Sunday, November 8th, 2009

5 Simple Steps On How To Do A Gap Analysis

Gap Analysis is a strategic planning tool to help you understand where you are, where you want to be and how you’re going to get there.

Here’s a simple Gap analysis chart:

Here's an example of a GAP analysis for profit

Here’s the Gap Analysis process:

Step 1: Decide the topic you’re going to do the Gap Analysis on? This is the challenge you’re trying to tackle.

Gap Analysis sample topics include:

Revenue
Profit
Market Share
Product Functionality/Features

Step 2: Identify where you are right now based on metrics or attributes.

Examples:

Revenue — We’re at $10 million in annual sales right now
Profit — We’re at $1.5 million in annual profit right now
Market Share — We have 7% of the market share right now
Product Functionality/Features — Our product has was just launched so it has limited features

Step 3: Identify where you’d like to be over a specific time frame?

Examples:

Revenue — We’d like revenue to grow to $35 million in annual sales by 2012
Profit — We’d like profits to grow to $12 million per year by 2012
Market Share — We’d like to own 15% of a particular market by 2012
Product Functionality/Features — We’d like our product to have industry leading features by 2012

Step 4: Identify the gap between where you are and where you want to be.

Revenue — They gap is $15 million per year in annual sales by 2012
Profit — The gap is $5.5 million in annual profit by 2012
Market share — The gap is 8% market share by 2012
Product Functionality/Features (let’s use Web site as an example) — The gap is that you’d like to have the following features by 2012: a blog, a sign-up form to let visitors follow your business on Facebook and Twitter and a way for customers to buy products directly.

Step 5: Determine how the Gap should be filled.

I recommend using the “6 M’s” from my Fishbone Analysis Article:
- Manpower — The people resources you need.
- Methods — The processes you need.
- Metrics — The measurements you need.
- Machines — The automation or technology you need.
- Materials — The material items (such as physical goods or marketing collateral) you need.
- Minutes— The time you need.
Or you could use a SWOT Analysis and simply list out your:
- Strengths, Weakness, Opportunities and Threats related to filling your Gap.

Some other related Gap Analysis definitions:

Usage Gap = Market Potential minus Existing Usage
Product Gap = The part of the market that your missing because of your product features.

Fore more on the Gap Analysis model, check out Gap Analysis Wiki.

Note: There’s a separate “GAP” used in business related to how to run meetings. Read The 3 Simple Steps To An Effective Meeting: The GAP Approach for more.

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Thursday, October 29th, 2009

DOS Exercise

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A lot of people have checked out my article on SWOT Analysis: Strengths Weaknesses Opportunities Threats (amazingly, an estimated 300,000 people Google “SWOT Analysis” each month, according to Google’s own Keyword Tool).

If you want a variation on an exercise for strengths, opportunities, etc., there’s another simpler one called D.O.S.

DOS stands for Dangers, Opportunities and Strengths.

DOS Exercise

It’s very simple to learn DOS. Here are the steps:

1) Pick a new goal or thing that you’re considering taking on.

2) List out the dangers of taking on such a project.

3) List out the opportunities of taking on such a project.

4) List out the strengths of taking on such a project.

I’ve been using DOS for a few years and I’ve learned it’s important you go in the order of danger, opportunity, strength because psychologically it’s best to end on a positive — this is one advantage the DOS model has over the SWOT model (in SWOT analysis you START positive with strengths and END on a negative with threats).

Here’s a DOS example on a new challenge a friend of mine’s business is having with fundraising (she needs to raise some money to fund her new startup).

Dangers (of raising money)

She’ll take her eye off the ball of a new product launch.
She’ll be distracted from managing her newest hire (an engineer)

Opportunities (e.g. what the opportunities for her to take advantage of to raise money)

She has 100+ “friends and family” who might be able to invest
She has a new advisor she could add to her advisory board who is well connected and has raised money for a couple of different startups.

Strengths

This woman is very persuasive and can make a great pitch!
She has a superb team
She has an amazing product

That’s the DOS exercise.

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Saturday, October 24th, 2009

Porter’s Five Forces

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I met a guy named Dan Neukomm recently who has a real zest for business-life. He’s got an MBA degree from Paris (where as an American he was a minority) and he has been a key member of a couple of successful start-ups.

He and I brainstormed mutual areas of interests and strategic planning was one of them. He kindly agreed to share his …

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He and I brainstormed mutual areas of interests and strategic planning was one of them. He kindly agreed to share his thoughts on one key strategic model: The 5 Forces from Michael Porter.

5-forces-pic-of-daniel-neukomm

Here’s the Q&A — I hope you enjoy it:

Please explain the origin of “Michael Porter’s Five Competitive Forces That Shape Strategy”

Strategic assessment models are utilized by senior management and other stakeholders to assess external factors to direct and efficiently distribute resources driving growth.

While many such models exist, few have become as widely valued and practiced as the Five Forces model, developed by Harvard Business School professor Michael Porter.

This model helps to analyze external variables and structure, primarily at the industry level, which influence the attractiveness of entering and successfully competing in a specific marketplace/industry.

Each of the five forces can be attributed a weighted numerical strength on a scale of 1 to 10 and then added together to determine industry attractiveness.

Please describe each of the Five Competitive Forces?

Porter’s Competitive Forces are barriers to entry, bargaining power of suppliers, bargaining power of buyers, threat of substitutes, and competitive rivalry among existing players.

1. Barriers to Entry

Accurately assessing barriers to entry in a given industry are vital to understanding the ability of a venture to succeed. High barriers to entry almost always directly relate to higher costs, both for the venture under consideration as well as potential competition in the future.

Understanding those barriers can help to effectively identify and leverage market entry routes without removing existing barriers for future entrants to navigate. Examples of barriers include economies of scale, IP protection and government regulatory restrictions.

2. Bargaining Power of Suppliers

The power of suppliers is almost entirely supply side driven, resulting in reduced costs as the competition among suppliers rises, and increased costs as suppliers monopolize the supply chain.

Attractive, high growth markets tend to present low supplier power at early stages of the industry life cycle, steadily increasing as growing volume and high margins attract additional suppliers.

Examples of supplier power include the concentration of suppliers, threat of forward vertical integration, and costs associated with switching suppliers.

3. Bargaining Power of Buyers

Buyer power can have considerable implications and influence on price and is a function basic demand side economics. Buyers can be defined as end consumers in B2C sales or another business in B2B sales. The power of buyers in the marketplace can have two distinct impacts.

First, an increasing number of buyers in the market, resulting from increased demand, results in higher prices. Second, as the volume and demand of buyers increases so does the incentive for buyer collaboration to leverage economies of scale.

This can be further offset by attracting additional suppliers who in turn offer more choice and drive prices back down. Identifying and measuring variables influencing buyer power are necessary for accurately assessing viability and price control.

Such variables include product differentiation, brand identity/value, buyer’s incentives and the threat of reverse vertical integration.

4. Threat of Substitutes

The threat of substitutes relates to those products or services that can directly displace or offset the demand and/or consumption of the penetrating product or service being considered.

Perhaps the most considerable implication is the ability for the buyer to directly substitute the product or service for a something similar but equally effective at satisfying demand. Another consideration is the cost incurred by the buyer to switch to the substitute.

5. Existing Rivalry

Those firms currently competing within the target industry whose existing competitive dynamic is dictated by numerous factors define this. These include the concentration within the industry, the differentiation among products/services, the barriers to exit and the growth rate of the industry.

If the market is large and rapidly growing, it is more likely to contain a large number of competitors with a diverse offering of products and services and diluted liquidity values for exit due to the high number of options.

When’s the best time to use the Five Forces framework?

A new/existing firm assessing the implications of entering into a new product or service industry.
A firm contemplating an investment in a new/existing firm moving into a new product or service industry.

Where ultimately will the Five Forces analysis lead a business to (what results?)?

The Five Forces Model should be utilized for determining market viability as well as identifying and ultimately avoiding potentially risky and costly pursuits.

Most importantly, Five Forces provides a relatively subjective framework with which to input values designed to determine strategic direction and resource allocation accordingly.

Remember, Five Forces is only one strategic assessment model designed to help understand the variables that shape the competitive dynamic of a given industry. As such, other models should be utilized in conjunction so as to paint as clear and concise picture of both internal and external factors for consideration.

Can you give us a Five Forces example?

In 2001, I founded and grew Mountain Oxygen, a company which provided oxygen products, systems and services to visitors of high altitude ski resorts in Utah and Colorado who suffered mild symptoms of altitude discomfort such as fatigue and insomnia.

Our core/primary service was renting oxygen generators via hotels and resorts to guests for the duration of their stay so they could rest, rejuvenate and enjoy their limited and expensive vacation time.

Porters Five Forces directly articulates the assessment I went through to determine the competitive dynamic and ultimate success of this venture and as such is outlined in further detail below.

Since the recreational oxygen market at high altitude ski resorts in Colorado and Utah did not exist prior to Mountain Oxygen, there were relatively few barriers to entry, making the venture appealing and lucrative (i.e. no IP needs, limited gov’t regulation and no competition).

I was able to secure (at a cost) exclusive agreements with ski resorts and hotels to be the sole supplier of such services, giving me considerable control over my buyers allowing my firm to dictate price more aggressively.

Additionally the act of establishing and maintaining non-compete agreements meant that almost impenetrable barriers of entry existed for future competition.

Since there were numerous suppliers resulting in relatively limited power, my costs remained low. Furthermore, the availability of substitutes was also extremely low, entirely due to the specific nature of the need my firm was meeting.

For example, once vacationing in a resort town like Aspen and altitude malaise sets in, the only other option is to retreat to lower elevations as no drug is available that is immediately effective in alleviating adverse symptoms. As such, my firm was the only provider of the only solution!

My business maintained low buyer power as a result of minimal substitute products and lack of competition allowing me to maintain price control and increase margins.

OK, lets integrate the weighted values of the five forces to this model:

Barriers to entry: very low for me (2 out of 10)
Power of suppliers: very low (2 out of 10)
Power of buyers: very, very low (1 out of 10)
Threat of substitutes: very low (2 out of 10)
Competitive rivalry: none (0 out of 10)

Total weight: 7 out of 50 and as such very, very attractive/lucrative.

Food for thought: The lack of non-compete clauses at host resorts would have meant additional competition and subsequently increased buyer power resulting in lower prices and tighter margins.

This would have increased the weighted value of both power of buyers and competitive rivalry towards 7 or 8 out of ten shifting the over-all industry attractiveness score accordingly.

Mountain Oxygen was split up and sold in 2006 to strategic buyers.

Is there a Five Forces diagram for us to look at?

five-forces-diagram

source

Can you recommend any Michael Porter books?

Competitive Strategy: Techniques for Analyzing Industries and Competitors by Michael Porter.

What are your other favorite strategic planning frameworks besides Porter’s Five Forces model?

In addition to utilizing Porter’s Five Forces to assess external industry level dynamics, PEST (O) is useful in assessing external factors at the most macro of levels.

SWOT also helps to identify and match internal strengths and weaknesses to external opportunities and threats. Understanding Michael Porter’s Value Chain (another Michael Porter model) is also useful in measuring and guiding supply chain dynamics.

If someone wanted to get in touch with you, what’s the best way for them to contact you?

You can email me at [email protected] or here’s my LinkedIn profile.

Thanks, Dan!

Note: Check out Michael Porter Wikipeida for more about this leading strategic planner.

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Thursday, October 15th, 2009

How to Create A Sales Pipeline

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I’ve been teaching someone on our team recently about how a sales pipeline works — and so I thought I’d summarize my sales approach here for you (I’ve used this for straight up sales as well as for partner sales).

Note: I’m going to refer to the party I’m selling to as a “customer” but it could easily be a partner in the case of partnership sales.

There are any number of sales pipeline stages you can use: I’m going to use Leads, 10% Opportunities, 50% Opportunities, 90% Opportunities and Closed Won/Lost. I first adopted this methodology when I began using Salesforce.com which mapped well to how my mind works. …

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Sunday, October 11th, 2009

OODA Loop

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I’m a big fan of using Colonel John Boyd’s OODA Loop strategy for reacting to events in business.

I’m so into the OODA Loop theory that I once chanted “OODA, OODA” (like “Toga, Toga”) at a strategy session!

OODA stands for:

Observe — As in collect the inputs/data of the situation.

Orient — Analyze the inputs/data to determine your position.

Decide — Determine your course of action.

Act — Execute your decision.

It’s called an OODA Loop (or OODA Cycle) because the event/situation taking place may be changing and so you may have to change your decisions as new data/inputs are gathered.

While Col. John Boyd’s OODA Loops were created in military situations, he made recommendations on their use in business (and OODA Loop Theory is widely used in business today).

For example, Boyd recommended that decisions/actions be distributed throughout a business organization so that decisions and actions are made by the people who are directly observing and oriented to a situation (as opposed to an isolated commander/CEO who is only indirectly involved).

Colonel John R. Boyd is no relation to famous businessman John Boyd Dunlop who founded Dunlop the tire company or peace nobelist Lord John Boyd (United Nations, nutrition).

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Sunday, September 27th, 2009

PEST Analysis

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I’ve been receiving a lot of attention to my articles on strategic planning tools such as SWOT Analysis, Fishbone Analysis and DACI To Get Things Done.

Here’s another one: PEST Analysis (by the way, there are many variations of PEST Analysis and so I’ve listed all of the ones at the bottom of this article with their definitions).

What is a PEST Analysis?

PEST is an acronym that stands for the following four Macro-Economic factors:

Political — These include factors related to how a government intervenes in your business. It may include taxes, law, political stability, regulation and de-regulation.
Economic — These include factors such as interest rates, inflation rates, unemployment rates, income rates/distribution and tariff rates.
Social — These include cultural aspects such as population growth, age distribution, career trends (attitudes towards work), lifestyle trends, etc.
Technological — These include trends such as remote working (see my article called A Virtual Workplace), mobile computing, the Internet and other research and development innovation.

PEST analyses are best used to measure a market situation (this differs from SWOT Analysis as SWOT is best used to measure a company or business unit situation). A good time to do a PEST Analysis is right before a SWOT Analysis. More PEST Analysis definitions and history can be found at PEST Analysis Wikipedia

The best uses for PEST Analysis are:

Strategic Planning
Business Planning
Acquisitions
Business Development/Joint Ventures
Product Development
Marketing Planning

PEST Analysis Example/Template

Identify the key trends related to Political, Economic, Social and Technological factors
Rank them on a scale of 1 to 10 in terms of what type of impact they could have on your business
Pick the highest ranked items and dig into those using whatever tool you prefer (I recommend SWOT Analysis or Fishbone Analysis)

Here’s a good sample PEST Analysis of Yahoo

And, as promised here are those other variations of PEST with their definitions:

PESTEL Analysis (sometimes misspelled “PESTAL” Analysis)stand for: Political, Economic, Social, Technological, Environmental and Law
PESTLE Analysis is just spelled different than PESTEL (it stands for: Political, Economic, Social, Technological, Law and Environment
STEEPLE Analysis stands for: Social, Technological, Economic, Environmental, Political, Law and Education
STEEPLED Analysis stands for: Social, Technological, Economic, Environmental, Political, Law and Education and Demographics
PESTLIED Analysis stands for Political, Economic, Social, Technological, Legal, International, Environmental, Demographic
SLEPT Analysis stands for: Social, Legal, Economic, Political, Technological
PESTELI Analysis stands for: Political, Economic, Social, Technological, Environmental, Law and International
STEEP Analysis stands for: Social, Technological, Economic, Ecological and Political

You can tell that some people are really into these things!

If you like my articles on SWOT, PEST, etc. then you might want to check out my posting on DOS Exercise.

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Tuesday, September 15th, 2009

Fishbone Analysis

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My friend Ralph taught me how to do a Fishbone Analysis recently (it had been invented by Dr. Kaoru Ishikawa).

You can use the Fishbone process to help you figure out how to best achieve an objective, including how to prioritize the individual items which together are needed to meet your objective.

Fishbone Analysis Example

Let’s say that you determine that you need to grow the number of visits to a Web site/page from 500 per month to 20,000 per month by year-end.

First, you go through the six things that prevent you from getting that objective done. These are called the six “M’s” because each starts with the letter “M” to make it easier to remember.

The six “M’s” that prevent you from getting anything done are:

Manpower — The people resources you need.
Methods — The processes you need.
Metrics — The measurements you need.
Machines — The automation or technology you need.
Materials — The material items (such as physical goods or marketing collateral) you need.
Minutes — The time you need.

Now, it’s called a fishbone because you draw a line (the fish’s spine) with three diagonal lines on each side (which look like bones) and it looks like a fish (see my sloppy image above).

Example of The Six “M’s” of Fishbone

So, back to the Fishbone example of getting your traffic to 20,000 visits per month.

Go through the six “M” categories and for each one answer the question: “What things within each category are preventing me from getting to my goal (e.g. to 20,000 Web site visits per month).

Manpower
- You need a person on staff who can can be the driver of more traffic to your Web site (see my DACI article on the importance of a “driver.”
- You need access to someone familiar with HTML.
Methods
- You need to understand how you will be increasing Web traffic
Metrics
- You need to know the definition of a Web site visit.
- You need to confirm that you’re actually receiving 500 visits per month right now (because you’re confused about Web site traffic)
Machines
- You need analytics software to measure Web site traffic.
Materials
- You need content on your Web site to attract visitors.
- You need to figure out if the Internet domain name you’re using is the right one.
Minutes
- The key people who would work on this project don’t have any free time.

Fishbone Ranking

You then take each of the sub-items (in my case I made it simple and there are only 9 (usually you’d have 20 to 30) and list them out and do a Fishbone Ranking of them.

The ranking approach Ralph suggested is to do a 1 to 10 on the impact, resources needed and time that each item will take where:

10 is high Impact (1 is low)

10 is low Resources Needed (1 is high resources)

10 is low amount of Time it will take (1 is a lot of time)

You need a person on staff who can can be the driver of more traffic to your Web site (see my DACI article on the importance of a “driver.”
- Impact = 8 (a new “driver” of this project will have huge impact towards reaching your goal)
- Resources Needed = 2 (a new driver will require a lot of money to hire)
- Amount of Time = 7 (you can hire a new driver of this project fairly quickly)
- Total = 17 (8 + 2 +7)
You need access to someone familiar with HTML.
- Impact = 6
- Resources = 5
- Time = 5
- Total = 16
You need to understand how you will be increasing Web traffic
- Impact = 9
- Resources = 8
- Time = 4
- Total = 21
You need to know the definition of a Web site visit.
- Impact = 5
- Resources = 10
- Time = 10
- Total = 25
You need to confirm that you’re actually receiving 500 visits per month right now (because you’re confused about Web site traffic)
- Impact = 2
- Resources = 7
- Time = 6
- Total = 16
You need analytics software to measure Web site traffic.
- Impact = 6
- Resources = 9
- Time = 8
- Total = 23
You need content on your Web site to attract visitors.
- Impact = 10
- Resources = 1
- Time = 2
- Total = 13
You need to figure out if the Internet domain name you’re using is the right one.
- Impact = 5
- Resources = 7
- Time = 7
- Total = 19

Priorities Come Out of the Fishbone Ranking

So, now you list them out in order of highest score first:

25 = You need to know the definition of a Web site visit.

23 = You need analytics software to measure Web site traffic.

21 = You need to understand how you will be increasing Web traffic

19 = You need to figure out if the Internet domain name you’re using is the right one.

17 = You need a person on staff who can can be the driver of more traffic to your Web site (see my DACI article on the importance of a “driver.”

16 = You need access to someone familiar with HTML.

16 = You need to confirm that you’re actually receiving 500 visits per month right now (because you’re confused about Web site traffic)

13 = You need content on your Web site to attract visitors.

And, voila, this may be the order you need to do those items.

For those who really like fishbone brainstorming, you can take any of those individual items and do an entire new fishbone JUST on that item.

If you want to learn more about the man behind Fishbones, click here for a Kaoru Ishikawa biography

If you like this article, you will probably also like this article I wrote on the SWOT Analysis tool.

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Sunday, July 26th, 2009

SWOT Analysis

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I’ve been using SWOT Analysis for strategic planning lately and I thought I’d share the basics of it.

What is a SWOT Analysis

SWOT is a strategic planning tool. The acronym SWOT stands for:

S= Strengths

W = Weaknesses

O = Opportunities

T = Threats

The importance of a SWOT Analysis

A SWOT Analysis is a great exercise to help determine your tactics or execution of an objective.

The more you can prepare before you jump into your tactics (or execution), the better off your results will be.

How to do a SWOT Analysis

First, pick your topic (e.g. your topic might be broad such as on your business/company overall (a “Company SWOT Analysis” or something more specific such as a department in your business (e.g. a “Marketing SWOT Analysis) or it could be for yourself as an individual (a “Personal SWOT Analysis”).

Next you pick your objective. For example, if you’re doing a Company SWOT Analysis your objective may be to double the business within the next three years.

Now do the Strengths, Weaknesses, Opportunities and Threats related to that topic or objective:

Strengths — These are attributes that you or your company possess that would be helpful in achieving the objective.
Weaknesses — These are attributes that you or your business have that are harmful to achieving the objective.
Opportunities — These are the external circumstances that are helpful to you achieving the objective.
Threats — These are external circumstances that could damage the performance of your objective.

Next, ask yourself if your objective is achievable given your strengths, weaknesses, opportunities and threats.

Is SWOT objective achievable?

If the answer is no, you have to revise your objective and do another SWOT.

If your answer is yes, then you can now move into discussing the tactics related to your strengths, weaknesses, opportunities and threats.

Specifically, you’ll want to ask yourself the following questions:

How can we leverage each one of our strengths?
How can we improve upon each weakness?
How we can capitalize on each opportunity?
How can we minimize each threat?

A SWOT Analysis Example

[Check out my SWOT Analysis Examples posting to see larger company SWOT Analysis examples]

Here’s a summary of a general Business SWOT Analysis I did on our start up Mojam about ten years ago.

Our objective was to double the revenue of the business within twelve months.

Strengths

Amazing team
Large quantity of product
Well-connected investors
Good at partnering

Weaknesses

Low amount of capital
Mediocre product quality
Geographically fragmented team

Opportunities

Yahoo is interesting in partnering with us
Company can turn a profit with just a few more customers
Smaller competitor is distressed and may want to sell
New revenue sources such as merchandise sales are right around the corner

Threats

A small new competitor has entered the space
We may not make payroll if we can not raise more capital or grow our business

When we asked ourselves if the objective of doubling our business was achievable given these strengths, weaknesses, opportunities and threats, the answer was yes…so we moved on to answering the four questions on each SWOT.

E.g.:

How can we leverage our amazing team?
How can we exploit our large quantity of product?
How can we grow our capital?
How can we improve our product quality?
How can we close the Yahoo deal?
How can we start merchandising as a new revenue source?
How can we combat the new competitor that entered the space?
How can we buy more time to make payroll?

Now you’re into tactics and execution and that requires prioritization, time lines, business plans, etc….or, in other words, you just go do all the things you just said you shoud do in your answers!

Who should carry out the SWOT Analysis exercise?

Ideally it’s a cross functional team (e.g. someone in sales, marketing, finance, technology, etc.)

Who Invented SWOT?

Most people credit Albert S. Humphrey, a business and management consultant who also founded the Stakeholder Concept and Team Action Management (TAM) Concept.

note: Some people mistakenly call it “SWAT” Analysis (SWAT is an acronym for special weapons and tactics started by the Los Angeles Police Department around 1968 (coincidentally, Albert Humphrey began popularizing SWOT right around the same time (in the late 1960’s!))

A great definition of SWOT can be found at SWOT Analysis Wikipedia.

Good luck with your SWOT!

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ROB KELLY