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Last updated: Saturday, May 19, 2007

Evaluation of a Business Ideas and Business Models

Much MBA analysis of businesses follows the harvard model.

The old harvard model  bases  the evaluation of a business idea upon the following forces, sometimes known as Porters forces.

Supplier Power

Customer Power

Barriers to entry

Barriers to exit

AFTER THIS WE WILL PRESENT OUR VIEW

Business Idea Evaluation- Supplier Power

In any good business neither customers nor suppliers are too powerful.

Consider reselling mainstream sportswear for example. The big brands Nike, Adidas, Asics are so powerful, that the distributor or reseller has no power at all. If the brands demand a set of terms, the business is powerless to argue.

However , it does depend on the business you are in. If you are an offlicense - Interbrew are very powerful. If you are a discount supermarket, you dont necessarily need all of the brands. Just a good deal on one of them: and in any event you are not reliant on alcohol for profit. So a supermarket bows less to the supplier power than an offlicense.

Supplier power is one reason why franchises are not nearly as good a model as they are held up to be.

Business Idea Evaluation- Customer Power

If customers are too powerful, the business can be a problem too. If you make equipment for steel mills - you are restricted to very few customers, and so the customers can weild too much power.

Business Idea Evaluation- Barriers to entry

Anyone can set up to become a window cleaner. There is not a skills barrier, intellectual property, not even a cost of entry. For that reason window cleaning has no barrier to entry at all. The best businesses have a barrier that prevents too many competing.

Business Idea Evaluation- Barriers to exit

The final hallmark of a good business is one which can be exited with no cost. A failing retail business stuck with a lease, or a business with massive specialised machines has a problem of exit.

Business Idea Evaluation- An ideal business based upon this forces

An good business based upon these forces is Microsoft:

The barriers to entry, based upon brand building and intellectual property is massive

Customers have no power, since they are locked into using the products, and there would be a large cost in training to change

Suppliers - there are no critical suppliers! all is created on the premises.

Only barriers to exit could be a problem, with so many years of staff entitlements

BUT WE DONT AGREE! - HERE IS WHAT WE THINK MAKES A GOOD BUSINESS

Business ideas, what really makes a good business

No or low investment

No geographic constraints or barriers

No opening times, or times when you must be there.

No or low infrastructure

Multiple streams of income.

Income starts immediately

Very high profit margin

In one way or another some of those impact on porters forces: high profit margin tends to reduce supplier power

And the only business that meets these criteria is home based internet and direct marketing

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