Creating the Business Model for
Early Stage International Companies



                               -Hiram Willis
      ...
Agenda
•   Introduction
    • Business Model Failures & Success
    • Business Model Importance
•   The Situation: Early S...
The Basic Business Model
                     Inputs from
                     Environment             $$$$$$


          ...
Business Model Failures

• Web Van, Inc. (Internet Ordering & Home Delivery)
•Osborne Computers
• NTT-DoCoMo iMode USA
• (...
Why New Ventures Fail

•   Lack of Focus
•   Lack of Management Expertise
•   Product/Market Problems
•   Financial Diffic...
First-Year Problems for International Ventures

1. Obtaining external financing
2. Internal financial management
3. Sales/...
External Problems Experienced by
     International Entrepreneurs
                    Pricing     Expansion
              ...
Business Model Successes

• Food – Gatorade (Sports Drink)
• Communications Airespace (WiFi)
• Medical – Incyte (or WedMD)...
Critical Factors for New-Venture
          Development
•   Uniqueness
•   Investment
•   Sales Growth
•   Product Availabi...
Motivations for International Expansion

• PROACTIVE (pulled by good foreign markets)
   – Firm specific advantage
   – Re...
Agenda
•   Introduction
    • Business Model Failures & Success
    • Business Model Importance
•   The Situation: Early S...
Business Model &
                                Strategies


The Marketing                              The Product      ...
Strategic Decisions RE: ENTRY into Foreign
                   Markets

•   Whether to become an international company?
•  ...
Products & Services Internationalization
• Value Chain Analysis
• Understanding New USA Market Requirements
• Tuning Produ...
DIFFERENCES: DOMESTIC vs.
        INTERNATIONAL ENVIRONMENTS
Domestic                                           Internatio...
Agenda
•   Introduction
    • Business Model Failures & Success
    • Business Model Importance
•   The Situation: Early S...
Analysis




TechBA Hiram Willis   17
Criteria For Analysis

•   The window of opportunity
•   Depth and breadth of market
•   Size of total market
•   Protecti...
Informal Analysis
• The “Aha” factor
• 10:1 ratio
• Look alike test
• If it’s so great, why hasn’t someone else
  done thi...
PEST
• Political: Local, national and international political developments –
  how will they affect the organisation and i...
SWOT

• Strengths – identifying existing organisational strengths
• Weaknesses – identifying existing organisational
  wea...
Typical Strategic Analysis Model: SWOT, and Look at Others……
  strengths                                             weakn...
Building Sound Business Strategies: Processes
                                                                            ...
Developing the Business Model & Strategy for Early
                Stage Companies
                             Mission & ...
Sound Business Strategy From Sound Analysis

                                                                     Vision
 ...
Sound Business Strategy Starts with Industry Analysis


                                            Potential
            ...
Five-Forces
•   Developed by Michael Porter: forces that shape and influence the
    industry or market the organisation o...
CORE COMPETENCIES &
           COMPETENCE GAPS
                         Strategy                              Environment
...
Bringing it all Together…
                                                                     Business Model Scores

  Bu...
Business Model #1:
         Differentiation
A differentiation strategy is based on
perceived quality, fashion, reliability...
Business Model #2:
        Cost Leadership
A cost leadership strategy is achieved
through systematic reductions in costs
(...
Business Model #3: Focus
A focus strategy concentrates on a market
niche or segment or particular geographic
segments. An ...
Early Stage Companies Assessment
                                              Market Size


                             ...
Types of Strategy




     TechBA Hiram Willis   34
Corporate Culture




     TechBA Hiram Willis   35
Entry Strategy: A Comprehensive Plan
     for Entering International Markets
• To guide your international operations &
  ...
Strategic Decisions Regarding Entry
               into USA Markets
•   Whether to become an international company?
•   Wh...
To Expand International You
     Must Increase Your focus
• When your firm decides to expand, you must systematically
  ev...
Common Errors of Early Stage Companies
    Entering International Markets

• Ignore markets with real potential for your
 ...
Segmenting the market
• Attractiveness criteria
  (distinct, size, measurable, stable, identifiable)
• Bases for segmentat...
Market attractiveness factors
1.   Rivalry among direct competitors
2.   Entry barriers
3.   Customer power
4.   Supplier ...
Business Strategy for Early Stage
  New International Ventures




             TechBA Hiram Willis   42
Strategic Questions
•   How important is it to be first?
•   How important is it to be different?
•   Is it ok to “jump in...
Pioneer or Follower?
• Critique of past research

• Advantages of Pioneers

• Advantages of Followers

• “Early Leaders”
 ...
Go for Gold? Settle for Bronze?

• “No failure like success?”
• “Wheel of retailing”
• Strategic innovation/Disruptive inn...
Agenda
•   Introduction
    • Business Model Failures & Success
    • Business Model Importance
•   The Situation: Early S...
Business Model & Strategy Development
     Check List Summary (see handout)
1. The Initial Mission & Objectives
2. Interna...
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  1. 1. Creating the Business Model for Early Stage International Companies -Hiram Willis Director Venture Capital Resources TechBA Hiram Willis 1
  2. 2. Agenda • Introduction • Business Model Failures & Success • Business Model Importance • The Situation: Early Stage Companies & Business Models • Definitions • The Roles of Business functions in the Business Models • The Value Proposition & Money • Solutions & Approaches to Successful Models • Approaches & Key Elements to Business Model • Analysis & Strategies and Implementation • Summary • Benefits to Early Stage International Companies TechBA Hiram Willis 2
  3. 3. The Basic Business Model Inputs from Environment $$$$$$ Outputs from Inputs Company to Your Company from Market and Objectives & Company Customers Processes Strategic Outputs from Company to Key Management TechBA Hiram Willis 3
  4. 4. Business Model Failures • Web Van, Inc. (Internet Ordering & Home Delivery) •Osborne Computers • NTT-DoCoMo iMode USA • (Safeways Grocer) Generic Beer •Net-Zero, Inc. ?? • Things They All Had in Common • $$$ Can not fix a Bad Business Model • More importantly disagreement on Where & How to Make Money TechBA Hiram Willis 4
  5. 5. Why New Ventures Fail • Lack of Focus • Lack of Management Expertise • Product/Market Problems • Financial Difficulties All symptoms of a bad or no business model TechBA Hiram Willis 5
  6. 6. First-Year Problems for International Ventures 1. Obtaining external financing 2. Internal financial management 3. Sales/marketing 4. Product development 5. Production/operations management 6. General management 7. Human resource management 8. Economic environment 9. Regulatory environment Results of Not thinking through having the right business model TechBA Hiram Willis 6
  7. 7. External Problems Experienced by International Entrepreneurs Pricing Expansion 8.4% 5.5% Location Market Knowledge 11.1% 19.3% Product Issues 7.6% Market Planning 14.4% Customer Contact Competitors 27.3% 6.3% TechBA Hiram Willis 7
  8. 8. Business Model Successes • Food – Gatorade (Sports Drink) • Communications Airespace (WiFi) • Medical – Incyte (or WedMD) • IT - Google • Software - BEA • Things They All Had in Common • $$$ Amplified the Business Model • Management & employees Know How the company Makes Money TechBA Hiram Willis 8
  9. 9. Critical Factors for New-Venture Development • Uniqueness • Investment • Sales Growth • Product Availability • Customer Availability TechBA Hiram Willis 9
  10. 10. Motivations for International Expansion • PROACTIVE (pulled by good foreign markets) – Firm specific advantage – Resource availability – Economies of scale – Economic and political factors • REACTIVE (pushed by bad domestic markets) – Domestic competition – Poor domestic market – Follow customers TechBA Hiram Willis 10
  11. 11. Agenda • Introduction • Business Model Failures & Success • Business Model Importance • The Situation: Early Stage Companies & Business Models • Definitions • The Roles of Business functions in the Business Models • The Value Proposition & Money • Solutions & Approaches to Successful Models • Approaches & Key Elements to Business Model • Analysis & Strategies and Implementation • Summary • Benefits to Early Stage International Companies TechBA Hiram Willis 11
  12. 12. Business Model & Strategies The Marketing The Product The Financial Model Model Model • Citibank • Fry’s Electronics • Tiffany’s • Cisco Systems • Wal-Mart • Cable TV The The Customer Organization Service Model Model • Mercedes & Porsche Dealerships • Microsoft • Gucci’s, Neiman Marcus • Warner Bros. TechBA Hiram Willis 12
  13. 13. Strategic Decisions RE: ENTRY into Foreign Markets • Whether to become an international company? • What products/activities to internationalize? • Which countries to enter? • What objectives to set for the target countries? • Which entry mode (s) to use? • What marketing plan for penetrating target market? • What organizational & implementation issues to manage? copyright © by Geringer, Frayne & Associates, Inc. TechBA Hiram Willis 13
  14. 14. Products & Services Internationalization • Value Chain Analysis • Understanding New USA Market Requirements • Tuning Product / Service for USA Markets and International Competition Globalization Cost Repackaging & Engineering Testing Translation Project Management TechBA Hiram Willis 14
  15. 15. DIFFERENCES: DOMESTIC vs. INTERNATIONAL ENVIRONMENTS Domestic International Single Currency Currencies differing (stability,value&convertibility) Uniform climates (financial, accounting & Variety of economic climates & systems business) Relatively homogeneous markets Fragmented & diverse markets Uniform legal framework Diverse legal systems (e.g., common law, civil law) Relatively stable political climate Political change is often discontinuous Cultural mores & values are well understood Cultural mores & values must be identified & understood Data are available & collection is relatively Collection of accurate data is formidable easy & sometimes impossible Familiar language(s) whether unilingual/ Numerous languages bilingual TechBA Hiram Willis 15 copyright © by Geringer, Frayne & Associates, Inc.
  16. 16. Agenda • Introduction • Business Model Failures & Success • Business Model Importance • The Situation: Early Stage Companies & Business Models • Definitions • The Roles of Business functions in the Business Models • The Value Proposition & Money • Solutions & Approaches to Successful Models • Approaches & Key Elements to Business Model • Analysis & Strategies and Implementation • Summary • Benefits to Early Stage International Companies TechBA Hiram Willis 16
  17. 17. Analysis TechBA Hiram Willis 17
  18. 18. Criteria For Analysis • The window of opportunity • Depth and breadth of market • Size of total market • Protection from competitors • Investment requirements • Return on investment • Ability to spread risks TechBA Hiram Willis 18
  19. 19. Informal Analysis • The “Aha” factor • 10:1 ratio • Look alike test • If it’s so great, why hasn’t someone else done this before • Friendly banker test • Prototype pre-test TechBA Hiram Willis 19
  20. 20. PEST • Political: Local, national and international political developments – how will they affect the organisation and in what way/s? • Economic: what are the main economic issues – both nationally and internationally – that might affect the organisation? • Social: what are the developing social trends that may impact on how the organisation operates and what will they mean for future planning? • Technological: changing technology can impact on competitive advantage very quickly! TechBA Hiram Willis 20
  21. 21. SWOT • Strengths – identifying existing organisational strengths • Weaknesses – identifying existing organisational weaknesses • Opportunities – what market opportunities might there be for the organisation to exploit? • Threats – where might the threats to the future success come from? TechBA Hiram Willis 21
  22. 22. Typical Strategic Analysis Model: SWOT, and Look at Others…… strengths weaknesses Advantages of proposition? Disadvantages of proposition? Capabilities? Gaps in capabilities? Competitive advantages? Lack of competitive strength? USP's (unique selling points)? Reputation, presence and reach? Resources, Assets, People? Financials? Experience, knowledge, data? Own known vulnerabilities? Financial reserves, likely returns? Timescales, deadlines and pressures? Marketing - reach, distribution, awareness? Cashflow, start-up cash-drain? Innovative aspects? Continuity, supply chain robustness? Location and geographical? Effects on core activities, distraction? Price, value, quality? Reliability of data, plan predictability? Accreditations, qualifications, certifications? Morale, commitment, leadership? Processes, systems, IT, communications? Accreditations, etc? Cultural, attitudinal, behavioral? Processes and systems, etc? Management cover, succession? Management cover, succession? opportunities threats Market developments? Political effects? Competitors' vulnerabilities? Legislative effects? Industry or lifestyle trends? Environmental effects? Technology development and innovation? IT developments? Global influences? Competitor intentions - various? New markets, vertical, horizontal? Market demand? Niche target markets? New technologies, services, ideas? Geographical, export, import? Vital contracts and partners? New USP's? Sustaining internal capabilities? Tactics - surprise, major contracts, etc? Obstacles faced? Business and product development? Insurmountable weaknesses? Information and research? Loss of key staff? Partnerships, agencies, distribution? Sustainable financial backing? Volumes, production, economies? Economy - home, abroad? Seasonal, weather, fashion influences? Seasonality, weather effects? TechBA Hiram Willis 22
  23. 23. Building Sound Business Strategies: Processes Start Here….?. Business Mission & Objectives Start Here ?….. WOTS External WOTS Internal (Refined) Goals & Start Here ?….. Objectives Formulation Strategy Formulation Implementation Feedback & Controls TechBA Hiram Willis 23
  24. 24. Developing the Business Model & Strategy for Early Stage Companies Mission & Goals Analysis, e.g. SWOT External Internal Analysis Analysis Key Operational Strategies Product & IP Marketing & Sales Financial Controls & Organization Budgets Management TechBA Hiram Willis 24
  25. 25. Sound Business Strategy From Sound Analysis Vision Values Mission/Purpose Strategic Goals External Assessment Internal Assessment Business Environment Resources/Assets Industry Analysis (Suppliers,Subs & Buyers Strengths/Weakness Opportunities/Threats Strategic Relationships Strengths Assessment Expls: Michael Market share Porter, Framework Organizational Expertise Expls: David for Industry Product & Technology / IP Acker, Marketing Analysis Channel Position SCA Michael Porter, Kotler, Marketing Management Competitive Advantage Opportunity Assessment Market Segmentation Competitive Intensity Market Growth Rate Market Size Market Attractiveness Scoring TechBA Hiram Willis 25
  26. 26. Sound Business Strategy Starts with Industry Analysis Potential Entrants New Entrants & Barriers to Entry Industry Bargaining Power of Buyers Competitors Suppliers Buyers Bargaining Power of Suppliers Rivalry Among Firms Threat of Substitute Products & Services Substitutes -M. Porter, Competitive Advantage TechBA Hiram Willis 26
  27. 27. Five-Forces • Developed by Michael Porter: forces that shape and influence the industry or market the organisation operates in. – Strength of Barriers to Entry - how easy is it for new rivals to enter the industry? – Extent of rivalry between firms – how competitive is the existing market? – Supplier power – the greater the power, the less control the organisation has on the supply of its inputs. – Buyer power – how much power do customers in the industry have? – Threat from substitutes – what alternative products and services are there and what is the extent of the threat they pose? TechBA Hiram Willis 27
  28. 28. CORE COMPETENCIES & COMPETENCE GAPS Strategy Environment Core Competencies Key Success Factors © by Geringer, Frayne & Associates, Inc. Competency Gap Internal Development Acquisition Strategic Alliance TechBA Hiram Willis 28
  29. 29. Bringing it all Together… Business Model Scores Business / Operational Strengths Model 1 Model 2 Model 3 •Sales / Profit / Cashflow Potential ------ ------ ------ •Growth Rate ------ ------ ------ •Competitive Situation ------ ------ ------ •Market Traction Ease ------ ------ ------ •Channel Risks ------ ------ ------ ------ ------ ------ Company Strengths ------ ------ ------ •Financial Program ------ ------ ------ •Technology Base & Product Strategy ------ ------ ------ •Marketing Capabilities ------ ------ ------ •Organizational Strengths ------ ------ ------ •Special Strengths ------ ------ ------ Business Strategy 3 Business Strategy 1 Business Strategy 2 TechBA Hiram Willis 29
  30. 30. Business Model #1: Differentiation A differentiation strategy is based on perceived quality, fashion, reliability, so that in the eyes of the customer, product differences can justify a higher price. International marketing should emphasize brand name image, use upscale distribution outlets, stress high fashion. TechBA Hiram Willis 30
  31. 31. Business Model #2: Cost Leadership A cost leadership strategy is achieved through systematic reductions in costs (production, sales, materials), lower profit margins or both. International marketing should emphasize low prices, source low cost inputs worldwide, use low cost distribution channels, look for ways to coordinate advertising campaigns across markets. TechBA Hiram Willis 31
  32. 32. Business Model #3: Focus A focus strategy concentrates on a market niche or segment or particular geographic segments. An international marketing strategy should be tailored for each niche market. TechBA Hiram Willis 32
  33. 33. Early Stage Companies Assessment Market Size Competitive Customer Acquisition Position D C B A SEED Business Channel Alliances 1 2 3 4 Model IP & Product Development Cashflow - PwC Paths to Valuation Strength of Management TechBA Hiram Willis 33
  34. 34. Types of Strategy TechBA Hiram Willis 34
  35. 35. Corporate Culture TechBA Hiram Willis 35
  36. 36. Entry Strategy: A Comprehensive Plan for Entering International Markets • To guide your international operations & provide a base for sustainable growth – Need plan for each product in each market – Must integrate individual plans • Seems elaborate, expensive – “Can’t afford to plan” – Ad hoc “sales” approach vs strategic competition TechBA Hiram Willis 36
  37. 37. Strategic Decisions Regarding Entry into USA Markets • Whether to become an international company? • What objectives to set for the USA Markets? • Which entry mode(s) to use? • What marketing plan for penetrating target markets? • What organizational & implementation issues to manage? TechBA Hiram Willis 37
  38. 38. To Expand International You Must Increase Your focus • When your firm decides to expand, you must systematically evaluate possible markets to identify which specific Target- Markets have the greatest potential • To do this, you’ll need a method for screening the most promising from less promising prospects – minimize risk in face of uncertainty – monitor developments worldwide TechBA Hiram Willis 38
  39. 39. Common Errors of Early Stage Companies Entering International Markets • Ignore markets with real potential for your products or services • Devote too many resources to investigating Markets with poor potential • Inability to Translate Current Model to International Model • Inability to Localize TechBA Hiram Willis 39
  40. 40. Segmenting the market • Attractiveness criteria (distinct, size, measurable, stable, identifiable) • Bases for segmentation (products, groups, benefits, sensitivity to marketing, cost differences) TechBA Hiram Willis 40
  41. 41. Market attractiveness factors 1. Rivalry among direct competitors 2. Entry barriers 3. Customer power 4. Supplier power 5. Indirect substitutes TechBA Hiram Willis 41
  42. 42. Business Strategy for Early Stage New International Ventures TechBA Hiram Willis 42
  43. 43. Strategic Questions • How important is it to be first? • How important is it to be different? • Is it ok to “jump in?” • Is entrepreneurial strategy different from other strategy? TechBA Hiram Willis 43
  44. 44. Pioneer or Follower? • Critique of past research • Advantages of Pioneers • Advantages of Followers • “Early Leaders” TechBA Hiram Willis 44
  45. 45. Go for Gold? Settle for Bronze? • “No failure like success?” • “Wheel of retailing” • Strategic innovation/Disruptive innovation TechBA Hiram Willis 45
  46. 46. Agenda • Introduction • Business Model Failures & Success • Business Model Importance • The Situation: Early Stage Companies & Business Models • Definitions • The Roles of Business functions in the Business Models • The Value Proposition & Money • Solutions & Approaches to Successful Models • Approaches & Key Elements to Business Model • Analysis & Strategies and Implementation • Summary • Benefits to Early Stage International Companies TechBA Hiram Willis 46
  47. 47. Business Model & Strategy Development Check List Summary (see handout) 1. The Initial Mission & Objectives 2. Internal Audit & Review of the Company 3. External Audit & Review of the Business Environment 4. Business Summary based on analysis 5. Fine Tuning Objectives 6. Business Strategies to Achieve the Objectives 7. Implementation of the Business Strategies TechBA Hiram Willis 47
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