The New Business Road Test - 7 Domain Model for Assessing Business Opportunities

Micro-level Market Assessment

Below is an interesting 7 domain model presented by John Mullins, in his book “The New Business Road test”.

He is a three time entrepreneur and says he practices what he preaches. This extensive and comprehensive framework comprises all that one needs to know even before writing a business plan. As a consultant you may find it useful while facilitating an idea generation & opportunity session for an audience with considerable knowledge of entrepreneurship.(For e.g., Management students).

In analyzing your business ideas you must be able to pass them through a test to determine if they truly are valid opportunities. All of your ideas must have a demonstrated need, ready market, and ability to provide a solid return on investment. Is the idea feasible in the marketplace? Is there demand? Can it be done? Are you able to pull together the persons and resources to pull it off before the window of opportunity closes? These questions must be considered and answered. Opportunity-focused entrepreneurs start with the customer and the market in mind.

They would prefer to serve attractive rather than unattractive markets. They analyze the market to determine customer needs, barriers to entry, market structure, market size, growth rate, market capacity, attainable market share, cost structure, the core economics, time to breakeven, opportunity costs and exit strategy issues. This framework offers a better toolkit for assessing and shaping market opportunities and provides the basis for a customer driven feasibility study. It is based on

Seven domains

Viz. Market domain that addresses macro level

1) Market attractiveness and micro level

2) Target segment benefits and attractiveness; Industry domain that addresses macro level

3) Industry attractiveness and micro level

4) Sustainable advantage; Team domain comprising three sub-domains-

5) Mission, aspirations, propensity for risk

6) Ability to execute on Critical Success Factors and

7) Connectedness up, down and across value chain.

At first glance, the seven domains model appears to simply summarize what everybody already knows about assessing opportunities. But upon careful scrutiny, the model goes further to bring to light three crucial distinctions that most entrepreneurs may overlook:

• Markets and industries are not the same things

• Both macro-and micro level considerations are necessary: markets and industries must be examined at both levels.

• The keys to assessing entrepreneurs and entrepreneurial teams aren’t simply found on their resumes or in assessments of their entrepreneurial character. The framework does not give a simple scoring sheet at the end. But it helps in answering the most vital question every aspiring entrepreneur asks himself – “why will or won’t this work? So this will not only help you in understanding if your idea will work, but Why it will or won’t work! Below is the framework that can help evaluate your idea for feasibility and qualify it as an opportunity; you may not be able to answer some of the questions but an attempt will help to assess your idea in an effective manner. It can trigger your thinking in more than one dimension.

Macro-level Market Assessment

Realistically, it's unlikely that your venture will meet the needs of everyone in the market. You'll be more successful if you target your idea at one market sector or segment , and aim to meet its needs fully.

•Which segment of the overall market is most likely to benefit from your venture?

•How is your venture or product different from others already servicing this segment?

•What trends is this segment showing? Is it growing, and, if so, is this growth set to continue?

•What other market segments could you access if you're successful in this one?

Look for qualitative and quantitative data. Talk to prospective customers to gather feedback on their needs, and to find out how well competitors are meeting these. Then, look for data on the sector you're targeting, for example, by reading analysts' reports and market research reports.

Most products don’t actually appeal to an entire market, but rather just a subset of that market. Who are the people within the market that you are going to be serving, and how many of them are there? You can easily make a mistake by thinking you are going to serve an entire market when you are really only targeting a small set of people within that market. In that case, you are left with a market that is significantly smaller than expected, and your sales will likely reflect that fact.

1. Is there a target market segment where we might enter the market in which we offer the customer clear and compelling benefits, at a price he or she is willing to pay?

2. Are these benefits, in the customer’s minds, different from and superior in some way – better, faster, cheaper or whatever – to what’s currently offered by other solutions?

3. How large is this segment, and how fast is it growing?

4. Is it likely that our entry into this segment will provide us entry into other segments that wemay wish to target in the future?

1. Who the customers are i.e demographic terms (age, gender, education, income etc) if itis business to business, then it will refer to the industry in which the customers do business, plus firm size and firm characteristics.

2. Where the customers are in geographical terms?

3. By how the customers behave (life style terms) or in business to business how the products may be used.

1. What customer pain will your offering resolve? How strong an incentive do customers have to give you their money? Will customers buy what you propose to offer?

Industry Domain

2. Who precisely are the customers that have the pain? Do you have detailed accurate information about who they are, where they live or do business or what they do?

3. What benefits does your offering provide that other solutions don’t?

4. Does the target market have the potential to grow?

5. Are there other segments that could benefit from a related offering?

6. Can capabilities that are transferable from one segment to another be developed?

This domain looks at market attractiveness from a macro (large-scale) perspective.

Look at the whole market. How big is it, in terms of the number of customers, the value of sales, and the quantity of units sold? Then, look at trends within the market. Has it grown in recent years? If so, is this growth likely to continue?

What you're doing here is checking that the market is big enough to give you the growth you want, and that it's growing healthily – after all, it's much easier to grow a business in a growing market than it is in a declining one.

This is a point, as trying to enter a market that isn’t big enough to sustain your intended business is a venture that is destined to fail. You don’t necessarily want to be trying to create the market on your own – you want to fill a need where the market is waiting to spend. Is the market that you are targeting on the rise, or is it already in decline? Chasing a fading market is going to be tough in the long run.

Also, use PEST analysis to explore the large-scale factors that affect your market. Do these look healthy?

Information from secondary sources – library materials, internet, newspapers, and publications on recent industry trends should suffice to answer the following questions.

1. What sort of business is sought? One with potential to become a huge business, or a small lifestyle operation? This along with the answers to the following question will determine the need for venture capital. A high potential business in a huge, rapidly growing market will require venture capital whereas a small lifestyle operation in a niche market will not need any.

2. How large is the market?

3. How fast can it grow?

4. How quickly can it grown in the next six months or two/three/five years?

5. What economic, demographic, socio cultural, technological, regulatory or natural trends can be identified and how will it affect the business?

Team Domain

It's now time to look at how attractive your industry is on a macro level.

Mullins suggests using Porter's Five Forces to assess which factors affect the profitability of your industry.

To do this, first define the industry that you will be competing in, and then ask yourself how easy it is to enter this industry. If it's easy to get into, you can quickly be flooded with competitors if you are seen to make a success of your business.

Next, look at your competition. Is rivalry in this market fierce or civilized? Are organizations stealing ideas from others in the industry? Take time to gather intelligence about your potential competitors to see what they're up to.

Last, look at buyers and suppliers. How much power do they have? Are they setting their own terms and conditions because of this power? If so, how will this affect your offering?

Michael Porter’s five forces Questions to ask

1. Is it difficult for companies to enter this industry?

2. Do suppliers to this industry have the power to set terms and conditions?

3. Do buyers have the power to set terms and conditions?

4. Is it easy or difficult for substitute products to steal the market?

5. Is competitive rivalry intense or genteel?

1.What industry will you compete in? Define it carefully.

2. Based on all five forces, what is your overall assessment of this industry? Just how attractive or unattractive is it?

3. If your industry is a poor performer overall, are there persuasive reasons why you will fare differently?

4. Micro-level industry assessment:

Once you've looked at your industry from a macro level, it's time to examine it close up.

What can you do to build and sustain a USP? Next, explore the competencies that you'll need, and think about how to develop and sustain these.

Then think about how easy it will be for your competitors to duplicate your product or service. Also, what resources do you possess that your competitors don't? Do a VRIO Analysis to answer this question, and then look at your competitors' resources.

What do they have that you don't? This could include patents, established processes, and finances. How will these affect your ability to compete?

To succeed in business, you not only have to build an advantage over your competition, but you also have to be able to sustain that advantage in the long run. What can you do to make sure that your competition doesn’t catch up to you – or pass you – in short order? If you are going to develop a unique selling proposition that allows you to stand out from the crowd, is there any way that you can maintain that advantage going forward? If you are quickly going to be copied by a bunch of competitors as soon as you start to have success, it might not be worth entering the market in the first place.

Mission, Aspirations, Propensity for Risk

1. Do you require proprietary elements - patents, trade secrets and so on – that other firms cannot likely duplicate or imitate?

2. Can your business develop and employ superior organizational processes, capabilities or resources that others would have difficulty in duplicating or imitating?

3. Is your business model economically viable i.e. can you show that your company won’t run out of cash quickly? That depends upon the answers to these questions related to working capital cycle:

• Will your revenue be adequate in relation to the capital investment you need and the margins you get?

• How much will it cost you to acquire and retain customers?

• How long will it take to attract customers?

• Will your gross margins be adequate to cover your necessary cost structure?

• How much cash must be tied up in working capital (inventory or other) for how long?

• How quickly will customers pay?

• How slowly will suppliers and employees be paid?

•The Question of Value: "Is the firm able to exploit an opportunity or neutralize an external threat with the resource/capability?"

•The Question of Rarity: "Is control of the resource/capability in the hands of a relative few?"

•The Question of Imitability: "Is it difficult to imitate, and will there be significant cost disadvantage to a firm trying to obtain, develop, or duplicate the resource/capability?"

•The Question of Organization: "Is the firm organized, ready, and able to exploit the resource/capability?" "Is the firm organized to capture value

In this domain, located in the center of the model, you're going to analyze commitment – yours, and that of your team – to this idea.

Think about why you want to start this business. Are you passionate about this idea, and, if so, why? What do you want to do with this business – are you ambitious for it, or do you want it to be a "lifestyle business"? What are your personal goals and values, and how does this venture align with these? And are you prepared to take the risk and put in the hard work needed to build this business?

•What’s your entrepreneurial mission?

•To serve a particular market?

•To change a particular industry?

•To market a particular product?

•Is the passion really there?

•What level of aspirations do you have for your entrepreneurial dream?

•To work for yourself?

•To build something small or something big?

•To do? To manage? To lead?

•To change the world in some way?

•What sorts of risk are you and are you not willing to take:

•Will you risk a secure salary and the things that go along with your current employment? For how long?

•Will you risk losing control of your business?

•Will you put your own money at risk? How much?

•Will you risk your home or time with your family or loved ones?

•Do those you love accept the risks you will take?

•“The can you and your team execute?” test

What are the few - only a handful, please – critical success factors (CSFs) in your industry? What support can you provide to show that you’ve identified them correctly? Can you demonstrate - in past deeds, not mere words – that your team taken together can execute on each and every one of these CSFs? Alternatively, have you identified which CSFs your team is not well prepared to meet, for which you need help in filling out your team?