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The New Business Venture Road Test

Ch. 1: My Opportunity: Why Will or Won’t This Work?


 Entrepreneurial Traits:
 Passion
 Conviction
 Tenacity
 Calculated Risk Takers

 The Seven Domains of Attractive Opportunities


 Figure 1.1, Pg. 6
• All domains not equally important
• Both Macro and Micro perspectives important
• Markets (buyers) vs. Industries (Sellers)
 Market Analysis: Target Marketing
o Customers
 Base (Base, Demographics)
 Desires (Needs vs Wants),
o Purchasing power (Discretionary Income?)
o Aggregate demand
o Competition

 Industry Analysis:
• Porter’s Five Forces: Sustainability of Competitive
Advantage
o Threat of Entry
o Buyer Power
o Supplier Power
o Threat of Substitutes
o Competitive Rivalry

 Can the Team Deliver?


 Team’s business mission, personal aspirations, risk propensity
 Ability to execute “Critical Success Factors”
o Complementary Talents
o Connectedness: up down, and across the value chain
Ch. 2: Will the Fish Bite?
 Micro-Level: Target Market Benefits and Attractiveness (Quadrant 1 of the 7
Domains)

 Customer: the ultimate reason for an organization’s existence” WHY WILL I


SPEND MY MONEY WITH YOU?!!!!

o Is there a target market?


o How large is he segment? IS it growing, and how fast?
 Box 2.2
• Who are customers?
• Where are the customers?
• How do the customers behave?
o Do you offer something better, faster, cheaper, etc.?
o Can this segment grow or offer other “windows”?

 Micro-Market Test (Pg. 49)


o Value to customers
o Customer profile
o Benefits
o Evidence of customer desire
o Evidence of target potential
o Other potential segments
o Are transferable capabilities possible?

 Lessons from:
o Nike
o OurBeginning.com
o Miller Lite
o iMode
Chapter 3: Is this a good market?

“Domain” #2 : Macro Perspective-looking for market size & market growth, both today
and tomorrow.

3 Key Questions: (Box 3.1)


1) Is my market large enough to allow different competitors the opportunity to serve
different segments without getting in the way?
2) What are the predictions for your market’s short-term growth rate? (in the absence
of other information to the contrary, the recent rate of growth in your market may
be the best available predictor of growth in the near future.)
3) What are the predictions for your market’s long-term growth rate? (This is likely
to be heavily influenced by the macro-trends: economic, demographic, socio-
cultural, regulatory and-or natural.)
Chapter 4: Good Industries, Good Business
Other SELLERS (not customers, products, i.e. Lemonade Stand Example)
 Porter’s Five Forces: Sustainability of Competitive Advantage (Table 4.1)
1) Threat of Entry
2) Buyer Power
3) Supplier Power
4) Threat of Substitutes
5) Competitive Rivalry

 Defining Your Industry: Narrow or Broad?


i. Narrow: Clarify focus, ID competition, force the issue of
differentiation, BUT, can overlook substitutes.
ii. Broad: Looks at all substitutes, possible changes needed
(flexibility), BUT, can lead to lack of focus.

 Does Your Industry Matter? (Industry Attractiveness)

 Add industry attractiveness to “Idea” and “Management” as criteria for


investment. Don’t just look at market, but industry as well.
Chapter 7: Can You and Your Team Execute?
 Successful teams: demonstrate the ability to execute the few critical success
factors (CSF) that tend to differentiate the organizations from the rest.

Determining Critical Success Factors


 Resides in the experience of those who have learned, NOT on the internet or
textbooks…can get this information from others (try for 15 or 20)

 Two questions to ask in determining CSFs:


o Which few decisions or activities are the ones that, if gotten wrong, will
almost always have severely negative effects on company performance?
o Which activities, done right, will almost always deliver disproportionately
positive effects on performance? (i.e. Starbucks site selection)

What Investors Want to Know


 What does great management look like?
o Necessary but not enough for greatness:
 Character, drive, persistence
 Industry experience
 Ability to sell

 Look for:
o The lead entrepreneur has identified the CSFs in the industry as well as the
market and competitive environment that they will enter, including the 7
domains
o Management TEAM that can demonstrate in past DEEDS (not words) the
ability to EXECUTE on each and every CSF identified as well as others
that will arise
**a team should include more than one’s employees: it can include
bankers, suppliers, dealers, and the like as well.***
Chapter 10: What to do before you write your business plan

*Culmination of Seven Domains*


Planning is important, but results are what count!

Why are the vast majority of BPs unsuccessful in raising money?


1) Opportunities that are fundamentally flawed.
2) “Everything about my opportunity is wonderful” misconception (disillusionment).
**Credibility issue: need to acknowledge risk**
3) Me-focused versus customer-focused: investors want to see:
a. Solving customer problems (is there a real market)
b. Deliverable solutions
c. You and your team

Great Opportunities: Where do they come from?


 Macro opportunities (demographic, sociocultural, economic, technological,
regulatory, or natural).
 Personal experience (living the problem)
 Scientific research
 Replication of ideas proven elsewhere

Where to start?

 Self analysis, i.e. personal mission, aspirations, and propensity for risk.
 Analyze market and industry domains. (secondary data is efficient).
 Conduct primary research (fill in gaps)
 Evidence-based forecasts
o Market potential
o Business forecast

The customer-driven feasibility study (pg. 217)


I. Executive Summary
II. Micro-Level market assessment
III. Macro-Level Market Assessment
IV. Macro-Level industry assessment
V. Micro-level industry assessment
VI. Team Assessment
VII. Summary & Conclusions

Differences in FAs and BPs.


 Customer focus (FA focus on customer, BP on investor)
 Fundamental Economics (FA: key drivers of cash flow)
 Mindset (FA: ask and answer questions-not to sell merits)
(BP: expand on FA, i.e. marketing, operating, financing stragies)
BP Books….

BP Software….

What Investors will be looking for


 Differentiated solutions to real customer problems
 Large and growing markets
 Industries that not competitively brutal
 Sustainable advantage
 Committed lead entrepreneurs and entrepreneurial teams
 Cash flow, not profits: not profit.

Red Flags
 Reluctance of entrepreneur to put money up front
 Poorly cited business plan
 Overly aggressive/unsupported financial forecasts.
Chapter 12: Market Analysis Worksheet

Purposes: To ID if proposed venture can reach a sizable scale (a real business


opportunity), or it is simply a lifestyle business.

To ID potential for future (growth, decline) based on trends affecting your


Target customers’ buying habits.

Trends: Need to consider both end consumers and B2B, as B2B’s consumers are
indirectly yours.

Demographic Trends) Age, gender, ethnicity, education

Sociocultural Trends Lifestyle

Economic Trends Macroeconomic trends (inflation, unemployment,


international business) and microeconomic (disposable income)

Technological Trends Communication, processing, travel

Regulatory Trends local, state, federal

Natural Trends Global warming, resource depletion, overpopulation

Sources: Unlimited: internet, trade, networking

***Objectivity is essential, need to cite***

Macro-level market analysis:

 Market Size
 Recent market growth rate
 Forecasted growth rate from credible sources
 Favorable trends, with sources cited
 Unfavorable trends, with sources cited
Chapter 13: Industry Analysis Checklist
 Porter’s Five Forces: Sustainability of Competitive Advantage
o Threat of Entry
o Buyer Power
o Supplier Power
o Threat of Substitutes
o Competitive Rivalry

 Ranking Industry Attractiveness


o Highly favorable
o Moderately Favorable
o Moderately Unfavorable
o Highly Unfavorable

 Considering Industry Forces


o Which force, if any, impact industry structure?
o Which force, if any, is dominant?
o What changes can you anticipate?
o Does the industry, as you see it, offer the opportunity to “shape” or
“reshape” your concept?