All entries for Wednesday 21 October 2009

October 21, 2009

Entrepreneurship and New Venture Creation Exercise 2

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?

First to all it is important to remark that I once that the first Business Plan has been done, a lot of troubles can be identify and manage. As said Delmar and Shane to write a business plan helps entrepreneurs to increase theirs capability, but does less true that before to make a business plan could be very important to make a PORES analysis. Through of this kind of analysis it is possible to identify the profit opportunity and the capability to exploit it reducing the risk of failure and maximize profit potential.

With the PORES analysis I can provide to the committee a list of key assumption that I can check and verify if them are correct. From an external point of view there are several aspects that inside of the company can always look like correct but really aren’t.

For these reason it is necessary to review the following: the initial conditions that provoked the new venture; validate the studies realized about the market identifying the buyers, suppliers, and competitors; analyze the resources that are necessary and check if the kind of resources are available or is required a specific skills that can increase the costs. With all of these characteristics that I can provide will be important to add a dynamic point of view because statics aspect are not enough to validate a business. The dynamic aspect should be studied over all characteristics that a business plan cover as are check if the new idea was consequence of solve a problem or is something that appear after to see a vision or strategy. That usually occurs in development of software because a lot of people forget the labour of IT architects that always try to be according with the enterprise architecture. I can to determinate if the study of market have been done thinking in the new competitors or the growth possibilities of the new venture and if have been done a macro economic analysis identifying the risk (i.e. the increase of interest) and creating a mitigation plans.

Once that the key assumptions have been identified and checked with this model we can to review the profitability of each one and try to analyze if the best strategy to exploit it has been chosen.

References

Andrew Burke (2009. ‘Entrepreneurship and New Venture Creation’ Study Notes, Warwick Business School.


Entrepreneurship and New Venture Creation Exercise 3

Discuss an idea for a new product that will create a new industry niche. To convince others of your idea you need to set out the likely scenario for how the new niche will develop in terms of competition, numbers of firms and how firms compete over time.

Idea background

Some of the most routine labours that are not very much recognized are the home cleaning. In the latest years all the adults’ members of the family (usually the parents) are working almost all day, without too much time to enjoy of theirs children. Some people have the possibility of outsourcing the clean services of his home, but not all of them. Also in the latest years have been a lot of advanced in the clean products that increase its efficiency and decrease its price hence the parents can have more free time to enjoy with his family and can save money, even if they buy clean services.

Then we have studied the idea of launch a new product to the market of clean product's that let to the cleaners to clean the glasses more efficiently, and even forgot that they must to clean the glasses. We are talking about of the automatic cleaner of window glasses. It is device that is put in the window and automatically it starts to clean and stops according with the schedule parameters.

Factors of Industry Evolution

There are several factors that have influence in the decision of launch a new product, its strategy, performance and its exit strategy, some of them are the macroeconomic situation, the regional variation and the industry evolution. According with the industry evolution there are three topics that are important to analyze with more detail to be clear that these will not are problematic during the life of product and we will be ready to launch the appropriate response if that appear. These three factors are the barriers of entry, the minimum efficient scale and the competitive process and business shakeouts.

First to explain with a little bit of detail over these topics is necessary remark that the region where initially will be launched will be Spain. Although now in terms of macroeconomic situation is not the best moment, we think that in Spain the weather is not bad during a lot of time of the year and there are a lot of hours of sun light each day. That is a important factors to clean the glasses of the windows.

  • Barriers of entry

The new product is a technological product and required a lot of investment, hence money and financial resources. For these reason the main barrier could be the switching cost, because the price of the product will be more expensive that a simple rag and bucket. Nonetheless the situation can change with appropriate level of advertisement explaining to the customer the benefits in long terms.

  • The minimum efficient scale.

Only a few companies can develop the technology to make the product. It is a product differentiation that needs specific components. The new product will have the company patent in order to fight against the copies.

  • The competitive process and business shakeouts.

About the competitive process we have already explained some aspects in the last two paragraphs. We can think that if there are specific components, we can have troubles with the suppliers, but there is not problem because the raw components are very common (‘circuits’) but has a specific firmware made by the company.

In order to be prepared for a shakeout, some of the best solution is to sell the patent but another can be use the infrastructure available in develop new products with similar technology.

As conclusion in the follow table we can see the evolution of the new product over the time identify the most important characteristics:

Barriers to Entry

MES

Competitive process

Market Entry

The switching cost

Almost all markets will be for us, but the customers are low.

Use generic components.

Market Development

Avoid the temporary.

Create Patent to avoid the increase the number of companies that can copy the technology.

Continuous marketing plan.

Shakeout

Sell the patent.

Use the technology for other products.

Sell the patent.

Use the technology for other products.

Sell the patent.

Mature Phase

Hold the patent for all derivates products and evolutions.

Use the economy of scale.

Create a secondary market with the spare parts.

References

Andrew Burke (2009. ‘Entrepreneurship and New Venture Creation’ Study Notes, Warwick Business School.

George S. Day. ‘Strategies for Surviving a Shakeout’, Harvard Business review March-April 1997.


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  • Hi Luis, interesting to hear what happened in a real life situation – in your conclusion it would be… by Harminder Singh on this entry
  • Hi Luis, an appropriate use of Bhide, however because it was an historical example it has meant that… by Harminder Singh on this entry
  • Hi Harminder thank you very much for your comments, I will take them into account in the revision of… by on this entry
  • Hi Luis, perhaps more discussion of the individual points you have made, and if you have any example… by Harminder Singh on this entry
  • Hi Luis, you need to look at how the industry evolves over time as the answer is insufficient at the… by Harminder Singh on this entry

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