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Evaluating Entrepreneurial Opportunities

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.

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Evaluating Entrepreneurial Opportunities

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  1. Evaluating Entrepreneurial Opportunities Rama Velamuri Entrepreneurship Club Presentation September 27, 2004

  2. The seven domains of Attractive Opportunities Market Domains Market Attractiveness Source: New Business Road Test - John Mullins

  3. 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

  4. The seven domains of Attractive Opportunities Industry Domains Market Domains Market Attractiveness Industry Attractiveness Macro Level Micro Level Target Segment Benefits and Attractiveness Source: New Business Road Test - John Mullins

  5. The seven domains of Attractive Opportunities Industry Domains Market Domains Market Attractiveness Industry Attractiveness Macro Level Micro Level Target Segment Benefits and Attractiveness Sustainable Advantage Source: New Business Road Test - John Mullins

  6. The seven domains of Attractive Opportunities Industry Domains Market Domains Market Attractiveness Industry Attractiveness Macro Level Team Domains Micro Level Target Segment Benefits and Attractiveness Sustainable Advantage Source: New Business Road Test - John Mullins

  7. The seven domains of Attractive Opportunities Industry Domains Market Domains Market Attractiveness Industry Attractiveness Macro Level Missions, Aspirations, Propensity for Risk Team Domains Micro Level Target Segment Benefits and Attractiveness Sustainable Advantage Source: New Business Road Test - John Mullins

  8. The seven domains of Attractive Opportunities Industry Domains Market Domains Market Attractiveness Industry Attractiveness Macro Level Missions, Aspirations, Propensity for Risk Ability to execute on CSFs Team Domains Micro Level Target Segment Benefits and Attractiveness Sustainable Advantage Source: New Business Road Test - John Mullins

  9. The seven domains of Attractive Opportunities Industry Domains Market Domains Market Attractiveness Industry Attractiveness Macro Level 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 Sustainable Advantage Source: New Business Road Test - John Mullins

  10. 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.)

  11. 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

  12. A Real Case Study • Revenues = 25 million Euros • From 1989 onwards • Billing X6 (12% annual growth) • Workforce X2 • Productivity • Tons / employee 125 (av. of sector is 56) • Tons / m2 construction 2 (av. of sector 1)

  13. 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

  14. Innovative and customer centered • McDonald’s and the Jurassic Park promotion • Pallet height innovation • Eliminating downtime • Innovative technology strategy

  15. A Real Case Study • However, profitability is low • Ratio PBT to sales is between –10% y +6% • Return on capital employed is low • Why?

  16. 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

  17. Industry Barriers to entry Suppliers Competitors Clients Substitute products

  18. Industry Barriers to entry Suppliers Competitors Clients McDonalds Henkel United Biscuits Bongrain Rianxeira Substitute products

  19. Industry Barriers to entry Suppliers Competitors Clients Stora-Enso International Paper Mayr-Melnhof McDonalds Henkel United Biscuits Bongrain Rianxeira Substitute products

  20. Industry Barriers to entry Suppliers Competitors Clients Stora-Enso International Paper Mayr-Melnhof McDonalds Henkel United Biscuits Bongrain Rianxeira Substitute products Micro-flute (Micro-corrugated) Flexible packaging

  21. Industry Low Barriers to entry Suppliers Competitors Clients Stora-Enso International Paper Mayr-Melnhof McDonalds Henkel United Biscuits Bongrain Rianxeira Substitute products Micro-flute(Micro-corrugated) Carton Flexible packaging

  22. Industry Low Barriers to entry 932 Competitors in Europe (150 in Spain) 1100 production plants Suppliers Clients Stora-Enso International Paper Mayr-Melnhof McDonalds Henkel United Biscuits Bongrain Rianxeira Substitute products Micro-flute(Micro-corrugated) Carton Flexible packaging

  23. 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.”

  24. Conclusion • Innovative firm, well managed • In a industry that is structurally unattractive • Recommendation: If you are outside the industry, stay out

  25. 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?

  26. Conclusion Source: European Carton Manufacturers’ Association

  27. Conclusion • M could grow by acquiring capacity. But does it have the management team to take care of multiple production sites?

  28. The case of M Market domains Large market Low growth Macro level + +

  29. The case of M Market domains Large market Low growth Macro level + + + + + Macro level Well defined segments Clear purchasing intention

  30. The case of M Industry domains Market domains Large market Low growth Unattractive industry Macro level - - - + + + + + Macro level Well defined segments Clear purchasing intention

  31. The case of M Industry domains Market domains Large market Low growth Unattractive industry Macro level - - - + + Team Domain - - - + + + Macro level Well defined segments Clear purchasing intention Advantage difficult to sustain

  32. The case of M Industry domains Market domains Large market Low growth Unattractive industry Macro level - - - - - - + + Team Domain - - - + + + Macro level Well defined segments Clear purchasing intention Advantage difficult to sustain

  33. The case of M Industry domains Market domains Large market Low growth Unattractive industry Macro level - - - + - - - - + + Team Domain - - - + + + Macro level Well defined segments Clear purchasing intention Advantage difficult to sustain

  34. The case of M Industry domains Market domains Large market Low growth Unattractive industry Macro level - - - + - - - - + + Team Domain - - - + + + Macro level + + Well defined segments Clear purchasing intention Advantage difficult to sustain

  35. 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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