pescadero mrs

8/14/2019 Pescadero MRS

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About Pescadero Technologies

Pescadero Technologies

A business development collaborator

Founded on basic principles of translatingthe brilliant ideas of brilliant people into

business realityBased on knowledge of the Principal whohas more than 20 years of experience ingrowing businesses out of ephemeral ideas

The Uncle that teaches you the basics ofcreating a product


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Entrepreneurial Business Development?


Formulation of the idea

Demonstration of the concept

Creation of a prototype

Testing of the prototype

Revelation of the product

Realization of the bitter truthq Its harder than it looksq It costs more to make and support than you


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What is the Bitter Truth


Its a long way from concept toreality

Academics and many entrepreneursare:

q Brilliant innovatorsq Lousy business peopleq Great idea generatorsq Poorly disciplined developers


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What is typically ignored?

True cost of development

True cost of manufacturing

Cost of sellingCost of pre- and post-sales support

Cost of inventory for sales and

warranty supportPersonnel costs for service of

products that are technically difficult



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The Ws

What is the task to be accomplished?What is the current method of

execution?

What is the pain your method willrelieve?

What is the value of the method?

What will the customer pay for therelief?



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What are the Steps

Identify the needq What do customers want?q How do you insure you fully understand

their needs?q Ask vague questions Get vague replies

Market Requirement Specification

(MRS)

Product Life Cycle



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Outline of the MRS

Contents

Executive summary

OverviewSpecifications

Marketing plan

Sales forecastFinancial analysis



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Some Details for the MRS

Executive summaryq Summarize the proposed project very briefly injust a few lines.

Current situation

q Market contextq Unmet opportunity

Proposal

q Product description (brief)q Plan of action

Requirementsq



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Financial Justification

Basic financial components


Part # COGS US list Discount ASP %GMNNN 7,000$ 34,000$ 15% $28,900 76%

20% $27,200 74%

Intl l ist Discount ASP %GM

41,820$ 25% $31,365 78%

30% $29,274 76%


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Sales Forecast in UNITS is

Sales forecast justifies the investment

This is hard to detail

Especially beyond 3 Yrs


2005 2006 2007 2008

Optimistic 30 75 90 100

Conservative 20 60 75 80

Optimistic 660,000$ 1,650,000$ 1,980,000$ 2,200,000$

Conservative 440,000$ 1,320,000$ 1,650,000$ 1,760,000$

Expected sales of "Name"

$500K$1,000K

$1,500K$2,000K$2,500K

005 2006 2007 008

OptimisticConservative


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Detailed Financial Analysis


Year 0 1 2 3 4 5 6 7 8 9 10 11

Units sold 47 67 82 90 75 65 45 25 13 7 2

Price per unit 22 22 22 22 22 22 22 22 22 22 22

Total revenue 1,034 1,474 1,804 1,980 1,650 1,430 990 550 286 154 44

COGS per unit 8 8 8 8 8 8 8 8 8 8 8

Total COGS 376 536 656 720 600 520 360 200 104 56 16

Contribution 658 938 1,148 1,260 1,050 910 630 350 182 98 28

Development 200

Warranty 29 36 40 33 29 20 11 6 3 1

Support 25 10 10 10 10 10 10 10 10 10 10

Total cash flows, earnings 433 899 1,102 1,210 1,007 871 600 329 166 85 17

Working capital:

Receivables (100) 242 297 325 271 235 163 90 47 25 7Inventory 28 40 49 54 45 39 27 15 8 4 1

Payables (14) (20) (25) (27) (23) (20) (14) (8) (4) (2) (1)

Total working capital (86) 262 321 352 294 255 176 98 51 27 8

Change of W/C 86 (348) (59) (31) 59 39 78 78 47 23 20

Cash flow from earnings + WC 519 550 1,043 1,179 1,066 911 679 407 213 108 37

Cumulative 519 1,069 2,112 3,291 4,357 5,268 5,946 6,354 6,567 6,675 6,712

Payback (yrs) 0.98

GM % 63.6%

NPV (through Year above, at rate=>) 12% 902 1,644 2,394 2,998 3,460 3,767 3,931 4,008 4,043 4,054

16% 856 1,525 2,176 2,683 3,057 3,297 3,421 3,477 3,502 3,509

26% 758 1,280 1,748 2,083 2,311 2,445 2,510 2,536 2,547 2,55035% 686 1,110 1,465 1,703 1,853 1,936 1,973 1,988 1,993 1,994

Pay close attention to:

Gross Margin

Operating Profit

Earnings/Total Cash Flow


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Costs to Be Aware of

Detailed bill of materials dictatesonly parts cost

Cost of Assembly must be estimated

Early costs are impacted by low salesvolumes

Other Major Costsq Selling costs

Salaries/FBs

Travel



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Distribution is CRITICAL

Without a channel to the customereven the very best product isdoomed to failure

What is the Distribution Strategy?q Direct Sales Force?q Distributor?q Agent?q Web?



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Direct Sales Force

Positiveq Control of the focus on your productsq Loyalty

q Ability to create attractive incentive program

Negativeq Is it cost effective?q

Hard to recruit capable personnel especiallywith highly technical products

q Coverage/reach limitedq



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Distributor

Positiveq Absorbs some of the cost of sellingq Provides local presence

q May/should have expertise with productq May/Can provide important after sale support

and service

Negativeq Requires significant discount/commission

q Especially in Asia not usually a true Resellerso little control over your Receivables



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Agent

Positiveq Low Costq Modest Commitment on either side

Negativeq Little incentive for Agent to push your

productq Little Loyalty especially if Agent

represents several Principalsq Potential for A ent to re resent



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Web

Positiveq Very Low Costq Very Wide Reach

Negativeq No Customer Touchq Difficult to control regional or direct vs

distributor pricing disclosureq Difficult to demonstrate dynamic

roducts



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Hybrid Model

Direct Sales/Distributor

Direct Sales/Distributor/Agent

Direct Sales/AgentAgent

Any Combination of Above PLUS WEB

All of these have the potential riskresulting from conflict between theteam members unless carefully



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The PLC Process


PRODUCT LIFE CYCLEPROCESS (PLC)

OMEGA PHASEEND OF LIFE

CONCEPT ANDFEASIBILITY PHASE

ALPHA PHASE

PRODUCT INITIATIVEMarketing, Engineering, and/or Sales

PRODUCT INVESTIGATIONMarketing & Engineering

VOLUME MANUFACTURINGManufacturing, Sales, Service

PROCEDUREACTIVITIES &

RESPONSIBILITIESNOTES

BETA PHASE

COST > $50k?

ORB APPROVAL?

ORB APPROVAL?

ORB APPROVAL?

ORB APPROVAL

ORB APPROVAL

GAMMA PHASE

PRODUCT END OF LIFEEngineering, Manufacturing, Marketing,Sales, Service

PRODUCT VALIDATION ANDTRANSFER TO MANUFACTURING

Engineering, Manufacturing, Marketing, Sales,Service

YES

YES

YES

YES

YES

NO

PRODUCT DEVELOPMENTEngineering, Manufacturing, Service

The transition from the C&F phase to theAlpha phase must follow the C&F exit checklist and be approved by the ORB.

The transition from the Alpha phase to theBeta phase must follow the Alpha exit checklist and be approved by the ORB.

The transition from the Beta phase to theGamma phase must follow the Beta exitcheck list and be approved by the ORB.

The transition from the Gamma phase to theOmega phase must be approved by theORB.

A C&F investigation costing more than $50krequires prior approval from the ORB

All product development during the Alphaand Beta phase must follow the DesignControl Process

YES

Mgmt Approval

Mgmt Approval

Mgmt Approval

Mgmt Approval

Mgmt Approval

ACRONYMS

PLC Product Life Cycle.

ORB Opportunity Review Board.(Mgmt Approval)

MRS Marketing Requirements Specification.

C&F Concept and FeasibilityEDS Engineering Design Specification.

ORB = Opportunity

Review Board Mgmt

Approval


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Critical Issues

Define market needs (Be trulymarket driven)

Set realistic target COGs

Know when good enough is goodenough

Establish realistic target time goalsFollow the PLC slavishly

Build Quality into the product


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