The break-even analysis is a practical tool that directs one’s attention to important business issues such as selling prices, costs and sales volumes. The break-even point is the point at which revenue is exactly equal to costs. Meaning at this point, no profit is made and no losses are incurred. The break-even point can be expressed in terms of unit sales or currency (CHF) Sales. That is, the break-even units indicate the level of sales that are required to cover costs. Sales above that number result in profit and sales below that number result in a loss. The break-even sales indicate the money of gross sales required to break-even. On a broader term, the Break-even analysis can also denotes a system of analysis that can be used to determine the probable profits at any level of activity.
Competitor analysis can be a vital part of strategic planning for start-ups. It is crucial practice of analysing the competitive environment in which a start-up wishes to operate within a chosen industry. Competitor analysis may render a good positioning of the business within the existing main rivals in the market. In addition, competitor analysis facilitates an insight into the market for the purpose of understanding the main competitors and the gap in the market.
Growth Share Matrix / BCG Matrix
Growth share matrix or BCG matrix was designed by the Boston Consulting Group in the 1970s. The method is well known for product portfolio planning, based on the concept of the product life cycle. It is based on the observation that a company’s business units can be classified into four categories based on combinations of market growth and market share relative to the largest competitor, hence the name “growth-share”. Market growth serves as a proxy for industry attractiveness, and relative market share serves as a proxy for competitive advantage. The growth-share matrix thus maps the business unit positions within these two important determinants of profitability. This may form an important element for a start-up when determining priorities for a product portfolio.
Market analysis: Porter’s five forces
The Porter’s five forces model is essential in determining and understanding where power lies in a business situation. This may be enlightening in trying to understand both the strength of the current competitive position, and the strength of a position the start-up intends to move into. The model is based on five fundamental competitive forces that determine the relative attractiveness of an industry: new entrants, bargaining power of buyers, bargaining powers of suppliers, substitute products or services and rivalry among existing competitors.
PESTEL Analysis is a simplified and vital as well as widely used tool that helps you understand the big picture of the Political, Economic, Socio-Cultural and Technological, Environment and Legal framework in which the business is operating in. PESTEL a well-known model used in establishing the vision of the future. The tool is useful for understanding the ‘big picture’ of the environment in which the business is operating, and for thinking about the opportunities and threats that lie within it. By understanding the business environment, it that an entrepreneur may take advantage of the opportunities and minimise the threats.
In the contemporary business world, almost everything involves a risk of some kind: customer habits change, new competitors appear, and factors outside your control could delay your project. However, formal risk analysis and risk management may assist to assess these risks and decide what actions to take to minimise disruptions to the business plans. Risk analysis may also assist in deciding whether the strategies to be used can control risk and- are cost-effective.
Albert Humphrey devised SWOT Analysis in the 1960s. It is one of the most useful techniques that may be applied in order to understand and assess the business’ strengths and weaknesses, and to indentify the opportunities and threats faced. SWOT is an acronym that stands for: S – Strengths W – Weaknesses O – Opportunities T – Threats
The McKinsey 7S Framework
Two consultants working at the McKinsey & Company consulting firm, Tom Peters and Robert Waterman developed the McKinsey 7S framework in the early 1980s. The basic premise of the model is that there are seven internal aspects of an organisation that need to be aligned if it is to be successful. The model is perceived as a diagnostic tool utilised for effective holistic organisation.
The Value Chain
Michael Porter came up with the concept of the value chain. In his influential 1985 book “Competitive Advantage”, he instigates that understanding how company creates value, and looking for ways to add more value, are critical elements in developing a competitive strategy. The premise is that taking into account the value chain activities a company performs when delivering value to the customers derives cost advantages and product/service differentiation.
Benchmarking refers to the comparison of organisational processes and performances based on predefined indicators in order to create new standards and/or improved processes. It enables start-ups to compare themselves with established businesses in the same market for the purpose of improving and prompting innovation. Essentially, the technique may facilitate a start-up to compare its existing performance and approach to others existing businesses, and thereof identify elements that can be adapted in its business context. In general, benchmarking may also assist both start-ups and existing businesses to better understand how competing firms operate in their chosen industry.
Alex Osborn, founder of the Creative Education Foundation and an advertising executive, is said to have popularised brainstorming as a management techniques in the early 1940s. He defined brainstorming as “a conference technique by which a group attempts to find a solution for a specific problem by amassing all the ideas spontaneously thought of by its members”. Brainstorming boots creativity and facilitates the process of generating within a short period of time. It may take place in a form of a semi-structured business meeting whose main purpose is to come up with new ideas – a process which scientific research has proved to be highly productive in individual effort as well as group effort. A brainstorming session generates a quantity of ideas with each idea full of potential. The generation phase is separate from the judgement phase of thinking . To be more effective, brainstorming requires a trained facilitator and some basic ground rules. Brainstorming is normally based on four basic rules: Participants should be encouraged to come up with as many ideas as much as possible, regardless of how preposterous they might initially be. Freewheeling is encouraged. No criticism should be voiced against any idea until the end of the session. J23Participants should be encouraged to build on each other’s ideas.
The concept of brainwriting is considered very similar to that of brainstorming. However, brainwriting is perceived to be much more effective as it involves all participants on an equal basis. Both introverts and extroverts may participate and more ideas are considered to be produced in less time. In particular, the aim of brainwriting 6-3-5 is to generate 108 new ideas in half an hour. In a similar way to brainstorming, it is not the quality of ideas that matters but the quantity. The technique involves 6 participants who sit in a group and are supervised by a moderator. Each participant thinks up 3 ideas every 5 minutes. Participants are encouraged to draw on others’ ideas for inspiration, thus stimulating the creative process. After 6 rounds in 30 minutes the group has thought up a total of 108 ideas. Brainwriting gives everyone equal opportunity to participate, and it enables all group members to think without any ‘blockages’.
Core Competencies Analysis
The idea of “core competences” is one of the most important business ideas currently shaping the business industry. It is one of the fundamental ideas that underline the current trend of outsourcing, as businesses concentrate their efforts on things they do well and outsource as much as they can of everything else. A core competence refers to unique activities that a company has or can do strategically well. The basis of the model is based on a business inimitable and valuable assets both tangible and intangible as key aspects of an organisation’ sustainable competitive advantage.
The cost/benefit analysis is based on evaluating quantitatively whether to follow a course of action. This may be useful to avoid in investing a lot of time and money in solving a problem that is not worthy of the effort.
Techniques outlined earlier in this section focus on specific aspects of decision-making and creative thinking. DO IT bundles them together, and introduces formal methods of problem definition and evaluation. These help you to get the best out of the creativity techniques. DO IT is a process for creativity that will help to get the best out of the creativity techniques. DO IT technique was devised by Robert W Olsen in his book ‘The Art of Creative Thinking’. DO IT is an acronym that stands for: D – Define problem O – Open mind and apply creative techniques I – Identify best solution T – Transform
The Morphological Box is a morphological-analytical creativity technique developed by the Swiss astrophysician Fritz Zwicky. Through the clear combination of possibilities or properties, new ideas are generated. This method may be extremely useful when the factors involved are non-quantifiable, since they contain strong social-political dimensions and conscious self-reference among actors – especially where traditional quantitative methods, causal modelling and simulation are impossible to be applied. The technique may be employed to map out all the combinations of potential solutions that address the essential parts of a problem.
Root Cause Analysis (RCA)
The premise of root cause analysis is to trace the problem back to its origin. It is based on the belief that if only symptoms are fixed, in the sense of what you see on the surface, the problem will almost certainly happens again. This may cause dealing with the problem again and again. The technique encourages a deeper analysis of the problem in order to figure out why it occurs so that the underlying systems and processes that cause the problem may be fixed.
SCAMPER is a checklist that helps you to think of changes you can make to an existing product to create a new one. You can use these changes either as direct suggestions or as starting points for lateral thinking. Bob Eberle developed this technique, and the changes SCAMPER stands for are:
S – Substitute – components, materials, people.
C – Combine – mix, combine with other assemblies or services, integrate.
A – Adapt – alter, change function, use part of another element.
M – Modify – increase or reduce in scale, change shape, modify attributes (e.g. colour).
P – Put to another use.
E – Eliminate – remove elements, simplify, reduce to core functionality.
R – Reverse – turn inside out or upside down
Starbursting is a form of brainstorming that focuses on generating questions rather than answers. The premise of starbursting is to understand new ideas by brainstorming systematic and comprehensive questions. By asking valuable questions and challenging an idea, it is assumed that all of the relevant aspects of the idea have been considered before implementing an idea. Hence, the model gives assurance that all the gaps and loopholes are filled before an idea is put into action. For example, an entrepreneur coming up with a new business idea may encounter constructive questions such as what differentiates your business idea? How much would it cost? Where would you market your products? Who would buy your products? Why would they buy the products?
The 6 Thinking Hats
Edward de Bono in his book the “6 Thinking Hats” created this effective tool, which represents six ways of thinking about strategies or seeing things from 6 different perspectives. 6 Thinking Hats may be used to look at decisions from a number of different perspectives. It is said to be an effective tool in influencing one to move outside from the habitual ways of thinking. Thus, it helps to understand the full complexity of a decision, and may spot issues and opportunities, which might not be easily noticed. The technique promotes different styles of thinking, in order to look at a problem from all of its different angles.
The Market Segmentation
Market segmentation is based on the identification of portions of the market that are different from one another. It enables the firm to better understand and satisfy the needs of its diverse customers. It is assumed that different customers have different needs, and it rarely is possible to satisfy all customers by treating them alike. Market segmentation involves dividing up the potential market for a product into groups of people who have similar needs, and then addressing these needs in a focused way.
The Reframing Matrix
Michael Morgan in his book, “Creating Workforce Innovation” devised this effective tool with the premise of looking at problems from a different perspective. The assumption is that different people perceive and understand the world distinctively hence, their approach to problems. Thereby, understanding their experiences may expand the range of solutions that one might devise in order to address a particular question or problem. The reframing matrix is a simple technique that helps examine problems from distinct viewpoints. It expands the range of creative solutions that can be generated.
This post is also available in: De