evaluating entrepreneurial opportunities rama velamuri entrepreneurship club presentation september...
TRANSCRIPT
Evaluating Entrepreneurial Opportunities
Rama Velamuri
Entrepreneurship Club Presentation
September 27, 2004
The seven domains of Attractive Opportunities
Market Domains
Market Attractiveness
Source: New Business Road Test - John Mullins
The seven domains of Attractive Opportunities
Market Domains
Market Attractiveness
Target Segment Benefits and Attractiveness
Macro Level
Micro Level
Source: New Business Road Test - John Mullins
The seven domains of Attractive Opportunities
Market Domains Industry Domains
Market Attractiveness Industry Attractiveness
Target Segment Benefits and Attractiveness
Macro Level
Micro Level
Source: New Business Road Test - John Mullins
The seven domains of Attractive Opportunities
Market Domains Industry Domains
Market Attractiveness Industry Attractiveness
Target Segment Benefits and Attractiveness Sustainable Advantage
Macro Level
Micro Level
Source: New Business Road Test - John Mullins
The seven domains of Attractive Opportunities
Market Domains Industry Domains
Market Attractiveness Industry Attractiveness
Target Segment Benefits and Attractiveness Sustainable Advantage
Macro Level
Micro Level
Team Domains
Source: New Business Road Test - John Mullins
The seven domains of Attractive Opportunities
Market Domains Industry Domains
Market Attractiveness Industry Attractiveness
Target Segment Benefits and Attractiveness Sustainable Advantage
Macro Level
Micro Level
Missions, Aspirations,
Propensity for Risk
Team Domains
Source: New Business Road Test - John Mullins
The seven domains of Attractive Opportunities
Market Domains Industry Domains
Market Attractiveness Industry Attractiveness
Target Segment Benefits and Attractiveness Sustainable Advantage
Macro Level
Micro Level
Missions, Aspirations,
Propensity for RiskAbility to execute
on CSFs
Team Domains
Source: New Business Road Test - John Mullins
The seven domains of Attractive Opportunities
Market Domains Industry Domains
Market Attractiveness Industry Attractiveness
Target Segment Benefits and Attractiveness Sustainable Advantage
Macro Level
Micro Level
Missions, Aspirations,
Propensity for RiskAbility to execute
on CSFs
Connectedness up and down Value Chain
Team Domains
Source: New Business Road Test - John Mullins
A Real Case Study
“M is the best European company for packaging
solutions”
Manager of Danisco (one of the largest producers of ingredients for the food sector.)
A Real Case Study
• Supplies packaging materials made of cartonboard to producers of
Canned fish Confectionary Personal hygiene products
• Business of transforming cartonboard Design Printing Cutting Folding Pasting
A Real Case Study
• Revenues = 25 million Euros
• From 1989 onwards Billing X6 (12% annual growth) Workforce X2
• Productivity Tons / employee 125 (av. of sector is 56) Tons / m2 construction 2 (av. of sector 1)
A Real Case Study
• Very innovative firm
• Preferred supplier to MacDonald’s, United Biscuits, Henkel, Bongrain, Jealsa (Rianxeira) and others
• Three of the partners have each more than 30 years experience in the business
Innovative and customer centered
• McDonald’s and the Jurassic Park promotion
• Pallet height innovation
• Eliminating downtime
• Innovative technology strategy
A Real Case Study
• However, profitability is low
Ratio PBT to sales is between –10% y +6% Return on capital employed is low
• Why?
Market
Year 2000 = 3.23 million tonnes; 7 billion Euros
Growth 1995-2000 = 1.8% anual
Growth 2001 = -1.4%
Growth 2002 = 1%
Forecast 2003-2007 = 2.8% annual
Industry
Barriers to entry
Suppliers Clients
Substitute products
Competitors
Industry
Barriers to entry
Suppliers Clients
Substitute products
CompetitorsMcDonaldsHenkelUnited BiscuitsBongrainRianxeira
Industry
Barriers to entry
Suppliers Clients
Substitute products
CompetitorsMcDonaldsHenkelUnited BiscuitsBongrainRianxeira
Stora-EnsoInternational PaperMayr-Melnhof
Industry
Barriers to entry
Suppliers Clients
Substitute products
CompetitorsMcDonaldsHenkelUnited BiscuitsBongrainRianxeira
Stora-EnsoInternational PaperMayr-Melnhof
Micro-flute (Micro-corrugated) Flexible packaging
Industry
Barriers to entry
Suppliers Clients
Substitute products
CompetitorsMcDonaldsHenkelUnited BiscuitsBongrainRianxeira
Stora-EnsoInternational PaperMayr-Melnhof
Micro-flute(Micro-corrugated) Carton Flexible packaging
Low
Industry
Barriers to entry
Suppliers Clients
932 Competitors in Europe (150 in
Spain)
1100 production plants
McDonaldsHenkelUnited BiscuitsBongrainRianxeira
Stora-EnsoInternational PaperMayr-Melnhof
Low
Substitute productsMicro-flute(Micro-corrugated)
Carton Flexible packaging
According to Warren Buffet
“When a business with a reputation for poor fundamentals meets a management team
with a reputation for brilliance, it’s the reputation of the former that remains intact.”
Conclusion
• Innovative firm, well managed
• In a industry that is structurally unattractive
• Recommendation: If you are outside the industry, stay out
Conclusion
• What if you are inside?
• What if you’ve been in industry 30 years?
• What if you don’t know anything else?
• What do you do?
Conclusion
Source: European Carton Manufacturers’ Association
Conclusion
M could grow by acquiring capacity. But does it have the management team to take
care of multiple production sites?
The case of M
Market domains
Large market
Low growthMacro level
+ +
The case of M
Market domains
Large market
Low growthMacro level
+ +
Well defined segments
Clear purchasing intention
Macro
level
+ + +
The case of M
Market domains
Large market
Low growthMacro level
+ +
Well defined segments
Clear purchasing intention
Macro
level
+ + +
Industry domains
Unattractive industry
- - -
The case of M
Market domains
Large market
Low growthMacro level
+ +
Well defined segments
Clear purchasing intention
Macro
level
+ + +
Industry domains
Advantage difficult to sustain
Unattractive industry
- - -
- - - Team Domain
The case of M
Market domains
Large market
Low growthMacro level
+ +
Well defined segments
Clear purchasing intention
Macro
level
+ + +
Industry domains
Advantage difficult to sustain
Unattractive industry
- - -
- - - Team Domain
- - -
The case of M
Market domains
Large market
Low growthMacro level
+ +
Well defined segments
Clear purchasing intention
Macro
level
+ + +
Industry domains
Advantage difficult to sustain
Unattractive industry
- - -
- - - Team Domain
- - - + -
The case of M
Market domains
Large market
Low growthMacro level
+ +
Well defined segments
Clear purchasing intention
Macro
level
+ + +
Industry domains
Advantage difficult to sustain
Unattractive industry
- - -
- - - Team Domain
- - -
+ +
+ -
To summarize
You want large growing markets, but ... ... target segments must be clearly defined, and value proposition must be compelling You want structurally attractive industries, but ... competitive advantage must be sustainable There must be a fit between the characteristics of the business and the mission, aspirations, and risk taking capacity of the team Team must be capable of delivering on CSFs Team must have connectedness up and down the value chain