Mex Accel Program Bus Models_F

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 Objectives &

Processes

Inputs from

Company

Strategic Outputs from Company to Key Management

Inputs from Environment

Outputs from Company to Market and Customers

$$$$$$


Business Model Failures

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

•Osborne Computers

• NTT-DoCoMo iMode USA

• (Safeways Grocer) Generic Beer

•Net-Zero, Inc. ??

• 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

• Lack of Focus• Lack of Management Expertise• Product/Market Problems• Financial Difficulties

All symptoms of a bad or no business model


First-Year Problems for International Ventures

1. Obtaining external financing2. Internal financial management3. Sales/marketing4. Product development5. Production/operations management6. General management7. Human resource management8. Economic environment9. Regulatory environment

Results of Not thinking through having the right business model


External Problems Experienced by International Entrepreneurs

Expansion5.5%

Market Knowledge19.3%

Customer Contact27.3%Competitors

6.3%

Market Planning14.4%

Product Issues7.6%

Location11.1%

Pricing8.4%


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• Product Availability• Customer Availability


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

Model

The Organization

Model

The Customer Service Model

The Financial Model

The Product Model

• Fry’s Electronics

• Wal-Mart

• Tiffany’s

• Cable TV

• Citibank

• Cisco Systems

• Microsoft

• Warner Bros.

• Mercedes & Porsche Dealerships

• Gucci’s, Neiman Marcus


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.


Products & Services Internationalization

• Value Chain Analysis• Understanding New USA Market Requirements• Tuning Product / Service for USA Markets and

International CompetitionGlobalization Cost

Repackaging &Engineering

Testing

Translation

Project Management


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.








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


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!


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?


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……


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 ?…..


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


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?


CORE COMPETENCIES & COMPETENCE GAPS

Strategy Environment

Key Success FactorsCore Competencies

Competency Gap

Internal Development Acquisition Strategic Alliance

© by Geringer, Frayne & Associates, Inc.


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 2 Business 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.


Early Stage Companies AssessmentMarket Size

Competitive Position

Business Model

Cashflow

Strength of Management

IP & Product Development

Channel Alliances

Customer Acquisition

SEEDABCD

- PwC Paths to Valuation

1 2 3 4


Types of Strategy


Corporate Culture


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 USA Markets

• Whether to become an international company?• What objectives to set for the USA Markets?• 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


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 competitors2. Entry barriers3. Customer power4. Supplier power5. 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








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

Documents

Mex Accel Program Bus Models_F