SESSION 4
WELCOME
OBJECTIVE
• This session is designed to impart
learnings on:
1. Industry & competitor analysis,
2. Developing an effective Business
model
Industry Analysis
Important
considerations
starting a new venture are:
before
1. Is this the right industry to start a
new venture?
2. Does the industry contain markets
that are ripe for innovation or are
underserved?
3. Are there positions in the industry
that will avoid some of the negative
attributes of the industry as a
whole?
Industry
Trends
• The two most important trends for
entrepreneurs to evaluate are
1. Environmental Trends
2. Business Trends:
The Five Forces Model
Michael
FIVE
forces
understanding
porter
model
the
designed
framework
structure
of
for
an
i n d u s t r y. T h e s e f o r c e s a r e :
1. The threat of substitute
2. The entry of new competitors
3. Rivalry among existing firms
4. The bargaining power of suppliers
5. The bargaining power of buyers
All
these
forces
have
direct
impact
average rate of return for the firm.
on
The FIVE
Forces Model
1. Threat
of
substitute: Industries are more
attractive when the threat of substitutes is
l o w. T h i s m e a n s t h a t p r o d u c t s o r s e r v i c e s
from other industries can’t easily serve as
substitutes for the products or services being
m a d e a n d s o l d i n t h e f o c a l f i r m ’ s i n d u s t r y.
2. Threat
of
new
Entrants:
Industries
are
more
attractive
when the
t h r e a t o f e n t r y i s l o w. T h i s m e a n s t h a t
c o m p e t i t o r s c a n n o t e a s i l y e n t e r t h e i n d u s t r y.
The six major sources of barriers to entry are:
a. Economics of scale
b. Product differentiation
c. Capital requirements
d. Cost advantage
e. Access to distribution channel
f. Government and legal barriers
The FIVE Forces Model
3. Rivalry among existing firms: In most
industries, the major determinant of industry
profitability is the level of competition among
t h e f i r m s a l r e a d y c o m p e t i n g i n t h e i n d u s t r y.
There are four primary factors that determine
the nature and intensity of the rivalry among
existing firms in an industry:
1. Number and balance of
competitors
2. Degree of difference between products
3. Growth rate of an industry
4. Level of fixed costs
The FIVE Forces Model
4.
Bargaining
Power
of
Supplie rs:
Industries are more attractive when the
bargaining power of suppliers is low. Several
factors have an impact on the ability of
suppliers to exert pressure on buyers and
suppress the profitability of the industries they
serve. These include the following:
1. Supplier concentration
2. Switching costs
3. Attractiveness of substitutes
4. Threat of forward integration
The FIVE forces Model
5.
Bargaining
pow er
of
buyers:
Industries are more attractive when the
bargaining power of buyers (a start-up’s
c u s t o m e r s ) i s l o w. S e v e r a l f a c t o r s a f f e c t
buyers’
ability
to
exert
pressure
on
suppliers and suppress the profitability of
t h e i n d u s t r i e s f r o m w h i c h t h e y b u y. T h e s e
include the following:
1. Buyer group concentration
2. Buyer ’s costs
3. Degree of
standardization
of
supplier ’s
4. Threat of backward integration
products
Industry Types
The five most prevalent industry types are:
• Emerging: An emerging industry is a new industry in
which standard operating procedures have yet to be
developed. The firm that pioneers or takes the
leadership of an emerging industry often captures a
first-mover advantage.
• Fragmented: A fragmented industry is one that is
characterized by many firms of approximately equal
size. The primary opportunity for start-ups in
fragmented industries is to consolidate the industry
and establish industry leadership because of doing so
• Mature: A mature industry is an industry that is
experiencing slow or no increase in demand, has
numerous repeat (rather than new) customers, and
has limited product innovation. Entrepreneurs introduce
new product innovations to mature industries
Industry Types
The five most prevalent
industry types are:
• Declining: A declining industry is an
industry that is experiencing a reduction
in demand. Typically, entrepreneurs
shy away from declining industries.
• Global: A global industry is an
industry that is experiencing significant
international sales. Many start-ups
enter global industries and from day
one try to appeal to international rather
than just domestic markets.
Competitor
Analysis
• After a firm has gained an understanding
of the industry and the target market in
which it plans to compete, the next step is
to complete a competitor analysis.
• A competitor analysis is a
analysis of a firm’s competition.
detailed
• It helps a firm understand the positions of
its
major
competitors
and
the
opportunities that are available to obtain a
competitive advantage in one or more
area
Competitor Analysis
• The steps of competitor analysis are:
1. Identifying competitor
a. Direct Competitor: Businesses offering identical or
similar products
b. Indirect competitor:
substitute products
Businesses
offering
close
c. Future Competitor: Businesses that are not yet
direct or indirect competitors but could be any
time.
2. Gathering competitive intelligence: The information that
is gathered by a firm to learn about its competitors is
referred to as competitive intelligence.
3. Preparing competitive analysis grid: A competitive
analysis grid is a tool for organizing the information a
firm collects about its competitors
BUSINESS
MODEL
BUSINESS MODEL
• A business model is a firm’s plan or diagram
for how it competes, uses its resources,
structures its relationships, interfaces with
customers, and creates value to sustain itself
based on the profits it earns.
• There is no standard business model, no hardand-fast rules that dictate how a firm in a
particular industry should compete.
• A firm’s business model is developed after the
feasibility analysis stage of launching a new
venture.
Traditional
vs. Innovative
Business
Model
VALUE CHAIN
• The value chain is the string of activities
that moves a product from the raw
material stage, through manufacturing
and distribution, and ultimately to the end
user.
• The value chain consists of primary
activities and support activities.
• The primary activities have to do with the
physical creation, sale, and service of a
product or a service, while the support
activities provide reinforcement for the
primary activities.
A business
model
consisting of
the following
components:
Components of
Business Model
Core strategy (how a firm
competes)
Strategic resources (how a firm
acquires and uses its resources)
Partnership network (how a firm
structures and nurtures its
partnerships)
Customer interface (how a firm
interfaces with its customers
Core Strategy
• The first component of a business model is the core strategy, which describes how a firm competes
relative to its competitors.
• Mission Statement: The primary elements of a core strategy are the firm’s mission statement,
the product/market scope, and the basis for differentiation. A firm’s mission statement,
describes why it exists and what its business model is supposed to accomplish.
• Product/Market Scope: A company’s product/market scope defines the products and markets
on which it will concentrate. The choice of product has an important impact on a firm’s
business model
• Basis for Differentiation: A new venture should differentiate itself from its competitors in
some way that is important to its customers and is not easy to copy. A firm typically choose one
of two generic strategies
• Cost leadership
• Differentiation)
Strategic Resources
• A firm is not able to implement a strategy without adequate
resources. A firm's most important resources are:
• Core competencies: A core competency is a resource
or capability that serves as a source of a firm’s
competitive advantage over its rivals. It is a unique
skill or capability that transcends products or markets,
makes a significant contribution to the customer’s
perceived benefit, and is difficult to imitate.
• Stategic assets: Strategic Assets Strategic assets are
anything rare and valuable that a firm owns.
Companies ultimately try to combine their core
competencies and strategic assets to create a
sustainable competitive advantage.
Partnership Network
A firm’s network of partnerships is
the third component of a business
model. New ventures, in
particular, typically do not have
the resources to perform all the
tasks required to make their
businesses work, so they rely on
partners to perform key roles.
A firm’s partnership
network includes
suppliers and other
partners.
• Suppliers: A supplier (or
vendor) is a company that
provides parts or services to
another company.
• Other Key Relationships:
Along with its suppliers, firms
partner with other companies
to make their business models
work. Strategic alliances, joint
ventures, networks, and trade
associations are common
forms of these partnerships.
Customer Interface
How a firm interacts with its customers—is the fourth component of a
business model. The type of customer interaction depends on how a
firm chooses to compete.
The three elements of a company’s customer interface are target
market, fulfilment and support, and pricing structure.
Target Market: A firm’s target market is the limited group
of individuals or businesses that it goes after. The target
market a firm selects affects everything it does, from the
strategic resources it acquires to the partnerships it
forges to its promotional campaigns.
Fulfilment and Support: Fulfilment and support refers
to the channels a company uses and what level of
customer support.
Pricing Structure: A third element of a company’s
customer interface is its pricing structure. Pricing
structures vary, depending on a firm’s target market and
its pricing philosophy
Thank you