Taking the plunge…

October 27, 2009

Today I attended an excellent session by Naeem Zafar on how to start a business. You can find out more about Naeem on his website. Below are my rough notes from this excellent session.

Essential Steps

Find unmet need –> Validate Need –> Market Research –> Create Investor Material –>¬†Find Team –> Write Biz Plan

Important Questions To Ask

  • Who needs it?
  • How many people need it?
  • How will I make money?
  • How will I be different from others?

Need to garner profound understanding of the market and customers.

Following are sections of your business plan,

  1. Executive Summary (One paragraph each for #2 through #13 below)
  2. Unmet need
  3. Market Size
  4. Competitive Landscape
  5. Your idea (your secret sauce)
  6. Positioning (is what you do etched in customer’s mind)
  7. Business Model
  8. Your Team
  9. Go to market strategy (how do you find customers and sell to them?)
  10. Key Financial Assumptions (For a restaurant, % of total table occupancy per week, # of rotations per night for a given table, total average bill per table etc.)
  11. Financial Projections
  12. How will you use additional funds? (Expand in other geographies, hire sales team etc.)
  13. Status timeline & where you are (Six months before today and 18 months from now, swimlane)
  14. Supporting data and research

Total 24-58 pages long, 12-14 slides (one slide per # above)

Market Research

Talk to at least 10 customers and 10 users. (Customer is who buys your product, user is who uses it. e.g. Parent will be customer while a teenager is an user)

Typical equity divide ==> 70% founders, 20% early employees, 10% Advisors

Series A is generally to finish product development (VCs take 40-60% equity in your company). Series B is get first customer. Series C is to scale and position to exit. VCs on a average have 20-25% stake. They are looking for 80-100 million exit. This means that total valuation at exit should be 400-500 million. This means that your idea needs to tap into a large market for it to be attractive to a VC.

Advisory Board Composition

  1. One Market Guru or domain expert
  2. One Tech Guru (who can guide you about technology to use)
  3. One Personal Coach
  4. One Connector (who can pick up a phone and connect you to the right person)
  5. One Celebrity (who may never attend your board meetings but is there for the impact)

Don’t bring up your idea when doing your market research as it will dilute the feedback you get. Don’t tell them that you have this idea/solution and how they like it? Ask them what their unmet needs and problem areas are.

Free sources for market research, http://www.10kwizard.com, http://www.sec.gov

Positioning is “what you do” etched in customer’s mind!

  • We are like _______ and unlike _______
  • We are like _______ except ________

Pick two axes and draw how you and competition looks on this matrix.