1Market Analysis

Business Plan PreparationBusiness Plan PreparationBusiness Plan PreparationBusiness Plan Preparation

Frank MoyesFrank MoyesLeeds School of BusinessLeeds School of BusinessUniversity of ColoradoUniversity of ColoradoBoulder, ColoradoBoulder, Colorado

2Market Analysis

Tonight’s AgendaTonight’s Agenda TopicsTopics

Opportunity/NeedOpportunity/Need Market Analysis Market Analysis SegmentationSegmentation Financial CompFinancial Comp Model CompanyModel Company

Evaluate MRP & Hecho en Casa business plansEvaluate MRP & Hecho en Casa business plans Hand-in Interview ListHand-in Interview List

3Market Analysis

Next WeekNext Week

TopicsTopics Industry AnalysisIndustry Analysis Competitive AdvantageCompetitive Advantage Value ChainValue Chain Business ModelBusiness Model

ReadRead BP pp 11-13, 27BP pp 11-13, 27 Business Model AssignmentBusiness Model Assignment

In the FireIn the Fire Opportunity/NeedOpportunity/Need Value PropositionValue Proposition

4Market Analysis

Opportunity/NeedOpportunity/Need

What is the pain?What is the pain? What problem is being solved? What problem is being solved?

Dissatisfaction with current products/servicesDissatisfaction with current products/services Poor quality or servicePoor quality or service

Must be compellingMust be compelling Must be easily understood by TM Must be easily understood by TM

5Market Analysis

Market AnalysisMarket Analysis

Market: “group of current and potential customers Market: “group of current and potential customers having the willingness and ability to buy having the willingness and ability to buy product/services to satisfy a need.”product/services to satisfy a need.”

Industry: “group of sellers that offer product/services Industry: “group of sellers that offer product/services that are similar and close substitutes for one another.”that are similar and close substitutes for one another.”

JW Mullins, New Business Road Test

6Market Analysis

Market Analysis SectionsMarket Analysis Sections

Market size & growthMarket size & growth TrendsTrends Target MarketTarget Market Channels of distributionChannels of distribution

7Market Analysis

Market Analysis (Macro)Market Analysis (Macro)

What is the size & growth potential?What is the size & growth potential? Historic and futureHistoric and future Must indicate sourcesMust indicate sources Segment your marketSegment your market

Lot’s of numbers – show in tablesLot’s of numbers – show in tables

8Market Analysis

Market Segmentation Market Segmentation (Macro)(Macro)

Groups of customers – demographics & psychographicsGroups of customers – demographics & psychographics Products – features, benefits, pricesProducts – features, benefits, prices Geography – see Hecho en CasaGeography – see Hecho en Casa Distribution channelsDistribution channels Sector – industrial (see MRT), consumer, governmentSector – industrial (see MRT), consumer, government

Objective is to identify potential entry pointsObjective is to identify potential entry points

Environmental Market Table$ in bn

Projected 10 YearUS Industry 2000 2002 2010 Growth Rate

Environmental Services 98$ 99$ 104$ 6.1%Environmental Equipment 54 55 57 5.6%Environmental Resources 52 55 67 28.8%

Total 204$ 209$ 228$ 11.8%Global Industry 480$ 487$ 517$ 0.75%

US Marketplace Projected 10 YearEnvironmental Equipment 2000 2002 2010 Growth Rate

Water Equipment & Chemicals 21$ 23$ 28$ 31.0%Process & Prevention Tech 2 3 4 83.0%All Other Segments 30 29 25 -18.4%Total 54$ 55$ 57$ 5.6%

Source: Environmental Business International (EBI)

Market Size

Market Size

10Market Analysis

TrendsTrends

What changes are taking place – economic, socio-What changes are taking place – economic, socio-cultural, political/legal, global, environmental, cultural, political/legal, global, environmental, demographic, technologicaldemographic, technological

Positive and negative trendsPositive and negative trends Dissatisfied groupsDissatisfied groups Must provide your sourcesMust provide your sources

11Market Analysis

Target Segment Target Segment (Micro)(Micro)

Best point of entryBest point of entry What is the size & growth potential?What is the size & growth potential?

Consumer - demographics & psychographicsConsumer - demographics & psychographics Business – types of organizations, buying decisionsBusiness – types of organizations, buying decisions

Understand customer behaviorUnderstand customer behavior How are products used?How are products used? How are buying decisions made?How are buying decisions made?

It’s not about you!It’s not about you!

12Market Analysis

Target Market (Micro)Target Market (Micro)

Benefits are understood, compelling & differentiatedBenefits are understood, compelling & differentiated Potential to grow & expand to other segmentsPotential to grow & expand to other segments Evidence that the customer wants to buyEvidence that the customer wants to buy

Customer research is keyCustomer research is key Surveys provide credibilitySurveys provide credibility Lurk & ListenLurk & Listen

13Market Analysis

Channels of DistributionChannels of Distribution

What is normal for your market?What is normal for your market? Distributors, wholesalers, dealer, retailer, internet, system Distributors, wholesalers, dealer, retailer, internet, system

integrator, Value Added Retailer (VAR) Original Equipment integrator, Value Added Retailer (VAR) Original Equipment Manufacturer (OEM)Manufacturer (OEM)

How are buying decisions madeHow are buying decisions made

14Market Analysis

Value Proposition -Value Proposition - 3 Elements3 Elements

What are the features?What are the features? Who is the target market?Who is the target market? What are the benefits?What are the benefits?

15Market Analysis

Value PropositionValue Proposition

“XYZ is a_______[describe] company. By its _______[feature(s)], it provides ______ [unique benefit(s)] to ______[target market]”

16Market Analysis

Simple Value PropositionSimple Value PropositionSST CorporationSST Corporation

“SST is a stainless steel toothbrush company. By its one bristle brush made of high tensile stainless steel, it provides an exhilarating tooth cleaning experience to thrill-seeking X-gen consumers”

17Market Analysis

Simple Value PropositionSimple Value PropositionDell ComputerDell Computer

“Dell Computer sells personal computers to consumers. Our build-to-order manufacturing and customer-direct sales enable us to offer custom built computers at very competitive prices. Our customers get the computer that they have always imagined and save money.”

18Market Analysis

Simple Value PropositionSimple Value PropositionVic’s CoffeeVic’s Coffee

“Vic’s Coffee is a Boulder based coffee house. Its gourmet coffee, convenient and fast service, provide a welcoming environment for people who want to meet with their friends or a stimulating morning coffee for on-the-go business people.”

19Market Analysis

Value PropositionValue Proposition

Proflowers serves the “price sensitive and convenience Proflowers serves the “price sensitive and convenience oriented customers” with the “freshest cut flowers at a oriented customers” with the “freshest cut flowers at a competitive price”, because of their unique sourcing and competitive price”, because of their unique sourcing and Fed/Ex shipping arrangements.Fed/Ex shipping arrangements.

FTD.com serves the “mid-to high-end market” by FTD.com serves the “mid-to high-end market” by providing the “easiest way to send flowers and gifts” providing the “easiest way to send flowers and gifts” because of their strong brand name, market because of their strong brand name, market communications and supplier network.communications and supplier network.

e-Commerce; Rayport & Jawroski

20Market Analysis

Financial COMP’sFinancial COMP’s

Company in your marketplace. Company in your marketplace. NAIC codeNAIC code Publicly tradedPublicly traded Industry ratios – see Selected Resources Guide LibraryIndustry ratios – see Selected Resources Guide Library

Key financial measures to compare when developing Key financial measures to compare when developing strategy and projectionsstrategy and projections

Reality testReality test

Select BestRatios Company A Company B Company C Comparison Year 1 Year 2 Year 3 Year 4 Year 5

Accounts Receivable % of Rev 10.0% 15.0% 12.0% 10.0% 8.3% 8.3% 8.3% 8.3% 8.3%Inventory % of Rev 15.0% 10.0% 7.0% 15.0% 8.3% 8.3% 6.7% 6.7% 6.7%Accounts Payable % of Rev 8.0% 9.0% 8.5% 8.0% 8.3% 8.3% 8.7% 8.7% 8.7%Working Capital % of Rev 16.0% 18.0% 12.0% 16.0% 8.3% 8.3% 6.3% 6.3% 6.3%Net Fixed Assets % of Rev 9.0% 8.0% 2.0% 9.0% 23.7% 11.5% 9.3% 7.3% 5.5%Current Ratio 2.3 3.0 2.5 2.3 4.3 2.1 2.0 1.9 2.1Debt to Capital (LT Debt + Equity) 1.2 0 0.2 1.2 0.00 0.32 0.18 0.10 0.04

ProfitabilityGross Profit % of Rev 30.0% 25.0% 22.0% 30.0% -11.7% 32.7% 41.5% 42.5% 46.0%Sales & Marketing % of Rev 30.0% 20.0% 18.0% 20.0% 22.9% 19.0% 18.5% 17.9% 18.0%Research & Development % of Rev 30.0% 10.0% 11.0% 10.0% 14.9% 7.9% 7.2% 7.6% 6.7%General & Administration % of Rev 30.0% 10.0% 8.0% 7.0% 17.2% 8.9% 8.1% 7.3% 6.8%Operating Expenses % of Rev 80.0% 30.0% 35.0% 30.0% 55.0% 35.7% 33.8% 32.9% 31.5%Earnings from Operations % of Rev 12.0% 7.5% 10.0% 12.0% -66.7% -3.0% 7.7% 9.6% 14.5%EBIT % of Rev 12.0% 5.0% 10.0% 12.0% -71.2% -3.0% 7.7% 9.6% 14.5%Depreciation % of Rev 3.0% 5.0% 4.0% 3.0% 4.3% 2.5% 2.5% 2.3% 2.0%EBITDA % of Rev 14.0% 12.0% 10.0% 14.0% -66.9% -0.5% 10.2% 11.9% 16.5%Net Earnings % of Rev 5.0% -4.0% 2.0% 5.0% -71.2% -4.2% 7.2% 6.2% 8.7%

Projections

Financial COMP’sFinancial COMP’s

22Market Analysis

Model CompanyModel Company

Identify company in your marketplaceIdentify company in your marketplace Different segment, products, target marketDifferent segment, products, target market Done just what you want to doDone just what you want to do Provides credibilityProvides credibility

23Market Analysis

Business PlansBusiness Plans

Metal Removal TechnologyMetal Removal Technology Hecho en CasaHecho en Casa

24Market Analysis

FeaturesFeatures

Describe the product or service - range, environment, Describe the product or service - range, environment, employeesemployees

What are the key product/service attributes What are the key product/service attributes (performance, cost, quality, social, availability, service, (performance, cost, quality, social, availability, service, and environment)?and environment)?

How is the product/service produced and delivered? How is the product/service produced and delivered? Does the process provide a competitive advantage?Does the process provide a competitive advantage?

25Market Analysis

Target MarketTarget Market

Who is the target market? Why? Who is the target market? Why? DemographicsDemographics Psychographics or life stylePsychographics or life style Social status: infers certain behaviorSocial status: infers certain behavior

How are buying decisions made? What are the How are buying decisions made? What are the criteria? Who makes the decision? Who influences the criteria? Who makes the decision? Who influences the decision? decision?

26Market Analysis

What Are the Benefits?What Are the Benefits? Emotional: ambition, power, independence, achievement, Emotional: ambition, power, independence, achievement,

ambition, pride of ownership, comfort, love, friendship, security, ambition, pride of ownership, comfort, love, friendship, security, style, self Improvement, etc.style, self Improvement, etc.

Social: status, image, popularity with friends or family members, Social: status, image, popularity with friends or family members, reputation of brand, personal relationships, style, fashionable, reputation of brand, personal relationships, style, fashionable, etc.etc.

Health: stress, fitness, mental capacity, strength, sex life, quality Health: stress, fitness, mental capacity, strength, sex life, quality of life, muse, etc.of life, muse, etc.

Financial: revenue, costs, savings, productivity, pricing, Financial: revenue, costs, savings, productivity, pricing, profitability, market share, save time, productivity, etc.profitability, market share, save time, productivity, etc.

Life style: convenience, saves timeLife style: convenience, saves time