homogeneity of buyers (selling "off the rack" is more cost-efficient)
large numbers of buyers (to get economies of scale)
lack of barriers to entry (eg. regulatory framework, high setup costs)
word-of-mouth potential (cheapest form of advertising)
value proposition
visibility - lack of (market can be attacked without competitors noticing)
Each of these factors could be given a number and a single DEJ value computed.
sources of financing
personal savings (not recommended)
profits from previous investment
customer financing (see below)
loans (friends, family, bank, credit cards, second mortgage - may need security and/or a guarantor)
grants, government funding (restrictive: imposes directions on development, and imposes reporting requirements (Silver, 1985) - may also withdraw funding, possibly for political reasons)
crowdfunding
angel investors
venture capital (usually in exchange for equity and/or control; may provide facilities, expertise, networking)
partners (via a joint venture or strategic alliance)
Other points:
each approach has costs and benefits
each approach has its own appetite for risk
some approaches are not applicable to some types of businesses
approaches can be combined to create a 'funding mix'
if a guarantor is required, its better that this is an investor, rather than a family member or friend
"If you can meet your capital needs without selling equity or without taking on personal debt, do it." -- Jerry Colonna
customer financing
where the customer pays in advance (Silver, 1985)
retains equity and control (unlike venture capital)
involves the customer in the business (encourages customer-centricity)
best when initial capital requirements are minimal (eg. no premises, no employees)
the product or service must be ready to deliver (Silver, 1985)
goes by the name of "bootstrapping" in the dotcom world
consists of (Silver, 1985):
franchising (replicating a successful script: best done once it's written and proven)
"facilities management" (now known as outsourcing - below)
indexes (below)
direct mail (now known as junk mail, junk fax, and spamming - but also includes catalogues)
licensing (below)
consulting (below)
party plans (purleeze!!! :)
indexes:
"if you can't solve the problem, then sell information about the problem, that will help others work on it" (Silver, 1985)
magazines, TV shows, newsletters, seminars, conferences, tradeshows, directories
mostly dated, as much information is now available for free on the internet - with some notable exceptions
conduits for advertising: advertisers pay costs of operating the business
licensing:
sell the right to make and/or market (Silver, 1985)
licensor earns fee + royalties on sales for a fixed period
requires non-performance clauses in licensing contracts
good for selling content (eg. graphic designs)
potential design licensees:
catalogues
publishers
department stores
content providers
outsourcing:
outsourcers are management companies who centralise the handling of a particular class of problem; they profit by economies of scale
outsourcers provide services that are problematic for companies to provide internally, but can be rented/subscribed to by them
outsourcers are often presented with a problem phrased in business terms by their customers; the outsourcers' job typically involves some or all of the following:
to research and define the problem clearly and concisely (the customer may be unaware of the causes, extent or ramifications of the issues they face, and/or, may not have provided as much information as is available, and/or, may have unrealistic expectations)
to transcribe the problem into the language of the actual problem domain (eg. a problem related to technology needs to be rewritten in technical terms in order to accurately specify the job to technicians)
to search for and correctly identify solutions to the problem
to consult with the customer as to the best solution, given the various financial, technical, staffing and other limitations involved
to manage the implementation of the solution, such that the original business problem is solved
to monitor the performance of the solution, making changes as necessary, in consultation with the customer
consulting:
"explains, indexes, classifies, provides history and background, and analyses possible ramifications of the problem" (Silver, 1985)
fees for services
gets paid to potentially develop a solution to the problem
operating expenses
equipment
wages
transport
inventory
pricing strategies
cost-plus (a percentage..)
what the market will bear (eg. what are the competition charging?)
the value to the customer (eg. if the customer will save $X by buying this device, then as long as the price is less than $X, it makes sense to buy it - although money is not only factor involved of course)
The choice of strategy is determined by many things, however a significant determining factor is the state of competition in the market.
In a highly competitive market, where product homogeneity is high and the number of competitiors large, pricing tends toward the cost-plus
model, while in a weakly competitive market with few substitutable products and not many competitors, the supplier has more freedom to pick
a price. See Porter's Five Forces.
Pricing strategies may also change over time, reflecting changing business priorities. For example when a business is new it may wish to penetrate the market with
its product, so it sets a low price, and adds various incentives; once demand is established and the revenue stream is flowing, the price is increased and the incentives
removed.
spin-offs, retaining ownership (multiple companies and brands)
leveraging existing assets, markets or customers to obtain additional assets, markets or customers
maintenance strategies
improve sales
improve productivity
cut costs
withdraw unprofitable products or services
rework the product mix
exit strategies
trade sale (sell to a competitor)
public sale (sharemarket)
mistakes made
over-expansion
ad-hoc (non-strategic) growth
product unsuited to market
insufficient capital
lack of management talent
valuing companies
price/earnings ratio (varies with industry sector)
average trading range of shares over a year (avg price x # of shares)
how much were competitors sold for?
value of takeover offers
attributes of entrepreneurial companies
value employees
value creativity
have good remuneration packages
participative management
receptive to change
paradigms
entrepreneur teams up with manager
leverage (obtaining extraordinary profit from an asset; recycling or repurposing an asset to obtain additional revenue)
write a script (the template for solution delivery - ultimately, manuals, procedures and automation)
focus on core competencies and the target market
customer-centricity
know the competition, the market, the customer
ruthless use of technology to control costs
ways got ahead
reinvest profits; minimise spending on expenses and liabilities
exploit regulatory change or inconsistency
exploit slow-to-move monopoly or government department
exploit incumbents' unwillingless to cannibalise their own sales/R&D
undercut incumbents PLUS significant cost or technology advantage
buy plant and equipment on the cheap (Navy Surplus, auctions, disposals, liquidations, foreclosures, bankruptcies)
win a contract
buy an underperforming company on the cheap and fix it
pick an ignored or underserved market
revenue stream cross-subsidisation (not recommended for long-term use, as it reduces incentives to improve underperforming assets, while draining the coffers of profitable units that might be used to make them even more profitable - nonetheless it can keep a stream on life-support until it can flow on its own)
cream the competition with new technology (the 30-30-30 rule: 30% faster/better/cheaper (Silver, 1985))
convince customer to pay for the development of a product which can be resold (customer financing + leverage)
obtain raw materials on credit (a gamble - if sales don't cover the costs, the business owner is on the hook)
team up with partner keen to enter market (they either subsidise the business, or buy it)
buy suppliers to cut costs and reduce vulnerability (backward integration)
buy distributors and retailers to cut costs and reduce vulnerability (forward integration)
maximise utilisation of capacity
grow from the growth of other businesses
flanking strategy at start - license technology to/from competitors
make it difficult for competitors to copy the business
kick-start product uptake by using endorsements from already-recognised entities
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