evaluating entrepreneurial opportunities rama velamuri entrepreneurship club presentation september...

Evaluating Entrepreneurial Opportunities

Rama Velamuri

Entrepreneurship Club Presentation

September 27, 2004

The seven domains of Attractive Opportunities

Market Domains

Market Attractiveness

Source: New Business Road Test - John Mullins

The seven domains of Attractive Opportunities

Market Domains

Market Attractiveness

Target Segment Benefits and Attractiveness

Macro Level

Micro Level

Source: New Business Road Test - John Mullins

The seven domains of Attractive Opportunities

Market Domains Industry Domains

Market Attractiveness Industry Attractiveness

Target Segment Benefits and Attractiveness

Macro Level

Micro Level

Source: New Business Road Test - John Mullins

The seven domains of Attractive Opportunities

Market Domains Industry Domains

Market Attractiveness Industry Attractiveness

Target Segment Benefits and Attractiveness Sustainable Advantage

Macro Level

Micro Level

Source: New Business Road Test - John Mullins

The seven domains of Attractive Opportunities

Market Domains Industry Domains

Market Attractiveness Industry Attractiveness

Target Segment Benefits and Attractiveness Sustainable Advantage

Macro Level

Micro Level

Team Domains

Source: New Business Road Test - John Mullins

The seven domains of Attractive Opportunities

Market Domains Industry Domains

Market Attractiveness Industry Attractiveness

Target Segment Benefits and Attractiveness Sustainable Advantage

Macro Level

Micro Level

Missions, Aspirations,

Propensity for Risk

Team Domains

Source: New Business Road Test - John Mullins

The seven domains of Attractive Opportunities

Market Domains Industry Domains

Market Attractiveness Industry Attractiveness

Target Segment Benefits and Attractiveness Sustainable Advantage

Macro Level

Micro Level

Missions, Aspirations,

Propensity for RiskAbility to execute

on CSFs

Team Domains

Source: New Business Road Test - John Mullins

The seven domains of Attractive Opportunities

Market Domains Industry Domains

Market Attractiveness Industry Attractiveness

Target Segment Benefits and Attractiveness Sustainable Advantage

Macro Level

Micro Level

Missions, Aspirations,

Propensity for RiskAbility to execute

on CSFs

Connectedness up and down Value Chain

Team Domains

Source: New Business Road Test - John Mullins

A Real Case Study

“M is the best European company for packaging

solutions”

Manager of Danisco (one of the largest producers of ingredients for the food sector.)

A Real Case Study

• Supplies packaging materials made of cartonboard to producers of

Canned fish Confectionary Personal hygiene products

• Business of transforming cartonboard Design Printing Cutting Folding Pasting

A Real Case Study

• Revenues = 25 million Euros

• From 1989 onwards Billing X6 (12% annual growth) Workforce X2

• Productivity Tons / employee 125 (av. of sector is 56) Tons / m2 construction 2 (av. of sector 1)

A Real Case Study

• Very innovative firm

• Preferred supplier to MacDonald’s, United Biscuits, Henkel, Bongrain, Jealsa (Rianxeira) and others

• Three of the partners have each more than 30 years experience in the business

Innovative and customer centered

• McDonald’s and the Jurassic Park promotion

• Pallet height innovation

• Eliminating downtime

• Innovative technology strategy

A Real Case Study

• However, profitability is low

Ratio PBT to sales is between –10% y +6% Return on capital employed is low

• Why?

Market

Year 2000 = 3.23 million tonnes; 7 billion Euros

Growth 1995-2000 = 1.8% anual

Growth 2001 = -1.4%

Growth 2002 = 1%

Forecast 2003-2007 = 2.8% annual

Industry

Barriers to entry

Suppliers Clients

Substitute products

Competitors

Industry

Barriers to entry

Suppliers Clients

Substitute products

CompetitorsMcDonaldsHenkelUnited BiscuitsBongrainRianxeira

Industry

Barriers to entry

Suppliers Clients

Substitute products

CompetitorsMcDonaldsHenkelUnited BiscuitsBongrainRianxeira

Stora-EnsoInternational PaperMayr-Melnhof

Industry

Barriers to entry

Suppliers Clients

Substitute products

CompetitorsMcDonaldsHenkelUnited BiscuitsBongrainRianxeira

Stora-EnsoInternational PaperMayr-Melnhof

Micro-flute (Micro-corrugated) Flexible packaging

Industry

Barriers to entry

Suppliers Clients

Substitute products

CompetitorsMcDonaldsHenkelUnited BiscuitsBongrainRianxeira

Stora-EnsoInternational PaperMayr-Melnhof

Micro-flute(Micro-corrugated) Carton Flexible packaging

Low

Industry

Barriers to entry

Suppliers Clients

932 Competitors in Europe (150 in

Spain)

1100 production plants

McDonaldsHenkelUnited BiscuitsBongrainRianxeira

Stora-EnsoInternational PaperMayr-Melnhof

Low

Substitute productsMicro-flute(Micro-corrugated)

Carton Flexible packaging

According to Warren Buffet

“When a business with a reputation for poor fundamentals meets a management team

with a reputation for brilliance, it’s the reputation of the former that remains intact.”

Conclusion

• Innovative firm, well managed

• In a industry that is structurally unattractive

• Recommendation: If you are outside the industry, stay out

Conclusion

• What if you are inside?

• What if you’ve been in industry 30 years?

• What if you don’t know anything else?

• What do you do?

Conclusion

Source: European Carton Manufacturers’ Association

Conclusion

M could grow by acquiring capacity. But does it have the management team to take

care of multiple production sites?

The case of M

Market domains

Large market

Low growthMacro level

+ +

The case of M

Market domains

Large market

Low growthMacro level

+ +

Well defined segments

Clear purchasing intention

Macro

level

+ + +

The case of M

Market domains

Large market

Low growthMacro level

+ +

Well defined segments

Clear purchasing intention

Macro

level

+ + +

Industry domains

Unattractive industry

- - -

The case of M

Market domains

Large market

Low growthMacro level

+ +

Well defined segments

Clear purchasing intention

Macro

level

+ + +

Industry domains

Advantage difficult to sustain

Unattractive industry

- - -

- - - Team Domain

The case of M

Market domains

Large market

Low growthMacro level

+ +

Well defined segments

Clear purchasing intention

Macro

level

+ + +

Industry domains

Advantage difficult to sustain

Unattractive industry

- - -

- - - Team Domain

- - -

The case of M

Market domains

Large market

Low growthMacro level

+ +

Well defined segments

Clear purchasing intention

Macro

level

+ + +

Industry domains

Advantage difficult to sustain

Unattractive industry

- - -

- - - Team Domain

- - - + -

The case of M

Market domains

Large market

Low growthMacro level

+ +

Well defined segments

Clear purchasing intention

Macro

level

+ + +

Industry domains

Advantage difficult to sustain

Unattractive industry

- - -

- - - Team Domain

- - -

+ +

+ -

To summarize

You want large growing markets, but ... ... target segments must be clearly defined, and value proposition must be compelling You want structurally attractive industries, but ... competitive advantage must be sustainable There must be a fit between the characteristics of the business and the mission, aspirations, and risk taking capacity of the team Team must be capable of delivering on CSFs Team must have connectedness up and down the value chain