[client name withheld]
FINAL PRESENTATION
JUNE 17, 2011
UCLA$Executive$MBA$Program$ Strategic$Management$Research$$
Abe$El$Sayed$ Betty$Morin$ Nancy$Sagar$ Greg$Walters$ Nathan$Wilson$$
$
“I thought about doing this in 1996 but couldn’t figure it out.” 2
BUSINESS'MODEL'
?'
Equity' Discounted'Cash'+'Equity' Cash'
Core Model: Services
3
BUSINESS'MODEL'
Software (Mobile/web)$$ 25$US$FTEs$
*$25B'
app$revenue,$ 2015$
$
Strategy (Capital,$turnarounds)$ 3$FTEs$
“Invest”'combined' services'in'' web/mobile' startups*' 'for'cash'+'equity' '
MERGER VISION
VC'referrals'
4
' ' '
Develop an “optimized business model” 177'PRIMARY'RESEARCH'SUBJECTS' Customers$$
10$
Competitors$
7$
Web/mobile$startups$
91$
Startup$experts$
5$
Entertainment$cash$cows$
7$
Entertainment$experts$
5$
Attorneys$ Angels$ Venture$capitalists$
8$ 11$ 33$
This model is not viable. “ ”
Project Objective
5
EXAMPLE:''VC'RESEARCH'RESULTS'
How$frequently$do$you$refer$ portfolio$companies$to$ ENGINEERING'or'STRATEGY' SERVICES?' Infrequently' Frequently'
12$
7$
10$
6$
8$ 6$ 4$ 2$ 0$
Rating$on$1U7$scale$
Responses$
Never'
Is$it$valuable$to$use$the$$ SAME'FIRM'FOR'BOTH?'
5$ 4$ 3$ 2$ 1$ 0$
VCs not a source of dealflow Source:$Primary$research.$n=17$
6
EXAMPLE:''CUSTOMER'RESEARCH'FINDINGS'
Customers' 3.1%$of$revenue$
Startups:''same'story'
Few economies of scope
7
PROJECT'PIVOT'
Options
MORE CASH to$invest$
x
x Raise$a$fund$
Bolster$service$business$$ to$generate$$
New$model$ (oshore$or$ incubator)$
Overarching$strategy,$ marketing,$operations,$structure$
8
Strategy'
SEGMENTATION'/'CLUSTER'ANALYSIS' 7$
Fledglings Money hungry
6$ 5$
Strategy seekers $
4$
Nontech
3$ 2$
Confident
1$
Elite'engineering'
0$ 0$
1$
2$
3$
4$
5$
Web/Mobile Startup Segments
6$
7$
9
TARGETING'CONCLUSION:'CASH'COWS'
TOP VERTICALS IN MOBILE APP SPENDING* 2009$ CPG$ Retail$ Auto$ Entertainment$ Financial$Services$
2010$ *$Entertainment$*$ Technology$ *$Media$*$ Retail$ CPG$
*$11.6 B '
Projected$2012$US$spending$
“CASH COWS” Source:$$State$of$the$Apps$Industry$2010$and$2009$Surveys;$ DIGIDAY,$Stifel$Nicolaus,$Millennial$Media.$$
10
FIRST'CASH'COW'TARGET'
Entertainment & Media “Entertainment'on'mobile'has'not'even' scratched'the'surface'of'what'is'possible.”' $
Peter$Guber,$Chairman$&$CEO,$Mandalay$Entertainment$
High Demand
Insufficient Supply
• #1$app$spending$ • #1$user$category$$ • New$entertainment$ formats$&$distribution$$ • Multiple$business$units$ $
• Engineering$shortage$ • No$dominant$player$ • Small$vendors$=$“hit$or$ miss”$
11
PERCEPTUAL'MAP'OF'COMPETITION'' 10$
Selection'Criteria'
SPECIALIZED' EXPERTISE' REFERENCES'
Specialized'Expertise'
FLEXIBILITY'
In[house'' teams'
9$ 8$
Product'firms'
7$
Small' shops'
6$ 5$
Elite'software' development'
4$ 3$
Offshore'
2$ 1$ 0$
0$
1$
Why choose ---?
2$
3$
4$
5$
6$
7$
8$
9$ 10$
Flexibility'
12
CUSTOMER'ACQUISITION' Upcoming'Sponsorships' ' VP'Business'Development''
September'2011!
Has$sold$to$entertainment$digital$ media$groups$(e.g.$RazorďŹ sh).$Hire$ now.$ !
' Marketing'to'build'brand' Event$sponsorships,$expanded$web$ presence,$promotional$budget,$ speaking$engagements$(Rob).$ $
Sales Strategy – Cash Cows
13
CUSTOMER'ACQUISITION'SCHEDULE'
Major$marketing$investments$(#)$ Marketing$budget$($)$
2011'
2012'
2013'
2014'
2015'
3$
8$
9$
9$
9$
$$97$k$$ $$281$k$$ $$327$k$$ $$379$k$$ $$411$k$$$
FullUtime$BD$executives$
1$
1$
2'
2'
2'
NEW'CASH'COWS'PER'EXEC'
0'
3'
2.5'
2'
3'
Single$Projects$
2$
5$
1$
1$
3$
Cash$only,$50%+$gross$margins$
Acquisition Quotas
14
CUSTOMER'ACQUISITION'>'REVENUE'PROJECTION'
Cash Cow + Single Project Revenue (M)' $7.0$
Number$of$new$individual$projects$
$6.0$ $4.0$
5$
$3.0$
$2.00'
$1.0$ $0.0$
$5.99'
$4.50'
$5.0$
$2.0$
Number$of$new$cash$cows$
$0.86' 2$ 0$ 2011$
1$
$2.67' 5$
3$ 2012$
3$
2013$
1$ 6$ 4$
2014$
2015$
US$Mobile$Application$Development$Services$Market$ Projected$TAM$&$YOY$growth$ $'400M'
$'1.6B'
$'2.7B'
$'4.1B'
$'5.6B' 15
300%!
300%!
69%!
52%!
37%!
Reference$only$–$not$used$in$projections.$$ Source:$$Forrester$Research,$Feb.$2011$ Reference!only!–!not!used!in!our!revenue!projection.!!Source:!!Forrester!Research,!Feb.!2011!
5 Year Revenue Projection (Consolidated) Total !!!!$4.0!M!! !$5.3!M!!
$10.0$
!$6.0!M!!
!$7.9!M!! !$9.5M!
$9.0$ $8.0$ $7.0$ $6.0$ $5.0$ $4.0$ $3.0$ $2.0$ $1.0$ $0.0$
2011'
2012'
2013'
2014'
2015'
16
CAVEAT:''FIX'OPERATIONS'FIRST'
Ops Improvement Plan PROJECT'MANAGEMENT'
4.3'
Delivery$on$expectations$
5.0'
Likelihood$of$future$work$
5.3'
Scoping' • Tech$team$not$always$ involved$ • Difficulty$evaluating$resource$ requirements$ • No$formal$change$processes$$ • EarlyUstage$projects$are$ ambiguous$ $
(7!point!scale)!
Overwork' • Too$many$concurrent$projects$ • Junior$engineers$not$trained$in$ project$management$ • Team$can$be$difficult$to$reach$
17
ADD'CRITICAL'SOFTWARE'RESOURCES'
Dir.,'Corp.'' Developmt'
President'
CEO'
Admin'
VP,!Biz! Dev' BD!#2!!
(Scenario' 1,'2013)'
Domes:c! So3ware' Engineers'
Managing! Director,! So3ware'
Director,' Finance'
VP'Strategy'(2)' Project'Admin'
Directors'(3)'
Project! Managers!! (1'per'3' projects)'
GM/'Strategy'M' China' China!So3ware' Engineers'
Operations Solutions
18
SOFTWARE'EXPENSES'(SCENARIO'1'IN'BUSINESS'PLAN)' 45$ 40$ 35$
Project$Managers,$$ US$Engineers$
$3.9'
Engineering$Mgt,$ Biz$Dev,$Exec.$Mgt,$ Finance,$HR,$Admin$
COGS'
20$
$1.8' $1.6'
15$ 10$
3$
$2.1' 3$ 1$
17$
2010'
2011'
SG&A' 31$
20$
$2.5'
$2.4'
$2.1'
$1.8'
17$
5$
4$
$2.4'
30$ 25$
$3.4'
36$
25$
5$ 0$
2012'
2013'
2014'
EOY Software Headcount
2015'
19
CONSOLIDATED'P&L'(SCENARIO'1'IN'BUSINESS'PLAN)'
$10.0$ Millions$
$9.0$
$0.08'
$0.46'
2%$
9%$
$0.55' 9%$
$1.02'
$1.65'
13%$
17%$
NET'INCOME'
$8.0$ $7.0$ $6.0$ $5.0$
SG&A'
$4.0$ $3.0$
COGS'
$2.0$ $1.0$ $0.0$
2011'
2012'
2013'
2014'
Net income available for investment
2015' 20
FINAL'RECOMMENDATION:'CREATE'INVESTMENT'DISCIPLINE' $1.65' $0.08'
$0.46'
$1.02'
$0.55'
Advisory!Board! (3M5'experts)'
Generate$&$evaluate$deals$ for$equity$
Investments
$ 1. Source*$/$evaluate$/$manage$deals$ 2. Screen$deals$as$if$they$are$cash$$ 3. Reimburse$software$/$strategy$ groups$for$services$
Investment Division
*$Fledglings$+$ Internal$ideas$
21
CONCLUSION:''THE'OPTIMIZED'MODEL'
Recommendation
Impact
IMPROVE OPERATIONS
•
by$hiring$a$managing$director$&$ project$managers$
•
TARGET CASH COWS
•
(entertainment$first)$with$BD$and$ marketing$investments$
•
CREATE INVESTMENT DIVISION with$advisory$board$to$help$source$ &$manage$deals$$
• •
Stronger$referrals$&$ability$to$ land$new$business$ Greater$profit$margins$ Protect$company$by$ diversifying$from$A$ Faster$revenue$and$net$income$ growth$to$fund$investments$ Better$investment$decisions$ Greater'emphasis'on'larger' equity'stakes'that'can'lead'to' larger'exits'
A Framework to Realize the Vision
Q&A Thank you!