so you want to be a successful high tech entrepreneur? so you want to be a successful high tech...

““So you want to be a So you want to be a successful high tech successful high tech

entrepreneur?”entrepreneur?”

Orange County IEEEOrange County IEEE9/24/079/24/07

Gordon M. Watsonwww.watson-consulting.com

Copyright, 2000 - 2007

http://www.watson-consulting.com/

Copyright, WATSON CONSULTING, LLC 2000-7

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The Magic Formula!The Magic Formula!Given: An emerging market and/or a better idea,

ergo: Reward($) = f(risk, $, mt, t, w, d, r)

where:

risk = founder’s tolerance for taking risks

$ = personal cash investments by founders

mt = market timing

t = time (quantity) spent by founders building the business

w = work (quality) performed by founders building business

d = founder’s decision-making abilities (quality & timeliness)

r = founder’s ability to manage relationships


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Reasons to Reasons to $tart a Companytart a Company1. You don’t want to work for someone else2. You like to control your own destiny3. You want to get maximum benefit from your talents4. You are most comfortable being the leader5. You want to set (and change) priorities at will6. You think it would be fun and cool7. You want to leave a business legacy for your family8. You want to become rich and make lots of others rich too9. You want to send lots of money back to your homeland10. You want to be free to create11. You want to change the business world for the better12. You want to leave your mark on society13. You want to work in a location of your choice14. You don’t really trust others15. You are tied of just designing logic and/or writing code16. Other:______________________________________________


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How well equipped are you for the job?How well equipped are you for the job?

Key CEO Traits:Key CEO Traits: 1. Demands that the company’s products & services solve a real,

pervasive and persistent business problem, and that they are demonstrably better than existing solutions

2. Knows where he/she is going with the business; knows: (1) how to get there, and (2) how to determine when he/she has arrived

3. Regularly communicates #2, both externally and internally, and with passion, alacrity, conviction, and credibility

4. Is willing and able to listen to and learn from experienced advisors, and is willing and able to make timely decisions, tough compromises and painful sacrifices to achieve #2

5. Surrounds himself/herself with a few smart, hard working and experienced people who understand and believe in #2, and to whom he/she has generously shared the equity upside, if successful


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More Key TraitsMore Key Traits

6. Manages cash-flow daily as the life blood of the business…which it is!

7. Is passionate about customers and treats them as kings and queens…which they are; and has a personal relationship with the top customer’s CEOs

8. Ensures that the business is adequately capitalized and constantly works to build shareholder value

9. Takes the competition seriously, over estimates their strengths, has a plan to beat them, and executes it fearlessly

10. Regularly analyzes, challenges and revalidates the business strategy and model; quickly makes necessary adjustments and implements them without haste


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As CEO,As CEO,with whom do you need to communicate?with whom do you need to communicate?

1. Accountants2. Bankers3. Board of Directors4. Consultants5. Customers6. Distributors7. Employees8. Hardware partners9. Industry organizations10. Lawyers11. Market analysts

12. PP&E people13. Press14. Recruiters15. Sales prospects16. Software partners17. Standards bodies18. System integrators19. Universities20. User groups21. VARs22. VCs / Investors


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““Life Style” –vs– “Growth”Life Style” –vs– “Growth”• Tightly held stock• “Empty suite” Board• Centralized control• Absence of a senior

management team• Risk averse• Interesting work and

quality of life take precedence over market share and stockholder’s value

• Small piece of a BIG pie• Many investors• Strong board• Strong senior mgmt.• Delegated control• Calculated risk taking• Aggressive growth• Initiate, penetrate, and

insulate type of marketing


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““Timing is everything….”Timing is everything….” Growing or recessionary economy Market expansion or consolidation Stock market World events (e.g. terrorism) Capital markets Culture changes (find the “tipping point”) Politics Government and anti-trust issues Innovations & inventions Weather & natural disasters Emergence of Standards


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Idea FiltersIdea Filters Vitamin (nice-to-have) -vs- Aspirin (need-to-have)

-vs- Morphine (essential to survive) Known or completely unknown “disease” Point product -vs- product line Barriers-to-entry: time, money, people, I.P. Existing sales channels or new channels Market size: Rhode Island or Alaska? New product + new market = VERY HIGH RISK! New product + new market + new channel = ALMOST IMPOSSIBLE!


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Law of Risks & RewardsLaw of Risks & Rewards

RISK

REWARD

Old Product–Old Market

Old Product-New Market

New Product-New Market

New Product–Old Market


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More FiltersMore Filters

• If there are no competitors then there is probably not a market for your idea

• Investors love a small guy who is positioned to dominate a niche market

• Investors hate a small guy who is positioned to win a fractional share of a huge market


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Business Model TemplateBusiness Model Template How will the company make money? Who are the target customers and how much money do they have

to spend? What is the characterization of the competitive landscape?

Are there existing, successful companies in your space; if none, why?

What are the pricing dynamics of your industry

What is your distribution channel and its economics?

Dependencies upon other companies in your supply chain?

Dependencies upon other companies for your customer to realize the benefits of your product?

Confessions of a Venture Capitalist, Ruthann Quindlen


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Where Does Your Business Fit?Where Does Your Business Fit?


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Basic Fund Raising ToolsBasic Fund Raising Tools Executive Summary (1-2 pages) PowerPoint presentation (10-12 slides) White Paper Laptop + projector + remote pointer Business Plan (25-40 pages including business model

& financials) Draft Term Sheet, investment memorandum,

subscription letter (i.e. legal docs) Evidence of Value Proposition validation (e.g. surveys,

interviews, testimonials, alpha test sites, etc.)


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Start-up Equity SourcesStart-up Equity Sources Your own capital The other founder’s capital Friends & Family Angels Incubators Boutique VC’s Potential customers Strategic partners Government grants

Small Business Innovation Research (SBIR) Small Business Technology Transfer (STTR)


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Delivering the PitchDelivering the Pitch1. Two people are better than one (e.g. CEO plus a VP)2. No live demos…use screen shots with balloons3. Prepare for ~30 minutes of output, 20 minutes of input4. ~10 min. defining business problem you solve5. ~10 min. describing your solution and why it is better6. ~10 min. explaining how you are going to kick your

competitor’s butts 7. Establish credibility early8. Know how much money you need and why9. Make changes to the pitch based on feedback (keep

refining it as you get feedback from each presentation)10. Be prepared for aggressive questioning…have the

answers; be prepared; practice, practice, practice


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Delivering the Pitch (cont.)Delivering the Pitch (cont.)11. Avoid the defensive posture…answer the difficult

questions before they are asked12. Ask questions to confirm your message is being

understood 13. Use the “strategic pause”14. Take notes15. Don’t be afraid to say, “I don’t know” but follow up with

“I’ll get the answer”16. Get everyone’s name and title17. Establish the next step (what, when & who)18. Do a “trial close” i.e. ask them how you did19. Follow the executive summary template20. Remember, you personally as well as your

business opportunity are being screened!


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Some Investor “Turn Offs”Some Investor “Turn Offs”1. “We don’t have any competitors…”2. Build it and they will come syndrome3. Every sentence from CEO’s mouth begins with “I”4. Absurd revenue or gross margin plan5. R/D expenses >>15% in out-years6. Sales & Marketing << 15-20% in out-years7. Unrealistic and unsupported company valuation8. Using funds to pay high executive salaries9. I.P. ownership vague or having legal overhangs10.Point product solution, not a product line

vision (i.e. the “one act pony”)11.Little barrier to entry by competitors


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VC Screening of Start-up DealsVC Screening of Start-up Deals

60% of all business plans received arerejected after a 20-30 minute review

100% enter

25% more are rejected aftera detailed review

15% are subjected to a thorough,“due diligence” examination and another10% are rejected

Of the remaining 5% that are considered viable investment opportunities, only 3%are successfully negotiated by founders and VCs, and actually get funded3% exit

with $$$ Pratt’s Guide to Venture Capital Sources


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Started as small acorns; grew to GIANT OAK TREES!Started as small acorns; grew to GIANT OAK TREES!

EDS$21B

Apple $19B

CSC$15B

Intel$35B

Cisco$23B

Microsoft$44B

Oracle$14B

Sun$13B

Dell$57B

2006 Revenue data

Total Revenue = $241B!


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Examples of Investment SourcesExamples of Investment Sources• Friends & Family seed capital (~$100K-$300K)

– Good for getting started– Not much business help– Missing or very limited in future rounds

• Angels round (~$300K- $700K)– $25K - $50K units– Good for mentoring– Usually all smart money– Limited in future rounds

• Venture Capitalists 1st round (~$1M-$5M)– Active in future rounds– Board seat participation up to total control

• Venture Capitalists 2nd round (~$10M-$15M)


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VC Investments by RegionVC Investments by Region Q2 2007 – Total: $7,127,489,000 Q2 2007 – Total: $7,127,489,000

©PricewaterhouseCooper ©PricewaterhouseCooper

35%

12%7%

7%

6%

5%

5%

5%

4%

4%3%

7%

Silicon Valley ($2527)

New England ($862)

San Diego ($478)

LA & OC ($466)

NY Metro ($446)

Southeast ($356)

Texas ($347)

Northwest ($331)

Midwest ($295)

DC/Metroplex ($272)

Philidelphia Metro ($196)

Other ($524)


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VC Investment by Business StageVC Investment by Business StageQ2 2007 Total = $ 7.1BQ2 2007 Total = $ 7.1B

©PricewaterhouseCooper ©PricewaterhouseCooper

45%

33%

19%3% Later-Stage ($3142)

Expansion-Stage($2377)

Early-Stage ($1388)

Start-up/Seed-Stage($221)


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VC Investment by Sectors ($7.1B)VC Investment by Sectors ($7.1B)

Sector Amount Percent Deal #Software $1,529 21.5 248

Biotechnology $1,177 16.4 120

Med. Devices $ 995 14.0 103

Industrial/Energy $ 552 7.8 67

Media-Entertainment $ 482 6.8 73

Telecomm $ 476 6.7 80

Semiconductors $ 455 6.4 53

Networking & Equip. $ 371 5.2 34

Others $1,090 15.2 199


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In an early stage company, what is the #1 thing investors evaluate and

base their investment decision upon?

ANSWER: The CEO!The CEO!


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Common Start-ups “Failure” Common Start-ups “Failure” Scenarios (>90%)Scenarios (>90%)

Chapter 7 or Chapter 11 Acquired for little value and often shut down or

completely absorbed with little or no return to investors; common outcome of Chapter 11 filing

Do an IPO, then don’t perform, get unlisted, stock goes in the sewer, little or no return to investors

Founders completely replaced, new team sells company with nominal return to investors

Company stagnates with little or no growth, marginal earnings, and no liquidity event likely


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““Care & Feeding” of your Care & Feeding” of your Investment CapitalInvestment Capital

• CA$H must be treated as your “air supply”• Triage model:

1. Must spend now2. Can meter out spending3. Can defer spending

• CFO-type is critical1. Lease –vs– purchase savvy2. AR/AP management3. Investor relations4. Avoids the “death of a thousand cuts”


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Common Founder Flaws Common Founder Flaws (post funding)(post funding)

Does not understand CA$H management Hires friend to run sales Lacks understanding of marketing fundamentals

and under funds the work or squanders money Under plans but over funds development work “Build it and they will come” mentality Ships an incomplete product that is under

supported First word out of his mouth is usually “I” Forms an “empty suit” Board of Directors


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“Selling is getting rid of what you have;

Marketing is having what you can get rid of”

The Marketing Imagination, Theodore Levitt, 1983


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Strategic Marketing…What is it?Strategic Marketing…What is it?

• What to built?• Why to built it?• When to built it?• Who to sell it to?• How much to sell it for?• How to sell it to them?• What to do next?

• A Plan for Success!A Plan for Success!


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Six Most CommonSix Most CommonMarketing PitfallsMarketing Pitfalls

1. Insufficient definition of the target market

2. Nonexistent, incomplete or inaccurate customer profiles

3. Incomplete PRODUCT

4. PRODUCT is priced based upon cost and not upon customer value

5. Inadequate distribution strategy

6. Lack of focus; “strategy de jour”


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Question?Question?

What is most important to creating a successful company:

Its products? The market for its products? The people who run the company that

create its products?


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SuccessSuccess Right place Right time Right idea Just “add water & stir”

Team Capital Focus Execution Liquidity Celebration

so you want to be a successful high tech entrepreneur? so you want to be a successful high tech...

Documents

watson consulting

market share

market analysts

successful slide

new channels market

market timing t

haste slide

emerging market andor