Market entry strategy - presenter deck

Founder Institute – March 8 th , 2011 Pix (cc) BY NC SA, Rodrigo SEPÚLVEDA

Summary
Why is it important ?
Understand your market type
How do you estimate it ?
Design a market entry strategy

1. Why is it important ?
Gives you
A potential target for your revenue (therefore also EBIT)
A valuation
Assessment of market players, hence your competition

Potential target revenue
Let ’s say your market is $1b
Everyone wants/says a 1% market-share
That means you ’re targeting $1b x 1% = $10m of revenues
Impact:
You ’re a tiny fish in a pond with 99% revenue elsewhere.
No barrier to entry (there are other players)
Competitive edge is key (geography, product, customers…)
Only 2 ways to grow
Grow the market size (either by yourself, or the market grows as a whole)
Grow your market-share

Potential valuation / fundraising
VCs are only interested in risk-controlled returns, usually in 5 years.
Hence we need to estimate your valuation in 5 years.
Usually 3 techniques:
Multiples (turnover, EBIT, …)
DCF (for going-concerns, not startups)
Open market (early stage, or if Ricardian rent)

Multiples
Former French tech stock market Alternext used to trade with these multiples on average for tech companies:
2,2x turnover
23x EBIT
Maybe your industry has different metrics
From original example:
Your valuation is $10m x 2,2 = $22m

DCF Note : Let’s assume here the currency is irrelevant

VC ’s share
Valuation bracket at exit = [$ 21,8-22,0m]
If series A of $1,5m for 30% equity
Then VC ’s value at exit is
$22m x 30% = $6,6m
That ’s a cash-on-cash return of :
6,6 / 1,5 = 4,4x (excluding tax impact)
GREAT, but that ’s only $5,1m made for the VC in 5 years (too small !)
cost of opportunity is too high
Nota: if you ’re financing the company alone, then it’s a different story : $22m-$1,5m financing = $20,5m profit in 5 years = $4m/year

Advice you ’ve already heard:
Problem:
either target market is too small,
or target market-share is too small,
or profit is too small,
or asset created is too small,
or there are too many competitors.
Target a BIG MARKET
Aim to be the #1 in your (BIG) market

2. Understand your market type
3 options
An existing market
A market that doesn ’t exist yet
An mature market : an opportunity to re-shape it

Examples of entering an existing market
Richard Branson and all Virgin brands in air travel, finance, rail
Steve Jobs and Apple : telephony, music, personal computers, feature software
Bill Gates on OS, office software, gaming, etc.
Mark Zuckerberg (facebook) : social networks, the Internet
Google : Android
@jack with Square: payments
Innovation and a differentiating factor are key

A market that doesn ’t exist yet
Tons on literature on this
Very risky, because
No available numbers
No guarantee you ’ll find a market
But maybe best way to reach #1 position, globally, because
you know something competition doesn ’t know yet : 1 st mover advantage
You define the rules

Sample new markets
Classic examples :
Walkman
Post-its
Netbooks, then tablets
Space travel
Twitter (?)

A word of advice about innovation
Feature company
Product company
Solution company
Nice-to-have
Got-to have

A mature market
#1 or #2 strategy
Not enough: redefine your market as 10% max of revenue

3. How do you estimate your market size?
Many different techniques:
Guesstimate (à la McKinsey)
Published numbers (always a bracket)
Sum of all players in a market

guesstimate http://shop.wetfeet.com/Browse/Ace-Your-Case/asd-%281%29.aspx

Existing markets
Press articles
Competitor ’s literature (presentations, website, financial statements)
Industry publications
Research institutes (IDC, Forrester, eMarketer, comscore, etc.) < beware though
SlideShare is great !

http://www.comscore.com/Press_Events/Press_Releases/2010/3/comScore_Reports_January_2010_U.S._Mobile_Subscriber_Market_Share

Sum of all players
Hard not to compare oranges and apples
Take only direct competitors
Gives you a current picture, not a projected one

http://tvnomics.typepad.com/tvnomics/vido/

4. Market entry strategy (in a nutshell)
4C :
Customer
Company (SWOT)
Competition
Community (PEST)
4P:
Product
Price
Place
Promotion
Positioning: We sell THIS PRODUCT To THIS CUSTOMER At THIS PRICE To solve THIS PROBLEM PnL

How big is your market ? Reality check #1

What problem are you solving ? Reality check #2

Why will someone PAY for your product ? Reality check #3

1 strategy is NOT enough
You need to assess different scenarii
4C 4P POS P&L 4C ’ 4P ’ POS ’ P&L ’ 4C ” 4P ” POS ” P&L ” 4C ’” 4P ’” POS ’” P&L ’”

What you end up doing depends both on your RISK profile and SWOT X Pos ” X Pos ’ X Pos ’” X Pos Return (m€) Risk (wacc) 10% 20% 30% 40%

Summary : entering a market
Why is it important ?
Understand your market type
How do you estimate it ?
Design a market entry strategy

www.rodrigosepulveda.com twitter: @rodrigo
 www.slideshare.com/rodrigo1971
Pix (cc) BY NC SA, Rodrigo SEPÚLVEDA

Market entry strategy - presenter deck

by Rodrigo SEPULVEDA SCHULZ on Mar 08, 2011

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