I originally wrote this article, “Venture opportunity screening” in November 2003.
An opportunity has been screened for the export of handcrafted goods from Singapore and the venture appears attractive. New technology and new business processes are used by the venture to provide small retailers of antiques clocks, gifts, handicrafts and home décor with handcrafted goods from Asia by 15 Kg air parcels, delivered in 7 days. The average value of each consignment is S$800 and credit card payment, with order, gives UK retailers 4 weeks to 7 weeks credit with the card company, whilst the venture is assured payment by VISA and Mastercard monthly. Direct mail and telemarketing are used to create and penetrate the market and bilingual staff are close to Asian suppliers and possess superior customer service skills.
A quick screening of the new venture identifies the potential market of small UK retailers and the gross margin is estimated to be 50%. The competitive advantages identified are identified as low fixed costs, control over costs, location and people advantages. The value created is 10% profit after tax and an IPO exit mechanism is foreseen after 3 years.
The opportunity concept takes advantage of the recent halving of prices for Transpacific freight and international call costs in the last couple of years and new techniques for receiving assured payment from international customers. The new venture strategy is to penetrate 10% of the market of UK retailers who sell antiques, clocks, gifts, handicrafts and home décor.
The market profile is of reachable customers who seek product variety. The competition is fragmented and market sizes are estimated as S$20M, S$80M and S$100M in the UK, US and Europe, respectively. The venture economics profile is of low capital requirements and favourable free cash flow characteristics. The time to break even is 15 months. The IPO exit mechanism is estimated to harvest S$2M for the founder in three years. The venture provides a good fit with the goals of the founder and a bilingual team will be created within the first 2 years of operation. Strategic differentiation from the competition is by superior customer service, use of technology, pricing and product quality. The market entry strategy is to create customer awareness that it is now possible to quickly receive quality Asian goods in small quantities at a competitive price from the newly formed company.
The reasons for making the company believe that the idea is an opportunity are concerned with the main components of customer need, premium pricing, underlying value creation proposition, market niche and product mix. Small UK retailers need a variety of high value products to differentiate themselves from the larger UK retailers and to compensate for their lower lever of sales activity. They are required to purchase goods in modest volumes from wholesalers and UK manufacturers to realize wholesale discounts and are prepared to pay a premium to reduce their investment in inventory. The new venture has an underlying value creation proposition of supplying UK retailers direct in more frequent, smaller volumes to reduce inventory and to take advantage of lower freight costs and international telemarketing call costs. The marker niche of UK retailers selling antiques, clocks, gifts, handicrafts and home décor is chosen to avoid dealing with the end-user consumer, whose average order value would be unlikely to exceed S$100, unacceptably increasing the administration costs. The product mix is carefully chosen to include only those items whose sales price to weight ratio is high, to ensure low air parcel distribution costs (as a percentage of the selling price%
An opportunity has been screened for the export of handcrafted goods from Singapore and the venture appears attractive. New technology and new business processes are used by the venture to provide small retailers of antiques clocks, gifts, handicrafts and home décor with handcrafted goods from Asia by 15 Kg air parcels, delivered in 7 days. The average value of each consignment is S$800 and credit card payment, with order, gives UK retailers 4 weeks to 7 weeks credit with the card company, whilst the venture is assured payment by VISA and Mastercard monthly. Direct mail and telemarketing are used to create and penetrate the market and bilingual staff are close to Asian suppliers and possess superior customer service skills.
A quick screening of the new venture identifies the potential market of small UK retailers and the gross margin is estimated to be 50%. The competitive advantages identified are identified as low fixed costs, control over costs, location and people advantages. The value created is 10% profit after tax and an IPO exit mechanism is foreseen after 3 years.
The opportunity concept takes advantage of the recent halving of prices for Transpacific freight and international call costs in the last couple of years and new techniques for receiving assured payment from international customers. The new venture strategy is to penetrate 10% of the market of UK retailers who sell antiques, clocks, gifts, handicrafts and home décor.
The market profile is of reachable customers who seek product variety. The competition is fragmented and market sizes are estimated as S$20M, S$80M and S$100M in the UK, US and Europe, respectively. The venture economics profile is of low capital requirements and favourable free cash flow characteristics. The time to break even is 15 months. The IPO exit mechanism is estimated to harvest S$2M for the founder in three years. The venture provides a good fit with the goals of the founder and a bilingual team will be created within the first 2 years of operation. Strategic differentiation from the competition is by superior customer service, use of technology, pricing and product quality. The market entry strategy is to create customer awareness that it is now possible to quickly receive quality Asian goods in small quantities at a competitive price from the newly formed company.
The reasons for making the company believe that the idea is an opportunity are concerned with the main components of customer need, premium pricing, underlying value creation proposition, market niche and product mix. Small UK retailers need a variety of high value products to differentiate themselves from the larger UK retailers and to compensate for their lower lever of sales activity. They are required to purchase goods in modest volumes from wholesalers and UK manufacturers to realize wholesale discounts and are prepared to pay a premium to reduce their investment in inventory. The new venture has an underlying value creation proposition of supplying UK retailers direct in more frequent, smaller volumes to reduce inventory and to take advantage of lower freight costs and international telemarketing call costs. The marker niche of UK retailers selling antiques, clocks, gifts, handicrafts and home décor is chosen to avoid dealing with the end-user consumer, whose average order value would be unlikely to exceed S$100, unacceptably increasing the administration costs. The product mix is carefully chosen to include only those items whose sales price to weight ratio is high, to ensure low air parcel distribution costs (as a percentage of the selling price%
