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Industry Analysis for Startups

Techniques for analyzing the attractiveness of an industry to potential startups. Covers analysis of market structures and how to size a market opportunity.

Industry Analysis for Startups

  1. 1. Managing Technological Innovation IEOR 4998, Tuesdays 1:10PM - 3:40PM 1137 Seeley W. Mudd Building
  2. 2. Today Readings Industry analysis Market sizing: top-down & bottom-up
  3. 3. If a thing is not worth doing, it’s not worth doing well. ! - Charlie Munger
  4. 4. Readings Describing the Habits of Mind Managing Overconfidence How to Detect a Management Fad--and Distinguish It from a Classic Widgets Make a Big Splash on the Net Read any three reports at IBISWorld Market Research Reports
  5. 5. Describing the habits of mind What does good thinking have to do with market sizing? Why do smart people attack tiny markets? Why do people spend their lives trying to squeeze blood out of turnips?
  6. 6. Managing Overconfidence What causes overconfidence? Where have you seen this happen? When is overconfidence useful? When is realism useful? Weather forecasters are good at their jobs?!
  7. 7. How to Detect a Management Fad What do management fads have to do with market sizing?
  8. 8. Simple, intuitive, clearcut Confidently promises big results Benefits for every industry Step-down capability (implementation by part) Cocktail-party ready Novel, not radical. Repackage older ideas in fresh form Guru-certified with a few star examples Fun, upbeat, memorable How to Detect a Management Fad an Industry
  9. 9. Industry analysis Technical requirements Industry economics Market structure
  10. 10. • Competitors • Market positioning • Products • Customer bases • Industry trends • Industry size and growth Collect solid info on: Industry analysis
  11. 11. Competitive analysis Porter’s Five Forces Industry analysis
  12. 12. Market positioning Two by Two Grid Industry analysis
  13. 13. Product comparison Feature grid Industry analysis
  14. 14. Product comparison Feature grid Industry analysis
  15. 15. Product comparison Pricing segmentation Industry analysishttp://www.computerhistory.org/atchm/early-apple-business-documents/
  16. 16. What is the market? How big is it? What can you capture? Market sizing But for now...
  17. 17. The revenue available from all actual and potential buyers or users (customers) of your product. What is “the market”? Market sizing
  18. 18. Markets are defined by customer need What do Netflix’s customers need? Market sizing
  19. 19. Netflix Market sizing What need? Which customers? Key questions Need Market A movie to watch (1996) Home video rentals A movie to watch (2013) Home video providers A movie to stream Home video streaming Something to do Consumer media
  20. 20. Opportunity triangulation Reach Bottom-up Top-down Market opportunity Market sizinghttp://iterativepath.wordpress.com/2013/02/12/sure-the-market-seems-big-but-what-can-you-address/ Is the market worth your time?
  21. 21. Market sizing Top-down market sizing How much revenue does your market generate? $$$ $$ $
  22. 22. Key questions Total addressable market How big is the pie?TAM Served available market How big is my slice?SAM Target market How much can I eat?TM Top-down market sizing
  23. 23. Rules of thumb Top-down market sizing x% of the market/ segment you could get 100% of the segment you could sell to 100% of the market for type of product you sellTAM SAM TM
  24. 24. Example US taxi services $5.3b SAM US taxi & limousine services $9.7b TAM Uber’s share (2%) $106mLargest company in industry has ~2% TM Uber Source: IBIS World Top-down market sizing
  25. 25. Example $57.2b $31.5b $4.5b Diamond engagement Source: US Census Bureau, Diamond Information Center, J. Walter Thompson Engagement rings TAM US jewelry SAM TM Diamond jewelry Top-down market sizing
  26. 26. ExampleMint TAM? SAM? TM? http://www.slideshare.net/hnshah/mintcom-prelaunch-pitch-deck Top-down market sizing
  27. 27. ExampleAirBnB http://www.businessinsider.com/airbnb-a-13-billion-dollar-startups-first-ever-pitch-deck-2011-9#-5 Top-down market sizing TAM? SAM? TM?
  28. 28. ExampleSquare http://www.businessinsider.com/airbnb-a-13-billion-dollar-startups-first-ever-pitch-deck-2011-9#-5 Top-down market sizing TAM? SAM? TM?
  29. 29. Data sources http://www.businessinsider.com/airbnb-a-13-billion-dollar-startups-first-ever-pitch-deck-2011-9#-5 Top-down market sizing •CLIO!!! •Economic census •IBIS World •Standard & Poor’s •Industry trade associations •ProQuest •Federal Reserve •SBA.gov •Pew Research •FedStats Start with research Focus on big picture Is the market “worth” your time?
  30. 30. Market sizing Top-down market sizing Strengths? Weaknesses? Uses? Abuses? $$$ $$ $
  31. 31. Market sizing Bottom-up market sizing How much are potential customers spending?
  32. 32. Key questions Bottom-up market sizing Who? What segments? How many? How often? How much? Focus on key drivers
  33. 33. ExampleCampus coffee shop Bottom-up market sizing Passers-by per day: Conversion rate: Customers per day: Average ticket size: Annual revenue: 5,000 5% 250 $5.00 $450,000
  34. 34. ExampleUber Bottom-up market sizinghttp://bit.ly/18liUoO
  35. 35. ExampleUber (cont’d) Bottom-up market sizinghttp://bit.ly/18liUoO
  36. 36. Key questions Bottom-up market sizing How else could we have defined the market? How else could we have calculated the market? Are we making realistic assumptions?
  37. 37. Data sources Bottom-up market sizing •Customers •Surveys •Consumer research •SEC Filings •Competitive research •Partner research •Industry research •Google trends Start with customers Focus on behavior Is the problem “worth” solving?
  38. 38. Market sizing Bottom-up market sizing Strengths? Weaknesses? Uses? Abuses?
  39. 39. Market sizing Reach What can you realistically hope to achieve as a NY-based startup with limited resources?
  40. 40. Market opportunity Recap Bottom-up What’s the target customer’s spend? Top-down What’s the total industry revenue? Reach What can we actually do? Market sizing
  41. 41. Recap Essential questions Market sizing What market are we in? What problem are we solving?
  42. 42. One more Market sizinghttp://www.computerhistory.org/atchm/early-apple-business-documents/ Apple Macintosh
  43. 43. Next week’s readings Disciplined Entrepreneurship, ch. 15-19 Startup Killer: Cost of Customer Acquisition: http:// www.forentrepreneurs.com/startup-killer/ Customer Acquisition and Monetization: http://www.slideshare.net/DavidSkok/ customer-acquisition-monetization-keys-to-your-business-plan Questions about homeworks?
  44. 44. Next week’s speaker Steven Cohn, CEO of Prodthink Review prodthink.com Sign up and try it out (it’s free)

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