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JOE HADZIMA: OK, Good evening.

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Everybody nice and
warm from the snow?

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Thank you for coming to Nuts
and Bolts of New Ventures

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and Business Plans on a
snowy night in Cambridge.

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My name is Joe Hadzima.

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And this is the first
of six evenings we're

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going to have for the course.

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The course name is Nuts
and Bolts of New Ventures

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and Business Plans.

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00:00:51,250 --> 00:00:55,700
First of all, it's not really
about the business plan itself.

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Think of it as we're going
to talk about how to plan

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and execute a new venture.

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And don't think
of a business plan

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as a fixed document
in this course.

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Really, it's a dynamic
process we're going through.

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It may be a document.

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It may be a few slides.

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But at the end of
the day, what it

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ends up being is a
shared vision between you

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and your team as to where
we are, where we're going,

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and how we plan to get there.

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So that's the goal of all this.

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And I should also
say, because I know

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some people in the audience are
not doing traditional business

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ventures, we're going to use
the business terms a lot,

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but this could equally apply
to social-developmental

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entrepreneurship, to nonprofits
even to governmental ventures.

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It's a way of thinking about
how to organize new ideas

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and get them going.

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Now a little bit
about the course.

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This is the 25th
year-- it's hard for me

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to believe it's been 25
years-- for the course.

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And the founding of the course
has an entrepreneurial lesson

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in it.

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So here's the backstory.

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I was teaching some things
here on legal stuff.

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And some students
came up and said--

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I think we had one
entrepreneurship

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course at Sloan at
the time and they

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had taken that-- and they
said it's a great course,

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but it's not telling
us anything practical.

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So could you do a
course during IAP

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to tell us how to do
something practical,

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how to start a company?

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So this was back 25 years
ago before the internet.

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And the IAP courses were
in a fixed, printed catalog

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that you would get.

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Shows you how far we've come.

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So I said, well, I'll
think about doing a course

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and let me get back to you.

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Well, I got tied-up
with some other things.

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And then they came to me and
said, we put it in the catalog

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and we dare you not to show up.

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Interesting.

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So I thought about
it for a while

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and I thought, well,
I should be angry,

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but I think I have a customer.

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I think these people
want something.

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So the first attribute
was I had a customer.

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I'll right, I'll play
this game for a bit.

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Problem is I only had
two weeks to organize it.

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So that wasn't enough time
to really do anything formal.

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So I said-- I think it was
four nights-- all right,

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we'll do two hours, three
hours, we'll do eight topics

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and I'll go and find some
people who know about those.

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And how am I going to make
it easy at the last minute

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to get these people?

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I said just come into class
and whatever the field

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is that you're in speak maybe
10 minutes on the five things

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I wish somebody had told me
about whatever you're talking

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about before I got started.

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Then we'll do
questions and answers.

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And I said, I've got to
make it entertaining.

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So I called up people
and said, do you

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know somebody who
can do this talk?

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And if you do, you have to
have seen the person talk,

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they have to be entertaining,
you have to vouch for them.

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And so we did this in
a period of two weeks.

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And probably half
the speakers that

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showed up for that first
session I had never met before.

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So I'm thinking this is
going to be a disaster.

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It turned out to
be a great success.

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And I think the
lessons for this,

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in an entrepreneurial way were
I had a customer for a product,

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they wanted something, I
was able to clearly define

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the task-- because I didn't
have time to do anything more;

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if I had done it
myself, it probably

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would have taken
longer and not been

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as good-- I got great people,
and I was able to communicate

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to them what the task was, and
then I got out of their way

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and they did a great job.

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So there's an
entrepreneurial lesson

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in how to start a company.

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Make sure you have
customers, get great people.

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The whole business planning,
new venture-type thing

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is really trying to
find what the task is

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and then to be able to
communicate, and execute on it.

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So the course really is
an entrepreneur venture.

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That's how we started.

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And later Joost
basically figured out

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how we could get credit for it.

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And it's just
blossomed ever since.

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So that's the background.

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In the 25 years we've
seen all sorts of things.

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We've seen bubbles--
the internet bubble.

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I stood here thinking I
just read in the paper

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that Hotmail, back
in 1997 or so,

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had started up and been sold
in 18 months for $450 million,

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basically giving away email.

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And I'm thinking how
am I going to explain

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to people this isn't
the way it usually

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works in periods of time.

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More recently, Instagram.

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So there are some things that
happen at points in time that

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defy direct logic.

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And if you can
catch those waves,

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that becomes a good thing to do.

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We've also seen busts after
the internet collapsed,

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after the financial
markets collapsed.

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Actually, that is one of the
best times to start a company.

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And many of the really
enduring companies

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have been started
during down times.

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And the reason is resources
aren't available-- financing

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dries up-- you've got
to be really focused,

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you have to actually
deliver something of value.

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And there's a lot of history
about companies to get

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started during down times.

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But through all of
that, ups and downs,

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it all boils down to
really two basic thoughts,

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and we're going to touch
on it over and over again

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in the course.

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And that is whether it's
a business, whether it's

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a nonprofit, whether it's
a governmental project,

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the first thing you've
got to do is create value.

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So if you're not creating value,
You can't really do anything.

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And then having created
value, the question

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is how do you capture
some or all of that value

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to make what you're
doing sustainable.

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And sustainable in the concept
of the traditional companies is

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profit and in the context
of developmental stuff

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it can be we can do it
again, rinse and repeat.

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So when we look
at creating value,

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we're going to be
asking questions

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about who do we
create value for,

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how much value do we create,
and how do we create it.

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And then when we talk
about capturing value,

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the traditional way has been
for customers somebody who

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will pay you for your
goods, the product you do,

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or your services.

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And the trick, as we'll see,
in financial projections

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and the business
model parts that'll

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come in the next few days, is
that whole process something

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where you can make enough
money that you can continue it.

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So traditional capture of
value is through customers.

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There are other ways
to capture value

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in the area of the
advertising or monetization

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that we'll talk about also.

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And you think about things like
where third parties provide

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that payment.

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So think of the US
health care system

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where historically the patient,
the person who the value is

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delivered to-- as in you're
going to get treated--

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isn't really paying
directly the cost of that.

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So sometimes figuring
out how that works

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can be the challenging part.

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So at the end of the day,
to make all this happy,

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we're going to need people--
that's the number one

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thing you're going to
need for a venture--

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resources of some sort-- either
cash or partnerships-- skills--

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some of them you'll learn
in this class, some of them

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you'll learn on the job--
and then that one that's

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the hardest one to figure
out, but if you can get it

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it's the best, and
that's called luck.

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I'll always, go with some luck.

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So our goal for the
course is basically

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to make sure you get infected
with the entrepreneurial

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thinking virus.

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And it really is a virus
that can be infectious.

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The good news is it's
not known to be fatal.

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It's highly contagious.

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It is a lifelong affliction, so
you'll have to get used to it.

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But at the end of the day,
I think if you catch it

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you'll be in best shape.

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This is what we're going
to be doing tonight.

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We're going to tell you a little
bit about who you are, we're

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going to introduce
the teaching team,

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we'll introduce the case
study and business plan

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basics tonight, and then
we'll take a small break,

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and then we'll get on
with Steve Pearse, who's

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come all the way from
Florida today to talk to us.

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He's thinking maybe that
wasn't such a good idea.

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00:10:04,570 --> 00:10:05,665
So who is in the class?

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Some of you signed up-- many of
you signed up-- at the website.

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We had 160 signed up.

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And the organizations
that you're from

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are-- and I'll just read
them alphabetically--

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Boston University, Broad
Institute, Columbia University,

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the Department of Defense,
Harvard College, Harvard

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00:10:28,030 --> 00:10:30,730
Kennedy School, and
Harvard Business School,

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Mass General Hospital,
University of Massachusetts,

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00:10:34,400 --> 00:10:38,620
University of Macedonia,
University of Michigan,

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Toronto, Wellesley College,
several private companies

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that I won't say your names to
protect you, and of course MIT.

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Now the areas that you
said you were interested

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in are all over the place.

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We have consumer devices,
foreign language learning,

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financial technology,
social enterprise

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related to health care,
educational technology,

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00:11:01,880 --> 00:11:02,772
medical devices.

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00:11:02,772 --> 00:11:04,480
One of the reasons
I'm going through this

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00:11:04,480 --> 00:11:08,120
is that we hope that in
the period of this course

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00:11:08,120 --> 00:11:09,650
you'll actually form some teams.

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00:11:09,650 --> 00:11:12,424
So if you find some of
these topics interesting,

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00:11:12,424 --> 00:11:13,840
or if you're some
of these people,

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00:11:13,840 --> 00:11:16,112
then at least I'm
shouting you out a bit.

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We have nuclear energy--
for those of you

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00:11:17,820 --> 00:11:22,910
into that-- specialty biotech
chemicals, a sleep product,

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00:11:22,910 --> 00:11:28,970
oncology drug delivery,
biotechnology, 3D printing,

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00:11:28,970 --> 00:11:34,500
eyeglasses in West Africa,
independent film industry, lab

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00:11:34,500 --> 00:11:40,490
testing process and equipment,
big data, data privacy,

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00:11:40,490 --> 00:11:46,040
B2B information technology,
energy technology, aerospace,

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00:11:46,040 --> 00:11:49,050
crowd-funding, and e-commerce.

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00:11:49,050 --> 00:11:52,590
So hopefully you'll find
a kindred spirit in those.

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Now what about the
background of the people?

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We have some people this is
the first course they've ever

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taken in entrepreneurship.

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00:12:01,674 --> 00:12:03,340
We've had people that
have taken a bunch

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00:12:03,340 --> 00:12:05,340
of other entrepreneurial
courses at MIT

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00:12:05,340 --> 00:12:07,347
or at other universities.

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00:12:07,347 --> 00:12:09,180
In fact, we have a
couple of people who have

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00:12:09,180 --> 00:12:12,030
taken Nuts and Bolts before.

239
00:12:12,030 --> 00:12:15,520
They did pass before, but
they're back for more.

240
00:12:15,520 --> 00:12:19,520
Several start-ups, somebody who
has always been in government,

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00:12:19,520 --> 00:12:25,530
and a couple people in 15 plus
years in large organizations.

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And some members of the
venture mentoring service

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00:12:28,070 --> 00:12:30,520
are actually in the audience.

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00:12:30,520 --> 00:12:33,240
So we have undergraduates,
grad students, post-docs,

245
00:12:33,240 --> 00:12:35,450
visiting faculty, and staff.

246
00:12:35,450 --> 00:12:39,510
So it's a pretty
diverse audience

247
00:12:39,510 --> 00:12:40,760
and we've got a lot to cover.

248
00:12:40,760 --> 00:12:43,530
So a little advice to the
people that are first timers.

249
00:12:43,530 --> 00:12:46,580
I would say soak it all in.

250
00:12:46,580 --> 00:12:48,829
And as you go
forward, try to think

251
00:12:48,829 --> 00:12:50,620
about the kind of things
we talk about when

252
00:12:50,620 --> 00:12:54,660
you approach entrepreneurial
things for the first time.

253
00:12:54,660 --> 00:12:58,670
More experienced people, now use
this to refine your thinking.

254
00:12:58,670 --> 00:13:01,950
I've been in this course
for, as I said, 25 years.

255
00:13:01,950 --> 00:13:04,540
And every single year I
come up with some refinement

256
00:13:04,540 --> 00:13:07,220
of my thinking listening
not only the speakers

257
00:13:07,220 --> 00:13:09,770
but to the questions that come.

258
00:13:09,770 --> 00:13:13,380
So I hope you enjoy the course.

259
00:13:13,380 --> 00:13:19,246
We do have to calibrate
before we get going, though.

260
00:13:19,246 --> 00:13:23,310
It is MIT, so we have
our first formula.

261
00:13:23,310 --> 00:13:32,270
And it is H equals
R divided by E.

262
00:13:32,270 --> 00:13:35,480
So I've got an audience with a
whole bunch of different people

263
00:13:35,480 --> 00:13:38,670
and we're trying to
solve this equation.

264
00:13:38,670 --> 00:13:41,844
And we're trying
to maximize H. So

265
00:13:41,844 --> 00:13:43,260
for those of you
that can't see, H

266
00:13:43,260 --> 00:13:46,970
equals R divided by E.
Anybody want to take

267
00:13:46,970 --> 00:13:49,410
a guess what these symbols are?

268
00:13:52,805 --> 00:13:54,426
Yeah, the snow has got to you.

269
00:13:54,426 --> 00:13:55,300
I'll give you a hint.

270
00:13:55,300 --> 00:13:56,160
H is happiness.

271
00:13:58,940 --> 00:13:59,577
OK, let's see.

272
00:13:59,577 --> 00:14:00,077
Yeah.

273
00:14:00,077 --> 00:14:01,540
AUDIENCE: Reality
over Expectations.

274
00:14:01,540 --> 00:14:03,164
JOE HADZIMA: Oh, he
jumped right to it.

275
00:14:03,164 --> 00:14:06,730
Reality over expectations.

276
00:14:06,730 --> 00:14:09,760
Last year somebody said
revenue divided by expenses,

277
00:14:09,760 --> 00:14:11,610
which is equally good I guess.

278
00:14:11,610 --> 00:14:12,590
[LAUGHTER]

279
00:14:12,590 --> 00:14:15,175
So this is a
generalizable formula.

280
00:14:15,175 --> 00:14:19,730
And for those of you who have
even slight idea of math,

281
00:14:19,730 --> 00:14:21,640
if I lower your
expectations to zero,

282
00:14:21,640 --> 00:14:24,087
I can make you infinitely happy.

283
00:14:24,087 --> 00:14:26,170
But I think I'm never going
to be able to do that.

284
00:14:26,170 --> 00:14:31,260
But the point is this works
both for teaching here

285
00:14:31,260 --> 00:14:33,870
and for everything you do.

286
00:14:33,870 --> 00:14:39,450
If you over-deliver
on what you promise,

287
00:14:39,450 --> 00:14:41,510
you'll have people happy--
your investors will

288
00:14:41,510 --> 00:14:43,410
be happy, your customers.

289
00:14:43,410 --> 00:14:47,360
So happiness is reality
divided by expectation,

290
00:14:47,360 --> 00:14:51,920
with the fact that you can never
quite get expectations to zero.

291
00:14:51,920 --> 00:14:55,250
So lower your expectations--
I want you to all be happy

292
00:14:55,250 --> 00:14:57,170
as we move through the course.

293
00:14:57,170 --> 00:14:58,348
So who are we?

294
00:15:01,554 --> 00:15:06,270
We have Joe Hadzima,
Joost, Gino, Yonald

295
00:15:06,270 --> 00:15:08,990
Chery, and some highly
paid volunteer speakers

296
00:15:08,990 --> 00:15:10,710
I'll introduce.

297
00:15:10,710 --> 00:15:12,310
A little bit about
my background.

298
00:15:12,310 --> 00:15:13,530
Senior lecturer at Sloan.

299
00:15:13,530 --> 00:15:16,800
Was a partner in a law firm
in Boston for many years.

300
00:15:16,800 --> 00:15:18,510
Was one of the founding
judges of what's

301
00:15:18,510 --> 00:15:21,080
now the 100K competition.

302
00:15:21,080 --> 00:15:24,590
Former global chairman of
the MIT Enterprise Forum.

303
00:15:24,590 --> 00:15:27,140
Managing director at Main
Street Partners, where we do

304
00:15:27,140 --> 00:15:29,170
technology commercialization.

305
00:15:29,170 --> 00:15:31,410
And co-founder and
president of IPVision

306
00:15:31,410 --> 00:15:34,010
that does intellectual
property analysis.

307
00:15:34,010 --> 00:15:36,890
I should say this is
the first course at MIT

308
00:15:36,890 --> 00:15:39,600
that we're aware of that brought
both sides of campus together,

309
00:15:39,600 --> 00:15:43,400
the engineering, science,
architecture side of campus

310
00:15:43,400 --> 00:15:44,582
to the Sloan side.

311
00:15:44,582 --> 00:15:46,040
You would think
they're miles away.

312
00:15:46,040 --> 00:15:48,492
Until this class, they
really weren't together.

313
00:15:48,492 --> 00:15:50,450
There have been a lot of
companies launched out

314
00:15:50,450 --> 00:15:51,130
of this class.

315
00:15:51,130 --> 00:15:53,390
Some have gone public.

316
00:15:53,390 --> 00:15:58,080
And it's been quite
a history over time.

317
00:15:58,080 --> 00:16:02,100
Then I'd like to introduce
our case study next.

318
00:16:02,100 --> 00:16:09,920
This is Virtual Ink, if you
can't read that logo up there.

319
00:16:09,920 --> 00:16:12,810
This is a case you
have in the materials.

320
00:16:12,810 --> 00:16:16,460
Is a computer
peripheral company.

321
00:16:16,460 --> 00:16:21,020
And let me see if I
can make this work.

322
00:16:30,440 --> 00:16:32,590
I'll give you a little bit
of an introduction here.

323
00:16:32,590 --> 00:16:33,966
Is that appearing up there?

324
00:16:33,966 --> 00:16:34,632
[AUDIO PLAYBACK]

325
00:16:34,632 --> 00:16:37,530
[MUSIC PLAYING]

326
00:16:37,530 --> 00:16:39,622
-For the times when you
don't need a projector

327
00:16:39,622 --> 00:16:42,246
and writing on the whiteboard
is the best teaching tool,

328
00:16:42,246 --> 00:16:45,820
there's the MimioCapture
ink recording system.

329
00:16:45,820 --> 00:16:49,630
Enabled by MimioStudio Software,
the MimioCapture system

330
00:16:49,630 --> 00:16:51,610
actually sees and
records everything

331
00:16:51,610 --> 00:16:55,570
you write on the board in
real time and multiple colors.

332
00:16:55,570 --> 00:16:59,035
It can even convert
handwriting into editable text.

333
00:16:59,035 --> 00:17:01,510
The system creates
digital files that you

334
00:17:01,510 --> 00:17:04,975
can send to your students so
now they can focus on the lesson

335
00:17:04,975 --> 00:17:06,460
rather than on taking notes.

336
00:17:06,460 --> 00:17:09,182
And you'll save time by
using the digital files

337
00:17:09,182 --> 00:17:10,420
in other classes.

338
00:17:10,420 --> 00:17:12,760
The MimioCapture
system works with you

339
00:17:12,760 --> 00:17:16,254
MimioTeach interactive
system and comes complete

340
00:17:16,254 --> 00:17:19,150
with a magnetic charging
tray, four rechargeable marker

341
00:17:19,150 --> 00:17:20,990
holders, and a digital eraser.

342
00:17:20,990 --> 00:17:24,150
The MimioCapture system,
bringing your white board

343
00:17:24,150 --> 00:17:26,170
notes into the 21st century.

344
00:17:33,156 --> 00:17:34,374
[END PLAYBACK]

345
00:17:34,374 --> 00:17:35,040
JOE HADZIMA: OK.

346
00:17:35,040 --> 00:17:39,489
So that is an overview of what
Virtual Ink eventually became.

347
00:17:39,489 --> 00:17:42,030
And in fact, today they have a
whole bunch of other products.

348
00:17:42,030 --> 00:17:47,760
Yonald, our entrepreneur, who's
going to come in at the end,

349
00:17:47,760 --> 00:17:48,830
was the founder of it.

350
00:17:48,830 --> 00:17:50,942
He's got a very
interesting story.

351
00:17:50,942 --> 00:17:52,900
The reason we use Virtual
Ink, even though it's

352
00:17:52,900 --> 00:17:55,780
a little bit dated-- it
was in the late 1990s--

353
00:17:55,780 --> 00:18:00,050
is that it's an easy
concept to understand,

354
00:18:00,050 --> 00:18:02,090
although there is some
technology behind it,

355
00:18:02,090 --> 00:18:03,470
to be sure.

356
00:18:03,470 --> 00:18:08,530
It was entered in what was
then the 50K competition.

357
00:18:08,530 --> 00:18:12,400
It's an interesting story of
the times and the company.

358
00:18:12,400 --> 00:18:16,390
And most importantly,
Yonald himself comes in

359
00:18:16,390 --> 00:18:20,470
and he tells you stuff that
you're not going to find.

360
00:18:20,470 --> 00:18:23,270
It's so easy to get people
into a class like this

361
00:18:23,270 --> 00:18:24,180
who are successful.

362
00:18:24,180 --> 00:18:26,147
Oh, I came up with this
idea in my dorm room,

363
00:18:26,147 --> 00:18:28,230
and I did this, we raised
some money, went public,

364
00:18:28,230 --> 00:18:28,960
now I'm wealthy.

365
00:18:28,960 --> 00:18:32,829
Well, you don't really
learn anything from that.

366
00:18:32,829 --> 00:18:34,870
You learn if it's lucky
and everything works out.

367
00:18:34,870 --> 00:18:36,910
But Yonald comes in
and he'll tell you

368
00:18:36,910 --> 00:18:39,510
a very interesting story
of what he went through

369
00:18:39,510 --> 00:18:41,700
during the whole period.

370
00:18:41,700 --> 00:18:44,520
Now we'll mention it from time
to time during the course.

371
00:18:44,520 --> 00:18:47,750
You'll see reference to it
in some of the materials

372
00:18:47,750 --> 00:18:49,130
as you prepare.

373
00:18:49,130 --> 00:18:51,830
The entire plan is
in the course reader.

374
00:18:51,830 --> 00:18:55,930
Do not assume, however,
that it's a model plan.

375
00:18:55,930 --> 00:19:01,320
Every year we get people
handing in the executive summary

376
00:19:01,320 --> 00:19:03,380
and they follow exactly
the Virtual Ink thing.

377
00:19:03,380 --> 00:19:05,270
And I don't want you
to do that-- I want you

378
00:19:05,270 --> 00:19:06,560
to think on your own about it.

379
00:19:06,560 --> 00:19:08,980
But it's an interesting one.

380
00:19:08,980 --> 00:19:13,770
I tried to find another plan
to work on and a lot of people

381
00:19:13,770 --> 00:19:16,450
won't give up
their original plan

382
00:19:16,450 --> 00:19:18,180
or they never actually had one.

383
00:19:18,180 --> 00:19:23,140
So it's a unique
situation we have.

384
00:19:23,140 --> 00:19:26,150
Now we're going to go
into business plan basics.

385
00:19:26,150 --> 00:19:28,960
This is a introduction I'm
going to give about what's

386
00:19:28,960 --> 00:19:32,800
in a business plan, the kind of
things you need to think about.

387
00:19:32,800 --> 00:19:35,579
And then over the course of
the next five, six nights

388
00:19:35,579 --> 00:19:37,620
we'll be filling in each
of the components of it.

389
00:19:37,620 --> 00:19:40,710
So think of this as a
high-level overview.

390
00:19:40,710 --> 00:19:46,350
And it's going to be a little
bit like the MIT fire hose

391
00:19:46,350 --> 00:19:47,430
approach.

392
00:19:47,430 --> 00:19:49,820
For those of you who
aren't MIT students,

393
00:19:49,820 --> 00:19:53,560
they say that going
to MIT is like trying

394
00:19:53,560 --> 00:19:55,560
to drink water from a
fire house-- it's just

395
00:19:55,560 --> 00:19:57,240
so much coming at you.

396
00:19:57,240 --> 00:19:59,090
And we're going to
throw a lot at you

397
00:19:59,090 --> 00:20:00,900
over this period of time.

398
00:20:00,900 --> 00:20:04,860
Some of it's going to stick
right away and some of it you

399
00:20:04,860 --> 00:20:05,940
won't get for a while.

400
00:20:05,940 --> 00:20:07,790
And the reason I know
that is we get emails

401
00:20:07,790 --> 00:20:11,504
back constantly saying, oh, I
just encountered this situation

402
00:20:11,504 --> 00:20:12,920
and I finally
figured out what you

403
00:20:12,920 --> 00:20:14,640
were trying to explain to us.

404
00:20:14,640 --> 00:20:16,360
So we always want feedback.

405
00:20:16,360 --> 00:20:19,212
And as long as people find
what we're doing useful,

406
00:20:19,212 --> 00:20:20,920
we're going to continue
to do the course.

407
00:20:24,590 --> 00:20:29,160
So topics in my
overview is why write

408
00:20:29,160 --> 00:20:32,470
a plan, what should
be in it, and then

409
00:20:32,470 --> 00:20:36,800
talk a little bit about the
plan as a financing document.

410
00:20:36,800 --> 00:20:41,730
So does anyone know
who this character is?

411
00:20:41,730 --> 00:20:44,810
This is Dwight Eisenhower,
Supreme Commander

412
00:20:44,810 --> 00:20:48,680
allied forces
Europe, D-day, became

413
00:20:48,680 --> 00:20:51,030
president of the United States.

414
00:20:51,030 --> 00:20:55,360
Life magazine he's on the
cover and he says plans

415
00:20:55,360 --> 00:20:57,980
are worthless.

416
00:20:57,980 --> 00:21:01,810
So I guess we're
done with the course.

417
00:21:01,810 --> 00:21:06,550
This is a guy who planned and
executed this massive invasion.

418
00:21:06,550 --> 00:21:08,710
And if you've read any
of the history of it,

419
00:21:08,710 --> 00:21:11,090
it's just an amazing operation.

420
00:21:11,090 --> 00:21:12,420
So plans are worthless.

421
00:21:12,420 --> 00:21:16,710
But planning is everything.

422
00:21:16,710 --> 00:21:21,310
So we'll talk about
business plans

423
00:21:21,310 --> 00:21:24,130
and whether to write
one specifically.

424
00:21:24,130 --> 00:21:26,050
So for example, the
Wall Street Journal

425
00:21:26,050 --> 00:21:29,210
had a big article about
does a start-up really

426
00:21:29,210 --> 00:21:30,950
need a business plan.

427
00:21:30,950 --> 00:21:34,470
And what they're talking about
are written business plans.

428
00:21:34,470 --> 00:21:36,250
And there are academic
studies showing

429
00:21:36,250 --> 00:21:38,170
that people would
be better off just

430
00:21:38,170 --> 00:21:40,390
to go off and
launch the company.

431
00:21:40,390 --> 00:21:43,410
And I pretty much agree
with that at one level.

432
00:21:43,410 --> 00:21:48,060
I've been around the country
judging various business plan

433
00:21:48,060 --> 00:21:50,890
competitions or classes
that have business plans.

434
00:21:50,890 --> 00:21:53,550
It's pretty clear that
the people doing it

435
00:21:53,550 --> 00:21:56,400
have no intention of
actually starting a company.

436
00:21:56,400 --> 00:21:59,360
It's just an academic exercise.

437
00:21:59,360 --> 00:22:01,630
At MIT, that's not
what we're doing.

438
00:22:01,630 --> 00:22:04,490
And what Joost and the
people at the 100K did was

439
00:22:04,490 --> 00:22:08,010
say we're trying to build
tomorrow's leading companies.

440
00:22:08,010 --> 00:22:10,150
This is about trying to
actually get things going.

441
00:22:10,150 --> 00:22:15,120
So a business plan, or at least
thinking about a business plan,

442
00:22:15,120 --> 00:22:19,390
is really what you need
to do to launch a company.

443
00:22:19,390 --> 00:22:22,930
So why actually
write a real plan?

444
00:22:22,930 --> 00:22:28,360
Well, you have to, you
think, because nobody's

445
00:22:28,360 --> 00:22:31,460
going to finance you
without something written.

446
00:22:31,460 --> 00:22:34,210
You may need it to talk
to strategic partners,

447
00:22:34,210 --> 00:22:38,180
to explain what you're
doing to others,

448
00:22:38,180 --> 00:22:40,060
and to attract key people.

449
00:22:40,060 --> 00:22:43,005
But the real reason you
need to write a plan

450
00:22:43,005 --> 00:22:47,990
or think about it is you need
to understand your business.

451
00:22:47,990 --> 00:22:53,860
What is the scarcest resource
that you as an entrepreneur

452
00:22:53,860 --> 00:22:56,610
have out there?

453
00:22:56,610 --> 00:22:57,690
AUDIENCE: Money.

454
00:22:57,690 --> 00:22:58,510
JOE HADZIMA: Money?

455
00:22:58,510 --> 00:23:00,051
We have plenty of
money in the world.

456
00:23:00,051 --> 00:23:00,770
AUDIENCE: Time.

457
00:23:00,770 --> 00:23:01,520
JOE HADZIMA: Time.

458
00:23:01,520 --> 00:23:02,900
It's your time.

459
00:23:02,900 --> 00:23:04,320
The reason to
think it through is

460
00:23:04,320 --> 00:23:06,550
you want to spend the
next three to five years--

461
00:23:06,550 --> 00:23:09,350
or whatever--
working on something.

462
00:23:09,350 --> 00:23:12,712
Is this the best idea you have?

463
00:23:12,712 --> 00:23:14,920
For an entrepreneur, it's
always, well, I need money.

464
00:23:14,920 --> 00:23:17,210
Well, the point is
money tends to flow

465
00:23:17,210 --> 00:23:18,210
to where opportunity is.

466
00:23:18,210 --> 00:23:22,210
So if you can create value and
opportunity, you can get money.

467
00:23:22,210 --> 00:23:24,950
It's harder in some parts
of the country than others.

468
00:23:24,950 --> 00:23:26,950
But the real scarce
thing is your time.

469
00:23:26,950 --> 00:23:31,160
So you really need to
understand and think

470
00:23:31,160 --> 00:23:33,140
about the process of planning.

471
00:23:33,140 --> 00:23:36,690
The famous expression
people don't plan to fail,

472
00:23:36,690 --> 00:23:39,100
they just fail to plan.

473
00:23:39,100 --> 00:23:40,530
And in the course
of this course,

474
00:23:40,530 --> 00:23:42,520
we're going to be asking
you to think about who

475
00:23:42,520 --> 00:23:44,240
are your customers or users.

476
00:23:44,240 --> 00:23:47,210
Who cares about what I do?

477
00:23:47,210 --> 00:23:50,720
Will they buy or use
what you're doing?

478
00:23:50,720 --> 00:23:54,840
What will they pay or how can
you otherwise make money or get

479
00:23:54,840 --> 00:23:56,980
resources, capture value?

480
00:23:56,980 --> 00:23:59,010
How are you going to
make and deliver it?

481
00:23:59,010 --> 00:24:03,050
Think about something as
simple as Netflix as a concept.

482
00:24:03,050 --> 00:24:07,240
Back when it wasn't
streaming it was a DVD

483
00:24:07,240 --> 00:24:08,780
in a packet shipped to you.

484
00:24:08,780 --> 00:24:12,120
It's not an amazing concept;
it's pretty straightforward.

485
00:24:12,120 --> 00:24:15,240
But their key was they
could actually deliver on it

486
00:24:15,240 --> 00:24:17,220
effectively and efficiently.

487
00:24:17,220 --> 00:24:20,960
Or Amazon selling books online--
that's how they got started.

488
00:24:20,960 --> 00:24:22,610
What's so hard?

489
00:24:22,610 --> 00:24:25,020
Well, there's a lot that
goes on in the background.

490
00:24:25,020 --> 00:24:27,390
And what are the resources,
people, and technology

491
00:24:27,390 --> 00:24:27,890
you'll need?

492
00:24:30,480 --> 00:24:35,930
And so whether it's a
Web 2.0, or biotech,

493
00:24:35,930 --> 00:24:39,675
or social-developmental, I want
to just reiterate that there

494
00:24:39,675 --> 00:24:41,740
are really two basic things.

495
00:24:41,740 --> 00:24:48,110
It's create value and then
figure out a capture or harvest

496
00:24:48,110 --> 00:24:49,494
the value.

497
00:24:49,494 --> 00:24:51,160
That's the key thing
we're trying to do.

498
00:24:51,160 --> 00:25:00,874
So how many of you have seen
the movie The Social Network?

499
00:25:00,874 --> 00:25:02,040
You may remember this scene.

500
00:25:02,040 --> 00:25:05,080
Let's see if this
works, if I can do that.

501
00:25:05,080 --> 00:25:10,150
So Eduardo says, it's
time to monetize the site.

502
00:25:10,150 --> 00:25:13,870
And Mark says, what's that mean?

503
00:25:13,870 --> 00:25:17,070
And Eduardo says, it means
it's time for the website

504
00:25:17,070 --> 00:25:18,195
to generate revenue.

505
00:25:21,740 --> 00:25:24,320
No, I know what that
means, but I'm asking you

506
00:25:24,320 --> 00:25:26,460
how you want to do it.

507
00:25:26,460 --> 00:25:29,480
And he says
advertising-- remember

508
00:25:29,480 --> 00:25:31,640
that famous advertising.

509
00:25:31,640 --> 00:25:35,910
And Mark's reaction is, no.

510
00:25:35,910 --> 00:25:41,300
And Eduardo says, well, we've
got 4,000 members-- this

511
00:25:41,300 --> 00:25:45,260
is Facebook, 4,000 members.

512
00:25:45,260 --> 00:25:48,030
And Mark says, because
Facebook is cool.

513
00:25:48,030 --> 00:25:50,170
If we start installing
pop-ups for Mountain Dew,

514
00:25:50,170 --> 00:25:51,031
it's not going to.

515
00:25:51,031 --> 00:25:53,030
And Eduardo says, well,
I wasn't really thinking

516
00:25:53,030 --> 00:25:54,160
about Mountain Dew.

517
00:25:54,160 --> 00:25:55,160
But maybe at some point.

518
00:25:55,160 --> 00:25:58,800
I'm talking about the business,
and the company, the site.

519
00:25:58,800 --> 00:26:01,370
And Mark says, we don't
even know what it is yet.

520
00:26:01,370 --> 00:26:04,640
We don't know what it is, we
don't know what it can be,

521
00:26:04,640 --> 00:26:06,540
we don't know what it will be.

522
00:26:06,540 --> 00:26:09,460
We know that it's cool,
it's a priceless asset.

523
00:26:09,460 --> 00:26:12,490
I'm not giving it up.

524
00:26:12,490 --> 00:26:15,570
Eduardo says, when
will it be finished?

525
00:26:15,570 --> 00:26:19,450
And the famous answer
is, it won't be finished.

526
00:26:19,450 --> 00:26:22,587
That's the point-- the way
fashion is never finished.

527
00:26:22,587 --> 00:26:24,920
So here they are, these guys
that have created something

528
00:26:24,920 --> 00:26:26,503
that they think has
value, and they're

529
00:26:26,503 --> 00:26:28,960
trying to figure out how
to harvest the value.

530
00:26:28,960 --> 00:26:35,500
So I went and I looked
at the 10-K for Facebook.

531
00:26:35,500 --> 00:26:38,220
10-K is the annual report
you file with the Securities

532
00:26:38,220 --> 00:26:42,150
and Exchange Commission when
you're a public company.

533
00:26:42,150 --> 00:26:44,710
And in the first
part of it you have

534
00:26:44,710 --> 00:26:45,930
to say what your business is.

535
00:26:45,930 --> 00:26:48,850
And they say our mission
is to make the world more

536
00:26:48,850 --> 00:26:50,540
open and connected.

537
00:26:50,540 --> 00:26:52,970
And so I'm looking to try
to figure out what they say

538
00:26:52,970 --> 00:26:54,380
they're business is after that.

539
00:26:54,380 --> 00:26:56,830
And it was very curious.

540
00:26:56,830 --> 00:26:59,400
They had three major
headings in the 10-K.

541
00:26:59,400 --> 00:27:06,060
The first one was how we
create value for users.

542
00:27:06,060 --> 00:27:10,450
The second one was how we
create value for developers

543
00:27:10,450 --> 00:27:12,940
through the Facebook platform.

544
00:27:12,940 --> 00:27:16,210
And the third one was how do
we create value for marketers.

545
00:27:16,210 --> 00:27:20,090
So here they are a public
company with billions of users

546
00:27:20,090 --> 00:27:23,040
now and they're focused on
how do they create value,

547
00:27:23,040 --> 00:27:26,560
and they're still struggling
a bit with what their revenue

548
00:27:26,560 --> 00:27:28,420
model is on the other side.

549
00:27:28,420 --> 00:27:30,666
So my point is the
same things that you're

550
00:27:30,666 --> 00:27:32,540
going to think about
starting a company-- how

551
00:27:32,540 --> 00:27:35,110
do you create value and how
do you harvest value-- never

552
00:27:35,110 --> 00:27:35,610
goes away.

553
00:27:35,610 --> 00:27:38,600
It's constant through this.

554
00:27:38,600 --> 00:27:41,890
I thought I could go to the 10-K
and find some really nice story

555
00:27:41,890 --> 00:27:44,710
about how they harvest value
and they're still thinking

556
00:27:44,710 --> 00:27:45,850
about how to create value.

557
00:27:48,460 --> 00:27:51,680
Now one way to think about
what we're going to do here

558
00:27:51,680 --> 00:27:53,390
is to have a visualization.

559
00:27:53,390 --> 00:27:57,060
And I think of it as a pyramid.

560
00:27:57,060 --> 00:27:59,370
So at the top of
the pyramid you can

561
00:27:59,370 --> 00:28:02,120
think of as your
mission statement,

562
00:28:02,120 --> 00:28:05,210
similar to what Facebook said.

563
00:28:05,210 --> 00:28:06,800
And underneath that,
supporting that,

564
00:28:06,800 --> 00:28:09,140
is your elevator
pitch-- do people

565
00:28:09,140 --> 00:28:11,330
know what elevator pitches are?

566
00:28:11,330 --> 00:28:12,500
We did that in the 100K.

567
00:28:12,500 --> 00:28:17,810
It used to be all of the
venture capitalist offices were

568
00:28:17,810 --> 00:28:18,650
high buildings.

569
00:28:18,650 --> 00:28:21,380
So you'd have maybe 20 floors.

570
00:28:21,380 --> 00:28:23,520
The theory is you get
into the elevator,

571
00:28:23,520 --> 00:28:25,930
the person turns you
and say what do you do,

572
00:28:25,930 --> 00:28:30,760
and you have 20 floors to
explain it in maybe 30 seconds.

573
00:28:30,760 --> 00:28:35,924
A lot of the VCs have moved
to two story buildings,

574
00:28:35,924 --> 00:28:38,340
so you have to do this as you
run up the stairs with them.

575
00:28:38,340 --> 00:28:41,810
So you've got to be even
crisper today than before.

576
00:28:41,810 --> 00:28:44,070
Underneath that might be the
executive summary-- we'll

577
00:28:44,070 --> 00:28:46,260
go into that a little bit.

578
00:28:46,260 --> 00:28:50,630
Under that might be that
the PowerPoint presentation.

579
00:28:50,630 --> 00:28:52,420
Under that could
be the full plan,

580
00:28:52,420 --> 00:28:55,250
if you get to the
point of writing one.

581
00:28:55,250 --> 00:28:58,530
But underneath all of that
are a set of foundations

582
00:28:58,530 --> 00:29:00,190
of individual topics.

583
00:29:00,190 --> 00:29:02,480
We'll go through some of
these through the course.

584
00:29:02,480 --> 00:29:05,200
And the point is that
it takes a lot of effort

585
00:29:05,200 --> 00:29:08,500
to distill everything down
up to the tip of the pyramid.

586
00:29:08,500 --> 00:29:10,580
And what you're
looking for is you

587
00:29:10,580 --> 00:29:13,180
can describe that
top very clearly

588
00:29:13,180 --> 00:29:16,810
and have it supported all
the way down through it.

589
00:29:16,810 --> 00:29:21,770
The mission statement might
be a sentence or a paragraph,

590
00:29:21,770 --> 00:29:25,390
the elevator pitch
could be 30 seconds,

591
00:29:25,390 --> 00:29:29,020
the executive summary
two to five pages,

592
00:29:29,020 --> 00:29:32,250
PowerPoint 10/20/30.

593
00:29:32,250 --> 00:29:34,480
Do you know the 10/20/30 rule?

594
00:29:34,480 --> 00:29:39,190
I put a link in on the website
to the Guy Kawasaki clip

595
00:29:39,190 --> 00:29:40,050
about that.

596
00:29:40,050 --> 00:29:45,080
So PowerPoint-- I totally don't
do this in this presentation--

597
00:29:45,080 --> 00:29:52,400
he says 10 slides, 20
minutes, 30 point font,

598
00:29:52,400 --> 00:29:53,650
that's what you're aiming for.

599
00:29:56,700 --> 00:30:00,220
And then the full business plan
could be anywhere from 25 to 30

600
00:30:00,220 --> 00:30:02,590
pages, if you end up doing that.

601
00:30:02,590 --> 00:30:06,200
The slides, by the way, for
most of the presentations

602
00:30:06,200 --> 00:30:09,420
will be posted on the
website afterwards.

603
00:30:09,420 --> 00:30:12,960
So that will help you out.

604
00:30:12,960 --> 00:30:15,190
So now the question is, all
right, I sort of get it,

605
00:30:15,190 --> 00:30:19,140
it's this image that I
have to do and figure out.

606
00:30:19,140 --> 00:30:21,590
Question is who
actually writes this.

607
00:30:21,590 --> 00:30:24,780
Is it the founder
alone, the team,

608
00:30:24,780 --> 00:30:28,750
or even a professional
hired writer consultant?

609
00:30:28,750 --> 00:30:35,880
Charlie Tillett-- who will
be here on Thursday-- and I

610
00:30:35,880 --> 00:30:39,380
stood outside this room at
an MIT Enterprise forum event

611
00:30:39,380 --> 00:30:43,030
during the break, and I asked
Charlie who had entered the 10K

612
00:30:43,030 --> 00:30:44,260
competition back in the day.

613
00:30:44,260 --> 00:30:46,430
What are you doing
this summer, Charlie?

614
00:30:46,430 --> 00:30:48,810
He says, well, I'm
graduating from Sloan,

615
00:30:48,810 --> 00:30:50,410
I'm trying to think what to do.

616
00:30:50,410 --> 00:30:52,584
I said, well, I'm working
with some entrepreneurs.

617
00:30:52,584 --> 00:30:54,500
I've been working with
them for a couple years

618
00:30:54,500 --> 00:30:57,550
and they really could use
someone to help write a plan.

619
00:30:57,550 --> 00:30:59,430
They need to get some funding.

620
00:30:59,430 --> 00:31:00,950
And Charlie was game.

621
00:31:00,950 --> 00:31:03,665
We hopped in his truck,
drove up to a strip mall

622
00:31:03,665 --> 00:31:09,010
up in Tewksbury, I think it
was, a room with 10 engineers.

623
00:31:09,010 --> 00:31:14,335
And ended up joining the
company to write the plan

624
00:31:14,335 --> 00:31:18,210
and stayed with them through
when they went public.

625
00:31:18,210 --> 00:31:20,335
But at the end of the day,
it was the entrepreneurs

626
00:31:20,335 --> 00:31:22,120
that needed to own the plan.

627
00:31:22,120 --> 00:31:24,000
These guys were great
engineers, but they

628
00:31:24,000 --> 00:31:26,680
couldn't write a plan if you
paid them a million dollars.

629
00:31:26,680 --> 00:31:29,440
They just couldn't
articulate it well.

630
00:31:29,440 --> 00:31:32,610
So that's one of the reasons
we try to put teams together.

631
00:31:32,610 --> 00:31:35,940
Because if you have a great idea
but you're missing some skills,

632
00:31:35,940 --> 00:31:38,440
you've got to figure out a way
of getting people with skills

633
00:31:38,440 --> 00:31:39,600
together.

634
00:31:39,600 --> 00:31:41,350
And those entrepreneurs
would never

635
00:31:41,350 --> 00:31:43,320
have gotten anywhere
near where they are today

636
00:31:43,320 --> 00:31:44,830
if Charlie hadn't joined them.

637
00:31:44,830 --> 00:31:47,330
And Charlie wouldn't have been
able to take a company public

638
00:31:47,330 --> 00:31:48,871
if he hadn't hooked
up with the idea.

639
00:31:48,871 --> 00:31:52,160
So the point is
whoever writes it,

640
00:31:52,160 --> 00:31:54,790
the team has to own the plan,
by which I mean they really

641
00:31:54,790 --> 00:31:58,324
have to be able to defend it.

642
00:31:58,324 --> 00:32:00,490
Sometimes the issue is,
well what do they look like.

643
00:32:02,962 --> 00:32:04,170
Don't put it in a big binder.

644
00:32:06,800 --> 00:32:09,670
It doesn't really matter
how you put it together.

645
00:32:09,670 --> 00:32:12,720
It should just look somewhat
professional, but not overly

646
00:32:12,720 --> 00:32:13,420
slick.

647
00:32:13,420 --> 00:32:15,630
You're an unknown character.

648
00:32:15,630 --> 00:32:18,000
If Bill Gates came up
to me and threw a napkin

649
00:32:18,000 --> 00:32:22,370
on the table with some ideas
on it, he'd have my attention.

650
00:32:22,370 --> 00:32:26,100
But if you do the same thing,
you're not quite there yet.

651
00:32:26,100 --> 00:32:28,630
So it's the first
step towards it.

652
00:32:28,630 --> 00:32:30,290
You've got to have
something that

653
00:32:30,290 --> 00:32:32,670
says this is a serious team
or person that are going

654
00:32:32,670 --> 00:32:35,790
to do some serious things.

655
00:32:35,790 --> 00:32:37,760
Now the thing to
remember is the plan

656
00:32:37,760 --> 00:32:42,137
is really a selling document
at the end of the day.

657
00:32:42,137 --> 00:32:43,720
If you're going to
be an entrepreneur,

658
00:32:43,720 --> 00:32:46,250
you better get
comfortable with selling,

659
00:32:46,250 --> 00:32:47,900
because you're always selling.

660
00:32:47,900 --> 00:32:53,410
You're selling customers,
you're selling financing people

661
00:32:53,410 --> 00:32:54,410
trying to convince them.

662
00:32:54,410 --> 00:32:56,201
By selling I mean you're
trying to convince

663
00:32:56,201 --> 00:32:58,800
somebody that's what
you want them to do

664
00:32:58,800 --> 00:33:01,250
is something they should do.

665
00:33:01,250 --> 00:33:04,840
Convincing people to do
something is quite a skill

666
00:33:04,840 --> 00:33:07,092
and you should get good at it.

667
00:33:07,092 --> 00:33:08,300
You really should work at it.

668
00:33:08,300 --> 00:33:12,930
It's selling customers,
financing sources, partners,

669
00:33:12,930 --> 00:33:13,700
recruiting people.

670
00:33:13,700 --> 00:33:17,450
So you're always selling as
an entrepreneur at some level.

671
00:33:17,450 --> 00:33:21,040
You may not be the best, but
you should really practice that.

672
00:33:21,040 --> 00:33:25,100
So this plan, the first part
it's a selling document.

673
00:33:25,100 --> 00:33:27,584
And whatever it is, it's
not a hype document.

674
00:33:27,584 --> 00:33:29,625
At the end of the day,
it's got to be defensible.

675
00:33:32,200 --> 00:33:36,050
The elements of a full plan--
these are the topic areas,

676
00:33:36,050 --> 00:33:38,490
whether or not you put them
in a written document or not,

677
00:33:38,490 --> 00:33:40,810
you need to start
to think about.

678
00:33:40,810 --> 00:33:44,180
And during the course we'll
touch on a number of these.

679
00:33:44,180 --> 00:33:47,810
There's executive summary in
a traditional plan, something

680
00:33:47,810 --> 00:33:51,470
it says what's the
opportunity you're looking at,

681
00:33:51,470 --> 00:33:54,060
what's the market
you're going after,

682
00:33:54,060 --> 00:33:56,150
what are the economics
of the business,

683
00:33:56,150 --> 00:33:58,930
all of these things we'll go
into a little more detail.

684
00:33:58,930 --> 00:34:00,680
For the technologists
in the audience,

685
00:34:00,680 --> 00:34:04,600
note then there's no
particular section here

686
00:34:04,600 --> 00:34:07,250
that says technology.

687
00:34:07,250 --> 00:34:13,280
And the reason is people by
and large don't buy technology.

688
00:34:13,280 --> 00:34:16,620
Technology is something we
use to accomplish things.

689
00:34:16,620 --> 00:34:19,540
And so the plan really
isn't fundamentally

690
00:34:19,540 --> 00:34:22,060
about the technology, it's
what the technology enables.

691
00:34:22,060 --> 00:34:24,260
And when Bob Jones
comes in tomorrow,

692
00:34:24,260 --> 00:34:26,250
he'll talk a little
bit more about that

693
00:34:26,250 --> 00:34:30,695
from a "what people
actually buy" viewpoint.

694
00:34:30,695 --> 00:34:32,820
Now a little bit more into
the nuts and bolts here.

695
00:34:32,820 --> 00:34:35,429
Cover page-- you should
have one in a plan.

696
00:34:35,429 --> 00:34:38,650
It should have some information
that you can figure out

697
00:34:38,650 --> 00:34:42,360
who this plan is.

698
00:34:42,360 --> 00:34:45,880
How to reach people,
confidentiality legend,

699
00:34:45,880 --> 00:34:48,210
and the securities
law legend, we're

700
00:34:48,210 --> 00:34:50,840
going to cover that
in detail on the night

701
00:34:50,840 --> 00:34:53,260
we do the legal stuff.

702
00:34:53,260 --> 00:34:56,620
Here is the Virtual Ink
cover page as an example.

703
00:34:56,620 --> 00:34:58,972
They've got some
contact info there.

704
00:34:58,972 --> 00:35:01,430
It always frustrated me, when
I actually got a written plan

705
00:35:01,430 --> 00:35:04,340
if I liked it, often I
wouldn't be able to figure out

706
00:35:04,340 --> 00:35:06,220
how to contact the people.

707
00:35:06,220 --> 00:35:08,230
So put the address on it.

708
00:35:08,230 --> 00:35:12,090
And they at they put a
little confidentiality legend

709
00:35:12,090 --> 00:35:16,100
on it-- it looks something
like that, initially.

710
00:35:16,100 --> 00:35:18,390
And, as we'll see
in the night when

711
00:35:18,390 --> 00:35:21,750
we do the legal stuff, when
the lawyers get ahold of this,

712
00:35:21,750 --> 00:35:24,282
the legend changes a little bit.

713
00:35:24,282 --> 00:35:26,130
[LAUGHTER]

714
00:35:26,130 --> 00:35:29,620
So I'm not saying don't
get the lawyers early on,

715
00:35:29,620 --> 00:35:33,200
but realize that you've got
to manage them a little bit.

716
00:35:33,200 --> 00:35:37,290
But we'll go into
that in more detail.

717
00:35:37,290 --> 00:35:39,680
Now if you actually
have a written document,

718
00:35:39,680 --> 00:35:41,660
it should have a
table of contents

719
00:35:41,660 --> 00:35:44,440
so people can figure
out what's in it.

720
00:35:44,440 --> 00:35:47,580
And it should have page numbers
and all that sort of thing.

721
00:35:47,580 --> 00:35:51,710
So my question to you is what
do you think people read first

722
00:35:51,710 --> 00:35:53,400
in a business plan?

723
00:35:53,400 --> 00:35:55,220
What's the first
thing you would read

724
00:35:55,220 --> 00:35:57,204
if someone gave you a plan?

725
00:35:57,204 --> 00:35:58,700
AUDIENCE: Executive summary.

726
00:35:58,700 --> 00:36:01,200
JOE HADZIMA: Executive summary,
because, as you'll see here,

727
00:36:01,200 --> 00:36:02,890
that explains what's going on.

728
00:36:02,890 --> 00:36:05,630
What's the second
thing people look at?

729
00:36:09,070 --> 00:36:11,360
Probably most important
beyond when they figure out

730
00:36:11,360 --> 00:36:13,610
what the heck this is about.

731
00:36:13,610 --> 00:36:15,230
It's the people.

732
00:36:15,230 --> 00:36:16,410
Who are these people?

733
00:36:16,410 --> 00:36:18,307
So if you've got actual
document and they're

734
00:36:18,307 --> 00:36:19,890
trying to figure it
out, they're going

735
00:36:19,890 --> 00:36:22,015
to get a little frustrated
if they can't figure out

736
00:36:22,015 --> 00:36:23,270
where the information is.

737
00:36:23,270 --> 00:36:26,205
So not to overdo it, but
have a table of contents.

738
00:36:28,870 --> 00:36:32,770
So if the first thing they
read is an executive summary,

739
00:36:32,770 --> 00:36:33,670
what is it really?

740
00:36:33,670 --> 00:36:38,290
Well, it's the first thing
investors read, as I said.

741
00:36:38,290 --> 00:36:42,990
Think of it as a resume
for your full plan.

742
00:36:42,990 --> 00:36:45,910
So the goal is to
get the interview.

743
00:36:45,910 --> 00:36:48,500
When you have a resume,
it goes out there,

744
00:36:48,500 --> 00:36:52,070
you want to get the interview
so you can explain yourself

745
00:36:52,070 --> 00:36:53,720
and hopefully get the job.

746
00:36:53,720 --> 00:36:58,090
In the case of a business
plan, the executive summary

747
00:36:58,090 --> 00:37:01,360
or the elevator pitch is
really to get a chance

748
00:37:01,360 --> 00:37:03,590
to explain more fully
what it is you're doing.

749
00:37:06,250 --> 00:37:09,760
And then when they look
at the executive summary,

750
00:37:09,760 --> 00:37:15,220
I like to think about what
investors are looking for.

751
00:37:15,220 --> 00:37:18,380
And they're the three Ws.

752
00:37:18,380 --> 00:37:22,370
First one is why this.

753
00:37:22,370 --> 00:37:25,240
Why is what these people
are proposing to do,

754
00:37:25,240 --> 00:37:28,130
why is it something I
should be interested in?

755
00:37:28,130 --> 00:37:31,550
Why are they interested in it?

756
00:37:31,550 --> 00:37:34,180
Is it a big problem?

757
00:37:34,180 --> 00:37:35,680
It could be a big
market opportunity

758
00:37:35,680 --> 00:37:37,550
or a big problem in the world.

759
00:37:37,550 --> 00:37:41,180
Amy Smith, who was
a MacArthur fellow,

760
00:37:41,180 --> 00:37:44,080
teaches over at the Edgerton
Center, was in the 100K.

761
00:37:44,080 --> 00:37:45,580
And I remember quite
distinctly when

762
00:37:45,580 --> 00:37:48,546
she got up to give her pitch
at the judging competition.

763
00:37:48,546 --> 00:37:50,170
She said something
that went like this.

764
00:37:50,170 --> 00:37:56,770
She said 1.9 billion
people in the world

765
00:37:56,770 --> 00:38:00,760
don't have access
to clean water.

766
00:38:00,760 --> 00:38:03,420
Well, I didn't know that.

767
00:38:03,420 --> 00:38:06,854
In order to test
whether water is clean,

768
00:38:06,854 --> 00:38:08,270
the traditional
way of doing it is

769
00:38:08,270 --> 00:38:12,640
to incubate the water to see if
anything bad is growing in it--

770
00:38:12,640 --> 00:38:15,630
she said it a little more
articulately than I did.

771
00:38:15,630 --> 00:38:18,410
And she said all the
existing incubators

772
00:38:18,410 --> 00:38:21,980
are powered by electricity.

773
00:38:21,980 --> 00:38:24,180
If you look where the
1.9 billion people

774
00:38:24,180 --> 00:38:27,760
without clean water live and you
look where the electricity is,

775
00:38:27,760 --> 00:38:29,810
they're not in the same place.

776
00:38:29,810 --> 00:38:32,950
Our invention is a
way to test water

777
00:38:32,950 --> 00:38:34,620
without using electricity.

778
00:38:34,620 --> 00:38:36,220
Let me explain how you did it.

779
00:38:36,220 --> 00:38:39,220
So from an initial viewpoint,
well this is a big problem.

780
00:38:39,220 --> 00:38:40,050
So why this?

781
00:38:40,050 --> 00:38:41,290
Big problem.

782
00:38:41,290 --> 00:38:43,560
So that's the first
thing-- why is what you're

783
00:38:43,560 --> 00:38:46,290
proposing something important?

784
00:38:46,290 --> 00:38:48,400
Why are you spending
your time on it?

785
00:38:48,400 --> 00:38:49,950
The second is why now.

786
00:38:49,950 --> 00:38:52,650
Why it is now the
right time to do it?

787
00:38:55,470 --> 00:38:59,640
I've been on the bleeding edge
of technology for many years.

788
00:38:59,640 --> 00:39:02,470
I had somebody come up to me
at an investment conference

789
00:39:02,470 --> 00:39:05,390
last year and he
said, you're at MIT,

790
00:39:05,390 --> 00:39:08,920
and he said, well, tell me about
this new 3D printing thing,

791
00:39:08,920 --> 00:39:09,870
it's really hot.

792
00:39:09,870 --> 00:39:12,170
And I said that's been
around for 20 plus years.

793
00:39:14,841 --> 00:39:17,090
Now it's getting interesting
for a variety of reasons,

794
00:39:17,090 --> 00:39:20,900
but I can show
you '20 years ago.

795
00:39:20,900 --> 00:39:24,290
So sometimes right
now is the right time.

796
00:39:24,290 --> 00:39:28,690
And I'll give you some
examples down the road.

797
00:39:28,690 --> 00:39:31,070
The third is why this team.

798
00:39:31,070 --> 00:39:33,710
Big problem,
something important,

799
00:39:33,710 --> 00:39:35,300
there's a good
reason why it's now--

800
00:39:35,300 --> 00:39:38,517
why are these people
right people to do it?

801
00:39:38,517 --> 00:39:40,100
Those are the things
people are really

802
00:39:40,100 --> 00:39:44,920
trying to glean when they read
your plan or hear your pitch.

803
00:39:44,920 --> 00:39:47,670
To which I asked, if
they get the first three,

804
00:39:47,670 --> 00:39:49,500
there's a fourth
one they get, which

805
00:39:49,500 --> 00:39:54,410
is-- want to guess
what the fourth one is?

806
00:39:54,410 --> 00:39:56,240
Why won't this work?

807
00:39:56,240 --> 00:40:00,110
So in a selling
process when they

808
00:40:00,110 --> 00:40:03,610
get the potential customer
pushes back and is starting

809
00:40:03,610 --> 00:40:07,490
to ask questions about will it
work for this or work for that,

810
00:40:07,490 --> 00:40:09,180
you've sort of got them hooked.

811
00:40:09,180 --> 00:40:10,650
And Steve will
probably talk to you

812
00:40:10,650 --> 00:40:14,470
about how to set the hook
a little bit later tonight.

813
00:40:14,470 --> 00:40:18,550
So the three whys-- why
this, why now, why this team.

814
00:40:18,550 --> 00:40:21,500
That's what should come up.

815
00:40:21,500 --> 00:40:25,180
And the why won't this
work, part of the task

816
00:40:25,180 --> 00:40:27,490
is to figure out
how to lead people

817
00:40:27,490 --> 00:40:28,870
to the right conclusion on that.

818
00:40:28,870 --> 00:40:32,700
And I'll talk about it in
a little moment on that.

819
00:40:32,700 --> 00:40:36,280
So the executive summary,
two to five pages max.

820
00:40:36,280 --> 00:40:38,020
It's got to be clear.

821
00:40:38,020 --> 00:40:39,586
It's like a resume.

822
00:40:39,586 --> 00:40:41,210
And the object is at
the end of the day

823
00:40:41,210 --> 00:40:44,580
someone could really articulate
what you're going to do.

824
00:40:44,580 --> 00:40:46,660
The elevator speech is to
the executive summary--

825
00:40:46,660 --> 00:40:48,950
the elevator speech
might get you an invite

826
00:40:48,950 --> 00:40:53,510
to submit an executive summary,
which might give you an invite

827
00:40:53,510 --> 00:40:57,240
to do the whole plan or a pitch.

828
00:40:57,240 --> 00:41:01,580
It's going to try in two to
five pages to say who you are,

829
00:41:01,580 --> 00:41:07,480
what are you doing, what is
a market, how many dollars

830
00:41:07,480 --> 00:41:10,980
do you need, what resources,
what is your sustainable

831
00:41:10,980 --> 00:41:13,545
advantage if you do this,
why you're going to succeed.

832
00:41:13,545 --> 00:41:15,170
You've got to pull
all of that together

833
00:41:15,170 --> 00:41:16,461
in a very short period of time.

834
00:41:16,461 --> 00:41:19,550
It's a difficult
document to write.

835
00:41:19,550 --> 00:41:22,140
And you may end up writing
it over and over again,

836
00:41:22,140 --> 00:41:26,550
because you've got to distill
that whole thing down to it.

837
00:41:26,550 --> 00:41:32,600
Let me give you an example
of two executive summaries.

838
00:41:32,600 --> 00:41:36,420
And since the font is so
small, I'll read it from here.

839
00:41:36,420 --> 00:41:41,280
The first one is called
electronic components.

840
00:41:41,280 --> 00:41:44,280
And let me read it to you, if
you can't see it on the screen.

841
00:41:44,280 --> 00:41:46,890
Electronic Components
Inc is a start-up company

842
00:41:46,890 --> 00:41:50,790
that will make a variety
of electronic components

843
00:41:50,790 --> 00:41:54,750
beginning with a new type
of aluminum base capacitor.

844
00:41:54,750 --> 00:41:57,020
The unique product, coupled
with an excessive demand

845
00:41:57,020 --> 00:41:59,640
for capacitor devices,
will provide us

846
00:41:59,640 --> 00:42:02,460
with an ample share of
the capacitor market

847
00:42:02,460 --> 00:42:04,600
and numerous opportunities
for expansion

848
00:42:04,600 --> 00:42:07,750
into related
electronic components.

849
00:42:07,750 --> 00:42:10,060
Everybody on board?

850
00:42:10,060 --> 00:42:11,530
This is a real one.

851
00:42:11,530 --> 00:42:13,510
The founders are
dedicated and determined

852
00:42:13,510 --> 00:42:17,470
to make the venture a successful
and profitable entity.

853
00:42:17,470 --> 00:42:18,606
That's good to know.

854
00:42:18,606 --> 00:42:19,320
[LAUGHTER]

855
00:42:19,320 --> 00:42:22,400
I thought they were
just doing this for fun.

856
00:42:22,400 --> 00:42:24,570
Technical expertise
is provided by James F

857
00:42:24,570 --> 00:42:26,820
Lynch, who's been involved
in designing capacitors

858
00:42:26,820 --> 00:42:27,975
for 11 years.

859
00:42:27,975 --> 00:42:29,350
He attained a
bachelor of science

860
00:42:29,350 --> 00:42:31,840
in electronic engineering
from Massachusetts Institute

861
00:42:31,840 --> 00:42:33,040
of Technology.

862
00:42:33,040 --> 00:42:35,500
That alone is
probably going to get

863
00:42:35,500 --> 00:42:37,186
him-- the experience
and the fact

864
00:42:37,186 --> 00:42:40,406
that he's MIT-- will overcome
all the other deficiencies

865
00:42:40,406 --> 00:42:42,780
here, which is I don't think
most people would understand

866
00:42:42,780 --> 00:42:46,560
what it is he's proposing to do.

867
00:42:46,560 --> 00:42:49,920
Do you know what
they propose to do?

868
00:42:49,920 --> 00:42:54,000
What its excessive
demand for capacitors?

869
00:42:54,000 --> 00:42:55,920
Why is there excessive demand?

870
00:42:55,920 --> 00:42:57,920
How big is the market?

871
00:42:57,920 --> 00:43:00,790
And if you read the
rest of it, which

872
00:43:00,790 --> 00:43:02,720
I suggest you do when
you get the slides,

873
00:43:02,720 --> 00:43:05,780
it reads a bit like
a grant proposal.

874
00:43:05,780 --> 00:43:07,237
There is a good
thing in here that

875
00:43:07,237 --> 00:43:09,320
says that they've actually
put their own money in,

876
00:43:09,320 --> 00:43:11,620
so the guy is committed.

877
00:43:11,620 --> 00:43:13,400
Now this is an
example of something

878
00:43:13,400 --> 00:43:16,160
where, given the nature
of the person involved,

879
00:43:16,160 --> 00:43:18,230
there's probably a lot
of substance underneath.

880
00:43:18,230 --> 00:43:21,700
But it's not doing a very good
service in trying to convey it.

881
00:43:21,700 --> 00:43:25,000
So that's a shame,
because there's so many

882
00:43:25,000 --> 00:43:28,360
plans you read which don't
have any substance behind them

883
00:43:28,360 --> 00:43:29,830
and yet they read a lot better.

884
00:43:29,830 --> 00:43:33,600
So we've got to figure out
how to make things better.

885
00:43:33,600 --> 00:43:38,450
Now the other one, by way of
contrast, is People Express.

886
00:43:38,450 --> 00:43:39,960
Well, let me read it.

887
00:43:39,960 --> 00:43:41,820
The eastern seaboard
of the United States

888
00:43:41,820 --> 00:43:45,350
is ripe for the entry of a new,
super-efficient, low cost air

889
00:43:45,350 --> 00:43:48,590
carrier to provide quick,
reliable, intercity air

890
00:43:48,590 --> 00:43:50,289
transportation.

891
00:43:50,289 --> 00:43:52,080
Such an entity would
bring to the Northeast

892
00:43:52,080 --> 00:43:53,730
the same benefits
that have accrued

893
00:43:53,730 --> 00:43:56,370
to other areas of
the United States.

894
00:43:56,370 --> 00:43:58,760
Chief among these are
frequent jet commuter service

895
00:43:58,760 --> 00:44:01,190
between major cities,
prices competitive

896
00:44:01,190 --> 00:44:03,660
with private
automobiles, fulfillment

897
00:44:03,660 --> 00:44:05,920
of the congressional goals
in enacting the Airline

898
00:44:05,920 --> 00:44:08,335
Deregulation Act.

899
00:44:08,335 --> 00:44:09,960
The new company will
be able to achieve

900
00:44:09,960 --> 00:44:12,440
these goals for the following
reasons-- aggressive

901
00:44:12,440 --> 00:44:15,170
innovative management that's
been tested in the field;

902
00:44:15,170 --> 00:44:17,380
equipment and facilities
designed specifically

903
00:44:17,380 --> 00:44:20,970
for low cost production
of air transportation;

904
00:44:20,970 --> 00:44:23,370
manpower selected,
trained, and motivated

905
00:44:23,370 --> 00:44:26,390
to be efficient and
profit-oriented--

906
00:44:26,390 --> 00:44:29,210
read between the lines,
non-union, probably;

907
00:44:29,210 --> 00:44:32,110
and new systems to be applied
to the entire business.

908
00:44:32,110 --> 00:44:35,770
Now if you look at those
two executive summaries,

909
00:44:35,770 --> 00:44:38,680
I think most people think
that the People Express, which

910
00:44:38,680 --> 00:44:41,990
was the early version of
what we now call JetBlue,

911
00:44:41,990 --> 00:44:44,290
is a lot clearer to
understand what it is.

912
00:44:49,410 --> 00:44:51,500
You could pretty much
see what they're doing.

913
00:44:51,500 --> 00:44:54,720
They're experienced guys, they
thought about how to design it.

914
00:44:54,720 --> 00:44:57,482
And you could start having
a discussion around this

915
00:44:57,482 --> 00:44:58,940
in a lot more detail
than you would

916
00:44:58,940 --> 00:45:02,080
with the electronic components.

917
00:45:02,080 --> 00:45:05,130
So the trick is to end up having
an executive summary looks more

918
00:45:05,130 --> 00:45:08,900
like the People Express than one
that just wastes a lot of words

919
00:45:08,900 --> 00:45:11,120
and doesn't get to what
they're supposed to be doing.

920
00:45:13,810 --> 00:45:15,750
This is the Virtual
Ink executive summary,

921
00:45:15,750 --> 00:45:18,510
which you'll see.

922
00:45:18,510 --> 00:45:23,300
And again, it's not exactly
the model, but look at it.

923
00:45:23,300 --> 00:45:26,540
It was put this way into
the 50K at the time.

924
00:45:26,540 --> 00:45:28,420
And you decide
yourself whether you

925
00:45:28,420 --> 00:45:30,330
think it's a good
executive summary as part

926
00:45:30,330 --> 00:45:33,120
of your assignment.

927
00:45:33,120 --> 00:45:35,855
So let's move into
the body of the plan.

928
00:45:38,410 --> 00:45:41,910
And when I say the plan, I mean
in your planning process also.

929
00:45:41,910 --> 00:45:44,910
So the question is, what is the
opportunity you're going after;

930
00:45:44,910 --> 00:45:47,960
what is the problem
you're trying to solve?

931
00:45:47,960 --> 00:45:50,470
How big is it, what's
the opportunity now,

932
00:45:50,470 --> 00:45:53,530
what's going to
happen over time,

933
00:45:53,530 --> 00:45:59,290
and why is this the right time
for the product or service?

934
00:45:59,290 --> 00:46:03,070
This reminds me in the 100K--
when it was the 50K back one

935
00:46:03,070 --> 00:46:06,322
year we had a
semifinal award saying

936
00:46:06,322 --> 00:46:07,530
here are the semifinal teams.

937
00:46:07,530 --> 00:46:10,000
And one team came
up and said, I guess

938
00:46:10,000 --> 00:46:12,760
you guys didn't like our plan.

939
00:46:12,760 --> 00:46:14,510
Now back in those days,
we didn't actually

940
00:46:14,510 --> 00:46:15,370
know who the people were.

941
00:46:15,370 --> 00:46:17,244
That was part of it--
they were all no names,

942
00:46:17,244 --> 00:46:19,050
we just looked at the ideas.

943
00:46:19,050 --> 00:46:21,614
And I said, well, I don't
actually know what yours was.

944
00:46:21,614 --> 00:46:24,030
And they said, well, we were
the guys with the air traffic

945
00:46:24,030 --> 00:46:26,900
control system improvement.

946
00:46:26,900 --> 00:46:29,750
And it was a fascinating plan.

947
00:46:29,750 --> 00:46:31,989
They had figured out how
to make it more efficient.

948
00:46:31,989 --> 00:46:34,280
And I learned a lot of things
about air traffic control

949
00:46:34,280 --> 00:46:35,170
systems.

950
00:46:35,170 --> 00:46:38,100
And I said, the
problem is none of us

951
00:46:38,100 --> 00:46:39,960
could see how that
could be a business.

952
00:46:39,960 --> 00:46:42,670
You would have to change the
entire air traffic control

953
00:46:42,670 --> 00:46:45,340
system it appeared
in the United States.

954
00:46:45,340 --> 00:46:49,450
It looked like a great
solution, but is it a business?

955
00:46:49,450 --> 00:46:52,220
And they said,
well, did you know

956
00:46:52,220 --> 00:46:56,010
that the Federal
Aeronautics Administration--

957
00:46:56,010 --> 00:46:59,070
FAA-- has put out a
request for proposal

958
00:46:59,070 --> 00:47:01,790
for changing the air traffic
control system in the United

959
00:47:01,790 --> 00:47:04,550
States?

960
00:47:04,550 --> 00:47:05,890
No.

961
00:47:05,890 --> 00:47:07,840
Why would I know that?

962
00:47:07,840 --> 00:47:09,730
They had assumed
everyone knew that.

963
00:47:09,730 --> 00:47:11,729
That would have changed
at the whole complexion.

964
00:47:11,729 --> 00:47:14,820
That meant at that
time the convergence

965
00:47:14,820 --> 00:47:18,860
of a driver for the
business was there

966
00:47:18,860 --> 00:47:20,070
and they didn't tell us that.

967
00:47:20,070 --> 00:47:22,240
So they didn't get
another opportunity.

968
00:47:22,240 --> 00:47:24,910
In the health care
area for many years

969
00:47:24,910 --> 00:47:27,180
we'd see really interesting
technologies that could

970
00:47:27,180 --> 00:47:30,520
improve outcomes for patients.

971
00:47:30,520 --> 00:47:33,090
And the question was, well,
who was going to pay for it.

972
00:47:33,090 --> 00:47:35,130
And a couple years
ago Medicare put

973
00:47:35,130 --> 00:47:38,690
in some rules that said
that hospitals get penalized

974
00:47:38,690 --> 00:47:40,920
if patients get readmitted.

975
00:47:40,920 --> 00:47:42,890
That's opened up
a huge opportunity

976
00:47:42,890 --> 00:47:46,690
for things like home monitoring
or other kinds of things

977
00:47:46,690 --> 00:47:49,887
that before it'd be very hard to
see how that was going to work.

978
00:47:49,887 --> 00:47:52,220
So there are a lot of new
companies trying to figure out

979
00:47:52,220 --> 00:47:54,570
how they can do
things to finally help

980
00:47:54,570 --> 00:47:56,985
patients for better outcomes.

981
00:47:56,985 --> 00:47:59,360
There wouldn't be a market
for that five years ago-- it'd

982
00:47:59,360 --> 00:48:01,950
be a long, hard, uphill climb.

983
00:48:01,950 --> 00:48:04,140
So why is this the right time?

984
00:48:04,140 --> 00:48:05,760
As I said, I've
been on the bleeding

985
00:48:05,760 --> 00:48:08,290
edge of some of the stuff.

986
00:48:08,290 --> 00:48:09,790
The body of the
plan, it should talk

987
00:48:09,790 --> 00:48:11,920
about the market, who's there.

988
00:48:11,920 --> 00:48:14,000
We'll go into more
detail with Bob

989
00:48:14,000 --> 00:48:17,520
about talking about customers.

990
00:48:17,520 --> 00:48:20,741
Investors have these different
ways of thinking of things.

991
00:48:20,741 --> 00:48:22,490
And one of the questions
that surprised me

992
00:48:22,490 --> 00:48:27,260
early on in my career was a
VC that's said, OK, I get it,

993
00:48:27,260 --> 00:48:28,260
you've got a great idea.

994
00:48:28,260 --> 00:48:32,830
But let's say you do everything
that you said and you win.

995
00:48:32,830 --> 00:48:37,140
Who loses and what are
they going to do about it?

996
00:48:37,140 --> 00:48:39,920
And we hadn't
thought about that.

997
00:48:39,920 --> 00:48:43,310
So you've got to think about
you're disrupting a market,

998
00:48:43,310 --> 00:48:45,759
for example-- what's the
response going to be?

999
00:48:45,759 --> 00:48:47,550
The incumbents are just
going to sit there.

1000
00:48:47,550 --> 00:48:50,280
So what's your plan for
thinking it through?

1001
00:48:50,280 --> 00:48:54,245
That's an example of
the planning process.

1002
00:48:54,245 --> 00:48:55,620
These are the kind
of questions--

1003
00:48:55,620 --> 00:48:57,920
again, with Bob
Jones tomorrow night

1004
00:48:57,920 --> 00:49:00,230
we'll go into pricing,
and distribution,

1005
00:49:00,230 --> 00:49:01,380
and sales tactics.

1006
00:49:01,380 --> 00:49:07,940
And another VC expression is
will the dogs eat the dog food.

1007
00:49:07,940 --> 00:49:10,944
So it sounds like a great
thing, you convinced me

1008
00:49:10,944 --> 00:49:12,610
it's a great thing,
but what evidence do

1009
00:49:12,610 --> 00:49:15,440
you have that anyone wants it?

1010
00:49:15,440 --> 00:49:20,990
That's customers-- will
the dogs eat the dog food?

1011
00:49:20,990 --> 00:49:25,110
Now the development
plan is how do you

1012
00:49:25,110 --> 00:49:28,300
piece the different
components together

1013
00:49:28,300 --> 00:49:32,410
in order to make something
that can work within the time

1014
00:49:32,410 --> 00:49:36,610
constraint you
have as a start-up.

1015
00:49:36,610 --> 00:49:38,290
You don't want nuclear fusion.

1016
00:49:38,290 --> 00:49:39,790
Nuclear fusion we've
been working on

1017
00:49:39,790 --> 00:49:42,030
for 50, 70 years now.

1018
00:49:42,030 --> 00:49:44,260
And the problem is, if
you've got a nuclear fusion

1019
00:49:44,260 --> 00:49:47,760
kind of project, is until
it completely works,

1020
00:49:47,760 --> 00:49:48,720
nothing works.

1021
00:49:48,720 --> 00:49:50,150
So there's really
not a business.

1022
00:49:50,150 --> 00:49:55,460
Is there a way you can take a
portion of it and make it work?

1023
00:49:55,460 --> 00:49:58,570
I looked at Zipcar early on.

1024
00:49:58,570 --> 00:50:00,820
Everyone's familiar with Zipcar?

1025
00:50:00,820 --> 00:50:04,090
Fascinating concept-- it's
revolutionized a whole bunch

1026
00:50:04,090 --> 00:50:05,550
of transportation things.

1027
00:50:05,550 --> 00:50:08,110
But there were so
many moving parts

1028
00:50:08,110 --> 00:50:12,010
that you had to put together
in order to make that work.

1029
00:50:12,010 --> 00:50:13,900
At a place like
MIT, where the joke

1030
00:50:13,900 --> 00:50:17,140
is-- if you're recruiting
a faculty member,

1031
00:50:17,140 --> 00:50:20,090
you can have one
of three things,

1032
00:50:20,090 --> 00:50:25,650
you can have tenure, the
Nobel Prize, or parking.

1033
00:50:25,650 --> 00:50:28,510
So parking is what
everyone picks.

1034
00:50:28,510 --> 00:50:30,150
So here's a company
Zipcar that's

1035
00:50:30,150 --> 00:50:32,400
got to figure out how
to get parking places.

1036
00:50:32,400 --> 00:50:35,050
There are a lot of things that
were out of their control.

1037
00:50:35,050 --> 00:50:36,900
And at the end of
the day, it may not

1038
00:50:36,900 --> 00:50:38,896
have been a good investment.

1039
00:50:38,896 --> 00:50:40,270
It may have changed
things, but I

1040
00:50:40,270 --> 00:50:43,400
don't think a lot of people
made a lot of money in Zipcar.

1041
00:50:43,400 --> 00:50:45,360
So you want to try
to think through

1042
00:50:45,360 --> 00:50:48,630
do you have to change the
world totally in order

1043
00:50:48,630 --> 00:50:51,690
to make a dent in the world.

1044
00:50:51,690 --> 00:50:54,760
Because again, limited time.

1045
00:50:54,760 --> 00:51:00,950
The action plan--
this is part of what

1046
00:51:00,950 --> 00:51:04,080
I like to think of as the
identification of credibility

1047
00:51:04,080 --> 00:51:05,140
testers.

1048
00:51:05,140 --> 00:51:07,670
As engineers, if
you said I've got

1049
00:51:07,670 --> 00:51:13,220
to build a bridge
across the Golden Gate,

1050
00:51:13,220 --> 00:51:16,620
there's a lot of things you
have to do to make that work.

1051
00:51:16,620 --> 00:51:19,740
And engineering is very
much a think everything

1052
00:51:19,740 --> 00:51:21,860
through kind of thing and
often is very sequential

1053
00:51:21,860 --> 00:51:25,230
in its process.

1054
00:51:25,230 --> 00:51:29,370
The credibility testers, a
different way of thinking of it

1055
00:51:29,370 --> 00:51:32,480
is are there some things
that will make this project

1056
00:51:32,480 --> 00:51:35,240
extremely difficult
that if I can show

1057
00:51:35,240 --> 00:51:39,060
I can solve I can
de-risk the situation.

1058
00:51:39,060 --> 00:51:41,660
So thinking about
a project from how

1059
00:51:41,660 --> 00:51:44,410
do I convince somebody
this is doable

1060
00:51:44,410 --> 00:51:46,110
is an important part of it.

1061
00:51:46,110 --> 00:51:48,900
Maybe in the case of
the Golden Gate Bridge,

1062
00:51:48,900 --> 00:51:54,740
it would be securing
access right to an on-ramp.

1063
00:51:54,740 --> 00:51:59,110
Or if you think the issue
is a technical issue, doing

1064
00:51:59,110 --> 00:52:03,100
are sounding to figure out
how deep the bedrock was.

1065
00:52:03,100 --> 00:52:05,842
I was sitting out
on Cape Cod beach

1066
00:52:05,842 --> 00:52:07,300
one weekend with
some house-guests.

1067
00:52:07,300 --> 00:52:10,365
And one guys told me he's
working on this project.

1068
00:52:10,365 --> 00:52:13,619
It was very windy out there and
he said it's really windy here.

1069
00:52:13,619 --> 00:52:15,160
I said, yeah, it's
always windy here.

1070
00:52:15,160 --> 00:52:17,700
And he says we're working
on something involving that.

1071
00:52:17,700 --> 00:52:21,100
And it turned out he was one
of the guys from Cape Wind.

1072
00:52:21,100 --> 00:52:23,300
And what they were doing
was securing access rights

1073
00:52:23,300 --> 00:52:26,740
to land the cables on it.

1074
00:52:26,740 --> 00:52:28,240
Because if they
didn't do that, they

1075
00:52:28,240 --> 00:52:30,240
couldn't get to the next level.

1076
00:52:30,240 --> 00:52:32,830
So that first thing is can you
identify credibility testers

1077
00:52:32,830 --> 00:52:35,020
to reduce the risk.

1078
00:52:35,020 --> 00:52:37,860
And if you reduce the risk,
both for you and for investors,

1079
00:52:37,860 --> 00:52:40,287
you have a higher
probability of success.

1080
00:52:40,287 --> 00:52:42,120
The other thing is to
think about-- whatever

1081
00:52:42,120 --> 00:52:44,980
you're doing-- about
how to sequence

1082
00:52:44,980 --> 00:52:47,090
that relative to your resources.

1083
00:52:47,090 --> 00:52:49,680
So the ideal scenario
again, remembering

1084
00:52:49,680 --> 00:52:52,390
H equals R divided
by E, is you want

1085
00:52:52,390 --> 00:52:56,120
to be able to ideally say I'm
going to do X and actually

1086
00:52:56,120 --> 00:52:57,430
achieve it.

1087
00:52:57,430 --> 00:52:59,910
And then you can ask
for additional resources

1088
00:52:59,910 --> 00:53:02,530
to do the next step.

1089
00:53:02,530 --> 00:53:04,860
If you don't plan
that out well and you

1090
00:53:04,860 --> 00:53:08,830
get stuck between
tasks, then you

1091
00:53:08,830 --> 00:53:10,590
might be able to get
away with that once.

1092
00:53:10,590 --> 00:53:12,923
But if you do it a second
time, people are going to say,

1093
00:53:12,923 --> 00:53:15,290
well, I'm not sure these
guys can actually execute.

1094
00:53:15,290 --> 00:53:18,130
So thinking about what are
the steps I can do versus

1095
00:53:18,130 --> 00:53:20,830
the resources in order
to achieve something

1096
00:53:20,830 --> 00:53:23,105
that I can say, look,
I've added value

1097
00:53:23,105 --> 00:53:24,605
so you should give
me an opportunity

1098
00:53:24,605 --> 00:53:28,120
to add even more value.

1099
00:53:28,120 --> 00:53:31,510
And I always like to try
to avoid dependencies

1100
00:53:31,510 --> 00:53:33,859
on others if I can.

1101
00:53:33,859 --> 00:53:34,650
That's a big thing.

1102
00:53:34,650 --> 00:53:37,350
When you deal with a large
company as a start-up,

1103
00:53:37,350 --> 00:53:38,490
you're moving fast.

1104
00:53:38,490 --> 00:53:42,590
And what they think is fast
is an eternity for a start-up,

1105
00:53:42,590 --> 00:53:45,280
because they just have
cumbersome processes.

1106
00:53:45,280 --> 00:53:49,950
So if you can figure out how
to avoid dependency on them.

1107
00:53:49,950 --> 00:53:53,560
We won't cover the lean start-up
concept in the class here,

1108
00:53:53,560 --> 00:53:57,260
but I do recommend the book
for you to think about.

1109
00:53:57,260 --> 00:54:02,160
How do you test out concepts
with a minimum viable product?

1110
00:54:02,160 --> 00:54:03,840
It's a valuable read.

1111
00:54:03,840 --> 00:54:09,170
And it applies beyond
the Web 2.0 area.

1112
00:54:09,170 --> 00:54:12,560
And then often there's some
things you need in a plan.

1113
00:54:12,560 --> 00:54:15,620
But this doesn't go in the
plan, it goes in the appendices.

1114
00:54:15,620 --> 00:54:19,770
All of these things
about resumes,

1115
00:54:19,770 --> 00:54:25,950
getting a business plan
that has the founder

1116
00:54:25,950 --> 00:54:30,750
with 15 pages of publications
and stuff is just overkill.

1117
00:54:30,750 --> 00:54:32,840
Put it in the appendices.

1118
00:54:32,840 --> 00:54:34,484
If you have any of
these other things,

1119
00:54:34,484 --> 00:54:36,525
don't put it in the main
plan, have it available.

1120
00:54:39,440 --> 00:54:43,350
So now we'll talk
about the business plan

1121
00:54:43,350 --> 00:54:45,900
as a financing document.

1122
00:54:45,900 --> 00:54:50,490
And think of this about three
different levels of reading.

1123
00:54:50,490 --> 00:54:53,621
The first reading
is like a resume.

1124
00:54:53,621 --> 00:54:55,620
If you make the cut, you
get the second reading,

1125
00:54:55,620 --> 00:54:58,320
which is to figure out
if this going to justify

1126
00:54:58,320 --> 00:55:00,090
the investment.

1127
00:55:00,090 --> 00:55:01,940
And the third reading
is to say, OK,

1128
00:55:01,940 --> 00:55:03,750
is this a plan that
I as an investor

1129
00:55:03,750 --> 00:55:07,430
and you as an entrepreneurial
team can commit to.

1130
00:55:07,430 --> 00:55:09,930
And the point is if you
don't make the first cut,

1131
00:55:09,930 --> 00:55:11,560
you don't get the
second two cuts.

1132
00:55:11,560 --> 00:55:16,710
So the question is what helps
people make the first cut.

1133
00:55:16,710 --> 00:55:18,960
And these are some of the
things that occur to people.

1134
00:55:18,960 --> 00:55:22,780
Here's an idea there's just
too good to ignore; god,

1135
00:55:22,780 --> 00:55:24,630
what a brilliant idea.

1136
00:55:24,630 --> 00:55:28,120
Or a financial promise
that's too good to turn down,

1137
00:55:28,120 --> 00:55:30,290
if you have that.

1138
00:55:30,290 --> 00:55:34,510
A team that's good enough to
believe in-- most investors

1139
00:55:34,510 --> 00:55:36,170
will tell you
they'd rather invest

1140
00:55:36,170 --> 00:55:41,430
in a top team, an A
team, with a B idea

1141
00:55:41,430 --> 00:55:43,502
than an A idea with a B team.

1142
00:55:43,502 --> 00:55:44,960
Because things are
going to change.

1143
00:55:44,960 --> 00:55:48,540
You want to make sure you've got
a team that can deliver on it

1144
00:55:48,540 --> 00:55:50,740
when things happen.

1145
00:55:50,740 --> 00:55:54,320
An action plan that's
credible and focused.

1146
00:55:54,320 --> 00:55:56,610
Details to give assurance
of insight, commitment,

1147
00:55:56,610 --> 00:55:58,590
and follow through.

1148
00:55:58,590 --> 00:56:01,130
And actually a format and
style that says these guys

1149
00:56:01,130 --> 00:56:05,940
are serious about achieving
what they want to do.

1150
00:56:05,940 --> 00:56:08,480
Some reasons plans fail
to make that first cut?

1151
00:56:08,480 --> 00:56:12,550
One is just an
insignificant market.

1152
00:56:12,550 --> 00:56:15,369
I've seen plans that
say our market is

1153
00:56:15,369 --> 00:56:16,410
going to be $100 million.

1154
00:56:16,410 --> 00:56:18,250
And you look at the
financing requirements

1155
00:56:18,250 --> 00:56:20,125
and they say we're going
to need $20 million.

1156
00:56:20,125 --> 00:56:26,020
Well, that's just too much
money for that size market.

1157
00:56:26,020 --> 00:56:27,752
So that's an example
of either they

1158
00:56:27,752 --> 00:56:29,460
have to redefine the
market or figure out

1159
00:56:29,460 --> 00:56:31,350
how to do it cheaper.

1160
00:56:31,350 --> 00:56:35,110
Non-credible technology-- this
is usually not an MIT problem,

1161
00:56:35,110 --> 00:56:38,235
although the issue can
be at MIT that you're

1162
00:56:38,235 --> 00:56:40,960
much too early along.

1163
00:56:40,960 --> 00:56:42,710
That is, if it's working
on the lab bench,

1164
00:56:42,710 --> 00:56:45,293
there's a lot of steps until it
actually gets into the market.

1165
00:56:48,010 --> 00:56:51,630
And then a failure to understand
the market can be an example.

1166
00:56:51,630 --> 00:56:59,910
For example, I was reading a
plan that the device clearly

1167
00:56:59,910 --> 00:57:02,690
required an FDA approval.

1168
00:57:02,690 --> 00:57:04,930
I mean, I just couldn't
believe it didn't.

1169
00:57:04,930 --> 00:57:07,110
And yet, they never
said anything about it.

1170
00:57:07,110 --> 00:57:11,379
And the question was, well,
they should've addressed that.

1171
00:57:11,379 --> 00:57:12,920
And if I have to
pull it out of them,

1172
00:57:12,920 --> 00:57:16,570
then it gives you a negative
feeling about the team.

1173
00:57:19,310 --> 00:57:20,690
And then other reasons.

1174
00:57:20,690 --> 00:57:24,320
The plans is too
optimistic or naive.

1175
00:57:24,320 --> 00:57:26,770
Or maybe sometimes
not ambitious enough--

1176
00:57:26,770 --> 00:57:30,100
I have a semiconductor
device that I'm

1177
00:57:30,100 --> 00:57:32,510
going to double the
speed in five years.

1178
00:57:32,510 --> 00:57:36,550
Well, that's probably not
a big enough improvement.

1179
00:57:36,550 --> 00:57:39,930
So these are all reasons
why things may not

1180
00:57:39,930 --> 00:57:43,340
get the second read.

1181
00:57:43,340 --> 00:57:44,940
There are cosmetic reasons.

1182
00:57:44,940 --> 00:57:48,180
And I hate to say it,
but it's so aggravating

1183
00:57:48,180 --> 00:57:51,180
to see a team with really good
ideas screw up on the basics

1184
00:57:51,180 --> 00:57:56,040
like misspellings, sloppy stuff.

1185
00:57:56,040 --> 00:57:57,820
Again, it's like a resume.

1186
00:57:57,820 --> 00:58:00,230
If you can't get the resume
looking professional,

1187
00:58:00,230 --> 00:58:02,250
why would I even want
to talk you or hire you?

1188
00:58:04,770 --> 00:58:08,000
So that's see the
overview of things

1189
00:58:08,000 --> 00:58:10,150
tonight for the business plan.

1190
00:58:10,150 --> 00:58:13,330
Why write a plan or
have a planning process,

1191
00:58:13,330 --> 00:58:14,694
what should be in the plan.

1192
00:58:14,694 --> 00:58:16,110
Again, at a high
level we're going

1193
00:58:16,110 --> 00:58:19,740
to go into each of the sections
over the next six days.

1194
00:58:19,740 --> 00:58:21,740
And then a little bit of
thinking about the plan

1195
00:58:21,740 --> 00:58:24,820
as a financing document.

1196
00:58:24,820 --> 00:58:28,660
And I'd like to leave you at
this point with this triangle

1197
00:58:28,660 --> 00:58:30,410
that we're going to
come back to probably

1198
00:58:30,410 --> 00:58:33,340
each night just to drill it in
of what you're trying to do.

1199
00:58:33,340 --> 00:58:37,150
At the end you're trying to come
to a very clear idea of what

1200
00:58:37,150 --> 00:58:39,070
you want to do, what
it takes to do it,

1201
00:58:39,070 --> 00:58:41,020
and have all the
support underneath.

1202
00:58:41,020 --> 00:58:43,264
And it's an iterative process.

1203
00:58:43,264 --> 00:58:45,680
Some people think this is all
linear-- I think about this,

1204
00:58:45,680 --> 00:58:47,820
I test that, it moves on.

1205
00:58:47,820 --> 00:58:51,240
It's very much like science
can be-- we try something,

1206
00:58:51,240 --> 00:58:53,710
it fails, we figure out
why it fails, we go back

1207
00:58:53,710 --> 00:58:55,770
and try it again.

1208
00:58:55,770 --> 00:58:58,810
But the goal is to find
that sweet spot where you

1209
00:58:58,810 --> 00:59:01,550
can actually make a difference.

1210
00:59:01,550 --> 00:59:05,980
So with that, I'll ask if
there are any questions.

1211
00:59:05,980 --> 00:59:08,270
Again, this is a high
level, but if there's

1212
00:59:08,270 --> 00:59:10,890
some things that
need clarification,

1213
00:59:10,890 --> 00:59:12,150
I'll do the questions now.

1214
00:59:12,150 --> 00:59:14,060
Otherwise, we'll take a break.

1215
00:59:14,060 --> 00:59:19,110
We usually say take
10 or 15 minutes

1216
00:59:19,110 --> 00:59:20,480
and meet the people next to you.

1217
00:59:20,480 --> 00:59:22,690
Because one of the
requirements for the course,

1218
00:59:22,690 --> 00:59:25,250
if you're doing
it for credit, is

1219
00:59:25,250 --> 00:59:27,740
you've got to put together
a written requirement,

1220
00:59:27,740 --> 00:59:30,380
the executive summary
or a pitch deck.

1221
00:59:30,380 --> 00:59:35,197
We want to try to get
teams formed to help you

1222
00:59:35,197 --> 00:59:37,530
if you're somebody with an
idea and you need some people

1223
00:59:37,530 --> 00:59:39,800
to help, vice versa.

1224
00:59:39,800 --> 00:59:43,410
Given that it's probably a
blizzard out there tonight,

1225
00:59:43,410 --> 00:59:46,300
I think we'll defer that initial
meeting until tomorrow night,

1226
00:59:46,300 --> 00:59:49,000
take like a five
minute break or so.

1227
00:59:49,000 --> 00:59:51,270
And we'll get
Steve to get stuff,

1228
00:59:51,270 --> 00:59:53,480
who's going to tell you
how to make a pitch.

1229
00:59:53,480 --> 00:59:55,870
So at the end of the day,
after everything you've done,

1230
00:59:55,870 --> 00:59:57,495
you've got to come
and make that pitch.

1231
00:59:57,495 --> 01:00:00,030
And Steve is going to give
you the precursors of that.

1232
01:00:00,030 --> 01:00:06,740
So we'll come back at about
7:15, give you eight minutes.