Opportunity Evaluation
And
Different frameworks
Systematic screening – Why?
• Most businesses fail in less than two years
• Fewer than 1% of the business plans submitted
to VCs get funded
• Business failures lead to huge “collateral
damages”
• Failures are planned by lack of planning
Mullins 7 Domain Framework
Mullins 7 Domain Framework
• Markets and industries are not the same
things
• Both macro-and micro level considerations
are necessary: markets and industries
must be examined at both levels.
• The keys to assessing entrepreneurs and
entrepreneurial teams aren’t simply found
on their resumes or in assessments of
their entrepreneurial character.
What do we mean by market?
• A market consists of a group of current and/or potential
customers having the willingness and ability to buy
products - goods or services - to satisfy a particular class
of wants or needs. Thus, markets consist of buyers people or organizations and their needs - not products.
Example: One such market, for example, consists of businesspeople
who get hungry between meals during their workday. We'll call this
the market for workplace snacks.
“ markets consist of buyers, not products ”
What do we mean by industry?
• An industry consists of sellers - typically organizations - that offer
products or classes of products that are similar and close substitutes
for one another.
Example: What industries serve the market for workplace snacks?
At the producer level, there is the salty snack industry, the candy
industry and the fresh produce industry, to name but three. There
are also industries providing the distribution of these products to
workplaces, including the supermarket industry, the restaurant
industry, the coin operated vending machine industry, the coffee bar
industry and so on. Clearly, these industries offer varying bundles of
benefits to hungry workers. Some of these industries are more
attractive than others to would-be entrants seeking to serve the
workplace snack market.
“ an industry consists of sellers ”
Market, Industry - why care
about the difference?
• Why is the market-industry distinction important? Because
judgments about the attractiveness of the market one proposes to
serve may be very different from judgments about the industry in
which one would compete.
• This should not be - but often is - surprising, for the questions asked
to assess market attractiveness are different from those for industry
attractiveness, a point easily obscured when words like 'sector' and
'space' are used indiscriminately or carelessly in the opportunity
assessment process. (Does the user of these terms mean 'market'
or 'industry'?)
• So, if market and industry attractiveness are both important, how
should each be assessed?
Mullins 7 Domain Framework
1.Micro Level Market Assessment
a) Micro level questions about target
markets
b) Three ways to define market segments
c) Micro market test
Mullins 7 Domain Framework
1.Micro Level Market Assessment
a) Micro level questions about target markets
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•
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Is there a target market segment in which we offer the
customer clear and compelling benefits, at a price he
or she is willing to pay?
Are these benefits, in the customer’s minds, different
from and superior in some way –to what’s currently
offered by other solutions?
How large is this segment, and how fast is it growing?
Mullins 7 Domain Framework
1.Micro Level Market Assessment
b) Three ways to define market segments
1. Demography
2. Geography
3. Customer Behavior
Mullins 7 Domain Framework
1.Micro Level Market Assessment
c) Micro market test
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•
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What customer pain will your offering resolve?
Will customers buy what you propose to offer?
Who precisely are the customers?
Do you have detailed accurate information about who
they are, where they live or do business or what they
do?
Are there other segments that could benefit from a
related offering?
Mullins 7 Domain Framework
2. Macro level Market assessment
Macro Market Test
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•
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•
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What sort of business is sought?
How large is the market?
How fast can it grow?
How quickly can it grow in the next 6 months or
2/3/5 years?
What trends can be identified and how will it affect
the business?
Mullins 7 Domain Framework
3. Macro level Industry assessment
a) Porter’s Five forces analysis
b) The macro industry test
Mullins 7 Domain Framework
3. Macro level Industry assessment
a)
Five macro level questions to assess the industry
based on
Michael Porter’s five forces Threat of Entry, Supplier power,
Buyer power, Threat to substitutes, Competitive Rivalry
Mullins 7 Domain Framework
3. Macro level industry assessment
b) Macro Industry Test
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•
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What industry will you compete in? Define it carefully.
Based on all five forces, what is your overall
assessment of this industry? Just how attractive or
unattractive is it?
If your industry is a poor performer overall, are there
persuasive reasons why you will fare differently?
Mullins 7 Domain Framework
4. Micro level industry assessment
The Micro industry test:
•
Do you require proprietary elements - patents, trade
secrets and so on – that other firms cannot likely
duplicate or imitate?
•
Can your business develop and employ superior
organizational processes, capabilities or resources that
others would have difficulty in duplicating or imitating?
•
Is your business model economically viable i.e. can
you show that your company won’t run out of cash
quickly?
Mullins 7 Domain Framework
5. Mission, Aspiration and Risk test
for entrepreneurs
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What’s your entrepreneurial mission?
What level of aspirations do you have for your
entrepreneurial dream?
What sorts of risk are you and are you not willing
to take ?
Mullins 7 Domain Framework
5. Mission, Aspiration and Risk test for
entrepreneurs
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•
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What’s your entrepreneurial mission?
What level of aspirations do you have for your
entrepreneurial dream?
What sorts of risk are you and are you not willing
to take ?
Mullins 7 Domain Framework
6. “The can you and your team
execute?” test
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What are the few - only a handful, please – critical
success factors (CSFs) in your industry?
Can you demonstrate - in past deeds, not mere
words – that your team taken together can execute
on each and every one of these CSFs?
Have you identified which CSFs your team is not
well prepared to meet, for which you need help in
filling out your team?
Mullins 7 Domain Framework
7. The connectedness test
•
Who do you and your team know across the
value-chain among your customers,
suppliers, competitors and substitutes?