Biz Dev for Startups - Part 3, 4 and 5
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Partnership design and development for technology startups is based on a Business Model design. Partnership decisions impact the entire business model and require a disciplined approach.
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Biz Dev for Startups - Part 3, 4 and 5
- 1. Copyright 2014 - FireMatter, LLC Biz Dev for Startups An exercise in partnership model definition and planning
- 2. Copyright 2014 - FireMatter #BD4startups 2
- 3. Copyright 2014 - FireMatter About Me Tech Scouting and Market Development Services Aero Engineer (PoliMi), MBA (IMD Lausanne) IBM, P&G, HP + a couple of (failed) startups Lived and worked in 5 countries In USA since 1998 3
- 4. Copyright 2014 - FireMatter Agenda • Part 3: Making the (Business) Case • Part 4: Measuring Value Creation • Part 5: 5 Steps to Biz Dev Execution 4
- 5. Copyright 2014 - FireMatter Recap… 5
- 6. Copyright 2014 - FireMatter Biz Model = How moving parts interact 6
- 7. Copyright 2014 - FireMatter A good model... 7 • Shows HOW value flows • Shows HOW results are achieved • Shows WHY company needs money • Shows WHERE to put it to work • Shows WHO to partner with...
- 8. Copyright 2014 - FireMatter 8 Cost Structure - Customer Acquisition - Sales Team - Consulting and Customer Support Activities - R&D - Product Development - Sales Value Proposition - Customers: Increase sales through recommendations - Users: Easier to find what you want - Partners: Add valuable feature to your offering overnight ! Partners - eCommerce platform vendors Customer Segments - Medium Online Retailers - App Stores/ Digital Media - Large Multichannel retailers Revenue Streams - Licenses + Maintenance - SaaS subscriptions - Services Resources - Intellectual Property - Dev Team Customer Relations - Prof services - Maintenance - Training Channels - Direct sales - SaaS - Channel sales - OEM Example: Small Inc.
- 9. Copyright 2014 - FireMatter It’s about the whole model • Partner model impacts entire model • Different partnership model = different tradeoffs • Multiple partner choices = runaway complexity • Small Inc. and Big Inc. must have “mirror” models 9
- 10. Copyright 2014 - FireMatter Part 3 10 Making the (Business) Case
- 11. Copyright 2014 - FireMatter, LLC Important questions… • How much value ($) is being created? • How much is this deal worth it for my partner? • How much is it worth for me? • How should we structure the deal? 11
- 12. Copyright 2014 - FireMatter, LLC The Business Case summarizes the answers 1. Treat the partnership as a “project” 2. Calculate the NPV of resulting project cash flows • Add any expected incremental sales, marketing savings, staff savings, etc. • Subtract any incremental expenses, support costs, new marketing expenditures • Account for cash investments and depreciation • Compute payback time and NPV over a reasonable timeframe 3. Repeat for partner! 4. Assess and mitigate key risks 12
- 13. Copyright 2014 - FireMatter, LLC The Business Case summarizes the answers 13 Y1 Y2 Y3 Y4 … Y1 Y2 Y3 Y4 … Cash Investment -$100 Revenues $1000 $1500 $2300 $3000 … $1000 $1100 $1300 $1500 … - COGS $600 $900 $1100 $1500 … $600 $650 $700 $800 … - Channel Commission fees 100 $200 $400 $600 … $0 $0 $0 $0 $0 $0 $0 $0 … - Marketing Expenses $150 $120 $120 $120 … $100 $100 $100 $100 … - G&A $50 $50 $50 $50 … $50 $50 $50 $50 … - Other Expenses $75 $85 $85 $105 … $50 $50 $50 $50 … - Depreciation $50 $50 $50 $50 … $0 $0 $0 $0 … EBIT -$25 $95 $495 $575 … $200 $250 $400 $500 … - Taxes $0 $29 $210 $182 … $60 $75 $120 $150 … Net Income -$25 $67 $285 $393 … $140 $175 $280 $350 … + Depreciation $50 $50 $50 $50 … $0 $0 $0 $0 … Operating Cash Flow $25 $117 $335 $443 … $140 $175 $280 $350 … Δ Operating Cash Flow -$115 -$59 $55 $93 … Δ Net Working Capital -$10 -$5 $0 $0 … FCF -$100 -$125 -$64 $55 $93 … Net Present Value -$146 … DirectDirect + Channel
- 14. Copyright 2014 - FireMatter Part 4 14 Value Creation
- 15. Copyright 2014 - FireMatter, LLC Understanding value creation is key • Value Chain Analysis • Contribution Margin • Customer Acquisition Costs • Customer Lifetime Value • Sales Compensation 15
- 16. Copyright 2014 - FireMatter, LLC Value Chain analysis • Where are you capturing/creating value? • How much value? • Which portion of the value can be shared with partners? 16
- 17. Copyright 2014 - FireMatter, LLC 17 Adapted from Simply Market Report, 2010
- 18. Copyright 2014 - FireMatter, LLC Contribution Margin • What sales % contributes to covering fixed costs? • How much volume do I need to break-even? • What is each product/channel contribution margin? 18
- 19. Copyright 2014 - FireMatter Remember Small Inc.? 19 #ofCompanies 1 10 100 1000 Sales cycle (days) 0 30 60 90 120 $320 $90 $40 Large Retailers Medium Retailers Small eCommerce Retailers Partnering with Software Platform
- 20. Copyright 2014 - FireMatter, LLC 20 Indirect OEM Direct Channel Unit sales 35 10 Unit Price $90,000 $320,000 Sales $3,150,000 $3,200,000 Variable Costs COGS (30%) $945,000 $960,000 Salesforce Commission $0 $640,000 Channel Commission fees $157,500 $0 OEM Royalties $8,750 $0 Total Variable $1,111,250 $1,600,000 Contribution Margin $2,038,750 $1,600,000 % 64.7% 50% Unit Contribution $58,250 $160,000 Total Fixed Cost $1,000,000 $700,000 Break Even 31 4 Remember Small Inc.?
- 21. Copyright 2014 - FireMatter, LLC Customer Acquisition Cost analysis • How much does it cost to acquire a customer? • Does the partnership increase or decrease it? • What is the most effective channel? • What volume so that it makes sense? 21
- 22. Copyright 2014 - FireMatter, LLC Customer Lifetime Value analysis • How much is each customer worth? • What are the most attractive segments • Does the partnership increase CLTV? • Does the partnership “lock” customers in? 22
- 23. Copyright 2014 - FireMatter, LLC Part 5 23 5 steps of Biz Dev execution
- 24. Copyright 2014 - FireMatter, LLC 1. Do the homework 2. Design the biz dev pipeline 3. Prepare the materials 4. Fill the pipeline 5. Execute with discipline 24
- 25. Copyright 2014 - FireMatter, LLC 1. Do the homework • Study thoroughly the ecosystem • Analyze potential partners business models • Be clear about partner value proposition • Segment your partner prospects 25 1. Homework 2. Design 3. Materials 4. Fill 5. Execute
- 26. Copyright 2014 - FireMatter, LLC 1. Do the homework • Create a list of target prospects • Fill with as many as you can identify at this stage • Score them by criteria (1 to 5) 1. $ value of deal to them! (weight: 50%) 2. $ value of deal to you (30%) 3. Speed/ease to close (10%) 4. M&A option value (10%) 26 1. Homework 2. Design 3. Materials 4. Fill 5. Execute
- 27. Copyright 2014 - FireMatter, LLC 2. Design the biz dev pipeline • Estimate deal size, # and type of interactions, expected duration from lead to close • Determine the best approach for each step of the funnel (e.g. phone, in person, email) • Define clear formal gates to move an opportunity along • Determine best way to fill your pipeline 27 1. Homework 2. Design 3. Materials 4. Fill 5. Execute
- 28. Copyright 2014 - FireMatter, LLC 3. Prepare the Materials • Biz dev presentation (≠ investor presentation) • Partner business case financial model • Partner case studies • Technical documentation/training material • Industry analysis reports supporting your case 28 1. Homework 2. Design 3. Materials 4. Fill 5. Execute
- 29. Copyright 2014 - FireMatter, LLC 3. Prepare the Materials • The “Standard Deal” • One-page term sheet, simple excel sheet • Working capital positive or neutral • ~0 custom development (90% built-in) • Leave lawyers and NDAs for last 29 1. Homework 2. Design 3. Materials 4. Fill 5. Execute
- 30. Copyright 2014 - FireMatter, LLC 4. Fill the a pipeline • Support Biz Dev with Partner Marketing investment • Put someone in charge and make her accountable • Create a lead generation program (web, events, email, trade shows, etc.) • Nurture industry analysts relations 30 1. Homework 2. Design 3. Materials 4. Fill 5. Execute
- 31. Copyright 2014 - FireMatter, LLC 5. Execute with discipline • Use a CRM system and track every interaction • Qualify each opportunity with objective metrics • Focus on high probability deals • Do not get distracted and follow the process • Avoid other startups (Risk^2) • Don’t drop the ball! 31 1. Homework 2. Design 3. Materials 4. Fill 5. Execute
- 32. Copyright 2014 - FireMatter, LLC 1. Do the homework 2. Design the biz dev pipeline 3. Prepare the materials 4. Fill the pipeline 5. Execute with discipline 32
- 33. Copyright 2014 - FireMatter, LLC 33 Cost Structure Activities Value Proposition Partners Customer Segments Revenue Streams Resources Customer Relations Channels $$$ Go get yourself a deal!
- 34. Copyright 2014 - FireMatter 34 Thank You mf@firematter.com @matteofabiano @firematter #BD4startups !