Post on 20-Aug-2015
TechBA Hiram Willis 1
Creating the Business Model for Early Stage International Companies
-Hiram Willis
Director Venture Capital Resources
TechBA Hiram Willis 2
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
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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
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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
• $$$ Can not fix a Bad Business Model
• More importantly disagreement on Where & How to Make Money
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Why New Ventures Fail
• Product/Market Problems
• Financial Difficulties
• Managerial Problems
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Types and Classes of First-Year Problems1. Obtaining external financing
2. Internal financial management
3. Sales/marketing
4. Product development
5. Production/operations management
6. General management
7. Human resource management
8. Economic environment
9. Regulatory environment
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External Problems Experienced by Entrepreneurs
Expansion5.5%
Market Knowledge19.3%
Customer Contact27.3%Competitors
6.3%
Market Planning14.4%
Product Issues7.6%
Location11.1%
Pricing8.4%
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External Problems Experienced by Entrepreneurs
Expansion5.5%
Market Knowledge19.3%
Customer Contact27.3%Competitors
6.3%
Market Planning14.4%
Product Issues7.6%
Location11.1%
Pricing8.4%
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Determinants of New-Venture Failures
Lack of mgt. skill
Poor mgt. strategy
Lack of capitalization
Lack of vision
Poor product design
Key personnelincompetent
Lack of mgt. skill
Poor mgt. strategy
Lack of capitalization
Poor external market conditions
Poor product design
Poor product timing
EntrepreneurEntrepreneur RankRank EntrepreneurEntrepreneur RankRank
11
22
33
44
55
66
11
22
33
44
55
66
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Business Model Successes
• Food – Gatorade (Sports Drink)
• Communications Airespace (WiFi)
• Medical – Incyte (or WedMD)
• IT - Google
• Software - BEA
• Things They All Had in Common
• $$$ Amplified the Business Model
• Management & employees Know How the company Makes Money
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Critical Factors for New-Venture Development
• Uniqueness
• Investment
• Sales Growth– Lifestyle ventures– Small profitable ventures– High-growth ventures
• Product Availability
• Customer Availability
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Sources of Venture Opportunities
• Demographic trends
• Social trends
• Technological trends
• Business trends
• Launchpad jobs
• Moonlighting
• Invention related
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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
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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
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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
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CORE COMPETENCIES & COMPETENCE GAPS
Strategy Environment
Key Success FactorsCore Competencies
Competency Gap
Internal Development Acquisition Strategic Alliance
© by Geringer, Frayne & Associates, Inc.
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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
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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
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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
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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
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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……
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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
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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 ?…..
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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
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-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
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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?
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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
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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
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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.
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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.
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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.
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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?
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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!
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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.
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WHICH PRODUCTS/ACTIVITIES TO INTERNATIONALIZE?
• Value chain/business system analysis
• How can entry configuration yield competitive advantage?– Versus single-nation competition– Versus multinational competitors
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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.
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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.
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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?
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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.
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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
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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?
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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
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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
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1. Exporting
2. International licensing
3. International franchising
4. Specialized entry modes
5. Foreign direct investment (FDI)
6. Joint ventures
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Segmenting the market
• Attractiveness criteria(distinct, size, measurable, stable, identifiable)
• Bases for segmentation(products, groups, benefits, sensitivity to
marketing, cost differences)
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Market attractiveness factors
1. Rivalry among direct competitors
2. Entry barriers
3. Customer power
4. Supplier power
5. Indirect substitutes
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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?
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Pioneer or Follower?
• Critique of past research
• Advantages of Pioneers
• Advantages of Followers
• “Early Leaders”
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Go for Gold? Settle for Bronze?
• “No failure like success?”
• “Wheel of retailing”
• Strategic innovation/Disruptive innovation
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Discontinuous Innovations
What is a discontinuous innovation?
Limits of conventional marketing research.
Probe, Learn, Iterate
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CHOOSING A MODE OF ENTRY: DUNNING’S ECLECTIC THEORY
• Ownership advantages
• Location advantages
• Internalization advantages
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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)
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external licensing equity joint wholly owned
market venture subsidiary__________________________________________low control <---------------------------> high controllow resource cost high resource cost
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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
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• 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)
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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
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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