mba prequel & overview

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MBA Prequel & MBA Prequel & Overview Overview * The Modeling Approach * The Modeling Approach * ‘Deliverables’ * ‘Deliverables’ Discussion Discussion

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MBA Prequel & Overview. * The Modeling Approach * ‘Deliverables’ Discussion. Objectives of this Presentation. Understand Industry Analysis Understand Marketing Analysis Understand Marketing Plan Understand Cash Budget Understand Pro Forma Financials - PowerPoint PPT Presentation

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Page 1: MBA Prequel & Overview

MBA Prequel & OverviewMBA Prequel & Overview

* The Modeling Approach* The Modeling Approach

* ‘Deliverables’ Discussion* ‘Deliverables’ Discussion

Page 2: MBA Prequel & Overview

Objectives of this PresentationObjectives of this Presentation• Understand Industry AnalysisIndustry Analysis• Understand Marketing AnalysisMarketing Analysis• Understand Marketing PlanMarketing Plan• Understand Cash BudgetCash Budget• Understand Pro Forma FinancialsPro Forma Financials

• Master the concept Master the concept of ‘of ‘the environmentthe environment’’

• Understand ‘multiple models’ rationale multiple models’ rationale (more later)(more later)

• Understand ‘framing’ and ‘chunking’‘framing’ and ‘chunking’• Understand true marketing complexitytrue marketing complexity

Page 3: MBA Prequel & Overview

Master the concept Master the concept of ‘the environment’of ‘the environment’

Industry Analysis Industry Analysis (p. 45)(p. 45)

• Industry, market and competitive environment• Economic environment• Technological environment• Social, legal, and political environment• Demographic environment

Market Analysis & Sales Forecast Market Analysis & Sales Forecast (p. 65)(p. 65)

• Geographic boundaries• Economic, competitive and social factors• Firm’s market niche• Target market specific characteristics for offering• Sales potential• Competitive firms & offerings

Suggested in DeThomas textbook: (Covered later)

Page 4: MBA Prequel & Overview

Master the concept Master the concept of ‘the environment’of ‘the environment’

• Specific– Customer– Competitors– Channels (p. 109-110)

– Compliance: Legal/Regulatory . . . – Company/Firm . . . . . . . . . . . . . .

• General– Technology . . . . . . Every digital/other

advantage

– Economy . . . . . . . Up the sand dune, or down?

– Ethics . . . . . . . . . . What would Mama say?

} External

Rule Framework

Internal

. . . . . . . .

Page 5: MBA Prequel & Overview

Direct Competitors

Your Firm

Your Industry (Industry Analysis)

Substitute Industry

Indirect Competitors

Environment – Technical, Economic, Regulatory, Ethical, Users, Buyers, Try-ers, Sales Data, Markets (Market Analysis), Segments/Niches, etc….

Secondary/Own Financials replicate, create, emulate

Observed/Own Operations replicate, create, emulateDDUUEE

DDIILLIIGGEENNCCEE

Observed/Own Strategy replicate, create, emulate (intended behaviors)

Page 6: MBA Prequel & Overview

Direct Competitors

Your Firm

Your Industry (Industry Analysis)

Substitute Industry

Indirect Competitors

Environment – Technical, Economic, Regulatory, Ethical, Users, Buyers, Try-ers, Sales Data, Markets (Market Analysis), Segments/Niches, etc….

Secondary/Own Financials replicate, create, emulate

Observed/Own Operations replicate, create, emulateDDUUEE

DDIILLIIGGEENNCCEE

‘‘Creative Creative Destruction’Destruction’- Schumpeter

Observed/Own Strategy replicate, create, emulate (intended behaviors)

Page 7: MBA Prequel & Overview

John R. Boyd in the early 1950s was a young U.S. Air Force fighter pilot at Nellis Air Force Base NV – a figher pilot cocky even by fighter-pilot standards.

He regularly issued a challenge to all comers: “You get on my six and I’ll be on your tail (he didn’t say ‘tail’) in forty seconds or I’ll give you $40!”

Using the F-86 (later the F-100) he was always on their ‘tail’ within 40 seconds.

It is said that he never lost. His ability to win any dogfight in 40 seconds got him his early nickname – ‘Forty-Second’ Boyd.

‘Forty-Second’ Boyd

Cites from this book and from Hammond. Details available – some editing done

Page 8: MBA Prequel & Overview

John R. Boyd in the early 1950s was a young U.S. Air Force fighter pilot at Nellis Air Force Base NV – a figher pilot cocky even by fighter-pilot standards.

He regularly issued a challenge to all comers: “You get on my six and I’ll be on your tail (he didn’t say ‘tail’) in forty seconds or I’ll give you $40!”

Using the F-86 (later the F-100) he was always on their ‘tail’ within 40 seconds.

It is said that he never lost. His ability to win any dogfight in 40 seconds got him his early nickname – ‘Forty-Second’ Boyd.

‘Forty-Second’ Boyd

Thrust - Drag

Most impressive:Most impressive: * Velocity = Ps or Energy-Maneuverability

Weight

Page 9: MBA Prequel & Overview

Boyd applied his intuitive understanding of energy maneuverability to the

study of aeronautics. In the 1970s, he helped design and champion the F-16,

an aluminum manifestation of everything he knew about competition.

Then he focused his tenacious intellect on something grander, an expression

of agility that, for him and others, became a consuming passion: OODA loop.

Page 10: MBA Prequel & Overview

Observation; orientation; decision; action - On the face of it, Boyd's loop is a

simple reckoning of how human beings make tactical decisions. But it's also an

elegant framework for creating competitive advantage.

Operating "inside" an adversary's OODA loop -- that is, acting quickly to out-think and out-maneuver rivals -- will, Boyd wrote, "make us appear ambiguous, [and]

thereby generate confusion and disorder,“ i.e. – Boise State beat Oklahoma…how?

The product of a singular, half-century-long journey through the realms of

science,history, and moral philosophy, Boyd's ideas both augment and

challenge conventional thinking about organizations and conflict.

Boyd himself, a cigar-smoking maverick, enjoyed distinctive unpopularity in official

Pentagon circles. But even among critics, his OODA loop was much harder to

dismiss. Effective OODA was an elegant manifestation of cheng/ch’i.

Page 11: MBA Prequel & Overview

The concept is just as powerful when applied to business. The convergence of

rapidly globalizing competition, real-time communication, and smarter information

technology has led to a reinvention of the meaning and practice of strategy.

What do you do in the semiconductor industry and other sectors where the time

advantage of proprietary technology is collapsing even as the cost of developing

it explodes?

Companies in manufacturing, telecommunications, retail – in nearly every business

– are discovering that fashion, fad, and fickle customers require constant

vigilance and adjustment. We operate in a video-game world where time is

compressing, information goes everywhere, and the ‘Rules of the Game’

change abruptly and continuously.Creative DestructionCreative Destruction

Page 12: MBA Prequel & Overview

Destruction?Destruction?• Yes, even demolition and disassembly

• Disintermediation and reintermediation

– Child of the Internet

– Processes revolutionized

– Competing on time

– Flanking

– Cheng / Ch’i

• Demolition/destruction is not the exception

• Wrecking the market is every entrepreneurs goal

• Joseph Schumpeter

• …and … John Boyd

Page 13: MBA Prequel & Overview

John Boyd: ‘Thought Experiment’

?

We are having a terrible time traveling in snow – what is available as a vehicle to accomplish this travel from ANY SOURCE?

Let’s mentally PILE all the parts together after taking everything apart

Plus others?

Page 14: MBA Prequel & Overview

The outcome of this analysis and synthesis was very innovative:

Originally conceived by Karl Eliason of Wisconsin in 1924 in a toboggan form . . .

Page 15: MBA Prequel & Overview

John Boyd: ‘Thought Experiment’

Then the snowmobile was produced by Joseph-Armand Bombardier of Quebec in 1958 after being redesigned and re-patented into the form we all know today.

Page 16: MBA Prequel & Overview

V-22 Osprey Tilt Rotor in Hovering Flight

Helicopter, STOL, or Airplane….? Yes Hybrid

Joint effort: Boeing and Bell Helicopter Textron, Inc.

Page 17: MBA Prequel & Overview

What about ‘Farming by the Foot?’

Mississippi Delta MSU Test Site – Ed Hood farm

Geographic Positioning System +

Geographic Information System +

Satellite Imagery + Modified Farm

Equipment

Combinations of hybrid technologies

Much less cost with more production and hugely friendly to River and Gulf

Satellite Imagery and Analysis

Knowledge of tractor position ‘to the foot’

G P

SG

P S

Page 18: MBA Prequel & Overview

Toasted Sliced Bread

Innovation can be mundane, but still exciting. Bread was not very ‘standard’ for many years, then it was baked to size. But it was sold by the loaf because slicing the loaf ahead of time caused it to dry out very quickly.

The airtight wrapping changed that and it could be sliced. Soon Wonder Bread led the way.

An inventor had created the toaster but it was not selling because inconsistent slicing by the preparer caused a hassle.

Standard bread and slices solved the problem. Sliced bread met the toaster.

Voila!Voila!

Page 19: MBA Prequel & Overview

‘Cell Phones’ and ‘Sat Com’

I am not going to insult your intelligence by explaining sat com and the cell phone. Technologies are rapidly evolving, a better word may be ‘revolving,’ honoring an evolution-revolution contrast! BUT…FYI it has been interesting…

Iridium has over 66 satellites in orbit and began service in late 1998. However, due to poor marketing, high charges, late delivery of workable phones, gigantic debt load, spread of terrestrial cell phone systems, etc., the company attracted only 63 thousand subscribers instead of the 100s of thousands expected by mid-1999. It declared bankruptcy and even planned to begin de-orbiting of the satellites.

In November 2000, however, an investor group purchased the Iridium assets for $25 million. It received a 2 year contract with the US Dept. of Defense to supply communications services. Without a $4 billion debt to pay off, the new company, called Iridium Satellite, only had to attract another 30k of subscribers to break even.

The company reported in June of 2005 that it was profitable and had over 127,000 users. The company has said that it intends to apply for a FCC license for a 96 satellite system to replace the current constellation when it is expected to start failing around 2010. They expect to fill the capacity of the current system (guessing around 2 or 3 million users) before then.

Iridium

Globalstar

Thuraya

Page 20: MBA Prequel & Overview

Direct Competitors

Your Firm

Your Industry (Industry Analysis)

Substitute Industry

Indirect Competitors

Environment – Technical, Economic, Regulatory, Ethical, Users, Buyers, Try-ers, Sales Data, Markets (Market Analysis), Segments/Niches, etc….

Secondary/Own Financials replicate, create, emulate

Observed/Own Operations replicate, create, emulateDDUUEE

DDIILLIIGGEENNCCEE

‘‘Creative Creative Destruction’Destruction’- Schumpeter

Observed/Own Strategy replicate, create, emulate (intended behaviors)

Page 21: MBA Prequel & Overview

Direct Competitors

Your Firm

Your Industry (Industry Analysis)

Substitute Industry

Indirect Competitors

Environment – Technical, Economic, Regulatory, Ethical, Users, Buyers, Try-ers, Sales Data, Markets (Market Analysis), Segments/Niches, etc….

Secondary/Own Financials replicate, create, emulate

Observed/Own Operations replicate, create, emulateDDUUEE

DDIILLIIGGEENNCCEE

‘‘Creative Creative Destruction’Destruction’- Schumpeter

Observed/Own Strategy replicate, create, emulate (intended behaviors)

Page 22: MBA Prequel & Overview

Discussion on ModelsDiscussion on Models• Models extract key attributes of reality

– Model attributes are seldom wholly sufficient in representing reality

– Some model attributes may be erroneously included that meet iia criteria

– With proper variables included models behave ‘properly’

• Models create ‘framing’ so we can think and reason– Frames are mental structures permitting human understanding

– Marketing ‘framing’ is an application of cognitive science• Unconscious activation links to the ‘sensible’ and excludes ‘nonsense’• Frames define ‘common sense;’ what fits the frame ‘makes sense’• Repetition embeds frames in the brain and they are then very persistent• ‘Frames’ facilitate effectiveness of ‘spreading activation’

– Models also are ‘chunks’ and often contain ‘chunks’ (composite parts)

– ‘Chunks’ (e.g., Segment) are how brain storage and retrieval works

– ‘Frames’ (e.g., Consumer Product Preference Space) – organize the associated ‘chunks’ into a consistent and coherent assemblage; may be a ‘chunk’ in a larger assemblage.

– Ref: Goffman, E. Frame Analysis. New York: Harper, 1974; Lakoff, G. Thinking Points. New York: Farrar, Straus, and Giroux, 2006

Page 23: MBA Prequel & Overview

What Models ‘Speak’ for Marketing?What Models ‘Speak’ for Marketing?• Due Diligence Model (?)• Demand (Q = ∫ (P, X1, X2, …, Xn) or Y = β1Pi + β2Xj + e (et al.)• Kartajaya Triune Model• OODA Model• Person-Situation Segmentation Model• Fundamental Model• CPPS Model (Frame)

– Segmentation ‘Chunk’– Positioning-Differentiation ‘Chunks’

• PLC Model• Mental Attitude Model• Value Model• Diffusion of Innovation-Adaptation Model• Taguchi Loss Function Model• QFD Model• Tactical-Strategic Matrix• ИТД (and Хорошо)

Page 24: MBA Prequel & Overview

Example: CPPS ‘Frame,’ Segment ‘Chunk’

60 minutes 5 minutes

Cost per 100 tablets

X = 12.3 min

$5.00/C

X = $4.75/C

QFD required for formulation

$ .50/C

Desired speed of relief

A ‘high end’ segment willing to pay for quick relief for intense pain

Viewed from here

Viewed from here I P

I P

Page 25: MBA Prequel & Overview

VISION

The Fundamental ‘Model’The Fundamental ‘Model’

STRATEGY OPERATIONS TACTICS

VALUE

Loyalty/Love Belief/Behavior Custom/Habituation

Build FOCUS and “Mind Share”

Build TRUST and “Access Share”

Build CAPABILITY and “Market Share”

Build FRANCHISE and “Heart Share”

ProcessServiceBrandingBranding Value Indicator

IT/IMResearch/DDDistribution/LogisticsDistribution/Logistics

Segmentation Macro/Micro MethodologyTargeting Size Dynamic LeveragePositioningPositioning Reason for Being Offering

Five P’s (Concept/Creativity) Product/Promo/Price Place/PeopleSelling (Capture) B2B (Buyer-Seller/Promo) B2C (Advertising) C2C (Buzz/Virus/Referral)Differentiation Differentiation Content (What) Context (How) Infrastructure (Enables)

Value creation and destructionValue culture

Page 26: MBA Prequel & Overview

VISION

The Fundamental ‘Model’The Fundamental ‘Model’

STRATEGY OPERATIONS TACTICS

VALUE

Loyalty/Love Belief/Behavior Custom/Habituation

Build FOCUS and “Mind Share”

Build TRUST and “Access Share”

Build CAPABILITY and “Market Share”

Build FRANCHISE and “Heart Share”

ProcessServiceBrandingBranding Value Indicator

IT/IMResearch/DDDistribution/LogisticsDistribution/Logistics

Segmentation Macro/Micro MethodologyTargeting Size Dynamic LeveragePositioningPositioning Reason for Being Offering

Five P’s (Concept/Creativity) Product/Promo/Price Place/PeopleSelling (Capture) B2B (Buyer-Seller/Promo) B2C (Advertising) C2C (Buzz/Virus/Referral)Differentiation Differentiation Content (What) Context (How) Infrastructure (Enables)

Value creation and destructionValue culture

Page 27: MBA Prequel & Overview

VISION

The Fundamental ‘Model’The Fundamental ‘Model’

STRATEGY OPERATIONS TACTICS

VALUE

Loyalty/Love Belief/Behavior Custom/Habituation

Build FOCUS and “Mind Share”

Build TRUST and “Access Share”

Build CAPABILITY and “Market Share”

Build FRANCHISE and “Heart Share”

ProcessServiceBrandingBranding Value Indicator

IT/IMResearch/DDDistribution/LogisticsDistribution/Logistics

Segmentation Macro/Micro MethodologyTargeting Size Dynamic LeveragePositioningPositioning Reason for Being Offering

Five P’s (Concept/Creativity) Product/Promo/Price Place/PeopleSelling (Capture) B2B (Buyer-Seller/Promo) B2C (Advertising) C2C (Buzz/Virus/Referral)Differentiation Differentiation Content (What) Context (How) Infrastructure (Enables)

Value creation and destructionValue culture

Page 28: MBA Prequel & Overview

VISION

The Fundamental ‘Model’The Fundamental ‘Model’

STRATEGY OPERATIONS TACTICS

VALUE

Loyalty/Love Belief/Behavior Custom/Habituation

Build FOCUS and “Mind Share”

Build TRUST and “Access Share”

Build CAPABILITY and “Market Share”

Build FRANCHISE and “Heart Share”

ProcessServiceBrandingBranding Value Indicator

IT/IMResearch/DDDistribution/LogisticsDistribution/Logistics

Segmentation Macro/Micro MethodologyTargeting Size Dynamic LeveragePositioningPositioning Reason for Being Offering

Five P’s (Concept/Creativity) Product/Promo/Price Place/PeopleSelling (Capture) B2B (Buyer-Seller/Promo) B2C (Advertising) C2C (Buzz/Virus/Referral)Differentiation Differentiation Content (What) Context (How) Infrastructure (Enables)

Value creation and destructionValue culture

Page 29: MBA Prequel & Overview

VISION

The Fundamental ‘Model’The Fundamental ‘Model’

STRATEGY OPERATIONS TACTICS

VALUE

Loyalty/Love Belief/Behavior Custom/Habituation

Build FOCUS and “Mind Share”

Build TRUST and “Access Share”

Build CAPABILITY and “Market Share”

Build FRANCHISE and “Heart Share”

ProcessServiceBrandingBranding Value Indicator

IT/IMResearch/DDDistribution/LogisticsDistribution/Logistics

Segmentation Macro/Micro MethodologyTargeting Size Dynamic LeveragePositioningPositioning Reason for Being Offering

Five P’s (Concept/Creativity) Product/Promo/Price Place/PeopleSelling (Capture) B2B (Buyer-Seller/Promo) B2C (Advertising) C2C (Buzz/Virus/Referral)Differentiation Differentiation Content (What) Context (How) Infrastructure (Enables)

Value creation and destructionValue culture

Page 30: MBA Prequel & Overview

Value can be expressed several ways. Three of the clearest are:

Benefits (total ‘get)Value = ---------- … or more specifically,

Price (total ‘give’)

Fb + EbValue = --------- … where,

P + Oe

Fb = Functional benefits (utility) Eb = Emotional benefits (psychology)

P = Price (charged) for acquisitionOe = Other expenses/costs of acquisition … and finally

Value = You answered my question!Solved my problem!

Page 31: MBA Prequel & Overview

How How YOUYOU Add Value Add Value• Exceptional due diligence in your work• Write a clear, concise, complete plan• Incorporate all component parts required• Professional format and organization• Establish a dialogue to avoid missteps• Provide sources on everything not your own• Work for a quality result not a grade (attitude)• Be an exemplary group member• Exhibit professional, quality behavior• Demand professional, quality behavior

Page 32: MBA Prequel & Overview

DeliverablesDeliverables• Industry analysis (IA) (pp. 45-64)

• Market analysis (MA) (pp.65-82)

• Sales forecast (SF) (pp.82-96)

• Marketing plan (MP) (pp. 97-126)

• Cash budget (CB) (pp. 178-184)

• Pro-forma financials (PFF) (pp. 184-215)

andand other credible sources maymay be used for these purposes, but

please please discuss substantial deviations in content or format!

Page 33: MBA Prequel & Overview

DeliverablesDeliverables

• Industry analysisIndustry analysis

• Market analysis

• Marketing plan

• Sales forecast

• Cash budget

• Pro-forma financial statements

Page 34: MBA Prequel & Overview

IA - SuggestionsIA - Suggestions• Characteristic attributes and processes of the industry

– Conceptual and geographic boundaries – What business are we in?– Customer attributes and characteristics– Competitive intelligence– Source availability, credibility, reliability, validity – Offerings, offering categories, and detailed market share rationales

• Firm-affecting drivers in the industry (search for better schema)

– Economic, competitive, social, legal, and political– Distributive, logistical, technological, ethical, regulatory– Trends toward clusters, alliances, contractual relationships

• Revenues and Profitability– History in industry overall and in the ‘most-like-us’ firms– Factors driving historical performance– Environmental factor analysis of future trends and possibilities

• Intelligence-based (Duly Diligent) Strategic Intent– Role of timing and location/place in market success– Specific documented opportunities presenting– Linkage between intended behaviors (long-term) and anticipated revenues

Page 35: MBA Prequel & Overview

DeliverablesDeliverables

• Industry analysis

• Market analysisMarket analysis

• Marketing plan

• Sales forecast

• Cash budget

• Pro-forma financial statements

Page 36: MBA Prequel & Overview

MA - SuggestionsMA - Suggestions• Characteristic attributes and processes of the market

– Conceptual and geographic boundaries and successful firm congruence

– Target market attributes and segments and niches of choice

– Competitive intelligence including their scope, behaviors, and outcomes

– Source availability, credibility, reliability, validity

– Offerings, offering categories, and detailed market share rationales

• Key influences on firms in the market (search for better schema)

– Economic, competitive, social, legal, and political

– Distributive, logistical, technological, ethical, regulatory, and cooperative

• Revenues and profitability specific to the targeted market– History in market with the ‘most-like-us’ firms

– Factors driving historical performance of like firms in market

– Environmental factor analysis of future market trends and possibilities

• Intelligence-based (Duly Diligent) Strategic Market Intent– Role of timing and location/place in target market success

– Specific documented opportunities presenting in the targeted market

– Linkage between intended market behaviors and long-term revenues

Page 37: MBA Prequel & Overview

DeliverablesDeliverables

• Industry analysis

• Market analysis

• Marketing planMarketing plan

• Sales forecast

• Cash budget

• Pro-forma financial statements

Page 38: MBA Prequel & Overview

MP - SuggestionsMP - Suggestions

• Description of the targeted segments, niches, and offerings that ‘FIT’– Formulate clear vision and mission– Encompass targeted offering mix with goals and strategic initiatives– Strategic commitment to definable, accessible customer base with means– Document target market attributes of segments and niches of choice – Create supported, persuasive, credible customer base positioning – Competitive intelligence including their scope, behaviors, and outcomes– Document all source availability, credibility, reliability, validity for ‘revisit’

• Key influences on firms in the target market (search for better schema)

– ‘Situational Review’ incorporating all deliverables– Economic, competitive, social, legal, and political– Distributive, logistical, technological, ethical, regulatory, and cooperative

Page 39: MBA Prequel & Overview

MP – SuggestionsMP – Suggestions(Continued(Continued))

• Specific targeted market opportunities– History in target or similar markets of the ‘most-like-us’ firms

– Factors driving historical performance of like firms serving customer base

– Estimated probability and outcomes of establishing a solid niche/segmentestablishing a solid niche/segment

– Specific acquisition histories and purchase habits of customer base

• Intelligence-based (Duly Diligent) Strategic Positioning– Role of timing and location/place in target market positioningpositioning

– Respond to documented opportunities identified in the targeted market

– Establish linkage from goals to tracking customer outcomes and revenues

GoalsGoals StrategyStrategy TacticsTactics TrackingTracking

McCarthy’s Marketing Mix – McCarthy’s Marketing Mix – 4 P’s4 P’s

Page 40: MBA Prequel & Overview

DeliverablesDeliverables

• Industry analysis

• Market analysis

• Marketing plan

• Sales forecast Sales forecast

• Cash budget

• Pro-forma financial statements

Page 41: MBA Prequel & Overview

• Most fundamental data points determined– Essential information for many other parts of the plan– Every estimation should be supportable and linked to process– Segment/niche analysis falling short of break-even is a red flagred flag– Realization of a profitable forecasted revenue flow is $ucce$$’is $ucce$$’– Tracking defines the Product Life Cycle

• Sales Forecast Boundaries– National economy– Firm’s industry– Targeted segments/niches– Firm’s offering revenue forecasts

• Sales Forecasting Methods– Extrapolation (smoothed curve, cyclicity, seasonality) if if past has worked– Market build-up by segment/niche by sales force/management– Sales-correlated factors (variables)– Customer survey– Expert opinion, judgment

SF - SuggestionsSF - Suggestions

Page 42: MBA Prequel & Overview

DeliverablesDeliverables

• Industry analysis

• Market analysis

• Marketing plan

• Sales forecast

• Cash budget Cash budget

• Pro-forma financial statements

Page 43: MBA Prequel & Overview

CB - SuggestionsCB - Suggestions• Realistic periodic cash inflow/outflow stream from operations

– Inflows: cash receipts, accounts, asset sales, tax back

– Outflows: purchases, wages/salaries, taxes, dividends, debt service

• Inflows: Going concern differs from proposed business– Cash sales and Receivables Collection Patterns can be extrapolated

– Specific methodologies apply

– Proposed business requires estimates

• Outflows: Should be driven by plans and budgets– Fixed: salaries, leases, debt service, etc.

– Variable: labor, advertising, purchasing, etc.

Page 44: MBA Prequel & Overview

DeliverablesDeliverables

• Industry analysis

• Market analysis

• Marketing plan

• Sales forecast

• Cash budget

• Pro-forma financial statementsPro-forma financial statements

Page 45: MBA Prequel & Overview

PFF - SuggestionsPFF - Suggestions• Envision an historical income statement and balance sheet (but

cash flows based in planned future events as if already over)– Income Statement: sales, expenses, profits

– Balance Sheet: Assets, liabilities, owner’s equity (retained earnings)

• Total fund sources compared to total fund expenditures– Reveals surpluses to be deployed if revenues exceed expenditures– Treat forecasts, projections, budgets as ‘diligently known’ (p. 184 ff.)

– Reveals financing required if expenditures exceed revenues – THIS is the raison d’etre of the pro forma, the ‘plug figure’ – a shortfall you must must meet

– Assumes relationships between revenues and all other items

• Useful in assessing and tracking risk– Business risk – sales and cash flow fluctuations

– Financial risk – probability of penalties related to debt• Financial and business risk must be viewed as Financial and business risk must be viewed as inversely relatedinversely related• Debt service is relatively constant, while projected revenues may be ‘off’• Justifies every ounce of due diligence: competitors, segments, positioning, etc.• Internal (operations costs) and external factors (economy) will fluctuatewill fluctuate

Page 46: MBA Prequel & Overview

Marketing ComplexityMarketing Complexity• You have seen a few models – ‘extracts’ of reality• Marketing is comprised of scores and scores of models (e.g., ad lag)• Many models are borrowed (stolen, lifted, …) from other areas• Marketers have differing views of models (components)• Marketing ‘essence’ is diversely perceived: (among others)

– Exchange processes

– Customer relationships

– Stakeholders

• Marketers very seldom agree on one viewpoint, or focus, or model• McKenna said ‘marketing was everything’• Levitt said marketing had become ‘globally homogeneous’• A question to answer: What business are we in, and why?• Another question: Who is our customer…really?• It is, at the core, a grand adventure… enjoy• If you needed proof, we will finish with an interesting model, a matrix…

Page 47: MBA Prequel & Overview

The ‘Strategic’ (Tactical) Matrix

Customer Competitor Channels Compliance Company

Product

Price

Promotion

Place

Environmental Conditions

Intended Behaviors

Page 48: MBA Prequel & Overview

Now a slightly more traditional Now a slightly more traditional approach to defining marketing…approach to defining marketing…