Winning Business

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Today’s Topic:: 

Today’s Topic: Creating “Winning” Business/Product Plans

First Course Module: 

First Course Module Companies’ objectives Financial measures How companies bring products to market (roles/process) Creating winning business plans - today

Second Course Module: 

Second Course Module Market/customer analysis (DLJdirect case – online brokerage) Competitive analysis (Hewlett-Packard – software for factories) Making product decisions (Techsonics case – marine electronics) Midterm exam on product decisions (Mathsoft case – engineering analysis software)

Today’s Agenda: 

Today’s Agenda Business/product plans: audience, content, and key considerations in creating a winning plan Homework: examples of differentiation in a company’s business plan Preparation for next week: our first case reading/assignment and discussion (DLJdirect)

Business vs. Product Plan: 

Business vs. Product Plan Business Plan: a plan for an overall business (company), used to obtain funding from external sources Product Plan: a plan for a product (one of a company’s offerings), used to obtain funding/resources from the company’s senior management

Uses of a Plan: 

Uses of a Plan To decide what to do (planning: make decisions) To obtain funding/resources for execution of the plan (funding) To direct the various parts of the business (execution/communication)

Objective of a “Winning” Plan: 

Objective of a “Winning” Plan Create a business/product that provides potential customers a better (value - price) proposition than competitors while managing costs and expenses so as to make profits (earnings)

Business Plan: Contents: 

Business Plan: Contents Company Product/service Market Competition Sales and marketing plan Operations plan Financials

Uses of a Plan: 

Uses of a Plan To decide what to do (planning: make decisions) To obtain funding/resources for execution of the plan (funding) To direct the various parts of the business (execution/communication)

Obtaining Funding & Resources: 

Obtaining Funding & Resources Existing company from management through budget authorization and staff assignment based on a product plan money available to management comes from operating cash flow, interest received, sale of stock, or increased debt New company/start-up from investors and creditors through formal documents/contracts based on a business plan money comes from self, friends & family, agencies, angels, venture capitalists, banks

Slide11: 

Source: The Industry Standard - 2000

Types of Start-up Funding: 

Types of Start-up Funding Grant: “money for nothing” Loan: money to be paid back, with interest Equity: money in return for equity (a portion of your company; preferred or common stock), to be “paid back” by making the stock valuable and liquid (sellable)

Sources of Funds: 

Sources of Funds Your (founders’) bank accounts equity-c “Friends and family” bank accounts equity/loan Research grants grant Economic development agencies all (grant) Angels equity-p/c Venture capitalists (VCs) equity-p Banks loan

Some Some Agencies Angel Groups: 

Some Some Agencies Angel Groups NJ Economic Development Authority NJ Technology Council (reference source) US Small Business Association (SBA) Jumpstart NJ Angel Network AngelVine Tri-State Private Investors Network NYNMA Angels Common Angels (NY)

Angels vs. VCs: 

Angels vs. VCs Angels = part-time investors, acting individually or in networks, using their own money (personal assets) VCs = professional full-time investors, working within a VC firm, investing other people’s money (the VC fund) Angels provide more total $$ to start-ups than VCs do Angels fund 10+ times as many companies than VCs do (with smaller investments per company)

Typical Financial Profile for Successful New Ventures: 

Typical Financial Profile for Successful New Ventures Loss Profit Years 1 2 3 4 5 6 7 8 0 10 20 -10 -20 -30 -40 -50 -60 -70 Profit breakeven: 30 months Equity breakeven: 75 months Average of 157 companies Source: Timmons (1998) Net value ( % of investors’ equity)

Objective of a “Winning” Plan: 

Objective of a “Winning” Plan Create a business that provides potential customers a better “value – price” proposition than competitors while managing the business (costs and expenses) to attain targeted profits (earnings)

Business Plan: Contents: 

Business Plan: Contents Company Product/service Market Competition Sales and marketing plan Operations plan Financials

Key Considerations in Developing a Winning Plan: 

Key Considerations in Developing a Winning Plan Importance of people/skills/resources Assessment: identifying “good” ideas Targeting specific customers/segments Dealing with the “whole” product Differentiation from competitors Risk analysis and reduction Investor payback

The “Whole” Product: What Customers Really Care About: 

The “Whole” Product: What Customers Really Care About The product itself Auxiliary or related products Price and cost-in-service Awareness and information Where it is sold Ease of choice, purchase, ordering Delivery Installation Payment method Storage/movement Aesthetics/style Advice on use Help in use (e.g., hotline) Returns/exchanges Service/repair Disposal

Business Plan: Key Contents: 

Business Plan: Key Contents Company: people, skills, resources Product: “whole” product & its benefits Market: attractiveness & target customers Competition: differentiation !! Sales and marketing plan: channels Operations plan: mfg, logistics, service Financials: investor liquidity

Information and Advice on Starting a Business: 

Information and Advice on Starting a Business See course website; useful websites and texts, including www.bplans.com

Opportunity Analysis: 

Opportunity Analysis Markets: size/growth, substitutes, customer characteristics, need/benefit analysis, buyer power, costs to acquire/serve/retain customers (more on this next week) Competitors: incumbents, rivalry, strengths and weaknesses, competitive response, co-opting possibilities (more on this in two weeks)

Differentiation from Competitors !!!: 

Differentiation from Competitors !!! Addresses two questions: - Why do customers choose you instead of someone else (or doing nothing)? - How do you generate superior revenue/ profit levels and growth? Dimensions: product, sales, marketing, customer service/support, costs/expenses (efficiency), other “unfair advantages”

Assignment: 

Assignment Southwest Airlines… identify aspects of its business plan that makes it distinct from competitors in: 1. what it offers (flights), 2. how it serves its customers, and 3. how it attains industry-leading profitability (its website, Yahoo-Finance, and 10Q’s will tell you a lot about its business plan)

Opportunity Assessment : Identifying Good Ideas (see course website): 

Opportunity Assessment : Identifying Good Ideas (see course website) Is this an attractive market opportunity ? Can you attain a sustainable advantage ? Can you beat or co-opt competitors ? Market entry: can you find a way to “start” your business ? Do you have the ability to execute (to profit) ? Can you acquire the necessary funding/resources?

Next Week:: 

Next Week: Target markets and target customers DLJdirect: our first case analysis

Reading for Next Week: our first “case”: 

Reading for Next Week: our first “case” DLJdirect: “Putting Our Reputation Online” (topic: deciding on target customers)

DLJdirect Case: Summary: 

DLJdirect Case: Summary Case timeframe: 1999-2000 DLJdirect has a successful online brokerage business targeting “aggressively affluent” customers Other customer segments are growing faster DLJdirect has to decide whether to address additional customer segments and whether to significantly increase its advertising to attract those customers

Online Stock Trading: 

Online Stock Trading Customer (trader) Online Broker Market- maker Clearing- house Stock Exchange customer’s account

Hint: 6 Sources of Revenue: 

Hint: 6 Sources of Revenue From End-customers Trading commissions Account management fees Interest on margin purchases From partners Order flow rebates Mutual fund and money market fees iNautix revenues

Advice on Case Reading: 

Advice on Case Reading It’s your first case and it’s long (17p text; 17 exhibits)…..don’t wait until the last minute; scan it first, then read it twice Make sure you understand the four customer segments identified (size, characteristics, needs, serving requirements) Understand the company’s financial situation (Exhibits 16 and 17)

Assignment for Next Class: 

Assignment for Next Class see questions on next two slides The first five (5) questions represent a “methodology” for making target customer decisions!

Assignment Questions: 

Assignment Questions What is DLJdirect’s financial situation? Identify the ways DLJdirect’s trading service is differentiated from competitors What are the needs of each of the four customer segments? Which needs are well-matched to DLJdirect’s capabilities? Rank the customer segments according to the profit potential in serving them Does DLJdirect have the financial capability to address new segments, e.g. to do more advertising to attract those customers?

Assignment Questions (continued): 

Assignment Questions (continued) Should DLJdirect target the Get Rich Fast (day trader) segment? Why? In your opinion, are there other customer segments that DLJdirect should target? Why?

Since 2000…..: 

Since 2000….. Early 2001: DLJ acquired by Credit Suisse First Boston; DLJdirect becomes CSFBdirect Late 2001: CSFB sells CSFBdirect to Bank of Montreal; CSFBdirect becomes Harrisdirect 2005: Harrisdirect sold to E*TRADE Securities; Harrisdirect merged into etrade

Case Analysis: General Advice: 

Case Analysis: General Advice In business, the right decision is only revealed after events play out; so your goal is to identify the best decision The best decision is the one with the maximum probability of being right, based on the information available Available info is almost never sufficient, and much of it is irrelevant for the decision Business decisions are judgments! So let it fly !!

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