Money

Mar 1, 21

Overview

Identify and estimate the various types of costs involved in starting a new venture
Identify and estimate the various types of revenue applicable to your business venture
Identify the right pricing model for your venture
Re-estimate the price for your offering
Use the estimated costs, revenues, and pricing to determine if your business will be viable/profitable
Understand the concept of bootstrapping and how to run a lean business
List out the sources and uses of funds raised through bootstrapping
Pitch your Basic Financial Plan and the updated Lean Canvas to your class

Session 1: Costs (CORE) - 3 Item[s]

Know all your costs before you start your business.

Costs

Startup Costs: Cost that an enterprise incurs BEFORE starting a business.

Eg: For a smoothy business:
Fixed Costs: Costs incurred on a regular basis irrespective of the production or sales.

Eg:
Variable Costs: Costs that depend on the number of units produced and sold.

Eg:

Preference for startup:

Variable costs » Fixed costs » Startup costs

LEASE or RENT vs. BUY

If you need a freezer, consider renting a freezer, or buy a second hand one.
If you need manufacturing equipments, consider leasing it over buying it.

Ask questions:

What is the major costs of the business?
Can some costs be postponed for a later date?
Is your business value driven or cost driven?
- Low value price proposition = Cost driven
- Premium product = Value driven

! [[ 31226780_1609401937.pdf ]]

Basic Financial Plan Template: ! [[ Found-ENG-L6-Basic_Financial_Plan_Template_with Explanation.xlsx ]]

BAHASA: Basic Financial Plan Template ! [[ BASIC-BAHASA-L6-STUHANDOUT-Basic Financial Plan Template-Final.xlsx ]]

Session 2: Revenues and Pricing (CORE) - 4 Item[s]

Right price => Customers + Profit

Profit = Revenue - (Fixed + Varriable) Costs

Understand your customer segment
- Different customer segments have different maximum amounts that they are williing to pay for the product/service.
Your price must be below the customer’s highest willingness to pay.
Pricing strategy:
- Maximization: Process by which a company determines the PRICE and PRODUCT output level that generates the most PROFIT.
  - This works great when all customer segments have similar willingness to pay AND when the optimal short-term and long-term prices are equal.
  - Starbucks: It’s most popular coffees are priced at a premium to maximize profit per cup.
- Market penetration: Pricing the product at a LOW PRICE to win dominant market share.
  - Slack:
    - Free basic plan
    - Low-priced annual subscription for premium product

Market skimming: PROFIT MAXIMIZATION STRATEGY for high tech and low availability goods.
- Start with HIGH PRICE, broaden customer base with LOW PRICE.
- Apple:
  - Sells latest models very costly.
  - Sells old models at cheaper rates.

Tips:

Price a product higher to start with; then lower it with discounts and offers.
- The other way around usually fails. You will have to add features before increasing price.
Set the right price to match the perceived value of your product or service.
Build a fair margin for you.
Do your research early with real customers.
Determine customers’ “Willingness to Pay” for your product.

Revenue Stream: Each source of revenue

Each revenue should be clearly defined.
- Sources
- Pricing
- Life-cycle
Build dependable revenue streams where you can tap into the same customer for repeat revenue. Eg: Selling smoothy at railway station vs. outside offices
Be FLEXIBLE with your revenue streams.
Forcast. Change revenue model if not working.

Ask questions:

What value are your customers really willing to pay?
How much does each revenue stream contribute to overall revenue?

! [[ 12916489_1578376046.pdf ]]

! [[ 12916491_1578375984.pdf ]]

Types of Revenues:

Asset Sale
Usage Fee

Session 3: Profitability Checks (CORE)

! [[ 31226994_1609402186.pdf ]]

Session 4: Bootstrapping and Initial Financing (CORE) - 4 Item[s]

Bootstrapping

Bootstrap Finance: It is the best and inexpensive method to raise capital.

Personal finances: Keeping some money aside for emergencies
- Saving a/c
- Equity in real estate
- Retirement a/c
- Vehicles
- Recreational equipments
- Collections
- Sell some assets or use them as collateral for loans.
Loans from friends and family:
- Ask for a specific amount for a designated milestone.
  - Formal agreement with detailed payback period
  - Tie repayments to revenue growth of the startup
  - Communicate the plan and risk upfront
Trade credit:
- Build relationships with suplliers
- Ask for extended due dates
- Cash-advances/Upfont-payments from customers
Revenue/Profit:
Other ways:
- Subletting of space
- Renting out your machinery or equipments
- Hire freelancers/part-timers
- Cut personal expenses. Do the job which you can do instead of outsourcing.

Key strategies to use funds:

Convert fixed costs to variable costs
Lease furnitute and equipments
Buy used equipment
Rent vehicles for delivery
Use your negotiation skills

! [[ 12916503_1578376247.pdf ]]

! [[ 12916508_1578376293.pdf ]]

! [[ 24432847_1592466211.pdf ]]

Additional Videos - 2 Item[s]

Interview1: How Did I Bootstrap My Company and Get My Initial Funding? - Co-founder & CEO, Headout

How did it go?

Spend our savings (3 co-founders)
Created a working product (PoC)
Applied to accelerators
- Good for first time founders in a different country
- Got selected in 500 startups
- Provided networks/connections/brand

How to cut expense

Lived in a small apartment filled with cockroaches
Didn’t buy pillows
Had quota to spend on food, etc.

Initial funding to VC

Took our money
- Moved to US and build a product
- Kept burn rate very low
- Enough time to get the code ready, up and running
- Got first traction of suppliers and customers
We felt we know enough to approach accelerators, but not VCs (For seed round - A few million dollars)
Applied to multiple Accelerators
- Got selected in two
- Met many good folks
- Got confidence to move from NYC to SanFransisco
- 4-month phenominal journey
  - From negligible traction to fastest growing company in the batch
  - Help from ecosystem.
  - Got deadlines of 4-month, focussed.
  - Worked rediculous hours (due to timezones)
- Rescaled and changed multiple things
Raised money from VC
- Twice ($2M + $10M)
- Scaled to multiple continents
- Got market fit after $2M

Interview2: Best Practices for Pitching to Investors - Co-founder & CEO, Headout

Groundwork before pitching:

Set house in order
1. Figure out narrative of what are you trying to build
2. What about is necessary right now
3. How will this make the world a slightly better place than today
4. How will this become really big successful enterprise
5. Sustainable long-term network effects that will make company defensible from competition
Created and practiced mulitiple pitches - 1 minute, 10 minute, with pitchdeck, etc.
Created list of FAQs
Dataroom with all matrices into one
- Detailed financial docs
- Existing numbers
- Projections of future

Getting shortlisted:

Looked up online cruchbase, angelist, etc.
- Looked the porfolios of VCs and found whose thesis connects with us well (200 names).
- Snippets of things they said in interviews
- Looked at founders who they had invested in, Connect with them.
Looked for angel investors
- To get help for next phases as well.
- Network effect, Marketplace experience
- Okay with global businesses

Best practices for pitches:

First pitched to investors who were likely to say NO
- Iterated our pitch
- Have a start and end date, Be organised and execution focussed
- Have all the financial documents ready
- Made a list of investors to pitch to
- Pitched 30 investors in first week
Went to investors who were most likely going to say YES in second week
- We focussed on investors who were connectors, i.e. had connections with VCs, knew ecosystem
- Met 3-4 angel investors who said YES to investing in us
  - They were excited to introduce to their connections
  - We made 4 to 25 friends/connections => They wanted to invest in us
  - Instead of chasing for meetings, now people were chasing us for meetings.