THINK BIG BUT START SMALL

FEBRUARY 27, 2008

FROM IDEA TO BUSINESS PLAN

IDENTIFY A COMPELLING MARKET NEED HUMBLE BEGINNINGS (THINK BIG, START SMALL) WHAT WE HOPE TO HEAR FIRST HI-TECH MARKETING CAN BE DIFFICULT. SOME RESOURCES A COUPLE OF ANECDOTAL EXAMPLES WHAT WE HEAR WAY TOO OFTEN GETTING TO TECHNOLOGY, TEAM, and FINANCE MEETING MANAGEMENT WITH VCs SOME COMMON PITFALLS ENJOYING THE JOURNEY
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HUMBLE BEGINNINGS
Jerry & David Larry & Sergey Steve Chad Jawed

HUMBLE BEGINNINGS
Steve & Steve Trip Sandy & Len

NEW PRODUCT STRATEGY

WHAT WE HOPE TO HEAR FIRST

3. PRODUCT & TECHNOLOGY

2. MARKET STRATEGY (UNFAIR ADVANTAGE)

4. DEFINING TEAM

5. CAPITAL EFFICIENCY

1. MARKET POSITIONING

ENTREPRENEURS CHALLENGE

1. MARKET POSITIONING

THE BIGGEST CHALLENGE.

A.K.A.

THE ELEVATOR PITCH

We networks networks.
Sandy Lerner/Len Bozak Cisco

1. MARKET POSITIONING

HELP FROM GEOFFREY MOORE

For Who have Our product is a That provides Unlike We have

[target customers] [compelling reason to buy] [new product category] [key benefit (which solves problem)] [competitor in new product category] [key point of differentiation]

*Source: Crossing the Chasm

1. MARKET POSITIONING

TWO DECLARITIVE SENTENCES

For Who have Silicon Graphics That Unlike SGI

movie producers post-production special effects provides computer workstations integrates digital fantasies with film footage IBM or Sun Microsystems has made a no compromise commitment to meeting film makers post-production needs.

*Source: Crossing the Chasm

2. MARKET STRATEGY

INTIMATE WITH TARGET MARKET & BULLSEYE CUSTOMER?

TRENDS STRUCTURE SPEED LEVERAGE VITAMIN?

OR

HOW PLUGGED IN ARE YOU?

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ASPIRIN?

2. MARKET STRATEGY

CHANGE OR CREATE CATEGORY?

JOIN EXISTING CATEGORY

DEFINE NEW CATEGORY Small Size, Explosive Growth IP, Functionality, Brand Loyal Higher (often greater than 50%) Higher (often greater than 65%) Public Company Dynasty

MARKET DYNAMICS ADVANTAGE CUSTOMERS MARKET SHARE GROSS MARGIN ACHIEVABLE GOAL LEGACY

Large Size, Strong Growth Price/Performance Opportunistic Lower (often less than 10%) Lower (often less than 50%) Acquisition Single Generation Reign

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2. MARKET STRATEGY

YOUR PLAN OF ATTACK?

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2. MARKET STRATEGY

CREDIBLE DIFFERENTIATION?

Competitor 10

Y1

Competitor 9 Competitor 11

Competitor 7 Competitor 6

Competitor 1 Competitor 2

Y2

New Co
Competitor 5 Competitor 8

Competitor 3

Competitor 4

X1

X2
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3. PRODUCT & TECHNOLOGY

DEFENSIBLE BARRIERS?

PARTNERSHIPS TECHNOLOGY

NETWORK EFFECT SIMPLICITY

DOMAIN KNOWLEDGE BUSINESS PROCESS

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4. DEFINING TEAM

MAGNETS? SCARS? PASSION?

NewCo.
555 Main Street Anywhere, USA (415) 555-5552 chief2@newco.com Bob Smith Chairman

NewCo.
555 Main Street Anywhere, USA (415) 555-5552 chief2@newco.com Tim Jones CEO

NewCo.
555 Main Street Anywhere, USA (415) 555-5553 chief3@newco.com Barney Baker CFO

NewCo.
555 Main Street Anywhere, USA (415) 555-5554 chief4@newco.com Ajay Singh COO

NewCo.
555 Main Street Anywhere, USA (415) 555-5555 chief5@newco.com Vlad Krunis General Counsel

NewCo.
555 Main Street Anywhere, USA (415) 555-5556 chief6@newco.com Karen Williams President

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4. DEFINING TEAM

CENTRAL CASTING

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5. CAPITAL EFFICIENCY

DO THE #S MAKE SENSE?

REVENUE TRAJECTORY GROSS MARGIN EBITDA %S & RATIOS CASH REQUIREMENT VS. OPEX CASH FLOW TO BREAK EVEN

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5. CAPITAL EFFICIENCY

GRASPING UNIT ECONOMICS?

REVENUE BY DAY/WEEK/SEASON
GROSS PROFIT/TRANSACTION

COST OF CUSTOMER ACQUISITION

LIFETIME VALUE

COST PER SKUS

INCENTIVE PROGRAMS

INVENTORY TURNS

PRODUCT/BRAND ASSORTMENT
FREQUENCY PURCHASE TRENDS

SHRINKAGE
PICK RATES

CUSTOMER CHURN/MO.

DELIVERY TIME

NEW CUSTOMERS/MO.
#ITEMS PURCHASE TRENDS

MRR
COST OF CUSTOMER SERVICE

# CLICKS TO CHECK-OUT
ABANDONED CART RATE

CUSTOMER CONTACT RATE

ACTIVE CUSTOMERS/MO.
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TICKET SIZE PURCHASE TRENDS

5. CAPITAL EFFICIENCY

TAKES LONGER, COSTS MORE

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5. CAPITAL EFFICIENCY

FINANCIALS SAY A GREAT DEAL ABOUT HOW YOU THINK

FRUGALITY MARKET SIZE SALES TACTICS MARKET STRATEGY

MARKET UPTAKE MARKET VELOCITY REALISM

NOT A TIME TO BE NAVE UNREALISTIC OR MISLEADING

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MEETING MANAGING WITH VCS

CONTROLLED?

CHAOS?

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MOST COMMON PITFALLS

GORILLA ALUMNI & AIRCRAFT CARRIERS LACK OF FOCUS OPPORTUNITY EXISTS BEFORE THE MARKET ARRIVES TOP HEAVY COMPELLING?, UNIQUE? SALES MODEL AND ASP DIVERGENCE INCINERATOR SCHEMES
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LEARN FROM OUR MISTAKES

MISREAD TEA LEAVES CLUTTERED MARKETS CAPITAL INTENSIVE SLOPPY DUE DILIGENCE MOMENTUM INVESTING WEAK SYNDICATE UNPREDICTABLE DIRECTORS DAZZLED BY SCIENCE BOY SCOUT REFERENCES TOO MUCH MONEY LONG EVALUATION CYCLES SLOW PAYING CUSTOMERS GOING NATIVE TOO EARLY TOO LATE DECEIVED BY COMPARABLES DILUTIVE IPOs FEELING TOO WEAK FEELING TOO STRONG POOR CUSTOMER SELECTION STRETCHED TOO THIN NOT ADDRESSING A TRUE PAIN CANT ARTICULATE THE BUSINESS SMALL GROSS MARGINS SMALLER OPERATING MARGINS NO MODEL FOR MAKING MONEY A FEATURE, NOT A PRODUCT A PRODUCT, NOT A BUSINESS LACK OPERATING CONTROLS GROWING TOO FAST WRONG DNA BAD LISTENERS POOR CUSTOMER SERVICE DECEIVED BY SUCCESSES DRUNKEN PARADE LEADERS EYEBALLS CONVERTS TO $s CAPEX CONVERTS TO $s IGNORING FUNDAMENTALS REPEATING HISTORY

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WHAT WE LOOK FOR IN A PLAN

1. UNIQUE VALUE PROPOSITION/MARKET POSITIONING CLEAR, CONCISE, ABOVE THE NOISE; CUSTOMER VALIDATION? 2. EXPLOSIVE MARKET SECTORS, FULL OF DISCONTINUITIES AMBIGUITY AND CONFUSION ARE GOOD. HOW BIG? DEFINING? STRUCTURE/ACCESSIBILITY? READINESS? DISCONTINUITYWHATS DIFFERENT? VALUE CAPTURE POTENTIAL? NO COMPETITION OFTEN NO MARKET; ENTRENCHED PLAYERS: INNOVATORS DILEMMA? STARTUPS: HOW MANY? OUR TEAM? SOURCES FOR DIFFERENTIATION? 3. BREAKTHROUGH PRODUCTS/TECHNOLOGY SOURCES FOR DEEP SEPARATION AND ADVANTAGE? ORDER OF MAGNITUDE? DEGREE OF DIFFICULTY? ADOPTABILITY? COMPLETENESS? DEFENSIBILITY? 4. DEFINING TEAMS MAGNET QUALITIES? DOMAIN EXPERTISE? INTENSITY? DNA BLEND? SCAR TISSUE? 5. CAPITAL EFFICIENCY WHAT IS THE FULLY FUNDED PLAN? MARGIN? BUSINESS MODEL? DIRECT VS INDIRECT? EXPENSE MODEL? REVENUE 24 ASSUMPTIONS?

WERE ONLY AS GOOD AS OUR NEXT INVESTMENT.

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