Entrepreneurship I - Laying The Foundation - Mod 2

Module 2 Entrepreneurship I:
Laying the Foundation

Lesson 2-1 Value Propositions
Lesson 2-1.1 Value Propositions

Media Player for Video
Word Cloud - Slide 1
The slide contains a word cloud with words relating to value

propositions. Some examples of words that are included are
Customer, Value, Proposition, pains, Time, and Features. The
image is from WordItOut.
Transcript
In this lesson, we're going to focus on what's at the heart of

every new venture opportunity, the value proposition. As you can
see from our word cloud for this lesson, nothing is more
important in developing a strong value proposition, than
understanding the customer. A good value proposition is one
that directly links the most important features of the product or
service to the customer's pain.
Why Do Customers Buy? (1 of 2) - Slide 2
The slide contains two images adapted from Alex Osterwalder's

Value Proposition Design [1] .
The image on the left is a square titled Value Map that shows a
gift box icon in the middle. The square is divided into three
sections with smaller icons. One section shows a serving tray
and a barcode, one shows a pill, and one shows a line graph
with an arrow pointing up and to the right.
The image on the right is a circle labeled Customer Profile with a

face icon in the center. The circle is divided into three sections:
one shows a happy face, one shows a sad face, and one shows
a checklist. There is a circle between these two images labeled
Fit.
Transcript
I'm going to borrow pretty heavily from Alex Osterwalder's value

proposition canvas in this lesson. This is what it looks like. On
the right side, you have the customer profile. What is the
customer trying to do? What benefit is the customer trying to
achieve? And what obstacles does the customer need to
overcome? On the left side you have the value map. The value
map identifies the key features of the solution and how they help
the customer achieve those benefits or overcome those
obstacles. Customers don't buy products. They don't buy brands
and they don't buy technologies. Fundamentally, customers buy
solutions.
Why Do Customers Buy? (2 of 2) - Slide 3
Customers buy when they perceive there to be a Product-

Market Fit
When the product or service helps them accomplish a job

When it solves a problem they experience as part of that job
When it helps them achieve new benefits while performing
the job
Transcript
Solutions allow customers to get something done. When your

product's features and functionality line up with the customer's
real need for a solution, then you have what is called a Product
Market Fit. The solution has to help them get their job done,
while maximizing the benefits and minimizing the problems that
they would otherwise experience.
Customer Jobs - Slide 4
The tasks that customers are trying to perform:
Make a sale
Produce a product
Comply with a regulation
Find information
Impress their friends
The slide contains the Customer Profile circle presented in Slide

2 - Why Do Customers Buy? (1 of 2) with the checklist section
highlighted.
Transcript
Let's zoom in now on the customer. The customer profile should

identify the specific task or job that the customer is trying to
accomplish. In a business-to-business setting, the customer's
job may be to make a sale. It could be to manufacture a product
or comply with a government regulation. The job might be to
obtain information. Given time, I'm sure that you can think of
dozens, if not hundreds, of customer jobs. In a business to
consumer setting, the customer's job may be something less
tangible. The customer may be looking for entertainment or
perhaps just trying to impress his or her friends.
Customer Pains (1 of 2) - Slide 5
Frustrations, difficulties, and obstacles related to the jobs:
Expensive
Time consuming
Risky
Unpleasant
Not socially acceptable
2 - Why Do Customers Buy? (1 of 2) with the sad face section
highlighted.
Transcript
The customer profile should also identify the problems or pains

that the customer experiences in accomplishing his or her job.
These are the frustrations they experience and the obstacles
that are in their way. Perhaps the job is too expensive or too time
consuming. Maybe there's some physical danger or business
risk that's involved. Perhaps the job is just unpleasant. I had a
summer job many years ago helping to build hog barns. Now
there's an unpleasant job. Or maybe the job involves some sort
of stigma or social embarrassment, like seeking help for a
problem that you don't have want to admit that you have. As
before, I'm sure that given enough time, you can identify plenty
of pains that customers experience in their jobs.
Customer Pains (2 of 2) - Slide 6
Chronic vs. acute pains:
Acute pain → urgent need for a solution

Urgent need → willingness to pay
Nice to have vs. need to have
When do they have the pain? That’s when they’re willing to pay
the most!
Transcript
Before we move on, let me just highlight a couple of key points.

Customer pains can be either chronic or acute. A chronic pain,
as the word implies, is one that is always present. It may be
something that the customer has learned to live with. After a
while, they may not even realize it is there. An acute pain is
immediate and pressing. It creates an urgent need for a solution.
Why is this important? Because customers are likely to be willing
to pay a lot more for a solution to an urgent and immediate
problem. It's the difference between a solution that would be nice
to have versus one that they need to have right now. There are
also varying degrees of pain, even when the pain is immediate.
Think of the difference between a dog bite and a shark bite. If
the pain is immediate, that's one thing. If it's life threatening,
that's another. It's also important to recognize when they have
the problem. Is it something that's predictable? Does it happen
at certain times during the year? Does it happen only when
certain other events are occurring? If you can be in the right
place at the right time with your solution, that's when you can
expect your customers to be willing to pay the most.
Customer Gains - Slide 7
Benefits that customers are seeking:
Profits
Free time
Comfort
Social status/prestige

2 - Why Do Customers Buy? (1 of 2) with the happy face section
highlighted.
Transcript
The last piece of the customer profile is the list of the benefits
that he or she is seeking. If the job is to make a sale, the benefit
may be to earn a profit. The benefit of a simpler solution to an
existing problem may be more free time to spend on other
things. Again, the benefits that business customers are seeking
may be very different from the benefits that consumers are
seeking. Consumers may be looking for a solution that provides
more comfort or one that enhances their status in some way. I
don't mean to imply that businesses never seek these benefits,
after all, business customers are people too.
B2B vs. B2C - Slide 8
B2B
Make money
Save money
Save time
Reduce risk
B2C
Save money
Save time
Enhance status
Personal fulfillment
Transcript
You'll recognize this from one of my previous lessons. Business

to business value propositions are typically ones that help the
customer make more money, save money, save time, or reduce
some risk that threatens their business model. Business to
consumer value propositions are typically ones that help the
customer save money, save time, enhance their status in some
way, or achieve some sort of personal fulfillment.
Products and Services - Slide 9
The slide contains the Value Map square presented in Slide 2 -

Why Do Customers Buy? (1 of 2) with the bar code and serving
tray section highlighted.
Products/services to help customers perform their jobs:
Physical
Digital
Transcript
On the left side of the value proposition canvas, we have the

value map which describes the solution. Remember that we're
talking about a solution here, something that helps the customer
accomplish his or her job. The solution could be physical, or it
could be digital, or it could be a combination of both. This section
of the value map that's highlighted here should list the key
attributes of the product or service, the ones that are necessary
in order to help the customer accomplish the job, and the ones
that differentiate it from other solutions in a way that addresses
the customer's pains and gains.
Pain Relieving Features - Slide 10

Why Do Customers Buy? (1 of 2) with the pill section highlighted.
Features that alleviate the customer pains:
Price
Speed
Safety
Discreetness
Transcript
Pain relievers are features that solve the problems that

customers experience in their jobs. Here are a couple of
examples. It could be something as simple as a lower price. Or,
it could be something that's faster or safer than comparable
solutions. It might even be something that is more private than
other solutions, saving the customer from embarrassment. It's
important to identify and focus on the features that are really
necessary to address the customer's pains here. Features that
are need-to-have are mission critical as opposed to features that
are nice to have.
Pain Killing Solutions - Slide 11
Enable the customer to accomplish the job while reducing or

eliminating:
Time spent
Expense
Risk
Discomfort
Negative emotions or reactions
Transcript
Another way to think of this is that pain killing attributes are ones
that allow the customer to accomplish a job while reducing or
eliminating something negative. They could help the customer
reduce the amount of time spent or the expense of the job. They
could eliminate or at least reduce some risk that's inherent in the
job. They could make the job less unpleasant or uncomfortable. I
could have used some odor-reducing technology while building
those hog barns. Or, there could be attributes that reduce the
negative emotions or reactions that customers experience.
Gain Creating Features - Slide 12

Why Do Customers Buy? (1 of 2) with the line graph section
highlighted.
Features that allow the customers to achieve the benefits they

are seeking:
Simplicity
Comprehensiveness
Credibility
Brand name
Transcript
On the other side of the value map are the features or attributes
of the solution that allow the customer to achieve certain
benefits. They could stem from the simplicity of the solution or its
comprehensiveness, depending on the job. They could include
the credibility or prestige that they bestow on the customer. An
example of this last feature might be a brand name. I'm often
asked by students whether a brand name is a value proposition
by itself. In my opinion, a brand name is important because of
the benefit that it provides to the customer. It could just be
something that suggests that the customer has good taste or
fashion sense. Or, it could be the credibility that comes from
having a respected brand name attached to the customer's
project. You've probably heard the phrase, "nobody ever got
fired for choosing IBM." I'll let you be the judge of whether the
brand name provides a gain or reduces a pain, in that example.
Gain Creating Solutions - Slide 13
Enable the customer to accomplish the job while increasing:
Free time
Money or profitability
Comfort
Positive emotions or feelings
Transcript
As we did with the painkillers, we can broadly categorize the

gain creating attributes of a solution as ones that help the
customer increase or maximize something they want more of. A
more efficient solution could help the customer enjoy more free
time. The solution could help the customer generate more
revenue or increase his or her bottom line profits. It may be a
feature that helps the customer be more comfortable or more
healthy. Or, it may be something that just makes the customer
happy or feel better about himself or herself.
Painkillers vs. Vitamins - Slide 14
Painkillers:
Address an urgent need

Solve an immediate problem
High willingness to pay, but may be transactional
Vitamins:
Less urgent pain or uncertain gain

Less willingness to pay, but may be recurring
Transcript
Are you selling a painkiller or a vitamin? This has a lot to do with

the chronic versus acute pains I described earlier. A painkiller is
a solution that addresses an urgent need to solve an immediate
problem. The customer's willingness to pay for a solution is high.
It may be something that happens only occasionally, though. A
vitamin is something that addresses a less urgent need, and the
benefit is often uncertain. Who can say whether those daily
vitamins that you're taking are really making you healthier? For
these reasons, customers are usually willing to pay less for a
vitamin. However, they might be willing to sign on to be a long-
term customer. Think of a night out at the movies for your family,
which can easily cost $50 or more. It provides an immediate
benefit, something fun to do tonight. Now compare that to a
Netflix subscription at $10.99 a month. The benefit is less
immediate, but customers are willing to sign up for a monthly
subscription so that they have it available whenever they want it.
Product-Market Fit - Slide 15
The slide contains the same images described in Slide 2 - Why

Do Customers Buy? (1 of 2).
Transcript
Now let's zoom back out to the full value proposition canvas.
When you've identified the customer's jobs, pains and gains, and
designed a solution that's lined up with them, you've achieved
product-market fit. This is the price of admission for a startup.
Designing the Solution - Slide 16
Features should be tied to specific customer pains and gains
You may not need to address every item

Trying to do everything may lead to never having a product!
Focus on the highest priority items and the biggest
differentiators
Transcript
The lean startup model encourages you to be very judicious

about your product or service attributes. Features should be
directly tied to the customers pains and gains. If they're not, you
don't need them. You don't necessarily have to solve every
customer problem or provide every possible benefit in your
solution. Trying to do everything could mean that you never get
off the runway. Focus on the highest priority features and
attributes for the customer and the ones that help you
differentiate yourself from your competitors. Hopefully, those are
the same attributes.
Value Proposition Statement (1 of 2) - Slide 17
“We help X do Y by doing Z”
—Steve Blank
Blank, S. (2011). How To Build a Web Startup – Lean

LaunchPad Edition, How to Build a Web Startup [2]
Transcript
Let me wrap this up by describing how you should draft your

value proposition statement. Steve Blank's template is the
simplest. "We help X do Y by doing Z," where X is the customer,
Y is the customer's job, and Z is the solution that you're
providing. If you can boil your entire value proposition down into
one sentence like this, you're doing well.
Value Proposition Statement (2 of 2) - Slide 18
The slide contains an image of a triangle labeled: Value

Proposition. The three vertices are labeled: Product, Customer,
and Application.
Moore, G. (1991). Crossing the Chasm, HarperBusiness, pp.

100. [3]
Transcript
Here's how Jeffery Moore presented the same concept back in

Crossing the Chasm in 1991. A valued proposition is something
that you can sell. His value triad is made up of the customer,
which is X in Steve Blank's statement, the application, that's Y,
and the product, which is Z.
A Great Value Prop Statement - Slide 19
Your customers would actually say it

They understand it immediately
The direct benefit to the customer is clear
Something uniquely delivered by your company
Specific and quantitative
Clear and concise
Transcript
Here are some tips on how to draft a strong value proposition

statement. Ask yourselves these questions. Do your customers
understand it? Is it something that they would say themselves to
describe your solution? Is it something that only you can deliver?
Better yet, ask your customers these same questions. The
benefit to the customer should be clear. It should be specific and
measurable, and it should be clear and concise.
Value Proposition Mistakes - Slide 20
Confusing features with value

Lacking specificity
Nice to have instead of need to have
Not enough customers who care
Transcript
Finally, here are some mistakes to avoid when designing your

value proposition. Don't confuse your products features with the
value that it provides to your customers. Don't be vague about it.
Make sure that you're focusing on a solution that is a need-to-
have instead of a nice to have if you want to create real value
quickly. And, make sure that you are targeting a customer
segment that's large enough and cares enough about your
solution so that you can build a viable business. We'll talk more
about determining the size of your target market in our next
lesson.
Lesson 2-2 Market Sizing
Lesson 2-2.1 Market Sizing

The slide contains a word cloud with words relating to the

market. Some examples of words that are included are total,
target, Available, and customers. The image is from WordItOut.
Transcript
In today's lesson, I'm going to speak with you about market

sizing—how you can go about determining the size of your
market and whether you have the opportunity to build a viable
business. As you might expect, the market is right at the center
of our word cloud for this lesson. Understanding your market is
critical in building your business model. I remember many years
ago early in my career when I met with an entrepreneur who
wanted to develop a personal microfilm reader. Think of a Kindle
before the Internet had even been invented. This would be a
hand-held battery-powered device that you would load little
microfilm cartridges into, so that you could read a book at the
beach. Here's the part of the discussion that I remember. When I
asked her about the size of the potential market for a device like
this, she said it was everyone in the world who could read
English. I don't know why the device would only work with
English language microfilm cartridges, but that's beside the
point. Her business plan said that within two years, the company
would be bigger than Exxon Mobil. Her problem was that she
hadn't really thought through her value proposition and identified
a target market, where the value proposition really mattered, and
customers really cared.
Do Enough Customers Care? - Slide 22
Finding product-market fit is just the first step
Will you be able to build a viable business?
One that is large enough—and profitable enough—to satisfy:
You
Your investors
Your other stakeholders
Transcript
Finding a product market fit is the cost of admission for

launching a new venture. Now the question is, what can you do
with it? Is the market large enough to support the business that
you're trying to build? Is it meaningful enough for you to be able
to raise the capital that you will need? Let's talk about investor
expectations for just a minute. If you aspire to build a solid
profitable company in a small or niche market, that's fine. You
should build the company that you want to build. However, it's
going to be very difficult to raise venture capital financing for that
business, if that's something you need to do.
VC Market Size Expectations - Slide 23
While you may be able to build a solid, profitable company in a

niche market, it may not be attractive to venture capital investors
Need for an exit at a high multiple—a "home run"

$100 million in revenue within 6–7 years
Total market size > $1 billion
Transcript
Early stage venture capital firms need to invest in companies

that have home run potential. I'll explain why in a future lesson.
To be a home run, a business has to provide a financial return to
the venture capital firm as many times the amount that they
invested. By and large, that means that the business generally
has to have the potential to be a $100 million business within six
or seven years. That usually means that the total market size
has to be a billion dollars, or more. That may not be in the cards
for you, and that's fine. You'll just have to find some other way to
finance your business, and we'll talk more about this later.
Defining Terms - Slide 24
This slide contains an image of three circles nested within each

other. From the outer circle to the inner circle they are labeled:
TAM, SAM, and SOM respectively.
TAM: Total Available Market

SAM: Serviceable Available Market
SOM: Serviceable Obtainable Market or "Target Market"
Transcript
Now, let's define the terms that you'll use when you estimate
your market size. The acronyms are TAM, SAM, and SOM.
Total Available Market - Slide 25
The total market demand for a product or service

The total amount of sales that you could make if you had no
competition
Transcript
TAM stands for Total Available Market. This is the total market
demand for a product or service. This is the amount of sales
revenue that you could theoretically achieve if you had access to
all of the customers in the world and you had no competition.
You could call it your total potential market if that's any clearer.
This has to be a really high number.
Serviceable Available Market - Slide 26
The subset of TAM that a company can reasonably serve

Geographic, product, technology constraints
Transcript
SAM stands for Serviceable Available Market. This is the subset

of the total available market that you could reasonably serve
given your geographic, product, technology, and other
constraints. Think of it as your total reachable market. This has
to be a pretty big market, too.
Serviceable Obtainable Market - Slide 27
The subset of SAM that you realistically hope to capture

Where your value proposition gives you an advantage over
the competition
Your "Target Market"—the market that you intend to
dedicate resources toward capturing
Transcript
SOM stands for Serviceable Obtainable Market. This is the

market that you really hope to capture given your resources and
your go-to market strategy. This is your target market. It's where
your value proposition really matters, and you have an
advantage over your competition as a result. This is the market
that you intend to spend money, time, and effort to try to reach.
Fast Food Restaurant Example - Slide 28
TAM: $198.9 billion in the US, forecasted to exceed $223

billion by 2020
SAM: subset of TAM in targeted cities, within 5 miles of a
store location
SOM: subset of SAM that fits profile of target customer—
age, income, preference for burgers vs. pizza, etc.
Lock, S. (2019). Statista. Fast Food Industry Statistics and

Facts [4]
Transcript
Here's an example. Let's say you intend to launch a new fast

food restaurant or a chain, ignoring the rest of the world to keep
things simple. Total spending at fast food restaurants in the US
was just under 200 billion dollars in 2014 and it was projected to
grow to 223 billion by 2020. This would be the total available
market. If you could reach every fast food restaurant customer
and yours was the only fast food restaurant available to them,
you could expect to earn this much revenue. Let's get realistic
now. You're probably going to be limited to customers who live
within a few miles of your restaurants, and you're probably going
to start in only one or two metropolitan areas. This means that
your Serviceable Available Market will be much smaller than
your Total Available Market. Now let's focus on the customers
that you really intend to compete for. Perhaps you're targeting
customers within certain age, income, or demographic groups.
Perhaps your menu is designed to appeal to customers who
prefer certain types of fast food. The customers that your value
proposition was designed to attract will make up your
Serviceable Obtainable Market or your target market.
Target Market Factors - Slide 29

Your value proposition—why do people want to buy your
product?
Your market plan and distribution channels—which customers

can you reach?
Your competition—where can you really differentiate yourself?
Transcript
The size of your target market will depend on your value

proposition. Why will people want to buy from you? It will also
depend on your marketing plan and your distribution channels.
Which customers will be able to buy from you if they want? It will
also depend on the nature of your competition. Where can you
really differentiate yourself? It would be great to capture 100
percent of your target market, but that's not realistic. You'll need
to dedicate resources toward capturing customers where you
have an odds-on chance of winning.
More VC Expectations - Slide 30
Your Target Market (SOM) must be big enough for you to build a
viable business—even if you never grow beyond it
Expanding beyond your initial Target Market by capturing more
of your SAM should result in attractive investor returns
Dominating your SAM and implementing strategies to capture

more of TAM should result in exceptional returns
Transcript
Let's talk a little bit more about venture capitalist's expectations

here. If you need to raise venture capital for your business, you
need to have a target market that's big enough for you to build a
viable profitable business even if you never expand beyond that.
If you are able to demonstrate success, expanding into the
broader market, then you should be able to provide a very
attractive return to your investors when you exit the business.
And if you're truly successful, dominating your SAM and taking
steps to expand beyond that, your business should be able to
provide the type of home run returns that venture capitalists are
really shooting for.
Top-Down and Bottom-Up - Slide 31
Top-down: uses a broad market size figure and determines the

percentage that the Target Market represents
Bottom-up: adding up the relevant revenue or purchases of
participants in the Target Market
Top-down is quicker, but bottom-up can be more valid if the

information is available
Transcript
There are two ways to look at your market size, from the top-
down and from the bottom-up. Top-down involves using a broad
market size figure, like 198 billion for total fast food sales, and
then determining the percentage of that market that the target
market represents. Bottom-up comes at it from the opposite
direction. By adding up the relevant spending or purchases of
participants in the target market. Top-down is quicker and easier,
but bottom-up is a more valid approach if the information is
available. Hopefully, the two approaches will lead to numbers
that are in the same ballpark.
Sources of Information (1 of 2) - Slide 32
Secondary research:
Web searches
Articles and press releases
SEC filings
Trade associations
Subscription-based or syndicated research (often available
through business libraries)
Transcript
There's probably more information about your market size

available to you than you realize. The Internet and your local
business library are terrific sources of information. You can do
secondary research by searching the web, by reading articles or
press releases written by academic researchers, trade groups,
and individual companies, by studying SEC filings from public
companies, by contacting trade associations, and by accessing
subscription-based or syndicated research. This is where your
local public or university library can come in handy, because they
may already have the subscriptions you need.
Sources of Information (2 of 2) - Slide 33
Primary research:
Telephone interviews
On-site interviews
Trade shows
Transcript
Primary research is research you conduct yourself by talking

with customers, competitors, and other industry participants.
This can be done in person or remotely. Trade shows are
excellent opportunities to connect with many different industry
participants in a short span of time.
Bottom-Up Market Sizing: Step 1 - Slide 34
Define your target customers:
What is their job?
Who are they?
What motivates them?
Who influences them?
Create a customer archetype

Transcript
So, here's an example of bottom-up market sizing. Start by

defining your target customers. What is their job title or position?
Who are they? Can you develop a list of prospects? Talk to them
to see what motivates them and who influences them. It can be
helpful to develop a customer archetype or persona, which is a
fictional character that you create to represent your target
customer, incorporating demographic, attitudinal, and behavioral
characteristics that they can be expected to have.
Step 2 - Slide 35
Estimate the total number of target customers:
How many companies/customers have a similar profile?

Census data, industry databases
Web searches
Press releases and articles
Transcript
How many of these target customers are there? Can you

determine how many companies or customers fit the profile that
you've created? You can find information in census data and
paid databases like D&B Hoovers, or you could gather
information through web searches and reading articles and press
releases online.
Step 3 - Slide 36
Determine your penetration rate:
Estimate the percentage of the total number of customers

who need to buy
Mission-critical solutions can expect a high penetration rate
Non-mission-critical or specialized solutions can expect a
low penetration rate
Transcript
Step three is to estimate the market penetration rate that you

can expect. This is a percentage of the total number of potential
customers in your target market who need, or can otherwise be
expected to buy, from either you or your competitors. The market
penetration rate is rarely 100 percent. Some customers only
have an occasional need to buy a product and others won't buy
at all. They'll either find a substitute or they'll do without.
Solutions that are mission critical, meaning that the customer
can't really complete his or her job without a solution, can expect
a high penetration rate. Non-mission-critical solutions are ones
that are specialized to appeal only to niche markets, can expect
a low market penetration rate.
Step 4 - Slide 37
Calculate the potential market size:
Potential market volume = number of target customers ×

penetration rate
Potential market value = potential volume × average value
(or price)
Transcript
Now, you can calculate the size of the target market. The
potential market volume is equal to the number of target
customers times the penetration rate. The potential market value
is equal to the potential volume times the average purchase
amount or the price.
Example - Slide 38
Hair salon:
20,000 women in targeted age range
Price = $50 × average of 6× per year
Penetration rate is 90%
Market size (SOM) is $5.4 million
Note that the Target Market will be shared with other salons in
town. This will be factored into revenue forecasts
Transcript
Let's say you want to open a hair salon for women, you find that
there are 20,000 women in your targeted age range in your city.
Your average price is 50 dollars, and on average your target
customers can be expected to return for six appointments per
year. You estimate the market penetration rate to be 90 percent.
Some women don't cut their hair at all and others do it
themselves. In this example, the target market size is 5.4 million
dollars, that's 20,000 women, times $300 per year, times 90
percent. Note that this is the size of the entire target market. If
there are other hair salons in town, you can't expect to get a 100
percent market share. This will be factored into the actual
revenue projections that you prepare.
The Importance of Growth - Slide 39
Two ways to grow sales over time:
Serve a growing market

Steal customers away from your competitors
Rapid growth is much easier to achieve in a rapidly growing

market
Static or shrinking markets may have segments that are growing,
if you can find them
Transcript
Keep in mind that there are really only two ways for a business
to grow at sales revenue over time. One way is to compete in a
market that's growing, a rising tide lifts all boats. The other way
is to steal customers away from your competitors. Successful
entrepreneurs usually have to do both of these things, but I can
tell you that rapid sales growth is much easier to achieve when
the market itself is growing rapidly. This is one of the key
features of an attractive market opportunity. Even in a static or a
shrinking market, there may be niches or segments that are
growing. These can also present opportunities for growth, if you
can find them.
Lesson 2-3 Industry Analysis
Lesson 2-3.1 Industry Analysis

The slide shows a word cloud about industry. Some examples of

words that are included are Factors, technology, power, Rivalry,
and Analysis. The image is from WordItOut.
Transcript
Our topic for this lesson is industry analysis. It's one thing to
have a large growing market for your startup company. In this
lesson, I'm going to share with you some ways to look at your
target market and assess how attractive it might be for a startup
company that's looking to gain traction and create value quickly.
As you can see from the word cloud for this lesson, our focus is
now shifting from market sizing to industry assessment. We're
going to discuss frameworks that you can use to assess the
industry and your competition all with the goal of creating value
in your business as quickly as possible.
Industry Analysis - Slide 41
Market opportunity is about more than market size
How does the industry operate?

Is it an attractive market in which to compete?
What part of the industry value chain should you target?
Transcript
The key questions for you to think about in this lesson are these:
How does the industry in which you plan to compete operate?
Do new entrants have a reasonable chance to acquire
customers and market share? Taking it a step further, which part
of the value chain should you attack in order to maximize your
value proposition?
Tools for Analysis - Slide 42
PEST analysis
Five forces
Industry mapping
Transcript
I'm going to talk about three tools that you can use. You may be
familiar with some of them already, but I'll put them in the context
of a startup company addressing a new market opportunity.
PEST Analysis - Slide 43
A framework for identifying factors in an industry that will affect

how your business operates
Political, Economic, Social, and Technological factors

External factors—outside of your control
May lead to opportunities, or may stifle innovation
Transcript
Let's start with PEST analysis. This is a framework for identifying

the industry factors that will affect how your business operates.
These may be the factors that are creating the market
opportunity in the first place, or they may be the factors that are
making the industry resistant to change. PEST stands for
Political, Economic, Social, and Technological factors. These are
external factors, meaning that they are outside of your control.
You can't make them go away. Your business model has to be
designed so that you can adapt to them or make them work for
you. To reiterate, these factors could be the reason that your
market opportunity exists. Or they may be the reasons why
previous startups in the industry have failed.
Political Factors - Slide 44
Government regulations
Tax policies
Patent and copyright law
Employment laws
International trade restrictions
Political stability
Transcript
Political factors include government regulations and legal issues

that affect a company's ability to be successful and profitable or
achieve rapid sales growth. Tax policies, intellectual property
protections, employment laws, and international trade
restrictions are all examples of political factors. The political
stability of your local, regional, or national government is also a
factor. If you commit to a business model now, do you have to
worry that a new administration at the local, state, or national
level and will change the rules so that your model is suddenly no
longer viable? Think about the impact that government
regulations have on fantasy sports businesses, like FanDuel and
DraftKings. Do you want to open a food truck business? You're
going to find that different jurisdictions have different rules that
will make it harder or easier for you to succeed. These include
zoning laws, health regulations, restaurant taxes, and so on.
They can change when the mayor or the city council want them
to. You probably can't do much, at least not by yourself, to
change these rules to make them friendlier to your startup.
However, you can pick and choose which communities you want
to operate your trucks in and you can probably make some
changes to the design of your trucks or your business practices
to make them more compatible with the local rules.
I'm on the board of a real estate photography business based in

Chicago. It's grown to be the largest real estate photography
business in the country with a nationwide footprint. What do
political factors have to do with a business like this? Well, a
significant part of the value that we create is in our content.
Millions of high-quality interior and exterior photographs and
videos of houses all over the country. That content is protected
by US copyrights. We've had to go to court to protect it from
infringement. Without these copyrights, the value of our business
would be diminished.
Economic Factors - Slide 45
Economic growth
Interest rates
Inflation
Economic stability
Consumer confidence
Stage of the business cycle

Transcript
Economic factors include things like how quickly the local or

national economy is growing, or whether it's in a recession.
Interest rates, the rate of inflation, consumer confidence, and the
stage of the business cycle. Are you selling luxury goods? That
may be a tough sell if the economy is heading in the wrong
direction. Do your customers need financing in order to buy from
you? Then interest rates and credit availability are going to have
an impact. Let's go back to the real estate photography business
I mentioned a minute ago. Our business grows fast when the
residential real estate market is healthy. When real estate agents
are taking lots of new listings and marketing them online. Good-
looking, professional photographs can help the properties sell
more quickly, and for a higher price. When the real estate market
is declining as it did in the late 2000s, our business suffers.
That's because most agents either have no listings to sell or they
want to save money because they're afraid that their listings
won't sell, no matter what they do. Strangely enough, if the real
estate market is too hot, that's not good for us either. If real
estate agents think that the property is going to sell right away,
even without professional photography, they're going to be
tempted to do without.
Social Factors - Slide 46
Demographics
Population growth
Education
Lifestyle/fashion trends
Health consciousness
Work/career attitudes
Transcript
Social factors include changes in demographics like population,

income levels, and so on. By 2030, the US Census Bureau
projects that 20 percent of the population in the US will be at
retirement age or older. That's one out of five. As recently as
1990, just four percent of the population was 65 or older. That's
one out of 25. That should put the magnitude of the aging of the
US population into perspective. This is creating all kinds of
market opportunities. So, if you are launching a real estate
photography business today, what would you do?
Well, it might be a good idea to focus on real estate markets like

Florida and Arizona, where new homes are being built and the
demand for existing homes is strong, as more baby boomers
retire. You might also want to think about recruiting experienced
retirees as part-time photographers, so long as they're up to
speed with digital technologies. They have the time, and they
could be looking for part-time income, and they're likely to be
already located in the markets where you need them to be.
Social factors also include changes in attitudes and lifestyles,
and there are a lot of those happening right now. Your target
customers may be searching for healthier food options. They
may be interested in environmental issues. They may be more
interested in telecommuting. Who knows? Perhaps our
photography business should try to capitalize on the tiny home
movement.
Technological Factors - Slide 47
Govt./industry research spending
New inventions
Rate of technology transfer
Energy use and cost
Changes in internet/mobile usage
Technology life cycles

Transcript
The T in PEST stands for technological factors. These include

government and industry spending on research and innovation.
They also include changes in energy use and the cost and the
adoption of new internet and mobile technologies. Let's say that
you want to introduce a new remote sensor-based technology to
monitor water quality in rural communities. You're probably going
to have to rely on the rate of adoption of several other
technology platforms like Internet of Things, rural broadband, big
data analytics, and so on. It may not seem at first like
technological factors would have a big impact on a real estate
photography company, but they certainly do. 360-degree
cameras; virtual and augmented reality tours; interactive floor
plans; and even virtual staging, where internet browsers can see
what a room would look like with different paint colors, furniture
or window treatments. These are all important priorities for our
business now.
PEST Analysis Process - Slide 48
Consider how these trends affect your business.
Positive or negative?
Immediate or future?
Strongly or weakly?
Can you adapt your business/business model to take
advantage?
Transcript
Once you've taken the time to identify the political, economic,

societal, and technological factors that are impacting your
industry, consider the nature of the impact they're having. Are
they positive or negative? Are they creating opportunities for new
value propositions? Or are they more likely to suppress
innovation and stifle change? Are they having an immediate
impact, or will their impact be felt more strongly in the future?
You don't want to be the entrepreneur who fails because the
market is not yet ready for your product. What adjustments can
you make to your value proposition, your target customer, or
your revenue model to minimize the impact of negative factors or
take advantage of positive ones?
PEST Limitations - Slide 49

External only—does not consider internal environment or
competition
Factors can change—sometimes rapidly
Best when used in conjunction with other analyses
Transcript
Keep in mind that a PEST analysis is really only focused on

external factors. It doesn't consider the environment inside your
company or among your competitors. For example, the relative
strength or weakness of a direct competitor will be important to
you, but it's really not something that a PEST analysis looks at.
It's also important to recognize that PEST factors can change.
Demographic changes may be gradual, but lifestyle and
attitudinal changes can happen very quickly, so can changes in
government regulations. A few years ago, you really couldn't
expect to have success if you wanted to start an agency to help
same-sex couples adopt.
Five Forces Framework (1 of 3) - Slide 50

Michael Porter’s tool for determining the attractiveness of an
industry
The focus is on potential profitability
Driven by bargaining power of suppliers and customers, threats

from new entrants and substitutes, and the competitive rivalry
within an industry
Transcript
Because of these limitations, it's best to use PEST analysis in

conjunction with other frameworks like Michael Porter's Five
Forces. Many of you are probably familiar with Michael Porter's
Five Forces Framework for evaluating the attractiveness of an
industry. The Five Forces Framework is based on the premise
that businesses are created and developed not for the purpose
of making sales or earning revenue, but in order to generate
profits.
An attractive industry for a startup is one where the the company

can be expected to have the maximum ability to generate good
profit margins
The more powerful the force, the more pressure it will put on
prices, costs, or both
Not necessarily driven by industry growth rates, regulation,
technology adoption rates, etc.
Transcript
Under this framework, the attractiveness of an industry is based

on the relative bargaining power of the company, its vendors,
and its customers. In order to consistently generate good profit
margins, a company has to have enough bargaining or
negotiating power to keep its prices high and its costs low. If that
is the case, then the industry is considered to be an attractive
one in which to compete. The more powerful the force, the more
pressure it will put on prices, costs, or both. Remember that
these Five Forces are not necessarily driven by the types of
external factors that we discussed in our PEST analysis.
Reminder: the reason for being in business is not to beat your

competition or to make sales
It’s to earn profits!
Transcript
Again, Five Forces Analysis is all about potential profitability.

There's no other reason for you to be in business.
Bargaining Power of Buyers (1 of 2) - Slide 53
If buyers (customers) are powerful, they will drive profits down:
By demanding lower prices

By demanding more value
Transcript
The first of the Five Forces is the relative bargaining power of

buyers or customers. If customers have a lot of negotiating or
bargaining power, they will demand lower prices or insist on
more value in their purchases, added features, more support,
warranty protection, and so on. All those being equal, these will
cause the venture to be less profitable than it would be if it could
maintain higher prices or offer less value in each purchase.
Bargaining Power of Buyers (2 of 2) - Slide 54
Buyer power is likely to be highest when what they’re buying is:
Undifferentiated
Expensive relative to their other inputs
Not a major contributor to their own performance
Transcript
The bargaining power of buyers will generally be high when they

consider competing profits to be un-differentiated. They could
buy pretty much the same product from any number of
companies like yours. If they're all the same, they're likely to go
for the cheapest product and suppliers of higher priced products
will have to lower their prices to compete. It could also be a
situation where the product is something that's expensive
relative to their other inputs. If your product is going to be the
most expensive component of a product that they will be selling
to their own customers, they will have a lot of incentive to
bargain aggressively with you, because a price concession that
they get from you will have a relatively big impact on their bottom
line.
Finally, it could be a situation where your product is not a major
contributor to their performance. This means that if they don't
really need to have your product in order to conduct their own
business in an acceptable way, then they're not going to want to
pay very much for your product. What you're offering just isn't a
major priority for them in this case. Think back to the difference
between need-to-have and nice-to-have products.
Bargaining Power of Suppliers (1 of 2) - Slide 55
If suppliers are powerful, they will drive profits down:
By charging higher prices

By insisting on more favorable terms
Transcript
The next force is the bargaining power of suppliers. If suppliers

are relatively powerful they'll be able to command high prices for
the products or services that they provide to you, driving your
profits down in the process. They could also do this by insisting
on more favorable terms like demanding payment on delivery
instead of allowing you 30 days to pay your invoices.
Bargaining Power of Suppliers (2 of 2) - Slide 56
Supplier power is likely to be highest when:
They are large and concentrated relative to a fragmented

industry
The industry needs them more than they need the industry
Their customers are undifferentiated
They can threaten to vertically integrate
Transcript
The bargaining power of suppliers is likely to be high when

they're relatively large and there are relatively few of them,
especially relative to a fragmented industry. If there were only
one or two vendors that you can go to to buy your raw materials,
and they have plenty of other customers that they could sell to,
then they don't really need your business all that much. You'll
have a tough time getting them to give you favorable pricing in
terms. This is also true if they can realistically threaten to
vertically integrate. If they see you as a middleman between
them and the end customer and they could cut you out of the
process by selling directly to the end customers themselves,
then they're only going to tolerate so much before they take
steps to capture some, or all, of your profit margin for
themselves. You can erect barriers to protect your business by
patenting your technology, signing exclusive sales contracts, or
by making sure that your suppliers don't have access to the
trade secrets that your business model is based on.
Threat of Substitutes - Slide 57
Products or services that meet the same basic need in a

different way. Caps prices when the threat is real and switching
costs are low
Coal vs. natural gas

Streaming video vs. DVD rentals
Energy drinks vs. coffee
Transcript
The next force is the threat of substitutes. Substitution is a threat

when there are other products, services, or technologies that
meet your customers same basic needs. Meaning that they don't
have to buy from you or your direct competitors. Look what's
happened to the price of coal and the size of the coal industry as
new extraction technologies have led to greatly increased
supplies and lower prices for natural gas. Look what happened
to Blockbuster Video and even Redbox, as streaming video
platforms have expanded.
Threat of New Entrants (1 of 2) - Slide 58
High prices attract competition. A realistic threat of new entrants

forces the company to cap prices and/or add value to remain
differentiated
Transcript
The next force is the threat of new entrants. Let me add a

personal note here. I can't tell you how often inexperienced
entrepreneurs say to prospective investors that they have no
competition. That's always a no-no. Even if it's true, that nobody
is able to offer a product like yours today, if you're having
success in an attractive industry it's only a matter of time before
some other company in an adjacent industry decides to compete
with you. And I can practically guarantee that somewhere there's
a group of talented entrepreneurs who are working on a startup.
It could become a formidable competitor before too long. If the
threat of new entrants to your market is real, and I'm talking
about the threat from existing businesses and from new startups
here, then you have to keep your prices reasonable so that there
won't be a mass exodus of customers when it eventually
happens. Or, you're going to have to continue to invest in
innovative new features and functionality to stay one step ahead.
You can't expect to keep milking your cash cow forever
Threat of New Entrants (2 of 2) - Slide 59
Limited by barriers to entry:

Economies of scale
First-mover advantage
Cost of admission (capital investment)
Proprietary technology
Government regulations
Transcript
If there are significant economies of scale in your business,

which means that the largest player essentially has an unfair
advantage over the smaller players, then the threat of new
entries will be lower. The same is true if there's a high cost of
admission to the industry. An example of this might be the need
to build an expensive production facility or distribution network.
Another example might be a government or industry regulation
that forces companies to invest in expensive licenses, permits,
training programs, performance bonds, and so on before they
can enter a market.
Competitive Rivalry (1 of 2) - Slide 60
If rivalry is intense, competitors often compete away value

through:
Price competition
Advertising spending
Increased customer service
Transcript
The last of the five forces is the competitive rivalry within an

industry. I'm old enough to remember when competing gas
stations on a corner would periodically engage in price wars.
Offering lower and lower prices to gain customers until nobody
was making any money. You don't see much of that anymore. If
the competitive rivalry in an industry is intense, then competitors
will often compete away their profits through price competition,
spending heavily on marketing and advertising, or by increasing
customer service levels, all of which eventually lead to lower
profits until a winner emerges from the smoke and ashes.
Competitive Rivalry (2 of 2) - Slide 61
Competitive rivalry is likely to be most intense when:
The industry is fragmented

Industry growth is slow
High exit barriers
Competitors are undifferentiated
Products are "perishable"
Transcript
Why is the level of competition in certain industries fiercer than it

is in others? The answer can often be traced back to the
structure of the industry itself. If the industry is fragmented,
meaning that there are many small players competing for
dominance, then you can expect the level of competition to be
high. This is especially true if they're relatively undifferentiated.
The same is true if the industry growth is slow, so that the only
real way for an individual company to grow its revenues is by
stealing customers away from its competition. If there are high
exit barriers, meaning that it's very expensive for a company to
decide that it doesn't want to keep playing this game, then rivalry
will also be high. Bricks and mortar retailing is an example. It's
tough to just close down an under-performing store if the retailer
is locked into a long-term lease. Finally, competition can be
expected to be fierce when products or services are perishable.
Think about airline seats. If they haven't been sold, their value
drops to zero when the gate door closes. The same is true for
hotel rooms and tickets to the theatre. That's why you can often
find last-minute deals for unsold tickets at greatly reduced prices.
Five Forces Framework - Slide 62
The slide contains a visualization of the Five Forces Framework.

The center of the slide says: Competitive rivalry surrounded by a
circle with an arrow pointing in the clockwise direction. There are
four boxes surrounding the circle with arrows pointing towards
the circle. The boxes are labeled, clockwise: Threat of new
entrants, Bargaining power of buyers, Threat of substitutes, and
Bargaining power of suppliers.
Porter, M. E. (2008). The five competitive forces that shape

strategy. Harvard Business Review. [5]
Transcript
Here's how the five forces framework looks when you put it all
together. The relative bargaining power of buyers and suppliers,
the threat of new entrants and substitutes, and the competitive
rivalry within an industry will all put pressure on a company to
lower prices or provide higher value products, ultimately driving
down profitability. An attractive industry is one where these Five
Forces are relatively weak. So, a competitor has a good chance
of implementing a profitable and scalable business model. Now,
before we finish this lesson let's talk about one more way to look
at an industry in order to determine not just it's overall
attractiveness, but to guide in the development of the value
proposition and the business model.
Industry Mapping - Slide 63
Plot the entire (or relevant part of) the value chain from supplier
to end consumer
Examine the relationships of each link in the chain
Identify how your value proposition could be designed for

maximum advantage at various points
Transcript
Industry mapping. An industry map is a diagram of the entire

value chain in an industry, from the suppliers of raw materials to
the consumers of the final products. The key here is to examine
the nature of each link in that value chain and determine where
the best point of entry for your value proposition might be.
Industry Map - Slide 64
This slide contains an image of an industry map. It begins with

three boxes labeled: Fertilizer, Seeds, and Equipment on the left.
These feed into either Wholesalers or Growers. The Wholesalers
also feed into Growers. Growers then feeds into a complex
network that includes Co-ops, Processors, Wholesalers,
Restaurants/caterers, and Retailers. This network then feeds
into a single box labeled Consumers at the far right.
Transcript
Here's an example of a simple industry map. About as

sophisticated as my limited skills with PowerPoint will allow. I'm
mapping the value chain for agricultural products. Let's say
vegetables in this case. From the suppliers of seed, fertilizers,
and farm equipment to the consumers who are sitting down to
dinner. I'm not trying to be too detailed here, I'm sure that you
could build a much more complex model. Near the middle we
have the growers. They produce fresh vegetables and sell them
direct to consumers through farmers' markets and the like, to
wholesalers who distribute to retailers, to processors who
produce packaged goods, and potentially directly to restaurants
or caterers who prepare meals for customers. Now, let's say that
you've determined that you can offer a technology or a service
that can help growers and restaurant owners capitalize on the
farm-to-table food movement by offering a more profitable way
for growers to sell their produce directly to restaurants in their
local markets. You believe that this is the link in the value chain
where your value proposition is the strongest. Meaning that you'll
be able to secure early adopter customers and begin to build a
viable and scalable business model.
Market Entry Point - Slide 65

The slide contains a diagram of two boxes from the industry map
presented on Slide 64 - Industry Map labeled Growers and
Restaurants/caterers. They are connected by a line. An arrow
points to this line.
Transcript
You've decided that this is going to be your market entry point.
Value Drivers - Slide 66
The slide contains the same diagram presented on Slide 65 -

Market Entry Point with a new box, outlined with a dotted line,
added in the middle. The new box contains the terms: Product
selection, Shipping, Purchasing/payment processing,
Bookkeeping, Quality control, Health/safety regulations, and Re-
order management.
Transcript
The next step is to make sure that you understand everything

that's happening at that link in the chain. How can customers
select the produce they want to purchase? How will shipping or
delivery be handled? How will payments be processed? Does
your technology need to be integrated with accounting or
bookkeeping systems on either or both sides of the transaction?
How will quality control be managed? Can you help both sides
comply with health and safety regulations? What's the nature of
the customer relationship, and how will repeat orders be
encouraged or facilitated? I'm sure that you can think of many
other issues that have to be considered. The point however is to
determine whether it makes more sense for you to enter this
market at the point in the value chain where growers are trying to
sell produce directly to restaurant owners, or at some other
point. PEST analysis, the Five Forces Framework, and industry
mapping can all be useful tools to help you assess your
alternatives.
Value Proposition - Slide 67
The slide contains the same image of Alex Osterwalder's value

proposition canvas, presented on Slide 2 - Why Do Customers
Buy? (1 of 2).
Transcript
Hopefully, when all is said and done, you're able to circle back to
your value proposition. You can now make some solid
assumptions about who your target customers should be, what
they really need, how you can design your product or service to
meet those needs, and how you can differentiate yourself in the
market. Now, it's time to start testing those assumptions in the
real world.
Interview with Entrepreneur
Interview with Gideon DeClerq

Interview Introduction - Slide 68
Tom Parkinson, Senior Director, IllinoisVENTURES
Transcript
Hi, and welcome back. Today I'm talking with Gideon DeClerq.
And Gideon is actually a recent grad of the University of Illinois
iMBA program and was a student in the entrepreneurship
program last year. He's the managing director of Dynovation,
which is based in Portsmouth in the United Kingdom. And
Dynovation is all about bringing new products, innovative new
products to the market in the UK. And we're going to talk about
the first of those products in this interview.
Interview - Slide 69
Gideon de Clercq, Managing Director, Dynovation LTD
Transcript
Parkinson: So, Gideon, thanks very much for joining us. Why
don't you tell a little bit about your own background and then we
can start talking about this product.
Declerq: Thank you very much, Tom. Yes, so I have

approximately 12 years' experience in product management and
I've always an affinity for products. My bachelor's degree is in
engineering, so I've always loved product and product
engineering. And I always understand that engineering product
without serving customer needs doesn't get very far in this world.
And, so I've enjoyed the whole product management side of
business. I also worked as a management consultant,
particularly in supply chain management, Lean Six Sigma and
those things. More focus on commercial operations lately. So,
I've seen the business from multiple perspectives. And then, I've
also had the opportunity, early on in my career, to work for a joint
venture startup. Which was quite a hectic enterprise, and where
we launched a business leveraging the Motorola brand to launch
TVs to the US. And unfortunately, this was wound down in 2004
due to a change in strategy of Motorola. So, I've had multiple
perspectives throughout my life, doing different things and
different business challenges and so forth. And then of course,
on top of it I did the iMBA program and as part of this program, I
followed your course on entrepreneurship where we evaluated
this product concept, the folding trailer product concept. And
during the feasibility study of that product I decided that, actually,
I should make an investment in this idea and launch this product
to the UK market.
Parkinson: So, tell us about Foldy and what's this product that
we're excited about here?
DeClerq: Well, Foldy is a foldable car trailer solution. And I

actually never thought I would get into this business, to be
honest. A year ago, if somebody had told me that I was going to
be launching a foldable trailer to the UK market, and I would
have said you're nuts, but it's quite interesting. Because to
convince me to get into the trailer business took quite a bit, so if
unconvinced, I have quite a strong conviction that I can actually
think I can make this work. So, to give you a little bit of history
about it, my mom is from the generation that doesn't throw
anything away.
Parkinson: Right.
DeClerq: And she actually bought this trailer in Belgium from a

local dealer there and came to visit me and showed me this
trailer. Well, she took three days to convince me to go and look
at it because she's had multiple trailers, they've all been stolen
regardless of the number of wheel clamps and locks that she's
put on them. And when I finally did go and see the trailer, I
couldn't find it. So, I said, well, it's been stolen, problem solved.
But no, it was actually folded up and put up against the wall, and
it only took 12 inches of space from the wall. That's how much
space the trailer took.
Parkinson: Okay.
DeClerq: And I was absolutely surprised by the space saving

nature of this trailer.
Parkinson: So, where does this trailer come from? Who

developed this trailer?
DeClerq: Well, interestingly, this trailer was developed by a

racking and carting company that makes carts and racks for
refrigeration units for big beverage companies like Coca-Cola,
Nestle, and I think they're also trying to get in PepsiCo. And they
have developed, because beverage is a seasonal business, they
were required to develop a collapsible cart system, which can be
stacked away, and during peak season it would be taken out for
the bottling plants. Now, this was just before the financial crisis
then the financial crisis happened, and all projects were basically
cancelled. And they had all these engineers working on different
projects and this all what are they going to do with us now? And
somebody came up with the idea, well, let's try to implement this
fallible undercarriage system on a trailer, a car trailer. And,
hence the product was born. So, it is kind of, there was no real
market research done. It was a bunch of engineers working in a
vacuum essentially, and experimenting, and subsequently they
had been selling this product in Europe through traditional
distribution models. And the performance hasn't been too great,
simply because I personally feel that the benefits of this product
have not been marketed properly.
Parkinson: Okay, so you want to take this product, or a version

of this product, and you want to introduce it to the UK market.
DeClerq: Correct.
Parkinson: And so what do you think has to be done with this
product to make it work in your target market?
DeClerq: Well, first of all I realized that in order to make this

product succeed and to be scalable we needed to have a direct
to consumer model.
Parkinson: Okay.
DeClerq: I am not interested in getting involved in having a

warehouse along the side of the road and a big sign saying
Foldy trailers and serving a small catchman's market with a
portfolio of trailers. For me this is a pure product play while a
manufacturer they also manufacture other trailers, boat trailers,
different size trailers, etc. I have told them straight out that I'm
utterly interested in this particular product, and to build a brand
around this product, and to market this product directly to the
consumers across the UK. So, I was able to secure an
exclusivity agreement for the UK for this product. Obviously,
there are some volume requirements. Car trailers, inherently like
my own skepticism, they stand in the way, they're clunky items,
they get stolen, you don't use them often etc. And most people
wouldn't consider having a car trailer, yet they do have needs for
car trailer.
Parkinson: Right.
DeClerq: Occasional use, particularly people that have

adventurous recreation, motorcycles, bicycles, camping,
kayaking, and so forth, boating. And of course, if you've got your
usage around home particularly in the UK people have gardens
in the UK, they love their gardens. And they have loads of
leaves. You just have to go to a recycle center in September and
October every year, and you'll see the number of people who are
soiling their cars emptying out leaves into the recycled part. And
I'm not talking about cheap cars, I'm talking about expensive
cars.
Parkinson: Well, my wife and I have been doing that with our
station wagon, just over the course of the last few weeks.
DeClerq: Right.
Parkinson: So, I know what you're talking about.
DeClerq: Exactly, so while there is garden refuse removal

services, they're not very reliable. And it actually costs anything
between 80 to 200 pounds, the pickup, depending how much
you want to have removed. Furthermore, you probably have to
Accumulate the garden refuse until you have a volume that's
interesting enough for me to come and pick up.
Parkinson: Right.
DeClerq: So, there is latent need for this product, and the key
thing is occasional use. So, the fact that this product is foldable,
gets put away, it has a very small footprint, it's very easy to use,
it serves that occasional-use need.
Parkinson: So, the use case, and I'm focusing in on the value
proposition here, is you're looking at a consumer market, an
end-user market, who has not an everyday need for a trailer but
an occasional use for a trailer. So, it's really for residential,
consumer customers. It's not the kind of thing that a, you're not
really trying to position this as somebody who's operating a
delivery business or something that's going to be using this
trailer in a professional setting. Is that right?
DeClerq: Correct, I mean, unless space is a scarcity for them,

and they need to have trailers folded up, and they have limited
storage space, then I would say yes, it would serve their need.
But for most people in the UK, and I think I speak for a lot of
countries in Europe, space is very valuable. And we don't want
trailers sitting on our driveway, or in backyard, etc.
Parkinson: Okay.
DeClerq: But we do occasionally trailers, so, therein lies the

opportunity.
Parkinson: So, how did you come up with the Foldy brand, and
how are you trying to communicate this value proposition to your
customers?
DeClerq: Well, the product is branded Wall Trailer in the rest of

Europe. And which, it came from the engineers, and it gets
stored up against the wall. So, they came up with the idea it's
called a Wall Trailer. And at first, I thought, that makes sense,
myself being an engineer. Then I mentioned to some family
members of mine about this Wall Trailer. They didn't understand
what I was talking about, so then I decided, let me go and put a
survey together. And I went back to the recycle center where
people come and bring their [laugh] leaves.
Parkinson: Okay.
DeClerq: And I asked them two questions. I didn't mention

anything about this foldable trailer. I just said to them, what do
you think about this name Wall Trailer? What does it tell you?
And nobody knew what it meant. Absolutely nobody, they
thought do you transfer plaster boards, what is it, it made
absolutely no sense. Then I showed them some pictures of how
this thing folds, and the fact that it's a wall trailer, etc. And 3 out
of 50 people spontaneously said well, Wall Trailer is a bit daft.
Why don't you call it Foldys, folding up? And there was also a
name that was mentioned to me by my brother. Why don't you
call it Foldy, etc., which was completely exclusive to these other
three individuals, and we also had a bit of luck. The Foldy brand
name was available. The Foldy URLs were also available. So,
we took it from there, and we got a marketing firm to develop the
logo for the product. And hence, the Foldy brand was created.
Parkinson: So, you're doing two things, you're re-branding the

product for your target market.
DeClerq: Yes.
Parkinson: You're also requiring some modest changes to the

product itself, just to make sure that it's going to meet the quality
expectations of your target market, to eliminate any unnecessary
returns, as you described.
DeClerq: Yes.
Parkinson: Tell us a little bit about your direct to consumer

business model. because that's not something that's been done
with a product like this before.
DeClerq: Right, and I think this product is unique, because it's

foldable and has such a small footprint. It can be folded and then
strapped to a pallet. And you're able to synthesize the shape of
the product with a direct to consumer business model. But you
can't ship a normal trailer direct to the consumer. Your cost
would be completely off the charts. So, by having the thing
folded up, I can warehouse it easily, and I can track it easily to
the end consumer. And the consumer can offload the trailer from
the pallet, and fold it up, and there's a little bit of assembly that
has to be done, but within 20 minutes, they can use the trailer.
Parkinson: Great.
DeClerq: So, and therein lies the key advantage of this trailer
over and above other trailers and the other trailer distribution
models. Because I can ship directly from a central DC in the UK,
I have extensive reach of the entire market. And also, I can
leverage the scale of an integrated third-party logistics provider
to deliver to these customers at a cost that I could never do
myself.
Parkinson: Right, well, let's follow up on that a little bit, because

that's another interesting thing that you're doing.
DeClerq: Yes.
Parkinson: At least right now, during the early time when you're
getting this company off the ground, you are relying on third
party partners, like this distribution company, the third-party
logistics company, to manage some of the functions that you
might want to bring in house, once your business gets to scale.
Is that right?
DeClerq: That is correct. So, I have deliberately chosen, from the

beginning, to build a network organization. And it's comes with
some challenges, and I'll get into that in a second. But the
couple of things I needed to change my weaknesses, as a
startup organization into strengths or mitigate those
weaknesses. Now, the first thing when we were doing the
financial plans of this, we realized that warehousing was actually
going to kill us in terms of overhead. Not only because the
operational, variable costs associated with the logistics of
distributing to the customer, but because in the UK, we have
what they call a Business Rights, or a tax and levy, which is
basically almost 50% of what you pay in terms of rent, you have
to pay to the local council as a tax.
Parkinson: Okay.
DeClerq: Which it's putting a lot of businesses under pressure.

Secondly, one of the opportunities for upscale, you'd have to
acquire resources, develop capabilities, etc. And as a small
organization, that would require that I have to go spend money
on stuff. Basically, put some human capital and assets in place,
before we could start developing value add capabilities. So,
much rather, go leverage existing infrastructures and capabilities
that are in place. In the case of the logistics, we're using a 200-
million-pound integrated logistics provider. They have offices in
Hong Kong. They serve the whole of Europe. They pick up the
product from the manufacturer in Slovakia. They warehouse the
product. They have seen huge opportunities in ecommerce, in
terms of growing their business and adding value, add services.
So, they are gung-ho with this project. Because they could do all
sorts of things like kitting, repackaging. Those are the kind of
value add services that they want to do where they can leverage
their scale and scope to serve customers like myself. So, that
was a big win for me, actually. To secure the right partner then. I
didn't go for the cheapest. I went for the one that really
represented what we wanted to do, that had the right capabilities
to handle big product. And this particular company handles
aviation parts, automotive parts, all the way to small stuff. So,
they had extensive scope and capabilities, and that's why I
chose, the company's called Europa Logistics. I chose them to
partner with me. Now, in terms of where I would go in the future.
I would never integrate into that area because there is no way
that I could develop the capabilities to out compete the value
they bring and the pricing that they can deliver. However, on the
digital marketing side of things, which is something I definitely
want to internalize in the future, I've chosen a small company. A
staff of 12 employees, and it's a small growing company. Yes,
they don't have all the processes in place of a mature company,
etc., and things have been a little bit hectic. And I've had to
provide a lot of project management guidance, etc., and so forth.
However, it does give me a big opportunity for influence. And
secondly, it also gave me the opportunity to negotiate an
agreement with them where they have a skin in the game.
Commission-based agreement, and that enables me to create
alignments. Because it's very difficult when you have multiple
partners, etc., if there's no alignments in your network
organization.
Parkinson: So, it sounds a lot like you've done a lot at this launch
stage to really minimize the expenses, the costs that are fixed for
you. And you've transformed a bunch of those by working with
these third-party partners into variable costs. Where you're
paying commissions or you're paying shipping fees and things
like that, rather than committing to paying a bigger amount of
fixed costs in house. Regardless of what kind of sales volume
you're achieving, is that right?
DeClerq: That's actually correct. And for me the advantage of

that is that those variable costs I can attach them more directly
to value add activities as opposed to things like overhead.
Parkinson: And there's enough profit margin in the trailer itself

to-
DeClerq: Correct.
Parkinson: Cover those costs and leave a decent margin still for
you to use for growth, right?
DeClerq: That is correct.
Parkinson: So, let's talk a little bit about what your expectations
are because you did quite a bit of thinking about what you think
the market size for this trailer is in the UK. And how much
traction you want to be able to generate over the next year or
two so that you can assess whether this is working for you as a
business or not. Tell me a little bit about your thinking about
market size.
DeClerq: When we reviewed this project, and we actually did this
during your course, our team, we did a feasibility study and what
the market potential was. We approached it from two different
perspectives. The first perspective was looking at the number of
personal vehicles in the UK that can actually tow a trailer. So,
there are 37 million cars in the UK, and approximately, well, just
under 1% of those cars have tow hitches, it's actually 0.9%. And
we use Auto Trader, which is a massive second-hand reseller,
looking at their listings of a four week period of what percentage
of the cars actually had tow hitches advertised? And it was
consistently around about 0.9%, so we used that as a proxy in
terms of, okay, out of the 37 million cars, how many of them
have tow hitches? So, it comes out to be about 300,000 cars.
And then we'd say, well, you know, what is the opportunity out of
the 300,000 cars that we could service? To basically get our
serviceable service, what do you call it, the service [laugh]
attainable market.
Parkinson: Right, your target market.
DeClerq: The target market, yes, exactly, and we took a guess,

and there was no real data points that made us choose 10%. But
we said, okay, let's see if we can service 10% of that market.
The reason being is that this industry is not tracked at all by the
Office of National Statistics. So, unlike commercial trailers, which
have to be registered, these big truck trailers, and they have
these safety requirements, which is tracked. There's a lot of data
on that, there is absolutely nothing for car tracks. So, that was a
pure, basically, stick our finger up in the air and make an
assumption or take a guess. How much of the 300,000 cars with
tow hitches can we service? So, that's an ambitious target
because that just leaves you a target market of 30,000 trailers.
Then we looked at the whole market from the perspective of
garages, and we are fortunate enough that there is data on
garages. And in 2012, I need to reference my notes here
because this is quite [laugh] complex. There are 10.6 million
domestic garages in the UK of which only 40% or just under 40%
are used for motor vehicles. The rest are used for DIY, ping-
pong tables, bar, whatever, home theater since home cinema
setup, etc. And of that, one-fifth are very cramped, so of the 40%
that use cars, they're very, very cramped. So, we're left with four-
fifths where there's enough space of the 40% of the 10 million.
And that comes to approximately 3.2 million garages with
enough space for DIY, garden equipment, and a motor vehicle.
And then we applied the 0.9% tow hitches that we got from Auto
Trader to the number of cars that are parked in those garages.
Because we assume that that percentage would be spread
evenly across the UK, regardless of where the car is parked.
And it comes out to just under 29,000 units.
Parkinson: So, it's in the same ballpark as your other approach?
DeClerq: As are our other estimates by looking at, purely, from

the tow hitches. So, we said then, okay, it won't be too
unrealistically to set an ambitious target of 10,000 trailers over a
period of five years. So, that's basically our ambition, or our big
audacious hairy goal. And once we launch, within the first year
we want to sell at least 1,000 trailers.
Parkinson: Well, thank you so much for joining us today, I want

to check back in with you in the coming weeks and months and
hear how things are going. It sounds like a really exciting project
and I think it's fascinating. The approach that you're taking with
an existing product in a new market, with a new positioning in
the market, with a new brand, and with a completely new
distribution and customer support model for a product like this. I
think it's fascinating and thank you again for joining us, Gideon,
and good luck.
DeClerq: Thank you very much and thank you for having me.
References
1. Osterwalder, A., Y. Pigneur, A. Smith, G. Bernarda and P.
Papadakos2014. Value Proposition Design. John Wiley &
Sons [1 ↩]
2. Blank, S. 2011. How To Build a Web Startup – Lean
LaunchPad Edition, https://steveblank.com/2011/09/22/how-to-
build-a-web-startup-lean-launchpad-edition/ [2 ↩]
3. Moore, G. 1991. Crossing the Chasm, HarperBusiness, p.
100. [3 ↩]
4. Statista, “Quick Service Restaurants in the U.S.”
http://www.statista.com/topics/863/fast-food/ [4 ↩]
5. Porter, Michael E., 2008. “The Five Competitive Forces that
Shape Strategy,” Harvard Business Review [5 ↩]

Entrepreneurship I - Laying The Foundation - Mod 2

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Entrepreneurship I - Laying The Foundation - Mod 2

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Module 2 Entrepreneurship I:

Laying the Foundation

Lesson 2-1.1 Value Propositions

Word Cloud - Slide 1

The slide contains a word cloud with words relating to value

In this lesson, we're going to focus on what's at the heart of

Why Do Customers Buy? (1 of 2) - Slide 2

The slide contains two images adapted from Alex Osterwalder's

The image on the right is a circle labeled Customer Profile with a

I'm going to borrow pretty heavily from Alex Osterwalder's value

Why Do Customers Buy? (2 of 2) - Slide 3

Customers buy when they perceive there to be a Product-

When the product or service helps them accomplish a job

Solutions allow customers to get something done. When your

Customer Jobs - Slide 4

The tasks that customers are trying to perform:

The slide contains the Customer Profile circle presented in Slide

Let's zoom in now on the customer. The customer profile should

Customer Pains (1 of 2) - Slide 5

Frustrations, difficulties, and obstacles related to the jobs:

The customer profile should also identify the problems or pains

Customer Pains (2 of 2) - Slide 6

Chronic vs. acute pains:

Acute pain → urgent need for a solution

Before we move on, let me just highlight a couple of key points.

Benefits that customers are seeking:

The slide contains the Customer Profile circle presented in Slide

B2B vs. B2C - Slide 8

You'll recognize this from one of my previous lessons. Business

Products and Services - Slide 9

The slide contains the Value Map square presented in Slide 2 -

Products/services to help customers perform their jobs:

On the left side of the value proposition canvas, we have the

Pain Relieving Features - Slide 10

The slide contains the Value Map square presented in Slide 2 -

Features that alleviate the customer pains:

Pain relievers are features that solve the problems that

Pain Killing Solutions - Slide 11

Enable the customer to accomplish the job while reducing or

Gain Creating Features - Slide 12

The slide contains the Value Map square presented in Slide 2 -

Features that allow the customers to achieve the benefits they

Enable the customer to accomplish the job while increasing:

As we did with the painkillers, we can broadly categorize the

Address an urgent need

Less urgent pain or uncertain gain

Are you selling a painkiller or a vitamin? This has a lot to do with

Product-Market Fit - Slide 15

The slide contains the same images described in Slide 2 - Why

Designing the Solution - Slide 16

Features should be tied to specific customer pains and gains

You may not need to address every item

The lean startup model encourages you to be very judicious

Value Proposition Statement (1 of 2) - Slide 17

“We help X do Y by doing Z”

Blank, S. (2011). How To Build a Web Startup – Lean

Let me wrap this up by describing how you should draft your

Value Proposition Statement (2 of 2) - Slide 18

The slide contains an image of a triangle labeled: Value

Moore, G. (1991). Crossing the Chasm, HarperBusiness, pp.

Here's how Jeffery Moore presented the same concept back in

A Great Value Prop Statement - Slide 19

Your customers would actually say it