Monroe’s Motivated Sequence provides an excellent framework for an elevator pitch. Your elevator pitch is a short, persuasive speech that helps you get an appointment with a decision-maker. It must be compelling because these decision-makers whether they are investors, bankers or purchasing managers, are faced daily with a large number of interesting opportunities. It has to be short because these are busy people who appreciate people who respect their time constraints.
These people are busy. Longwinded introductions such as stories won’t grab their attention. PR stunts are likely to annoy them. You’ll have to find a way such as an interesting fact, or something that connects to their current agenda to get their attention.
Talk about the need for your product. This will be customer pain points that your product either reduces or eliminates. It could be the application of new technology to address a problem in a better way. Quickly state the need and then illustrate the need with an example to show that it is real. Quantifying the size of the need, in other words potential market size, will also be helpful.
Propose a way of meeting this need. This is of course your company’s product. Tell them how it solves the problem. If possible provide some examples of any successes you have had.
Tell them of how the world will be better if the market adopts your solution. You could also show them how the world will be a poorer place without your solution. Alternatively, you could do both. Although in reality you probably won’t have time.
Prompt them to take action. In this context it is getting a commitment for a lengthier meeting soon. The important words are commitment and soon.
Using Monroe’s Motivated Sequence won’t guarantee that you get that all important sales or investment meeting, but it will increase your odds. It’s worth your while investing time developing your pitch and practicing it until it is fluid and natural. This means that you can bring it out whenever a surprise opportunity presents itself. After all, fortune favours the prepared.
Accounts tell us about the health of our company. Forecast account help us understand what we need to do to remain healthy in the future.
For a start-up business the most important financial document is the cash flow forecast. This does not mean that the profit and loss statement (a.k.a. income statement) and the balance sheet aren’t important. Of course your business needs to be profitable at some point in the future, and of course the firm needs to build a strong balance sheet in order to obtain loans and help investors value the company. However, in the early stages cash is the biggest issue facing a new business. If you run out of cash, it’s like running out of oxygen: your business will die, even if it has great profit potential.
Example Pro Forma Cash Flow Forecast
| Receipts |
| New |
|Cost of goods||8.0||14.8||22.4||37.6||43.0||49.0|
The business should pay particular attention to the “burn rate”, or how quickly the enterprise is spending its cash reserves. This will indicate the length of your “runway”, or the amount to time your business has before it runs out of cash.
What level of sales turnover is your business going to need to become profitable? Is this level realistic? How long will it take you to achieve this level? What might stop your business achieving break-even?
Here are some ways of calculating your break-even point:
This is a two-step process.
Break-even profit goals
You can also use break-even formulae to calculate how much you need to sell to reach a particular profit goal.
This will give us an answer in unit sales. If we want to know the volume of dollar sales, and we do, we simply multiply units by price.
Or alternatively using the contribution margin method.
Profit and loss and balance sheet
If you have come this far in a business studies degree, you will not need me to explain how to create a profit and loss statement or a balance sheet. (I hope not anyway!) The only thing I would like to point out at this stage is that P&L and your P&L forecasts should be compiled monthly. This is good practice anyway, but it is especially important in a start-up situation. You need to know what is changing in your business, and why. Any investors need to understand the sales and profit story so far and where it is expected to be over the next three to five years.
Key Performance Indicators (KPIs)
Accounting information often does not tell us enough about why a business is thriving or failing. Other performance indicators are needed. A business will need to identify what drives sales and profit. Some of these can be quite obvious, such as the number of new customers acquired each month. Others might seem to drive the business forward, but in reality have no bearing on sales and profitability. Examples of such “vanity metrics” might be: visitors to a website, but no sales; apps downloaded, but not used so they don’t generate advertising revenue; sales visits to prospects, but no new business. The list could go on. The important thing to do then is to identify the activities the drive your business forward, and then find a way to measure them.
It’s unlikely that you will be entering a completely empty market place. You will have to compete with incumbents of some form. It is therefore vital to have a strong competitive advantage over the competition. A commonly used model is the VRIO framework. Although this is a good model, it is too complex for a startup situation instead we will use the model suggested by Bill Aulet in The Disciplined Entrepreneurship Workbook.
According to Aulet an advantage, or core as he puts it, should be:
- important to the customer
Identify the value proposition and key competitive advantage of the following entities.
The value proposition is a measure of the benefit a customer gets from using a product or service. To succeed a new product needs to give the user superior value over her current product solution.
You should hopefully remember from your marketing courses that a customer does not buy a product; she buys a benefit. Therefore, we need to understand which benefits she is seeking. Ideally, we should target her highest priority need with a market-beating benefit. We should first build a customer persona and identify the person’s priorities. Next, we should match the benefits sought with her highest priority in this solution space. Finally, if possible we should quantify these benefits with tangible metrics.
Using one of the products below, first, develop a brief persona. Then identify the highest priority the persona has in this space. Lastly, attempt to quantify the value proposition of the product.
This section describes how the customer becomes aware of a product, acquires and gets value from it. We do this so we can understand how a product fits into a customer’s life. The more insight we can get the better, as we can learn to create, promote and support the customer.
Setting down this process in a document will also serve as a signpost for the new product development team. Having a clear description of process will hekp ensure that the whole team is on the same page when it come to developing the product.
There are 10 stages in this cycle.
- Catalyst for action
- Discover options
- Analyse options
- Acquire the product
- Use and get value
- Evaluate value
- Tell others
Different products will have varying levels of complexity in this process.
Work in teams. Take two products, one from your personal life and one from your student life. Using the list above, map out the use case cycle. For each of the points think about:
- Who is involved?
- When does the action happen?
- Where does the action take place?
- How does the action take place?
- Looking at your work, are there any gaps in your understanding?
- How will you fill those gaps?
- Which stages of the use case pose the greatest risk to the adoption of the product?
New business ideas require total focus. For this reason, the entrepreneur needs to avoid the temptation to go after multiple targets when first entering a market. Because we have limited resources, we should dedicate all our efforts to dominating one single set of customers. Spreading our efforts over multiple goals will just mean that we fail in all markets.
The concept of a beachhead market is derived from military strategy. The idea is simple. Choose a point where you can enter a territory and win a base from which you can go on to conquer the next sector and so on.
Randomly selecting a market for a beachhead is a quick-fire recipe for failure. Here are some criteria for helping you select your beachhead.
- The segment is economically attractive.
- You can access to segment easily, either by your salesforce or by other promotional methods.
- You have a strong and credible value proposition that you can offer customers in this segment.
- You can deliver a product that is complete enough for the consumer to purchase (see later for MVP).
- There is no entrenched or powerful competition that can “strangle you at birth.”
- The market can lead you to other markets. In other words, winning in this market will help you win other markets.
- The segment is compatible with the goals and values of the team
Select a beachhead market for one of the following start-up enterprises.
Plover have created a battery-powered electric toothbrush. The costs of the master device and the replacement brushes are significantly cheaper than that of the competition. Plover is planning to keep prices low by selling directly to the customer over the internet.
Vinnie Lombardo is a wine lover. He has many friends in Sicily who are struggling winemakers. They make great wines, but the can’t compete with the famous names or the large corporate concerns because the operate on such a small scale. At the same time whenever he shares a wine from one of these small wineries with friends, they ask him how they can get a hold of some bottles. Vinnie wondered how he could get the small winemakers and his fellow wine lovers together. One day as his boyfriend was looking at some arts and crafts on Etsy, Vinnie had an idea. Why not have Etsy for wine?
It is important to determine the size of your beachhead market, as this will indicate if your selection is appropriate.
First you need to estimate the number of end users for your product.
Next, you should estimate the annual revenue each user will generate for your company.
Your beachhead TAM should not be too small, you won’t generate enough revenue, neither should it be too large, you won’t be able to dominate.
How to estimate the annual revenue per user
What does the customer currently spend on a product or solution to a problem?
What is the customer’s available budget?
Are there any proxy or comparable measures?
How much profit will the revenue generate? This being said, your goal would normally be to generate enough cash to move onto the next market.
How long will it take to conquer the market? The shorter the better.
What is the market’s CAGR? Are you going into a growing sector, good, or a mature sector, not so good.
New trade theory shows the importance of first mover advantage. Most people understand first mover advantage from the marketing and economies of scales points of view. However, the learning curve effects of being first are just as important. This is especially true if a firm or an economy have natural cost advantages, but are late to the party.
The video below explains the idea.
Heckscher-Ohlin Theory & The Leontief Paradox
Summary of video
• Ricardo believed comparative advantage come from differences in labour productivity
• Heckscher-Ohlin theory posits that comparative advantage comes from factor endowments
• Countries will export goods in which they have relative abundance of factor endowments
• In other words, they will export goods which make use of locally abundant (relatively) resources. They will import goods in which need relatively scarce local endowments
• Theory supports idea that free trade is beneficial
• Leontiff examined US exports of capital goods
• US relatively abundant in capital: expect US to be exporter of capital intensive goods and importer of labour intensive goods
• Reality was that US exports were less capital intensive than its imports
• Reason for paradox not clear
• Possibly US exports goods that require knowhow (e.g. software), imports goods that require large amounts of capital
• Perhaps technology drives international differences in productivity.
• Once researchers control for differences in technology, H-O theory gains some of its predictive power
Comparative advantage is a trade theory which was developed by David Ricardo in the 18th century. The theories builds Adam Smith’s work to show that countries can benefit from trade. Ricardo’s key insight was that two countries could both benefit from trade even if one of the countries had an absolute advantage in producing all products. The key was to compare how relatively good the countries were at producing one product versus another. Comparative advantage therefore doesn’t rest on how good a country is a producing a product, rather, how comparatively good it is.
There are two videos on this page. The first introduces as explain the concept. A simple example is included to demonstrate the principle.
The second video is a critique of the qualifications and assumptions behind the theory.