STEN 1000 Chapter Notes - Chapter 15: Litmus, Market Capitalization, Pest Analysis
20 Jun 2018
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CHAPTER 15 – ANALYZING NEW BUSINESS VENTURES
Three key areas of business management: (fig. 15.1)
1. Finance
2. Operations
3. Marketing
Analysing Business Ventures
Entrepreneur – a person who starts a business and is willing to accept the risk associated with
investing money in order to make money
Venture analysis – determining certainty and probability of success, identifying “fatal flaws”
(fig. 15.3)
- Fatal flaw identification –allows managers to overcome barriers and determine amount of
risk ! go or no go
- Inadequate pricing – customers will choose
competition, no enough profit, overpricing,
undervaluing product (customer’s don’t see its
value, think its cheap)
- Determining optimal price = consumer
price threshold
- Under-capitalization – not enough money
- Weak management competencies
- Insufficient marketing research (key fatal flaw)
– target market, demographics, location etc.
- Poor industry assessment – is the industry
sustainable?
- Absence of well-focused execution strategy
6 Phases of venture analysis (fig. 15.2):
1. Market Analysis – assessment of the risk and uncertainty associated with entry into the
targeted market
- If there will be market penetration as anticipated
and successful sustainability
- Assessing the legitimacy of the perceived
opportunity that the manager/entrepreneur sees for
the organization
- Assessed in 4 ways (fig. 15.5):
i. Environment - The current market is analysed
- Timing, sustainability, PESTEL (macro
level)
- Ex. Google Glasses entered market too
early
ii. Industry - The market sector or industry is analysed
- Porter’s Five Forces, SWOT, competitive analysis
- Opportunities for disruption (disruptors ex. Uber, AirBnB, Netlifx)
- Industry growth cycle, barriers to success
! Future growth potential of the industry and company strength compared to
competitors
iii. Customer - Conclusions are drawn relating
to targeted customers
- Need identification and alignment,
customer identification
- Access, adoption cycle, value curve
disruption
iv. Market Fit - The existence of a true market
fit is determined
- Defined competitive advantage,
profile ad awareness success
- Solution to customers’
needs/problems or creation of a problem
- Key Success Factors (for market analysis) (fig. 15.4)
- First Mover – New Market:
- Need/demand identification and alignment
- Profile of need solution and company
- Proper deployment of capital
- Driver of the consumer adoption process
- New Entrant – Existing Market
- Innovation
- Superior customer relationship model to target market
- Disruption of consumer adoption process
- Proper deployment of capital in support of the business initiative
- Extension – Existing Market
- New revenue generation Opportunity
- Degree of cannibalization
- Validation of segmentation stretch opportunity
- Degree of channel involvement in demand stimulation
- Strength of brand extension
2. Value Analysis – understanding “market fit” and validation that we have a definitive
competitive advantage or uniqueness around which to develop a positioning campaign
- Closely tied with market analysis,
- Ability to develop and communicate product/service uniqueness, how it’s a solution to
problem, strength of value proposition
- 3 main conclusions: Does the business plan….
i. … demonstrate that we can create a customer habit of purchasing our
product/service?
ii. … demonstrate that we can build an association with our targeted customer base
and that our product/service provides a credible solution to their needs?
iii. … demonstrate that we can get customer to care more about our product/service
than those of our competitors?
- Litmus test – a process used to make a judgement or draw conclusion about the
acceptability of an opinion (fig. 15.6)
* Value Proposition = cost benefits + product benefits + service benefits + brand benefit +
emotional benefit
3. Financial Analysis
i. Valid estimate of the capital needs or organization
ii. Length of time needed to ensure financial stability
iii. Cash requirements applicable to the cash operating cycle
! Conclusions about depth of investment required, expected return on this investment,
and level of affordable loss that could be
absorbed if financial projections are not met as
anticipated
- Focus of new venture financial analysis (fig. 15.7)
a. Demand and revenue model assessment
- = Validating the legitimacy of where
revenue is going to come from and how it
will be generated
- for start-ups: demand = 0 ! demand creation is very important part of revenue
model (since without demand there is no revenue)
- Focuses on: (fig. 15.8)
- Number of potential revenue streams (ex. iPad, iPhone)
- Sources of revenue within each stream (ex. warranties, chargers, apps etc.)
- Initial size of the revenue streams
- Growth potential of each stream (other revenues you can produce from current
stream)
- Interdependency of new revenue sources on existing revenue sources (ex. sale
of phone case dependent on sale of phones)
- Price pressure that can be anticipated on each stream
- Downward price pressure:
- Raise value – greater communication of value, price constant
- Lower price – lowering costs, standardization, more efficient etc.
Document Summary
Entrepreneur a person who starts a business and is willing to accept the risk associated with investing money in order to make money. Venture analysis determining certainty and probability of success, identifying fatal flaws (fig. Fatal flaw identification allows managers to overcome barriers and determine amount of risk go or no go. Inadequate pricing customers will choose competition, no enough profit, overpricing, undervaluing product (customer"s don"t see its value, think its cheap) Determining optimal price = consumer price threshold. 15. 2): market analysis assessment of the risk and uncertainty associated with entry into the targeted market. If there will be market penetration as anticipated and successful sustainability. Assessing the legitimacy of the perceived opportunity that the manager/entrepreneur sees for the organization. 15. 5): environment - the current market is analysed. Google glasses entered market too early: industry - the market sector or industry is analysed.
