Session 1, Part 1: Introduction and Overview of Business Plans

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ocw.mit.edu okay good evening everybody nice and warm from the uh snow thank you for coming to nuts and bolts of new Ventures business plans on

a snowy night in Cambridge uh my name is Joe hadzima and uh this is the first of six evenings we're going to have for the course uh the course name is nuts and bolts of new

Ventures uh and business plans first of all it's uh not really about the business plan itself uh think of it as we're going to talk about how to plan and execute a new venture

um and don't think of a business plan as a as a fixed document um in this course where really it's a dynamic uh process we're going through it it may be a document it may

be a few slides uh but at the end of the day what it ends up being is a shared Vision uh between you and your team as to where we

are where we're going and how we plan to get there U so that's the goal of of all of this um and I should also say uh

because I I know some people in the audience are not doing traditional business ventures we're going to use the term the business terms a lot uh but this could equally apply to social

developmental entrepreneurship to nonprofits uh even to governmental Ventures it's a way of thinking about how to organize new ideas and get them

going now a little bit about the course this is the 25th year it's hard for me to believe it's been 25 years for the course and the founding of the course has an entrepreneurial lesson in it so

here's the backstory I was teaching some things here on sort of legal stuff and some students came up and said you know we've I think we had one

entrepreneurship course at Sloan at the time and they had taken that and they said it's a great course but it's not um it's not telling us anything practical so could you do a course during IAP to

tell us how to do something practical how to start a company so this was back 25 years ago before the internet and the IAP courses were in a fix printed

catalog that you would get shows you how far we've come so I said well you know I I'll think about doing a course and uh let me get back to you well I got tied up with some other things um and then they came to me and

said we we put it in the catalog and we dare you not to show up interesting so I thought about it uh for a while and I thought well I should

be angry but you know I think I have a customer I think these people want something so the first attribute was I had a customer all right I'll play this game for a bit problem is I only had two

weeks to organize it so that wasn't enough time to really do anything formal so I said I think it was four nights and I said all right let me pick uh we'll do let's see two hours

three hours we'll do eight topics and and I'll go and find some people who know about those and how am I going to make it easy at the last minute to get these people I said just come into class

and whatever the field is that you're in uh speak maybe 10 minutes on the five things I wish somebody had told me about whatever you're talking about uh before I got started then we'll do questions

and answers and I said I got to make it entertaining so I called up people and said you know if you do you know somebody who can do this talk uh and if you do you you have to

have seen the person you know talk they have to be entertaining you have to vouch for them and so we did this in a period of two weeks and probably half the speakers

that showed up for that first session I had never met before so I'm thinking this is going to be this is going to be a disaster right it turned out to be a great success and uh I think the lessons

for this about in an entrepreneurial way were um I had a customer for a product uh they wanted something I was able to clearly Define the task

because I didn't have time to do anything more if I done it myself it probably would have taken longer and not been as good good I got great people and I I was able to communicate to them what

the task was and then I got out of their way and they did a great job so there's an entrepreneurial lesson in how to start a company make sure you have customers get great people the whole

business planning new V Venture type thing is really trying to find what the task is and then to be able to communicate and execute on it so the course really is an entrepreneurial venture um that's how we started and

later um uh yast uh basically figured out how we could get credit for it and it's just blossomed ever ever since so that's the that's the background um in

the 25 years we've seen all sorts of things we've seen bubbles the internet bubble I I I stood here thinking I just read in the paper that hot mail back in

1997 or so um had started up and been sold in 18 months for $450 million uh selling or basically giving

away email and I'm thinking how am I going to explain to people this isn't the way it usually works in in periods of time uh more recently Instagram so there are some things that happen at points in time uh that defy direct Logic

on uh on it if you can catch those waves uh that becomes um a good thing to do we've also seen busts after the internet collapsed after the financial markets

collapsed uh actually that is one of the best times to start a company um and many of the really enduring companies have been started during downtimes and the reason is

resources aren't available there financing dries up you got to be really focused you have to actually deliver something of value and there's a lot of history about companies that get started

during down times but through all of that ups and downs uh it all boils down to really two basic thoughts and we're going to touch on it over and over again in the

course and that is whether it's a a business whether it's a nonprofit whether it's a governmental project it's the first thing you got to do is create

value so if you're not creating value you can't really do anything and then having created value the question is how do you capture some or all of that value to make what you're

doing sustainable and sustainable um in the concept of U traditional uh companies is profit and in the context of

Developmental stuff it can be we can do it again rinse and repeat so when we look at uh creating value we're going to be asking questions about who do we create value for uh how much uh do we uh

create how much value do we create and how do we create it and then when we talk about capturing value the traditional way has been in uh for

customers somebody who will pay you uh for your goods the product you do or your services and the trick as we'll see in financial projections and the business model Parts that'll come in the

next few days is is that whole process something where you can make enough money that you can continue it so traditional capture of value vales through customers um there are other ways to

capture values value in the in the area of advertising or uh monetization uh that we'll talk about also and you think about uh things like where third parties

provide that uh payment so think of the US healthc care system where historically uh the patient the person who the values delivered to as in you're going to get treated isn't really paying

directly the cost of of that so sometimes figuring out how that works can be the challenging part

um okay so at the end of the day we're going to need uh to make all this happy we're going to need people that's the number one uh thing you're going to need for a venture resources of some sort uh

either cash or Partnerships um skills some of them you'll learn in this class some of them you'll learn on the on the job and then that that one that's the hardest one to figure out but if you can get it uh it's

the best and that's called luck uh I'll always I'll always go with some luck so our goal for the course is basically to make sure you get

infected with the entrepreneurial thinking virus and it it really is a virus uh that is can be infectious the good news

is it's not known to be fatal it's highly contagious it is a lifelong um Affliction so you'll have to get used to it uh but at the end of the day I

think you'll really uh if you catch it you'll be in best best shape uh let me this is what we're going to be doing tonight uh we're going to tell you a little bit about who you are we're going

to introduce the teaching team we'll introduce the case study and Business Plan Basics tonight and then we'll take a small break uh and then we'll get on

with Steve Pierce who's come all the way from Florida today to to talk to us he's thinking maybe that wasn't such a good idea okay so who who's in the class

um uh I want you some of you signed up many of you signed up at the website uh we had 160 signed up and the organizations that you're from are and I'll just read them alphabetically

Boston University broad Institute Columbia University the Department of Defense Harvard College Harvard Kennedy School and Harvard business school Mass

General Hospital University of Massachusetts University of Macedonia University of Michigan Toronto Welsley College several private

companies that I won't say your names to protect you and of course uh M now the areas that you said you were interested in are all over the place we have consumer devices foreign language

learning Financial technology social Enterprise related to health care educational technology medical devices one of the reasons I'm going through this is that

we hope that in Period of this course you'll actually form some teams so if you find some of these topics interesting uh or if you're some of these people then you'll at least I'm shouting you out a bit we have nuclear

energy for those of you into that specialty biotech chemicals a sleep product oncology drug delivery biotechnology 3D printing ey glasses in

West Africa independent film industry lab testing process and Equipment Big Data data privacy B2B

Information Technology Energy technology Aerospace crowdfunding and e-commerce so hopefully you'll find a kindred spirit in those

now what what about the background of the people we have some um people this is the first course they've ever taken in entrepreneurship uh we've had people have taken a bunch of other

entrepreneurial courses at MIT or at other universities uh in fact we have a couple people have taken nuts and bolts before uh they did pass before but they're back for

more uh several startups somebody who's always been in government and somebody who's been a couple people in 15 plus years uh in large

organizations and some members of The Venture mentoring service are actually in the audience we have undergraduates grad students postdocs visiting faculty and staff so

question is it's pretty diverse audience and we've got a lot to cover so little advice to the people that are first timers I would say soak it all in um and as you go forward try to think

about the kind of things we talk about when you approach entrepreneurial things for the first time uh more experienced people um use this to refine your thinking I've been in this course for as

I said 25 years and every single year I come up with some refinement in my thinking listening not only to the speakers but to the questions that come so um I hope you enjoy the course um we

do have to calibrate uh before we get going though it is MIT so we have a our first Formula and it is H equals r divided by

E so I've got an audience with a whole bunch of different people and we're trying to solve this equation and we're trying to maximize H so for those of you who can't see H

equals R / e anybody want to take a guess what these symbols are yeah the snow has got you all right

I'll give you a hint H is happiness okay this is where okay let's see yeah reality expect oh he jumped right to it reality over

expectations right last year somebody said Revenue divided by expenses which is equally good I guess so this is a generalizable formula and for those of you who have even

slight um idea of math if I lower your expectations to zero I can make you infinitely happy but I think I'm never going to be able to do that but the point is um this

works both for teaching here and for everything you do it includes uh if you if you uh over uh deliver on what you promise you'll have people happy your

investors will be happy your customers so happiness is reality divided by expectation uh with the fact that you can never quite get expectations to zero

okay so lower your expectations I want you to all be happy as we move through the course so who are we um um we have Joe Yost Gino Yan old Cher

and some highly paid volunteer speakers that I'll introduce uh a little bit of my my background senior lecturer at Sloan was a partner in a law firm in Boston for many years was one of the

founding judges of what's now the 100K competition uh former Global chairman of the MIT Enterprise Forum uh managing director at Main Street Partners where we do technology commercialization

and co-founder and president of Ip Vision that does intellectual property analysis I should say this is the first course at MIT that we're aware of that brought both sides of Campus together

the engineering science architecture side of Campus uh to the Sloan side you would think they're miles away and until this class they really weren't together there have been a lot of companies

launched out of this class some have gone public uh and it's um you know it's been quite a history over time um then I'd like to intr uce our our case study

next um this is virtual ink um that if you can't read that uh that logo up there this is a case will

uh you have in the materials it is a computer peripheral company and let me see if I can make this

work I'll give you a little bit of an introduction here is that appearing up there for the times when you don't need

a projector and writing on the Whiteboard is the best teaching tool there's the Moc capture ink recording system enabled by mimo Studio software the mimo capture system actually sees

and records everything you write on the board in real time and multiple colors it can even convert handwriting into editable text the system creates digital

files that you can send to your students so now they can focus on the lesson rather than on taking notes and you'll save time by using the digital files in other classes the mimo capture system

works with your mimo teach interactive system and comes complete with a magnetic charging tray four rechargeable marker holders and a digital eraser the miio capture system bringing your

whiteboard notes into the 21st century [Music]

okay so that that is an overview of of what virtual Inc eventually became and in fact today they have a whole bunch of other products yanal our entrepreneur uh who's going to come in

at the end is uh was the founder of it he's got a very interesting story The reason we use Virtual Inc even though it's a little bit dated it was in the late 1990s is that it's an easy concept

to understand so we're not getting into all sorts of although there's some technology behind it to be sure uh was a entr in entr in what was then the 50k

competition uh it's an interesting story of the times uh and the company and most importantly it's that yanal himself comes in and he tells you stuff that

you're not going to uh find there it's so easy to get people into a class like this who are successful oh I came up with this idea of my dorm room and I did this we raised some money went public

now wealthy well you don't you don't really learn anything from that um you learn if it's lucky and everything works out but yanal comes in and he'll tell you a very interesting story of of what

he went through during the uh the whole period now the uh we'll mention it from time to time during the course you'll see reference to it in the in some of the M materials as you prepare the

entire plan is in the course reader uh do not assume however that it's a model uh plan every year we get um uh people handing in a uh the executive summary

and they follow exactly the virtual link thing and uh I don't want you to do that I want you to think on your own about it but it's it's an interesting one you don't I tried to find another plan to

work on and and a lot of people won't give up their original plan uh or they never actually had W so it's a unique situation we have um now we're going to go into

business plan uh Basics this is a introduction I'm going to give about what's in a business plan the kind of things you need to think about and then over the course of the next five six

nights we'll be filling in each of the components of it so think of this as a high level overview and um it's going to be a little bit um like the MIT fire hose approach for those of

you who aren't MIT students they say that MIT going to MIT is like taking a try to drink a water from a fire hose it's just so much coming at you and uh

we're going to throw a lot at you over this period of time some of it's going to stick right away and some of it you won't get for a while and the reason I know that is we get emails back

constantly saying oh I just encountered this situation and I finally figured out what you were trying to explain to us so we always want feedback and as long as people find what we're doing useful

we're going to continue to to do the course okay so topics in my my overview is um why write a plan what should be in it

and then talk a little bit about the plan as a financing document so does anyone know who this uh character is this is uh Dwight Eisenhower Supreme

Commander Allied Forces Europe uh D-Day uh became president of the United States Life Magazine he's on the cover and he says plans are

worthless so so I guess we're sort of done with the course this is a guy who planned and executed this massive Invasion and if you've read any of the history of of it

it's just an amazing operation so plans are worthless but planning is everything so again today these days um

some well we'll talk about business plans and whether the right one specifically so for example The Wall Street Journal had a a big article about does a startup really need a business

plan and what they're talking about are written uh business plans and their academic studies showing that people would be better off just to go off and launch a company and I I I pretty much

agree with that at one level I've been around the country judging various business plan competitions or classes that have business plans it's pretty clear that the people doing it have no

intention of actually starting a company it's just an academic exercise at MIT that's not what we're doing we're trying to figure out and and what Yos and the people at the 100K did was say

you know we're trying to build tomorrow's leading companies this is about trying to actually get things going so uh a business plan or at least thinking about a business plan is really

what you need to do to launch a company so why actually write a real plan well uh you have to you think

because no body's going to finance you without something written uh you may need it to talk to strategic Partners to explain what you're doing to others and

to attract ke people but the real reason you need to write a plan or think about it is you need to understand your business the the what is the scarcest

resource that that you as an entrepreneur have out there money plenty of money in the world time it's your time the reason to

think it through is you want to spend the next three to five years or whatever working on something is this the best idea you have um you know for an entrepreneur it's always well I need

money well the the point is money tends to flow to where opportunity is so if you can create value and opportunity um you can get money it's harder in some parts of the country than others but the

real scarce thing is your time so you really need to understand um and and think about the process of planning famous expression people don't

plan to fail they just fail to plan um and in the course of this course we're going to be asking you to think about who are your customers or users who who cares about what I do um will

they buy or use what you're doing what will they pay or how can you otherwise uh make money or get resources capture value how are you going to make

and deliver Del it uh think about uh something as simple as Netflix as a concept right back when it when it wasn't streaming it was DV D in a in a

packet shipped to you it's not a it's not a amazing concept it's pretty straightforward but the the planning their key was they could actually deliver on it effectively and efficiently or Amazon selling books

online that's how they got started I mean what's so hard well there's a lot that goes on in the background and what are the resources people and Technology you'll need

and so whether it's um a Web 2.0 or a biotech or a uh social developmental I want to just reiterate the the really two basic things it's create

value and then figure out how to capture or harvest the value that's the key thing we're trying to do so uh how many of you have seen the uh movie

uh uh The Social Network okay you may remember this scene let's see if this works if I can do that so adoro says it's time to monetize the

site and Mark says what does that mean and Eduardo says it means it's time for the website to generate

Revenue no I I I know what that means but I'm asking you how you want to do it and he says advertising remember that famous advertising and Mark's reaction

is no and he says Ardo says uh well we've got 4,000 members this is Facebook Okay 4,000

members and Mark says because the Facebook is cool if we start installing pop-ups for Mountain Dew it's not g to and aoro says well I wasn't really thinking about Mountain Dew it's but

maybe at some point I'm talking about the business and the company the site and Mark says we don't even know what it is yet we don't know what it is we don't know what it can be we don't know what

it will be we know that it's cool it's a Priceless asset I'm not giving it up Eduardo says when will it be finished

and the famous answer is it won't be finished that's the point the way Fashions never finished so here they are these guys that have created something that they think of have value and

they're trying to figure out how to harvest the value value so I went and I looked at the U 10K for Facebook 10K is

the annual report you file with the Securities and Exchange Commission uh when you're a public company and in the first part of it they say you know you have to say what your business is and they say our mission is to make the

world more open and connected and so I'm looking to try to figure out what they say their business is after that and it was very curious uh they had three major headings in the 10K the first one was

how we create value for users the second one was how we create values for developers through the Facebook

platform and the third one was how do we create value for marketers so here they are a public company with what billions of users now and they're focused on how do they create value and they're still

struggling a bit with what their uh Revenue model is on the other side so the two basic qu my point is the same things that you're going to think about starting a company how do you create value and how do you harvest value never

goes away it's constant through this and I thought it was I was thought I could go to the 10K and find some really nice story about how they harvest value and they're still thinking about how to

create value now one way to to think about what we're going to do here is to have a visualization and um I think of it as a

a pyramid so at the top of the pyramid you can think of is your mission statement similar to what Facebook said and underneath that supporting that is

uh your elevator pitch people know what elevator pitches are I think we did that in the 100K it used to be all of the uh Venture capitalists lived in you know offices were high- Tech high buildings

so you'd have maybe you know 20 floors the theory as you get into the elevator you turn the person turns you and say what do you do and you have 20 floors to explain it it maybe 30 seconds um a lot of the VCS

have moved to two-story buildings the elevators if they take so you have to do this as you run up the stairs with them so you got to be even crisper today than before underneath that might be the

executive summary we'll go into that a little bit under that might be the the PowerPoint presentation under that could be the full plan if you get to the point of

writing one but underneath all of that our set of Foundations of individual topics we'll go through some of these through the course and the point is it it takes a lot of effort to

distill everything down up to the tip of the pyramid and what what you're looking for is you can describe that top very clearly and have it supported all the way down through

it the mission statement might be a sentence or a paragraph the elevator pitch could be 30 seconds the executive summary 2 to five

pages is Powerpoint uh 10203 do you know the 10203 ru rule I put a link in on the website to the guy kwasaki clip about

that so PowerPoint I I totally don't do this in this presentation but he says 10 slides uh 20 minutes 30 point

font that's what you're aiming for um and then the full business plan could be anywhere from you know 25 to 30 pages if you you end up doing that the slides

by the way uh for most of the presentations will be posted on the website afterwards so um that'll help you out so now the question is all right

I sort of get it it's this image that I have to do and U figure out question is who actually writes this uh is it the founder alone the team or even a

professional um hired right consultant Charlie tillet who will be here on uh Thursday uh and I stood outside this

room at an MIT Enterprise Forum event during the break and I asked Charlie who had entered the 10K competition back in the day what are you doing this summer Charlie he says well I'm graduating I'm

thinking from Sloan I'm trying to think what to do I said well you know I'm working with some entrepreneurs I've been working with them for a couple years and they really could use someone to help write a plan they need to get

some funding and Charlie was game he hopped we hopped in his truck drove up to a strip mall up in tuxbury I think it was um a room with 10 engineers and he

ended up joining the company to write the plan uh and stayed with them um through when they went public but in the end of the day it was the entrepreneurs that

needed to own the P plan these guys were great Engineers but they couldn't write a plan if you you know paid them a million dollars they just couldn't articulate it well so that's one of the reasons we try to put teams together

because if you have a great idea but you're missing some skills you got to figure out a way of getting people with skills together and those entrepreneurs would never have gotten anywhere near where they are today if Charlie hadn't

joined him and Charlie wouldn't have been able to take a company public if he hadn't hooked up with the idea so the point is whoever writes it the team has to own the plan but by which I mean they

really have to be able to defend it um sometimes the issue is well what do they look like um uh you know don't put in a big binder um it doesn't really matter how

you put it together uh it should just look somewhat professional but not overly slick you know you're you're an unknown character if if Bill Gates came up to me and threw a napkin on the table

with some ideas on it i' he'd have my attention but if you do the same thing you know you're not quite there yet so it's the first step towards it you've

got to have something that says this is a serious team or person that are going to do some serious things now the thing to remember is the plan is really a selling document at the

end of the day um entrepreneurs if you're going to be an entrepreneur you better get comfortable with selling because you're always selling you're selling uh customers you're selling

financing people you're trying to convince them but by selling I mean you're trying to convince somebody that what you want them to do is something they should do you know convincing people to do something is is quite a

skill and you you should get good at it uh you really should work at it you know it's it's selling customers financing sources Partners recruiting people so you're always selling um as an

entrepreneur at some level you may not be the best but you should really practice that uh so this plan is the first part it's a sell selling document and uh whatever it is it's not

a hyp document at the end of the day it's got to be defensible uh the elements of a full plan these are the topic areas whether whether or not you put them in a written

document or not you need to start to think about uh and during the course uh we'll touch on a number of these there's executive summary and a traditional plan uh something that says what's the

opportunity you're looking at um what's the market uh you're going after what are the economics of the business all of these things things we'll go into a little more detail for the technologists

in the audience note that there's no particular section here that says technology and the reason is um people by and large don't buy

technology you know technology is something we use to accomplish things and so the plan really isn't fundamentally about the technology it's what's the technology enables and when

Bob Jones comes in tomorrow he'll talk a little bit more about that from from a what people actually buy Viewpoint um now a little bit more into the nuts and bolts here a cover page you

should have one in a plan it should have some information that you could uh figure out who who who this plan is um how to reach people confidenti uh

confidentiality Legend and the Securities Law Legend we're going to um cover that in detail on the night we do the legal stuff here is the virtual Inc cover page

as an example they got some some contact info there it always frustrated me when I actually got a written plan if I liked it I you know often I wouldn't be able to figure out how to contact the people

so put the address on it and they uh they put a little um confidentiality Legend on it it looks something like that initially uh and as we'll see on the

night when when the we do the legal stuff when the lawyers get a hold of this the legend changes a little bit so

I'm not saying don't get the lawyers early on But realize that uh you got to manage them a little bit but we we'll go into that in more detail um now if you actually have a

written document it should have a table of contents so people can figure out what's in it and uh it should have page numbers and all of that sort of thing so my question to you is who what do you think

people read first in a in a business plan what's the first thing you would read If someone gave you a plan yeah executive summary because that's as

you'll see here that's sort of explained what's going on what's the second thing people look at probably most important Beyond when

they figure out what the heck this is about it's the people who are these people so if you got an actual document they're trying to figure it out they're going to get a little frustrated if they

can't figure out where where the information is so not to overdo it but have a table of contents so if the first thing they read is an

executive summary what is it really well it's the first thing investors read as I said think of it as a resume for your full plan right so the goal is to get

the interview when you have a resume it goes out there you want to get the interview so you can explain and yourself and and hopefully get the job in the case of a business plan the

executive summary uh or the the uh elevator pitch is really to get a chance to explain more fully what it is you're doing um and then when they look at the

executive summary I like to think about what investors are looking for um and there are the three W's the first one

is why this why is what these people are proposing to do why is it something I should be interested in why are they interested in it um is it something is it a big

problem I mean it could be a big Market opportunity or big problem in the world Amy Smith who um was a MacArthur fellow teaches over at the ederon C was in the

100K and I remember quite distinctly when she got up to give her pitch at the judging competition she said something it went like this she said uh uh 1.9 billion people in the world don't

have access to clean water whoa I didn't know that in order to test whether water is clean uh the traditional way of doing it

is to incubate the water to see what if anything bad is growing in it she said it a little more articulately than I did and she said all the existing incubators

are powered by electricity if you look where the 1.9 billion people without clean water live and you look where the electricity is they're not in the same place our

invention is a way to test water without using electricity let me explain how you did it so from a initial Viewpoint wow this is a big problem so why this a big

problem so that's the first thing why why is what you're proposing something important why are you spending your time on it the second is why now why is now

the right time to do it um I've been on the sort of Leading Edge of technology for many years I I had somebody come up to me at an

investment conference last year said he said you're at MIT yeah I said uh well tell me about this new 3D printing thing it's really hot I said that's been around for 20 plus

years right I mean it's just now it's getting interesting for a variety of reasons but I can show you you know 20 years ago um so sometimes it's right now is the right

time and I'll give you some examples uh uh down the road um the third is why this team all right big problem something important

there's a good reason why it's now why are these people the right people to do it those are the things people are really trying to glean when they read your plan or hear your

pitch to which I asked if if they if they get the first three there's a fourth one they get which is you want to guess what the fourth one is why won't this work so if that you

know in a selling process when the the the potential customer pushes back and is starting to ask questions about why you know well will it work for this or work for that you you've sort of got

them hooked and Steve will probably talk you how to set the hook a little bit later tonight so the three wise why this why now why this team that's that's what

should come out and the uh why won't this work is is part of the task is to figure out how to lead people to the right conclusion on that and

I'll talk about it in a little moment on that so the executive summary two to two to five pages Max it's got to be clear it's like a resume and the object is at

the end of the day someone can really articulate what what you're going to do the elevator speech is to the executive summary the elevator speech might get you an invite to submit an executive summary which might give you an invite

to do the whole plan or a pitch uh it's going to try in a two to three p five pages to say who you are what are you doing um what do you uh what is the

market how many dollars you need what resources uh what is your sustainable Advantage if you do this why are you're going to succeed you got to pull all of that together in a very short period of

time it's a difficult document to write and you may end up writing it over and over again because you got to distill that whole thing down uh to it let me

give you an example of two uh executive summaries and since the fwn is so small I'll read it from here the first one is

called electronic components and uh let me read it to you if you can't see it on the screen electronic components Inc is a startup company that will make a variety of

electronic components beginning with a new type of aluminum based capacitor the unique product coupled with an excessive demand for capacitor devices will provide us with an ample

share of the capacitor market and numerous opportunities for expansion into related electronic components everybody on board okay this is a real one okay the

founders are dedicated and determined to make the Venture a successful and profitable entity that's good to know I thought they were just doing this for fun technical expertise is provided by

James F Lynch who has been involved in designing capacitors for 11 years he obtained a Bachelor of Science and electronic engineering from Massachusetts Institute of Technology that alone is probably going to get him

the experience of the fact he's MIT will overcome all of the other deficiencies here which is I don't think most people would understand what it is he's proposing to do um you know do you know what they

propose to do I mean how what is excessive demand for capacitors why why is there excessive demand how big is the market so and if

you read the rest of it um which I suggest you do when you get the slides it reads a bit like a a gr proposal there is a good thing in here that says that they've actually put their own

money in so the guy's committed now this is an example of something where there's probably given the nature of the person involved there's probably a lot of substance underneath but it's not doing a very

good service in trying to convey it so that's sort of a shame U because there's so many plans you read which don't have any substance behind them and yet they read a lot

better so we got to figure out how to make things better now the other one by way of contrast is People's Express this was sort of well let me read it the Eastern Seaboard of the

United States is ripe for the entry of a new super efficient lowcost air carrier to provide quick reliable inner city air transportation such an entity would

bring to the Northeast the same benefits that have recruited to other areas of the United States Chief among these are frequent jet commuter service between major cities prices competitive with

private automobiles fulfillment of the Congressional goals in enacting the airline deregulation act the new company will be able to achieve these goals for the following

reasons aggressive Innovative management that's been tested in the field equipment and Facilities designed specifically for lowcost production of air transportation Manpower selected

trained and motivated to be efficient and profit oriented read between the lines non-un probably and new systems to be applied to the entire business now if

you look at those two executive summaries I think most people would think that the People's Express which was sort of the early version of what we now call Jet Blue is a lot clearer to

understand what it is I mean it's got it it you can pretty much see see what they're doing it's they experienced guys they've thought about how to how to

design it and you could start having a discussion around this in a lot more detail than you would with the electronic components so the trick is to end up having an executive summary that looks

more like the People Express than one that just wastes a lot of words and not doesn't get to what you're supposed to be doing uh this is a virtual Inc executive

summary which you'll see um and U again it's not exactly the model but look at it it it was put this way into the 50k at the time

and you decide yourself whether you think it's a good executive summary as as part of your assignment okay so let's move into the body of the uh the plan

um and and when I say the plan I mean when you're in your planning process also so the question is what is the opportunity you're going after or what is the problem you're trying to solve um how big is it you know what's

the opportunity now what's going to what's going to happen at over time and why is the right this the right time for the the uh product or service um this reminds me in the 100K

was the 50k back in there one year we had a uh semi-final Awards thing you know here are the semi-final teams and one team came up and said I guess you guys didn't like our plan now back in

those days we didn't actually know who the people were that was part of it they were all no names we just looked at the ideas and I said well I don't actually know what yours was and he said well we were the guys with the air traffic

control system improved and it was a fascinating plan it was U you know they had figured out how to make it more efficient and I learned a lot of things about Air Traffic Control

Systems and I said the problem is you know none of us could see how that could be a business I mean you have to change the entire air traffic control system that appeared in the United States I

mean it looked like a great solution but you know is it a business and um they said well didn't you know that the federal Aeronautics Administration FAA

has put out a request for proposal for changing the air traffic control system in the United States no why would I know that you know

they had assumed everyone knew that that would have changed the whole complexion that meant at that time the convergence of a of of a driver for uh the business was there and they

didn't tell us that so they didn't get another opportunity uh in the healthcare area for many years we'd see really in technologies that could improve U

outcomes for patients and the question was well who was going to pay for it and a couple years ago Medicare put in some rules that said that hospitals get penalized if patients get readmitted

that's opened up a huge opportunity for things like home monitoring or other kinds of things that before it be very hard to see how that was going to work so there are a lot of new companies

trying to figure out how they can do things to finally help patients for better outcomes would there wouldn't be a market for that 5 years ago be a long hard uphill climb so why is this the

right time as I said uh I've been on the bleeding edge of some of this stuff um the body of the plan it should talk about the market who's there we'll go into more detail with Bob about

talking about customers investors have these different ways sort of of thinking of things and one of the questions that surprised me early on in my career was a VC that said

okay I get it you got a great idea but let's say you do everything that you said and you win who loses and what are they going to do about

it and we hadn't thought about that so you got to think about you know your disrupting a market for example what's the response be the incumbents are just

going to sit there so what's your plan for thinking it through uh that's an example of of planning process um these are the kind of questions again with Bob uh Jones

tomorrow night we'll go into pricing and distribution and and sales tactics and another VC uh expression is will the dogs eat the dog food so all right

sounds like a great thing you convince me it's a great thing but what evidence do you have that anyone wants it that's uh you know customers will the dogs eat the dog

food um now the development plan is how do you piece the the different components together in order to make U something that can work

within the time constraint you has have a as a startup uh you don't want nuclear fusion right nuclear fusion we've been working on for 50 70 years now and the problem

is if you've got a nuclear fusion kind of project is until it completely Works nothing works so there's really not a business is there a way you can take a portion of it and make it

work um I looked at Zipcar early on uh everyone's familiar with Zipcar uh fascinating concept it's sort of revolutionized a whole bunch of transportation thing but there were so

many moving parts that you had to put together in order to make that work you know at a place like MIT where the joke is um if you're recruiting a faculty

member you can you offer you can have three things one of three things you can have uh tenure the Nobel Prize or parking right so parking is what

everyone picks right so here's a company ZIP card that's got to figure out how to get parking places on you know there are a lot of things that were out of their control and at the end of the day it may

not have been a good investment I mean it may have changed things but I don't think a lot of people made a lot of money in zip card so you want to try to think through do you have to change the world totally in order to make a a dent

in the world uh because again limited time um the action plan this is part of the um what I like to think of is the

identification of credibility testers you know as Engineers if you said I got to build a bridge across the uh uh the Golden Gate uh there's a lot of things

you have to do to make that work uh and you know engineering is very much a think everything through kind of thing and often is very sequential in its process um the credibility

testers that a different way of thinking of it is are there some things that will make this project extremely difficult that if I can show I can solve I can drisk the

situation so thinking about a project from a you know how do I convince something somebody this is doable is an important part of it maybe in the case of the Golden Gate Bridge it would be

securing access rights to a uh an on-ramp uh or um you know doing if you think the issue is a technical issue you know doing a sounding to figure out how deep the uh

the Bedrock was I was sitting out on a Cape Cod beach one weekend with some house guests and one guy told me he's working on this project um it was very windy out there

and he said it's you know it's really windy here I said yeah it's always windy here he said well we're working on something involving that and it turned out he was one of the guys from Cape wind and what they were doing was

securing access rights to land um the cables on on it because if they didn't do that they couldn't get to the next level so that first thing is can you identify credibility testers to reduce

the risk and if you reduce the risk both for you and for investors you have a higher probability of success the other thing is to think about whatever you're doing

about how to sequence that relative to your resources so the ideal uh scenario again remembering H equal r ided e is you want to be able to ideally say I'm

going to do X and actually achieve it and then you can ask for additional resources to do the next step if you don't plan that out well and you get

stuck between tasks then if you might be able to get away with that once but if you do it the second time people are going to say well I'm not sure these guys can actually execute so thinking

about you know what are the steps I can do versus the resources in order to achieve something that I can say look I've added value so you should give me an opportunity to add even more

value um and I always like to try to um avoid dependencies on others if I can you know that's the big thing when you deal with a large company as a startup

you know you're moving fast and what they think is fast is like an eternity for a startup because they just have cumbersome processes so if you can figure out how to avoid dependency on

them um we won't cover the Lean Startup Concept in the class here but I do recommend the book for you to think about you know how do you uh test Out

Concepts with a minimum viable product it's it's a a valuable read and I and it applies Beyond sort of the Web 2.0 area Okay and then often there's some

things you need to in a plan but you know this doesn't go in the plan it goes in the appendices all of these things about U resumés you know getting a um a

business plan that has um the founder with f 15 pages of of Publications and stuff is just Overkill right put it in the appendices um if you have any of

these other things don't put it in the main plan have it available okay so now we'll talk about um the business plan as a financing

document and think of this about three different levels of reading the first reading is is like a resume uh if you make the cut you get the second second reading which

is to figure out if this going to justify the investment and the third reading is to say okay is this a plan that I as an investor and you as a entrepreneurial

team can commit to and the point is if you don't make the first cut you don't get the second two cuts so the question is what makes what helps people make the first

cut and these are some of the things that occur to people here's an idea that's just too good to ignore right just God what a brilliant idea or a Financial promise that's uh too good to

turn down if you have that a team that's good enough to believe it you know most investors will tell you they'd rather invest in a a top team an a team with a

B idea that an a idea and with a B team because things are going to change you want to make sure you've got a team that can uh deliver on it when things

happen an action plan that's uh credible and focused details to give Assurance of insight commitment and follow through and actually a format in style

it says these guys are serious about achieving what they want to want to do um some reasons plans fail to make that first cup one is just an ins insignificant

Market I've seen plans that say you know our Market's going to be 100 million and you look at the financing requirements and they say we're GNA need $20 million well that's just too much money for that

size Market U so that's an example of either they have to redefine the market or figure out how to do it cheaper uh non-credible technology this is usually not an MIT

problem although the issue can be an MIT that you're much too early um along that is if it's working on the lab bench there's a lot of steps until it actually

gets into the market um and then a failure to understand the market uh can be an example for example I was reading a um a

plan that clearly required the device was just it clearly required an FDA approval I mean I just couldn't believe that it didn't and yet they never said

anything about it and the question was well they should have addressed that and if I have to pull it out of them then you know these you know it gives you a negative feeling about the

team um and then other reasons the plan's too optimistic uh or naive or maybe some sometimes not ambitious enough uh you know I have a a

semiconductor device that's going to be I'm going to double the speed in 5 years well that's probably not a big enough Improvement so these are all reasons why

uh things may not get the second uh second read um there are cosmetic reasons and I hate to say it but it's so aggravating to see a team with really good ideas

screw up on the basics like you know misspellings uh you know slopp stuff you're looking again it's like a resume you know if you can't get the resume looking professional why would I even

want to talk to you or hire you um so that's the the overview of of uh things tonight for the business plan why write a plan or have a planning

process what should be in the plan again at a high level we're going to go into each of the sections over the next six days and then a little bit of thinking about the plan as a financing uh

document and I'd like to leave you at this point with this triangle that we're going to come back to probably each night just to drill it in of what you're trying to do at the end you're trying to

come to a very clear idea of what you want to do what it takes to do it and have all the support underneath and it's an iterative process some people think this is all linear I think about this I

test that it moves on it's very much like science can be we try something it fails we figure out why it fails we go back and try it again um but the goal is to find that sweet

spot uh where you can actually make a difference so with that we're going to take a I I'll ask if there are any questions again this is a high level but

if there's some things that need clarification I'll do the questions now otherwise we'll take a a break we usually say um uh you know take 10 or 15 minutes and

meet the people next to you because what are the requirements for the course if you're doing it for credit is you got to put together a written requirement the executive summary or pitch deck we want to try to get teams

formed uh to help you if you're somebody with an idea and you need some people to help vice versa um given that it's probably a blizzard out there tonight uh

I think we'll defer that initial meeting until tomorrow night take like a five minute uh break or so and we'll get Steve to get set up who's going to tell you how to make a pitch so at the end of

the day after everything you've done youve got to come and make that pitch and Steve's going to give you the the precursors of that so we'll come back at about 7 uh what 715 give you eight

minutes