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Threat of substitutes: how easily can customers replace your product with a
competitor's one? If switching is easy, that's bad for you
Bargaining power of suppliers: if there's only a few suppliers (think labor or raw
materials) they can set prices high, bad for you
Industry rivalry: how innovative are your competitors? How much is ad spending? How
secretive or transparent (so you can copy) are they?
That was Porter's Five Forces, next is Low Cost vs. Premium pricing
A low-cost airline sells 100,000 flights per day avg $50 with 1% profit margin:
$50,000 profit per day
A premium handbag maker sells 55 bags at $1,000 with 90% profit margin: $50,000
profit per day but 99,945 less customers
You're either low priced and high volume (many customers) or high priced and low
volume (few cust), you NEVER want to be in the middle!
The middle means avg priced avg amt of customers. Your product is now more
expensive than the cheap but lesser quality than the premium! Bad
Ansoff Matrix: a framework to pick a company strategy for growth (and stick to it)
https://t.co/ZYxXMNTrnW
Market penetration: the most common strategy, you sell more products to your
current customers (upsell) or find new customers in your market
Product development: you also probs know this one; create new products in same
product segment you're in (like washing powder XXL)
Market development: keep same product but target it to new customers in diff
markets like new countries, demographics, subcultures etc.
Diversification: the riskiest strategy, make new products in markets you're not in.
This is suitable if you're a giant corp, not for noobs!
Generally, ??money flows to the part of the value chain that has highest scarcity.
The product ppl want most, but there is few off (eg gold)
Obviously you can produce inf. amounts of widgets to sell, so this means if
production stays same, price will rise with high profits. Good!
Low-cost airlines exist but their logistics are HARD to replicate, so they can
exist even though their product is not high value or scarse
Now the most famous business theory: the Product Marketing Mix or 7 P's
You can use it as a "set of marketing tools to pursue objectives in your target
market"
1) Product: how are its features, design, quality, branding, packaging, warranty
etc.
2) Price: high or low? Price influences the perceived value, e.g. Gucci bags are
$1,000 which is marketing (regardless of cost to make it)
3) Place: where can customers buy your product? Online? Which shops? Many or few?
Do you franchise stores? Or exclusive selling? Logistics?
it used to stop at the 4 P's and they're definitely the most important. But in 1981
they added 3 more: process, people and physical evidence
These next 3 only apply if you run a service business (not a product business),
here we go:
5) People: the staff that interacts with your customers and represents your
product's values also influence your marketing
6) Process: the process by which a service is delivered. This means the internal
sequential tasks to create the service for the customer
7) Physical evidence (odd name I know): if you provide a service, this can be
tangible goods that prove the service has occurred
Honestly "Physical Evidence" is obtrusely described. When you fly Emirates, you buy
a service, but you also get a sleeping mask etc.
The 7 P's of the Product Marketing Mix might be confusing because it's not very
actionable. So go through each and perfect product in each P
The worst: a low-priced product that's easy to copy in a market that's easy for
competitors to enter (eg fishing, transport or coworkations)
Brands to study
- Louis Vuitton (premium)
- Ryanair (low cost)
- Amazon Web Services (barg power supplier)
- Dropbox (fail cuz replicatable)
Most (soon to be) failing businesses can be explained by theories in this thread!
One of the most important concepts in finance is Net Present Value (NPV). Ask
yourself: would you rather have $100 now, or $100 in 12mo?
NPV is a way to valuate anything based on time. If you give me $100 in 12mo, how
much is that worth today? At 5% interest: it's worth $95.24
Why? Because if you gave me the $100 today and I invested it, I would have made ~$5
on it. So by giving it to me in 12mo, I lose ~$5.
Spending money has an opportunity cost over time. Because by spending it, you can't
invest or save it and make $ on interest.
If a $500K house gains $300K in value over 10y, that sounds like success.
But at 5% bank interest, that'd be $314,447 gained. $14,447 more!
NPV is the opposite of calculating future savings. Instead of seeing what your $ is
worth in future, you see what future $ is worth today ??
If I buy $100K house and rent out for $24K/Y for 5Y:
-100K+(24K/1.05)+(24K/1.05^2)+(24K/1.05^3)+(24K/1.05^4)+(24K/1.05^5)=?? +3K NPV ??
That means we can predict if an investment with future cashflows has positive or
negative NPV and make investment decisions based on it!
NPV is depends on interest rates! The lower the interest rates, the less
opportunity your money has to ?? on a bank, and the higher NPV is!
In these examples I used a theoretical interest rate of 5% but right now bank rates
are 0%. More opportunity to invest your $$ outside bank!
Finance parts of MBA are hard to summarize. They're mostly math concepts
It's the core of a company accounting and gives a glance how a company is doing. If
number is between (brackets) it means loss on that part
You generally use a spreadsheet to input a lot of data and it outputs predictions
about the future of your company.
You input many assumptions (like sales and costs) and it outputs an income
statement, cashflow statement and balance sheet for the future.
Financial modeling stands and falls by the accuracy of its assumptions. If you put
in bad data, it outputs faulty predictions!
Next: Finance options, you might know them from the stock options you get if you
work for a startup! https://en.wikipedia.org/wiki/Option_(finance)
Options simply mean you promise me the "option" to buy or sell a stock at a future
date for a set price.
Let's use oil as an example. I am a car factory and need oil every day. But oil
prices fluctuate from $50 to $200. Which is risky for me.
If oil is $200, I lose money on making my cars! I want to hedge this risk so I'm
always profitable. So I buy an option from you.
You promise to sell me oil for $50 on Jan 1st, 2018. Even if the price by then is
maybe $200 or $200,000. You promised me $50! ??
I don't HAVE to buy the oil on Jan 1st, 2018 for $50. I can if I want. But if oil
is $25 on Jan 1st, it doesn't make sense to buy it for $50
Exercising an option means I tell you "Hey, you need to stick to your promise! Sell
me the oil for $50!". How you do that, is your business.
If you have oil laying around, just give me that. If you don't, you'll have to now
buy it on the market!
If oil is $200 by Jan 1st, it means you have to spend $200 and then sell it to me
for $50, you lose $150! That's the risk of selling options
One of the most important formulas in finance relates to options: it's called
Black-Scholes and is used to price options.
If you're still here, I commend you! Next in finance: Capital Structure defines how
a company finances its operations.
Debt financing (borrowing $) is generally less risky than equity (issuing stocks)
because equity can give shareholders power over you.
Peter Drucker (1909-2005) pretty much created management theory out of thin air.
Many of his theories were influenced by military leadership
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