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This case concerns the decisions of Jonathan Seelig, Danny Lewin, and Tom

Leighton as they consider pursuing their business plan for Cachet Technologies, a
company hoping to enter the Internet traffic management business. The team
has just finished last in the MIT $50 K business plan competition and must decide
what to do.
Please prepare a report that suggests them what to do. You can structure your
advice around the answers to the following questions:
1. What is the nature of the problem that Cachet Technologies is
addressing?
During the 1990s the world wide web has evolved significantly and became a
new information medium that is used more and more. In combination with the
development of HTML, the internet gave space to huge potential for
consumers and businesses: for example file transferring and the use of
multimedia applications, complex websites and also e-commerce. However,
these increased features that the internet enables, in combination with the
increased amount of internet users and ever growing number of webpages,
caused the traffic on the internet to increase significantly. This increased
amount of traffic causes serious problems, such as overload of the existing
routing system, which created a delay in the system or the feeling of slow
webpage access during peak times. This problem was called the hotspot
problem and is caused when too many users accessed the system during a
specific peak time or period. This resulted in a decreased user experience and
significant costs or losses for companies since their webcontent wouldnt be
sufficiently available during thse periods. With new applications such as
voice-over-the-internet and media streaming in the pipeline, this overload is a
serious and increasing problem.
Current solutions to the problems were threefold. First, the Internet Service
Providers themselves tried to build larger network loads and server farms.
However, this showed to be very expensive and time consuming. Other
companies offered solutions that were built upon two different technologies:
mirroring and caching. Mirroring enabled content providers to spread out their
traffic over multiple servers at different locations. This however showed to be
costly, time consuming and inefficient. Caching involved the temporary data
replication and storage of a web on servers that were closer to the user. This
however has the disadvantage that control over information was sacrificed by
content providers and the solutions did also not provide load balancing.
Danny Lewin and Tom Leighton found that there was a need for more efficient
way of managing traffic congestion and found the solution in intelligent
application of mathematical algorithms. With their algorithm, they could
evenly distribute traffic among individual routers, which was a dramatic new
way of delivering content over the internet and therefore dealt with the
problem of slow internet during peak times.

This solutions overall approach combined several benefits: content provider


control over their content, ability to scale and compatibility with all server
types.

Who can benefit?


The solutions benefits where benefits for various parties: content providers,
Internet service providers and also the internet users or consumers. First, for
the content providers the solution can mean less costs or losses during busy
peak times, increased traffic to their websites and more satisfied customers
which will result in incremental revenues. For the internet service providers,
the solution makes it unnecessary for them to invest large amounts of money
in better infrastructure, decreased their bandwidth costs and also gives their
customers, which are essentially content providers and content consumers a
better experience. For the content consumers, or in other words internet
users, the algorithm will enable them to have fast download times all the
time, even during busy moments and therefore an increased and consistent
user experience.
Who are the big players: customers/competition?
As mentioned earlier, the main competitors of cachet are coming out of three
corners. However, these are not direct competitors but more substitutes,
since they have addressed the problem in different ways than Cachet does
with their solution. First there are the Internet Service providers themselves
that could decide to improve the network infrastructure and not use any
external party, who are at the same time the customer of the technology,
which gives them a certain amount of power. Other competitors are either
offering a mirroring or caching product/service, while Cachet provides both.
For their own developed technology, there thus are no direct competitors that
offer the same solution. Cachet saw Inktomi as their most significant
competitor, their solution was comparable, but offered less features such as
scalability, fault tolerance and the capability of load balancing and peak
usage protection. Nijhawan and Seelig first suggested a price premium
because of these features, but later decided to price at a discount because
they were a new entrant.
As for the potential customer base, Cachet had to decide whichever party
would be there main customer, content providers or ISPs. They went for the
ISP, they targeted 14 global and 40 national ISPs and they estimated a target
market of 643 potential global hosting servers that could utilize its products.
The marketing team identified already identified several beta customers who
had expressed an interest in the product.
2. Who are these people?
In order to turn the solution into a profitable business, cachet technologies
had established a varied team. Apart from Eleighton and Lewin, who came up
with the solution, the two other most prominent team members where

Nijhawan, who prepared the business plan and led the marketing team, and
Seelig who brought relevant experience and business insights into the team
and also took place in the marketing team. Additional team members were
also coming from their own network or connections and were mostly from MIT.
The team did not appoint a CEO or a leader. They felt that they has enough
collective technical knowledge to produce an alpha and beta product. In
addition, they appointed a board of advisors, among which two people from
the successful venture capitalist firm Battery Ventures.
Who is missing from the team?
Although the two founders of the solution put thought into the composition of
their team, they missed some crucial points. It seems clear that the team
lacks leadership, someone that decides with strategy is viable and
executable. Without someone like this, decisions are made by the wrong
people, which result in diminished outcomes. Also, the team lacked a true
business man, with commercial or sales experience. The solution had a huge
potential value, nevertheless the team was not able to communicate this
value to the contest jury and convince them. The presentation of their idea, a
crucial part in convincing other stakeholders of the viability and profitability of
a project, failed miserably. It seems that they had underestimated this part of
the process.
What do they need to do to prove whether the plan makes sense or
not?
In order to successfully find financing for their startup, Cachet needs to be aware
of how VCs, angel investors and other investors evaluate investment
opportunities. Generally, they have six main concerns they take into account
when evaluating their go or no go. First, they look at the team compositions; what
is the team experience, reputation, what are their connections and what is their
motivation. Second, they look at the market; how big is the market and what is
the growth potential? Third, they look at the business model. Fourth, they look at
the context; where is the competition and what is the institutional context? Fifith,
they look at potential exit strategies. And last, they want to know what the
funding looks like, how much money is needed now and later?
The most important for cachet is to show that they have a very good business
model, or at least one with a lot of potential. Entrepreneurs and investors want to
know what the chances are for them to get their money back, preferably with a
profit. Cachet not only needs to show that their idea is a good one, but also that
they have a viable business plan.

3. Who benefits from CT software, and how much would they be willing
to pay for it?
4. How do you decide how much CT is worth? Is the service model a
good idea?

Advice to cachet
First, it is not too late. There are no direct competitors and the solution seems
very promising, with large potential value for a lot of stakeholders. Cachet should
be able to explain the six points of concern that investors usually care about: the
team, the market, the business model, the business context, the exit strategies
and the funding.
Business model
-

Cachet should start with a good and complete business model, which is
easily explainable to stakeholders.
An ingenious idea is not key to success, it is only part of it. Efficient,
effective and smart execution is also inevitable.
This starts with their value propositions, the most important part of the
business model. For cachet this is clear: fast download times and webpage
access all the time, also during peak times, which has benefits for content
providers, internet users and ISPs, as explained above. For cachet the
other two important factors are their expected cost and revenue streams
Furthermore, for cachet the other two important factors are their expected
cost and revenue streams Revenues and costs: business model, your part

The team
-

Appoint a clear leader(do we want to say who?)


To convince stakeholders, among which investors, of the potential of your
idea, you have to be able to give a good sales pitch. Appoint someone who
has a commercial attitude and is able to transfer the potential of the
solution to people who dont know anything about the solution.
Listen to the members of the advisory board: they are experienced venture
capitalists with a large track record. One of the members of these board
had proposed several ideas during the startup process. First, he proposed
that the team should think about offering a service instead of a product.
The potential value that could be created would be much larger when
offering a service were larger than for offering a product. However, the
team had rejected the idea since they saw a service as too much of a
challenge. They went for an easy sellable product. Second, he advised to
look at the content providers as potential customers and not the ISPs.

The market

Think big, dont always go for the easiest option


Look at the offering of a complementary service to the product and what is
necessary to make this a success:
o A team that has experience with offering services: add team
members
By addressing content providers as customers instead of ISPs , their target
customer base increases significantly and way more value can be created
Here you part as well: what is the size of the market and the growth
opportunities

The context
-

There are no direct competitors, only substitutes. Cachet offers a complete


solution to the problem, competitors dont.

Exit strategies
-

With silicon valley booming, with fast growing companies like google, there
are unlimited options regarding exit. IPO but also acquisition by a large
company are options.

Funding
-

Here especially you could write a bit more Justin I guess(see lecture slides
part 2)
Although the competition was lost, Cachet has an entrance option to
financing from Battery Ventures. They should be in the position to obtain
sufficient information about the solution, being in the advisory board. With
their financing, time, people nd resources invested in the company,
combined with their ideas and experience, cachet could become a
successful startup.