Robert Ochtel’s Blog

An Experienced Approach to Venture Funding

Entrepreneurs, A Breath of Markets Approach Will Lead You to the Right Conclusions

Having a business “idea” or “concept” does not necessarily provide the entrepreneur with much direction in getting started in developing a valuable and fundable business proposition.  This beginning point in the development of a start-up company often leaves first time entrepreneurs in the dark as to which direction to proceed forward with regard to their proposed technology, product or service offering.  They often ask themselves: “Where do I start?”  The best answer here is to begin by focusing on the markets.  Why, because it is the markets where you will sell your technology, product or service offering.  It also the markets that will determine the “problem” or “need” you will be solving.  This focus on the markets will also help you determine how to position your technology, product or service offering against your competitors.  In short, by focusing on a broad breath of markets and the possibility of potential opportunities they represent, you will come to the right conclusions as to where to take your initial “idea” or “concept”, how to develop a value added product offering, what your product offering will ultimately look like and it will in the end provide you with the ability to determine the best return on investment for your venture investors. This article addresses this breath of markets approach in determining how to take your product “idea” or “concept” into reality of a valuable business proposition.

Look at a Broad Breath of Markets

In the beginning of your product definition process, all markets look the same.  Why, because at this point you do not have any details on the size of the market, the growth of the market or the potential “market needs” you will be addressing for any particular market.  Therefore, you should look a broad breath of markets that can potentially be addressed by your technology, product or service offering.  Don’t pick a favorite market at this time.  All you need to do is to determine the baseline market characteristics (size and growth), and potential “needs” or “problem” you will be addressing for a given market.  This analysis will provide you with a high level overview of the market opportunity and at the same time give you the necessary background to determine if a particular market or a number of different markets may be of interest to you and your start-up company.  Remember, this is not the time to discount a given market.  Why, because you do not have enough information on the details that will make your product competitive in this space.  All you are trying to do is to determine, from all the markets you could address, which set of markets are of potential interest and why.  This preliminary market data will be useful in drawing your final conclusions as to which markets are of interest and how to prioritize these same market opportunities.

Review the Competitors for Each Market

Once you have a list of the targeted markets that are of interest, you should next look at the competitors in your potential target markets and review their positions and product offerings.  As such, the competitors for each market will most often be different and have unique product offerings to address the market needs and requirements for that specific market. Pay particular attention to the details of each competitor’s product offering by market. Why, because different markets will require different product features, functions and capabilities, and each given competitor’s product offering will provide you with the appropriate insight as to the necessary key differentiators that make their product offerings competitive for a particular market of interest. These key product differentiators are often unique to a particular market or they may be common across a number of potential markets.  This is something you need to pay attention to since you generally at this point are looking to address as many markets as possible with your product offering.  In addition, you are looking to determine the features, functions and capabilities that will give your start-up company’s product offering a competitive advantage over your competitors for a particular target market.  Here, it pays to be very detailed.  As it is these details that will ultimately lead you to the right conclusions in determining the competitive advantage of your start-up company’s technology, product or service offering.

Define the Product Requirements for Each Market

After you have had time to review the various competitor product offerings for each potential target market of interest, you need to spend time sweating the details on the necessary product requirements for each potential market of interest. Here, you need to develop a product feature, function and capability list for each potential target market. Why, because it is this product requirements list that will provide you with the necessary insight as to what it takes to not only be competitive in a target market of interest, but what it will also allow you determine what additional product capabilities are necessary to make your product a “complete” product offering.  This often requires you to add capabilities (e.g., software, hardware, services) to your start-up company’s “core” capabilities that are well beyond the scope of your company and will require you to secure these capabilities through a strategic partnership or by other means.  In the end, you will have a compelling and “complete” product offering that addresses the needs of each particular target market. This is your goal.  Finally, it is through this market driven product requirements process that you may determine that certain markets cannot be addressed by your start-up company or will necessarily need to be addressed in the future, with follow-on product offerings, once you first establish yourself in other markets. Therefore, defining the detailed product requirements, for each given market will give you the insight you need to not only determine the necessary feature and functional requirements, it will given you insight so setting your start-up company’s targeted market priorities.

Develop Focus for Your Targeted Markets

Once you have looked a breath of markets, reviewed your competitors’ product offerings and defined the product requirements for each potential market of interest, you need to focus in on your target markets.  Here, you need to first identify which markets you believe, based on the above information, you have a clear competitive advantage.  Then you need to identify which of these markets have the highest potential for return on investment for your potential investors.  That is, which markets are the largest and have the highest long term growth.  Finally, you need to prioritize these markets in terms of total financial investment requirements and associated risk.  Some, target markets may be attractive, but will require substantial up-front investment and result in much longer time-to-money and profitability. Alternatively, other target markets may not be as attractive, but are easier to penetrate and will allow you start-up company to generate early cash flow and at the same time provide higher potential near term returns while you establish your start-up company in these target markets.  The point here is to take a look at the whole breath of markets that are available to you and your start-up company and develop a focus for a given, limited number of target markets that make sense logically, strategically, financially and opportunistically. Doing so will provide your start-up company with the focus necessary to move forward with a targeted market driven plan and at the same time provide your start-up company with higher potential for success.

As a first time entrepreneur with a product “idea” or “concept” it is not always easy to see how to move forward to develop a compelling, value added business proposition.  To take this leap forward it is always necessary to start from the markets. This market focused approach requires the entrepreneur to identify a broad breath of markets that have the potential to use their start-up company’s technology, product or service offering to solve an unmet market “need” or “problem”.  Following this market opportunity analysis with a both a review of the competitors product offering and the development of listing of the product requirements for each potential targeted market will provide you with the necessary insight to determine which target market you will ultimately have a sustainable competitive advantage.  In addition, it will provide you with the ability to prioritize these same markets, based on market opportunity, investment requirements, potential risk, and projected overall return on investment.  So, take the time to use a breath of markets approach in the development of your start-up company’s “idea” or “concept”. It will lead you to the right conclusions and provide your start-up company with necessary focus to be successful in your final target markets of interest.

This information was taken from Robert’s new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies”.  Available at www.amazon.com.  For more information on the book go to www.carlsbadpublishing.com.

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September 21, 2009 Posted by | Business Planning, Competition, Competitive Analysis, concept, Customers, Target Markets, Venture Capital, venture finance, Venture Funding | 6 Comments

A Competitive Analysis Helps Position Your Company in the Market and with Your Investors

All business plans should contain a thorough competitive analysis of your start-up company and its technology, product or services offering.  This analysis is a key to positioning your company in the market.  It is also a key to convincing your investors that you have done your homework and have a product offering that provides a long term, sustainable competitive advantage.  Finally, a thorough competitive analysis provides a basis to inform these same investors that your company and its technology, product or service offering is something worth considering investing in with the potential for a substantial return on investment.  This article outlines various items to consider when developing your start-up company’s competitive analysis.

Never Tell Your Investor There is “No” Competition

One of the biggest mistakes a first time entrepreneur can make when developing their business plans is to not spend the appropriate amount of time developing a thorough competitive analysis. This is a huge mistake and will often come back to haunt you.  In addition, many times I have witnessed entrepreneurs trying to tell their potential investors that there are no competitors or no “direct” competitors for their technology, product or service offering. This again, is a big mistake with investors.  First, they will not believe you.  There are always competitors or potential competitors within the target markets for your start-up company’s technology, product or services offering.  Second, making this statement will cause you to lose your credibility with the same individuals you are trying to impress with your knowledge of the market. Therefore, as an entrepreneur, one must take the time to do their research and due diligence to identify their competitors, both large and small, and also at the same time identify those companies that have the capabilities to enter your market space with a compelling product offering.  One thing is for sure, if you are successful company and making money in a given market, the competitors will come.

Listen to Andy Grove

Andy Grove wrote a book entitled “Only the Paranoid Survive.”  In his book, Andy outlines his belief in the value of paranoia in business. Here, he rightfully claims the following: “Business success contains the seeds of its own destruction. The more successful you are, the more people want a chunk of your business and then another chunk and then another until there is nothing left. I believe that the prime responsibility of a manager is to guard constantly against other people’s attacks and to inculcate this guardian attitude in the people under his or her management.”

 This belief that “only the paranoid survive” must drive your start-up company when entering a market and developing a long term competitive position in this same market space with your new technology, product or service offering.  This basic understanding of business also underlines the value of developing a thorough competitive analysis for your start-up company.

Determine the Key Product Attributes

When reviewing the market and its competition, one must focus on what key technology, product or service offering attributes are important to your customer base.  This attribute list should include all the features, functions and capabilities that you believe are important to your customers.  The purpose of developing this key attribute list is to develop a list of identified and compelling features, functions and capabilities that the current competitors use to differentiate their products in the market. It should also be noted that these attributes should be verified with your customer base.  Often what you believe, as an entrepreneur, are important features, functions and capabilities are not necessarily that important to your customers.  So, spend the time talking and verifying key product attributes with your customer base.  This will go along way when presenting your competitive analysis to your investors.  This will also substantiate the credibility of your analysis. 

Present a Succinct Summary of Your Analysis to Your Investors

To present your competitive analysis to your investors in an easy and readable format, often it is best to summarize all of your due diligence and research on your competitors in a table format.  This table presentation is easy to read for your investors and can be used to present a substantial amount of important information in a succinct and compact format.  To develop this table lists all of your competitors, along with your start-up company, on the horizontal table axis.  On the vertical table axis list out the important and identified key features, functions and capabilities that differentiate the various product offerings to their customer base.  This table, as outlined, and if developed with the appropriate level of detail, will provide a clear view of the competition in the market.  It should also delineate, to your potential investors, how your company’s technology, product or service offering provides a clear, sustainable competitive advantage in the market.   

In addition to your table-based competitive analysis presentation, you should include a summary paragraph that outlines the conclusions of your competitive analysis table to your investors. These conclusions should emphasize to your investors the clear advantages of your company’s product offering in the market. By presenting your competitive analysis and due diligence in this format your investors will get a clear, concise summary picture of your start-up company and the competitive advantages of its technology, product or service offering in the market.

Position Your Company

Once you have developed your company’s competitive analysis and presented it in the appropriate table format, one should next use this same information to position your company and its product offering in the market.  This is best accomplished by developing a “perceptual map” – a two axis graphic which is based on the two key attributes that differentiate various successful product offerings in the market.  (As an example, two key attributes for the microprocessor market can include speed and power consumption.)  These two key attributes are then used to position your company and its product offering with regard to your competitors.  This “perceptual mapping” exercise is a key to developing an identified market position with regard to your start-up company and its product offering and the other various competitor product offerings in the market.  When determining your company’s product positioning one should consider the following:

  • Does your company’s product offering address the “high” end of the market according to these two key attributes?
  • Does your company’s product offering address the “low” end of the market according to these two key attributes?
  • Does your company’s product offering address the whole market?
  • Does your company’s product offering only address a clearly identified sub-segment of the market? 

The object here is to position your company and its product offering relative to your competitors.  This “perceptual mapping” positioning analysis will provide your customers and investors with clearly identified market position that differentiates your start-up company and its product offering from the competitors in the market.

As outlined, spending a significant amount of time and effort to develop a proper competitive analysis is required for your start-up company and its technology, product or service offering. This analysis is very important to both your potential investors as well as your potential customers.  Also, if done properly, this competitive analysis also provides you and your start-up with a differentiated market position that will be attractive to your customer base and allow your start-up company to secure market share from existing competitors in the market.  Finally, it also allows you to provide your investors with a clear picture of the long term and sustainable competitive advantages your start-up company and its technology, product or service offering provides the market.

For more information on developing a proper competitive analysis for your start-up company, along with a detailed discussion on “perceptual mapping” refer to my new book: “Business Planning, Business Plans and Venture Funding – A Definitive Reference Guide for Start-up Companies.” This book is available at http://www.Amazon.com.

May 11, 2009 Posted by | Business Planning, Business Plans, Competition, Competitive Analysis | Leave a comment