Notes07

Started by Avron Barr, 2 May 2006 based on class notes from Friday, 28 April 2006. Revised, slightly, 27 April 2007, "What is needed to have a business" section inserted by Gio 4 May 2007. Updated for Thursday 1 May 2008. 

Topics of the day 

Sources of funding:

1. Self, is fine but limiting. Enlist friends -- or former students.
2. Private foundations. They'll have objectives, but if the objectives match in focus, scope, and size, a great
3. Advertsiements, good if you attract readers that will click through. Don't count on click-farms.
4. Government, mainly for research, expects a public benefit
5. Banks loans, will want a good business plans, or based on collateral, but that is your risk,
6. Museums, that cover similar topics, and might attract more vistors through you.

 Trust

big topic. 

Trusting google to tracking usage patterns

Trusting that click-throughs are by real people.

 Trsuting that creditcards won't be misused.

Trusting the government.

ISPs

Facebook.

Gambling sites.Have smart strategies to engender trust.

Wikipedia: citations. provenace, topic risk, funny terms.

What is needed to have a business:

1. Having goods or services -- Real stuff or Actionable Information.  Without having access to the actual goods, it is easier to sell fungible goods – where the instances are identical, than unique goods. To sell unique goods one must be able to trust the supplier even more. If the goods, as information, are easy to copy, then it's hard to create a profitable business.
2. Getting the information about your products to potential purchasers - you'll need advertising, demonstration sites, or postive word-of-mouth.  For word-of-mouth or word-by-email, consider focusing on the community that can (1) benefit from your product, and that can (2) afford it and (3) is willing to pay for it. Examples are: Fun Information (when did Stanford hospital move from San Francisco to Campus (bonus question - which department did not move?), information to write a paper, information to run a better business (pig food mixes))
3. Closing the sale -- how to make the contract -- more on that soon --
4. Assuring delivery -- great deal of variation and cost - real goods versus information
5. Getting paid
6. After sales service
7. Ability to return unwanted goods. (non-actionable information?)

An element is all of these considerations: trust, perhaps backed by guarantees

 The Value of a Having a Business Plan

Business Plans are used to convince people (investors, partners, key employees) about the viability and potential of a business idea. But first and foremost, Business Plans are just plans. Proceeding in any endeavor without a plan increases the risk of failure and can slow down your rate of learning as you go along -- the plan focuses your attention on assumptions and predictions that you know might not be true. The sooner you realize that reality isn't playing along, the sooner you can correct course. The plan should be a "living document", adjusted as the market and competitors are better undertood and the business idea matures.

(If your project website is not a business per se, you can still have a plan about what it's about, who it's for, how to finance it's creation and maintenance, etc. And all of these early assumptions might change as you get further into the project.) 

One essential element of the Business Plan is a description of the product(s) and/or services(s) your business will offer -- the "offerings" as they are called. Usually this is combined with a discussion of the "opportunity" -- what changes or trends in technology or customers make this idea timely and needed. A mission statement and a very short "elevator pitch" are derived from this discussion of the business goals.

Money is used to measure progress for many businesses. (If your project is not a for-profit business, then you might think about what metrics you would use to measure success.)  Generally there is a period in a business when startup costs and initial operating costs exceed revenue. This requires an input of capital from the founder(s), their "friends and family," a bank loan, or an investor who takes a piece of the action in lieu of repayment. In other words, investors share the risk of the entrepreneur to a certain degree. (The more risk they share, the bigger a piece of the pie they would want.)

[Insert typical startup financials spread sheet]

Income can come from products sold on the site (see Note on Pricing ), commissions on products sold through click-through sites (e.g. for an aggregator site or the Amazon "partner" program), or from sponsors, foundation or government grants, advertisers, or memberships. You should treat the subject of costs and how they will be covered in your project plans.

Another important element of a typical business plan is a description of the qualifications and experience of the team members -- the founders and the key employees they have hired. The team is often the number one criterion for VCs deciding on high-risk investments, because financial predictions depend on assumptions that will not be verifiable for several years. We discussed how, in Silicon Valley, entrepreneurs who have failed in high-risk businesses often are not stigmatized for their failure and can get investors to consider subsequent business ideas.

Next to the the team's qualifications, the most important element of the Plan for convincing people about the viability of the business is a discussion of the "market." Who are the customers? What (and how much) do they buy now? Why will they be amazed and grateful to know about your site? Who are the competitors and what are the alternatives to your offerings? How will you "position" your offering, i.e., why is yours faster, better or cheaper than the alternatives? How will you establish and maintain a competitive advantage?

Some discussion of how the business will be conducted is also important. Typically this is a "go to market" plan that says in some detail how customers will be motivated to buy, how the transactions will take place, and how goods and services will be delivered. The point, throughout the Business Plan, is to show that you've made reasonable assumptions, thought things through, and are prepared for all contingencies.

We broke for a field trip to the Gates Hall Museum to see Jerry Kaplan's GO machine, a famous failed venture by an entrepreneur who later went on to great success. 

Your writing assignment for this week (Assignment #3) is to prepare a plan for your project that shows, like a Business Plan would, a certain level of preparation and planning about the users (customers) and about the costs and operation of the project. We discussed some topics that might be covered in your short plan:

• Overview
• Opportunity, problem being solved, reason this is needed, ...
• Target market and the benefit to them
• Marketing plan -- how will you get them to your site?
• Competition, other players in the space, how do people do it now?, ...
• Features/organization of your website
• Implementation plan
• Projected startup costs, operational costs (maintenance, keeping it up to date)
• Financing model (dues, advertising, sponsors, ...)
• Possible problems, risks, legal/IP issues, ...

 See also, Note on Business Plans, Note Pricing