How to Turn Your Great Idea into a Business Part 4

So far in this Video Series we have considered six topics around the subject of How to Turn Your Great Idea into a Business.

They were:

  • Market
  • Profit
  • Plan
  • Capital
  • Value
  • Investor

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How to Turn Your Great Idea into a Business Part 3

Well, here is Part Three – I hope you are enjoying my Videos so far!

In this video I want to take a look at Value and Investors!  I think its self explanatory – click Play and see for yourself!

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How to Turn Your Great Idea into a Business Part 2

In this, the second video in the series, I want to move on and take a look at the Business Plan and Capital.

I think it is true to say that nothing happens without these two things and it is important that you give them due attention.

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How to Turn Your Great Idea into a Business Part 1

This Week I want to share a short four part Video Course with you.

In this Video, I want to consider some of the key aspects of Turning Your Great Idea into a Business – that’s what Starting A Business is all about – Right?

In this first video, I am going to take a look at the Market and Profit.   I hope you enjoy it 🙂

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Do You Need to Get Investor Ready to Raise Funding for Your Startup?

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There is nothing worse than spending weeks and months working on your Startup, finally getting a meeting with that key potential investor and then blowing the meeting!

Disaster!

This can set you back and even sound the death knell for your Startup?

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What if you also got an Outline Business Plan, a Financial Plan Template and in addition, an Investor Readiness Checklist.

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Take a look at this brief video which summarises the course:

 

Overcome your Experience Deficit!

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Whether you are just starting out with an idea or have already drafted your business plan and pitch slides this program will help immensely. I was able to fine tune my business plan and turn it into something that has a clear, concise message. Cheers for the investor checklist and sample pitch slides.”

“The Voice of Experience

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“The Entrepreneurs Guide to Startup Funding

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Get Investor Ready Today with The Entrepreneurs Guide to Startup Funding – Udemy Course written by John Colley, The Six Minute Strategist

 

 

10

36 Questions for Startup Entrepreneurs – Market Analysis Part 2

 

 

What are You Struggling with in Your Startup? 

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Welcome back for Part 2 of my Market Analysis post for Start Up Entrepreneurs.

The object of this series is to help Startup Entrepreneurs think through some of the issues in planning their venture.

If you missed Part 1 you can find it here.

In this post I am going to discuss Market Profitability, Market Size and Key Success Factors.

Market Profitability

The profitability of a market is both an issue of cause and effect.  The current competitors in a market define to a large degree the current profitability of the market but the entrepreneur has the ability to position his product/service offering to his best advantage to compete with the market encumbents.  Here are some of the factors:

  1. Market Factors.  Market profitability is defined by the relationship between market share and product quality.  If customers perceive that your product/service is of a high quality they will be prepared to pay more for it.  Equally, if you command a high market share, you will be able to dictate the price to your customers.
  2. Product/Service Characterisation.  When evaluating the profitability of the market, you should consider the characteristics of your business.  Consider the following factors; performance, durability, specifications, features, brand, reliability, quality of finish, serviceability.
  3. High Market Share/High Quality.  This is the best quadrant to be in.  You have a product/service which compares very favourably to the competition and a substantial market share.  Companies in this quadrant earn the highest ROIs.
  4. High Market Share/Low Quality.  These are undifferentiated mass market products where the overiding purchase decision is made on price and not quality.  You will benefit from being the low cost producer arising from the economies of scale which in turn come from the high market share.  Companies in this segment earn around mid-level ROIs.
  5. Low Market Share/High Quality.  Despite the low market share, the quality of products in this segment mean that customers are prepared to pay more for your product.  ROI is also in the mid-range.
  6. Low Market Share/Low Quality.  This is really where you do not want to be.  The negative combination of low quality and low market share mean that there is a low return on investment.  If you find yourself here you should consider either changing your strategy or leaving the market and reinvesting your assets and efforts elsewhere.

Market Size

The attractiveness of a market to an investor is often a matter of scale.  The bigger the bettter.  Establishing the market size can often be more of an art than a science.  Here are some factors to help you.

  1. Present and Future Sales.  The right place to start is to work out your future sales projections – how many units, at what price, to how many customers.  Without this you are unable to calculate your market share or to evaluate the reasonableness of your assumptions once the following steps have been completed.
  2. Government Data.  In most countries, there is Government data on the size of product/service markets which can be accessed.  Occasionally, this information will need to be paid for, but much of it is free.  Often however it will not give you the exact answers you are looking for so be prepared for some creative analysis.  For the UK, check out http://data.gov.uk/ for 5,400 free Government datasets.
  3. Trade Associations.  These bodies are more focused on the markets on which you may wish to compete.  As organisation funded by the market encumbents, they are keen to see their markets thrive and develop.  Both formal reports and informal conversations can prove very helpful and informative.
  4. Financial Data from Major Competitors.  If you can identify your major competitors in a market, you should be able to get sales and market data from their annual reports – both publicly and through companies house data (check out www.duedil.com for a free source of this data in very useful format).  If you compile these you can create an empirical data set which at least demonstrates the minimum market size.  If these companies are public, you may be able to obtain investment banking research on both the companies and the sector.  If you have a contact at the bank in question these can be obtained often at no cost.
  5. Customer Surveys.  Asking your customers or potential customers how much they spend in your product/service market is a good way to find out more empirical data.  You can do this inexpensively as an online poll with some form of competition or prize draw to incentivise people to contribute.  These will be subjective by their very nature.  More formal surveys can be commissioned but are expensive.
  6. Google. (Other search engines are available).  The internet is an amazing source of information which can produce some surprisingly useful results.  I would recommend trying a range of search terms to see what comes up and don’t limit yourself to the first 10 results as often lower ranked pages still have useful information.  You can use Google’s keyword tool to find terms related to your business.

Key Success Factors

As a new market entrant, an Entrepreneur should be evaluating how he is going to compete successfully in a market, whatever stage of development that market is at. In my view the key factor is to do it differently, to have a unique angle which differentiates you from your competition.  A me-too clone strategy is unlikely to be successful and less likely to attract the support of investors.  Here are six factors to consider.

  1. Access to Unique Resources.  These resources can be anything in the supply chain.  It may be raw materials, cost efficient manufacturing, low cost or high quality people.  You should think through the whole product/service process and ask yourself how can I do this better, faster, cheaper, to a higher quality, more simply.
  2. Ability to achieve Economies of Scale.  This does not necessarily mean trying to take on the market leader.  If you are at a relatively early stage, ask yourself what improvements can be made to reduce costs which are associated with higher volumes.  This may involve negotiating adjusted terms with your suppliers or changing your processes to make them simpler based on the higher volumes.  Moving to a production line process from a bespoke manufacturing model is a simple example.
  3. Access to Distribution Channels.  If you can find ways to sell your products/services in ways not available to your competition you will get one step ahead of them.  The trick here is not to think how you might replicate what they do but to try to come up ideas which are new and different which can disrupt the market.  Consider markets which are parallel to yours, can you use their channels in a different way to distribute your product/service.  For that channel the opportunity for incremental sales from an existing cost base should be an attractive proposition.
  4. Access to Technology. As a new entrant or a dynamic thinker, using the latest technology to get an advantage over your competitors has never been easier.  The amount of business related tools which are now available at historically low costs has never been greater.  Existing competitors may not be aware of new technolgical developments or too slow to adopt them.  Let agility and speed be your watch words here.
  5. Product Evolution.  Nothing stands still in business but companies often convince themselves that their favourable competitive position will continue in perpetuity.  By moving your product/service forward you can make your competitors look dated very quickly and make your product/service stand out in the market place.
  6. Passion and Persistence.  This should be the greatest weapon in the armoury of the entrepreneur.  Do not become complacent or give up too easily.  Your energy and drive will create momentum which larger, less dynamic companies will find very hard to replicate.

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36 Questions for Startup Entrepreneurs – Market Analysis Part 1

 

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This series has been written for Startup Entrepreneurs and is designed to help provide some information and structure to help them with the planning of their enterprise. In this second part of this six part series, I want to look at market analysis.

One of the key questions any potential investor will ask is what is the Market opportunity.  Not only is it important to be able to answer the question but just as importantly you NEED to know whether there really is a market for your product or service.

I have split Market Analysis into two parts – in Part 1 we will cover Segmentation, Market Growth Rate and Trends.

Part 2 will cover Profitability, Market Size and Key Success factors.

Lets get started with Segmentation. Segmentation You should attempt to segment your market to try to understand where there is likely to be real demand for your product/service.  Here are some areas you should consider:

  1. B2B or B2C?  Are you selling to a business or a consumer market?  This has huge implications for your whole sales and marketing strategy.  If you can sell to both markets you need to have a clear strategy about how you will address these two markets separately.
  • SME or Enterprise?  If you are in the B2B space, is your customer a small or medium size business or a large scale enterprise?  The sales cycle will be longer for the latter but there ought to be more scope to make a sale as they will have larger budgets and cash resources.
  • Niche or Broad? Does your product/service have a narrow focus, on a particular sector for instance or are you going for a broad market?  If you are adapting a niche strategy you can emphasis the uniqueness and focus of your product and perhaps adopt a premium pricing strategy as a result.  If you are adopting a broad approach, you may have to compete on price against an established low cost market leader.
  • Geographic.  Is your solution a local solution or are you going for a national or global market?  If the latter two, you can harness the internet to reach a wider audience.  If your primary market is local, then you will need to focus on channels which are more suitable to local business which may include mobile applications and/or more traditional media routes.
  • Demographic.  Does your product/service serve a particular gender, racial, religious, generational group?  The more you can specify your target market the clearer you can focus your sales and marketing message and your channel to market strategy.
  • Product/Service Evolution?  Can you adapt your product/Service to serve more than one market?  This may mean having a consumer “lite edition” and a larger scale (and more expensive) “enterprise edition”.

Market Growth Rate It is important to evaluate whether there is a growth market for your product or service.  Even if the overall economy is stagnant or even in recession (defined by two successive periods of negative growth across the whole economy) there are always going to be winners and losers, there are always going to be growth markets.

  1. Historical Data.  This is a simple, but not necessarily reliable method of evaluating a growth market.  Take the historical growth rates in the market over the past years – as many as you can get data for – and extrapolate them into the future.  The risk here is of course that past performance per se is no guarantee of future performance.
  • Growth Drivers.  In any product/service market it is possible to evaluate what drives the growth and therefore use these drivers as an indication of future sales.  For example, a population with a high growth rate will become within the next 10-20 years a population skewed towards the younger generations.  For a second example, the Baby Boom generation is a demographic bubble passing through the western nations’ demographics.  If you can provide products and services for these demographic groups, you can out grow the average growth of the market.  These indicators are not all generational.  For another example you could track the growth of complementary products as a proxy for your own market.
  • Product Adoption Curve.  It is possible to be too early into a market as well as too late.  If you are too early, while you may have the best product or service, you will be unable to sell many units as there will only be a few early adopters and there may not be the necessary infrastructure to support your business. This is particularly true in the technology sectors where early video sites and solutions were hampered by the lack of band width to cope with their offerings.  Smart phones needed a 3G network to be able to make the most of their data services.
  • Product Lifecycle.  While the adoption curve looks at market factors, the product lifecycle looks at factors specific to the product.  This has a series of phases starting with early adoption, mass adoption, maturity and decline.  Seen as a curve, the highest growth comes when the product moves into the mass adoption phase.
  • Price Pressures.  Sales growth is important but if your profit per item sold is declining then you are likely to struggle to grow your business.  One of the most significant factors is the level of competition.  Other factors include market saturation, the existence of substitute products and a decrease in brand loyalty.  Michael Porter’s Five Forces model provides a structure for evaluating the profitability of the market assessing, buyer power, supplier power, barriers to entry, threat of subsitute products and rivalry among firms in the industry.
  • Lack of Growth Drivers.  You may need to face up to the fact that there are no growth factors in your market.  In this case you have done well to establish this before spending a huge amount of money setting up your business to serve such a market.  Remember, if you build it, they will come….does not apply in business.

Trends It is worth taking a closer look at Trends as these can be broken down into several factors and should be analysed separately and in specific relation to your product or service.

  1. Industry Dependent Trends.  This needs to be understood in detail and will be by your more experienced competition.  A good example of this applies to computing where the application of Moore’s Law – that computing power doubles every 18 months has been a staple factor of doing business in the sector for 40 years.
  •  Regional Trends.  These can be international regions (Europe, North America), intra-national regions (South Eastern US Seaboard, North East of England) or they may be on an even smaller scale within a US State or an English county.  The answer can only be determined by the nature and scale of your business.
  • Macro Economic Trends.  The credit crunch affected all businesses because it impacted companies ablility to access capital from banks and market confidence.  Governmental interest rates have affected different countries in Europe in different ways – the same interest rate was seen as too low in high growth Germany and too high in low growth Spain for example.  While it is possible to work through these factors, you need to consider them nonetheless.
  • Changes in Price Sensitivity.  Customer behaviour within a market can change over time.  At an early stage in a market’s development, the demand for an innovative product or service can lead to sales with a high price point and profit margin.  As the market matures, the readiness of customers to pay a high price will erode and prices will fall.  The initial high price also encourages competition to enter the market which itself leads to changes in market pricing (Michael Porter’s Five Forces).
  • Demand for Variety.  Products and services evolve over time and customers continually demand such evolution.  The variety within a product/service market will define its complexity and unit cost.  Higher variety means greater unit cost – lower variety means greater standardisation and lower unity cost.  Such variety also impacts the stability and predicability of demand and utilisation of resources.  All these impact profitability.  It may be in a standardised market, a new entrant can offer greater variety and consequently take market share from the complacent encumbents.  This is not static and the trending element of this is crucial – is the market becoming more or less standardised.  Understanding this factor of the market is an important aspect of market analysis and deciding whether to enter a particular market.
  • Service and Support.  The after sales element of a market can either be a cost and drag on profits or can be a substantial business opportunity which may or may not be part of the product/service offerings of encumbents.  Any market analysis should evaluate this and the entrepreneur should decide how this is likely to impact his business.  Do not miss the opportunity to learn from other markets and bring in best practice into your market.  This also often has the advantage of being recurring annual income – another business advantage not to be missed.

 

That is the first three factors for Market Analysis.  In the next post, Part 2, I will cover Profitability, Market Size and Key Success factors

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