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The crucial question to control your idea is: why will this new business work when most will fail, or why will or won’t this opportunity work.

At its heart, successful entrepreneurship is comprised of three crucial elements: markets, industries and the one or more key people who make up the entrepreneurial team.

Why is the market-industry distinction important? Because judgements about the attractiveness of the market one proposes to serve may be very different from judgements about the industry in which one would compete.

Macro level:
Measuring the market-size. Measure methods include:
• Number of customers in the market
• The aggregate money spent by these customers relevant class of goods or services
• The number of units of relevant products or usage occasions

You need to assess broad macro-environmental trends – demographic, sociocultural, economic, technological, regulatory and natural to determine whether things are likely to get better or worse in the future.

It is important for an entrepreneur to know whether the opportunity is a substantial one, serving a large and attractive market, or a niche opportunity with limited potential. Either may be acceptable: it depends on the entrepreneur’s aspirations. It is also important to know which way the tides are flowing. So reaching a clear conclusion about market attractiveness is critical.

Micro level:
Identify a much smaller segment of customers within the overall market. The micro-level market assessment involves asking four key questions relevant to such a segment:
• Is there a target market segment where we might enter the market in which we offer customers clear and compelling benefits, or better resolve their pain at a price they are willing to pay?
• Are these benefits, in the customers minds, different from and superior in some way? Are the solutions better, faster, cheaper or whatever to what is currently offered?
• How large is this segment, and how fast is it growing?
• Is it likely that our entry into this segment will provide us with access to other segments that we may wish to target in future?

Competitive and economic factors micro level:
• The presence of proprietary elements- patents, trade secrets and so on that other firms are unable to duplicate.
• The likely presence of superior organizational processes, capabilities or resources that others would have difficulty duplication or imitating.
• The presence of an economically sustainable business model, one that won’t quickly run out of cash. This factor, in turn, involves a careful look at some more detailed issues:
 Revenue, in relation to the capital investment required and margins obtainable.
 Customer acquisition and retention costs, and the time it will take to obtain customers
 Contribution margins and their adequacy to cover the necessary fixed-cost structure to operate the business.
 Operating cash-cycle characteristics.

Three domains relating to the entrepreneur or entrepreneurial team itself, and investors. Examining these domains is necessary in order to complete the opportunity assessment task:
• Does the opportunity fit the team’s business mission, personal aspirations and risk propensity, and does all of that align with that of a prospective investor?
• Does the team have what it takes, in a human sense, in experience and industry know-how, to deliver superior performance for this particular opportunity, given its critical success factors, those factors that, done right, almost guarantee superior performance, even if other things aren’t done so well; or done wrong, will have severely negative effects on performance, regardless of doing other things right?
• Is the team well connected up, down and across the value chain so it will be quick to notice and opportunity or need to change its approach if conditions warrant?

Viewing investors as part of the team also builds trust and can reduce the risk investors perceive in the venture.

Why won’t this work?
If flaws that cannot be fixed are found, the best thing to do is to abandon the opportunity at this early stage and move on to something more attractive. Persisting with fundamentally flawed opportunity is likely to have one of two outcomes, both of which are unpleasant.
• In best case scenario, the experienced investors or other resource providers, suppliers, partners, and so on will identify the flaws that you have ignored and refuse to give you the resources you need, even if you have gone to great lengths to craft a business plan that papers over these flaws.
• The worst case scenario, you already have got the money from the investors, whereby the flaws will appear when you the business is on.

Successful entrepreneurial ventures are about serving customers and their needs and resolving their pain. Not just any customers. Target 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.

What investors want to know?
Most venture capital investors will tell you, more money gets made on plan B or C or… than ever gets made on plan A.

Investors are looking for investments in businesses with big potentials. So you need to know whether the opportunity has the potential to be big.

Investors want to know that any advantage your new venture possesses will have the staying power to thrive that long. Otherwise, competitors may enter and overtake your company before an exit can be achieved.

The three F’s are Family, Friends and Fools.

Because investors can win or lose a lot of money, they want to know that the entrepreneurs they back will make extraordinary efforts and commitments to beat the long odds. To ensure such commitment, they want to know that you have something to lose if you fail, just as they do. What this means, in practical terms, is that investors often want to see that you are willing to risk your capital, just as they are risking theirs.

Before you launch a lean start-up, write a business plan, and before you approach prospective investors. You need to be clear about your mission, aspirations and risk propensity. Approaching your investors sooner is a waste of time or worse a potential disaster. There is no faster way for investors to remove you from your leadership role than to have them discover that your and their goals are incompatible. This is far more common than most nascent entrepreneurs would believe. Building an NLO business a nice living for the owner is not something most investors have in mind.

What astute investors look for in people is simple, really, but not very obvious to most aspiring entrepreneurs.
• Investors want to know that the lead entrepreneur has identified and understands the CSFs in the industry they propose to enter, as well as the market and competitive environment they will encounter. A credible understanding of the 7 domains can provide the evidence.
• The crucial one, is that the lead entrepreneur has then assembled a team that can demonstrate in past deeds, not words that its players taken together can execute. On what? Execute on each and every one of the handful of CSFs that the venture’s industry and strategy therein will require. Or, alternatively, and equally satisfactorily, the entrepreneur has identified what’s necessary and also what’s lacking on their team and acknowledged the need to fill that gap, perhaps with the investor’s help.

What do investors arguably the most important readers of your business plan, want to know from a micro-market perspective?
• First and foremost, investors really don’t care about you and your idea, at least at the outset. They want to know about the customer pain that your offering will resolve. No pain, no gain. If you can identify the customer pain, then their attention will be piqued.
• Alternatively, for some business to consumer opportunities, investors will settle for consumer delight.
• Investors want to know who the target customer is who has the pain, or will receive the delight, and they want evidence that the target customer will buy what’s to be offered at a price that works for them.

Investors often hear entrepreneurs say something like this: My market is huge. If I get just 10% of it or 1%, we will all be rich! The problem with large markets, especially large markets that are growing fast, is that other like them too!!

Four crucial micro-level questions about target markets:
1. Is there a target market segment where we might enter the market in which we offer customers clear and compelling benefits, or better resolve customers pain, at a price they are willing to pay.
2. Are these benefits, in the customers minds, different from and superior in some way, are they better, faster, cheaper or whatever. To what’s currently offered by other solutions.
3. How large is this segment, and how fast is it growing?
4. Is it likely that our entry into this segment will provide us with access to other segments that we may wish to target in the future?

Will the fish bite? Without an affirmative answer to this crucial question, an entrepreneur has little to offer, either to customers or to investors.

Three ways to define market segments:
1. By who the customers are in demographic terms (age, gender, education, income, etc.) for business to business opportunities, demographics refer to the industry in which the customers do business, plus firm size and other firm characteristics.
2. By where the customers are in geographical terms.
3. By how the customers behave, in behavioural or lifestyle terms.

Different market segments have different needs, thereby calling for different solutions. Entrepreneurs are renowned for finding new ways to segment markets that they serve, often behaviourally, thereby creating new segments that they can dominate.

Macro level focussed on the market attractiveness macro level:
Is this the good market?
One way to mitigate the long odds, as we saw in Chapter 2, is to make sure you’ve identified an attractive market segment, one where the customers, according to evidence you’ve gathered, are almost certain to buy what you’ll offer. But let’s pause to ask some more questions.
What you want to find is evidence of market size and market growth, both today and tomorrow.

Three crucial questions about markets:
1. Is your market large enough today to allow different competitors the opportunity to serve different segments without getting in each other’s way.
2. What are the predictions for your market’s short-term growth rate?
3. What are the predictions for your market’s long term growth rate?

Industry domain: Industry attractiveness.
The key question you need to answer is; is this a good industry?
5 forces analysis Porter:
The key outcome is to reach a clear conclusion about the attractiveness of your industry.
• Threat of entry
• Buyer power
• Supplier power
• Threat of substitutes
• Competitive rivalry
The five forces: Questions to ask: Answers that entrepreneurs want to hear:
Threat of entry: Is it easy or difficult for companies to enter this industry? Entrepreneurs planning a very quick exit are happy if it’s easy to enter. Those hoping to build more enduring ventures prefer high barriers to entry, so others cannot easily follow
Supplier power: Do suppliers to this industry have the power to set terms and conditions? Entrepreneurs prefer weak supplier power
Buyer power: Do buyers have the power to set terms and conditions? Entrepreneurs prefer weak buyer power
Threat of substitutes: Is it easy or difficult for substitute products to steal my market? Entrepreneurs prefer little threat of substitutes.
Competitive rivalry: Is competitive rivalry intense or genteel? Entrepreneurs prefer little competitive rivalry.
Based on all five forces, what is your overall assessment of your industry? Just how attractive or unattractive is it?
Defining your industry:
The real question here is whether it’s better to define your industry narrowly or broadly.
Defining industries narrowly has some merit. It can clarify your focus as to who the principal competitors are, which helps in assessing competitive rivalry. Doing so also can help you think clearly about differentiation, an important issue, as we saw in Chapter 2. But a narrow industry definition can, if you are not careful, make it easy to overlook relevant substitutes, which, in some industries, are crucially important.
Defining one’s industry broadly also has merit, for it brings substitutes into view. A broad industry definition also makes it easier to consider changes in your offering that might enhance its marketability. On the downside, viewing things broadly may lead to a lack of focus. In cash-starved entrepreneurial start-ups, focus is essential. There simply aren’t enough resources to do very many things well.

Micro level: Competitive and economic sustainability:
The keys to competitive sustainability:
An initial competitive advantage arises when the offering provides differentiated benefits to customers that in the customers minds are better, cheaper or faster than those offered by competitors. Such an advantage is likely to be sustainable when:
• There are proprietary elements like patents, trade secrets and so on, those things will make sure that other firms are not likely to duplicate or imitate.
• There are superior organizational processes, capabilities or resources that others would have difficulty in duplicating or imitating.

The keys to economic sustainability:
The economics of a business become sustainable when the company’s business model is sufficiently robust so as to not run out of cash. Economic sustainability rests largely on the following factors:
• Revenue is adequate in relation to capital investment required and margins obtainable.
• Customer acquisition and retention costs and the time it will take to attract customers are viable.
• Contribution margins are adequate to cover the necessary fixed cost structure.
• Operating cash cycle characteristics are favourable, including factors such as:
 How much cash must be tied up in working capital (inventory or other) and for how long:
 How quickly customers will paid.
 How slowly suppliers and employees can be paid.

Team domain, Mission, aspirations, propensity for risk:
What drives your entrepreneurial dream?

Each successful entrepreneur brings to their venture an important set of elements that drives their entrepreneurial dream:
• A mission that determines what kind of business to build or what kinds of markets to serve.
• A set of personal aspirations that guides the level of achievement to be sought.
• Some level of risk propensity that indicates what sort of risks are to be taken and what sort of sacrifices are to be made in pursuit of the dream.

Lessons learned from Schultz founder of Starbucks:
While for many investors the mission is simply to make money, for entrepreneurs a burning desire to make money is not enough on its own. It is almost impossible for entrepreneurs to be wildly successful in a business they don’t deeply care about. Without a greater purpose than money, the battles are simply too tough to tackle simply for money’s sake.

There are three questions every aspiring entrepreneur should ask:
• How big do I want this business to become, in sales, profits, number of employees, number of locations or by some other measure?
• What role do I want in this venture: do I want to create, do, manage or lead?
• For how long do I want to remain involved with it?

If you want to build a greater enterprise, you have to have the courage to dream great dreams. If you dream small dreams, you may succeed in building something small. For many people, that is enough. But if you want to achieve widespread impact and lasting value, be bold.

You have to work so hard and have so much enthusiasm for one thing that most other things in your life have to be sacrificed. It is not for everyone. Is it for you? If so, a lean start-up may be your Launchpad, but it’s not your endgame.

There is a common mistake a lot of entrepreneurs make. They own the idea, and they have the passion to pursue it. But they can’t possibly possess all the skills needed to make the idea actually happen. Reluctant to delegate, they surround themselves with faithful aides. They are afraid to bring in truly smart, successful individuals as high-level managers.

Most successful entrepreneurs do not regard themselves as risk-takers. Managers of risk, yes. But risk-takers, no. Their job is to offload the inherent risk in their ventures to suppliers, investors, landlords and whomever is willing to bear it. In their hearts, most entrepreneurs see little risk, naïvely perhaps given their belief that theirs is one new venture that will buck the long odds and succeed.

Team domain: Ability to execute on CSFs:
Can you and your team execute?

A common difference between winners and losers is that the winners figure out the factors critical to succeeding in their particular industry, and then assemble their team accordingly. The losers either do not identify these critical success factors or do not possess a team capable of delivering on them.

If you want to participate in a extremely competitive business with negative 5 forces, can you still be successful? Yes but, these entrepreneurs must be able to:
• Identify the critical success factors specific to their particular industry.
• Assemble a team that can execute on these factors.

How do I work out what the critical success factors are for my industry? Are the answers found in the trade press, on the internet or in strategy textbooks? Unfortunately, no. Knowledge of the CSFs for any industry resides in the experience of those who have learned often the hard way which things absolutely must be done right. Whether you have such experience or you must access that of others who have it, there are two key questions to ask to identify your industry’s CSFs.
• Which few decisions or activities are the one that, if you get wrong, will almost always have severely negative effects on company performance, even when other things are done well?
• Which decisions or activities, done right, will almost always deliver disproportionately positive effects on performance, even if other things are done less well, or even poorly?

• Fill out your team with people who can deliver what you yourself do not have or cannot do. Fill it with people who are different from you, diverse teams generally perform better than look-alikes.

Putting all 7 domains together:
Why will or won’t my idea work?
Score them, or rate them green, yellow or red if you wish, but don’t add them up. Instead, do the following:
1. Consider your mission, aspirations and propensity for risk, so you’ll know what sort of opportunity you are looking for.
2. Look for the one domain that shows a potential opportunity.
3. Look for any domain where your score is low.

Some opportunities look unappealing on one or more of the seven domains, but they may nevertheless be attractive to certain entrepreneurs, given the presence of either:
• Sufficient innovation that’s meaningful to customers and is likely to cause a stagnant market to grow substantially.
• Differentiation that is either proprietary or complex enough to provide sustainable advantage in spite of unfavourable industry conditions.
Sufficient strength in these micro-level domains especially when combined with strong, well-connected team can offset weakness on the macro-level factors.


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