HTM 4292C

ENTREPRENEURSHIP
TEACHING NOTES

ROBERT H. HACKER
FALL 2009

Robert H. Hacker 1
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 SALES 6 YEARS AFTER
STARTUP

Sales $Millions Number of firms %

100 200 0.03%
50 500 0.08%
5 9,500 1.6%
<5 579,800 98.3%
Total 590,000 100%

Robert H. Hacker 2
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 ENTREPRENEURS
• 9% OF U.S. HOUSEHOLDS

• 39% OF TOTAL NET WORTH

Robert H. Hacker 3
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OUT OF BUSINESS IN 5
YEARS

55 %
Robert H. Hacker 4
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 KEYS TO SUCCESS

• PICK RIGHT INDUSTRY

AND OPPORTUNITY
• MENTORING
• CAPITAL

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 STAGES OF DEVELOPMENT
1. PROOF OF CONCEPT 0-$1MM
2. COMMERCIALIZATION $1-3MM
3. SCALING $3-10MM
4. GROWTH $10-30MM
5. PROFESSIONALIZATION $30-100MM

Robert H. Hacker 6
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 THE PROCESS

GROWTH SURVIVAL

STEP1 STEP2 STEP3 STEP4 STEP5

CUSTOMER CONCEPT INDUSTRY BUSINESSMODEL FINANCIAL MODEL

Robert H. Hacker 7
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 Austin on Creativity
Step Requirement
1 Interest You have to enjoy it to persist

2 Preparation Study it

3 Incubation Keep working

4 Illumination Solutions Will come

5 Verification ConfirmConclusions

6 Exploitation Act
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 Austin-4 Kinds of Luck

Type of Luck Luck From Personality Trait Example

1 An Accident Chance Happens Blind Luck Penicillin

2 Exploration Energy in motion Doggedness Ford

3 Sagacity Prepared Mind Knowledge Google

4 Personality Unique Expertise Distinctive Behavior Macdonalds

Robert H. Hacker 9
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 NUMBERS TALK !
When you can measure what
you are speaking about, and
express it in numbers, you
know something about it; but
when you cannot measure it,
when you cannot express it in
numbers, your knowledge is
of a meager and
unsatisfactory kind: it may be
the beginning of knowledge,
but you have scarcely, in your
thoughts, advanced to the
state of science
- Lord Kelvin

Robert H. Hacker 10
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 THOUGHT

“YOU HAVE TO SEE THE INVISIBLE TO

DO THE IMPOSSIBLE.”
» MARCEL PREVOST

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 [Link] Needs
Gerald Zaltman proposes seven metaphors, at the
subconscious level, that explain 70 percent of human
behavior (as quoted from HBS Working Knowledge):
• balance (equilibrium)
• transformation (changing states or status)
• journey (as in life)
• container (keeping things in and keeping things out)
• connection (feelings of belonging or exclusion)
• resource (providing survival)
• control

http
://[Link]/blog/2008/08/07/why-toyotas-scion-campaign-resonates-with-
/
Robert H. Hacker 12
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 NINTENDO
WHAT IS THE PURPOSE OF A GAME
PLAYER?

ANS.
SOMETHING TO DO IN YOUR SPARE
TIME

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 ABUNDANCE
• LOOK FOR THE SCARCITY NEAR THE
ABUNDANCE

• EXAMPLE

FOOD IS ABUNDANT; PEOPLE ARE

OVERWEIGHT; INSUFFICIENT
HEALTHCARE FOR OBESITY
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 New Business Types
1. Do something better (market exists)
2. Do something in a new way (disruptive
technology)
3. Do something new (highest risk)

Robert H. Hacker 15
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 Disruptive Technology
[Link]
[Link]
[Link]

Robert H. Hacker 16
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 A Thought

Disbelief is more resistant than

faith because it is sustained
by the senses

Gabriel Garcia Marquez

Robert H. Hacker 17
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 Target Customer (Market
Segmentation)
BUSINESSCONCEPT METHODS
TARGET • Demographics
CUSTOMER
• Market research
INDUSTRY
• Talk to customers
• Alpha/Beta test
COMPETITION
• Profitability analysis
• Use them all
PRODUCT &
TECHNOLOGY

Robert H. Hacker 18
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Target Customer Example
BUSINESSCONCEPT 1. Woman
TARGET 2. Single/divorced
CUSTOMER
3. With children
INDUSTRY
4. High school
education
5. Single wage earner
COMPETITION
6. Rented home
PRODUCT & 7. Car—4 years old
TECHNOLOGY

Robert H. Hacker 19
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 Target Customer Example
• Woman 1. balance (equilibrium)
2. transformation
• Single/divorced (changing states or
status)
• With children 3. journey (as in life)
• High school 4. container (keeping
education things in and keeping
things out)
• Single wage earner 5. connection (feelings of
belonging or exclusion)
• Rented home 6. resource (providing
• Car—4 years old survival)
7. control
[Link]
/
Robert H. Hacker 20
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 THE PROCESS

GROWTH SURVIVAL

STEP1 STEP2 STEP3 STEP4 STEP5

CUSTOMER CONCEPT INDUSTRY BUSINESSMODEL FINANCIAL MODEL

Robert H. Hacker 21
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 2. Solution
• Hypothesis
• Iterative process
• Evolving

NEED TO ANALYZE, VERIFY AND

CONFIRM

Robert H. Hacker 22
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 Porter’s Strategic Analysis
BUSINESSCONCEPT
TARGET
CUSTOMER

INDUSTRY

COMPETITION

PRODUCT &
TECHNOLOGY

Source:[Link] Robert H. Hacker 23

[Link]
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 PORTER’S GENERIC
STRATEGIES
1. COST ADVANTAGE
2. DIFFERENTIATION
3. FOCUS (NICHE/BUSINESS MODEL)
4. HACKER-ACCESS TO CAPITAL
(EMERGING MARKETS)

SUSTAINABLE OVER LONG(ER) TERM

Robert H. Hacker 24
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 Differential Advantage
BUSINESSCONCEPT 1. Unique or
TARGET 2. Proprietary or
CUSTOMER
3. Patent or
INDUSTRY
4. Barrier to entry or
5. Regulation
COMPETITION

PRODUCT &
TECHNOLOGY

Robert H. Hacker 25
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 Porter’s Strategic Analysis
BUSINESSCONCEPT
TARGET
CUSTOMER

INDUSTRY

COMPETITION

PRODUCT &
TECHNOLOGY

Source:[Link] Robert H. Hacker 26

[Link]
rhhfla@[Link]
 Business Model
• REVENUE MODEL
• PRICE MODEL
• SALES &DISTRIBUTION
• CAPEX
• HEADCOUNT

Robert H. Hacker 27
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 Sequoia Business Model

• Revenue model
• Pricing
• Average account size and/or lifetime value
• Sales & distribution model
• Customer/pipeline list

[Link]

Robert H. Hacker 28
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 WHAT IS GROWTH?
• Sales increases improve productivity with
no increase in resources
• Growth requires the addition of significant
resources (sales people, locations,
capacity) and initially reduces productivity
• Growth drivers determine where the
additional resources are required

Robert H. Hacker 29
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 FOCUS OF THE BUSINESS
MODEL
• BUSINESS MODEL--WHAT DRIVES THE
BUSINESS AND CREATES THE GROWTH

Growth Drivers Industry Translation

1 Units Manufacturing Accounts
2 NewLocations Retail/Restaurants CAPEX
3 Subscribers Web/Direct Mail Customer Acquisition Cost
4 Distribution Consumer Products Outlets
5 Sales People Services Calls/Closes

Robert H. Hacker 30
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 BUSINESS MODEL LOGIC

• GROWTH DRIVERS EXPLAIN

BUSINESS MODEL
• REVENUE ASSUMPTIONS
EXPLAIN GROWTH DRIVERS
• INDUSTRY KNOWLEDGE
MAKES ASSUMPTIONS REAL
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REVENUE ASSUMPTIONS IN
DETAIL

Assumptions January-07 February-07 March-07 April-07 May-07 June-07

Revenue
Applications Processed 240 240 240 240 240 480
%Approved 85% 85% 85% 85% 85% 85%
Applications Approved 204 204 204 204 204 408
Fee Per Application $ 45 45 45 45 45 45
Application Revenue $ 9,180 9,180 9,180 9,180 9,180 18,360

Robert H. Hacker 32
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 REVENUE ASSUMPTIONS IN
DETAIL
Assumptions Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07
Revenue
Total Locations Available 37 37 37 37 37 37
% Locations Awarded 15% 15% 15% 15% 15% 15%
Locations Awarded 6 6 6 6 6 6
Locations Operating 1 1 1 1 1 2
Visitors Per Location per Month 50,000 50,000 50,000 50,000 50,000 100,000
Customers % 0.07 0.07 0.07 0.07 0.07 0.07
Customers 3,500 3,500 3,500 3,500 3,500 7,000
Coordinators perLocation 30 30 30 30 30 60
App. Proc./Coordinator 80 80 80 80 80 80
Applications Processed 2,400 2,400 2,400 2,400 2,400 4,800
%Approved 85% 85% 85% 85% 85% 85%
Applications Approved 2,040 2,040 2,040 2,040 2,040 4,080
FeePer Application$ 45 45 45 45 45 45
ApplicationRevenue$ 91,800 91,800 91,800 91,800 91,800 183,600

Robert H. Hacker 33
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REVENUE MODEL SPECIFIC
COSTS
RevenueModels OperatingExpense

1 Units (stores, franchises) Storeoperatingexpense

2 Subscribers (telecom, cabletv) Customeracquisitioncost
3 Sales People Total costof sales person
4 ResponseRate(directmail, non-profits) Costof mailing
5 Visitors (amusementpark) Customeracquisitioncost
6 ClickThrough/ResponseRate(websites) Costper visitor
7 DistributionPoints (foodmanufacturing) Total costof sales person
8 Distributors (re-sellers) Supportcost
CustomerService
Costs canbeamix of morethanonetype

Robert H. Hacker 34
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 Business Model CONT’D

• PRICING
• CAPEX
• HEADCOUNT

Robert H. Hacker 35
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BUSINESS MODEL SUMMARY

YEAR
1 2 3 4 5
Sales People 3 10 20 40 80
Revenue/Sales PersonAnnualized 1,500,000 1,200,000 800,000 800,000 800,000
Sales PersonEBITDA Contribution 450,000 330,000 170,000 170,000 170,000

Revenue 1,200,000 7,200,000 12,000,000 24,000,000 40,000,000

Gross Margin$ 480,000 3,024,000 5,280,000 11,040,000 19,200,000
Gross Margin% 40% 42% 44% 46% 48%

OperatingExpense 900,000 2,700,000 4,200,000 7,500,000 11,000,000

EBITDA (420,000) 324,000 1,080,000 3,540,000 8,200,000
EBITDA % -35% 5% 9% 15% 21%

NewInvestment 1,500,000 3,000,000 2,000,000 - -

Robert H. Hacker 36
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SOURCES AND USES

Robert H. Hacker 37
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 REAL VC
Sure signs of a thoughtful
management team are:

• the ability of the management

team to articulate the material
business drivers in the model
• to test the impact of the variables
on material financial metrics
• to sanity check the assumptions
with market comps - i.e. not to
base the business on a
black swan outcome

• to focus the management team

and company KPIs on the
identified variables.
Will Price Hummer Winblad
• the inclusion of scenario analyses
April 24, 2007
in investor presentation
[Link]

Robert H. Hacker 38
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HOW MUCH MONEY TO RAISE?
• ATTEND FINANCIAL PLANNING
WORKSHOP

• END OF MORNING SESSION

Robert H. Hacker 39
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 CONTACT
ROBERT H. HACKER
• rhhfla@[Link]
• [Link]
• FB
• 305-742-8222

Robert H. Hacker 40
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