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Tag: sales

Golden Opportunities in Space Supply Chain

Space is a great business, as well as fun for the kids.  Last week, I was invited to Astrium in Portsmouth to give a talk about the opportunities for non-space companies to sell into the space sector. Readers of Qi3 Accelerator Insight will know that I’m passionate about promoting the space sector to wider communities. Of course, I like to think that I’m a reasonably interesting person, but it was clear that on that day my talk wasn’t the most interesting as far as useful facts were concerned.

Chris Ward, Head of UK R&D at Astrium, provided a noteworthy presentation with insightful statistics. I’ll focus here on some key figures:

  • Astrium has €1B sales annually of which 53% accounted for manufacturing and 47% accounted for services (an increase from almost nothing over the past decade).
  • In manufacturing, 70% (approx. €385m) of business was subcontracted of which €100m was spent with 400 UK companies.
  • In services, 35% (approx. €176m) of business was subcontracted of which €100m was spent with other UK companies.

In such a gloomy business environment, this undoubtedly represents €200m of golden opportunities for companies who wish to sell into the space supply chain.

My talk emphasised what’s available for companies in this sector, with specific focus on technological and service opportunities for suppliers.  Mail me to request a copy.

Breakfast at Number 10: Part 2 – Enabling business success

The second part of this update focuses on enabling successful sales growth for innovative businesses.

My discussion with Lord Young and question in the plenary session was focused not on investor tax breaks, but on how government can encourage smaller companies to become more successful in their sales efforts:

In public procurement of innovation, the Small Business Research Initiative seems at last to have found a nurturing home in the Technology Strategy Board. But it’s still a small scale initiative for a few public bodies, rather than a mainstream driver of innovation in procurement.  The US requires Federal Agencies with extramural research and development budgets over $100 million to administer SBIR programs using an annual set-aside of 2.6% for small companies to conduct innovative research or research and development (R/R&D) that has potential for commercialisation and public benefit.  The total UK expenditure meanwhile is a few £m per annum

In public procurement (OJEU) there are systematic barriers to SMEs.  Most ubiquitous is the use of prequalification processes where companies are required to demonstrate evidence of 3-5 similar contracts.  This is a blatant stifling of innovative approaches.  Lord Young agreed that there is much to do in this field, and stated that central government contracts under £100k have dispensed with prequalification. SMEs make up 50% of UK GDP, but only 12% of public procurement.

These issues must be taken more seriously. The UK is a small home market for technology businesses, many of which would be better located in the USA. Investors like us need our investee companies to become successful through rapid realisation of their sales prospects. That’s why we started Qi3 Accelerator. It’s vital that where government can make the UK a better test-bed and first marketplace for new technologies that it should do so through disruptive, not incremental steps.

Advice for Entrepreneurs: Part Seven – Sustainable Competitive Advantage

In this seventh part of my occasional series ‘Advice for Entrepreneurs’ I discuss how you can show potential investors that you are able to take advantage of the market which you are addressing.

Creating Sustainable Competitive Advantage

The core objective is to create an obvious and sustainable rationale for customers to buy from you rather than your competitors. Achievement of this in investors’ minds looks different for first movers and market followers:

For first movers: you will need to educate the market and build barriers behind you to stop new entrants catching up. Invariably people will have been spending their money on something else, so you will need to change their mind-set.  Is your product truly novel in customers’ minds, and can you lead the race from the front? Investors love technical novelty, but will people really validate your heroism, buy your product and laud you with market dominance?

For market followers: earlier entrants have demonstrated that there is a market, but are you a conquering upstart or a me-too supplicant? Why should potential customers switch allegiance? Can you build barriers behind you to dissuade further entrants and in front of you to undermine existing competitors?

Market Disruption and the Infamous USP

I like to understand how a company will disrupt its target market. For me this requires some key steps:

  • Rigorous definition and justification of the selected target market: Who do you intend to sell to, how many target customers are there and why have you selected this target market?
  • Target market share: What proportion of the target market do you intend to capture and over what time period?
  • Market entry strategy: How will you achieve this goal in practice? Once the product / service works, how will you scale up?

The concept of Unique Selling Proposition (USP) is much bandied about and generally misused. To be effective a USP should contain three things: uniqueness, a sales trigger and a specific proposition.  It is not just a list of nice ideas – and I suggest that 1 to 3 USPs are sufficient. You also must be able to live up to the claim, such as famously that made by FedEx: “When your package absolutely, positively has to get there overnight”.

And finally…

A three legged stool is more comfortable to sit upon than the pointy end of a stick. So I’m all for ensuring that I have three strong arguments against each competitor in the target market. And none of these three should be price. My rationale for this is twofold: established competitors can always reduce their prices to knock you out of the game, and price competition generally undermines technology-based brands.

The result of this strategy should be a set of clearly articulated statements that position your offering unambiguously in the mind of the customer, making the market your own.

 

Advice for Entrepreneurs: Part Six – Market Size and Growth Rate

In this sixth article in my series ‘advice for entrepreneurs’ I address my favourite subject – the importance of understanding the market for your technology, product or service and representing it to investors.

It’s hardly surprising that three of our five key investment criteria relate to market issues; the others being the credibility of the team and the business model through which value is extracted from the business.  Let’s look at the issues of market size and growth rate as a start:

Global Markets

Think about the investors you are approaching and the markets in which they wish to invest.  In the case of Qi3 Accelerator, we are keen to participate in businesses that utilise technology to underpin advances in global growth sectors such as environmental sustainability / cleantech, healthcare, security, communications and high value manufacture.

Addressable Market not Total Market Size

Don’t mix up ‘market size’ and ‘addressable market’.  The ‘market size’ is the total amount of money spent in your sector (for example, the world demand for electricity).  The ‘addressable market’ is the total sales that your business could gain if you had no competitors (for example the market for wind turbines producing under 25kW peak power).

If you use the total market size as the measure in your business plan, you are generally overstating the opportunity and losing credibility with potential investors. Quoting broad ‘telephone numbers’ as market sizes just makes your business look like a tiny speck on the industrial landscape, rather than an important player within a defined market.

The addressable market is a sensible measure to start with.  It has the further advantages of showing investors that you have carefully considered the needs of your potential customers and the alternatives that they might buy.  It furthermore indicates that you have understood who your competitors are.  Growing your market share to a realistic but high number is also important and this means a realistic sales projection within a meaningful addressable market.

Concentrated and Fragmented Markets

It’s important to understand and represent fairly the nature of the market into which you are selling.  We describe concentrated markets as those dominated by a few players, where the actions of any of the key companies affect the market itself.  Fragmented markets are those in which no single company has sufficient market share to be able to influence the market as a whole.

Your marketing strategy will be very different according to the type of market in which you operate.  In a concentrated market, you will need to displace incumbents and will naturally see them as opportunities for future partnership or exit.  In a fragmented market, you need to demonstrate to your investors how you will become noticed and thus gain substantial sales.  My first suggestion is to subdivide the addressable market further and gain market share in a subdivision (e.g. small wind turbines in Europe or residential installations).

Market Growth

It’s far easier to develop a business in a large and expanding market.  Let’s say you’re in a £500m addressable market that’s growing at 20% for each of the next five years.  You can grow at a high rate without eating into your competitors.  But if the market was growing at only 2%, every step you take will provoke reaction from established players.  Simply put, there is more room for experimentation and mistakes in fast growing markets, especially if you are also generating sufficient gross margin to reinvest in product and market advances.

In the next article, I’ll move on to market disruption and sustainable competitive advantage.

Advice for Entrepreneurs: Part Five – Export Strategy

Or what to do when your market isn’t at home

We all know that the UK has 1% of the world population, about 4% of world GDP and that we still have the world’s sixth largest economy.  Despite our travails, the UK leads Europe in a range of innovation indicators and venture finance.

I grew up in a mid-sized instrumentation company where our sales were 95% export. I spent years in Germany, the USA and Japan devising, developing and delivering sales and marketing programmes to take our products around the world.  The home market simply isn’t big enough to feed the aspirations of a growth-oriented technology business.

But that was in the land of established companies – what does this all mean for UK based entrepreneurs who are trying to get their technology businesses off the ground?

Robin and I were at a Cambridge Network Emerging Markets meeting on Monday evening which focused on the dos and don’ts of addressing emerging markets.  Of course this was far too big a subject for the evening or indeed for this article.  Here is a distillation of ideas focused on the planning process rather than individual territories.

Dos

  • Do research the market for your product / service quite thoroughly.  Start with the world as a whole, then focus on regions, countries and regions within those countries.Do select a limited number of ‘A’ list target countries and focus on developing one at a time in your business plan
  • Do research customer preferences within each selected territory.  The world isn’t homogeneous, and you will need to adjust your sales & marketing strategy and perhaps your product / service if you want to gain market share. Be prepared to have failures and make mistakes on the way.  You can learn from them and adapt.
  • Do learn enough about the local language, culture and pleasantries to ensure that you project the right image when you’re there.  Successful export captures the heart of the customer as well as the mind.
  • Do ask for help from people who have experience in developing sales and support channels and negotiating contracts abroad (my plug for Qi3)
  • Do ensure that you have the right financial (currency, tax, cash flow) and legal (contract law, agency, IP) support
  • Do consider where your company should be based, and where manufacturing or services should be delivered.  If half your market is in China, why not relocate there?
  • Do resource your export initiative.  Relationships with customers, staff, agents, distributors and manufacturing partners all need nurturing.
  • Do control costs. Travel the cheapest way possible, but stay in a respectable hotel to impress your clients.

Don’ts:

  • Don’t ignore the rest of the world.  Your technology may have originated in your lab, garage or bathroom, but there may well be many more potential customers in the USA, China or Germany.
  • Don’t spend all your time flying round the world to meet people.  I’ve just seen a funding round fail because the CEO was so desperate to prove that he could build US customer relationships that he couldn’t present his business plan to investors.  I’m a firm believer in building relationships face to face but then using telephone, email, Skype and web conferencing to keep them bubbling.
  • Don’t overstretch yourself.  Select your markets carefully and build them one at a time.  And don’t export for the sake of it.  If the home market is a decent size and less expensive to service, start here.
  • Don’t be proud of collecting air miles or sitting in airports. Your family misses you when you’re away.  I often encounter people who travel to China or Cambodia when they could be selling in Cambridge, Cardiff or Copenhagen.

Lastly, people often ask me whether I think UKTI is useful.  In short, it is an excellent source of information and reports which you must access.  Beyond that it depends on the individuals you are dealing with, many of whom are helpful and experienced.  Beware when they’re in sales mode.

There are plenty of people around with the sort of export experience that Qi3 offers, so ask for help and build the world into your business plan.

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