Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Market entry strategy - presenter deck


Published on

The Founder Institute
8 March 2011, San Francisco, CA


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
  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.
  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.
  22. 27.
  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> twitter: @rodrigo </li></ul><ul><li> </li></ul>Pix (cc) BY NC SA, Rodrigo SEPÚLVEDA