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Market entry strategy - presenter deck

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The Founder Institute
8 March 2011, San Francisco, CA

(cc) BY NC SA, Rodrigo SEPÚLVEDA SCHULZ
www.rodrigosepulveda.com

Published in: Business

Market entry strategy - presenter deck

  1. 1. Founder Institute – March 8 th , 2011 Pix (cc) BY NC SA, Rodrigo SEPÚLVEDA
  2. 2. Summary <ul><li>Why is it important ? </li></ul><ul><li>Understand your market type </li></ul><ul><li>How do you estimate it ? </li></ul><ul><li>Design a market entry strategy </li></ul>
  3. 3. 1. Why is it important ? <ul><li>Gives you </li></ul><ul><ul><li>A potential target for your revenue (therefore also EBIT) </li></ul></ul><ul><ul><li>A valuation </li></ul></ul><ul><ul><li>Assessment of market players, hence your competition </li></ul></ul>
  4. 4. Potential target revenue <ul><li>Let ’s say your market is $1b </li></ul><ul><li>Everyone wants/says a 1% market-share </li></ul><ul><li>That means you ’re targeting $1b x 1% = $10m of revenues </li></ul><ul><li>Impact: </li></ul><ul><ul><li>You ’re a tiny fish in a pond with 99% revenue elsewhere. </li></ul></ul><ul><ul><ul><li>No barrier to entry (there are other players) </li></ul></ul></ul><ul><ul><ul><li>Competitive edge is key (geography, product, customers…) </li></ul></ul></ul><ul><ul><li>Only 2 ways to grow </li></ul></ul><ul><ul><ul><li>Grow the market size (either by yourself, or the market grows as a whole) </li></ul></ul></ul><ul><ul><ul><li>Grow your market-share </li></ul></ul></ul>
  5. 5. Potential valuation / fundraising <ul><li>VCs are only interested in risk-controlled returns, usually in 5 years. </li></ul><ul><li>Hence we need to estimate your valuation in 5 years. </li></ul><ul><li>Usually 3 techniques: </li></ul><ul><ul><li>Multiples (turnover, EBIT, …) </li></ul></ul><ul><ul><li>DCF (for going-concerns, not startups) </li></ul></ul><ul><ul><li>Open market (early stage, or if Ricardian rent) </li></ul></ul>
  6. 6. Multiples <ul><li>Former French tech stock market Alternext used to trade with these multiples on average for tech companies: </li></ul><ul><ul><li>2,2x turnover </li></ul></ul><ul><ul><li>23x EBIT </li></ul></ul><ul><li>Maybe your industry has different metrics </li></ul><ul><li>From original example: </li></ul><ul><ul><li>Your valuation is $10m x 2,2 = $22m </li></ul></ul>
  7. 7. DCF Note : Let’s assume here the currency is irrelevant
  8. 9. VC ’s share <ul><li>Valuation bracket at exit = [$ 21,8-22,0m] </li></ul><ul><li>If series A of $1,5m for 30% equity </li></ul><ul><li>Then VC ’s value at exit is </li></ul><ul><ul><li>$22m x 30% = $6,6m </li></ul></ul><ul><li>That ’s a cash-on-cash return of : </li></ul><ul><ul><li>6,6 / 1,5 = 4,4x (excluding tax impact) </li></ul></ul><ul><li>GREAT, but that ’s only $5,1m made for the VC in 5 years (too small !) </li></ul><ul><ul><li>cost of opportunity is too high </li></ul></ul><ul><li>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 </li></ul>
  9. 10. Advice you ’ve already heard: <ul><li>Problem: </li></ul><ul><ul><li>either target market is too small, </li></ul></ul><ul><ul><li>or target market-share is too small, </li></ul></ul><ul><ul><li>or profit is too small, </li></ul></ul><ul><ul><li>or asset created is too small, </li></ul></ul><ul><ul><li>or there are too many competitors. </li></ul></ul><ul><li>Target a BIG MARKET </li></ul><ul><li>Aim to be the #1 in your (BIG) market </li></ul>
  10. 11. 2. Understand your market type <ul><li>3 options </li></ul><ul><ul><li>An existing market </li></ul></ul><ul><ul><li>A market that doesn ’t exist yet </li></ul></ul><ul><ul><li>An mature market : an opportunity to re-shape it </li></ul></ul>
  11. 12. Examples of entering an existing market <ul><li>Richard Branson and all Virgin brands in air travel, finance, rail </li></ul><ul><li>Steve Jobs and Apple : telephony, music, personal computers, feature software </li></ul><ul><li>Bill Gates on OS, office software, gaming, etc. </li></ul><ul><li>Mark Zuckerberg (facebook) : social networks, the Internet </li></ul><ul><li>Google : Android </li></ul><ul><li>@jack with Square: payments </li></ul><ul><li>Innovation and a differentiating factor are key </li></ul>
  12. 16. A market that doesn ’t exist yet <ul><li>Tons on literature on this </li></ul><ul><li>Very risky, because </li></ul><ul><ul><li>No available numbers </li></ul></ul><ul><ul><li>No guarantee you ’ll find a market </li></ul></ul><ul><ul><li>But maybe best way to reach #1 position, globally, because </li></ul></ul><ul><ul><ul><li>you know something competition doesn ’t know yet : 1 st mover advantage </li></ul></ul></ul><ul><ul><ul><li>You define the rules </li></ul></ul></ul>
  13. 17. Sample new markets <ul><li>Classic examples : </li></ul><ul><ul><li>Walkman </li></ul></ul><ul><ul><li>Post-its </li></ul></ul><ul><ul><li>Netbooks, then tablets </li></ul></ul><ul><li>Space travel </li></ul><ul><li>Twitter (?) </li></ul>
  14. 18. A word of advice about innovation <ul><li>Feature company </li></ul><ul><li>Product company </li></ul><ul><li>Solution company </li></ul><ul><li>Nice-to-have </li></ul><ul><li>Got-to have </li></ul>
  15. 19. A mature market <ul><li>#1 or #2 strategy </li></ul><ul><li>Not enough: redefine your market as 10% max of revenue </li></ul>
  16. 20. 3. How do you estimate your market size? <ul><li>Many different techniques: </li></ul><ul><ul><li>Guesstimate (à la McKinsey) </li></ul></ul><ul><ul><li>Published numbers (always a bracket) </li></ul></ul><ul><ul><li>Sum of all players in a market </li></ul></ul>
  17. 21. guesstimate http://shop.wetfeet.com/Browse/Ace-Your-Case/asd-%281%29.aspx
  18. 22. Existing markets <ul><li>Press articles </li></ul><ul><li>Competitor ’s literature (presentations, website, financial statements) </li></ul><ul><li>Industry publications </li></ul><ul><li>Research institutes (IDC, Forrester, eMarketer, comscore, etc.) < beware though </li></ul><ul><li>SlideShare is great ! </li></ul>
  19. 23. http://www.comscore.com/Press_Events/Press_Releases/2010/3/comScore_Reports_January_2010_U.S._Mobile_Subscriber_Market_Share
  20. 25. Sum of all players <ul><li>Hard not to compare oranges and apples </li></ul><ul><li>Take only direct competitors </li></ul><ul><li>Gives you a current picture, not a projected one </li></ul>
  21. 26. http://tvnomics.typepad.com/tvnomics/vido/
  22. 27. http://tvnomics.typepad.com/tvnomics/vido/
  23. 28. 4. Market entry strategy (in a nutshell) <ul><li>4C : </li></ul><ul><li>Customer </li></ul><ul><li>Company (SWOT) </li></ul><ul><li>Competition </li></ul><ul><li>Community (PEST) </li></ul><ul><li>4P: </li></ul><ul><li>Product </li></ul><ul><li>Price </li></ul><ul><li>Place </li></ul><ul><li>Promotion </li></ul>Positioning: We sell THIS PRODUCT To THIS CUSTOMER At THIS PRICE To solve THIS PROBLEM PnL
  24. 30. How big is your market ? Reality check #1
  25. 31. What problem are you solving ? Reality check #2
  26. 32. Why will someone PAY for your product ? Reality check #3
  27. 33. 1 strategy is NOT enough <ul><li>You need to assess different scenarii </li></ul>4C 4P POS P&L 4C ’ 4P ’ POS ’ P&L ’ 4C ” 4P ” POS ” P&L ” 4C ’” 4P ’” POS ’” P&L ’”
  28. 34. 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%
  29. 35. Summary : entering a market <ul><li>Why is it important ? </li></ul><ul><li>Understand your market type </li></ul><ul><li>How do you estimate it ? </li></ul><ul><li>Design a market entry strategy </li></ul>
  30. 36. <ul><li>www.rodrigosepulveda.com twitter: @rodrigo </li></ul><ul><li> www.slideshare.com/rodrigo1971 </li></ul>Pix (cc) BY NC SA, Rodrigo SEPÚLVEDA

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