lecture 3: opportunity evaluation

venture opp. DFV

desirability - human pov (does market want it)
feasibility - tech pov (can we build it)
viability - business pov (can it be profitable)

market attractiveness mullins quadrant

pestal
TAM/SAM/ SOM sizing
change, problem, need
(size/growth of market, rate of early adoption, niche proposition or mainstream)

hockey stick growth curve (bobby martin 2016)

adoption curve (crossing chasm geoffrey moore 1991)

RTR critique (market attractiveness)

focused on second-hand market in general growing fast, RTR is actually subscription-based second-hand clothing rental (slower, lower CAGR)
misled investors about TAM/SAM/SOM by displaying broader, inaccurate market

TAM/SAM/SOM

market attractiveness
TAM: total addressable market (max possible market w100% share)
SAM: service addressable market (slice of TAM business model can actually reach)
SOM: service obtainable market (realistic share you can actually capture in short term)

hockey stick growth curve (bobby martin 2016)

market attractiveness
- tinkering: founders quietly explore idea while still working day job
- blade years: founders commit fully, v low rev, flat like hockey stick blade
- growth inflection point: business model honed and rev turns sharply upward
- surging growth: accelerating growth + new complexities of scaling

adoption curve (crossing chasm geoffrey moore 1991)

market attractiveness

innovators, early adopters, early majority, late majority, laggards (chasm b/w early & late maj)
positioning statement
- for (target cust - beachhead segment only)
- who are dissatisfied with (current market alternative)
- our product is a (prod category)
- that provides (compelling reason to buy)
- unlike (prod alternative), we have assembled (key features)

industry attractiveness

five forces
industry life cycle
s-curve & disruption
red ocean v blue ocean (existing saturated market vs new market)
creative destruction / accumulation

industry life cycle

(industry attactiveness)

emergence - new prod, uncertain demand
growth - demand takes off, competitors arrive
maturity - growth slows, consolidation
decline - substitutes displace category

where industry sits changes attractiveness of it

s-curve

(industry attractiveness)
each tech follows S-shaped performance curve
incumbents stay on existing S-curve too long bc next S-curve looks unattractive early on

creative destruction & accumulation

(industry attactiveness)
creative destruction - entrepreneurs enter w new ideas, disrupt and replace incumbents
creative accumulation - incumbents defend themselves using incumbency (scale, distribution, patents), so new entrants fail

RTR critique industry attractiveness

mentioned broad trends but never addressed actual five forces (designer supplier power, new entrants Nuuly and Armoire, intense rivalry, substitution risk)

target segment benefits & attractiveness

value prop - firms offering in direct relation to specific cust segment
VCs look for 5x (5x faster, cheaper, better than alternative)

RTR target cust segment benfeits

access to designer clothes for fraction of the price ($4000 vs $144) 
women in 20s - 40s, 80% have high income, 75% are time-poor, 55% said social media makes them conscious

counter argument: people may want to own essentials, stock-outs, limited variety, multiple customers wanting same dress at same time

competitive & economic viability

1) sustainable comp adv:
proprietary resources / control of resources
network effects
switching costs/lock-in
economies of scale
brand & reputation
first-mover adv
VI

2) economic viability:
rev model (who buys? how often? at what price? retention?)
gross margin model (rev after direct costs)
operating model (expenses beyond COGS)
working capital model (liquidity - receiving cash, inventory, supplier payment)
investment model (how much cash can you burn upfront before cust cover costs)

RTR economic & competitive viability

partnered w 800+ designer brands, bought clothes wholesale & rents for less
2015: one-time rentals too exp → moved to subscription for recurring rev & attract older wealthier cust
2020/2021: covid losses (50% of subscribers) - trend to casual workplace dresscode
2021: IPO - stock dropped
new entrants (nuuly, armoire) attacked at lower price points, not VI so lower inventory costs, offered newer & fresher ranges

team (feasibility)

mission, aspirations, risk tolerance
- commitment to team & venture, goals, personal values, risk

ability to execute on CSF
- resources/capabilities? scale?

connectedness across value chain
- r/s w suppliers, distributors, cust, investors, key stakeholders

RTR mullins

graph