MGT420 - Module 01 Important Topics and Study Guide (2024-2025).pdf

Module 1: Analyze the Industry and Market Dr. Kipp A. Krukowski MGT 420 – New Venture Creation Why is today’s topic important? Many of business failures are due to an entrepreneur’s overconfidence in their belief that… the problem they are solving is significant, they have identified...

Module 1: Analyze the Industry and Market Dr. Kipp A. Krukowski MGT 420 – New Venture Creation Why is today’s topic important? Many of business failures are due to an entrepreneur’s overconfidence in their belief that… the problem they are solving is significant, they have identified the best solution, they know who the ideal customer is, and how they will easily be able to sell the product (or service) to them. You can’t afford to make these assumptions! Mitigate risks by getting support to justify the reasons you’re making your decisions! Industries and Markets Liability of Newness Industry - grouping of businesses that interact in a common environment as part of a value chain or distribution channel that delivers a particular good. An industry is defined by a product or service, whereas a market is defined by customers—those who pay for the benefits of the product or service. – Primary market - customers that have the most need for what you’re offering – Must identify first customers (early adopters) – Therefore, the first customer may not be the biggest potential market but rather be an unserved niche that enables you to enter the market with no direct competition for a time Industry Analysis Two important reasons to study your industry: – Understand external environment – Understand if you can make enough profit to make effort worthwhile Must gather all the information answering questions like: – Where are the opportunities? – How quickly does the industry adopt new technology? – How much do industry companies spend on research and development? – Who are the opinion leaders in the industry? – Are there young, successful firms in the industry? – What does the future look like? – Are there any threats to the industry? – What are the typical margins in the industry? Secondary Sources of Information Wise to begin by gathering background data – Industry reports (Example: IBISWorld) – Demographic data (Example: Mergent Intellect) – Publications of trade associations – Academic articles – Magazine articles and newsletters – Government databases (Example: Census) – Required SEC filings – Competitors’ websites – Online reviews Use multiple sources - no one source is complete and to gain variety of perspectives Smaller / newer industries data may be buried in larger industry - need to dig deep Industry Life Cycles Industries constantly evolve (like humans) Porter’s Five Forces Michael Porter provided way to look at structure of an industry and a company’s competitive strength and positioning Basic premise: high performance requires a strategy and implementation plan based on knowledge of how industry works Porter asserts that there are five forces in any industry that affect the ultimate profit potential of a venture in terms of long-run return on investment Attractive vs. Unattractive Industries Based on the Five Forces Value Chain Every business operates within a value chain of an industry Value chain - all the companies that contribute to the development and distribution of products and services – Where a company is located in the value chain normally reflects the entrepreneur’s capabilities and risk- taking propensity. – Once the business is located on the value chain, it is easier to recognize who pays whom (who is the customer) and to determine costs and pricing. Primary Industry Data Lead time of secondary research from data gathering to print means data may not always be up-to-date Primary field data sources: – Industry observers and analysts – Suppliers and distributors – Customers – Employees of key firms in the industry – Professionals from service organizations – Industry conferences and trade shows Market Research for Customer Discovery Entrepreneurs experiment by forming hypotheses about problems and needs and the customers who have them, and then test those hypotheses with real customers to validate their thinking. – Usually, entrepreneur must reformulate some hypotheses and test again This iterative process may go through several cycles before entrepreneur is satisfied problem being solved is the right problem and that it’s matched to the right customer For a new company, the goals of market research are to: – Identify and profile the first customer – Estimate potential demand from that customer – Identify subsequent customer segments that can be tapped later on to grow the company  Process for Gathering Market Data Assess your information How will the data be used? needs. What data need to be collected? What methods of analysis will be used? What are the potential business designs under consideration? Research secondary What are the demographics of the target market? sources first. What are the psychographics of the customer (i.e., buying habits)? How large is the market? Is the market growing? Is the market affected by geography? How can you reach your market? How do competitors reach the market? What market strategies have been successful with these customers?  Process for Gathering Market Data Measure the target market What are the demographics of the first customer? with primary research. Would they purchase your product or service? Why? How much would they purchase? When would they purchase? How would they like to find the product or service? What do they like about your competitors’ products and services? Forecast demand for the What do substitute products/services tell you about demand for product or service. your product/service? What do customers, end users, and intermediaries predict the demand will be? Can you do a limited production or test market for your product or service? Competitive Intelligence One of the weakest portions of any feasibility analysis or business plan is the competitive analysis. Entrepreneurs frequently underestimate or completely ignore the competition because: – Their information is incomplete because competitors don’t reveal their most proprietary strategies and tactics. – They tend to underestimate what it takes in the way of resources and skills to establish a presence in the market. – They don’t identify all the roadblocks along the way. – They don’t know what they don’t know! Identifying the Competition Direct competitors - those businesses that serve the same customer needs with the same types of resources. Indirect or substitute - serve the same customer needs but with different resources as in substitute products, services, or distribution channels. Emerging or potential - those that are not currently serving the same customer needs but have the resources to quickly move into that space and compete. – Sometimes the most threatening aspect of a competitor is not readily visible in the typical facts that are reported, and frequently competitors come from outside your industry and market. Business Strategies Use Lean Canvas and Business Model Canvas to identify critical driving forces Focus versus Differentiation Strategies (can be a combination of the two) – Focus strategy – focus niche segment within a market allowing you to cater to different needs, wants, characteristics – Differentiation strategy - create superior value for the customer through making modifications in the product/service resulting in unique value 3 Key Take-aways You need to understand the industry dynamics and competitive forces. You must fully understand your competition. This means extensive research on the market players. You must develop a business model and be strategic, taking into account the industry and competition…and you must continue to look for improvements and evolve or a new entrant may take your place. Questions? Dr. Kipp A. Krukowski MGT 420 – New Venture Creation