MBALN707 - Topic+2 - Overview
MBALN707 - Topic+2 - Overview
MBALN707 - Topic+2 - Overview
Introduction
Please, read the following interesting article that will give you valuable
guidance about exploring the industry.
“Know Your Industry Before You Start Your Business”, by Tim Berry
You need to explain the type of business you’re in. You’ll be expected to explain
the general state of your industry and the nature of the business, especially if
your plan is going outside your company to banks or investors.
Industry Participants.
Distribution Patterns.
Competition and Buying Patterns.
Industry analysis
Everything in your industry that happens outside of your business will affect your
company. The more you know about your industry the more advantage and
protection you will have.
The Internet has had an enormous impact on the state of business information.
Finding information isn’t really the problem any more, after the information
explosion and the huge growth in the Internet beginning in the 1990s and
continuing in the 21st Century. Even 10 or 15 years ago, dealing with information
was more a problem of sorting through it all than of finding raw data. That
generality is more true every day. There are Web sites for business analysis,
financial statistics, demographics, trade associations, and just about everything
you’ll need for a complete business plan.
Industry participants
You should know who else sells in your market. You can’t easily describe a type
of business without describing the nature of the participants. There is a huge
difference, for example, between an industry like broadband television services,
in which there are only a few huge companies in any one country, and one like
dry cleaning, in which there are tens of thousands of smaller participants.
This can make a big difference to a business and a business plan. The
restaurant industry, for example, is what we call “pulverized,” which, like the dry
cleaning industry, is made up of many small participants. The fast food business,
on the other hand, is composed of a few national brands participating in
thousands of branded outlets, many of them franchised.
Distribution patterns
Products and services can follow many paths between suppliers and users.
Explain how distribution works in your industry. Is this an industry in which
retailers are supported by regional distributors, as is the case for computer
products, magazines, or auto parts? Does your industry depend on direct sales
to large industrial customers? Do manufacturers support their own direct sales
forces, or do they work with product representatives?
Some products are almost always sold through retail stores to consumers, and
sometimes these are distributed by distribution companies that buy from
manufacturers. In other cases, the products are sold directly from manufacturers
to stores. Some products are sold directly from the manufacturer to the final
consumer through mail campaigns, national advertising, or other promotional
means.
For a few services, distribution may still be relevant. A phone service or cable
provider, or an Internet provider, might describe distribution related to physical
infrastructure. Some publishers may prefer to treat their business as a service
rather than a manufacturing company, and in that case distribution may also be
relevant.
Main competitors
Do a very complete analysis of your main competitors. List the main competitors.
What are the strengths and weaknesses of each? Consider their products,
pricing, reputation, management, financial position, channels of distribution,
brand awareness, business development, technology, or other factors that you
feel are important. In what segments of the market do they operate? What seems
to be their strategy? How much do they impact your products, and what threats
and opportunities do they represent?
Source: http://articles.bplans.com/starting-a-business/know-your-industry-before-
you-start-your-business/72
At this point, please access YouTube and watch this very interesting video
on assessing business competitors.
http://www.youtube.com/watch?feature=player_detailpage&v=T7PrhuCGHy0
Determine whether the new business proposition adds value to
the targeted market segments, whether the potential customers
will benefit from.
Imitators take less risk because they will start with an innovator's product and
take a more effective approach. Examples are IBM with its PC against Apple
Computer, Compaq with its cheaper PC's against IBM, and Dell with its still-
cheaper clones against Compaq.
http://www.businessdictionary.com/definition/innovation.html
In the Karaoke world, expressing your individuality and being different, lies at the
heart of the modern enterprise and modern life. We are all individuals now.
Individualism means that more and more people throughout the world can shape
their lives. Choice rules. Those with cash or competence have the freedom to
know, go, do, and be whoever they want to be.
But, Kjell Nordstrom view is that, whilst the karaoke reality is a cosmopolitan club
with endless individual choice, the trouble for business is that it is also home to
institutionalized imitation.
Innovation Inc: Imitate And You Will Die; Innovate And You May Succeed:
So, imitation can only mean parity at best and, in the survival of the fittest, parity
is not good enough. Imitating someone else will never get you to the top - merely
to the middle.
Think Theory 1
Innovate
2. Sales Level – in the sense that the firm has a constant sales level in the
Brazilian market, doesn’t experience return of products and is capable to
export.
3. Reputation – in the sense that the firm has a good market image, and is
considered serious by its clients and trustworthy by its suppliers.
4. Costs – the extent to which production costs are known and managed
improving productivity and keeping operational stock as small as possible.
a. Growth Rate – the extent to which the firm is, at least, following
market’s expansion.
6. Price – the extent to which firm’s prices are competitive relatively to the
market segment in which firm is competing.
7. Differentiation – in the sense that the products of the firm are produced
according to the latest fashion tendencies and are recognized as beautiful
by customers.
8. Quality – the extent to which the firm can maintain good quality level from
the customer viewpoint. Two more elementary concerns are related to this
C(K)SF:
b. Warranty – the extent to which clients are satisfied with the after-
selling service.
9. Delivery Service – in the sense that the firm assures deliveries are made
on the right dates and on the right quantities or, in case of eventual
delays, clients are notified.
10. Distribution System – in the sense that the firm is competing in all potential
markets and salesmen are capable and satisfied. Three more elementary
concerns are related to this C(K)SF:
11. Information – the extent to which the company can obtain relevant
information about the market.
After the analysis of the above 11 CSFs within the business the following
grid “The Competitive Strength Grid” can be applied to determine the
competitive level of the business.
Source: MAPPING CRITICAL FACTORS FOR FIRM SUSTAINABLE
SURVIVAL:
First, decide the business model will be applied, how the business will generate
sales profitably. There various models to choose from. The simplest model
involves creating a product and selling it directly to customers. Other models
involve selling wholesale to retailers, selling through distributors, licensing
products to other companies, selling online, selling through auctions, and
countless other alternatives. No one-size-fits-all solution exists. In fact, many
companies use some combination of business models to arrive at a unique
model.
After choosing the right business model for a business idea, a Business
Feasibility Study is very important to be conducted because a business feasibility
study supports the decision-making process as to whether the Business Concept
is in fact viable.
According to research results, it is estimated that only one in fifty business ideas
are actually commercially viable. Therefore a Business Feasibility Study is an
effective way to safeguard against wastage of further investment or resources
(Gofton 1997; Bickerdyke et al. 2000). If a project is seen to be feasible from the
results of the study, the next logical step is to proceed with the full Business Plan.
The research and information uncovered in the feasibility study will support the
business planning stage and reduce the research time. Hence, the cost of the
Business Plan will also be reduced. A thorough viability analysis provides an
abundance of information that is also necessary for the Business Plan. For
example, a good market analysis is necessary in order to determine the business
concept’s feasibility. This information provides the basis for the market section of
the Business Plan (Bangs 2000; Hoagland & Williamson 2000; Truitt 2002;
Thompson 2003b).
Think Theory 2
Think theory 1
Let’s read the following extracts from “Customer Value Propositions in Business
Markets” by James C. Anderson, James A. Narus, and Wouter Van Rossum, Harvard Business Review
“Another pitfall of the all benefits value proposition is that many, even most, of
the benefits may be points of parity with those of the next best alternative,
diluting the effect of the few genuine points of difference. Managers need to
clearly identify in their customer value propositions which elements are points of
parity and which are points of difference.
Put yourself, for a moment, in the place of the prospective client. Suppose each
firm, at the end of its presentation, gives ten reasons why you ought to award it
the project, and the lists from all the firms are almost the same. If each firm is
saying essentially the same thing, how do you make a choice? You ask each of
the firms to give a final, best price, and then you award the project to the firm that
gives the largest price concession. Any distinctions that do exist have been
overshadowed by the firms’ greater sameness.
The second type of value proposition explicitly recognizes that the customer has
an alternative. The recent experience of a leading industrial gas supplier
illustrates this perspective. A customer sent the company a request for proposal
stating that the two or three suppliers that could demonstrate the most
persuasive value propositions would be invited to visit the customer to discuss
and refine their proposals. After this meeting, the customer would select a sole
supplier for this business. As this example shows, “Why should our firm purchase
your offering instead of your competitor’s?” is a more pertinent question than
“Why should our firm purchase your offering?” The first question focuses
suppliers on differentiating their offerings from the next best alternative, a
process that requires detailed knowledge of that alternative, whether it be buying
a competitor’s offering or solving the customer’s problem in a different way.
Think theory 2
Scheduling - A business may fail if it takes too long to start operating. The
business environment changes constantly. In addition, the business must
estimate when it will start generating income. Schedule feasibility is a
measure of how reasonable the implementation plan is.
Resource - This involves questions such as how much time (labor hours)
will be needed to operate.
Financial – This determines the financial needs. How much capital does
the business need? What is the most appropriate capital structure, and
debt equity ratio, and cost of capital? How will cash flow and profitability
be projected? It also identifies the full details of the assets to be financed
and the rate of conversion to cash-liquidity (i.e. how easily can the various
assets be converted to cash?). In addition it examines adverse economic
conditions and their impact on the business objectives.
Market Research Study & Analysis - This is one of the most important
sections of the feasibility study as it examines the marketability of the
product or services and convinces readers that there is a potential market
for the product. If a significant market for the product cannot be
established, then there is no business. Typically, it will assess the
potential sales of the product and potential market penetration of the
product.