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2009Opportunity Analysis

Team 6

Priya Bharbhari, Shen Ge,

Thiele


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Table of Contents

Executive Summary.........................................................................................................................2

Introduction......................................................................................................................................3

Business Overview...........................................................................................................................4

Industry Analysis.............................................................................................................................6

Porters Five Forces.....................................................................................................................6

Competitive Advantage...............................................................................................................7

Business Model................................................................................................................................8

Core Strategy...............................................................................................................................8

Strategic Resources......................................................................................................................9

Partnership Networks...................................................................................................................9

Customer Interface.....................................................................................................................10

Management Team.........................................................................................................................10

Licensed Professionals...............................................................................................................11

Experienced Management Consultants......................................................................................11

Value Chain - abridged..................................................................................................................12

Marketing Plan...........................................................................................................................12

Operations Plan..........................................................................................................................13Financial Plan............................................................................................................................13

Critical Risks..................................................................................................................................15

Conclusion.....................................................................................................................................15

Appendix........................................................................................................................................16

References......................................................................................................................................18

EXECUTIVE SUMMARY

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In a growing market with more than six million new businesses started in 2008, our

management and legal consulting firm will target the growing and underserved small business

market, primarily those companies needing to diversify risk by lowering consulting costs and by

requiring payment based on future cash flows.

In addition to new venture growth in the United States, we see significant industry

growth in the consulting industry as well. Economic trends typically lead to acquisitions of small

firms by major firms such as Deloitte and Accenture. However, a differentiated strategy for our

firm with a focus on small start-ups will enable us to create value in the market and maintain

profitability.

Our core operational strategies not currently utilized within the general consulting

industry are: to utilize diversified professionals to create service economies of scope, to use

innovative technology to standardize client business plans to create efficiencies when working

with third-party contract consultants, and to utilize sophisticated methods of deferred payments

based on future cash flows. These services are not necessarily unique individually, but offered

together within the same firm creates unique value with a competitive advantage.

Additional competitive advantage and sustained feasibility can be obtained by

maintaining a proven track record over time. Superior brand recognition can create demand in

the banking and investment market. We anticipate that eventually investors will request a start-

up to utilize our services to increase the likelihood of success and reduce financial risk or loan

default.

INTRODUCTION

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During the first weeks of this course, our team focused on various opportunities that exist

within the management consulting industry. Our professional backgrounds and individual career

goals helped us think through potential opportunities in the marketplace that could (1) fulfill a

need in the market, (2) create value for the client, and (3) be profitable. We came up with three

attractive opportunities that we felt would create value and be profitable. These ideas were:

1. Small business legal consulting. With the known statistics of how many firmsface legal issues, or are simply unaware of the legalities of starting a business andmaintaining liability coverage, we believed this would be a viable business.

2. A Web site for rating small consulting firms. This would essentially providetransparency to the business world as to the value of a specific type of consulting.

3. Small business consulting with a diversified management team. This option isthe one we selected, and will be discussed in great detail within this report.

After conducting extensive research on the management consulting industry, we believe

that by creating value through a diversified management team, using innovation in our service

operations, and providing deferred payments to clients, our firm will create enough demand to

sustain us over time. With this specific combination of consulting services, our first-mover

advantage will build us strong name recognition.

BUSINESS OVERVIEW

In 2008, approximately 530,000 small businesses were created every month, representing

32% of the adult US population (Fairlie, P.1). Of these new ventures, many do not have the

financial resources to hire management and legal consultants to look over critical aspects of their

business policies and practices. Our consulting firm will create significant value by utilizing

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strategic alliances and efficient operations to minimize costs to our firm and to the client, as well

as mitigate risk for each party.

As addressed in the Introduction of this report, we will differentiate ourselves in three

distinct ways to add value in the market and remain profitable. These distinctions include

creating value through a diversified management team, using innovation in our service

operations, and providing deferred payments to clients.

Diversified Management Team.Benchmarking against a Wells Fargo Financial

Services business model, we believe that having both management consultants and licensed

professionals on the same consulting team will lower costs and promote an effective and efficient

flow of information.

Innovative Service Operations.Consulting firms compete on talent and cost. Utilizing

retired professionals that support entrepreneurial work will be critical to our success. Retired

professionals add value by lowering costs and by their ability to work under our financial model

of contractual payments based on the success of the business. Also, they bring new ideas to the

table and decades of experience.

To make it possible to work with retirees, our firm will create a software that will

standardize electronically a companys business plan. Since there is no one standard way to write

a business plan, our retirees would find it difficult without a standardization process to find and

analyze information that is relevant specifically to them. Our standardized software will enable

easy access to only pertinent information.

Deferred Payments.New ventures need access to good consulting advice and capital to

run the business. Since financial resources are oftentimes limited when starting a new business,

entrepreneurs must forego the needed consulting services. We have created a model that will

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categorize potential clients based on risk and cash flow potential, and enable us to contractually

defer payments based on sales revenues. This will differentiate us from the competitors by

mitigating the risk of the client and our firm.

INDUSTRY ANALYSIS

Much of our research focused specifically on the management consulting industry;

however, management consulting is too broad of an industry for our particular focus. In addition

to the research conducted using professional databases and reports illustrating current market

trends, financial projections, etc., we analyzed current service trends of competing firms,

particularly those companies that work on the early stages of business development. Please see

Table 1 in the appendix for a summary of our findings.

Management consulting industry growth has been fairly stable at about 2.3% over the

past five years. However, in 2009 there is expected to be a significant drop to .6%. The 2009

IBISWorld report shows that industry revenue, number of establishments, employees, and total

wages have all grown during the past five years. See Table 2 in the appendix.

Research conducted at Babson College shows that 59% of new business owners have

concerns relating to protection of the clients personal assets. This same study showed that only

9% of new entrepreneurs understand all of what the experts thought were relevant (Brown, et al.,

p. 276). Conclusions of this study explain that legal assistance early in the venture development

process may facilitate the entrepreneurs decision to abandon legally risky ventures before they

are underway (Brown, et al., p. 284).

PORTERS FIVE FORCES

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Porters Five Forces show that our consulting firm will face several obstacles to maintain

any advantage in the marketplace. Buyer and supplier power is irrelevant for the type of services

we are offering, but new entrants, substitutes, and rivalry are either high or moderate threats to

the firm.

There are very low barriers of entry in this industry, and we anticipate firms copying

successes from one firm to another. We do consider substitutes to be only a moderate threat at

this point of our business development because not many firms can substitute a deferred payment

consulting service with a paid service.

COMPETITIVE ADVANTAGE

Some companies such as Paragon Innovations specialize in turning a product idea into a

marketable product. They mainly focus on product development for already established

industries (www.paragon.com). They generate their revenue from established companies

outsourcing the engineering and marketing portion of a project to them. Others are focused on a

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much broader audience. For instance, quirky.com focuses on turning ordinary peoples ideas into

marketable products through an interactive online discussion and voting forum-type interface

(www.quirky.com). Their revenue comes from ordinary people paying $99 to submit ideas. In

return, the people get valuable feedback and analytics from professionals even if their ideas do

not go into the second stage of product development. As can be seen, there is a huge potential in

this industry considering the number of variations. The main differences between these

companies can be narrowed down to three essential aspects:

1. Target audience

2. Services provided

3. Necessary personnel

BUSINESS MODEL

CORE STRATEGY

Our Mission: To provide exceptional management and legal consulting to start-ups in

idea generation and growth and development phases of business.

Market Scope: Financial service providers are the largest customers for management

consulting. However, trade, manufacturing, technology, and telecommunications are the major

industries with high entrepreneurial activity. In spite of the economic downturn, there are rapid

changes in the technology and trade industry. According to 2002 census, the four largest firms in

US account for only 12.2 % of industry revenue. The 50 largest firms accounted for only 30.1%

of the overall revenue. We assume that many small business ventures cannot afford to go to these

big firms for high-level management consulting, so our target market will consist of small

entrepreneurial firms.

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Basis of Differentiation. We will create service economies of scope by unifying

management and licensed professionals on the same team. Payments will be based on future

cash flows of the company, which will mitigate risk and create demand for our services.

Also, we will contract retired professionals as consultants to lower costs for the client and

the firm.

STRATEGIC RESOURCES

PARTNERSHIP NETWORKS

Our firm will create a competitive advantage by leveraging our strategic

networks with retired professionals, bankers, and investors.

Retired Professionals. The majority of our actual consulting work will be performed

by third-party contractors consisting of retired business professionals. Many retired

professionals feel a void being out of the workforce. Our business model will enable them to

be actively involved with entrepreneurial work in the field they love. Most retirees will be

financially stable and able to work under contracts based on future cash flows. Finally,

retirees bring decades of relevant experience to the table with additional networks to

promote our success and sustainability.

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Bankers and Investors. We will continuously network with bankers and angel

investors to promote demand for our services. As we maintain success, local investors will

see how our services mitigate their risk. Eventually, bankers and investors will require that

certain clients use our services prior to making any financial investment.

CUSTOMER INTERFACE

Target customer. Our target customers are local, small start-up firms that have a

feasible idea and/or business model. Since we are focusing on local start-ups, much of our

client interface will initially be done in person. However, to reduce costs and accommodate

our model for hiring third-party contractors, much of the business plan analysis and other

consulting procedures will be performed virtually over the internet.

Fulfillment and support. As a services firm, fulfillment is specifically reflected by

our execution intelligence. As we network and market ourselves to the entrepreneurial

community, our services will create a demand that brings clients to us. Having licensed

professionals, such as attorneys and accountants, we can legally support our work and

stand by our services.

Pricing Structure. We will charge our fees in two parts: the upfront fee, which is based

on a risk profile and cash flow estimation, and then contractually defer payments over a period of

one to three years. See Financial Plan on page 13.

MANAGEMENT TEAM

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A diversified management team is critical to the success and value of the consulting firm.

We believe that having a licensed accountant, attorney, and financial advisor, as well as seasoned

management consultants, will enable our firm to compete at a higher level. The services of these

professionals in isolation is of no added value to a start-up since there is ample competition in

the marketplace, but teams of experienced professionals will create a unique value that will, in a

sense, create a bundling effect that will increase efficiencies with the flow of information, and in

turn lower costs for our clients and for our firm.

LICENSED PROFESSIONALS

Research conducted by Babson College shows that 44% of new businesses either alter or

completely abandon its business strategy because of a failure to understand legal issues relevant

to the business (Brown, et al., p. 273). The study also shows that the most prevalent concerns of

new business owners are issues related to asset protection and personal liability. These statistics

illustrate the value of having licensed professionals employed within the firm.

A licensed attorney on the consulting team will be extremely valuable. Many small

businesses will consult with an attorney when forming a business, creating contracts, or

conducting any legal matter; however, that attorney will likely not know the intricacies of the

business model and how to perform the legal work to maximize the benefits to the business

owner. Having an attorney on the consulting team will provide insight as to more personalized

advisement and service.

EXPERIENCED MANAGEMENT CONSULTANTS

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The experience of the management consultants will provide a means to both innovate and

execute valuable service to small businesses. Our licensed professionals will have detailed

responsibilities for our clients, but our management consultants will essentially be the glue that

holds the organization together.

Our management consultants will be valuable by not only providing valuable insight in to

the needs of the clients, but also by managing our contracted consultants, or retirees. Their

responsibilities will include recruitment, contract negotiations, fee allocations, and all other

administrative tasks relating to job completion and follow-up.

VALUE CHAIN - ABRIDGED

MARKETING PLAN

We believe that our experienced consulting team, including both legal and management

consultants, coupled with our cash flow model will create sufficient demand to minimize our

dependence on advertising for client acquisition. However, starting out will require strategic

efforts to build credibility and name recognition. In the early stages of initial client acquisition,

we plan to utilize credible, high traffic advertising tactics such as Entrepreneur.com, geographic

support groups including the Chamber of Commerce, and small business clubs or university

entrepreneurship centers.

After our initial success of operating near capacity, we will rely primarily on word-of-

mouth and basic internet advertising. We know that entrepreneurs know other entrepreneurs, and

are likely to share these consulting experiences amongst each other. Also, a financial network of

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angel investors and banks could create a demand for our services prior to full commitment for

financial investment.

OPERATIONS PLAN

The internal flow of information is crucial to lowering costs and promoting effective

operating procedures. We are bringing in house a diverse team of professionals for this

very reason. A unified group of accountants, lawyers, management consultants, etc.,

will enable clear understanding of goals and expectations.

Since the work performed is very dynamic in nature, there will not be a single

operating plan that we implement with every client. However, presumably everyone on our

team will look over the initial project, and have the work flow through various stages in the

process, while some tasks will be handled simultaneously. It is critical for our lawyer to

look over the plan prior to any major advancement to make sure that the venture is legally

viable. Many issues may be caught by our lawyer that may limit the work to be done by

others on the team, or even cause the client to transform his or her business model.

Other key operating factors include the location where we will establish our

services and the means of acquiring clients in that area and methods of communicating

with the client. Technology will be critical to promote operational efficiencies since

work will be done virtually in many cases.

FINANCIAL PLAN

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Our financial model is the backbone of our entire business plan. We believe that the

ultimate needs of the start-ups we will be targeting are confidence in expected revenues, and

having someone to bear the risks associated with obtaining those revenues. We have created a

model that will enable our firm to meet our clients needs by absorbing only a manageable

amount of risk.

The most effective way to gain the confidence of a potential client and to maintain

attractive cash flows for our firm is to contractually base our revenue stream on the future cash

flows of our clients. To realistically manage our own costs and liquidity, we have created a

simple matrix that will mitigate risk by requiring clients to pay a certain portion of our fees up

front. This up-front fee will be determined by analyzing our risk associated with accepting that

client, and the attractiveness of the new venture. For example, a potential client with a moderate

risk factor of .4 and an attractiveness rating of .5 would owe a total up-front fee of 20% of the

estimated consulting cost. See Table 3 below.

Table 3. Example Up-front Fee Schedule

Client Risk AttractivenessRating

Total[Risk x (1-AR)]

Company A .1 .5 .05

Company B .4 .5 .2

Company C .7 .5 .35

All remaining costs related to a particular job will be collected on a one to three year

contract. Payments will be collected monthly utilizing standard accounting principles of when

revenues are realized by the client. Collection of payments will continue until the financial

obligation of the client has been met in present value terms. Our firm could also put each client

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under contract to take ownership of certain liquid assets in the form of collateral in the case of a

client terminating the business prior to fulfilling any financial obligations.

CRITICAL RISKS

According to an industry report, one of the critical risks of small consulting firms will be

the increased competition and growth of larger firms during periods of economic instability. The

2009 IBISWorld Industry Report states, The current economic downturn is likely to affect

smaller, boutique consultancies there will be a rash of acquisitions over the coming years

(IBISWorld, p. 15). As we see M&A in the consulting industry, there will be a transfer of ideas

and efficiencies that increase competition, which will likely include operating changes to match

our own specifically utilizing diversified professional teams and deferred payment options.

Since our focus is primarily on small start-up businesses, our risks will be mitigated

because economic instability creates an environment of new business growth. Although the

industry competition will be more intense, there will exist more needs and opportunities for the

services we provide.

Another major risk we face is the challenge of not being able to grow with the market.

Since our team comprises licensed professionals, we cannot simply bring on a new lawyer

without having a substantial need. The risk of growing too fast will affect our firm by either

lowering our margins when we bring on a new licensed professional, or by overworking certain

employees.

CONCLUSION

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The management consulting industry is highly volatile. Current economic trends and

statistics reflect the need for business consulting; however, the need is being rapidly met. Small

consulting firms in particular are going to experience the challenges that come to the industry,

often leading to many M&As with larger firms acquiring smaller firms. The challenges are

especially prominent during an economic recession.

Yet, with this expected volatility comes an opportunity for small firms to innovate and set

themselves apart from the competition. Our firm has created a business model with innovative

operations that will promote success in the industry. We do anticipate our procedures to be

copied by other firms, but we also believe that having somewhat of a first-mover advantage with

this model will create brand awareness and competitive sustainability.

APPENDIX

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TABLE 1 - COMPETITIVE ADVANTAGE SUMMARY

COMPANY TARGET SERVICES PERSONNEL

Paragon Innovations Companies desiringnew product ideas ordevelopment

-Product development-Marketing

-Engineers-Marketingconsultants

Research Valley

Innovation Center

Science andtechnology startups

-Advisory services-Service/fundingprovider network-Physical incubatorspace

-Accountants-Attorneys-Entrepreneurs-Financial Advisers-Professors

Joy de Vivre Inc. Individuals -Public exposure andreview-Crowdsource to

provide capital.-New products (tointerested parties)

-Software engineers

InventBay Individuals -Public exposure andreview-Advisory services-Service/fundingprovider network

-Attorneys-Entrepreneurs-External consultants-Software engineers

Quirky Individuals -Public exposure andreview-Advisory services

-Service/fundingprovider network

-Software engineers-External consultants

Haywood Consulting

Group

Small startups -Business plan-Financial modeling-Marketing plan-Legal affairs-Website design-Negotiation support-Board support

-Accountants-Entrepreneurs(predominately Mr.Haywood)-Financial advisers-Legal advisers

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Table 2 Real Management Consulting Industry Growth (IBISWorld, p. 5)

REFERENCES

September 2009.How to Start a ConsultingBusiness. (n.d.) Retrieved September 23, 2009, fromhttp://www.entrepreneur.com/startingabusiness/businessideas/startupkits/article41384.html

Brown, C., Colborne, C., McMullan, W. (1988).Legal Issues in New Venture Development.

Journal of Business Venturing, Elsevier, vol. 3(4), pages 273-286.

Fairlie, R. (2009).Kauffman Index of Entrepreneurial Activity. The Kauffman Foundation.Retrieved November 2, 2009, from www.kauffman.org

Haywood Consulting Group. < http://www.haywoodconsultinggroup.com> 2009. 29 Oct 2009.

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IBISWorld. (2009, March 26).Management Consulting in the US: 54161,Industry report.Retrieved September 15, 2009 from the IBISWorld database.

InventBay. 2009. 29 Oct 2009.

Joy de vivre, inc. < http://www.joydevivre.org> 2009. 29 Oct 2009.

Paragon Innovations. < http://www.paragoninnovations.com> 2009. 29 Oct 2009.

Quirky. 2009. 29 Oct 2009.

Research Valley Innovation Center. 2009. 29 Oct 2009.

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