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
Macro
Level
Micro
Level
Target Segment Benefits and
Attractiveness
Source: New Business Road Test - John Mullins
The seven domains of Attractive Opportunities
Market Domains
Industry Domains
Market Attractiveness
Industry Attractiveness
Macro
Level
Micro
Level
Target Segment Benefits and
Attractiveness
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
Macro
Level
Team Domains
Micro
Level
Target Segment Benefits and
Attractiveness
Source: New Business Road Test - John Mullins
Sustainable Advantage
The seven domains of Attractive Opportunities
Macro
Level
Market Domains
Industry Domains
Market Attractiveness
Industry Attractiveness
Missions,
Aspirations,
Propensity for Risk
Team Domains
Micro
Level
Target Segment Benefits and
Attractiveness
Source: New Business Road Test - John Mullins
Sustainable Advantage
The seven domains of Attractive Opportunities
Macro
Level
Market Domains
Industry Domains
Market Attractiveness
Industry Attractiveness
Missions,
Aspirations,
Propensity for Risk
Ability to execute
on CSFs
Team Domains
Micro
Level
Target Segment Benefits and
Attractiveness
Source: New Business Road Test - John Mullins
Sustainable Advantage
The seven domains of Attractive Opportunities
Macro
Level
Market Domains
Industry Domains
Market Attractiveness
Industry Attractiveness
Missions,
Aspirations,
Propensity for Risk
Ability to execute
on CSFs
Team Domains
Micro
Level
Connectedness up and
down Value Chain
Target Segment Benefits and
Attractiveness
Source: New Business Road Test - John Mullins
Sustainable Advantage
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
Workforce
X6 (12% annual growth)
X2
• Productivity
Tons / employee
Tons / m2 construction
125 (av. of sector is 56)
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
Competitors
Substitute products
Clients
Industry
Barriers to entry
Suppliers
Competitors
Clients
McDonalds
Henkel
United Biscuits
Bongrain
Rianxeira
Substitute products
Industry
Barriers to entry
Suppliers
Competitors
Stora-Enso
International Paper
Mayr-Melnhof
Clients
McDonalds
Henkel
United Biscuits
Bongrain
Rianxeira
Substitute products
Industry
Barriers to entry
Suppliers
Competitors
Stora-Enso
International Paper
Mayr-Melnhof
Clients
McDonalds
Henkel
United Biscuits
Bongrain
Rianxeira
Substitute products
Micro-flute (Micro-corrugated)
Flexible packaging
Industry
Low
Barriers to entry
Suppliers
Competitors
Stora-Enso
International Paper
Mayr-Melnhof
Clients
McDonalds
Henkel
United Biscuits
Bongrain
Rianxeira
Substitute products
Micro-flute(Micro-corrugated)
Carton Flexible packaging
Industry
Low
Barriers to entry
Suppliers
Stora-Enso
International Paper
Mayr-Melnhof
932 Competitors in
Europe (150 in
Spain)
1100 production
plants
Substitute products
Micro-flute(Micro-corrugated)
Carton Flexible packaging
Clients
McDonalds
Henkel
United Biscuits
Bongrain
Rianxeira
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
Macro
level
Low growth
++
The case of M
Market domains
Large market
Macro
level
Low growth
++
+++
Macro
level
Well defined segments
Clear purchasing intention
The case of M
Market domains
Large market
Macro
level
Industry domains
Unattractive industry
Low growth
++
+++
Macro
level
Well defined segments
Clear purchasing intention
---
The case of M
Market domains
Industry domains
Large market
Macro
level
Unattractive industry
Low growth
++
Team Domain
+++
-----
Macro
level
Well defined segments
Clear purchasing intention
Advantage difficult to sustain
The case of M
Market domains
Industry domains
Large market
Macro
level
Unattractive industry
Low growth
--++
Team Domain
+++
-----
Macro
level
Well defined segments
Clear purchasing intention
Advantage difficult to sustain
The case of M
Market domains
Industry domains
Large market
Macro
level
Unattractive industry
Low growth
---
+-
++
Team Domain
+++
-----
Macro
level
Well defined segments
Clear purchasing intention
Advantage difficult to sustain
The case of M
Industry domains
Market domains
Large market
Macro
level
Unattractive industry
Low growth
---
+-
++
Team Domain
+++
Macro
-----
++
level
Well defined segments
Clear purchasing intention
Advantage difficult to sustain
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
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