Opportunity Assessment and Venture Planning: An Introductory Workshop

1
Opportunity Assessment andVenture Planning An
Introductory Workshop

• Oakland University
• Workshop Document
• Michigan Entrepreneurship Education Network
• May 14, 2003
• Christine McDonnell
• Associate Director

2
Todays Workshop

• Opportunity Assessment session objectives
• To increase awareness of key elements for
  identifying high potential opportunities
• To increase understanding of disruptive versus
  sustaining technologies
• Venture Planning session objectives
• To increase awareness of the key elements for
  planning the launch of the venture
• To understand key elements for a pre-startup
  analysis of resources required to launch the
  venture
• To increase awareness of entrepreneurial
  resources available in Michigan

3
Identifying high potential opportunities requires
critical knowledge of the impact the venture will
have. Taking an early assessment of key
indicators of venture potential will help guide
expectations prior to the venture planning stage
KEY ELEMENTS FOR IDENTIFYING HIGH POTENTIAL
OPPORTUNITIES

• Defining the business products and services
  offered
• Understanding the opportunity
• Understanding the industry and target market
• Analyzing the competitive landscape/understanding
  the ventures competitive position
• Evaluating the critical elements of an
  operational plan

4
Clearly defining the product and/or service to be
offered will aid in the initial opportunity
assessment. While this description may change as
the venture moves forward, it will provide a
basis for early and future analysis
DEFINING THE BUSINESS PRODUCTS AND SERVICES
OFFERED

• Is the product or service
• Proprietary? reasonably sustainable?
• Evolutionary, not revolutionary?
• Meeting a recognized or demonstrated need?
• Commercially viable (e.g., prototype settled, no
  major design elements undetermined)?
• A progression of a portfolio of
  products/services?
• Clearly bounded, with links to related
  industries?

5
A high level assessment of the nature of the
opportunity will provide a better understanding
of its viability
KEY ELEMENTS FOR UNDERSTANDING THE OPPORTUNITY

• Element
• Economic life and timing of the venture
• High level financial picture that identifies the
  profit potential
• Industry Opportunity/ Competitive activity
• Target market opportunity

• What to look for
• Is a successful offering tied to a specific
  window of time?
• Is the life of the venture tied to the cyclical
  nature of the market?
• Is there a durable profit stream?
• Does the initial offering lead to additional
  options?
• How does the proposed profit potential compare
  with the profitability standards demonstrated in
  the industry?
• What lifecycle stage is the industry (e.g., Is it
  a new, growing, stable, declining, or re-emerging
  industry?)
• What economic factors or regulation issues affect
  the industry?
• Is it easy for new competitors to enter?
• What bargaining power do suppliers/buyers have?
• Has the number of competitors increased?
  decreased? stabilized?
• Are customers readily identifiable?
• Are customers accessible and receptive?
• What is the size and expected growth of the
  target market?

6
Spending additional time understanding the target
industry and the target market in greater detail
will help the venture team build a basis for the
timing and pace of venture growth
UNDERSTANDING THE INDUSTRY AND TARGET MARKET

• Critical Data Points
• Size of target industry
• Size of target market
• Demonstrated market interest
• Target market buying criteria/behavior
• Ease of access to target market

• What to look for
• Is the industry large and clearly defined?
• Is there the potential for high growth?
• Will the venture be early in the industry
  evolution, yet not too early?
• Is there global potential?
• Is the target market large? Clearly identifiable?
  Reachable?
• Will there be a sequence of additional targets as
  the venture grows?
• Are there existing/attainable documents that
  demonstrate market interest?
• Are there existing/attainable testimonials or
  letters of interest that demonstrate market
  interest?
• What is the purchase process? Length of sales
  cycle?
• What is the payback period? Risk propensity?
• What will be the resource intensity of
  sales/marketing effort?
• Is that effort appropriate for the profitability
  of the sale?

7
Diving deeper into the strengths and weaknesses
of existing and potential competitors will
provide a better understanding of what is needed
to differentiate the ventures offering
ANALYZING THE COMPETITIVE LANDSCAPE

• Elements of analysis
• Competitor profiles
• Industry forces
• Ventures competitive position

• What to look for
• Is there a large or small number of likely
  competitors?
• Has the number of competitors been increasing or
  decreasing? Why?
• What are the strengths, weaknesses,
  opportunities, and threats (SWOT) presented by
  the competition?
• Are there sufficient barriers to entry for large,
  entrenched competitors in related industries?
• Do these barriers provide sufficient lead time
  for the venture to reach critical size?
• Would competitors in related industries be
  interested in acquiring the venture?
• What bargaining power do suppliers/buyers have
• Is the ventures offering clearly differentiated
  from the competitors offerings?
• Has the venture developed an explicit value
  proposition relative to competitors, e.g.,
• Technology advantages
• Cost, payback
• Quality
• Performance
• Can these claims be documented?

8
Developing an early model of the operational plan
will help the venture team highlight any
operational risks that could de-rail the venture
EVALUATING CRITICAL ELEMENTS OF THE OPERATIONAL
PLAN

• Critical Elements
• Product/service development process
• Marketing/Sales strategy
• Organizational Structure

• What to look for
• Does the development process include realistic
  time frames?
• Are realistic resources identified?
• Are risks to completion identified? Are
  contingency plans documented?
• Is access to distribution well defined? Does it
  exist or will it need to be built?
• What sales process will be used (e.g., direct
  sales, manufacturers reps, distribution reps)?
• How will the sales force be compensated (e.g.,
  salary, commission, combination of both)?
• Have major customers been clearly defined and
  targeted?
• What will the pricing strategy be (e.g., value
  based, cost plus)
• How will decisions be made?
• What will the reporting relationships look like?
• Who will be responsible for specific aspects of
  the venture?

9
Sustaining technologies are less risky ventures
that build upon existing norms. While it is
potentially easier to gain funding and support
for these ideas, their growth potentials tend to
be bound on the upside as well as the downside
ELEMENTS OF SUSTAINING TECHNOLOGIES

• Sustaining technologies
• Maintain a rate of improvement on an established
  performance trajectory
• Give something more or better in performance
  attribute(s) already valued
• Target an established customer base with clear
  performance expectations
• Operate in an environment where leadership
  (first-to-market) is not essential

10
Disruptive technologies involve a greater element
of risk for the venture, investors, and potential
resources. Disruptive technologies also require
more time and money than sustaining technologies,
and, therefore do not necessarily make for a
great startup
ELEMENTS OF DISRUPTIVE TECHNOLOGIES

• Disruptive technologies
• Introduce a different package of attributes from
  the one mainstream customers historically value
• Often perform worse on one or two attributes
  important to mainstream
• Incur performance improvements at a such rapid
  rate that the new technology can then invade the
  mainstream
• Might never perform at the same level as
  sustaining technologies, yet might meet the
  performance requirements of the market
• Are often not radically new or different from a
  technological perspective
• Operate in an environment where leadership
  (early-to-market) is essential

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However, disruptive technologies offer
opportunities that established firms cannot
necessarily use to their advantage
DISRUPTIVE TECHNOLOGIES AS OPPORTUNITIES

• Opportunity
• Market potential appears unattractive to
  established firms
• Established firms stay close to current customers
• Established firms have higher cost structures
• Established firms have systems and processes
  supporting sustaining technologies
• Lack of incentive for established firms to enter
  disruptive markets
• Established firms pursue large investment/high
  reward
• Start-ups have key advantages

12
Todays Workshop

• Opportunity Assessment session objectives
• To increase awareness of key elements for
  identifying high potential opportunities
• To increase understanding of disruptive versus
  sustaining technologies
• Venture Planning session objectives
• To increase awareness of the key elements for
  planning the launch of the venture
• To understand key elements for a pre-startup
  analysis of resources required to launch the
  venture
• To increase awareness of entrepreneurial
  resources available in Michigan

13
Once it has been decided that the concept will
make a viable venture, greater emphasis can be
put on planning the launch of the venture.
Successful ventures have explicit, yet flexible,
roadmaps that help guide the launch and provide a
basis for gauging progress
KEY ELEMENTS FOR PLANNING THE LAUNCH OF THE
VENTURE

• Developing a high quality business plan
• Defining milestones for success
• Developing a concise message for potential
  investors and resource providers
• Assessing pre-start readiness

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A high quality business plan is a living document
that is used to guide the business as well as
communicate the business to potential investors,
resource providers, and customers. It helps the
venture team identify knowledge gaps and
formalize a strategy

• ELEMENTS OF A HIGH QUALITY BUSINESS PLAN
• Executive Summary
• Mission Vision statements
• Definition of the business (product(s),
  service(s))
• Description of industry and target market
  analysis
• Competitor analysis
• Competitive advantage
• Operational/Implementation plan
• Venture team

15
The compelling nature of the executive summary
will decide if the rest of the business plan is
read

• ELEMENTS OF A HIGH QUALITY BUSINESS PLAN
• Executive Summary
• Mission Vision statements
• Definition of the business (product(s),
  service(s))
• Description of industry and target market
  analysis
• Competitor analysis
• Competitive advantage
• Operational/Implementation plan
• Venture team

• Sample Content
• Highly compelling business overview, piques
  investors interest
• Briefly summarizes
• Proprietary products/service
• Strong, demonstrated market need
• Critical milestones achieved
• Venture teams high level of relevant
  experience/success
• Offering (e.g. valuation, pricing, timing ,
  financials)

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The clarity of the mission and vision statements
demonstrates the lucidity of the venture teams
thought

• ELEMENTS OF A HIGH QUALITY BUSINESS PLAN
• Executive Summary
• Mission Vision statements
• Definition of the business (product(s),
  service(s))
• Description of industry and target market
  analysis
• Competitor analysis
• Competitive advantage
• Operational/Implementation plan
• Venture team

• Sample Content
• Contains clear definition of focus/scope
• Reflects strategic business concept
• Conveys sufficient flexibility to capitalize on
  highly attractive future opportunities

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Accurately defining the business will indicate to
the reader whether the venture is real, timely,
and will provide needed benefits

• ELEMENTS OF A HIGH QUALITY BUSINESS PLAN
• Executive Summary
• Mission Vision statements
• Definition of the business (product(s),
  service(s))
• Description of industry and target market
  analysis
• Competitor analysis
• Competitive advantage
• Operational/Implementation plan
• Venture team

• Sample Content
• Describes proprietary nature and sustainability
• Assures technological viability
• Explains evolutionary or revolutionary nature of
  offering and boundaries of offering

18
Readers of the business plan will be looking for
a compelling industry and market analysis that
includes reasonable numbers and an accessible
market

• ELEMENTS OF A HIGH QUALITY BUSINESS PLAN
• Executive Summary
• Mission Vision statements
• Definition of the business (product(s),
  service(s))
• Description of industry and target market
  analysis
• Competitor analysis
• Competitive advantage
• Operational/Implementation plan
• Venture team

• Sample Content
• Clearly defines industry entry point, growth
  opportunity, global potential
• Clearly defines target market size and access and
  documents markets interest
• Demonstrates understanding of industry forces

19
A thorough competitor analysis will indicate that
the venture team understands the competitive
nature of the market and is prepared for various
changes in that market

• ELEMENTS OF A HIGH QUALITY BUSINESS PLAN
• Executive Summary
• Mission Vision statements
• Definition of the business (product(s),
  service(s))
• Description of industry and target market
  analysis
• Competitor analysis
• Competitive advantage
• Operational/Implementation plan
• Venture team

• Sample Content
• Shows number, size, and growth rate of
  competitors
• Clearly explains differentiation from
  competitors offering
• Analyzes barriers to entry for large, entrenched
  competitors in related fields and other start up
  ventures

20
The value proposition of the venture will be
enhanced in the eyes of the business plan reader
if the claim(s) can be substantiated with
documentation. Customer focus group feedback and
beta evaluations will add credibility to the
stated value proposition

• ELEMENTS OF A HIGH QUALITY BUSINESS PLAN
• Executive Summary
• Mission Vision statements
• Definition of the business (product(s),
  service(s))
• Description of industry and target market
  analysis
• Competitor analysis
• Competitive advantage
• Operational/Implementation plan
• Venture team

• Sample Content
• Explicitly describes value proposition
• Contains documentation to support benefit claims

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The operational/implementation plan will require
the venture team to address the
inter-connectivity of all of the activities
necessary to deliver a product or service.

• ELEMENTS OF A HIGH QUALITY BUSINESS PLAN
• Executive Summary
• Mission Vision statements
• Definition of the business (product(s),
  service(s))
• Description of industry and target market
  analysis
• Competitor Analysis
• Competitive advantage
• Operational/Implementation plan
• Venture team

• Sample Content
• Clearly describes business processes
• Product/service development
• Sales/Marketing strategies
• Manufacturing/service strategy
• Indicates impediments to gaining timely access to
  critical resources
• Describes realistic timeframes attainable with
  appropriate access to funding

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At the end of the day, investors and resource
providers invest in people. The experience base
and skill set of the venture team will have a
large impact on the consideration of the reader

• ELEMENTS OF A HIGH QUALITY BUSINESS PLAN
• Executive Summary
• Mission Vision statements
• Definition of the business (product(s),
  service(s))
• Description of industry and target market
  analysis
• Competitor Analysis
• Competitive advantage
• Operational/Implementation plan
• Venture team

• Sample Content
• Identifies by name and skill set a high caliber
  individual for each critical management position
• Describes investment of key managers and other
  investors
• Describes Board of Directors

23
In creating a revenue model, the projections must
be based in reality. It is essential to use
projections that take into account reasonable
financial expectations within the target
industry/market

• ELEMENTS OF A HIGH QUALITY BUSINESS PLAN
• Executive Summary
• Mission Vision statements
• Definition of the business (product(s),
  service(s))
• Description of industry and target market
  analysis
• Competitor Analysis
• Competitive advantage
• Operational/Implementation plan
• Venture team

• Sample Content
• Includes income statements, balance sheets, and
  cash flows for years 1-5 of venture
• Explains capital infusions tied to milestone
  achievement
• Clearly describes exit strategy

24
Along with the business plan, the venture team
should have a clear sense of timing for critical
milestones. While these milestones can ultimately
be flexible, documenting the timing for critical
steps will help gauge progress in the rapid rise
of the venture
MILESTONES FOR SUCCESSFUL VENTURE PLANNING
ILLUSTRATIVE EXAMPLE
Completion of concept and product testing
First redesign/ redirection
First Financing
Market testing
Bellwether sale
Completion of prototype
Completion of initial plant tests (Pilot
operation)
Production start-up
First competitive action
First significant price change
25
Communicating the nature of the venture in a
succinct pitch is important for catching the
interest of investors and resource providers.
ELEMENTS OF A SUCCESSFUL PITCH AS A PERCENTAGE OF
TIME ALLOCATED
Source www.bluerockcapital.com/resources
26
The pitch should contain only those facts
relevant to the audience and should be of a
duration appropriate to the opportunity for
discussion
SUGGESTIONS ON MESSAGE DELIVERY

• Will you be speaking to investors or resource
  providers?
• What will they want to know?
• Prepare different versions of your message, e.g.,
  
• 3 minute elevator pitch
• 8-10 minute initial meeting
• Use words purposefully and frugally (e.g.,
  minimize the use of context specific technology
  or business terms)

Know the audience
Prepare for allocated time
Be Brief
Source www.bluerockcapital.com/resources
27
By assessing the readiness of the venture for
start-up, the venture team will understand the
status of the resources needed and the elements
of a successful launch
KEY QUESTIONS FOR PRE-START ASSESSMENT
Category

• What to look for
• What do the entrepreneur and team bring?
• Who will supply the additional skills?
• Which skills/resources must be internal?
• What quality trade-offs are possible?
• What regulatory compliance is required?
• What are the minimum/optimal level of skills and
  resources needed?
• Are there checkpoints to mark passage among
  venture stages? Lowering of risk?
• What is the cash flow required to pass each
  stage?
• Are the economics sufficiently clear to develop
  variable budgets?
• Are there resources to cushion the variances?
• What is the contingency plan to control critical
  skills/resources?
• Is there a clear definition of critical needs?
• What are the critical goals for possessor of
  skills/resources?
• Is there a solid structure of incentives to reach
  goals?
• What is the downside risk/consequences for
  failure in any critical area?

Resources and approvals established
Action plan established
Business entity created
Venture controls established
Plan for harvesting benefits
28
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