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THINK BIG BUT START SMALL FEBRUARY 27, 2008

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

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THINK BIG BUT START SMALL FEBRUARY 27, 2008

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  1. THINK BIG BUT START SMALL FEBRUARY 27, 2008

  2. 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

  3. HUMBLE BEGINNINGS Jerry & David Larry & Sergey Steve Chad Jawed

  4. HUMBLE BEGINNINGS Steve & Steve Trip Sandy & Len

  5. NEW PRODUCT STRATEGY

  6. WHAT WE HOPE TO HEAR FIRST… 3. PRODUCT & TECHNOLOGY 4. DEFINING TEAM 2. MARKET STRATEGY (UNFAIR ADVANTAGE) 5. CAPITAL EFFICIENCY 1. MARKET POSITIONING ENTREPRENEUR’S CHALLENGE

  7. THE BIGGEST CHALLENGE…. 1. MARKET POSITIONING A.K.A. THE “ELEVATOR” PITCH “ “ We networks networks. Sandy Lerner/Len Bozak Cisco

  8. 1. MARKET POSITIONING HELP FROM GEOFFREY MOORE For[target customers] Who have[compelling reason to buy] Our product is a[new product category] That provides[key benefit (which solves problem)] Unlike [competitor in new product category] We have[key point of differentiation] *Source: Crossing the Chasm

  9. 1. MARKET POSITIONING TWO DECLARITIVE SENTENCES Formovie producers Who havepost-production special effects Silicon Graphicsprovides computer workstations Thatintegrates digital fantasies with film footage UnlikeIBM or Sun Microsystems SGIhas made a no compromise commitment to meeting film makers’ post-production needs. *Source: Crossing the Chasm

  10. INTIMATE WITH TARGET MARKET & BULLSEYE CUSTOMER? 2. MARKET STRATEGY TRENDS HOW PLUGGED IN ARE YOU? VITAMIN? OR ASPIRIN? STRUCTURE SPEED LEVERAGE

  11. CHANGE OR CREATE CATEGORY? 2. MARKET STRATEGY JOIN EXISTING CATEGORY DEFINE NEW CATEGORY MARKET DYNAMICS Large Size, Strong Growth Small Size, Explosive Growth ADVANTAGE Price/Performance IP, Functionality, Brand CUSTOMERS Opportunistic Loyal MARKET SHARE Lower (often less than 10%) Higher (often greater than 50%) GROSS MARGIN Lower (often less than 50%) Higher (often greater than 65%) ACHIEVABLE GOAL Acquisition Public Company LEGACY Single Generation Reign Dynasty

  12. 2. MARKET STRATEGY YOUR PLAN OF ATTACK?

  13. CREDIBLE DIFFERENTIATION? New Co 2. MARKET STRATEGY Competitor 10 Competitor 9 Y1 Competitor 11 Competitor 7 Competitor 1 Competitor 6 Y2 Competitor 2 Competitor 3 Competitor 8 Competitor 5 Competitor 4 X1 X2

  14. DEFENSIBLE BARRIERS? 3. PRODUCT & TECHNOLOGY PARTNERSHIPS NETWORK EFFECT SIMPLICITY TECHNOLOGY DOMAIN KNOWLEDGE BUSINESS PROCESS

  15. MAGNETS? SCARS? PASSION? 4. DEFINING TEAM NewCo. 555 Main Street Bob Smith Anywhere, USA Chairman (415) 555-5552 chief2@newco.com NewCo. 555 Main Street Tim Jones Anywhere, USA CEO (415) 555-5552 chief2@newco.com NewCo. 555 Main Street Barney Baker Anywhere, USA CFO (415) 555-5553 chief3@newco.com NewCo. 555 Main Street Ajay Singh Anywhere, USA COO (415) 555-5554 chief4@newco.com NewCo. 555 Main Street Vlad Krunis Anywhere, USA General Counsel (415) 555-5555 chief5@newco.com NewCo. 555 Main Street Karen Williams Anywhere, USA President (415) 555-5556 chief6@newco.com

  16. 4. DEFINING TEAM CENTRAL CASTING

  17. DO THE #S MAKE SENSE? 5. CAPITAL EFFICIENCY REVENUE TRAJECTORY GROSS MARGIN EBITDA %’S & RATIOS CASH REQUIREMENT VS. OPEX CASH FLOW TO BREAK EVEN

  18. GRASPING UNIT ECONOMICS? 5. CAPITAL EFFICIENCY ABANDONED CART RATE REVENUE BY DAY/WEEK/SEASON COST OF CUSTOMER ACQUISITION GROSS PROFIT/TRANSACTION LIFETIME VALUE COST PER SKUS INVENTORY TURNS INCENTIVE PROGRAMS PRODUCT/BRAND ASSORTMENT SHRINKAGE FREQUENCY PURCHASE TRENDS PICK RATES CUSTOMER CHURN/MO. DELIVERY TIME NEW CUSTOMERS/MO. MRR #ITEMS PURCHASE TRENDS COST OF CUSTOMER SERVICE # CLICKS TO CHECK-OUT CUSTOMER CONTACT RATE TICKET SIZE PURCHASE TRENDS ACTIVE CUSTOMERS/MO.

  19. 5. CAPITAL EFFICIENCY TAKES LONGER, COSTS MORE

  20. 5. CAPITAL EFFICIENCY FINANCIALS SAY A GREAT DEALABOUT HOW YOU THINK… FRUGALITY MARKET SIZE MARKET STRATEGY SALES TACTICS MARKET UPTAKE MARKET VELOCITY NOT A TIME TO BE NAÏVE UNREALISTIC OR MISLEADING REALISM

  21. MEETING MANAGING WITH VCS CONTROLLED? CHAOS?

  22. GORILLA ALUMNI & AIRCRAFT CARRIERS LACK OF FOCUS OPPORTUNITY EXISTS BEFORE THE MARKET ARRIVES TOP HEAVY COMPELLING?, UNIQUE? SALES MODEL AND ASP DIVERGENCE INCINERATOR SCHEMES MOST COMMON PITFALLS

  23. LEARN FROM OUR MISTAKES 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 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 CAN’T ARTICULATE THE BUSINESS SMALL GROSS MARGINS SMALLER OPERATING MARGINS NO MODEL FOR MAKING MONEY 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

  24. 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 DISCONTINUITIESAMBIGUITY AND CONFUSION ARE GOOD. HOW BIG? DEFINING? STRUCTURE/ACCESSIBILITY? READINESS? DISCONTINUITY—WHAT’S DIFFERENT? VALUE CAPTURE POTENTIAL? NO COMPETITION – OFTEN NO MARKET; ENTRENCHED PLAYERS: INNOVATOR’S DILEMMA? STARTUPS: HOW MANY? OUR TEAM? SOURCES FOR DIFFERENTIATION? 3. BREAKTHROUGH PRODUCTS/TECHNOLOGYSOURCES FOR DEEP SEPARATION AND ADVANTAGE? ORDER OF MAGNITUDE? DEGREE OF DIFFICULTY? ADOPTABILITY? COMPLETENESS? DEFENSIBILITY? 4. DEFINING TEAMSMAGNET QUALITIES? DOMAIN EXPERTISE? INTENSITY? DNA BLEND? SCAR TISSUE? 5. CAPITAL EFFICIENCYWHAT IS THE FULLY FUNDED PLAN? MARGIN? BUSINESS MODEL? DIRECT VS INDIRECT? EXPENSE MODEL? REVENUE ASSUMPTIONS?

  25. WE’RE ONLY AS GOOD AS OURNEXTINVESTMENT.

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