MY BTI 1 Partner Market Customer v3 Handout

4/18/2011
Business Terminology Introduction
Steve Ciesinski,
Ciesinski Brian Engleman & Janet Gregory
SRI International
19-April 2011
© 2011 SRI International
Topics
• Market
• Customers
• Partners
• Making Money
• Building Value
• Using Money Wisely
• Making Investors Happy
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4/18/2011
Business Terminology: Part 1
Setting off on the journey
You are here You want to get there

Partners
Market
Customers
Will get you there
… if …
Business Terminology: Part 2
Navigating the journey

… if …
You do these things in an intelligent manner:
Make Money
Build Value
Use Money Wisely
Make Investors Happy
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4/18/2011
Framework for the Day
• Expectations
– Broken into general sections
– Introduction, non‐exhaustive
– Can’t do a 2‐year MBA in one day
– Loosely follows SRI Business Plan Basics week‐long course
• Approach
– Concept first
– A few definitions
– Team exercise to apply concepts
– Use athletic shoe example
Topics
• Market
• Customers
• Partners
• Making Money
• Building Value
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4/18/2011
Market
What business are you in? Where is here?
• Market Concept
– Define a go‐to‐market strategy
– Identify industry classification
– In what industry segment will you generate revenue
– How much of that industry segment will buy from you
• Key terminology
– TAM = total addressable market
– SAM = specific addressable market
– Market share
You are here
----
With a great idea
TAM = Total Addressable Market
• The larger industry or market that you are part of
• Important to your business
– Total market opportunity (size)
– Industry behavior (maturity, growth expectations, trends)
– Industry classification (US: NAICS – MY: Dept of Statistics) Your Customers
– Identify key industry players
Overall Market
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SAM = Specific Addressable Market
• The specific industry or market segment that you serve
– The market opportunity accessible to your business (size)
– Common needs with similar response to sales & marketing actions
– Identify competition Your Customers
– Bigger SAM is more interesting to investors
Market Segment
Overall Market
Market Share
• The portion of the market that you can “own” over time
– Establishes the size of your business
– Sets goals for sales & marketing actions
– Realistic market share goals are important to investors
– Identify key business considerations and risks
• Competitors
• Geography
• Time
• Resources
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4/18/2011
Topics
• Market
• Customers
• Partners
• Making Money
• Building Value
Customers
Who is going to buy this stuff?
• Concept
– Identify how buyers buy
– Ascertain best ways to reach buyers
Ascertain best ways to reach buyers
– Pinpoint best price maximize sales
– Describe sales process
– Define marketing plan
• Key Terminology
– Buyer behavior
– ASP = average selling price
– Customer acquisition
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4/18/2011
Buyer Behavior
• The process that buyers go through to make a buying decision
b
– Determines sales cycle time
– Establishes sales process
– Defines the marketing plan
– Affects volume & growth
Marketing Plan
Awareness Preference Decision
Sales Process
Suspect/Prospect Qualified Prospect Customer
ASP = Average Selling Price
• The price that will customers pay for a product / service
Important to your business
– Pricing strategy : Ability to command & hold the highest possible price
• Compelling buyer need / want / desire
• Limited supply: unique, not commoditized, few substitutes
• High value relative to competition & difficult for competition to respond
– Price elasticity
• Small change in price results in large change in demand (elastic)
• Price changes have no significant effect on demand (inelastic)
g g ( )
– Competitive positioning
– Price change expectations over time
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4/18/2011
Customer Acquisition
• The method to attract and sell to customers
Important to your business
– Establish best sales channel option(s)
• Internet store
• Call center / Tele‐sales
• Store front
• Face‐to‐face “direct” selling
• Solution provider (VAR = value added reseller)
– Determines cost of sales
– Reveals “throttle” for volume
Topics
• Market
• Customers
• Partners
• Making Money
• Building Value
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4/18/2011
Partners
Who can help you succeed?
• Concept
– Internal staffing versus outsourcing
– How product/service is turned into customer benefit
How product/service is turned into customer benefit
– External opportunities and risks
• Key Terminology
– Value chain
– Business ecosystem
– Sales channel
Value Chain
• How the product / services turns into customer benefit
Raw
Raw Build /
Build / Your
Your
material Mfg business
Service Channel Buyer
– Internal operations versus outsourcing
– Identify resource requirements
– Establish COGS (cost of goods sold)
( g )
– Suppliers & distributors required
– Relationships & partnerships required
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4/18/2011
Business Ecosystem
• Extended enterprise and business environment that affects your business
– Regulatory requirements Extended Enterprise
– Supply chain
– Complementary offerings Core Business
Products / Services
– Buyer versus user
Suppliers & Distributors
– Other factors Buyers
– External risks
Standards Suppliers of
Bodies Users suppliers
Suppliers of Complementary
Products and Services
Business Ecosystem
• Extended enterprise and business environment that affects your business
• Important to your business Business Environment
Business Environment
– Regulatory requirements Extended Enterprise
– Supply chain
Government Investors
– Complementary offerings Core Business
Products / Services
– Buyer versus user
Labor Suppliers & Distributors
– Other factors Unions Buyers Natural
– External risks Resources
Standards Suppliers of
Natural
Bodies Users suppliers
Disasters
Suppliers of Complementary
Products and Services
Environment Other
Trade Associations Stakeholders
Competitors Consumer Groups
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4/18/2011
Sales Channel
• Point of persuasion: where buyer exchanges money for products or services
b
– Internal operations versus outsourcing
– Customer acquisition
– Inventory
– Sales margin
Topics
• Market
• Customers
• Partners
• Making Money
• Building Value
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4/18/2011
Making Money
What happens to money collected from sales?
• Concept
– Revenue drivers
– Business models
Business models
– Making money profitably
• Key terminology
– Revenue
– Margin
– Profits ☺ (and losses )
You want to get there
Revenue
• Money that your company receives
b
– Possible sources of early revenue
– Revenue ramp & growth
– Payment policy (event driven, subscription, revenue sharing, other)
– Collection policy (% advance, cash‐on‐delivery, 60‐days net, other)
2011 2012 2013 2014 2015

T t l Units
Total U it 2 100
2,100 6 685
6,685 16 240
16,240 47 775
47,775 109 900
109,900
Price (ASP) $900 $945 $992 $1,042 $1,094
Total
$1,890 $6,317 $16,114 $49,775 $120,226
Revenue
Cash
$0K $5,000 $9,810 $29,865 $72,135 $ = in thousands (except price)
Collected
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4/18/2011
Margin
• Difference between the cost and the selling price, typically expressed as a
percent
You’ve heard the story about the man who bought
Panama hats in Ecuador for $3.25 and sold them in
I b i this country for $3. “You’re losing a quarter on each
one,” he was told. “Yeah, but I’ll make it up on
– Revenue drivers
volume,” he replied.
• Volume, unit or usage based
• Subscription, recurring
• Licensing Fred Remington, Pittsburgh Press
May 18, 1962
– Cost drivers
• Variable unit production cost Margin Calculation 2011
• Fixed asset cost
Fixed asset cost Revenue $1 890
$1,890
• Cost of capital, raw materials, etc.
‐ COGS $1,092
– Sustainable margin
Gross Margin $ 798
• Relation of revenue to cost
• Is margin sustainable over time? How? % (GM/Rev) 42%
Profit & Loss
• What remains when cost of bringing the product to market is subtracted
from the selling price (or revenue)
– Profit: excess of revenues over expenses ☺
– Loss: expenses exceed revenue
2011 2012 2013 2014 2015 Notes
Revenue
Total Units 2,100 6,685 16,240 47,775 109,900 ~35k/school, 3% pntr
Price $ 900 $ 945 $ 992 $ 1,042 $ 1,094 Avg. Price; 5% growthDirect Costs:
Total Revenue $ 1,890 $ 6,317 $ 16,114 $ 49,775 $ 120,226 Directly related to
Total COGS $ 1,092 $ 3,491 $ 8,520 $ 25,182 $ 58,214 Mfg & Shipping producing each item
Gross Margin $ 798 $ 2,826 $ 7,594 $ 24,593 $ 62,012
% of Revenues 42% 45% 47% 49% 52%
SG&A/Overhead
Costs as a % of Revenue
Sales $19 $126 $483 $1,991 $6,011 Support Only
Advertising Spend $142 $537 $1,531 $5,226 $13,826 Indirect Costs:
Local Marketing
Salaries $600 $1,879 $4,468 $12,796 $28,471 $100/bike comm + Exec, Mgrs
Overhead $ 19 $ 63 $ 161 $ 498 $ 1,202
Not directly attributable
1% of Rev ‐ Rent, etc
Total SG&A & Overhea $ 780 $ 2,605 $ 6,643 $ 20,511 $ 49,510 Fixed or Variable
Total Operating Costs $ 1,872 $ 6,096 $ 15,163 $ 45,693 $ 107,724
Operating Income $ 18 $ 221 $ 951 $ 4,082 $ 12,502
Taxes $ 6 $ 77 $ 333 $ 1,429 $ 4,376
Net Income $ 12 $ 144 $ 618 $ 2,653 $ 8,126
13

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4/18/2011

© 2011 SRI International

© 2011 SRI International

You are here You want to get there

© 2011 SRI International

You are here You want to get there

© 2011 SRI International

© 2011 SRI International

You are here You want to get there

© 2011 SRI International

© 2011 SRI International

© 2011 SRI International

© 2011 SRI International

© 2011 SRI International

You are here You want to get there

© 2011 SRI International

© 2011 SRI International

© 2011 SRI International

© 2011 SRI International

© 2011 SRI International

You are here You want to get there

© 2011 SRI International

© 2011 SRI International

© 2011 SRI International

© 2011 SRI International

© 2011 SRI International

© 2011 SRI International

You are here You want to get there

© 2011 SRI International

You want to get there

© 2011 SRI International

2011 2012 2013 2014 2015

Price (ASP) $900 $945 $992 $1,042 $1,094

© 2011 SRI International

© 2011 SRI International

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