Mullins Model Notes 4f5u22

Mullins Model

Most business plans fail to raise any money for the venture. Why? They are written for business opportunities that are fundamentally flawed. Why write a business plan for a no-hope opportunity. Writing business plans gets the writer into an, everything about me is wonderful’ mode. Most business plans are idea and entrepreneur-focussed, not customer focussed. We need to therefore analyse the opportunity before we even put pen to paper on a business plan. And we need to see the opportunity in a light that says: Why will, this one fail bearing in mind that most fail. The model distinguishes between a macro and micro perspective and investigates the industry (the suppliers) and the market (the customers) for a particular business opportunity. Mullins makes the point that there is not such a thing like the car market, the hospital market etc. Instead markets are groups of customers with a common need or desire, which might be satisfied with a particular product, but not necessarily. In the middle of the model stands the organisation with its core team that interacts with its environment and needs to have some key properties in order to function well. In the following the individual parts are described for the author’s product concept.

NEW BUSINESS ROAD TEST – SUMMARY QUESTIONS DOMAIN ONE – THE MICRO-MARKET TEST       

What customer pain will your offering resolve? How strong an incentive do customers have to give you their money? Will the fish bite? Who, precisely, are the customers that have the pain? Do you have detailed, accurate, and current information about who they are, where they live or do business, or what they do? What benefits does your offering provide that other solutions don’t? What evidence do you have that customers will buy what you propose to offer? What evidence can you provide to show that your target market has the potential to grow? What other segments exist that could benefit from a related offering? Can you develop capabilities that are transferable from one segment to another?

Four crucial micro-level questions about target markets 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 we may wish to target in the future? DOMAIN TWO – THE MACRO-MARKET TEST 

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What sort of business do you want? One with potential to become a huge business, or a small “lifestyle” operation servicing a niche market? Without answering this question first, you cannot assess for your particular opportunity the meaning of the others below. How large is the market you are seeking to serve? In how many ways have you measured it? How fast has it grown over the last one/three/five years? How quickly will it grow in the next six months or two/five/ten years? What economic, demographic, sociocultural, technological, regulatory, or natural trends can you identify that will affect your market, and what effect, favorable or otherwise, will these trends have on your business? Are you seeking venture capital? Is this realistic for the anticipated growth rate of your business?

Three crucial questions about markets 1. Is my market large enough today to allow different competitors the opportunity to serve different segments without getting in each other’s way? 2. What are the predictions for your market’s short-term growth rate? (in the absence of other information to the contrary, the recent rate of growth in your market may be the best available predictor fo growth in the near future.) 3. What are the predictions for your market’s long-term growth rate? (This is likely to be influenced heavily by macro-trends: economic, demographic, sociocultural, technological, regulatory, and/or natural.)

DOMAIN THREE – THE MACRO-INDUSTRY TEST        

What industry will you compete in? Define it carefully. Is it easy or difficult for companies to enter this industry? Do suppliers to this industry have the power to set and conditions? Do buyers have the power to set and conditions? Is it easy or difficult for substitute products to steal your market? Is competitive rivalry intense or genteel? Based on all five forces, what is your overall assessment of this industry? Just how attractive is it? If your industry is a poor performer overall, are there (based on the lessons of Chapters 2 and 5) persuasive reasons why you’ll fare differently? If not, move on.

DOMAIN FOUR – MICRO-INDUSTRY TEST   

Do you possess proprietary elements – patents, trade secrets and so on – that other firms cannot likely duplicate or imitate? Can your business develop and employ superior organizational processes, capabilities, or resources that others would have difficulty in duplicating or imitating? Evidence please. 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: o Will your revenue be adequate in relation to the capital investment you need and the margins you can get? o How much will it cost you to acquire and retain customers? o How long will it take you to attract customers? o Will your gross margins be adequate to cover your necessary costs structure? o How much cash must be tied up in working capital (inventory or other), for how long? o How quickly will customers pay? o How slowly will suppliers and employees be paid?

DOMAIN FIVE – THE MISSION, ASPIRATIONS, AND RISK PROPENSITY TEST 

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What is your entrepreneurial mission: o To serve a particular market?\ o To change a particular industry? o To market a particular product? o Is the ion really there? What level of aspirations do you have for your entrepreneurial dream: o To work for yourself? o To build something small or something big? o To do? To manage? To lead? o To change the world in some way? What sorts of risks are you and are you not willing to take: o Will you risk a secure salary and the things that go along with your current employment? For how long? o Will you risk losing control of your business?

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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’ll take?

DOMAIN SIX – THE ‘CAN YOU EXECUTE?’ TEST   

What are the few - only a handful, please – critical success factors (CFSs) in your industry? What 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 CFSs? Alternatively, have you identified which CSFs your team is not well prepared to meet, for which you will need help in filling out your team?

DOMAIN SEVEN – THE CONNECTEDNESS TEST  Who do you and your team know up the value chain in he companies that are likely suppliers to your proposed business and to your competitors? In suppliers to companies in other industries that offer substitute products for yours? Be sure you have names, titles, and info.  Who do you and your team know down the value chain among customers you will target, both today and tomorrow? Names, titles, and info, please.  Who do you and your team know across the value chain among your competitors and substitutes? Names, titles, and info, please. This resource is taken from the “New Business Road Test”, by John W. Mullins. Copyright 2003. Published by Financial Times Prentice Hall, an imprint of Pearson Education.

Feasibility Study Outline 1. Executive summary that summarizes what follows a. tell the audience, yourself and your team what you are going to tell them 2. Micro-level market assessment a. Target market’s pain identified; compelling benefits of your solution identified, with evidence that those in this segment are willing to pay b. Target market segment, size, and growth rate c. Options to grow into other segments. 3. Macro-level market assessment a. Overall market size and growth rate b. Macro-trends analysis to assess future market growth and attractiveness 4. Macro-level industry assessment a. Five forces analysis: make a conclusion on the industry attractiveness b. Likely changes therein going forward 5. Micro-level industry assessment a. Proprietary elements b. Superior organizational processes, capabilities, or resources identifies that are not easily duplicated or imitated c. Economic viability of business model established: i. Revenue forecast ii. Customer acquisition and retention costs, and time required to obtain a customer iii. Gross margin iv. Capital investment required v. Operating cash cycle characteristics 6. Team’s mission, aspirations, and propensity for risk 7. Team’s ability to execute on the CSFs in this industry a. Team must decide what the Critical Success Factors are b. Address Fatal Flaws also 8. Team’s connectedness up, down, and across the value chain 9. Summary and conclusions (tell the reader(s) the key highlights of what you’ve told them) a. Why is – or isn’t – this opportunity attractive? On what one (or at most, two) domains do you rest your case?