Strategy, Business Model &Business PlanIEI Business Plan WorkshopsFebruary 11, 2010Presented by:Bernard Rudnick, CEO, CapGenic AdvisorsPresentation Updated by Carl Lupke
Business Plan Outlinewww.sbm.temple.edu/IEI/word/planigenttemplateoutline_003.doc• Executive Summary• Company Description– Including product/service &technology/core knowledge• Industry Analysis & Trends• Target Market• Competition• Strategy/Business Model• Marketing and Sales Plan• Production/Operations Plan• Technology Plan• Management &Organization• Social Responsibility• Development & Milestones• Financials– Including CapitalRequirements & FinancialStatements• Appendix
Strategy FunnelCustomer &BenefitsCompetitiveDynamicsCompetitiveSpaceSegment,SizeChannelsStrategicPositioningValuePropositionIndustryStructureEnvironmental TrendsIndustryMarketPerceptualSpaceGoal: Articulate and execute long-term, defensibleoffer of unique value to customers
What is Strategy?• Plan• Process• Position• Pattern• Perspective• Procedure• Play• Ploy• Strategic Management• Strategic Position• Strategic Navigation• Strategic Tactics
Strategic ManagementEnvironmental ScanningEvaluation &ControlStrategyImplementationStrategyFormulationMissionVision• Disciplined, iterative process of driving towards vision, byfinding or making and maintaining a defensible space ortrajectory in a given business environment.
Strategy Checklist• Value proposition• Vision• Position or direction– Structure or resource base• Revenue & business model• Timeline or guidelines• Fit
Value Proposition• Specific, concrete offer of benefits– Price, quality, convenience, choice, cost-savings,reliability, etc• To precisely defined customers– Who recognize that the offer solves a problem for the– EG: Our clients grow their business, large or small,typically by a minimum of 30-50% over the previousyear. They accomplish this without working 80 hourweeks and sacrificing their personal lives.
Vision Exercise• Stable core– Mission:– Ideology:• Focused ambition– What success will look like – in the marketplace:– One audacious goal:
Position or Navigation?• Position Strategies– Unique, valuable, defensible position in a marketor industry– Supported by a tightly integrated value chain /activity system– Good for relatively stable industries/markets• Navigation Strategies– Vision-driven nurturing and leveraging of coreresources– Supported by tight culture and explicit learning– Good for dynamic industries/markets
ExternalOpportunities& ThreatsNicheInternalStrengths &WeaknessesStrategic Positions Require Niches• A niche includes themarket the firm isuniquely qualified toserve
Match SW to OTStrengths(S)InternalFactorsExternalFactorsOpportunities(O)SO Strategies-------------------------WO Strategies------------------------Threats(T)ST Strategies--------------------------WT Strategies-------------------------Use strengths toavoid threatsMin. weaknessesto avoid threatsUse strengths totake advantage ofopportunitiesOffset weaknessesto take advantageof opportunitiesWeaknesses(W)
SWOT ExerciseExternalFactorsInternalFactorsStrategic SituationResources CompetitivePositionCultureEnvironment Industry Customer• Map SW to OT..
Two Levels of Strategy• Corporate– Growth– Retrenchment– Stability• Business– Cost (price) Leadership– Differentiation– Focus
Growth Strategies• Concentration– Vertical and Horizontal• Diversification– Concentric– Conglomerate
Growth Through Concentration• Concentrate resources on a single business– Concentrate vertically, i.e., backward or forward(supply or distribution)– Concentrate horizontally by growinggeographically or by expanding product or serviceoffering
Means to Accomplish Growth Mergers Acquisitions Internal Growth Strategic Alliances International
Diversification• Used if firm’s current product lines do nothave much growth potential• Benefits– Economies of Scope– Increase market power– Share infrastructure– Maintain growth
Concentric (Related) Diversification• Outperform unrelated diversification• Best when– low industry attractiveness– strong business strengths– strong competitive position• Allows use of distinctive competence• Seek synergy
Conglomerate (Unrelated) Diversification• Best when– Firm operates in unattractive industry– Firm lacks abilities or skills easily transferable torelated industry• Focus is financial & not core competence orsynergy– Balance cash flows– Reduce risk
Stability Strategies• Pause and Proceed with Caution• No Change• Profit
Retrenchment Strategies• Turnaround• Captive Company• Sell out or Divestment– Spin-off– Management buyout (MBO)• Bankruptcy or Liquidation
Business Level Strategies• Cost (price) leadership– Efficiency and scale• Differentiation– Quality, design, support/service, image -- thatmake a product or service special• Focus– Explicit tie to a broad or narrowmarket segment
Value Discipline PositioningProduct Leadership•(Differentiation)Customer Intimacy•(Focus)Operational Excellence•(Cost Leadership)
Value DisciplinesProduct Leadership - Compete on Speed•Good design, great execution•Educate & lead the market•Ad hoc, risk oriented culture•Organization designed for innovationOperational Excellence - Compete on Scale•Low price, limited options, ultimate convenience•Managed customer expectations•Measurement culture•Processes & transactions continually redesignedfor efficiency
Value DisciplinesCustomer Intimacy - Compete on Scope•Offerings tailored to customers & segments•Deep insight into customer needs•Problem solving service culture•Full range of services, so customers stay•Breakthrough thinking, unique solutions
Position Strategy ExerciseProduct Leadership•(Differentiation)Customer Intimacy•(Focus)Operational Excellence•(Cost Leadership)Choose a position strategy and explain how youwill achieve it.
Strategic Positions Require Fit• Fit refers to the integration of every part offirms’ internal structures to better serve aniche.• Well-positioned firms Craft themselves toserve niches better than others.
Fit: Entrepreneurial Advantage• Possibility of crafting a perfect fit between specificopportunities and internal capabilities• Firms that fit opportunities extremely well have anadvantage over bigger, stronger opponents…• Examples:– Dollar Express vs Dollar Tree– Youthbuild vs School District– Giovanni’s Room vs Borders
Value Chain• A strong value chain is a cross-linked net of activities that affects thecost or performance of the whole.• Supporting a strategy by optimizing both individual functions and thelinks between them to support a strategy yields a powerful, durable,hard-to-duplicate advantage.MarginTechnologyInboundLogisticsOperations OutboundLogisticsMarketing/SalesAfter SalesServiceInfrastructureProcurementHuman Resources
Activity System• A less linear way of thinking about theinternal fit that supports strategy.• Map crucially interrelated features andfunctions that define a firm’s unique skillsand strategy.• Support competitive advantage withreinforcing patterns or systems.
Experience Curve• For positional strategies, experience is theultimate source of advantage.• Experience fuels the tacit knowledge that drivesproductivity improvements, innovations,elaborations of strategy, etc• Successful firms are especially good at creatingthe social and institutional structures thatsupport the shared development of such tacitknowledge
Fit Exercise• Draw the value chain for your firm• Note reinforcing (and jarring) pieces• Try to create more reinforcementsOR• Jot down functions and features• Look for patterns and connections• Try to crystallize patterns
Business Model• A business model describes what a firm willdo, and how, to build and capture wealth forstakeholders• Effective business models operationalizegood strategies -- turning position and fit intowealth
Four Aspects of Business Models• Revenue Sources• Cost Drivers• Investment Size• Critical Success Factors
Revenue Sources• Subscription/Membership– Fixed amount at regular intervals prior to receivingproduct/service• Volume/Unit-based– Fixed price in exchange for product/service• Advertising-based– Exempt from fee or pays fraction of the value• Licensing & Syndication– One time fee• Transaction fee– Fixed fee or percentage of total value of transaction
Cost Drivers• Fixed: item costs do not vary with volume• Semi-variable: variable & fixed costs• Variable: item costs vary with volume• Non-recurring: item of cost occurs infrequently
Critical Success Factors• An operational function or competency that acompany must possess in order to besustainable & profitable• Perform sensitive analysis
Effective Business Models Build & CaptureWealth• Build wealth:– By efficiently (profitably) transforming inputs intosomething that customers value enough to pay for – againand again and again– By supporting growth• Capture wealth:– By siphoning off some of the accumulated wealth forstakeholders– And by developing recognizable value – strategic positions,know-how, customers, free cash flow, lifestyles, socialimpact – that can be captured
Effective Business Models Require HardChoices• About who matters– Owners, investors, family, workers, community• About what kind of wealth matters– Financial capital, social capital, intellectual capital...i.e..,cash, good life, rich family life, entrepreneurial impact, socialimpact• About the strategy that will deliver the wealth thatmatters to the stakeholders that matter• About the structure that supports strategy
Business Models Start with What theWorld Gives1.Describe the landscape:– Porter– Environment, industry, and relevant trends.2. Paint in competitors:– Competitor table. Perceptual maps.– What do you need to play? How do competitorscompete? What opportunities exist?3. Identify strengths & weaknesses– Vision, skills, core technologies
Business Models are Based on Strategy4. Identify stakeholders you must serve– Owners, family, workers, community5. Identify the wealth you will capture– Capital, good life, family life, fame entrepreneurialeffectiveness, social value6. Choose a position or approach– And elaborate a strategy to realize this– Especially a revenue model
Business Models Define Structure7. Sketch a structure tooperationalize the strategy– Value chain, activity system, culture, simple rules8. Work out the implications– Functional strategies– Timeline and milestones– Financial projections & capital needs– Path to profitability, sale, or other realizationof value
Build a Business Model Exercise• Opportunity• Stakeholders• Wealth• Strategy• Revenue Sources• Cost Drivers• Investment Size• Critical SuccessFactors•Model-Structural implications, timing, capitalneeds, etc.
Good Execution is More Important thanGood Strategy!• Seeing a position or approach isfundamentally creative– Immersion, scenarios, future search,• Constructing a strategy involves carefulanalysis and planning• Executing a strategy requiresrelentless discipline
Bibliography• Verna Allee, “Reconfiguring the Value Network,” The Journal of Business Strategy, 21 (4), PP 36-39.• R Boulton, B Libert, S Samek, “A Business Model for the New Economy,” The Journal of BusinessStrategy, 21 (4), July-August 2000, pp 29-35.• James Collins & Jerry Porras, Built to Last (HarperBusiness, 1994).• Richard D’Aveni, Hypercompetition (Free Press: 1994).• Kathleen Eisenhardt & Donald Sull, “Strategy as Simple Rules,” Harvard Business Review, January2001.• Mark Feldman & Michael Spratt, PWC, Five Frogs on a Log: A CEO’s Guide to Accelerating theTransition in Mergers, Acquisitions and Gut Wrenching Change, (HarperBusiness 1999).• Craig Fleisher & Babette Bensoussan, Strategic and Competitive Analysis (Prentice Hall, 2003).• Pankaj Ghemawat, Strategy and the Business Landscape (Prentice Hall, 2001).• G. Hamel & C. K. Prahalad, “Strategic Intent,” Harvard Business Review, May-June 1989.• Robert Hamilton lecture notes, 1998.• Robert Hamilton, E. Eskin, M. Michael, "Assessing Competitors: The Gap between Strategic Intent andCore Capability", International Journal of Strategic Management-Long Range Planning, Vol. 31, No. 3,pp. 406-417, 1998(more…)
Bibliography (continued)• TL Hill lecture notes, 1999, 2001, 2002• J. D. Hunger & T.L. Wheelan, Essentials of Strategic Management (Prentice Hall, 2001).• Ivan Lansberg, Succeeding Generations (Harvard Business School Press, 2000).• B. Mahadevan, “Business Models for Internet-based E-Commerce,” California Management Review, 42(4), Summer 2000, pp 55-69.• Henry Mintzberg & James Brian Quinn, Readings in the Strategy Process, 3rd Edition (Prentice Hall,1998).• Henry Mintzberg & Joseph Lampel, “Reflecting on the Strategy Process,” Sloan Management Review,Spring, 1999.• Alex Moss, Praxis Consulting presentation on worker ownership, 1999• Sharon Oster, Modern Competitive Analysis, 2nd Edition (Oxford University Press, 1994).• Michael Porter, Competitive Advantage (Free Press, 1985).• Michael Porter, “What is Strategy?”, Harvard Business Review, November-December 1996.• Jim Portwood lecture notes, 1998.• C.K, Prahalad & G. Hamel, “The Core Competence of Corporations,” Harvard Business Review, May-June, 1990.• Pamela Tudor, Notes on responsibility charting, 1999• Hamermesh, Marshall & Piromohamed, “Note on Business Model Analysis for the Entrepreneur,”Harvard Business School, 2002.