Market Analysis Presented by Steven R. Kopits April 2002

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3. 3 Market Analysis

4. 4 Market Sizing

5. 5 Market Size = Your sales + sales of all competitors Current Market Size

6. 6 It�s a summer�s day, 2pm on the beach. A customer goes into a convenience store on the boardwalk. He wants a drink. He can buy a warm Pepsi or a cold Coke (from a refrigerated case). Do these drinks compete against each other? What if the Coke is in .33L cans, the Pepsi in a 2L bottle? Case Study

7. 7 Shape of Growth

8. 8 New Tech Industries

9. 9 Selling to corporates: entrepreneur experiences Good initial meeting Quick formal proposal But corporates respond with Lack of clear decision-making process No clear decision-makers Lack of urgency Preference for established suppliers Turf battles Risk-averse manager behavior Lengthy trials to become established supplier Sales Conversion Cycle

10. 10 Customer Inertia/Ignorance

11. 11 Customer Inertia/Ignorance One more� Another product in a broad existing selection E.g.: FMCG�s (Coke, toothpaste) Critical Success Factors (CSF�s): brand awareness, efficient and broad distribution, efficient production A step up� Clearly superior product in a broad existing selection E.g.: broadband internet access, Gevalia coffee CSF: credibility (brand awareness), demonstration, word-of-mouth recommendations Sounds complicated� Superior, but complex, product in an existing selection E.g.: major corporate softwares Characteristics: long and opaque decision-making process, multiple decision-makers, trials, delays CSF: track record, financial strength, proven product, sales endurance

12. 12 Customer Inertia/Ignorance Don�t bother me� Clearly superior product with no strong alternative, but non-material, non-core to client E.g.: energy efficiency project, alternative telecom provider to corporate client CSF: right contacts, timing, simple purchasing process Gotta have it� Clearly superior product with no alternative, core to client E.g.: Viagra CSF: show up Well, if� Clearly superior, complex product with no clear alternative, core to client�client will work with vendor for successful outcome E.g.: new production technology CSF: client relation skills, trials and R+D focus, good at customization and documentation, project management skills

13. 13 Ask potential customers about their needs For the product or service, identify Absolute benefit (in $) to customer Relative benefit (% of expenses) Strengths and weaknesses of current solution Perceived risk Decision making process Who can approve, who can veto How approval occurs (p&l ownership, initiator/champion, rounds/levels Timing (cycle, length of approval, trials) Corporate Market Surveys

14. 14 Describes the position of the potential customer with regards to your product or service Signal customer willingness to buy; useful for VC�s Can be an extension of a marketing survey�asking can be better than selling! Should be specific Detailed description of customer need Detailed description of the proposed product/service Price Timing Required approvals Key conditions Key limitations Risk assumption Non-binding Letters of Intent

15. 15 Market Share Based on your relevant market Your competition from the customer�s perspective Your geographic area The market you can and plan to serve You can refer to total market for establishing market share in percentage terms Assess the market both top down, bottom up

16. 16 Price leader � No. 1 in market share Economies of scale First mover? Quality leader Superior product/technology Strong organization Middle of pack Good technology Reasonable price Minor player Niche market Potential Market Share Strategies

17. 17 Industry Structure Market share depends on industry structure Geography National, regional, or global Concentration Significant economies of scale Production, sales, advertising, purchasing, financing, R+D, distribution, brand awareness/credibility More typical in mature industries Fragmentation Customer �stickiness� High switching costs Low economies of scale, low scalability

18. 18 Share Strategies by Industry Structure

19. 19 Situational (Soft) Advantages Smarter, harder working management No response from competitors Structural (Hard) Advantages Based on structural characteristics of the business vs. competition Comparative Advantage

20. 20 Employee compensation structure Geographic coverage Mix of products Decision-making process Brand positioning Distribution channel Skill set Capital Some Structural Advantages

21. 21 Profit margin is function of Market share Industry structure Industry growth Company comparative advantage Forecasting Profit Margins

22. 22 Typical Profits Margins

23. 23 A note about valuation Exit profit margins and post-terminal growth prospects will determine post-terminal values Post-Terminal Values

24. 24 Terminal Market Size

25. 25 Contact Detail Steven Kopits mobile: +1 508 685 1200 email: steven.kopits@gmail.com