biz dev for startups - part 3, 4 and 5

Copyright 2014 - FireMatter, LLC

Biz Dev for StartupsAn exercise in partnership model definition and planning

Copyright 2014 - FireMatter

#BD4startups

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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

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Agenda

• Part 3: Making the (Business) Case

• Part 4: Measuring Value Creation

• Part 5: 5 Steps to Biz Dev Execution

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Recap…

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Biz Model = How moving parts interact

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A good model...

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• 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...

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.


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

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Part 3

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Making the (Business) Case


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?

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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

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The Business Case summarizes the answers

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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


Part 4

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Value Creation


Understanding value creation is key

• Value Chain Analysis

• Contribution Margin

• Customer Acquisition Costs

• Customer Lifetime Value

• Sales Compensation

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Value Chain analysis

• Where are you capturing/creating value?

• How much value?

• Which portion of the value can be shared with partners?

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Copyright 2014 - FireMatter, LLC 17

Adapted from Simply Market Report, 2010


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?

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Remember Small Inc.?

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# of

Com

pani

es

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


Indirect OEM Direct ChannelUnit sales 35 10Unit Price $90,000 $320,000

Sales $3,150,000 $3,200,000Variable CostsCOGS (30%) $945,000 $960,000

Salesforce Commission $0 $640,000Channel 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 $160,000Total Fixed Cost $1,000,000 $700,000

Break Even 31 4

Remember Small Inc.?


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?

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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?

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Part 5

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5 steps of Biz Dev execution


1. Do the homework

2. Design the biz dev pipeline

3. Prepare the materials

4. Fill the pipeline

5. Execute with discipline

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1. Do the homework

• Study thoroughly the ecosystem

• Analyze potential partners business models

• Be clear about partner value proposition

• Segment your partner prospects

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1. Homework

2. Design

3. Materials

4. Fill

5. Execute


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%)

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1. Homework

2. Design

3. Materials

4. Fill

5. Execute



• 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

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1. Homework

2. Design

3. Materials

4. Fill

5. Execute


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

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1. Homework

2. Design

3. Materials

4. Fill

5. Execute


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

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1. Homework

2. Design

3. Materials

4. Fill

5. Execute


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

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1. Homework

2. Design

3. Materials

4. Fill

5. Execute



• 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!

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1. Homework

2. Design

3. Materials

4. Fill

5. Execute


1. Do the homework


3. Prepare the materials

4. Fill the pipeline


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Cost Structure

Activities Value Proposition

Partners Customer Segments

Revenue Streams

Resources

Customer Relations

Channels

$$$

Go get yourself a deal!

Copyright 2014 - FireMatter 34

Thank [email protected]

@matteofabiano @firematter

#BD4startups !

mailto:[email protected]

biz dev for startups - part 3, 4 and 5

Business

firematter agenda

firematter recap

firematter biz model

value creation

value ows

llc value chain analysis

capturingcreating value

llc contribution margin