Business Plan Preparation Competitive Advantage Business Plan Preparation Competitive Advantage Frank Moyes Leeds School of Business University of Colorado Boulder, Colorado Competitive Advantage

Tonight Locomotion business plan presentation Competitive Advantage Value proposition In the Fire: opportunity/need Hand-in Interview list Opportunity/Need – 2 paragraphs Competitive Advantage

Next Week PRODUCT/SERVICE Elevator Speech Investor Presentations Read BP pp 6-7 Elevator Speech Investor Presentations In the Fire: Prelim Market Analysis Research Prelim Interview Results Hand-in Value Proposition Competitive Advantage

Value Proposition - 3 Elements What are the features? Who is the target market? What are the benefits? Competitive Advantage

Features Describe the product or service - range, environment, employees What are the key product/service attributes (performance, cost, quality, social, availability, service, and environment)? How is the product/service produced and delivered? Does the process provide a competitive advantage? Competitive Advantage

Target Market Demographics Psychographics or life style Social status: infers certain behavior How are buying decisions made? What are the criteria? Who makes the decision? Who influences the decision? Competitive Advantage

What Are the Benefits? Emotional: ambition, power, independence, achievement, ambition, pride of ownership, comfort, love, friendship, security, style, self Improvement, etc. Social: status, image, popularity with friends or family members, reputation of brand, personal relationships, style, fashionable, etc. Health: stress, fitness, mental capacity, strength, sex life, quality of life, muse, etc. Financial: revenue, costs, savings, productivity, pricing, profitability, market share, save time, productivity, etc. Life style: convenience, saves time Competitive Advantage

Value Proposition Format “XYZ is a_______[describe] company. By its _______[feature(s)], it provides ______ [unique benefit(s)] to ______[target market]” Competitive Advantage

Simple Value Proposition SST Corporation “SST is a stainless steel toothbrush company. By its one bristle brush made of high tensile stainless steel, it provides an exhilarating tooth cleaning experience to thrill-seeking X-gen consumers” Competitive Advantage

Simple Value Proposition Dell Computer “Dell Computer sells personal computers to consumers. Our build-to-order manufacturing and customer-direct sales enable us to offer custom built computers at very competitive prices. Our customers get the computer that they have always imagined and save money.” Competitive Advantage

Simple Value Proposition Vic’s Coffee “Vic’s Coffee is a Boulder based coffee house. Its gourmet coffee, convenient location and fast service, provide a welcoming environment for people who want to meet with their friends for a stimulating morning coffee and for on-the-go business people.” Competitive Advantage

Simple Value Proposition Flowers Proflowers serves the “price sensitive and convenience oriented customers” with the “freshest cut flowers at a competitive price”, because of their unique sourcing and Fed/Ex shipping arrangements. FTD.com serves the “mid-to high-end market” by providing the “easiest way to send flowers and gifts” because of their strong brand name, market communications and supplier network. e-Commerce; Rayport & Jawroski Competitive Advantage

Sustainable Competitive Advantage Prolonged advantage of implementing some unique value-creating strategy not simultaneously being implemented by any current or potential competitors along with the inability to duplicate the benefits of this strategy. Competitive Advantage

Typical Competitive Advantages Typical Competitive Advantages Intellectual property Agreements with customers or suppliers Long term contracts Control of costs Control of prices Control of channel Location First to market World class management Expertise Development lead time Brand Quality Service Execution Relationships First mover – Allen p 6 Not often successful in technology products. More often it is the second or third Apple’s Newton lost to Palm Pilots pda Microsoft Explorer late Scalable Difficult for a new venture to scale; lack infrastructure and systems and can’t afford to create. Management experience Advantages Makes it more difficult for followers to raise vc Competitive Advantage

Sustainable Competitive Advantages Sustainable Competitive Advantages Resources and capabilities Innovation Differentiation Technology Really understand the market Really understand competition Resources (assets of the company) Financial - access to capital (equity & debt), cash reserves, government grants, etc. Physical assets - plant & equipment, raw materials, location, working capital, etc. Human - social, employee knowledge, experience, accumulated wisdom, labor cost and skills, etc. Intangible - patents, trade secrets, know-how, copyrights, databases, etc. Organizational - culture, contacts, policies, Boards of Directors & Advisors, suppliers, service providers, etc. Capabilities (organizing and managing resources) Marketing - differentiation, branding, positioning Product/service - design features & benefits Sales & distribution - rep organization Operational approach - Dell, Wal-Mart Supply chain management - Asia contacts Relationships - regulators, politicians, investors Why is this so hard? Competitive Advantage

Competitive Advantages Difficult to Achieve & Sustain Competitive Advantages Difficult to Achieve & Sustain Most are easily copied Entrepreneur ignorant of or ignores competition Entrepreneur is not realistic about own resources & capabilities Entrepreneur ignores future Entrepreneur must be intellectually honest Competitive Advantage

Identify the Venture’s Resources Financial: access to capital (equity & debt), cash reserves, government grants, etc. Physical assets: plant & equipment, raw materials, location, working capital, etc. Human: social, employee knowledge, experience, accumulated wisdom, labor cost and skills, etc. Intangible: patents, trade secrets, know-how, copyrights, databases, etc. Organizational: culture, contacts, policies, Boards of Directors & Advisors, suppliers, service providers, etc. Competitive Advantage

Identify the Venture’s Capabilities World class management (serial entrepreneur) Well developed, high-quality, accessible contacts that take years to build Sales and marketing experience Science or technology expertise Supply chain expertise Product/service design expertise Sales & distribution organization Total operational approach (e.g. Dell, Wal-Mart) Competitive Advantage

What Barriers Can You Establish? Intellectual property: patents, trade secrets, copyrights, trademarks, etc Switching costs to your target market Customer loyalty Agreements with customers, suppliers, strategic partners Control of the distribution channel Competitive Advantage