How to define your market entry strategy
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The document outlines the importance of market positioning, revenue estimation, and entry strategies for businesses. It emphasizes the need to target a large market and suggests techniques for estimating market size and defining strategies using frameworks like SWOT and PEST. It also discusses potential returns for venture capitalists and the significance of competitive differentiation in achieving market leadership.
![VC’s share Valuation bracket at exit = [21,8-22,0m€] If 1 round of financing of 1,5m€ for 30% equity Then VC’s value at exit is 22m€ x 30% = 6,6m€ That’s a return of : 6,6 / 1,5 = 4,4x (ok, > 3x) or 33%/year 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](https://image.slidesharecdn.com/101019markets-101016051650-phpapp02/85/How-to-define-your-market-entry-strategy-9-320.jpg)
How to define your market entry strategy
- 1. Founder Institute – October 19, 2010 Pix (cc) BY NC SA, Rodrigo SEPÚLVEDA
- 2. Summary Why is it important ? Define your market positioning How do you estimate it ? Design a market entry strategy
- 3. 1. Why is it important ? Gives you A valuation A potential target for your revenue (therefore also EBIT) Assessment of market players, hence your competition
- 4. 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
- 5. Potential valuation 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)
- 6. Multiples 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€
- 7. DCF
- 9. VC’s share Valuation bracket at exit = [21,8-22,0m€] If 1 round of financing of 1,5m€ for 30% equity Then VC’s value at exit is 22m€ x 30% = 6,6m€ That’s a return of : 6,6 / 1,5 = 4,4x (ok, > 3x) or 33%/year 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
- 10. 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 market
- 11. 2. Define your market 3 options An existing market A market that doesn’t exist yet An mature market : an opportunity to re-shape it
- 12. Example of entering an existing market Richard Branson and all Virgin brands in air travel, finance, rail Steve Jobs and telephony, music iPhone, iTunes Bill Gates on OS, office software, games, etc. Mark Zuckerberg (facebook) with social networks Google with Android Innovation and a differentiating factor are key
- 16. 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
- 17. A word of advice about innovation Feature company Product company Solution company Nice-to-have Got-to have
- 18. What problem are you solving ? Reality check #1
- 19. Why will someone PAY for your product ? Reality check #2
- 20. Sample new markets Classic examples : Walkman Post-its Netbooks Space travel Twitter (?)
- 21. A mature market #1 or #2 strategy Not enough: redefine your market as 10% max of revenue
- 22. 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
- 24. 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 !
- 27. Sum of all players Hard not to compare oranges and apples Take only direct competitors Gives you a current picture, not a projected one
- 30. 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
- 32. 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’”
- 33. 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%
- 34. Summary : entering a market Why is it important ? Define your market positioning How do you estimate it ? Design a market entry strategy
- 35. www.rodrigosepulveda.com twitter: @rodrigo Rodrigo A. SEPÚLVEDA SCHULZ Pix (cc) BY NC SA, Rodrigo SEPÚLVEDA