mex accel program bus models.ppt

TechBA Hiram Willis 1

Creating the Business Model for Early Stage International Companies

-Hiram Willis

Director Venture Capital Resources


Agenda• Introduction

• Business Model Failures & Success• Business Model Importance

• The Situation: Early Stage Companies & Business Models• Definitions • The Roles of Business functions in the Business Models• The Value Proposition & Money

• Solutions & Approaches to Successful Models• Approaches & Key Elements to Business Model• Analysis & Strategies and Implementation

• Summary• Benefits to Early Stage International Companies


The Basic Business Model

Your Company Processes & Rules

Inputs from

Company

Strategic Outputs from Company to Key Management

Strategic Inputs from Environment

Strategic Outputs from Company to Market and Customers


Business Model Failures

• Web Van, Inc. (Internet Ordering & Home Delivery)

• Net-Zero, Inc.

• Osborne Computers

• NTT-DoCoMo iMode USA

• Generic Beer

• Things They All Had in Common

• $$$ Can not fix a Bad Business Model

• More importantly disagreement on Where & How to Make Money


Why New Ventures Fail

• Product/Market Problems

• Financial Difficulties

• Managerial Problems


Types and Classes of First-Year Problems1. Obtaining external financing

2. Internal financial management

3. Sales/marketing

4. Product development

5. Production/operations management

6. General management

7. Human resource management

8. Economic environment

9. Regulatory environment


External Problems Experienced by Entrepreneurs

Expansion5.5%

Market Knowledge19.3%

Customer Contact27.3%Competitors

6.3%

Market Planning14.4%

Product Issues7.6%

Location11.1%

Pricing8.4%


Determinants of New-Venture Failures

Lack of mgt. skill

Poor mgt. strategy

Lack of capitalization

Lack of vision

Poor product design

Key personnelincompetent

Lack of mgt. skill

Poor mgt. strategy

Lack of capitalization

Poor external market conditions

Poor product design

Poor product timing

EntrepreneurEntrepreneur RankRank EntrepreneurEntrepreneur RankRank

11

22

33

44

55

66

11

22

33

44

55

66


Business Model Successes

• Food – Gatorade (Sports Drink)

• Communications Airespace (WiFi)

• Medical – Incyte (or WedMD)

• IT - Google

• Software - BEA

• Things They All Had in Common

• $$$ Amplified the Business Model

• Management & employees Know How the company Makes Money


Critical Factors for New-Venture Development

• Uniqueness

• Investment

• Sales Growth– Lifestyle ventures– Small profitable ventures– High-growth ventures

• Product Availability

• Customer Availability


Sources of Venture Opportunities

• Demographic trends

• Social trends

• Technological trends

• Business trends

• Launchpad jobs

• Moonlighting

• Invention related


MOTIVATIONS FOR INTERNATIONAL EXPANSION

• PROACTIVE (pulled by good foreign markets)– Firm specific advantage– Resource availability– Economies of scale– Economic and political factors

• REACTIVE (pushed by bad domestic markets)– Domestic competition– Poor domestic market– Follow customers


Business Model & Strategies

The Marketing Strategy

The Organization

Strategy

The Customer Service Strategy

The Financial Strategy

The Product Strategy

• Fry’s Electronics

• Wal-Mart

• Tiffany’s

• Cable TV

• Citibank

• Cisco Systems

• Microsoft

• Warner Bros.

• Mercedes & Porsche Dealerships

• Gucci’s, Neiman Marcus


CORE COMPETENCIES & COMPETENCE GAPS

Strategy Environment

Key Success FactorsCore Competencies

Competency Gap

Internal Development Acquisition Strategic Alliance

© by Geringer, Frayne & Associates, Inc.


Analysis


Criteria For Analysis

• The window of opportunity

• Depth and breadth of market

• Size of total market

• Protection from competitors

• Investment requirements

• Return on investment

• Ability to spread risks


Informal Analysis

• The “Aha” factor

• 10:1 ratio

• Look alike test

• If it’s so great, why hasn’t someone else done this before

• Friendly banker test

• Prototype pre-test


Strategic Internal Problems for Early Stage CompaniesMarket Size

Competitive Position

Business Model

Cashflow

Strength of Management

IP & Product Development

Channel Alliances

Customer Acquisition

SEEDABC

D

- PwC Paths to Valuation


strengthsAdvantages of proposition? Capabilities? Competitive advantages? USP's (unique selling points)? Resources, Assets, People? Experience, knowledge, data? Financial reserves, likely returns? Marketing - reach, distribution, awareness? Innovative aspects? Location and geographical? Price, value, quality? Accreditations, qualifications, certifications? Processes, systems, IT, communications? Cultural, attitudinal, behavioral? Management cover, succession?

weaknessesDisadvantages of proposition? Gaps in capabilities? Lack of competitive strength? Reputation, presence and reach? Financials? Own known vulnerabilities? Timescales, deadlines and pressures? Cashflow, start-up cash-drain? Continuity, supply chain robustness? Effects on core activities, distraction? Reliability of data, plan predictability? Morale, commitment, leadership? Accreditations, etc? Processes and systems, etc? Management cover, succession?

opportunitiesMarket developments? Competitors' vulnerabilities? Industry or lifestyle trends? Technology development and innovation? Global influences? New markets, vertical, horizontal? Niche target markets? Geographical, export, import? New USP's? Tactics - surprise, major contracts, etc? Business and product development? Information and research? Partnerships, agencies, distribution? Volumes, production, economies? Seasonal, weather, fashion influences?

threatsPolitical effects? Legislative effects? Environmental effects? IT developments? Competitor intentions - various? Market demand? New technologies, services, ideas? Vital contracts and partners? Sustaining internal capabilities? Obstacles faced? Insurmountable weaknesses? Loss of key staff? Sustainable financial backing? Economy - home, abroad? Seasonality, weather effects?

Typical Strategic Analysis Model: SWOT, and Look at Others……


Developing the Business Model & Strategy for Early Stage Companies

Mission & Goals

Analysis, e.g. SWOTInternal Analysis

External Analysis

Key Operational Strategies

Financial Product & IP Marketing & Sales

Organization Controls & Management

Budgets


Business Mission & Objectives

WOTS InternalWOTS External

(Refined) Goals & Objectives Formulation

Strategy Formulation

Implementation

Feedback & Controls

Building Sound Business Strategies: Processes

Start Here ?…..

Start Here….?.

Start Here ?…..


VisionValuesMission/PurposeStrategic Goals

Strengths AssessmentMarket shareOrganizational ExpertiseProduct & Technology / IPChannel PositionSCA

Sound Business Strategy From Sound Analysis

External AssessmentBusiness EnvironmentIndustry Analysis (Suppliers,Subs & BuyersOpportunities/Threats

Internal AssessmentResources/AssetsStrengths/WeaknessStrategic Relationships

Expls: Michael Porter, Framework for Industry Analysis

Kotler, Marketing Management

Expls: David Acker, Marketing

Michael Porter, Competitive Advantage

Opportunity AssessmentMarket SegmentationCompetitive IntensityMarket Growth RateMarket SizeMarket Attractiveness Scoring


-M. Porter, Competitive Advantage

Sound Business Strategy Starts with Industry Analysis

Potential Entrants

Suppliers

Industry Competitors

Rivalry Among Firms

Substitutes

Buyers

Threat of Substitute Products & Services

Bargaining Power of Buyers

Bargaining Power of Suppliers

New Entrants & Barriers to Entry


Five-Forces

• Developed by Michael Porter: forces that shape and influence the industry or market the organisation operates in.

– Strength of Barriers to Entry - how easy is it for new rivals to enter the industry?

– Extent of rivalry between firms – how competitive is the existing market?

– Supplier power – the greater the power, the less control the organisation has on the supply of its inputs.

– Buyer power – how much power do customers in the industry have?

– Threat from substitutes – what alternative products and services are there and what is the extent of the threat they pose?


INTENSITY OF RIVALRY

• Industry growth rate• Diversity of competitors• Concentration & balance (existence of industry leader)• Fixed or storage costs / value added• Product differentiation• Brand identity• Overcapacity (how much, how long, capacity increments)• Switching costs• Corporate stakes• Exit barriers• Informational complexity


Bringing it all Together…

Business / Operational Strengths

•Sales / Profit / Cashflow Potential

•Growth Rate

•Competitive Situation

•Market Traction Ease

•Channel Risks

Business Model Scores

Model 1 Model 2 Model 3

------------------------------------------------------------------------

------------------------------------------------------------------------

------------------------------------------------------------------------

Business Strategy 1 Business Strategy 2Business Strategy 3

Company Strengths

•Financial Program

•Technology Base & Product Strategy

•Marketing Capabilities

•Organizational Strengths

•Special Strengths


Business Model #1: Differentiation

A differentiation strategy is based on perceived quality, fashion, reliability, so that in the eyes of the customer, product differences can justify a higher price. International marketing should emphasize brand name image, use upscale distribution outlets, stress high fashion.


Business Model #2:Cost Leadership

A cost leadership strategy is achieved through systematic reductions in costs (production, sales, materials), lower profit margins or both. International marketing should emphasize low prices, source low cost inputs worldwide, use low cost distribution channels, look for ways to coordinate advertising campaigns across markets.


Business Model #3: Focus

A focus strategy concentrates on a market niche or segment or particular geographic segments. An international marketing strategy should be tailored for each niche market.


SWOT

• Strengths – identifying existing organisational strengths

• Weaknesses – identifying existing organisational weaknesses

• Opportunities – what market opportunities might there be for the organisation to exploit?

• Threats – where might the threats to the future success come from?


PEST

• Political: Local, national and international political developments – how will they affect the organisation and in what way/s?

• Economic: what are the main economic issues – both nationally and internationally – that might affect the organisation?

• Social: what are the developing social trends that may impact on how the organisation operates and what will they mean for future planning?

• Technological: changing technology can impact on competitive advantage very quickly!


Types of Strategy


STRATEGIC DECISIONS RE: ENTRY INTO FOREIGN MARKETS

• Whether to become an international company?• What products/activities to internationalize?• Which countries to enter?• What objectives to set for the target countries?• Which entry mode (s) to use?• What marketing plan for penetrating target market?• What organizational & implementation issues to

manage?copyright © by Geringer, Frayne & Associates, Inc.


Corporate Culture


WHICH PRODUCTS/ACTIVITIES TO INTERNATIONALIZE?

• Value chain/business system analysis

• How can entry configuration yield competitive advantage?– Versus single-nation competition– Versus multinational competitors


DIFFERENCES: DOMESTIC vs. INTERNATIONAL ENVIRONMENTS

Domestic InternationalSingle Currency Currencies differing

(stability,value&convertibility)Uniform climates (financial, accounting & Variety of economic climates & systemsbusiness)Relatively homogeneous markets Fragmented & diverse marketsUniform legal framework Diverse legal systems (e.g., common law,

civil law)Relatively stable political climate Political change is often discontinuousCultural mores & values are well understood Cultural mores & values must be

identified & understoodData are available & collection is relativelyCollection of accurate data is formidableeasy & sometimes impossible Familiar language(s) whether unilingual/ Numerous languagesbilingual

copyright © by Geringer, Frayne & Associates, Inc.


INTERNATIONAL DIFFERENCES: IMPLICATIONS FOR STRATEGY

• Added costs, risks & complexity of int’l business

• Host-country firms typically have advantages over foreign firms

• Strategies successful in one nation may fail in another

• Governments can be allies or enemies

• Competitors from different environments

• Need for international competitive advantages

copyright © by Geringer, Frayne & Associates, Inc.


1. Internal development• Often takes considerable time & resources• May lack ability to easily build operations in some markets

2. Acquisition• Fast, but often costly• Usually not very precise

– Capacity you don’t want– Product lines you can’t sell– Personnel you don’t need– Cultures that don’t mesh

3. Alliances• Fewer up-front costs than an acquisition• May improve focus on areas of weakness• Can bridge gaps in short term & enable learning over long term• Hard to successfully structure & manage

© by Geringer, Frayne & Associates, Inc.

How to Become an Early Stage INTERNATIONAL COMPANY?


INTERNATIONAL ENVIRONMENT, STRATEGY & COMPETENCIES:

SUMMARY

• Questions to address:

– Is the industry attractive?

– How to compete and position?

– Where to compete?

– Ability to compete?

– How and where to focus efforts?Copyright © Geringer, Frayne & Associates, Inc.


Entry Strategy: A Comprehensive Plan for Entering International

Markets• To guide your international operations &

provide a base for sustainable growth– Need plan for each product in each market– Must integrate individual plans

• Seems elaborate, expensive– “Can’t afford to plan”– Ad hoc “sales” approach vs strategic competition


Strategic Decisions Regarding Entry into Foreign Markets

• Whether to become an international company?

• What products/activities to internationalize?

• Which countries to enter?

• What objectives to set for the target countries?

• Which entry mode(s) to use?

• What marketing plan for penetrating target markets?

• What organizational & implementation issues to manage?


To Expand International You Must Increase Your focus

• When your firm decides to expand, you must systematically evaluate possible markets to identify which specific Target-Markets have the greatest potential

• To do this, you’ll need a method for screening the most promising from less promising prospects

– minimize risk in face of uncertainty

– monitor developments worldwide


Common Errors of Early Stage Companies Entering International

Markets

• Ignore markets with real potential for your products or services

• Devote too many resources to investigating Markets with poor potential

• Inability to Translate Current Model to International Model

• Inability to Localize


1. Exporting

2. International licensing

3. International franchising

4. Specialized entry modes

5. Foreign direct investment (FDI)

6. Joint ventures


Segmenting the market

• Attractiveness criteria(distinct, size, measurable, stable, identifiable)

• Bases for segmentation(products, groups, benefits, sensitivity to

marketing, cost differences)


Market attractiveness factors

1. Rivalry among direct competitors

2. Entry barriers

3. Customer power

4. Supplier power

5. Indirect substitutes


Business Strategy for Early Stage

New International Ventures


Strategic Questions

• How important is it to be first?

• How important is it to be different?

• Is it ok to “jump in?”

• Is entrepreneurial strategy different from other strategy?


Pioneer or Follower?

• Critique of past research

• Advantages of Pioneers

• Advantages of Followers

• “Early Leaders”


Go for Gold? Settle for Bronze?

• “No failure like success?”

• “Wheel of retailing”

• Strategic innovation/Disruptive innovation


Discontinuous Innovations

What is a discontinuous innovation?

Limits of conventional marketing research.

Probe, Learn, Iterate


Modes of Entry intoInternational Business


CHOOSING A MODE OF ENTRY: DUNNING’S ECLECTIC THEORY

• Ownership advantages

• Location advantages

• Internalization advantages


OTHER FACTORS AFFECTING MODE OF ENTRY

• Need for control (desire to reduce uncertainty and maintain full control over the foreign operation)

• Resource availability (lack of access to financial capital may mean that entry by ownership is impossible so that non-equity or partial equity modes are preferable; most likely for small firms)

• Global strategy (global integration vs. national responsiveness; if the former, more likely to use ownership routes since EOS and scope & synergies are better achieved through internal market/hierarchy)


external licensing equity joint wholly owned

market venture subsidiary__________________________________________low control <---------------------------> high controllow resource cost high resource cost


MODES OF ENTRY #1: EXPORTING TO FOREIGN

MARKETS• Advantages of Exporting as Mode of Entry

– low financial cost (but have startup costs)– risk limited to value of exports– can enter foreign market gradually (ease of startup,

less chance of mistakes, gain experience)– gain information about and expertise in foreign

market– export success breeds more export success


• Disadvantages of Exporting– difficulty in identifying customer needs– potential problems with local distributors– selecting the local distributor, how to split the

profits with the local firm, differences in motivation, and time horizon

– logistical considerations (costs of warehousing, transport, distribution, longer supply lines, difficulties in communication)


Business Model & Strategy Development Check List Summary (see handout)

1. The Initial Mission & Objectives

2. Internal Audit & Review of the Company

3. External Audit & Review of the Business Environment

4. Business Summary based on analysis

5. Fine Tuning Objectives

6. Business Strategies to Achieve the Objectives

7. Implementation of the Business Strategies

mex accel program bus models.ppt

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business model strategies

bad business model

basic business model

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venture failures lack

successful models

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