VI Challenge Day 3 - Identify Moat and Potential Risks

DAY 3
DAY 3
IDENTIFY MOAT AND
POTENTIAL RISKS
All Rights Reserved by 8VI Global Pte Ltd. No Copy and Reproduction Allowed 2
Understanding the Business
A friend comes to you and ask for your

investment in his growing business
What Questions Will You Ask Him?
Economic Moat
Sustainable Competitive Advantage

Big Profits attract Competitors!
Economic Moat
How Long Will it Last?
A Few Years
Several Years
Many Years
Can the business last for the

next 10 years?
Is the business more valuable

in next 10 years?
Porter’s 5 Forces
Industry Competition
The larger the number of competitors, along with the number of equivalent
products and services they offer, the lesser the power of a company.
When competitive rivalry is low, a company has greater power to do

what it wants to do to achieve higher sales and profits.
Example 1 - Google
Example 2 – Airline Companies
Potential of New Entrants
The less time and money it costs for a competitor to enter a company's
market and be an effective competitor, the more a company's position may
be significantly weakened.
An industry with strong barriers to entry is an attractive feature for

companies that would prefer to operate in a space with fewer
competitors.
Example 1 – MRT Systems
Example 2 – Retail Sector
Power of Suppliers
It is affected by the number of suppliers of key aspects of a good or

service, how unique these aspects are, and how much it would cost a
company to switch from one supplier to another.
The fewer the number of suppliers, and the more a company depends
upon a supplier, the more power a supplier holds.
Example 1 - Nike
Example 2 – Foot Locker
Power of Customers
This specifically deals with the ability customers have to drive prices down.
It is affected by how many buyers or customers a company has, how

significant each customer is, and how much it would cost a customer to
switch from one company to another.
The smaller and more powerful a client base, the more power it holds.
Example 1 - Facebook
Example 2 - Brokerage Business
Threat of Substitute Products
Competitor substitutes that can be used in place of a company's

products or services pose a threat.
If customers rely on a company to provide a tool or service that can be

substituted with another tool or service, and if this substitution is fairly
easy and of low cost, a company‘s power can be weakened.
Example 1 - Apple
Example 2 – F&B
DAY 3
R.I.S.K. Analysis
Let’s look at the 4 R.I.S.K
RISK
•Regulatory Risk
•Inflation Risk
•Science and Tech Risk
•Key Person Risk
R.I.S.K
Regulatory Risk
Does company produce goods and services that is closely regulated?
When goods are highly regulated, there is business risk as

POLICY CHANGES can affect business.
Regulatory Risk – US Case
Example where policies affects the business negatively.
Example: ITT Educational Services Inc.
Obama Proposed
on 27 Feb 2009
Regulatory Risk
When a Business’ goods/ services are highly regulated, it is Risky!
ObamaTake note
Proposed of these products:
on 27 Feb 2009
Important Harmful
Goods/ Services Goods
R.I.S.K
Inflation Risk
“The single most important decision in evaluating a business is

PRICING POWER, if you’ve got the power to raise prices without
losing business to a competitor, you’ve got a very good business.
And if you have to have a prayer session before raising the price by
10 percent, then you’ve got a terrible business.”
- Warren Buffett -
Inflation Risk
Airlines - Price War
Inflation Risk
Airlines – Difficult to Raise Price
R.I.S.K
Science & Technology Risk
The company have to CONSTANTLY research & develop to survive!
The company might be REPLACED due to changes in technology!
Remember these?
Some things only change looks but not products…
Kodak Case Study
1889 – Founded by George Eastman

1975 – The Digital camera was made
1979 – 90% Market Share
1990 – Started digital
2004 – Delisted
2012 – File for bankruptcy
2013 – Exits bankruptcy as commercial printer company without consumer business
Source: http://www.bloomberg.com/news/2013-09-03/kodak-exits-bankruptcy-as-printer-without-photographs.html
“My prototype was big as a toaster, but the technical people loved it,”
Mr. Sasson said.
“But it was filmless photography, so management’s reaction was,

‘that’s cute — but don’t tell anyone about it.’”
Steven Sasson
inventor of digital camera
R.I.S.K
Key Person Risk
Economic Moat must be institutionalized instead of dependent on key personnel
Ask if the company can replace their key person EASILY.

If they can’t, they have a Key Person risk!
Key Man Risk
Which Labour is easier to replace?
vs
The more highly

skilled, the
HIGHER the
risk!!
vs
R.I.S.K Summary
Regulatory Risk
Does company produce goods and services that is highly regulated?
Inflation Risk
Can company raise price with inflation?
Science and Tech Risk

Does company produce products and services that can be easily replaced or
does the company require constant R&D to survive?
Key Person Risk

Can the labour force be replaced easily or does it depend on many key person?
DAY 3
VI RISK RATING
Quick Analytic Tool
VI Risk Rating
Note
Note
Note

VI Challenge Day 3 - Identify Moat and Potential Risks

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

VI Challenge Day 3 - Identify Moat and Potential Risks

Uploaded by

Copyright:

Available Formats

DAY 3

A friend comes to you and ask for your

What Questions Will You Ask Him?

Sustainable Competitive Advantage

How Long Will it Last?

Can the business last for the

Is the business more valuable

When competitive rivalry is low, a company has greater power to do

Potential of New Entrants

An industry with strong barriers to entry is an attractive feature for

Example 2 – Retail Sector

It is affected by the number of suppliers of key aspects of a good or

It is affected by how many buyers or customers a company has, how

Example 2 - Brokerage Business

Competitor substitutes that can be used in place of a company's

If customers rely on a company to provide a tool or service that can be

•Science and Tech Risk

•Key Person Risk

Does company produce goods and services that is closely regulated?

When goods are highly regulated, there is business risk as

Example where policies affects the business negatively.

Example: ITT Educational Services Inc.

When a Business’ goods/ services are highly regulated, it is Risky!

“The single most important decision in evaluating a business is

Airlines - Price War

Airlines – Difficult to Raise Price

Science & Technology Risk

The company have to CONSTANTLY research & develop to survive!

The company might be REPLACED due to changes in technology!

Science & Technology Risk

Some things only change looks but not products…

Science & Technology Risk

Kodak Case Study

1889 – Founded by George Eastman

“But it was filmless photography, so management’s reaction was,

Key Person Risk

Economic Moat must be institutionalized instead of dependent on key personnel

Ask if the company can replace their key person EASILY.

Which Labour is easier to replace?

The more highly

Science and Tech Risk

Key Person Risk

You might also like