Market entry strategy - presenter deck

(cc) BY NC SA, Rodrigo A. SEPULVEDA SCHULZ – www.rodrigosepulveda.com

Founder Institute – March 8th, 2011

Pix (cc) BY NC SA, Rodrigo SEPÚLVEDA


Summary

Why is it important ?

Understand your market type

How do you estimate it ?

Design a market entry strategy


1. Why is it important ?

Gives you A potential target for your revenue (therefore also EBIT) A valuation Assessment of market players, hence your competition


Potential target revenue

• Let’s say your market is $1b

• Everyone wants/says a 1% market-share

• That means you’re targeting $1b x 1% = $10m of revenues

• Impact:– You’re a tiny fish in a pond with 99% revenue elsewhere.

• No barrier to entry (there are other players)• Competitive edge is key (geography, product, customers…)

– Only 2 ways to grow• Grow the market size (either by yourself, or the market grows as a

whole)• Grow your market-share


Potential valuation / fundraising

VCs are only interested in risk-controlled returns, usually in 5 years.

Hence we need to estimate your valuation in 5 years.

Usually 3 techniques: Multiples (turnover, EBIT, …) DCF (for going-concerns, not startups) Open market (early stage, or if Ricardian rent)


Multiples

Former French tech stock market Alternext used to trade with these multiples on average for tech companies: 2,2x turnover 23x EBIT

Maybe your industry has different metrics

From original example: Your valuation is $10m x 2,2 = $22m


DCF

Note : Let’s assume here the currency is irrelevant


VC’s share• Valuation bracket at exit = [$ 21,8-22,0m]

• If series A of $1,5m for 30% equity

• Then VC’s value at exit is– $22m x 30% = $6,6m

• That’s a cash-on-cash return of :– 6,6 / 1,5 = 4,4x (excluding tax impact)

• GREAT, but that’s only $5,1m made for the VC in 5 years (too small !)– cost of opportunity is too high

• Nota: if you’re financing the company alone, then it’s a different story : $22m-$1,5m financing = $20,5m profit in 5 years = $4m/year


Advice you’ve already heard:

• Problem: – either target market is too small, – or target market-share is too small, – or profit is too small, – or asset created is too small, – or there are too many competitors.

• Target a BIG MARKET

• Aim to be the #1 in your (BIG) market


2. Understand your market type

3 options An existing market A market that doesn’t exist yet An mature market : an opportunity to re-shape it


Examples of entering an existing market

• Richard Branson and all Virgin brands in air travel, finance, rail

• Steve Jobs and Apple : telephony, music, personal computers, feature software

• Bill Gates on OS, office software, gaming, etc.

• Mark Zuckerberg (facebook) : social networks, the Internet

• Google : Android

• @jack with Square: payments

• Innovation and a differentiating factor are key


A market that doesn’t exist yet

• Tons on literature on this

• Very risky, because – No available numbers– No guarantee you’ll find a market– But maybe best way to reach #1 position, globally,

because • you know something competition doesn’t know yet :

1st mover advantage• You define the rules


Sample new markets

Classic examples : Walkman Post-its Netbooks, then tablets

Space travel

Twitter (?)


A word of advice about innovation

Feature company

Product company

Solution company

Nice-to-have

Got-to have


A mature market

#1 or #2 strategy

Not enough: redefine your market as 10% max of revenue


3. How do you estimate your market size?

Many different techniques: Guesstimate (à la McKinsey) Published numbers (always a bracket) Sum of all players in a market


guesstimate

http://shop.wetfeet.com/Browse/Ace-Your-Case/asd-%281%29.aspx


Existing markets

Press articles

Competitor’s literature (presentations, website, financial statements)

Industry publications

Research institutes (IDC, Forrester, eMarketer, comscore, etc.) < beware though

SlideShare is great !


http://www.comscore.com/Press_Events/Press_Releases/2010/3/comScore_Reports_January_2010_U.S._Mobile_Subscriber_Market_Share


Sum of all players

Hard not to compare oranges and apples

Take only direct competitors

Gives you a current picture, not a projected one


4. Market entry strategy (in a nutshell)

4C :-Customer-Company (SWOT)-Competition-Community (PEST)

4P:-Product-Price-Place-Promotion

Positioning:We sell THIS PRODUCTTo THIS CUSTOMERAt THIS PRICETo solve THIS PROBLEM

PnL


How big is your market ?Reality check #1


What problem are you solving ?Reality check #2


Why will someone PAY for your product ?

Reality check #3


1 strategy is NOT enough

You need to assess different scenarii

4C 4P POS P&L

4C’ 4P’ POS’ P&L’

4C” 4P” POS” P&L”

4C’” 4P’” POS’” P&L’”


What you end up doing depends both on your RISK profile and SWOT

X Pos”

X Pos’

X Pos’”

X Pos

Return(m€)

Risk(wacc)

10% 20% 30% 40%


Summary : entering a market

Why is it important ?

Understand your market type

How do you estimate it ?

Design a market entry strategy


www.rodrigosepulveda.com twitter: @rodrigo

www.slideshare.com/rodrigo1971

Pix (cc) BY NC SA, Rodrigo SEPÚLVEDA

Market entry strategy - presenter deck

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