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Systematic screening – Why?

• 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

Chapter 1: My Opportunity: Why Will or Won’t This Work?
The New Business Road Test
John W. Mullins

The Seven Domains of Attractive Opportunities
Market Domain Industry Domain Market attractiveness Macro-level
Mission, Ability to execute aspirations, Team on CSFs propensity for Domain risk Connectedness up, down, across value chain

Industry attractiveness

Micro-level

Target segment benefits and attractiveness

Sustained advantage

The Seven Domains of Attractive Opportunities
• 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? .

for example. • One such market. markets consist of buyers—people or organizations and their needs—not products.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. consists of businesspeople who get hungry between meals during their workday. We’ll call this the market for workplace snacks. . • Thus.

to name but three. the coin vending machine industry. including the supermarket industry. the restaurant industry. there is the salty snack industry.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. the coffee bar industry and so on. • There are also industries providing the distribution of these products to workplaces. the candy industry and the fresh produce industry. • What industries serve the market for workplace snacks? • At the producer level. .

or will the entrepreneur be swimming against a powerful tide? .Is the Market Attractive? Macro. bought annually – Market growth rate – Environmental trends • Do the trends favor the opportunity. in this case workplace snacks • The number of units of relevant products or usage occasions.Considerations • Macro-level – Market size • Number of customers in the market.and Micro. say for workplace snacks • The aggregate money spent by these customers on the relevant class of goods or services. such as workplace snacks.

faster. cheaper or whatever—that what’s currently offered by other solutions? Differentiation is crucial.and Micro. The vast majority of me-too products fail – How large is this segment.Is the Market Attractive? Macro. 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? . different from and superior in some way--better.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.

Is the Market Attractive? Macro. most customers won’t buy • Without a pathway to growth. they risk pursuing a deal-end path on two counts: • Without differentiated benefits. most investors won’t invest . and in ignoring how entry into this segment might create one or more options for growth into other market segments.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.

supplier power. competitive rivalry • The more forces that are favorable. threat of substitutes. the key outcome is to reach a clear conclusion about the attractiveness of one’s industry .Considerations • Macro-level – Industry attractiveness—Porter’s five forces • Threat of entry.Is the Industry Attractive? Macro. the more attractive the industry • Once all the five forces have been assessed.and Micro. buyer power.

Porter’s Five Forces Model of Competition Threat of Threat of New New Entrants Entrants Bargaining Power of Suppliers Rivalry Among Competing Firms in Industry Bargaining Power of Buyers Threat of Substitute Products .

and Micro.Is the Industry Attractive? Macro.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 .

and Micro. This factor. in turn. involves a careful look at some more detailed issues: . 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. trade secrets and s on—that other firms are unable to duplicate or imitate • The likely presence of superior organizational processes.Considerations • Micro-level – Factors that help a firm sustain its competitive advantage • The presence of proprietary elements—patents.Is the Industry Attractive? Macro.

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. i. how much cash must be tied up in working capital such as inventory. This factor. in relation to the capital investment required and margins obtainable – Customer acquisition and retention costs.and Micro. 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. and how slowly may suppliers and employees be paid. how quickly will customers pay. in turn. in relation to the margins the business generates .e. involves a careful look at some more detailed issues: – Revenue.Is the Industry Attractive? Macro.

• 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..e. in a human sense—in experience and industry know-how—to deliver superior performance for this particular opportunity. i.Can The Team Deliver? • Questions of Interest Beyond Examining Resumes – Does the opportunity fit the team’s business mission. given its critical success factors.….. personal aspirations and risk propensity? – Does the team have what it takes. down and across the value chain so it will be quick to notice any opportunity or need to change its approach if conditions warrant? .

Mullins .Chapter 2: Will the Fish Bite? The New Business Road Test John W.

Target customers.Do Customers Matter? It’s not about you. Successful entrepreneurial ventures are about serving customers and their needs. It’s not about your revolutionary products or services. . Not just any 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.

Team on CSFs propensity for Domain risk Connectedness up. Ability to execute aspirations.The Seven Domains of Attractive Opportunities Market Domain Industry Domain Market attractiveness Macro-level Mission. across value chain Industry attractiveness Examined in Chapter 2 Micro-level Target segment benefits and attractiveness Sustained advantage . down.

in the customers’ minds. cheaper or whatever—to what’s currently offered by other solutions? – How large is this segment. faster. different from and superior in some way—better.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. 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 . at a price he or she is willing to pay? – Are these benefits.

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? . are the customers that have the pain? Do you have detailed. accurate and current information about who they are.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. where they live or do business. precisely.

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 Test John W. Mullins .

across value chain Industry attractiveness Examined in Chapter 3 Micro-level Target segment benefits and attractiveness Sustained advantage . Team on CSFs propensity for Domain risk Connectedness up.The Seven Domains of Attractive Opportunities Market Domain Industry Domain Market attractiveness Macro-level Mission. Ability to execute aspirations. down.

regulatory and/or natural) . demographic. technological. 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. sociocultural.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.

and what effect.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. you cannot assess for your particular opportunity the means of the others below. technological. demographic. • 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. sociocultural. favorable or otherwise. will these trends have on your business . or a small ―lifestyle‖ operation servicing a niche market? Without answering this question first. regulatory or natural trends can you identify that will affect your market.

Mullins .Chapter 4: Is This a Good Industry? The New Business Road Test John W.

across value chain Industry attractiveness Examined in Chapter 4 Micro-level Target segment benefits and attractiveness Sustained advantage .The Seven Domains of Attractive Opportunities Market Domain Industry Domain Market attractiveness Macro-level Mission. down. Team on CSFs propensity for Domain risk Connectedness up. Ability to execute aspirations.

Industry Attractiveness Higher Threat Lower Average Profits .

. are there persuasive reasons why you’ll fare differently? If not.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. move on.

A Quick Recap of the 7 Domains .

Mullins’ 7 Domain Framework 1.Micro Level Market Assessment a) Micro level questions about target markets b) Three ways to define market segments c) Micro market test .

Mullins 7 Domain Framework 1. 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? .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. in the customer’s minds. at a price he or she is willing to pay? Are these benefits.

Mullins 7 Domain Framework 1. Geography 3.Micro Level Market Assessment b) Three ways to define market segments 1. Demography 2. 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? .

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 2.

Mullins 7 Domain Framework 3. Macro level Industry assessment a) Porter’s Five forces analysis b) The macro industry test .

Buyer power. Threat to substitutes. Competitive Rivalry . Supplier power.Mullins 7 Domain Framework 3. Macro level Industry assessment a) Five macro level questions to assess the industry based on Michael Porter’s five forces Threat of Entry.

Mullins 7 Domain Framework 3. Based on all five forces. are there persuasive reasons why you will fare differently? . what is your overall assessment of this industry? Just how attractive or unattractive is it? If your industry is a poor performer overall. Macro level industry assessment b) Macro Industry Test • • • What industry will you compete in? Define it carefully.

capabilities or resources that others would have difficulty in duplicating or imitating? Is your business model economically viable i. trade secrets and so on – that other firms cannot likely duplicate or imitate? Can your business develop and employ superior organizational processes.patents. can you show that your company won’t run out of cash quickly? .e. Micro level industry assessment The Micro industry test: • • • Do you require proprietary elements .Mullins 7 Domain Framework 4.

Mullins 7 Domain Framework 5. 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 ? . Mission.

Mullins 7 Domain Framework 6.only a handful.in past deeds. “The can you and your team execute?” test • • • What are the few . for which you need help in filling out your team? . 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. please – critical success factors (CSFs) in your industry? Can you demonstrate .

competitors and substitutes? . suppliers.Mullins 7 Domain Framework 7. The connectedness test • Who do you and your team know across the value-chain among your customers.