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• Most businesses fail in less than two years• Fewer than 1% of the business plans submitted
to VCs get funded• Business failures lead to huge “collateral
damages”• Failures are planned by lack of planning
Systematic screening – Why?
Chapter 1: My Opportunity: Why Will or Won’t This Work?
The New Business Road TestJohn W. Mullins
The Seven Domains of Attractive Opportunities
Market Domain Industry Domain
Macro-level
Micro-level
Team Domain
Market attractiveness
Industry attractiveness
Sustained advantage
Target segment benefits and
attractiveness
Connectedness up, down, across value
chain
Ability to execute on CSFs
Mission, aspirations,
propensity for risk
• Insights Provided by The Model– Markets and industries are not the same– Both macro- and micro-level considerations are
necessary: markets and industries must be examined at both levels
– The keys to assessing entrepreneurs and entrepreneurial teams aren’t simply found on their resumes or in assessments of their entrepreneurial character
The Seven Domains of Attractive Opportunities
• Addresses The Central Elements in the Assessment of Any Market Opportunity– Are the market and the industry attractive?– Does the opportunity offer compelling
customer benefits as well as a sustainable advantage over other solutions to the customer’s needs?
– Can the team deliver the results they seek and promise to others?
The Seven Domains of Attractive Opportunities
Differences Between Markets and Industries
• Markets– Consists of a group of current and/or potential customers
having the willingness and ability to buy products—goods or services—to satisfy a particular class of wants or needs.
• Thus, markets consist of buyers—people or organizations and their needs—not products.
• One such market, for example, consists of businesspeople who get hungry between meals during their workday. We’ll call this the market for workplace snacks.
Differences Between Markets and Industries
• Industries– An industry consists of sellers—typically organizations—
that offer products or classes of products that are similar and close substitutes for one another.
• What industries serve the market for workplace snacks?• At the producer level, there is the salty snack industry, the candy
industry and the fresh produce industry, to name but three.• There are also industries providing the distribution of these
products to workplaces, including the supermarket industry, the restaurant industry, the coin vending machine industry, the coffee bar industry and so on.
Is the Market Attractive? Macro- and Micro- Considerations
• Macro-level– Market size
• Number of customers in the market, say for workplace snacks• The aggregate money spent by these customers on the relevant
class of goods or services, in this case workplace snacks• The number of units of relevant products or usage occasions, such
as workplace snacks, bought annually
– Market growth rate– Environmental trends
• Do the trends favor the opportunity, or will the entrepreneur be swimming against a powerful tide?
Is the Market Attractive? Macro- and Micro- Considerations
• Micro-level analysis is based on four key questions– Is there a target market segment where we might enter the
market in which we offer the customer clear and compelling benefits at a price they are willing to pay?
– Are these benefits, in the customers’ minds, different from and superior in some way--better, faster, cheaper or whatever—that what’s currently offered by other solutions? Differentiation is crucial. The vast majority of me-too products fail
– How large is this segment, and how fast is it growing?– Is it likely our entry into this segment will provide us entry
to other segments we may wish to target in the future?
Is the Market Attractive? Macro- and Micro- Considerations
• Takeaways from analysis…– Many aspiring entrepreneurs make the mistake of
examining only the macro-level– Through failing to identify the first customers who will buy
—almost by name—and why they would benefit, and in ignoring how entry into this segment might create one or more options for growth into other market segments, they risk pursuing a deal-end path on two counts:
• Without differentiated benefits, most customers won’t buy• Without a pathway to growth, most investors won’t invest
Is the Industry Attractive? Macro- and Micro- Considerations
• Macro-level– Industry attractiveness—Porter’s five forces
• Threat of entry, buyer power, supplier power, threat of substitutes, competitive rivalry
• The more forces that are favorable, the more attractive the industry• Once all the five forces have been assessed, the key outcome is to
reach a clear conclusion about the attractiveness of one’s industry
Threat of Substitute Products
Threat of New
Entrants
Threat of New
Entrants
Rivalry Among Competing Firms
in Industry
Bargaining Power of Buyers
Bargaining Power of Suppliers
Porter’s Five Forces Model of Competition
Is the Industry Attractive? Macro- and Micro- Considerations
• Micro-level– A new venture is not likely to grow over the long term if
the initial advantage it brings to its customers cannot be sustained in the face of subsequent competitors’ entry of if its business model lacks economic viability
– Thus identifying and assessing the sustainability of the proposed new firm’s competitive advantage is necessary to fill in the micro-level industry piece of the opportunity assessment puzzle
Is the Industry Attractive? Macro- and Micro- Considerations
• Micro-level– Factors that help a firm sustain its competitive advantage
• The presence of proprietary elements—patents, trade secrets and s on—that other firms are unable to duplicate or imitate
• The likely presence of superior organizational processes, capabilities or resources that others would have difficulty duplicating or imitating
• The presence of an economically viable business model—one that won’t quickly run out of cash. This factor, in turn, involves a careful look at some more detailed issues:
Is the Industry Attractive? Macro- and Micro- Considerations
• Micro-level– Factors that help a firm sustain its competitive advantage
• The presence of an economically viable business model—one that won’t quickly run out of cash. This factor, in turn, involves a careful look at some more detailed issues:
– Revenue, in relation to the capital investment required and margins obtainable
– Customer acquisition and retention costs, and the time it will take to obtain customers
– Gross margins and their adequacy to cover the necessary costs structure to operate the business
– Operating cash cycle characteristics, i.e. how much cash must be tied up in working capital such as inventory, how quickly will customers pay, and how slowly may suppliers and employees be paid, in relation to the margins the business generates
Can The Team Deliver?
• Questions of Interest Beyond Examining Resumes– Does the opportunity fit the team’s business mission,
personal aspirations and risk propensity?– Does the team have what it takes, in a human sense—in
experience and industry know-how—to deliver superior performance for this particular opportunity, given its critical success factors, i.e.,…..
• Those factors that tend to distinguish between the better performing and poorer performing firms in the industry one proposes to enter
– Is the team well connected up, down and across the value chain so it will be quick to notice any opportunity or need to change its approach if conditions warrant?
Chapter 2: Will the Fish Bite?
The New Business Road TestJohn W. Mullins
Do Customers Matter?
It’s not about you. It’s not about your revolutionary products or services. Successful entrepreneurial
ventures are about serving customers and their needs. Not just any customers. Target customers. It’s about
providing differentiated benefits that are so compelling that customers abandon their allegiance to former providers and give their business to you.
The Seven Domains of Attractive Opportunities
Market Domain Industry Domain
Macro-level
Micro-level
Team Domain
Market attractiveness
Industry attractiveness
Sustained advantage
Target segment benefits and
attractiveness
Connectedness up, down, across value
chain
Ability to execute on CSFs
Mission, aspirations,
propensity for risk
Examined in Chapter 2
Four Critical Micro-level Questions About Target Markets
• Four Crucial Questions (for Micro-level analysis)– Is there a target market segment where we might enter the
market in which we offer the customer clear and compelling benefits, at a price he or she is willing to pay?
– Are these benefits, in the customers’ minds, different from and superior in some way—better, faster, cheaper or whatever—to what’s currently offered by other solutions?
– How large is this segment, and how fast is it growing?– Is it likely that our entry into this segment will provide us entry
into other segments that we may wish to target in the future?• Talk about lifestyle issues
The New Business Road Test: Stage One—The Micro-Market Test
• What customer pain will your offering resolve? How strong an incentive do customers have to give you their money? Will the fish bite?
• Who, precisely, are the customers that have the pain? Do you have detailed, accurate and current information about who they are, where they live or do business, or what they do?
• What benefits does your offering provide that other solutions don’t?
• What evidence do you have the customers will buy what you propose to offer?
The New Business Road Test: Stage One—The Micro-Market Test
• What evidence can you provide to show that your target market has the potential to grow?
• What other segments exist that could benefit from a related offering?
• Can you develop capabilities that are transferable from one segment to another?
Chapter 3: Is This a Good Market?
The New Business Road TestJohn W. Mullins
The Seven Domains of Attractive Opportunities
Market Domain Industry Domain
Macro-level
Micro-level
Team Domain
Market attractiveness
Industry attractiveness
Sustained advantage
Target segment benefits and
attractiveness
Connectedness up, down, across value
chain
Ability to execute on CSFs
Mission, aspirations,
propensity for risk
Examined in Chapter 3
Three Crucial Questions About Markets
• Three Crucial Questions– Is my market large enough today to allow different competitors the
opportunity to serve different segments without getting in other’s way?– What are the predictions for your market’s short-term growth rate? (In
the absence of other information to the contrary, the recent rate of growth in your market may be the best available predictor of growth in the near future)
– What are the predictions for your market’s long-term growth rate? • (This is likely to be influence heavily by macro-trends: economic,
demographic, sociocultural, technological, regulatory and/or natural)
The New Business Road Test: Stage Two—The Macro-Market Test
• What sort of business do you want? One with potential to become a huge business, or a small “lifestyle” operation servicing a niche market? Without answering this question first, you cannot assess for your particular opportunity the means of the others below.
• How large is the market you are seeking to serve? In how many ways have you measured it?
• How fast has it grown over the last on/three/five years?• What economic, demographic, sociocultural, technological,
regulatory or natural trends can you identify that will affect your market, and what effect, favorable or otherwise, will these trends have on your business
Chapter 4: Is This a Good Industry?
The New Business Road TestJohn W. Mullins
The Seven Domains of Attractive Opportunities
Market Domain Industry Domain
Macro-level
Micro-level
Team Domain
Market attractiveness
Industry attractiveness
Sustained advantage
Target segment benefits and
attractiveness
Connectedness up, down, across value
chain
Ability to execute on CSFs
Mission, aspirations,
propensity for risk
Examined in Chapter 4
Industry Attractiveness
Higher Threat Lower Average Profits
The New Business Road Test: Stage Three—The Macro-Industry Test
• Based on all five forces, what is your overall assessment of this industry? Just how attractive or unattractive is it?
• If your industry is a poor performer overall, are there persuasive reasons why you’ll fare differently? If not, move on.
A Quick Recap of the 7 Domains
1.Micro Level Market Assessment
a) Micro level questions about target markets
b) Three ways to define market segmentsc) Micro market test
Mullins’ 7 Domain Framework
1.Micro Level Market Assessment
a) Micro level questions about target markets
• Is there a target market segment in which we offer the customer clear and compelling benefits, at a price he or she is willing to pay?
• Are these benefits, in the customer’s minds, different from and superior in some way –to what’s currently offered by other solutions?
• How large is this segment, and how fast is it growing?
Mullins 7 Domain Framework
1.Micro Level Market Assessment
b) Three ways to define market segments
1. Demography2. Geography3. Customer Behavior
Mullins 7 Domain Framework
1.Micro Level Market Assessment
c) Micro market test
• What customer pain will your offering resolve? • Will customers buy what you propose to offer?• Who precisely are the customers? • Do you have detailed accurate information about who
they are, where they live or do business or what they do?
• Are there other segments that could benefit from a related offering?
Mullins 7 Domain Framework
2. Macro level Market assessment
Macro Market Test• What sort of business is sought?• How large is the market?• How fast can it grow?• How quickly can it grow in the next 6 months or
2/3/5 years?• What trends can be identified and how will it affect
the business?
Mullins 7 Domain Framework
3. Macro level Industry assessment
a) Porter’s Five forces analysisb) The macro industry test
Mullins 7 Domain Framework
3. Macro level Industry assessment
a) Five macro level questions to assess the industry based onMichael Porter’s five forces -Threat of Entry, Supplier power, Buyer power, Threat to substitutes, Competitive Rivalry
Mullins 7 Domain Framework
3. Macro level industry assessment
b) Macro Industry Test
• What industry will you compete in? Define it carefully.• Based on all five forces, what is your overall
assessment of this industry? Just how attractive or unattractive is it?
• If your industry is a poor performer overall, are there persuasive reasons why you will fare differently?
Mullins 7 Domain Framework
4. Micro level industry assessment
The Micro industry test:• Do you require proprietary elements - patents, trade
secrets and so on – that other firms cannot likely duplicate or imitate?
• Can your business develop and employ superior organizational processes, capabilities or resources that others would have difficulty in duplicating or imitating?
• Is your business model economically viable i.e. can you show that your company won’t run out of cash quickly?
Mullins 7 Domain Framework
5. Mission, Aspiration and Risk test for entrepreneurs
• What’s your entrepreneurial mission?• What level of aspirations do you have for your
entrepreneurial dream?• What sorts of risk are you and are you not willing
to take ?
Mullins 7 Domain Framework
6. “The can you and your team execute?” test
• What are the few - only a handful, please – critical success factors (CSFs) in your industry?
• Can you demonstrate - in past deeds, not mere words – that your team taken together can execute on each and every one of these CSFs?
• Have you identified which CSFs your team is not well prepared to meet, for which you need help in filling out your team?
Mullins 7 Domain Framework
7. The connectedness test
• Who do you and your team know across the value-chain among your customers, suppliers, competitors and substitutes?
Mullins 7 Domain Framework