S7 E29-32 Be sure your business will make money before you launch. Planning ahead leads to success with Jeremy Gray

Jeremy Gray – Practical Solutions to Difficult Problems
IBGR. Network. The World of Business at Your Fingertips

Be sure your business will make money before you launch. Planning ahead leads to success.

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Episode 29 – The Ansoff Matrix – How it can help your startup scale.
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‘Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!’

The Red Queen – Alice in Wonderland – Lewis Carroll Published 1865
Every entrepreneur starting out has visions of her/his baby growing into a successful business. They may not be dreaming of becoming a unicorn, maybe $1 Million turnover is their goal. But at some point, in the business lifecycle they will need to reinvigorate their business. Like any project business expansion is a balance of risk versus reward. Let’s examine a couple of tools that may help you decide how to expand your business.

1. The Ansoff Matrix was developed by Igor Ansoff and published in the HBR in 1957 under the title Strategies for Diversification.
2. Ansoff argues there are only four strategies for growth:
   1. Market penetration – Increasing sales of existing products into an existing market 
   2. Product Development – Introducing new products to an existing market
   3. Market Development – focuses on entering a new market using existing products
   4. Diversification – Entering a new market with the introduction of new products.
3.  Ansoff also evaluated the risk associated with the four strategies and plotted this on a 2X2 Matrix.
   1. The lowest risk was assigned to Market Penetration
   2. The highest risk was assessed to be Diversification.
4. How can a matrix developed nearly 65 years ago be relevant to entrepreneurs today?
   1. If you are pitching to investors, you can almost 100% someone is going to ask you “How are you going to scale?”
   2. It’s true that Ansoff research was focused on later stage businesses, but he did focus on growth. And growth is what startups are all about, so Ansoff remains relevant.
5. The relationship between markets and products provides a framework for how your company can grow. 
   1. Markets are not necessarily based on your customers characteristics, such as geography but more based on their objectives. 
      1. People do not buy drill bits, people buy holes – the concept of jobs to be done. – Clayton Christensen
6. Use the matrix and “jobs to be done” concept to map out your scale up. 
   1. The lowest risk path to growth is market penetration. Selling more of your products into the existing market. If you have a multi-generational product strategy that will keep you ahead of your competition and allow increased market shar this may be all you need, for now.
   2. But without innovation your company will eventually stagnate. Existing customers are the easiest to sell to. Identify “jobs” that need to be done that are not done well or not being done at all.
      1. What work arounds have your customers invented?
      2. What tasks do people want to avoid?
      3. What surprising uses have customers invented for existing products. This can lead to entering new markets.
7. Diversification is probably not applicable at this stage of your company’s development.
   1. It has the highest risk
   2. Backers will question your business concept. Why are you launching with one idea and planning to move into another business concept?
8. The Ansoff matrix is easy to understand. Plot your expansion plans on the matrix to help investors grasp your scale up concept.
9. I recommend the article Know Your Customers’ Jobs to be Done published by HBR. Link below:

https://hbr.org/2016/09/know-your-customers-jobs-to-be-done

Tags: How to start a business, achieve start up success, Ansoff matrix, business growth, market penetration, the successful entrepreneur, business common mistakes small business start-up; avoid these common mistakes of business, mistakes in business, IBGR.network, Jeremy Gray, Practical Solutions to Difficult Problems

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Episode 30 Do you know your market size? No one will fund you without this information. Learn how to determine this important metric.

We are not willing to compromise our values in order to increase our market share.
Pavel Durov
Is your target market large enough to support your ambitions for your company? This is an important metric that you, and your potential investors, need to understand to be able to assess your chances of success. I have read articles that say the market size needs to be in the billions. Yes, if you want to be the next unicorn with a $1 Billion valuation. But if being a unicorn is not your goal, the market still needs to large enough to support your business plan, and not by assuming you will achieve market dominance. At least not yet. 

1. How much you can sell is directly impacted by the size of the market you can sell to. 
   
   1. Markets are finite, there is only so much demand for your product.
      
   2. As a start up targeting more than 5% share is unlikely to be believed by potential investors.
      
2. Some important definitions.
   
   1. Total available market (TAM). Let’s assume you are launching a new electric toothbrush in the UK that sells for 10 pounds. What is your total available market?
      
      1. Population of the UK – 60 million, assume on average each person buys 1.5 toothbrushes per year. 
         
      2. Total number of toothbrushes sold = 90 million at 10 pounds each – TAM 900 million pounds.
         
   2. But not everyone uses an electric toothbrush. In the UK about two-thirds of people use an electric toothbrush. So now your TAM is down to 600 million pounds.
      
   3. Maybe you are only going to sell your toothbrushes via dentists, dental clinics and online. Maybe this represents 15% of the electric toothbrush market. So, your potential or serviceable market will be 90 million pounds. Taking our guideline that 5% market share is the maximum a startup can expect – your top line sales will be 4.5 million pounds.
      
   4. Clearly if this is not sufficient to justify your investment you would consider broadening your distribution channels.
      
3. Toothbrush market size is pretty easy to estimate market sizes. Nearly everyone uses them and there is a lot of market data out there available free for you to use.
   
4. If it is hard to get hard data on the size of your target market, what steps can you take to estimate TAM and Potential Markets.
   
   1. Define you subsegment of the market
      
   2. Conduct top-down marketing.
      
   3. Follow this with a bottom-up analysis
      
      1. Where you will sell your products
         
      2. How many locations will stock your products?
         
   4. Estimate sales by location
      
   5. Be realistic, map out the ranges, focus on the lower end of your projections 
      
   6. Consider the market dynamics – is the marketing growing? Is it static? Is it declining?
      
5. Some other questions to ask:
   
   1. How well does your product fit the market needs? 
      
   2. How much market share can we reasonably take?
      
   3. If you are already in the market what has made you successful
      
   4. What are my potential customers buying habits and how can I make it easy for them to buy from me?
      

Tags: How to start a business, achieve start up success, Ansoff matrix, business growth, market penetration, the successful entrepreneur, business common mistakes small business start-up; avoid these common mistakes of business, mistakes in business, IBGR.network, Jeremy Gray, Practical Solutions to Difficult Problems

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Episode 31 Market Penetration Strategy – What is right for your business?
Apple's market share is bigger than BMW's or Mercedes's or Porsche's in the automotive market. What's wrong with being BMW or Mercedes?

Steve Jobs

If you’re looking to start or expand your business, you need to have a firm understanding of how to enter and grow within your chosen market. This requires you to take what you’ve learned during your market analysis to develop a market penetration strategy for your business. For your business is the key word. Many online articles talk about achieving market dominance, cite examples like Apple or Coca Cola. Certainly, dreaming big is often thought of an important attribute that leads to success. Dream big and plan with realism.

The fundamental 4 Ps of marketing:
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1. Product – Keep it simple. 
   1. Avoid the next shiny feature trap
   2. Understand the impact of every new added capability
   3. Kill off new ideas before they kill your product.
2. Price – often thought of as the most important of the 4Ps. At the start of your business, you will not be able to be a price leader. The market will dictate what you can charge but:
   1. If you plan to be a premium product do not undercut the market
   2. If your funds are limited – a higher price that gives a better margin in exchange for slower growth maybe right for you. But do not get too much above market. Give something in return – more attractive packaging etc.
   3. Too low a price can make people suspicious. 
   4. Particularly if you are selling online – test price points. Use pricing to control demand. 
3. Promotion. Covers all the activities you use to market your product or service to your target customers
   1. Often very expensive so consider how you can track your ROI
   2. Manage you’re the cost of customer acquisition versus the lifetime value. (Margin $ not Sales $)
   3. Know where your customers go for information. This does vary by generation
   4. Do not dismiss influencers. Consider Micro or Nano influencers.
   5. Social media – Pinterest, Instagram, Tiktok
4. Place – chose your distribution channels carefully.
   1. Make it easy for your customers to buy
   2. But ensure the channel is aligned with your objectives
   3. Multiple channels are fine – just do not get drawn too thin
   4. Online – consider your own site if niche – use a platform if more generic. SEO
5. People – the fifth P refers to your customers and your staff
   1. Understand your customers needs, aspirations, desires. Are there gaps you can bridge
   2. Ensure your staff are motivated, well trained and focused on customer satisfaction.
   3. Does your marketing strategy reflect your values and mission?
6. Beyond the 5Ps – create a barrier to entry.
   1. What do you do better than your competition?
   2. Identify your core competence?
   3. What can make it difficult for your competitors to match you?
      1. Company culture can be a very effective barrier to entry.

Connect market penetration to your overall business strategy
Keep in mind that market penetration should not be conducted in a bubble. Any strategies you develop or steps you take should connect to your broader business strategy and help you reach specific milestones. One way to keep this top of mind is to incorporate a review of your market penetration rate and any ongoing strategies into your monthly plan review. 

This will encourage you to look at financial forecasts, milestones, and current tactics all at once. If you find that a current penetration strategy doesn’t support your larger goals, it may be wise to back off or reallocate resources until it becomes relevant. Or it may present an opportunity to adjust your business plan to fit the opportunity you’ve found. But without reviewing it alongside your plan and financials, you’d never know for sure.

Tags: How to start a business, achieve start up success, Ansoff matrix, business growth, market penetration, the successful entrepreneur, business common mistakes small business start-up; avoid these common mistakes of business, mistakes in business, IBGR.network, Jeremy Gray, Practical Solutions to Difficult Problems

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Episode 32 Inflation is coming – are you ready? How to cope with rising costs.

Many folks in business today have never had to deal with inflation. In the US and Europe, the last time high inflation was rampant was back in the 1970s. The world today is very different from 1970s and no one is predicting we will see the same levels of inflation we saw back then, but prices will be rising faster than we have been used. The most recent inflation prints have done little to reduce concerns about inflation. The U.S. consumer price index jumped 6.2% in October from a years ago, official figures revealed on Wednesday, the sharpest annual rise for 30 years and vastly outstripping the U.S. Federal Reserve’s target.
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Chinese producer price index inflation surged 13.5% annually in October, while U.S. PPI grew at 8.6% annually, equaling an all-time record.

That we are seeing inflation is no surprise. Shortages of labor and materials, partially triggered by Covid 19 are pushing up prices. Freight rates have skyrocketed, and oil is trading at near recent highs. Governments have been printing money for fund covid relief initiatives and combined with quantitative easing measures there is a lot of money in the world economies. I have been predicting that inflation was bound to be a consequence of these actions, I am only surprised it has taken this long.

As a SME you may be less able to pass on price increases to your customers, if the major players in your market are only passing on a fraction of the true cost increases you may have to accept lower margins for a time. Some belt tightening may be required.

To maintain profitability all parts of your company need to be ready to respond.

1. Responding to inflation is a change in business practices and like any change initiative it is important to bring your staff along with you.
   1. Explain the situation.
   2. Instill a cost-conscious culture.
   3. Do not create panic – this is not a burning platform.
2. Reinvigorate or set up your sustaining engineering activities.
   1. Use sustaining engineering to reduce the cost of the products to improve profitability, match competitors pricings or drive volume. Do further research to identify lower cost sources or alternative materials which are less expensive. Look at all costs – an alternative form of packaging could deliver savings.
3. Look at value engineering – is there an element of your product that is little used that can be eliminated?
4. Reduce portion sizes but be careful look what happened to Nestle when they removed the walnut from their Walnut Whip
   1. Never really been a walnut girl but I feel removing them from the walnut whip truly is the beginning of the end for society as we know it
5. But its procurement who have to step up their game in dealing with suppliers
6. Contract Management
   1. Procurement organizations must be aware of the risks in their agreements and make plans to mitigate those risks. on in itself.
   2. Contract design can be adapted to mitigate the impact of inflation. All contractual levers should be assessed, including duration/term, indexing, periodic limits to price escalations and frequency of price adjustments. Risk potential during inflationary times should be evaluated and contract terms adjusted.
7. It is important to also work closely with the finance, sales and marketing functions to ensure that, where possible, indexes in supplier contracts are symmetrical with those used in commercial contracts. This allows cost inflation to be passed on effectively.
   1. Contract negotiations will be needed to enact changes and should be managed carefully. Prioritize negotiation targets by supplier as well as by commodity. For each negotiation, define a customized strategy, objectives and level of aggressiveness. Consider the unique context and leverage position for each negotiation — if there are no alternative suppliers with lower rates, it will impact the approach.
   2. Set clear rules, roles and responsibilities for the team ahead of negotiations and ensure compliance. As a part of the overall strategy, also consider adjustments to the target mix of long-term versus short-term contracts to manage volatility and cost trade-offs.
   3. Sourcing Strategy and Supplier Collaboration
8. Sourcing strategy can be used to both mitigate inflation’s effects and set up for longer-term cost benefits. 
   1. For example, inflation can provide the impetus to shift sourcing to regions with longer-term strategic cost advantage. Product formulations and specifications can be adjusted to account for expected differences in input prices. Comparison of the underlying economics between substitutable products can also identify arbitrage opportunities to exploit.
9. Partnerships and collaboration with suppliers are another source of potential benefits. 
   1. Cost-plus agreements should be considered in products with high expected volatility. Collaboration with suppliers can reveal opportunities to mutually reduce costs and offset increases. Long-term partnerships, especially in products with limited supply, or modest investments in suppliers can generate low-cost supply agreements. Establishing agreements to base-load suppliers can also achieve strategic supply benefits.
10. In-sourcing and vertical integration in specific areas may also be warranted. 
    1. This is worth considering in strategically important products (meaning sources of differentiation or competitive advantage) with limited network capacity to ensure supply. Make-versus-buy analysis can be used to inform attractiveness, that is, alignment with internal capabilities and expected costs versus expected evolution of marginal costs
11. Consider hedging but with caution. 

Tags: How to start a business, inflation, supply chain, procurement, cost control, contract negotiations, achieve start up success The successful entrepreneur; business common mistakes; small business startup; avoid these common mistakes of business; mistakes in business; IBGR.network; Jeremy Gray; Practical Solutions to Difficult Problems


I am committed to helping entrepreneurs succeed. I can bring the experience of 30+ years of experience at the C-Suite level in an MNC from Europe, North America, and Asia. Combine this with seven years of helping a diverse range of businesses and I can provide you with practical solutions to any difficult problems you may be facing. 

Please do not hesitate to contact me for chat via the following links:

mailto:jeremy@business-in-asia.org

Or schedule time via Calendly:
https://calendly.com/3-continents-consulting

My websites include:
https://business-in-asia.org/
https://thedentistscfo.com/

My LinkedIn URL
https://www.linkedin.com/in/jeremy-gray1

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