New Venture Bootcamp (Parts 3&4) – Ted Zoller

ted-zoller.jpgDay 15, Friday 7th Feb: Ted Zoller continued his intensive mini-MBA program with us from yesterday (Part 2). Bare with the excessively long blog on this occasion as I felt it was necessary to do justice to the amount of material covered. Today’s seminar focused on the most important factor in the validation of a business plan – the Implementation Planning. An Implementation Plan is a representation of the coordination of time & resources (human and physical). New ventures are by definition under-resourced, so one is usually executing ventures that have missing pieces. You can compensate missing pieces by over-compensating from available resources, by asking others to play a role, and by leveraging outside resources (e.g. contractors, services)

Primary constraints when starting up a business are Time & Money (money = time). Usually you can’t buy yourself out of a time problem but you can retime a money problem. Use measurable milestones & building blocks to resource these. Implementation Plan (ImP) explicit way to:
– Characterise these key milestones
– Coordinate marketing, financial and operational functions in business
– Maintain awareness of resources – personnel, fixed & variable assets
Need to consider key timing questions; do my milestones = customer milestones?
Best to set my milestones, & then set additional conservative milestones behind them –> expectations always met & provides breathing room.

Ted made the point that you should always try to avoid selling time. Although if it is necessary, don’t put yourself at a disadvantage. Its common for you to try and set value of time, but how do you define value? What is a unit of time worth? You don’t know what the value the client sees in the work. Determine their sense of value and keep below their price point. Challenge them to set this price point, NOT yourself. Another point which was raised was that: Value of work is very rarely linked to cost.

There 3 basic techniques in contracting with varying risks for the entrepreneur:
1- Time/materials/spec based billing; paid per unit utilised – low risk
2- Cost Plus = direct costs + margin (e.g. 25% fixed profit) – low risk
3- Fixed price contract – high risk
All 3 focus on optimising cost on behalf of the client. Juxtaposed to this, it’s better to use value-based billing which removes price from the equation. This means evaluating how the client values work not how they manage their money/budget. It may be worth everything to them to get the project done.

An Implementation Plan has 3 functions:
– Management tool – if you can’t model it you can’t manage it!
– Communication – at all levels to internal team, customers, clients, investors
– Staging tool to 1.) define dependencies between activities; 2.) understand key milestones & communicate them; 3.) allocate resources appropriate to them.

The Implementation Plan is tied directly to the financials, what you’re doing & ultimately how it’s funded. You must plan financial phases around the milestones in the plan. Ted advised that key milestones should revolve around when you’ll be OOC – out of cash! He also recommended measuring OOC from 6 months out or more, not the usual 3. Some other misc points:
– Cash, not asset, management keeps you in business
– Investors use milestones to negotiate – separate milestone-based tranches
– Milestones = negotiable; $$$ invested based on milestones being met
– Pin investors (& board) down on clear semantics of milestones

Some lessons from a Harvard paper titled “Milestones for Successful Venture Planning” by Block & Macmillan:
– Milestones are customised to the needs of the company
– 2 Levels: 1) Product/short term 2) long term
– Significant events, not just dates/chronology
– Time is a driver, but money is the key driver of milestones/events
– Ultimately managers are using milestones to communicate internally, if not, then not useful
– Contingency plan should be included in ImP
– ID who’s delivering on each milestone and hence relevant functions/people
– Success more to do with how using time & who engaging with than just chronology
– ImP includes: phases, tasks, sub tasks, dependencies. Track actuals (incl slippage) against plans
– Usually throwing people @ problems ≠ solutions
– Critical path analysis: end of each phase – elapsed time between start & end
– Set milestones at start of phases – opening of new advent!
– ID milestone that indicates a break through/success? E.g. first client/delivery/prototype/launch

Ted moved on to discuss some management issues:
– Better “A” team and “B” idea than the opposite, as you can always improve the idea
– Beg/borrow/steal you’re “A” team!
– Generally shouldn’t pick team members based on personal relationships
– Choose founders based on what they bringing to the venture
– Ensure they get the concept and are instrumentally engaged in venture
– If they tick these boxes and are a friend, you need to be careful and have a lot of pre-venture discussion around how to deal with crises
– Investors/partners bet on teams primarily
– Board of Directors – governance of company
– Board of Advisors – provide market insight – strategic advice
– ID that you’re somewhat aware of what you don’t know
– When starting only include core/essential people/functions – outsource others

M. Thatcher: “Look at a day when you are supremely satisfied at the end. It’s not a day when you lounge around doing nothing; it’s when you’ve had everything to do, and you’ve done it
Key lessons from the morning seminar:
– As company evolves it takes on various different organisation forms
– Focus on functions and align functions to potential co-founder that demo competency in relevant areas

Financials – In the afternoon Ted gave us a general overview of how to approach financial management of a new venture, including discussions on:
– Unit economics – the items that DRIVE the revenue and expenses of a business
– Model building – steps to building financials – staffing, marketing, other expenses
– Using the financials – from unit economics to financial statements – P&L, CF, BS
– Evaluating profitability – scenario analysis to move past BEP
– Funding the venture – Friends/family & /bootstrap, grants/awards, public/private seed, angels, speciality, VCs, debt, strategic investors
– Synchronise financials to implementation plan
– Capital acquisition strategy, think – who/when/what for (%)/terms/compromises/due diligence
– Following successful VC pitch ≥ 5 months before $ in bank
– Exit strategy: lifestyle/IPO/M&A/defined redemption/management buyout/asset liquidation
– Valuation – usually a discounted present value of future cash flow. A multiple of earnings at a point in future reduced by a discount factor
– W. Churchill: “Success is the ability to go from one failure to another with no loss of enthusiasm

In general Ted parted with an intimidating amount of knowledge during his 4 seminars with us. He basically covered every aspect of venture startup that one needs an awareness of. It’s amazing how well he comprehensibly and practically articulates and verbalises knowledge in short conversations that would normally fill several book chapters!! Ted connected the dots between everything we had learned thus far during our time at the Kauffman Foundation – he filled in every remaining gap and made the bigger picture easier to “visualise”.

1 comment so far

  1. […] will organise the risks into stages (e.g. milestones within an Implementation Plan as outlined in Zoller’s last seminar), and at each stage it will become easier to raise the capital required to overcome associated […]

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