Entr Test 2
(Micro Market) 3 ways to define a market segment
By who the customers are (age, gender, education) By where the customers are (geographic location) By how the customers behave (what are their habits? are they health conscious? are they athletes or couch potatoes?)
(Macro Market) Macro level market trends are critical for determining the long term growth potential of your business. Here are 3 important questions that you should ask yourself:
Is the market large enough to allow many competitors the opportunity to serve different segments without getting in each others way? What are the predictions for your market's short term growth rate? What are the predictions for your market's long term growth rate?
(What to do before you write a business plan) Mullins suggest 4 common flaws in business plans that fail to raise capital. Flaw 2:
The persuasive nature of business plans, with its main purpose often being to raise money, forces their proponent entrepreneurs into the "everything about my opportunity is wonderful" mode
(What to do before you write a business plan) Mullins suggest 4 common flaws in business plans that fail to raise capital. Flaw 4:
There is an abundance of uncertainty in most entrepreneurial opportunities even after you have to put time and effort into a rigorous seven domain analysis. And that uncertainty may be too high to attract investors during early stages of development, before the business has developed any track record of potential and/or success.
(Macro Industry) Industries do not remain constant.
They vary in attractiveness over time.
(Putting the 7 domains to work) Mullins points out 5 common traps. Trap 5: the hubris trap:
This relates to the overconfidence of entrepreneurs who have experienced past success. For example, what Louis Borders learned through his success creating Borders Books did not translate into his starting of Webvan (the online grocery delivery service). In fact, his past experience actually may have gotten in the way - by trying to apply principles from one industry toward another industry, which did not operate by the same set of rules.
(Macro Industry) There are 5 macro level factors that should be used to assess your industry (Porter's 5 Forces). UNDERSTAND THESE
Threat of Entry Supplier Power Buyer Power Threat of Substitutes Competitive Rivalry
(Team Domain: Ability to execute on critical success factors) To help identify your industries CSFs, it may be helpful to ask the following 2 questions:
Which few activities are the ones that, if gone wrong, will almost always have severely negative effects on company performance? Which decisions or activities, done right, will almost always deliver disproportionately positive effects on performance?
(Micro Industry) A patent is not very useful if...
a competitor can develop a different product or service that is a cheaper and/or more effective alternative to yours.
(Team Domain: connectedness up, down, and across the value chain) It is important to recognize trends or changes in the marketplace that your company can take advantage of. In order to do so, it is helpful to have...
a wide array of contacts within your industry who can help you spot such trends.
(Team Domain: Ability to execute on critical success factors) Entrepreneurs must be able to identify the critical success factors within their industry,...
and assemble a team that can execute on these factors.
(Team Domain: connectedness up, down, and across the value chain) When your sales increase, it is good to know if they are doing so because you are...
gaining market share or if you are simply benefiting from a tide that floats all boats. The same is true when sales are soft. Having good contacts across your industry can help you to evaluate the nature of your current sales position.
(Micro Market) It is also important to determine the...
growth potential in the market for your idea. Does it have legs? To answer this question, you need to consider the size of your target market and how fast it is growing.
(Micro Industry) Even in unattractive industries, firms can be successful if they...
have developed a sustainable competitive advantage.
(Putting the 7 domains to work) Mullins points out 5 common traps. Trap 1: the large market fallacy:
large markets that are growing fast are likely to attract lots of other competitors, often large companies with lots of resources. Further, such markets often have low barriers to entry, making it difficult to compete. It may instead be better to pursue a large part of a smaller market than to go after a small part of a large market.
(Team Domain: Ability to execute on critical success factors) The case of Palm is a good example of not trying to do too much. Instead it often pays off to keep things simple...
offer a product or service that fills a specific need, and focus on developing processes that ensure quality.
(Micro Market) Even though a market may appear ripe for new ventures to enter, it seldom...
pays off to launch a startup too hastily just to have first mover advantage, If you are not well-prepared, later entrants who are better prepared will quickly overtake your business.
(Team Domain: Ability to execute on critical success factors) As shown in the contrasting successes of Palm and Schwinn,...
recruiting and maintaining experienced executives who can execute is often critical to success.
(Micro Market) Next, it is important to determine if the solutions you have to offer are in some way...
superior to what already exists in the marketplace.
(Team Domain: Mission, Aspirations, Propensity for Risk) Once you accept venture capital...
the business is no longer truly yours.
(Micro Industry) Knowledge gained from experience and success in one industry can sometimes blind entrepreneurs to important differences within other industries. For example,
the experience of Louis Borders in the book retail industry led him to believe that firms who build the largest and most sophisticated physical infrastructure will develop a competitive advantage within the dot.com or e-commerce marketplace. Instead, eBay demonstrated that those who could develop viable businesses with minimal physical infrastructure and maintain high gross margins would be the most successful.
(Putting the 7 domains to work) Mullins points out 5 common traps. Trap 3: the no sustainable business model trap:
the relationship between target segment benefits and attractiveness (i.e. micro market) and sustainable advantage (i.e. micro industry) must be viable. This is to say that you must have an economically viable business model for fulfilling the customer's needs.
(Team Domain: Mission, Aspirations, Propensity for Risk) Venture capitalist likely won't take the risk of investing unless...
they see that you are willing to bear a certain level of personal risk within your own business.
(Team Domain: connectedness up, down, and across the value chain) It is important to have connections DOWN the value chain...
to potential customers in target markets that you might eventually serve in addition to the markets you plan to target at the outset.
(Team Domain: connectedness up, down, and across the value chain) It is important to have connections UP the value chain...
to suppliers who deal with the leaders of your industry and with firms in other industries that might offer products/services that are substitutes for the offering that you provide.
(Team Domain: Ability to execute on critical success factors) Again, in this chapter we see the importance of understanding customer needs. This is a key attribute for the leaders of the company -
to understand that customer tastes, needs, preferences, and so forth change over time and that all companies must be able to adapt in order to survive.
(Macro Market) One of the first things that should be done before starting a business is to decide...
what size business the founders' desire. For example, is the goal to run a small local business without any growth objectives or is it to eventually become a national or multi-national player in the marketplace? Without answering this question, it is difficult to evaluate what market trends mean for your business.
(Micro Industry) In order to determine whether a company is economically viable, the following questions should be considered:
will revenue be adequate in relation to the capital investment that is required? how much will it cost to attract and maintain customers? are gross margins sufficient to cover the necessary cost structure? are operating cash cycles favorable?
(Team Domain: Mission, Aspirations, Propensity for Risk) With respect to determine what level of risk that you are willing to bear. Some important questions to consider are:
will you risk a secure salary and the things that go along with your current employment, and if so - how long? will you risk losing control of your business? will you put your own money at risk? and if so, how much? will you risk your home or time with your family or loved ones? do those you love accept the risk you plan to take?
(Team Domain: connectedness up, down, and across the value chain) It is important to have connections ACROSS your industry...
with competitors and with firms from other industries that offer substitutes, so that you can gain some perspective to accurately gauge changes in market conditions.
(Team Domain: connectedness up, down, and across the value chain) By collecting information about trends from sources external to your firm,
you will be able to better evaluate whether making large scale changes related to your products. However, this doesn't mean simply collecting the information and then ignoring it as in the example of Digital Equipment Corporation. You must fully integrate the information as being important and useful.
(Team Domain: Mission, Aspirations, Propensity for Risk) There are 3 key elements that drive an entrepreneur's dream:
A mission that determines what kind of business to build or what kinds of markets to serve A set of personal aspirations that guides the level of achievement to be sought Some level of risk propensity that indicates what sort of risks are to be taken and what kind of sacrifices are to be made in pursuit of the dream
(What to do before you write a business plan) Mullins suggest 4 common flaws in business plans that fail to raise capital. To overcome these flaws, the author recommends following these 3 steps before writing a business plan:
Come up with an idea that you think might fly, one that solves genuine customer problems or needs Assess and shape your idea using the seven domains framework. Write a customer driven feasibility study - a memo to yourself - that lays out the conclusions you've reached from your data and analysis.
(Putting the 7 domains to work) Mullins points out 5 common traps. Trap 2: The better mousetrap fallacy:
Especially in technologically driven industries, entrepreneurs often try to capitalize on technology for its own sake. Doing so rather than asking what the technology can do that benefits some target segment of customer is a trap. Better technology - a better mousetrap - does not necessarily equal a better solution for the customer.
(Macro Market) It is important to measure market trends in as many different ways as possible.
For example, you may consider demographic, sociocultural, technological, regulatory, or other natural trends. Different trends may paint varying pictures of the landscape for your market. And some trends may be more relevant to your business than others. But it is important to get as detailed of an evaluation of your market as possible and consider how these different trends work together to tell as story of what the future of the market means for your business.
(Macro Industry) Before conduction an industry analysis, you must define your industry.
Here, especially for startups, it is important to have focus and control and not be too broad. However, it is also important not to be so narrow that you do not recognize other substitutes for your products or services.
(Team Domain: Mission, Aspirations, Propensity for Risk) In regard to defining personal aspirations, there are 3 things that founders need to consider:
How big they want the business to become in terms of sales, profits, number of employees, number of locations, and so forth What role they want in the organization, in terms of wanting to be a leader or a manager How long they want to remain involved in the organization
(Putting the 7 domains to work) Mullins points out 2 domains that can be deal breakers:
Micro Market: target segment benefits and attractiveness. If your opportunity does not provide a differentiated solution to a customer's pain - better, faster, or cheaper - forget it and move on to something else. Team Domain: Ability to execute of CSFs. The ability of you and your team to execute on CSFs. If you cannot deliver results there, then this opportunity is not for you.
(What to do before you write a business plan) Mullins suggest 4 common flaws in business plans that fail to raise capital. Flaw 3:
Most business plans are focused on the entrepreneurs, their idea, and why the idea is wonderful. They are "me focused" and "my idea focused", rather than "customer focused"
Good entrepreneurial ideas tend to come from the following:
Opportunities created by macro trends (whole foods) Opportunities found by living and experiencing the customer's problems (Nike) Opportunities created through scientific research (SmithKline Beecham's Zantac) Opportunities proven elsewhere that you can transform and adapt for the local context of where you hope to do business (Starbucks)
(Micro Industry) So how do firms develop a sustainable competitive advantage? The following factors can help:
Proprietary elements such a patents and trade secrets Superior organizational processes, capabilities, or resources that are difficult for others to duplicate or imitate An economically viable business model, in that they company will not run out of cash quickly.
(Putting the 7 domains to work) Mullins points out 5 common traps. Trap 4: the me-too trap:
The combination of high threat of entry (macro-level industry factor) and lack of sustainable advantage for new entrants ( a micro level industry factor) can cause a large number of competitors to pursue the same opportunity. Thus, the combination of low barriers to entry and lack of sustainable competitive advantage should be a red flag.
(Macro Market) Do not fall in love with your business idea!!!
The history of thinking machines is a vivid example of what can go wrong when blindly building a business around a cool product or service, without fully considering whether there is truly market demand.
(What to do before you write a business plan) Mullins suggest 4 common flaws in business plans that fail to raise capital. Flaw 1:
The opportunity is fundamentally flawed.
(Macro Industry) Fast growing markets can be very attractive to entrepreneurs, ...
but growth is not always an indicator of profitability. Don't forget that an entrepreneurial opportunity is one that enables you to make a financial profit.
(Micro Market) Perhaps the first thing that should be done when evaluating your business idea is to...
determine who your target customers are. What is their pain and what solutions do you offer to them?
(Macro Industry) A good industry is often more important than a good market, business idea, or management team...
e.g. the daily deals market has very positive characteristics in terms of overall size and growth, but the industry is not favorable for new businesses to enter due to high low barriers to entry and intense competitive rivalry.
(Micro Market) In addition, it is important to determine if there will be other avenues...
for growth available to you. For example, is it likely that entry into your target market will provide entry into other segments that you may want to consider in the future? And can you develop capabilities that are transferable from one segment to another?
