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Day 2 Power of Ideas #ETPOI

Market Sizing and Competition Analyses

Vijay Shukla

Competitive Analysis

You may not be all that unique. Understand the primary need and business is crucial and fundamental. Competition can be identified once you identify the need that you are addressing. And competition may be visible or invisible. Invisible competition is more dangerous because we don’t know who and where they are. Remember, you may get the feeling of uniqueness perhaps because other competitors have done the research and did not find your space/offering to be profitable. Put some rigor in your understanding of the business.

Note: One stop shop doesn’t bring the same premium in India. Companies are making more through specialization. So focus on the advantage/specialization.

Market Sizing

Don’t get caught in your own trap. “We want one so everyone wants one”. At early stage, you extrapolate from your experience, but that should only be an added factor for starting business. Disassociate yourself from the idea, so you can start looking at it objectively.

What’s the Market? What’s my total addressable market? Do the research before you meet the potential market. Are they willing to experiment, can they take decisions here, have they worked with smaller players, do they have budgets for your segment – use these filters to figure out who to go after at the beginning. These filters are really your business insight. Remember, buying behaviors of clients do not change just because you are starting up.

Make sure you validate data by asking commonsense questions. Check for counter sources and filters that prune the final numbers. Be accurate rather than precise.

Customers are different from users. Customers pay. They are your market. There are influencers – key opinion leaders. There may be many other influences, and you have to take them into account.

Differentiation

Would it make a difference if you did not exist? That is an important question.

Why would they not care?

  • Too many options that appear the same to customers
  • Demand is lesser than supply
  • Low entry barriers
  • Partnership with jobbers – balance shifts away from you
  • What is advertising doing for you?

How does brand matter in these conditions? Good businesses do hard labor to meet competition – to sustain their brand. Good businesses in these conditions become more efficient with the use of processes and technology.

There are many things that can be recommendations, but that will depend upon a host of factors.

Business Models

Rahul Aggarwal

“A business model describes the rationale of how an organization creates, delivers, and captures value”

Value Creation – building blocks

  1. Value conception – who conceptualizes and who controls
    1. Proprietary
    2. Collaborative (partnership/JV, crowdsourcing, co-creation)
  2. Value composition – who composes the value
    1. Form – product, service, hybrid
    2. Product vs service is getting blurred – but usually time to market, infrastructure requirements and growth curve; also timeframes for getting the revenue
    3. Challenge is to collapse the time to market
  3. Value production – who produces, who controls production assets?
    1. internal
    2. partner/JV
    3. Outsourced
    4. Crowd-sourced
    5. Pay for service (BOOT etc.)
    6. Platform
  4. Value targeting
    1. Forecast demand – push model (car company)
    2. React to demand – pull model (Dell, BTO supply chain)
    3. Activate latent demand or create new demand (space tourism?)
  5. Value pricing
    1. Amount, time, currency, payer, ownership
    2. Traditional buy
    3. Fractional Ownership
    4. EMI
    5. Rental
    6. Cross-subsidization
    7. Lottery
    8. Auction
    9. Free for the user
    10. Equity
  6. Value delivery
    1. Physical, virtual, hybrid
    2. Ownership
    3. Aggregation (info vs. look and feel vs. delivery vs. service)

Business Model Innovations – Blue Oceans – unexplored markets, unlocks hidden value, not easy to copy.

What will lead to consumers demanding/consuming more (Microfinance, JustBooks)? What will lead to customers’ latent demand getting activated? What will unleash totally new value for the customer? How can I capture more value?

What will differentiate your company from the rest? What is a defensible competitive position (what will tie in the customer? Example, Mahindra knows exactly the demand). What will enhance your influence and control in the ecosystem?

How linear is the relationship between resources and revenues (you should be looking at non-linear relationships)? What competencies will you need? For established companies, to what extent will systems and processes need to change? To what extent are you dependent on third parties?

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In case you did not know already, I am at the Indian Institute of Management, Ahmedabad, India for an 8-day workshop that brings together 74 of the top ideas from among more than 16000 submissions to the Power of Ideas initiative. The first day so far has been interesting and I like the fact that I am returning to an academic environment after a long break, albeit for a short while.

Sandeepan Budhiraja’s first session on Identifying Customer Needs and Market Research was, interesting, particularly when he talked about focus on heavy users as the primary concern of business. When I tried to ask if this was applicable to all markets and economies, referring to the Long Tail and Power Laws being an opposite source of focus, the consensus was that the long tail consumers made incidental (a word I inappropriately used) purchases and that could not be the basis of product strategy/positioning.

Ignores pretty much what is happening in companies like eBay and Google and the media industry where distribution costs are negligible! In fact one opinion was that the monetization of the long tail is either the preserve of very large companies or at best something that is a more long-term outcome, both conclusions I would disagree with. Some links I found:

The other two sessions by Akshat Rathee and VC Karthic were interesting. They shared insight on the business planning components, presentation skills and key insights when talking to Venture Capital. Here is a short set of notes from those encounters.

First translate what your vision is – where you were, are, want to be

Putting together the Information Memorandum (IM)

  1. Build pitch
    1. Pitch is contractual – this is what I provide with a difference from others
      1. Question: Making a pitch involves propositions that need to be commonly understood: e.g. I will provide you a GFX Super accelerator for half the cost – is probably not a good idea because it is too technical
      2. Let the pitch give rise to questions, it should intrigue; make a statement that can be tuned at a second step to thinks like target segment, how will it be delivered etc.
  2. Build scale up vision while maintaining low-cost and high profitability
  3. What do we need money for? Investment is for growth; Asking money for marketing is a bad idea; for capital, working capital is a good idea – What do we need money for? (Split money between debt and equity); state your Internal Accrual; include CAPEX
  4. Exit
    1. How do we repay debt or show high returns to the investor (33% margin = 2X, meaning you have to grow by 100% every year if we don’t think of shares sale)?
    2. Who are the people who would like to buy this company x years from now giving investor an exit option; what would be total cash dividend that investor would get on exit? Specific names and numbers. IPO as an exit (strategic/PE investor).
    3. From the venture perspective:
      1. They want a team that can execute this the best way
      2. They want billion dollar market
      3. Want 5-20X return
      4. A good exit in 2-3 years
      5. Ways in which VCs can exit: Sells his stake, Sell the company, Goes IPO?
      6. Keep pitch simple, limited vocabulary
      7. Need to feel comfortable at a personal level, exploit any prior connects
      8. Identifying the pain; attacking the business thoroughly demonstrates the market research
  5. Things they look out for
    1. Competitive sustainable advantage
    2. Patent – adds guarantee Show the demo
  6. Business Plan – how you are going to make money
  7. State Assumptions: They (Analyst) will check formula and then assumptions. Plan is based ground up not on desire. Make assumptions that follow from what we know about the industry and the business. They must intuitively make sense. Quote the exact source. Backup with verifiable data. Make sure you know conflicting sources. Know how to defend each assumption.
  8. Now we are ready to make a business plan.
  9. Put in a FAQ or sections for team, capability etc.

Would welcome any corrections from the other participants! I think we have a really cool bunch of people here.

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