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THE ENVIRONMENT MAP:

INDUSTRY FORCES, MARKET
FORCES, KEY TRENDS, MACROECONOMIC FORCES
ENGR 112: Laboratory to Market, Entrepreneurship for Engineers
Spring 2015, Lecture 6
Nathan M. Wilson, Ph.D., M.B.A.
Visiting Assistant Professor, Anderson School of Management
Visiting Assistant Professor, Department of Mechanical and Aerospace Engineering, Henry
Samueli School of Engineering and Applied Sciences
Schaffer Grimm, M.S., M.B.A.
Lecturer, Henry Samueli School of Engineering and Applied Sciences
Manager of Strategic Business Planning, Institute for Technology Advancement

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Session Description
Introduction to Entrepreneurship; Entrepreneurial Paths
Introduction to Business Model Canvas
The Value Proposition Canvas; Business Model Canvas: Value Propositions &
Customers
Understanding Customers
Hypothesis-Driven Entrepreneurship
The Environment Map: Industry Forces, Market Forces, Key Trends, MacroEconomic Forces
Business Model Canvas: Channels, Partners, Customer Relationships
Business Model Canvas: Revenue Models; Key Resources, Costs
Entrepreneurial Marketing; Entrepreneurial Accounting
Entrepreneurship in Practice
Midterm
Introduction to Legal Issues for Startups
Patents
Introduction to Raising Capital
Venture Capital; Term Sheets
Introduction to Business Plans & Elevator Pitches
Special Topics for Engineers: Disruptive Innovation; Technology Push vs. Application Pull
Special Topics for Engineers: University Technology Transfer
Entrepreneurship in Practice
Final Exam

Agenda Session 6
Market vs. Industry
Industry Analysis
Blue Ocean Strategy
Business Model Patterns

Integrated Suite of Tools

The Environment Map
Helps you understand the context in
which you create
The Business Model Canvas
Helps you create value for your business

The Value Proposition Canvas

Helps you create value for your customer
Business Model: describes the rationale of
how an organization creates, delivers, and
captures value.

Review: Business Model Canvas

https://

www.youtube.com/watch?v=wwShFsSFb-Y&list=P
LBh9h0LWoawphbpUvC1DofjagNqG1Qdf3

The Environment Map

Business models are designed and executed in

specific environments.
The external environment represents a design
space.
The external environment provides context in which to

conceive or adapt your business model.

Design drivers
New customer needs, new technologies, etc.
Design constraints
Regulatory trends, dominate competitors, etc.

Environment Map

Market vs. Industry

Industry: consists of sellers typically

organizations that offer products or classes of

products that are similar and close substitutes for
one another
Market: consists of a group of current and/or
potential customers having the willingness and
ability to buy products (goods or services) to
satisfy a particular class of wants or needs
Scale: size of market
Mass market: large portions of the population
Niche market: narrowly defined segment of the population that

is likely to share interests or concerns

Scope: geographic range covered by the market
Local to Global

TAM vs. TSM VS. Beachhead Market is

Not Sales!

Total Addressable Market: 100% of the market for type

of product you sell (e.g. all coffee drinkers in USA)

Total Serviceable (or Served Available) Market:
100% of the market you could actually sell to (e.g. all
coffee drinkers on-campus)
Target (Beachhead) Market: You initial most likely
buyers.
Sales Forecast: Bottom-up forecast of how much you can

sell given current or expected resources (e.g. # of

salespeople, hours of operation, etc.)
Marketing: everything that you do to reach and persuade

prospects (identifying and satisfying a customer need)

Sales: everything that you do to close the sale

TAM, TSM, Target market

Total
Addressable
Market

Total
Serviceable
Market

Target
Market

TAM TSM TARGET

NOTE: Not to scale!

Industry Dynamics: The Industry Life

Cycle*

* Katz & Green, Entrepreneurial Small Business, 3rd Edition.

Industry Life Cycle

Introduction stage
The life cycle stage in which the product or service is being invented and initially
developed.
Growth stage
An industry life cycle stage in which customer purchases increase at a dramatic

rate.

Boom
A type of life cycle growth stage marked by a very rapid increase in sales in a
relatively short time.
Shake-out
A type of life cycle stage following a boom in which there is a rapid decrease in the

number of firms in an industry.

Maturity stage
The third life cycle stage, marked by a stabilization of demand, with firms in the
industry moving to stabilize or improve profits through cost strategies.
Decline stage
A life cycle stage in which sales and profits of the firm begin a falling trend.

Retrenchment
An organizational life cycle stage in which established firms must find new
approaches to improve the business and its chances for survival.

Industry Dynamics: Automobiles

1896: the first gasoline powered automobile was manufactured and sold in the

United States.
By 1899: thirty manufactures sold about 2500 motor vehicles.
By 1909: over 450 companies entered the business.
1908: Henry Ford introduced the first mass-produced and affordable
automobile known as the Model T.
1908: General Motors was founded and within a few years acquired more than
20 companies including the Buick Motor Company, Olds Motor Works
(Oldsmobile), Elmore Manufacturing Company, Cadillac, and the Oakland
Motor Company (later known as Pontiac).
By 1929: 19.7 million passenger cars were in operation in the United States.
By 1936: GM claimed 43% of the US Market, Chrysler 25%, and Ford 22%.
By 1953: GMs CEO (Charles Wilson) would declare during his Secretary of
Defense confirmation hearing that be believed for years I thought what was
good for the country was good for General Motors and vice versa.
On April 30, 2009, Chrysler filed for Chapter 11 bankruptcy protection.
On June 1, 2009, GM filed for Chapter 11 bankruptcy protection.
In the end, the assets of Chrysler were effectively sold to Fiat and a new standalone GM corporation was created after shedding up to $80 billion in debt.

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Automobiles: Competing Technologies

Every steam carriage which passes along the

street justifies the confidence placed in it; and

unless the objectionable feature of the petrol
carriage can be removed, it is bound to be driven
from the road, to give place to its less
objectionable rival, the steam-driven vehicle of the
day.
William Fletcher (1904), Steam Carriages and Traction

Engines

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Market Forces
Market Issues
Identifies key issues driving and transforming your market
from customer and offer perspectives
Market Segments
Identifies the major market segments, describes their

attractiveness, and seeks to spot new segments

Needs and Demands

Outlines market needs and analyses how well they are
served
Switch Costs
Describes elements related to customers switching

business to competitors

Revenue Attractiveness
Identifies elements related to revenue attractiveness and
pricing power

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Industry Forces
Competitors (incumbents)
Identifies incumbent competitors and their relative strengths
New entrants (insurgents)
Identifies new, insurgent players and determines whether

they compete with a business model different from yours

Substitute products and services

Describe potential substitutes for your offers including
those from other markets and industries
Suppliers and other value chain actors
Describes the key value chain incumbents in your market

and spots new, emerging players

Stakeholders
Specifies which actors influence your organization and
business model

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Key Trends
Technology trends
Identifies technology trends that could threaten your
business model or enable it to evolve or improve
Regulatory trends
Describes regulations and regulatory trends that influence

your business model

Societal and cultural trends

Identifies major societal trends that may influence your
business model
Socioeconomic trends
Outlines major socioeconomic trends relevant to your

business model

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Macro-Economic Forces
Global market conditions
Outlines current overall conditions from a macroeconomic
perspective
Capital markets
Describes current capital market conditions as they relate

to your capital needs

Commodities and other resources

Highlights current prices and price trends for resources
required for your business model
Economic infrastructure
Describes the economic infrastructure of the market in

which your business operates

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Industry Analysis

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Forces Governing Competition in an

Industry

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Average Return on Invested Capital (U.S. Industries 1992-2006)

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Profitability of Selected U.S. Industries

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Threat of New Entrants into an Industry

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Bargaining Power of Suppliers

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Bargaining Power of Buyers

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Threat of Substitutes

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Rivalry Among Competitors

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Complements

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Possible Responses to Threats to

Profitability

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Six-Step Process for Analyzing an

Industry

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Some Possible Sources of Industry

Information

What is Strategy?
Strategy: The creation of a unique and valuable position,
involving a different set of activities.
Requires you make trade-offs in competing to choose what not to

do.
Involves creating fit among a companies activities.

The Firm
Goals and values
Resources and
capabilities
Structure and
systems

strategy

The Industry
Environment
Competitors
Customers
Suppliers

Strategy is not Operational Effectiveness!

Operational Effectiveness: Performing the activities of creating,
producing, selling, and delivering a product or service better (e.g.
faster, with fewer inputs, defects, etc.) than rivals.
*

HBS, Porter, 2000

Three Generic Strategies (Porter, 1980)

Three widely applicable classic strategies for businesses of
all typesdifferentiation, overall cost leadership, and focus.
Differentiation: creating something that is perceived
industrywide as being unique.
Many possible forms of differentiation: Design, brand image,

technology, customer service, dealer network, etc.

Provides insulation against competitive rivalry because of brand
loyalty by customers and resulting in lower sensitivity to price.

Overall cost leadership: offering a combination of cost

benefits industrywide.
A low-cost position defends the firm against powerful buyers

because buyers can exert power only to driver down prices to the
level of the most efficient competitor.

Focus: targets a particular buyer group, segment of the

product line, or geographic market with differentiation,

cost leadership, or both.

Blue Ocean Strategy

Red Oceans: represent all the industries in

existence today. This is the known market space.

bloody with competition (profits and growth are reduced)

Blue Oceans: all the industries not in existence

today. This is the unknown market space.

Potential of market space that is vast, deep, and not yet

explored
To seize new profit and growth opportunities, companies
need to create blue oceans

Blue Ocean Strategy (cont.)

Creators of blue oceans never use the competition

as their benchmark
They make it irrelevant by creating a leap in value for

both buyers and the company itself

Blue ocean strategy is based on the view that

market boundaries are industry structure are not

given and can be reconstructed by the actions and
beliefs of industry players
reconstructionist view

By stimulating the demand side of the economy,

blue ocean strategy expands existing markets and

creates new ones
More than just innovation, it is about strategy that
embraces the entire system of a companys
activities

Strategy Canvas
Both a diagnostic and an action framework for

building a compelling blue ocean strategy

Captures the current state of play in the known
market space
The horizontal axis captures the range of factors
the industry competes on and invests in
The vertical axis of the strategy canvas captures
the offering level that buyers receive across all of
the key factors (i.e. a high score means the
company offers buyer more)
Value Curve a graphical depiction of a
companys relative performance across its
industrys factors of competition

Example: U.S. Wine Industry

Stats (US market)
$20B annually
33rd in the world in per capita consumption
75% produced by top 8 companies, 1600+ wineries produce the rest
Competitive Factors
Price per bottle of wine
Elite, refined image packaging (e.g. medals won, esoteric
terminology)
Marketing to raise consumer awareness in a crowded market space
Aging quality of wine
Prestige of a wines vineyard and its legacy
Complexity and sophistication of a wines taste, including such
things as tannins and oak
A diverse range of wines to cover all varieties of grapes and
consumer preferences

Strategy Canvas of U.S. Wine Industry

(late 90s)

[yellow tail] Goals

Convert noncustomers to customers
How to make a fun and easy-to-enjoy wine for every day?

BOS: The Four Actions Framework

Eliminate-Reduce-Raise-Create Grid
[yellow tail]

The Strategy Canvas for [yellow tail]

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Blue Ocean Strategy: Cirque du Soleil

ELIMINATE

RAISE

Star Performers
Animal Shows
Aisle Concessions
Multiple Show Arenas

Unique Venue

REDUCE

CREATE

Fun and Humor

Thrill and Danger

Theme
Refined Environment
Multiple Productions
Artistic Music and Dance

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Blue Ocean Strategy: Cirque du Soleil