PES University EIE - I Past Modules PDF

Essentials of Innovation & Entrepreneurship (EIE) - I Module [M6]: Customer Value Proposition  EIE – Part I Announcements (by Madhukar Sir) 1. Portions for EIE ISA-1/Assessment: Module 1 to 5 2. Format: All MCQ; designed to test...

Essentials of Innovation & Entrepreneurship (EIE) - I Module [M6]: Customer Value Proposition  EIE – Part I Announcements (by Madhukar Sir) 1. Portions for EIE ISA-1/Assessment: Module 1 to 5 2. Format: All MCQ; designed to test understanding, applying concepts & reasoning 3. Duration: 45mins and # of Questions: 45 4. You have an opportunity to build a startup/team in this class! Showcase this in PESU E-Summit (Oct) and win cool prizes! 5. You/team can submit your idea to other startup hackathons as well; Practice makes it perfect! (see several emails/announcements from CIE) 1  EIE - I Today’s Topics What is Capturing the Value Proposition? Value Proposition 2 Credit: Image Creator (Microsoft Bing)  EIE – Part I Course Map - You are here 3  EIE – Part I What is Value? Applicable in a very broad sense: Economic, Social , Political, Art, Entertainment, Human, Business, etc 4  EIE – Part I What is Value? Our interest is in the business context: Startup, Enterprise (large company), Small-Medium-Business (SMB), Intrapreneurship (entrepreneurship inside a company) Others 5  EIE – Part I What is Customer Value? Usefulness of a product/service to a customer The definition of value is not limited to money! Varies from customer to customer (same product/service can have different value) Market fluctuations may change cost/price but value can remain unaffected 7  EIE – Part I Value Proposition Bundle of products and/or services that create value for a specific customer segment. 8  EIE – Part I Value Proposition – Example 1 (Art/Craft) + ‘X’ (Raw Wood) Curio/toy Answer the below on Menti (www.menti.com, code: 6186 5963) Q1. What is value addition (‘X’) to the wooden piece to create the toy? Q2. Why do you think the value of the finished product is higher? 9  EIE – Part I Value Proposition – Example 2 (Music) Answer the below on Menti (www.menti.com, code: 6186 5963) Q3. Which of the below has the highest Price? Q4. Which of the below has the highest Value? E-Tanpura E-Tanpura + E-Tabla Tanpura App (Saraang Micro V6*) (Milan +*) Tanpura 10  EIE – Part I Value Proposition – Example 4 Answer the below on Menti (www.menti.com, code: 6186 5963) Clearly, the price of electric toothbrush is higher than a regular toothbrush What do you think is the (relative) Value of electric toothbrush? 12  EIE – Part I Source of Value Proposition Can you Think of Some Examples? Newness Price Performance Cost reduction Customization Risk reduction Design Accessibility Brand/Status Convenience/Usability “Getting the job done” 13  EIE – Part I Value Proposition Builder How to construct the Value Proposition? Which one of our customer’s problems are we helping to solve? Which customer needs are we satisfying? What value do we deliver to the customer? Why should the customer choose your solution? What products/services are we offering to each Customer Segment? 14  EIE – Part I Value Proposition Canvas (VPC) Value Map Customer Profile 15  EIE – Part I Building Customer Profile (Right Side of VPC) Gains describes the outcomes customers want to achieve or the benefits they are seeking Describe what customers are trying to get done (in their work and in their lives, if possible, expressed in their own words) Pains describe problems, bad Include: functional, social, outcomes, risks and obstacles personal, emotional jobs related to customer jobs Tip: make it as specific as possible 16  EIE – Part I Building Value Map (Left Side of VPC) Gain Creators: how your products/services create Products/Service customer gains (outcome, benefits, you offer based on your desires, functional utility, social gains, value proposition. positive emotions, cost savings) Helps customers do Pain relievers: either functional, social how exactly your products/services or emotional jobs eliminate/minimize customer pains Tip: Focus on the key pain points (need not be every pain point) 17  EIE – Part I Example: Value Proposition Canvas for Tesla Credit: Strategyzer  EIE – Part I Positioning Statement - Template For target customer Differentiation Unlike (Primary Who (statement of need or competitive opportunity) alternative) (Product name) is a Our Product (product category) (statement of primary That (Statement of benefits) differentiation ) 18  EIE – Part I Positioning Statement - Example: Tesla For wealthy individuals & Differentiation car lovers Unlike Ferraris Who want an environmentally and Porches, friendly & high-end sports car Our Product The Tesla Roadster is a an electric automobile product has fantastic That delivers unprecedented mileage, unparalleled performance without damaging performance and no the environment direct carbon emissions. 19  EIE – Part I Product Positioning - Example 20  EIE – Part I Product Positioning - Example 21  EIE – Part I What is your Product Positioning? Dimension1 (“High”) Dimension2 Dimension2 (“Low”) (“High”) Dimension1 (“Low”) 22  EIE – Part I Post-Session Activity: Create a Value Proposition Canvas To do : For each Customer Segment identified 1. Brainstorm Customer Jobs, Pains & Gains 2. Brainstorm Pain Relievers & Gain Creators & Product/Services that can address ‘pain relievers’ and ‘gain creators’ Result : A VPC (for each customer segment) showing 1. Gain/Gain Creators & Pain / Pain Relievers 2. Potential product/service that will create value for customer 23  EIE – Part I Post-Session Activity: Positioning Your Solution Identify the 2 (important) dimensions you want to position your product and why you chose it (compared to competition) 25  EIE – Part I Post-Session Activity: Create a Positioning Statement To do : Identify 2 dimensions/attributes for your product/service 1. Draw the positioning map (P.map) along the 2 dimensions 2. Place your new product/service along with competitors in the P.map 3. Write the Positioning Statement for your product/service offering Result : Your Customer Value Proposition expressed as 1. Value Proposition Canvas 2. Positioning Statement (see next slide for template) 24  EIE – Part I Template: Positioning Statement Create your Positioning Statement along below lines: ⚬ For (target customer) ⚬ Who (statement of need or opportunity) ⚬ (Product name) is a (product category) ⚬ That (statement of benefits) Differentiation ⚬ Unlike (primary competitive alternative) ⚬ Our product (statement of primary differentiation) 26 EIE – Part I Summary  EIE – Part I Session Feedback Please share your feedback on Mentimeter Join at www.menti.com Use code: xxxx xxxx 45 Essentials of Innovation & Entrepreneurship (EIE) - I Module [M7]: Getting from Business Idea to Business Model  EIE - I Today’s Topics What is a Creating a Business Model? Business Model Canvas 2 Credit: Image Creator (Microsoft Bing) EIE - I 3 EIE - I 4  EIE - I Based on Business Model Generation (Alexander Osterwalder & Yves Pigneur) 5  EIE - I Business Model Canvas(BMC) vs. Business Plan BMC – 10,000ft-level view, dynamic, visual, easier to iterate Business Plan (BP) – Strategic, Financials, etc – more detailed BMC and BP can be complementary Use-case is ‘situational’ (i.e. determine which one to use based on what you are trying to accomplish and the target audience) 6  EIE - I Business Model Canvas is a tool to create and analyze business models 7  EIE - I Business Model Canvas (BMC) 8  EIE – Part I Business Model Canvas Explained (Strategyzer ~3min) Video 1  EIE - I M7: BMC SUB MODULE: DESIRABILITY (CUSTOMER DEVELOPMENT) Centre for Innovation and Entrepreneurship (CIE) Source: Following Images and Text from Strategyzer EIE - I Mass market Niche market Segmented market Diversified market 1 EIE - I 2  EIE - I Personal Assistance Dedicated Personal Asst Customer Acquisition (Get) Self-Service Customer Retention (Keep) Automated Services Communities Co-Creation Boost sales (upsell) 3  EIE - I Channels for: Awareness Examples: web, own store, Evaluation retail/distribution channel, etc Purchase - Direct vs. Indirect - Own vs. Partner Delivery After Sales 4  EIE - I M7: BMC SUB MODULE: VIABILITY Centre for Innovation and Entrepreneurship (CIE) EIE - I Product Sale Usage fee Subscription fee Lending /Renting Licensing Types: Transaction, Recurring 1 EIE - I Cost-driven Value-driven Fixed-costs Variable-costs Economies of scale Economies of scope 2  EIE - I M7: BMC SUB MODULE: FEASIBILITY Centre for Innovation and Entrepreneurship (CIE) EIE - I Physical Intellectual Human Financial 1 EIE - I Production Services Platform/Network 2  EIE - I Strategic Co-operation Economy of scale Joint Venture Specific resources/ capabilities Buyer-Supplier Reduction of risk & uncertainty 3  EIE - I M7: BMC SUB MODULE: EXAMPLES Centre for Innovation and Entrepreneurship (CIE) EIE - I 1 EIE - I 2 EIE - I 3  EIE – Part I Business Models for the Digital World ( ~4 min, start from ~1:00m) Video 1  EIE – I Summary  EIE – Part I Session Feedback Please share your feedback on Mentimeter Join at www.menti.com Use code: xxxx xxxx 45  Module M8 – Selling your Idea/Product and Pitching Essentials of Innovation & Entrepreneurship (EIE) - I EIE 1 M8-Selling your Idea/Product and Pitching  EIE - I Business Model Canvas (BMC) 8  Today’s Topics Selling your Idea / Pitching Product 2 EIE 1 M8-Selling your Idea/Product and Pitching Top 5 Entrepreneurship Lessons From Most Successful Entrepreneurs EIE 1 M8-Selling your Idea/Product and Pitching  Selling your Idea / Product Centre for Innovation and Entrepreneurship (CIE) EIE 1 M8-Selling your Idea/Product and Pitching Market for start ups EIE 1 M8-Selling your Idea/Product and Pitching  Market Logical/Physical place where Buyers/Sellers interact Buyers/Sellers -> Consumer/Producer There are at least two roles in a market: Seller Buyer Value Proposition delivered to customer/market EIE 1 M8-Selling your Idea/Product and Pitching  Types of Market Type of Market changes EVERYTHING Sales, Marketing and Business development differs radically by market type Market Sales Customers Finance Market Size Sales Model Needs Ongoing Capital Cost of Entry Margins Adoption Time to Launch Type Sales Cycle Profitability Competitive Barriers Positioning EIE 1 M8-Selling your Idea/Product and Pitching  Types of Market Existing Resegmented New Market Clone Market Market Market Existing Market – Maybe existing product (new features) or a new product – E.g. New sedan car, say Toyota Etios Resegmented Market – Redraw market segments to better address customer needs – E.g. Sports Utility Vehicle (SUV), when it was 1st introduced New Market – Cheaper/good enough; can create a new class of customer/product – Innovative/never existed before (e.g. Electric/Autonomous cars, etc) Clone Market – Modify/adopt existing market for a different country/geography (e.g. Ola) EIE 1 M8-Selling your Idea/Product and Pitching  Simple Value Chain EIE 1 M8-Selling your Idea/Product and Pitching Marketing in the age of AI EIE 1 M8-Selling your Idea/Product and Pitching  Market Segments Geographic India v. Global Demographics Teenagers v. Adults Consumer v. Business Car driver v. Taxi Operator Type of Industries Food, Retail, Manufacturing, etc EIE 1 M8-Selling your Idea/Product and Pitching  Market Size For all the effort and risk taken by a Quantifies the financial potential of your startup, makes sense to chase a big business. ‘market’ opportunity Helps refine Business Model Canvas hypotheses: Big (Large) Size AND (High) Growth – Very small market size may not be worth pursuing. Market sizing: not all science but some – May be difficult to gain traction in a very big market. art as well Two measurements: Market size (& type) crucial for startups – Money (Rs/$/etc) – Units People or Consumption (e.g., room-nights, kilowatt hours, etc.) EIE 1 M8-Selling your Idea/Product and Pitching TAM, SAM, Target Market EIE 1 M8-Selling your Idea/Product and Pitching  TAM SAM - Total Addressable Market - Served Addressable Market Quantifies entire chain of A value proposition rarely applies buyer/seller relationships in to an entire TAM. your market Opportunity to sharpen your Usually very broad focus on a particular part of the market Easiest to estimate Examples: Examples: ○ Mobile healthcare apps for ○ Mobile healthcare apps seniors ○ Renewable Energy ○ Renewable energy storage ○ Health & fitness ○ Health & fitness at work EIE 1 M8-Selling your Idea/Product and Pitching Target Market One more level of refinement Often a demographic target Examples: ○ Mobile healthcare apps for elders/seniors, targeting retirement homes ○ Renewable energy storage targeting Mfg & Auto industries ○ Health/fitness at work, employees aged 25-40, in $500M+ rev companies EIE 1 M8-Selling your Idea/Product and Pitching  Practical Tips Find an industry/market study that fits your biz model If not: build a market model Important to differentiate: ○ Facts, Assumptions, Extrapolation Run multiple scenarios Time frames: Now or 3-5 years EIE 1 M8-Selling your Idea/Product and Pitching Most Successful Marketing Strategies for Startups EIE 1 M8-Selling your Idea/Product and Pitching  The internet revolution changed the travel industry forever. But it didn’t change the whole travel industry. Travel industry’s meetings & events segment is hampered by inefficient business processes and ineffective pricing models that do not leverage modern technology, especially for hotel accommodations. GroupRes is Software as a Service (SaaS) that makes it easy for event guests to reserve a hotel room, while increasing profit for event planners and hotels. EIE 1 M8-Selling your Idea/Product and Pitching Total Addressable Market (TAM) of Served Addressable Market (SAM) Accommodations ($35B) is 31% of “Commissions and Tech fees” Travel & Expenses ($113B) $5.3B (3.5+1.8) or 15% of Accommodations Target Market: $3.5B (commissions) $28 $3.5 $35 $1.8 $18 $6 $26 $29.7 EIE 1 M8-Selling your Idea/Product and Pitching EIE 1 M8-Selling your Idea/Product and Pitching  Activity (Team) - TAM, SAM, TM Identify the TAM, SAM and TM of your startup opportunity Update your BMC EIE 1 M8-Selling your Idea/Product and Pitching  Pitching Centre for Innovation and Entrepreneurship (CIE) EIE 1 M8-Selling your Idea/Product and Pitching EIE 1 M8-Selling your Idea/Product and Pitching  Planning ✔ Why are you doing the talk? Be clear about your purpose ✔ Find out how big your audience is likely to be & what sort of group ✔ Make notes about your subject ✔ Don’t write your talk word for word ✔ Use small pieces of paper and number them ✔ Powerpoint has a notes & timing feature which may help ✔ Time your talk & practice it ✔ Then practice it again EIE 1 M8-Selling your Idea/Product and Pitching Make an Impactful Presentation with Storytelling EIE 1 M8-Selling your Idea/Product and Pitching Think of Threes Tell people what you’re going to say Tell them Tell them what you’ve said EIE 1 M8-Selling your Idea/Product and Pitching Presentation Techniques EIE 1 M8-Selling your Idea/Product and Pitching Techniques 1 Pace of delivery Vary style Move about Vary pitch Use notes Avoid annoying habits Use props, but don‘t overdo it EIE 1 M8-Selling your Idea/Product and Pitching  Do’s ✔ Take a deep breath ✔ Speak clearly ✔ Make small cards to remind yourself of topics (number them!) ✔ Be aware of where your audience is - are you facing all of them? ✔ Smile, have fun ✔ Be yourself and project your personality ✔ Remember - no-one knows how you feel or what you think ✔ Remember - The audience is on your side! EIE 1 M8-Selling your Idea/Product and Pitching  Don’ts ✔ Rush what you’re trying to say – SLOW DOWN ✔ Read off a sheet of paper word for word ✔ Fiddle with things - its irritating! ✔ Use inappropriate language for your audience ✔ Panic EIE 1 M8-Selling your Idea/Product and Pitching  In Summary… ✔ Most talks go according to plan ✔ But, you must actually plan unless you are very experienced ✔ You have the support of your audience ✔ Most common mistakes are avoidable ✔ The world won’t end if it does go wrong – just correct yourself and carry on EIE 1 M8-Selling your Idea/Product and Pitching Example of a pitch deck: Dropbox https://visme.co/blog/best-pitch-decks/ EIE 1 M8-Selling your Idea/Product and Pitching EIE 1 M8-Selling your Idea/Product and Pitching EIE 1 M8-Selling your Idea/Product and Pitching EIE 1 M8-Selling your Idea/Product and Pitching  EIE – I Summary EIE 1 M8-Selling your Idea/Product and Pitching  EIE – Part I Session Feedback Please share your feedback on Mentimeter Join at www.menti.com Use code: xxxx xxxx 45 EIE 1 M8-Selling your Idea/Product and Pitching Essentials of Innovation & Entrepreneurship (EIE) - I Module [M9]: Startup Finance Foundation – Part I  EIE – Part I You are Here ☺ 3  EIE – Part I Recap 2 1 4 4 3  EIE – Part I Recap s t ue Co a l V  EIE – Part I Finance for Startups – Why Care? "The biggest mistake founders make is ignoring their finances, thinking they can focus on it later. By then, it’s often too late." Paul Graham (Founder, Y Combinator) "Accounting is the language of business. If you are going to succeed in business, you have to understand the numbers." Warren Buffett (CEO, Berkshire Hathaway) “Money isn’t everything, but it’s right up there with oxygen.” Zig Ziglar  EIE – Part I Top 20 Reasons Startups Fail #2: ”Ran out of Cash” Source: CB Insights  EIE – Part I Importance of Finance for Founders Understanding key finance terms and metrics, Founders can make: informed decisions, plan for growth, and manage resources effectively Financial statements like the Income statement, Balance sheet, and Cash Flow statement help founders Track Performance, Forecast future needs, and avoid cash shortages Without a solid grasp of the financials, even a great product or idea will FAIL  EIE – Part I The Art of Startup Finance: Introduction (Kauffman Foundation, 2m) Video  EIE – Part I Cost, Price and Value Cost: Money value of resources required to produce something Price: Money to be paid, in order to get a product / service Value: is the utility of a product or service "Price is what you pay; Value is what you get” – Warren Buffett  EIE – Part I Cost, Price & Revenue Profit Is ‘Profit’ always a positive number? (Selling) Price What is ‘Revenue’? Cost Is ‘Price’ everything for customers?  EIE – Part I Cost, Price, Value Net Value of the Product Value (product/service) goes beyond the price … Profit Can ‘Net Value’ be negative? Total Value How do you increase the value (product/service)? of the Product Cost  EIE – Part I Startup Finance - Looking Beyond Numbers Critical knowledge that will help you go beyond numbers: * Decide with data * Manage Profitably * Chart your startup’s Growth  EIE – Part I Startup Finance Pyramid (5 Elements of Startup Finance) (Kauffman Foundation, 3m) What do numbers mean for my business? Do I understand how numbers are associated with my business model? Does my financial knowledge extend beyond the basics? Video  EIE – Part I Fundamental Accounting Equation Resources a company can put to work for the business Current Assets: cash, financial instruments (stocks, bonds, etc), inventories of raw materials, finished goods, money owed by customers for goods/service purchased (accounts receivables) Fixed Assets: Property, Plant, Equipment What you ‘own’ (capital contributed by Assets – Liability = Owner’s Equity owners + company’s total retained earnings) Debts to suppliers, creditors Includes funds owed to suppliers (accounts payable), loans, income taxes  EIE – Part I Key Terms Revenue: ❖ Money a company earns from selling its products before any expenses are deducted COGS (Cost of Goods Sold): ❖ Direct cost of producing the products a company sells (incl materials, labor & manufacturing) Gross Profit: ❖ Sales revenue less cost of good sold Gross Profit Margin: ❖ (Sales revenue – COGS) expressed as a percentage of revenue (indicator of gross profitability)  EIE – Part I Key Terms Operating Expense ❖ Ongoing costs a business incurs to run its operations (rent, salaries, utilities, marketing, etc; these do not include the cost of producing goods/COGS) Operating Profit ❖ Gross profit minus Operating Expenses Operating Profit Margin ❖ Operating Profit expressed as a percentage of Revenue (indicator of the profitability of company’s operating activities) Net Income (aka Net Earnings or Net Profits) ❖ Operating Profit minus (Taxes, Interest & other charges)  EIE – Part I Key Terms  EIE – Part I Key Terms Balance Sheet ❖ financial statement that shows a company’s assets, liabilities, and equity at a specific time. It provides a snapshot of the company’s financial health Income Statement ❖ also known as the Profit and Loss Statement, it shows a company’s revenues, expenses, and profit (or loss) over a period of time, such as a month or a year Cash Flow Statement ❖ Tracks the movement of cash in/out of a business; how much cash is available for operations, investing, and financing  EIE – Part I Revenue Model Revenue Model: how the firm generates revenue Examples: * Product sales, Subscription, Advertising, Transaction fee, etc  Example: ‘Stufone’ Centre for Innovation and Entrepreneurship (CIE)  EIE – Part I Example: ‘Stufone’ Let us build your startup financial acumen with a financial model Imagine you are building a new phone for students Let us call it Stufone Let us perform some simple financial projections before you build the Stufone (see the accompanying xlsx finanicial model; you can change/model various assumptions)  EIE – Part I Stufone – Sales Plan Sales Plan Source Q1 Q2 Q3 Q4 Year 1 Year 1 Year 1 Year 1 Customers Stufone-1 Input 0 6 8 9 Stufone-2 Input 0 4 5 6 Stufone-3 Input 0 3 4 5 Total Units 13 17 20 Product Sale Price (per unit) Stufone-1 Input ₹10,000 ₹10,000 ₹10,000 ₹10,000 Stufone-2 Input ₹12,000 ₹12,000 ₹12,000 ₹12,000 Stufone-3 Input ₹15,000 ₹15,000 ₹15,000 ₹15,000  EIE – Part I Stufone – Revenue Projections Sales Plan Source Q1 Q2 Q3 Q4 Year 1 Year 1 Year 1 Year 1 Customers Stufone-1 Input 0 6 8 9 Stufone-2 Input 0 4 5 6 Stufone-3 Input 0 3 4 5 Total Units 13 17 20 Product Sale Price (per unit) Stufone-1 Input ₹10,000 ₹10,000 ₹10,000 ₹10,000 Stufone-2 Input ₹12,000 ₹12,000 ₹12,000 ₹12,000 Stufone-3 Input ₹15,000 ₹15,000 ₹15,000 ₹15,000 Product Revenue Stufone-1 ₹0 ₹60,000 ₹80,000 ₹90,000 Stufone-2 ₹0 ₹48,000 ₹60,000 ₹72,000 Stufone-3 ₹0 ₹45,000 ₹60,000 ₹75,000 Total Product Revenue ₹0 ₹1,53,000 ₹2,00,000 ₹2,37,000  EIE – Part I Stufone – Cost of Goods Sold Cost of Goods Sold Source Q1 Q2 Q3 Q4 Year 1 Year 1 Year 1 Year 1 Unit Sales Stufone-1 Sales Plan 6 8 9 Stufone-2 Sales Plan 4 5 6 Stufone-3 Sales Plan 3 4 5 Total Units - 13 17 20 Product COGS Source Q1 Q2 Q3 Q4 Year 1 Year 1 Year 1 Year 1 COGS per Unit Stufone-1 Input ₹3,000 ₹3,000 ₹3,000 ₹3,000 Stufone-2 Input ₹4,000 ₹4,000 ₹4,000 ₹4,000 Stufone-3 Input ₹5,000 ₹5,000 ₹5,000 ₹5,000 Variable Cost Stufone-1 ₹0 ₹18,000 ₹24,000 ₹27,000 Stufone-2 ₹0 ₹16,000 ₹20,000 ₹24,000 Stufone-3 ₹0 ₹15,000 ₹20,000 ₹25,000 Total Variable Cost ₹0 ₹49,000 ₹64,000 ₹76,000  EIE – Part I Stufone – Cost of Goods Sold Cost of Goods Sold Source Q1 Q2 Q3 Q4 Year 1 Year 1 Year 1 Year 1 Unit Sales Stufone-1 Sales Plan 6 8 9 Stufone-2 Sales Plan 4 5 6 Stufone-3 Sales Plan 3 4 5 Total Units - 13 17 20 Product COGS Source Q1 Q2 Q3 Q4 Year 1 Year 1 Year 1 Year 1 COGS per Unit Stufone-1 Input ₹3,000 ₹3,000 ₹3,000 ₹3,000 Stufone-2 Input ₹4,000 ₹4,000 ₹4,000 ₹4,000 Stufone-3 Input ₹5,000 ₹5,000 ₹5,000 ₹5,000 Variable Cost Stufone-1 ₹0 ₹18,000 ₹24,000 ₹27,000 Stufone-2 ₹0 ₹16,000 ₹20,000 ₹24,000 Stufone-3 ₹0 ₹15,000 ₹20,000 ₹25,000 Total Variable Cost ₹0 ₹49,000 ₹64,000 ₹76,000 Product COGS Mfg Salaries from above ₹1,15,500 ₹1,15,500 ₹1,15,500 ₹1,15,500 Variable Costs from above ₹0 ₹49,000 ₹64,000 ₹76,000 Facilities ₹15,000 ₹15,000 ₹15,000 ₹15,000 Total Product COGS ₹1,30,500 ₹1,79,500 ₹1,94,500 ₹2,06,500  EIE – Part I Stufone – Profit and Loss (by Quarter) Profit & Loss by Qtr Source Q1 Q2 Q3 Q4 Year 1 Year 1 Year 1 Year 1 Revenue Product Revenue Sales Plan $ - $ 1,53,000 $ 2,00,000 $ 2,37,000 Total Revenue $ - $ 1,53,000 $ 2,00,000 $ 2,37,000 COGS Product COGS COGS $ 1,30,500 $ 1,79,500 $ 1,94,500 $ 2,06,500 Total COGS $ 1,30,500 $ 1,79,500 $ 1,94,500 $ 2,06,500 Gross Margin Product GM $ (1,30,500) $ (26,500) $ 5,500 $ 30,500 Total GM $ (1,30,500) $ (26,500) $ 5,500 $ 30,500 Expenses R&D Expenses $ 3,03,500 $ 3,27,500 $ 3,76,000 $ 4,43,500 Sales & Marketing Expenses $ 3,29,500 $ 3,54,500 $ 4,58,000 $ 5,33,000 General & Administration Expenses $ 3,23,200 $ 3,28,800 $ 3,36,200 $ 3,42,400 Operating Exp. $ 9,56,200 $ 10,10,800 $ 11,70,200 $ 13,18,900 Operating Profit $ (10,86,700) $ (10,37,300) $ (11,64,700) $ (12,88,400) Margins Operating Profit % n/a -678% -582% -544% Total Gross Margin % n/a -17% 3% 13%  EIE – Part I Stufone – Profit and Loss (by Year) Income Statement (Profit and Loss) Source Year 1 Year 2 Year 3 Year 4 Revenue Product Revenue P&L By Qtr ₹5,90,000 ₹76,96,500 100% ₹2,21,20,000 100% ₹4,53,10,000 100% Total Revenue ₹5,90,000 ₹76,96,500 100% ₹2,21,20,000 100% ₹4,53,10,000 100% COGS Product COGS P&L By Qtr ₹7,11,000 ₹34,77,250 ₹94,29,150 ₹1,77,49,550 Total COGS ₹7,11,000 121% ₹34,77,250 45% ₹94,29,150 43% ₹1,77,49,550 39% Gross Margin Product GM -₹1,21,000 ₹42,19,250 ₹1,26,90,850 ₹2,75,60,450 Total GM -₹1,21,000 -21% ₹42,19,250 55% ₹1,26,90,850 57% ₹2,75,60,450 61% Expenses R&D P&L By Qtr ₹14,50,500 246% ₹33,68,950 44% ₹52,04,650 24% ₹77,32,800 17% Sales & Marketing P&L By Qtr ₹16,75,000 284% ₹33,28,525 43% ₹68,06,575 31% ₹1,24,05,325 27% General & Administration P&L By Qtr ₹13,30,600 226% ₹20,21,100 26% ₹32,61,050 15% ₹44,01,750 10% Operating Exp. ₹44,56,100 755% ₹87,18,575 113% ₹1,52,72,275 69% ₹2,45,39,875 54% Operating Profit -₹45,77,100 -776% -₹44,99,325 -58% -₹25,81,425 -12% ₹30,20,575 7%  EIE – Part I Conclusion Finance knowledge is not just for Finance professionals but for every Startup Founder Finance savviness helps * Plan new ventures * Grow your business * Manage startup operations  EIE – Part I Activity-Revenue Streams (Team) Pick the right revenue stream for your startup: ⚬ Subscription, Usage, One-time (transaction cost), etc Estimate yearly revenue stream(s) for your startup for first 3 years  EIE – Part I Activity - Revenue Streams To start with, list the underlying assumptions. Estimate/calculate below (use MS Excel if needed): A: Number of units / users per unit time (per wk/month/quarter/year/etc) B: Price per unit / user C: At the simplest level, Revenue is A*B per unit time (say month)! D: From C, you can calculate revenue per quarter From D, you can calculate revenue per year (for Year1) (If any assumptions change (# of users, units, price, etc) you can calculate rev similarly for Year2, Year3, etc)  EIE – Part I Activity (Team) - Cost Estimate yearly cost for your startup for first 3 years To start with, list the underlying assumptions Estimate/calculate below (use MS Excel if needed): A. Operational costs Physical infrastructure (Office rentals, lab, factory, etc), Human resources (salary for people involved in ‘Key Activities’) Expenses related to Information Technology (laptop, Cloud, etc.)  EIE – Part I Activity (Team)- Cost B. Product/Service cost Cost incurred in building the product (unit cost * # of units) or service Cost incurred in delivering the product/service (channel, distribution, etc) Marketing costs associated with above C. Total Cost = A + B Create the (forecasted) Profit & Loss (P&L or income) statement Given the assumptions made, can this be a profitable enterprise? If yes, how long does it take to break even/make a profit? What decisions will you take based on these insights?  EIE – Part I Activity-Update BMC Update the BMC with approx. figures for Revenue and Cost By now, you should have a good handle on ⚬ Value Proposition, Customer Segments ⚬ Customer Relationship & Channel ⚬ Revenue and Cost Note: Above are assumptions for now ⚬ They need to be validated (explore interviewing potential users/customers) Optional: Use the available Financial Template to capture Revenue and Cost Essentials of Innovation & Entrepreneurship (EIE) - I Module [M10]: Startup Finance Foundation – Part II  EIE – Part I You are Here 2  RECAP 3 Centre for Innovation and Entrepreneurship (EIE)  EIE – Part I Top 20 Reasons Startups Fail #2: ”Ran out of Cash” Source: CB Insights  EIE – Part I Recap ost lue C Va  EIE – Part I Modeling Revenue/Profit Key Terms  FUNDING FOR STARTUPS 7 Centre for Innovation and Entrepreneurship (EIE)  EIE – Part I Should You Raise Funds for your Startup Idea? Do you have clarity on the following: 1. Fully committed to the idea/startup journey (you and your team) 2. Evidence of traction for your idea 3. Market validation 8 4. You have done your homework on financial projections 5. How you are going to use the funds  EIE – Part I Startup Stages Source: Basel Area  EIE – Part I Sources for Startup Funding 10  EIE – Part I Funding X Startup Stage Source: Ovtt.org  EIE – Part I Broadly Two Categories 12 Source: Index Ventures  EIE – Part I Sources for Startup Funding Bootstrapping (personal savings): Many entrepreneurs initially use their personal savings/assets to fund their startup. The self-funding approach allows founders to 13 maintain control/ownership over the business  EIE – Part I Sources for Startup Funding Crowdfunding: Crowdfunding platforms allow startups to raise funds from several individuals, usually through online campaigns. 14 This enables entrepreneurs to access capital while creating awareness & attracting potential customers.  EIE – Part I Sources for Startup Funding Angel Investors: High-net-worth individuals who provide capital to startups in exchange for equity or convertible debt. They often invest in startups in the early stages and 15 provide financial support, mentorship, and industry connections.  EIE – Part I Sources for Startup Funding Venture Capital (VC) Firms: Venture capitalists are professional investment firms that provide funding to startups with high growth potential. VCs typically invest larger amounts of money in exchange for equity and often take an active role in the company's strategic decisions.  EIE – Part I Sources for Startup Funding Incubators and Accelerators: Offer a combination of funding, mentorship, & resources to early-stage companies. They also provide guidance & networking opportunities to help startups grow/succeed 17  EIE – Part I Sources for Startup Funding Government Grants and Programs: Many governments provide grants, loans, or subsidies to support startup innovation and entrepreneurship. These programs can vary by country/state/region  EIE – Part I Convertible Note (CN) Convertible Note: Combines elements of both debt and equity. Starts as a loan (debt) but can be converted Hybrid (Debt- into equity (ownership shares) under certain Equity) conditions Used in early rounds of founding when it’s difficult to determine precise startup valuation  EIE – Part I SAFE Note SAFE Note (or just SAFE): Simple Agreement for Future Equity Contract allowing startups to raise capital from investors while offering the investors the option to convert their investment into equity in the future Quick & easy way for startups to raise capital without having to determine a valuation. SAFE is not a debt instrument (no interest payment)  EIE – Part I How Startup Fundraising Works (Startup School by Y Combinator, 28m) Fundraising resources Fundraising myths Fundraising process When not to raise funds Video  EQUITY 22 Centre for Innovation and Entrepreneurship (EIE)  EIE LEVEL 1 Equity Equity in a startup refers to ownership or shares of the company held by its founders, investors, employees, or other stakeholders. 23  EIE LEVEL 1 Types of Equity Founders' Equity: Founders initially hold the majority of equity in a startup. They receive equity in exchange for their contribution of intellectual property, ideas, expertise, or other valuable assets. Investor Equity: To raise funds for growth and development, startups often seek external investment. Investors, such as angel investors or venture capital firms, provide capital in exchange for equity in the company. 24 Employee Equity: Startups frequently offer equity as part of their compensation packages to attract and retain talented employees. EIE LEVEL 1 25  EIE LEVEL 1 General Terms Vesting: Vesting is a mechanism that ensures that founders, investors, and employees earn their equity over time or upon achieving specific milestones. It encourages long-term commitment and aligns the interests of stakeholders with the success of the startup.  EIE LEVEL 1 General Terms Dilution: As a startup raises additional funding, it may issue new shares, resulting in the dilution of existing shareholders' ownership. Dilution occurs when the percentage of equity held by existing shareholders decreases.  EIE LEVEL 1 General Terms Exit: Equity ownership in a startup can generate returns when the company is acquired or goes public through an initial public offering (IPO). These events provide opportunities for 28 shareholders to sell their equity and realize financial gains.  Startup Metrics 29 (Very Basic Primer) Centre for Innovation and Entrepreneurship (EIE)  EIE LEVEL 1 A Few Key Metrics Customer acquisition cost (CAC, Rs/$) CAC is the amount of money you need to spend on sales, marketing and related expenses, on average, to acquire a new customer Lifetime value (LTV, Rs/$) measure of the net value of an average customer to your business over the estimated life of the relationship with your company CAC to LTV ratio: The ratio of CAC to LTV is considered to be a golden metric - this is an indicator of the sustainability of a company  EIE LEVEL 1 A Few Key Metrics Customer retention rate (or Churn, %) indicates the % of paying customers who remain paying customers during a given period of time (or conversely, churn or attrition is the % of customers you lose in a given period of time) Conversion Rate: Reveals a combination of the company’s ability to sell its products to its customers and customers’ desire for the product. Good to track/review conversion rate over time & run experiments to improve it. Monthly Burn Rate: Understanding revenue and monthly expenses (fixed and variable) enables calculating the company’s monthly burn. This is the net amount of cash flow for a month when net cash flow is negative (if a company’s monthly net cash flow is positive, it is not burning cash)  EIE LEVEL 1 A Few Key Metrics Runway A measure of the amount of time when the company runs out of cash, expressed in terms of months (computed by dividing remaining cash by monthly burn rate) Net Promoter Score (NPS): This is a measure of customer satisfaction. It's important to track your NPS to ensure your customers are happy with your product or service.  EIE LEVEL 1 Summary In the last 2 modules you have got a glimpse of Converting your Idea → Business Model → backed by Financial Model → ‘Chance of Success’ Financial Models: Building robust financial projections to predict your company's future performance Funding Sources: Exploring diverse avenues like bootstrapping, angel investors, venture capital, crowdfunding, and government grants Key Metrics: Knowing key metrics to track the health of your startup and finances is key Successful entrepreneurs: financially savvy to steer their startups to success & growth  EIE – Part I Pre Session (MUST WATCH) [min] Post Session (RECOMMENDED) [min] Lean Approach: Customer Dev Data (2:12) Long-Term Forecast (Why surveys don’t help much & “Insights vs. Data”) (https://youtu.be/npGXPUCOx3M) (https://youtu.be/An0Iv40Jv9k) Art of Startup Finance: Introduction, Balance Sheet (https://youtu.be/LTJUoy3kQ5c) Kauffman, (0.44-1.37)(0:53) (https://youtu.be/2PU9F4CeKqI) Income Statement Startup Finance Pyramid (3:03) : (https://youtu.be/Uw5zGAIP1MI) (https://youtu.be/eqDQlAf3-Qo) Business Model Formula (5:24): Cash Flow (https://youtu.be/h_tx6NF_nD8) (https://youtu.be/V5QNp57xaeI)