable to describe the product in a sentence or two, highlighting any unique features that make it better than what is currently available in the market.

Here you will explain how this product is positioned in the marketplace. Refer back to the work you did on competitive advantages and build out the elevator pitchgenerally, a two-sentence overview of the product, written in terms of usage and differentiation. It is built along a simple structure:

The [product] is a [member of category] that solves [problem] for [target end user] by providing [compelling reason to buy]. Unlike [competing solutions], the [product] [delivers these differentiated capabilities], which results in [measurable benefit].

Example:

The XYZ is a financial tool, aimed at finance directors of medium to large com-panies, that solves budget consolidation problems by performing automatic data conversion from a variety of different formats. Unlike custom-built applications or tedious manual spreadsheet consolidation, XYZ automatically extracts data from financial, manufacturing, human resource, and other systems, resulting in a prov-en 10 percent productivity gain, and eliminating costly errors.

The elevator pitch gives a good overview of the product, but at a very high level. After writing the elevator pitch, add a short paragraph about what makes your product new, differentand compelling. Include information about your intellectual property, including any patents granted or pending, as well as methods, algorithms or other ground-breaking approaches that show your products unique capabilities. Building on the previous elevator pitch:

The XYZ is a financial tool, aimed at finance directors of medium to large com-panies, that solves budget consolidation problems by performing automatic data conversion from a variety of different formats. Unlike custom-built applications or tedious manual spreadsheet consolidation, XYZ automatically extracts data from financial, manufacturing, human resource, and other systems, resulting in a prov-en 10 percent productivity gain, and eliminating costly errors.

17


our patent-pending processes, developed by renowned industry mathematician, Mr. ABC, include unique algorithms for data extraction, filtering and correlation. This unique process gives us at least a two-year time-to-market advantage over any potential competitor.

In addition to the technical aspects of the product and its genesis, this section should include marketing aspects. Briefly discuss both what needs to be done to complete the product, and what needs to be done in terms of market development. An example might be: Complete Phase I of product development and begin Alpha testing. Create marketing collateral material, and develop Beta testing and launch plan.

An example of a Product Section comes from a company founded to develop a cloud-based online backup and recovery system:

Company Z provides world-class professional backup and recovery systems delivered through the cloud. They are affordable, immediately implementable and easily tailored by end-users themselves. our products:

Givesmallandmediumbusinessownerscontrolovertheircriticaldata

Provideoperationalflexibility,allowingcustomerstoadaptprocessesto changing needs

Provideimmediaterecovery,incaseofanunexpectedoutage

Ensurecost-effective,redundantdatastorageformaximumproductivity

For this short version of the Business Plan, it is probably best not to include multiple screen shots, or architectural diagrams. But they will, of course, form part of the complete Business Plan.

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Part 5 of the Business Plan: The Go-to-Market Plan

This section explains how you will bring your product to market. Will you sell through a direct sales team (best for high-ticket products that have a complex sales cycle), through a tele-sales team (best for low-ticket products with a simple sales cycle, that are well understood in the market), through channel partners, or via a web self-service model?

Just as importantly, how will you let the market know that your product exists? What type of marketing/promotion approach will you take? If you dont have a lot of extra money, there are very cost-effective ways of getting the message out, which are described in The Launch e-book in this series.

Once again, the watchword is focus, because it is all too easy to try to do too much with limited resources. One of our clients wrote a Go-to-Market section that indicated they would sell the product through a direct sales team (even though the average sales price of the product was less than $40,000, which made for a very expensive sales process!) and would also en-gage channel partners, as well as provide a self-service web portal. Not only was this confusing for potential investors, who questioned every aspect of the planit was impossible for poten-tial customers to figure out how they should buy.

The Go-to-Market section should cover the basic sales approach, as well as give an overview of market activities that will lead to greater adoption.

SalesApproach:

Its a given that sales in a startup requires a heavy dose of evangelizing, cold calling and missionary selling. In determining the best sales channel, keep in mind two factors: which type of channel (direct or indirect) will do the necessary evangelizing and missionary selling for your company, brand and solution; and which channel has the best chance of reaching your target customers.

To build this section, look at three types of sales approaches:

Directsalesgenerallydescribesahigh-cost,high-returngroupofsalesrepresenta-tives located in geographical areas, with the intent of selling to major customers. The direct sales team may also be supported by an inside sales team (covering smaller sales opportunities, and passing bigger ones to the direct team), and/or a telesales team that uncovers and qualifies opportunities.

ThechannelsalesapproachutilizesoneormoreValueAddedResellers(VARs),SystemsIntegrators (SIs) or Original Equipment Manufacturers (OEMs).

Aweb-basedsalesapproachinvolvesestablishingaself-servicewebsite,andthen driving prospective customers to the site, where they effectively sell themselves on your product.

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All sales channels are not created equal. This chart shows some of the factors to take into consideration when choosing which types of channel partners will be right for your company. As shown, your expensesfor branding, sales and support, and marketingare lower for OEMs and highest for VARs, since you will need to build the brand, and help them market your solution.

Marketing

The mix of marketing activities you will undertake will depend on which sales approach you choose. However, several marketing activities cut across all approaches, and are crucial for a startup with limited visibility and limited funds. Such activities include public relations(building relationships with influential journalists, so they are encouraged to write about your company and product; and releasing news in a regular fashion to build and maintain awareness), as well as the corporate web sitewhich is the face of your company. Other activities can include participation in industry events and trade shows; direct mail or email campaigns; advertising; search engine optimization and marketing campaigns; social media campaigns; participation in industry analyst-sponsored marketing activities; and other high-cost approaches, such as radio and TV spots, billboards, etc.

An example of what a Go-to-Market overview might look like is shown below:

Company Z will sell through specialized channel partners (dental office supply vendors who want to offer complementary software) and through focused tele-sales efforts, aimed at small- and medium-sized dental offices. Initial geographic coverage will be the United States only. As we develop experience with channel partners, we will expand our coverage to other geographical areas (a process that is facilitated due to the products localization capabilities). our marketing approach will start with a company and product launch at [major industry trade show] and will rely heavily on search engine marketing, an effective way to drive prospective customers to our website. Equally important is an aggressive public relations strategy that will build awareness and visibility by targeting key influencers in relevant publications and delivering a steady stream of news about the product, new customers, success stories, awards, and other relevant information.

Vendor Involvement

SalesandSupportAssistanceRequired

Systemsintegrator

Least Visible Branding Most Visible

Least Least

Most

Most

VAR

OEM

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Part 6 of the Business Plan: Business Structure and Management Team

This section explains how the business will function on an ongoing basis: what responsibili-ties will be taken on by the management team, and how the business will be organized. It includes information on important partnerships, and presents an overview of the capital and expense requirements related to operating the business.

ExecutiveTeam

This section of the plan contains the vitally important information about your team, where you describe the key individuals in the companythe executive team and any advisorsand clearly articulate why this group of people is the right one to build the foundation for your company, to stand shoulder-to-shoulder during the difficult times, and forge a culture that leads to success. Be specific about how each individual brings vital core competencies and characteristics to the team, and provide examples of past successes.

For each member of the executive team, describe the function this person will perform in your company, and add a sentence on previous experience, education or other characteristics that are directly related to ensuring the success of your company. You will build out the bios in the full Business Plan, but this section should present compelling information in a brief form. Example:

Michael Bair, CTo and VP Engineering, is responsible for the software research and development function at Company D. He has more than 25 years of experi-ence in programming language design and logic programming, holds a Ph.D. in Computing from Imperial College, London, and has been issued three U.S. patents.

Organization

Describe the organizational makeup of your company. Include any relevant information, such as any outsourced resources, and describe how they are managed. Keep in mind that many startups outsource some combination of finance, HR, engineering, marketing and support, and each of these should be mentioned, if applicable. For outsourced software or hardware development, be sure to include information on how quality, timeliness and protection of intel-lectual property will be handled. The hiring plans for each department will be covered in the next section, Operating Expenses, so it is not necessary to include an organization chart here.

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OperatingExpenses

Do a rough calculation of the cost of personnel, and the cost of overhead (including travel, maintenance and repair, equipment leases, rent, marketing, supplies, utilities, packaging and shipping, payroll taxes and benefits, professional services, insurance, loan payments, deprecia-tion, etc.) Much of this information may be unknown to you, and it is fine to go with industry averages as shown below:

Year1 Year2 Year3

HEADCOUNT

Engineering 3 7 12

Sales 2 3 4

Marketing 1 3 4

G&A 1 2 3

AVERAGEANNUALSALARY

Engineering 100,000 100,000 100,000

Sales 120,000 250,000 250,000

Marketing 100,000 125,000 135,000

G&A 80,000 90,000 90,000

Note that compensation may shift from lower salary/higher equity, in the early years, to higher salary/lower equity, as the company matures.

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Part 7 of the Business Plan: The Financial Plan

There are any number of ways to do this section of the plan, including income and cash flow statements, balance sheets, break-even analysis, and other financial ratios. The approach you choose will depend on your expertise, understanding of various financial analyses, information at hand, and assistance from others. One common approach is to present a single chart that shows expected revenues, expenses, profit, investment, headcounts and number of customers over a five year period. Dont hesitate to enlist the help of an accountant, if necessary. You are presenting conclusions that provide a quantitative outlook on your business, so its worthwhile spending time to get it right. Begin this section with an overview that indicates the basis for your assumptions. An example is shown here:

Company B bases its financial projections on the market positioning, pricing model, distribution approach, and marketing and sales strategies. The company expects to generate a small amount of revenue in Year 1, following the initial product launch. Revenues are expected to ramp up by the end of Year 2, due to aggressive marketing campaigns and programs to leverage early customers. We expect to grow momentum and reach break-even by the end of Year 5.

If you have more than one target market or sales approach (direct enterprise sales and web-based self-service, for example), you will need to include a separate revenue projection for each.

To arrive at revenues, consider the volume of product you will sell and the price for each unit of your product. The volume should be consistent with the market size and share you expect to realize for your target customer. Revenues are the product of sales price multiplied by the volume. Your profit or losses are the result after you have reduced your revenue for the expenses (costs) of the business. [Revenue minus expenses equals profit/loss].

Year1 Year2 Year3

Revenue($K) 216 3,055 7,320

Expenses($K) 2,200 3,400 7,500

Profits/(Losses)($K) (1,994) (345) (180)

Investment($K) 2,000 2,000 0

For an example of how all the foregoing parts work together in a short Business Plan, see Appendix 1.

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Fine-tuning Your Two-to-Four Page Business Plan

Now that your short Business Plan is done, go back over it to make sure all the sections tie together. In the process of writing later sections, you have learned things that will require some modification to earlier sections.

If you plan to use the Business Plan to begin talks with potential investors, your focus should be on the Business Concept, the management team, and the marketing and financial aspects of the plan. Make sure you have clearly articulated how your company is going to make money. If youre looking for a bank loan, youll need to stress your ability to generate sufficient cash flow to service loans. Equity investors--especially venture capitalists--must see your exit strat-egy, understand how they can cash out of your company, and generate a rate of return theyll find acceptable. While this short Business Plan is just the beginning, you will naturally flesh it out in subsequent iterations by delving deeper into specific sections. However, as a first cut at your company, it should tell as good a story as possible.

Make sure to perform a sanity check of your financial projections. Most startups show a small amount of revenue in Year 1, with small expenses; a huge bump in revenue in Year 2, with a small increase in expenses; and a hockey stick in Year 3, with wildly profitable operations. Experience has shown that this progression is not realistic. The expenses will be higher, and the revenues will be lower, and lots of unknowns will occur, so make sure your financial projects can withstand intense scrutiny. You want to plan for the worst, not best, case.

Please note that the examples presented in this book are based on actual business plans, but the data have been altered to ensure anonymity, and the projections shown may not necessarily represent planning for worst case.

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Funding

If you intend to get outside investment, you can use this two-to-four page Business Plan as your entre to getting a first meeting. But before that meeting is held, you will need to develop an investor presentation that is clear, concise and defensible.

Some of our clients have successfully used the outline shown below. Your personal tastes, and the preferences of the potential investors, will naturally drive the exact contents, but this sample outline is a good starting point:

Titleslide(withyourcompanylogoandbranding,dateandtime,andnameofpotential investor)

BigFatClaimslideencapsulatestheBusinessConceptfromyourBusinessPlan

Marketdefinitionandsize

Targetmarketsegmentandbuyercharacteristics,includingproblem/costdata

Yoursolutionoverviewwithproofpoints

High-levelevidenceslideincludesquotesfromcustomersandindustry analysts

Competitivelandscapewithvisualrepresentationofcompetitivestance

Companyprofile

Managementteam

Statusandoutlook;amountoffundingsought;uses

Financials

Backupslides:

- Architectural diagrams

- Product specifications

- Customer acquisition plans

- ownership structure

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Findingpotentialinvestors

There are many sources of investment, but market dynamics and financial trends can have a big impact on their accessibility and propensity to fund your business. Most startups look to some combination of the following:

Friendsandfamily

1. Pro: They are easy to find and they know you.

2. Con: You are blurring the line between friendship and business.

3. Con: They may not be professional investors, so they may not realize the risks until its too late.

Angelinvestorsindividualrichpeople,orbandsofrichpeople

1. Pro: Many of them have made their money through technology, so they understand your situ ation.

2. Pro: Angel investors may bring you valuable contacts that lead to early sales success.

3. Con: Expect close scrutiny over how you invest the money.

4. Con: They will value your company much lower than you dothe price you pay for early money.

5. Con: They will want you to have an exit strategy. Do you expect to go public, or be acquired? Theres really no third choice.

Seedinvestorfirms

1. Pro: These venture capital-like companies invest in early stage firms, so are more accustomed to uncertainty, and will take more risk.

2. Con: These firms invest in early stage companies, so they are accustomed to the fact that an early stage company may redefine itself many times. They are more interested in the management team, than in the product itself.

3. Con: Again, the valuation may not be what you would like to see.

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VentureCapital(VC)firmsinvestfundsmadeupofotherpeoplesmoney

1. Pro: These firms are easy to find, and its easy to determine the winners and the losers.

2. Con: VCs generally only invest in later-stage companies.

3. Con: The best VCs will only invest in the cream of the crop, and if your companys prospects dont look stellar, they wont touch you.

4. Con: The lower-ranked VCs will take companies that others have rejected, but may drag out the funding process endlessly, costing you valuable time and energy, and perhaps not resulting in an investment in the end.

5. Con: Expect a great deal of scrutiny over not only how you spend the money, but how you run your business (VCs generally take a board seat, and may be quite ac-tive in board decisions).

Make sure you are quite prepared before asking for the first meeting. You should be able to show at a glance why your team is uniquely positioned to make this company a success, and how your product will solve a significant problem in such a compelling manner that revenues will not only meet, but also exceed, expectations. If you have closed and implemented several significant deals, and your marquee customers are well-known in the industry, you are in a much better position to enter into serious discussions with potential investors.

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Next Steps

You have invested significant time and effort into building your short Business Plan, but you have probably made some equally significant decisions along the way. This time is well spent, since it is your investment in your startup.

But, of course, its only the beginning. While the short Business Plan may help you articulate your value proposition; identify the most likely early customers; solidify your thinking about pric-ing, revenues and expenditures; and maybe even go out for funding, its just the short form of the plan. You can develop the full Business Plan in various ways, and one of them is to follow the next books in this series.

Book2inThe Startup Guides, Market Size and Strategy, will help you flesh out Part 2 of the Business Plan, and will be an opportunity to fine-tune your analysis and understand-ing of the various market segments that might be most appropriate for your company.

Book3,Competitive Analysis, will help you discover the many competitors that may still be unknown, and devise strategies for effectively competing against them.

Book4,Pricing Strategies, will guide you through a more detailed analysis of where you really should price your products, and will debunk some common myths about pricing in general.

Armed with a full Business Plan, you can turn your attention toward launching your company and your products. Book 5, The Launch, presents a step-by-step guide, complete with time-lines, dependencies and responsibilities, to help make sure you dont overlook any important steps, yet can focus on doing just the right amount to ensure success.

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About the Author

Tanya Candia has worked in high-tech companies for more than 25 years. She began her career in the Silicon Valley with Ford Aerospace, as a product manager and systems analyst; and later, worked with ASK Computers, where she ran the statistical quality control program-ming group. After managing software quality and release with AIDA Corporation (acquired by Teradyne) she worked in marketing with a series of startup companies. At Unison Software, her work in streamlining the product line and strengthening the value proposition was instrumental in the companys successful IPO. IBM/Tivoli later acquired Unison Software.

Candia served as vice president of worldwide marketing at F-Secure, the Finnish security software company, which she took through its initial public offering. She successfully helped grow F-Secure to over $40M in revenue, by renaming and repositioning the company as the leader in managed wireless security for the distributed enterprise. Candia holds an MA in Communications from the Monterey Institute of International Studies, and an MS in Systems Management from the University of Southern California. She runs Candia Communications LLC, an international business consulting firm, with offices in California; Annapolis, Md., and Italy. She holds a third degree black belt in Tae Kwon Do.

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APPENDIX 1

ExampleBusinessPlan

Part1:BusinessConcept

Company X has produced a patented Software as a Service (SaaS)-based offering that manages all aspects of dental office billing. This eliminates the multi-million dollar problem, experienced by more than 32 percent of dental offices, of erroneous billing, late billing, and excessive ac-counts receivable. The solution runs on existing hardware, is easy to use, and very cost-effec-tive, removing common barriers to adoption. The companys telesales team will target dental office managers in the United States, focusing on the small and medium-sized offices where the need is greatest, and the cost to solve the problem is out of reach of most offices.

Part2:MarketAnalysisandStrategy

Company X will provide affordable, easily-adopted Dental Billing Management Systems to the huge underserved market of small and medium-sized dental offices in the United States and Canada. While market size data show the overall market to be $1.1 Billion in 2010 (growing to $1.9 Billion by 2015), this number represents only large enterprise purchases. Most small- and medium-sized dental offices fall outside the scope of the visible market, yet they represent some 60 percent of the total number of dental offices. The market for our solutions has the potential to be in the range of $1-1.5 Billion.

Part3:CompetitiveAdvantagesandPricingStrategy.

Company X will have a competitive advantage due to three factors:

1. The company will provide superior customer value by using the highly efficient Soft-ware as a Service (SaaS) delivery model. We remove the cost-based barriers to adop-tion presented by our principal competitors, Y and Z, since we do not require the initial capital expenditure for hardware that their on-premise solutions do, and we avoid the significant early, and ongoing expenses, they require for maintenance and support.

2. Our solutions are extremely easy to tailor to the specific needs of each customer, a key factor in our target market where workflows change frequently. Competitors such as A, B and C require costly customization, which more than doubles the cost of the solution.

3. Unlike competitors D, E and F, with low customer loyalty, our business is oriented around building a community to share best practices and grow a sense of belonging. This philosophy facilitates reference selling, and enhances long-term customer loyalty.

With such a strong competitive position, we have chosen to price at a premium compared to other SaaS vendors, while still presenting a low Total Cost of Ownership (TCO), compared with on-premise solutions.

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Part4:theProduct

ElevatorPitch

The XYZ is a dental office management tool aimed at office managers of small- to medium-sized dental offices that solves billing problems by providing automatic billing and collection activities that take place directly from the online systemwhich handles all aspects of patient scheduling, appointments, procedures and inventory. Unlike error-prone manual processes, or complicated multi-system coordination, XYZ automatically consolidates all relevant information to ensure timely billing and payment, resulting in a proven 20 percent increase in collections, and eliminating costly errors.

ProductOverview

Company X provides world-class dental office management systems delivered through the cloud. They are affordable, immediately implementable, and easily tailored by end-users them-selves. Our products:

Givesmallandmediumdentalofficescontrolovertheircriticalbillingdata

Provideoperationalflexibility,allowingofficestoadaptprocessestotheirneeds

Provideimmediateaccessviathecloud,fromanywhere

Ensurequickimplementationandminimaltraining,formaximumproductivity

Part5:Go-to-MarketPlan

Company X will sell through specialized channel partners (dental office supply vendors) and through focused telesales efforts, aimed at small and medium-sized dental offices. The initial geography will be the United States only. As we develop experience with channel partners, we will expand our coverage to other geographical areas (facilitated by the products localization capabilities). Our marketing approach will start with a launch at [major industry trade show] and will rely heavily on search engine marketing, an effective way to drive prospective customers to our website. Equally important is an aggressive public relations strategy that will build aware-ness and visibility by targeting key influencers in relevant publications, and delivering a steady stream of news about the product, new customers, success stories, awards, and other relevant information.

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Part6:BusinessStructureandManagementTeam

Organization

Michael Bair, CTO and VP Engineering, is responsible for the software research and development function at Company X. He has more than 25 years of experience in programming language design and logic programming, holds a Ph.D. in Computer Science from Carnegie Mellon University, and holds three U.S. patents.

OperatingExpenses

Year1 Year2 Year3

HEADCOUNT

Engineering 3 7 12

Sales 2 3 4

Marketing 1 3 4

G&A 1 2 3

AVERAGEANNUALSALARY

Engineering 100,000 100,000 100,000

Sales 120,000 250,000 250,000

Marketing 100,000 125,000 135,000

G&A 80,000 90,000 90,000

Part7:theFinancialPlan

Company X bases its financial projections on the market positioning, pricing model, distribution approach, and marketing and sales strategies. The company expects to generate a small amount of revenue in Year 1, following the initial product launch. Revenues are expected to ramp up by the end of Year 2, due to aggressive marketing campaigns and programs to leverage early customers. And we expect to grow momentum and reach break-even, by the end of Year 5.

Year1 Year2 Year3

Revenue($K) 216 3,055 7,320

Expenses($K) 2,200 3,400 7,500

Profits/(Losses)($K) (1,994) (345) (180)

Investment($K) 2,000 2,000 0

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Starting Your Start Up Book 1

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