All entries for Tuesday 20 April 2010
April 20, 2010
There is a committee that considers strategic developments on the basis of business plans. It is concerned that it may be too risk averse and requires some new guidance on evaluating business plans. Having worked through the PORES how would you advise the committee?
The first thing that comes into my mind when reading through the question is: who are the members of the committee? Are there actually members that have real business experience and have lived through success or failure? Or is there more members with little real life experience? Having a mixed and well balanced group can help to bring in new views in evaluation process. Especially at the point when numbers and facts from the papers just cannot tell more.
Furthermore, who is preparing business plans? Is it necessary to re-assess the business plans structure and content in order to enable the committee getting more dimensional view?
PORES analysis is an evaluation approach helping to assess the business opportunity on basic principles reviewing elementals. It can help the committee to understand whether the level of its risk aversion is appropriate. PORES views the opportunity as a dynamic one. Therefore should the committee be evaluating dynamic business plans, performing further evaluation will not bring in much more light and might be unnecessary and expensive. On the contrary, should the committee be working with static business plans or Dehydrated business plans (William D. Bygrave and Andrew Zacharakis 2004) PORES can provide the needed dimensions for further decision making. PORES tends to be a costly analysis, therefore it is to be used when the business idea shows signs of being viable. Dehydrated business plans can serve to provide initial conception of the business only.
Before moving to PORES analysis however, it is also important to understand what is the committee investing in: the idea itself or the entrepreneur? While many great companies built a successful start up company on the breakthrough idea, often it is the entrepreneur who can build a success story on a simple idea. (Richard Branson).
In order to determine where is the committee too risk averse I have selected an example of The Body Shop company and will apply the PORES analysis.
The Body shop’s history is a classical example of how a company evolves and needs to search new directions and ideas in order to survive and be successful. Current perception of the company as socially and environmentally conscious (e.g. famous for its “products not tested on animals”) has not been there at the start up of the company, but it was used throughout the life of the company to enhance the differentiator.
The Body shop started in 1976 as a small stand-alone shop for £4,000 Anita Roddick, the founder, raised. Idea was to sell natural-ingredient cosmetics and personal care products. The whole concept was based on simple-out-of-necessity principle.
Is there a market for the product?
Is there a competition?
The idea of selling natural-ingredient cosmetics in a specialized shop was fairly new to the market and is a main differentiator. Generally The Body Shop had to face very strong and well established competitors like Nivea and L’Oreal, famous and popular cosmetic brands.
Who are the potential buyers and how much are they willing to pay?
By the format of economized packaging, handwritten labels with product information and simple shop design Anita targeted health conscious women who would build trust to the products and who don’t necessarily want to spend fortune for luxurious products without any proper content information. However, they are willing to spend more than average provided they get a value for it.
How many are there?
Above specification of potential buyers implies that Anita’s customer were to be middle class women which are strongly represented in UK.
Anita has identified a profit opportunity and there was a market gap she explored. The key uncertainty every potential start-up company faces is demand. Answers to the questions above are helping to determine the demand potential and therefore reducing the level of uncertainty.
Can you acquire the necessary resources?
Anita has chosen testing her business idea on a very small scale, therefore production, distribution and financial & general management was not a challenge at that point. There are not many information available on this part of company operation at the time, but let us assume Anita managed most of the resources on the DIY principles for the sake of cost.
Company has from a very early start chosen not to use advertising as a form of marketing/promotion, but rather use press coverage and personal references.
Low cost approach in all elements of the start-up business revealed good potential. Resources are vital element for every business opportunity. In my view it is necessary to break down the management of resources to rather detailed level. This can help to reveal any hidden risks. Having concrete answers on who, how and when is a must.
Who else can acquire these resources?
At what cost?
Acquiring the resources was relatively easy , there was no major obstacle for competition to enter in the same business
Variety, quality and quantity capability?
The variety, product portfolio and quantity were planned at low levels at the starting point, therefore this was not of an interest for competition, however it could have been tested by large cosmetic brands as a new product line
Commercial incentive to exploit the same profit opportunity?
As the starting business was small at that point larger brands had no incentives to exploit this field. As it has shown later, growing the business on the larger scale would bring in competitors
Intensity of competition with the new venture?
It was safe to assume that at early stages competition was not to be intensive. With the growth of the business, this would become a serious threat.
Likelihood of cooperation with the new venture?
Given the uniqueness of the idea and size of its realization it was not preferable. Anita’s preference was to run a small personalized business.
Given the fact that the early Body Shop was looking for a small business with candid approach to customer relations which had the privilege not being threatened by fierce competition yet, it was preferable to run an independent start-up.
It is recommended to run a deeper analysis on competition situation. Follow up questions like “What if...” are helpful to prepare a strategy. Not only we need to understand how the competitors react, but we need to ensure what steps can be taken if they do react. This can also help to reduce the overall uncertainty by discussing concrete situations and actions.
The Body Shop company has proven to be viable and experienced interest in its products. Soon it arrived to a milestone of growth decision. Similarly PORES analysis can be again carried out with a focus on areas which need to be further stretched (resources) or analyzed & addressed (competition).
There are several approaches how uncertainty about potential start up business can be reduced. Starting from the variety of people assessing the opportunity in terms experience level, the format of the business plan or focus of the evaluation (idea or entrepreneur). Getting the answers to principle questions of the PORES analysis can help to narrow the risk and provide further basis for decision making process.
As PORES analysis is expensive once the committee understands the areas to look into in order to help them to be less risk averse they can switch to use of business plans whether traditional or dynamic ones. A use of specific check list on PORES principles can be helpful.
Burke, A. (2006). Modern Perspectives on Entrepreneurship. Dublin : Senate Hall Academic Publishing
Burke, A. (2009). Warwick MBA: Entrepreneurship and New Venture Creation. Coventry: Warwick Business School
Bygrave W.D and Zacharakis A (2004). The Portable MBA in Entrepreneurship. 3rd ed. Hoboken,
Funding Universe [Online] (http://www.fundinguniverse.com/company-histories/The-Body-Shop-International-plc-Company-History.html) (Accessed 21 April 2010)