PPT - Launching the Venture

Report
Countdown to Launch
MBA 101
Patrick Vernon
Clinical Assistant Professor, Executive Director
Center for Entrepreneurial Studies
©2013 Patrick Vernon1
Agenda
•
•
•
•
•
Accounting
Finance
Operations
Marketing
Economics
2
Accounting
• Purpose: account for and communicate
• Necessarily “backwards looking”
Prof. Mark Lang:
“What’s the difference between an
African village market and WalMart?”
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
3
Financial Statements
3 Communications Pieces:
• Balance Sheet
• Income Statement
• Cash Flow Statement
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
4
Accounting: All Three
Balance Sheet
CocaCola 2009
Income Statement
Cash Flow Statement
5
Balance Sheet
Like a bank statement summary: shows what you have now
• Snapshot
• Assets and liabilities
• No income
• Not very relevant
for startups
6
Income Statement
Like a pay check or tax return: shows where things went
• Official accounting of income (e.g., for
IRS or SEC)
• Complications
for startups…
7
Income Statement: Complications
• When can you book sales and how do
you handle inventory?
(cash vs. accrual)
(accounts receivable and inventory)
• How do you handle loan payments?
(interest vs. principle)
• How do you handle big purchases?
(depreciation)
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
8
Cash Flow Statement
• Accounts for those
things
• Very complicated
• Not for us
(anytime soon)
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
9
For Startups
We “project” using income statement:
EBITDA
(earnings before interest, taxes,
depreciation and amortization)
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
10
EBITDA
Balance Sheet
Income Statement
Cash Flow Statement
11
Income Statement
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
12
Variable vs. Fixed Cost
• Variable = scaling with production
– COGS (cost of goods sold)
– Sales commissions
• Fixed = overhead
– Rent
– Depreciation of equipment
– R&D
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
13
Variable vs. Fixed Costs
• Gray area: labor cost
– Temps → variable
– Salaried → fixed
• Ideal business model:
– All costs are variable, and you can get
income first (accounts receivable before accounts payable)
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
14
Accounting Glossary
COGS
Overhead
Gross Margins
Cap Ex
Depreciation
Cost of goods sold
Fixed cost
Income – COGS
Capital (or BIG) expenditures
Asset written off over years
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
15
Agenda
•
•
•
•
•
Accounting
Finance
Operations
Marketing
Economics
16
Finance
•
•
•
•
Purpose: planning how to invest
Invest = put some in now, get some back
“Forward looking”
Key topics:
– DCF, NPV, ROI
– Liquidity
– Debt and equity
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
17
Finance
• Time value of money: DCF
(discounted cash flow)
PV
(present value)
=
FV
(1+r)
(future value)
• Pricing risk with a discount rate (r)
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
18
What is the value of:
“Two Birds in the Bush”
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
19
Bird in the Hand
PV
(present value)
=
FV
(1+r)
(future value)
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
20
Risk and Return
• Higher risk implies higher potential
return and higher variability
(we may win big or lose all)
• Risk gets converted into discount rate
– Bird in the hand | r = 100%
– Savings account | r = 1.5%
25
Why bother?
We have to decide how much we are
willing to invest based on:
• Expected risk: r
Examples: risk and r
• Expected end value: FV Savings Account 0.75%
More Examples: risk and r
Money Market
1.5%
Variable Mortgage
2.5%
Bonds
4.0%
Fixed Mortgage
3.5%
Public Stocks
7.0%
Home Equity Line
10%
Tech Startup
10X !
Credit Card
17%
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
26
Another Lens: NPV
• Net Present Value
• The current value of future cash flows
• Minus the investment required
PV – Investment = NPV
Example: $100 - $90 = $10
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
29
ROI
Return on Investment
ROI =
Gain
÷ # years
Investment
Note: does not account for compounding.
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
30
ROI
Examples
$1.50
$100
$50
$100
÷ 1 year = ROI 1.5%
÷ 5 years = ROI ~10%
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
31
ROI Example
• $50,000 to start venture
• Sold in year 5 for $150,000
• ROI
– $100,000 ÷ $50,000 ÷ 5
– 40% over 5 years
• Or “3X return in 5 years”
How can we estimate the exit value?
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
32
Estimate Value = “Valuation”
• #1 = find comparables
• #2 = use multiples
• But remember
– Depends on what someone is willing to pay
(= “market driven”)
– Illiquid asset
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
33
Liquidity
• Liquid: spend/trade easily
• Illiquid: takes days/months/years to trade
• Cash: liquid
• Equity: illiquid
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
34
Why bother?
We have to decide how much we are
willing to invest based on:
• Expected risk: r
• Expected end value: FV
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
35
Why not bother?
• For startups, the odds of success and
potential future values are wildly variable
• So we should know these concepts exist,
create goals, but don’t get married to the
specific numbers
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
36
Finance Acronyms
ROI
IRR
DCF
NPV
r
return on investment
internal rate of return
discounted cash flow
net present value
discount rate
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
43
Agenda
•
•
•
•
•
Accounting
Finance
Operations
Marketing
Economics
44
Business Model Generation
Operations
Marketing
45
Operations
• Purpose: maximize efficiency in business
activities
• Key topics:
– Supply chain and inventory (SKUs)
– Production (capacity/queues)
– Complexity
– Core competency
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
46
What are they famous for?
47
48
49
Sell By Dates
50
Complexity: Which is Better?
51
Complexity
• SKUs (stock keeping unit): code for each
product
• More SKUs = more complexity =
exponentially more variability = death
• Simple is king
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
52
53
Core Competency
• You can’t be good at everything
• Anything you cannot dominate…
…outsource!
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
54
Capacity and Queues
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
55
Capacity and Queues
• Lookout for bottlenecks (where in the
production line you have limited capacity)
– MBAs call these “Herbies,” from The Goal
• Bottlenecks = HUGE queues
• General rule: capacity should be well
below 90%
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
56
Operations
Focus
Keep it Simple
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
57
Agenda
•
•
•
•
•
Accounting
Finance
Operations
Marketing
Economics
58
Business Model Generation
Marketing
59
Marketing
• Purpose: connect with customers
– Design products and services according to
customer needs
– Communicate (both ways) and interact with
customer
– Set prices fairly with knowledge of customers,
competition and company strengths
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
60
Marketing: 4 P’s
•
•
•
•
Product
Placement
Pricing
Promotion
= 5th P = “Positioning”
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
61
Product •
Place • Promotion • Price
• “Understand customer needs and design
products and services accordingly”
• Differentiation (of products)
• Segmentation (of market)
• Product “mix”: multiple products for
multiple segments
• “Value proposition”
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
62
Product
• Place
• Promotion • Price
Channels
• Direct
– We directly contact customers
• Indirect
– A partner, reseller or distributor contacts
customers
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
63
Product
•
Place •
Promotion
• Price
Advertising
Sales
PR
Print ads
Broadcast ads
Packaging Inserts
Product placement
Brochures
Posters
Billboards
Display signs
Point of purchase
Logos
Symbols
Trademarks
Premiums
Gifts
Sampling
Fairs
Trade shows
Exhibits
Demonstration
Coupons
Rebates
Trade-ins
Tie-in
Loyalty
Bundling
Blogging
Tweeting
Website
Press kits
Speeches
Seminars
Charity
Sponsorships
Publications
Community relations
Lobbying
In-house magazine
Events
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
65
Product
•
Place • Promotion •
Price
• Positioning
• Value vs. quality
• Rational vs. emotional
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
66
Pricing Strategies
Cost Plus
Going Rate
Premium
Set prices to cover
variable costs and a
portion of fixed
costs.
Create pricing wars
between competitors
who offer the same
or similar.
Penetration
Opportunistic
Predatory
Price at a loss to
gain market share.
Set premium prices
for products/ services
in high demand with
short supplies.
Price-cutting
prevents others
from entering the
market.
Price to match
customers’
enhanced
perception.
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
67
Pricing Lesson
Do not compete on price!*
*Unless you have a cost advantage.
68
Positioning – Segmentation
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
70
Light
IT Impact
Segmentation
Incredimail
Bissmail
DIY
Target Market
1- email
MindArrow
eMailgen
1-1 email
eDesigns
silverPOP
Zaplet
MailRound
Heavy
71
Segmentation
72
Agenda
•
•
•
•
•
Accounting
Finance
Operations
Marketing
Economics
73
Economics
• Purpose: understand production and
consumption best practices
• Key topics:
– Supply and demand
– Utility
– Elasticity
ACCOUNTING ● FINANCE ● OPERATIONS ● MARKETING ● ECONOMICS
74
Economics
75
Elasticity
• “Price elasticity of demand”
• How much will demand change as price
changes
Examples of elastic products?
Inelastic?
76
Porter’s Five Forces
• Framework to assess
attractiveness of an
industry
77
Barriers to Entry
• How to stop others from competing
• Sustainable competitive advantage
– Patent
– Trade secret
– Superior business practice
– Location
– Partnerships
– First mover?
78
Economics Glossary
Economies of The increase in efficiency as size
increases
scale
Utility
Commodity
Sunk cost
Opportunity
cost
Measure of satisfaction
Same no matter who produces it; must
compete on price
Amount already spent; should not be
factored into future return potential
Consider the lost income of other
activities; e.g., add lost income to cost of
going to school
79
MBA “Core” Curriculum
•
•
•
•
•
Accounting
Finance
Operations
Marketing
Economics
80

similar documents