Anti-lean Entrepreneurship--industry Analysis and Competition analysis: scale is the most

The leaders of start-ups and investors ' preference for size are natural, and they want businesses to explode quickly. And lean entrepreneurship also has a core view is: When the MVP after the so-called market validation is effective, it is necessary to quickly start, go all out to expand business! So these ambitions are also clearly in their business plan, ask, who do not want to let the business grow fast? Who doesn't want to expand? So entrepreneurs and their investors always like to say, "Should we step on the accelerator?" ”

Therefore, it is necessary for us to study the proposition of high speed starting and enlarging scale from macroscopic point of view, because many "big and fast" business plan in actual combat, actually is fatal to many startups.

First of all, Dr.2 needs to elaborate on the concept of economics-scale returns, which is important to us to see if we can accelerate growth. In addition, we need to have a deep understanding of another economic concept that is often confused with scale returns-economies of scale.

I. Scale returns and economies of scale

The scale income refers to the change of output/income brought about by the same proportion of the internal factors of production when the other conditions are unchanged. The problem he studied was that when production resources increased according to a certain proportion, the proportion of their product output or income would increase according to the percentage, which could be divided into three categories.

Increase in scale returns: if the yield/yield growth rate is faster than the growth rate of various production factors, then the production function is increased in scale. By the same token, the diminishing scale returns and the fixed scale income. (Visible schematic 1)

Figure 1

Overall, a manufacturer of large or too small production scale is unfavorable, each manufacturer should be based on their own characteristics to determine a moderate scale. The firm chooses the principle of moderate scale, is to make the production scale in the fixed stage of scale income as far as possible. If a manufacturer's scale gains are incremental, it means that the manufacturer's production scale is too small, and it should normally be scaled up to achieve greater scale returns until the scale returns are fixed. If a manufacturer's scale returns are diminishing, the manufacturer's production scale is too large and should shrink to reduce losses. This is, of course, a normal decision in the "perfect market for the ideal" situation, but there is no consideration of the opponent's competitive game and other opposing strategies to maintain market position.

The scale economy refers to the increase of the Enterprise's unit cost due to the improvement of the production specialization level, and thus the economy that the long-term average cost of the enterprise decreases with the increase of production.

So we have to separate the economies of scale and the scale of income, and we must not confuse them.

Ii. growth dynamics and constraints of start-ups

If a start-up relies on a network effect or a strong economies of scale to increase the scale of returns, Dr.2 believes he will have a strong incentive to compete for customers in the market. In addition, if they are engaged in the industry, have a higher customer switching costs, then also should do their best to quickly obtain customers. Or have some first-mover advantages, such as seizing scarce resources or having some kind of technology patent.

Of course, we must also know what is likely to dispel these advantages, that is, expansion restrictions and later advantage.

As we know, in the mature market, most of the business performance is fixed scale income. That is, in a company's reasonable sales volume changes, their profits will not produce a big rise or fall. In this type of business, scale gains may be offset by economies of scale, which may include:

1 additional costs to coordinate more complex operations;

2 rising costs due to increasingly scarce resources (skilled staff, etc.).

So what kind of business has a strong economies of scale? Generally this business needs to have a strong network effect, or the ability to maximize the use of its fixed costs, that is, reflected in the incremental scale of income, and as the scale of expansion, the user will often pay more and more. The advantages of getting a new customer when the production is greater and the lower the unit cost are:

1 new customers will introduce more customers, reduce marketing costs
2 Direct new users to earn profits.
3 The future from the expansion of the base, to earn all users profit.

As an example of a network effect, as long as a new user is willing to stay on the platform, other users may be willing to "a little bit" to access the platform, although such a small increase is very trivial, but from the perspective of the entire customer base, add up to a considerable amount.

So, in the business of increasing the scale of income, the total cost that a start-up can pay most is the "discounted value" (benefit 2) of future profits directly earned by the new user, and the "discounted value" of the new future profits obtained from all other customers (benefits 3).

Conversely, if a business has only a fixed scale benefit, the enterprise can only pay the "discounted value" (benefit 2) of the future profits directly earned from the new customer.

For example: A customer's life cycle is 4 years, enterprises are expected to receive 100 yuan in the future every year, and the average cost of social loans is 10%, then the first year the enterprise from the customer's current value of profit is 100 yuan, the second year the enterprise from the customer to obtain the present value of profit =100/(1+10% = 90.9, the third year the enterprise from the customer to obtain the profit the present value =100/(1+10%) 2=82.6, the third year enterprise obtains the profit from this customer the present value =100/(1+10%) 3=75.1, then 4 years enterprise altogether can derive from this new customer directly the present value of future Profit = 100+90.9+82.6+75.1=348.6 Yuan, that is, the enterprise will spend at most 348.6 yuan to obtain customers.

So if you study the theory carefully, you will understand why the high valuations of internet companies, why TMT Enterprises will spend so high cost to obtain a new customer, this is not what God-like "internet thinking" only, but based on very basic business thinking, reasonable input-output ratio analysis. Even in the case of a large amount of bat, there are data analysis aids before large-scale subsidy decisions (recommended new book "Tencent Method"), if you think they are brain residue, people stupid money, then can only show that you read less naïve, the big capitalists will have Lei Feng?

However, when several enterprises enter the new market at the same time, if they have increased scale returns, and the development strategy are more radical, then the increase in the scale of income generated higher than normal profits, it is likely to be cruel game, mutual bidding offset. This is because if you overdo it, you reach your opponent's boundaries, and then you compete and you scramble for resources and customers, and there's an "expansion limit"! Of course, from within the enterprise, as the volume increases, there will be "expansion restrictions." For example: are our production and customer service capabilities able to handle the amount of pressure that comes with rapid growth? Similarly, the acquisition of trained staff is not easy, but also limits the growth of start-ups, because it is difficult to train people.

When the enterprise is produced with standard equipment, the scale is still easy to improve, but if the use of non-standard equipment to produce and distribution, rapid growth is challenging. For example, US start-up Webvan, who want to build highly automated warehouses to deal with their online shopping, is at risk of having to invest heavily in capital, non-standard business process design and cost control before coping with high-growth sales. We know that online shopping was a new market 15 years ago, the risk is great, because the customer needs, the size is not sure, but Webvan before finishing the detailed industry research, because of the most crazy era in history and some accidents, access to huge financing, so they gamble, The result is that after spending 800 million of dollars on investors, bankruptcy collapses. And 15 years ago the purchasing power of 800 million dollars, the equivalent of now 3 billion more than Oh! So who tells you that the overall amount of financing will be successful?

1 Reverse engineering to reduce research and development costs. Some companies are protected by patents, but others cannot prevent rivals from mimicking their products. If the cost of research and development is compared with the pioneer, the cost of reverse engineering research will be greatly reduced.

2 Leap-forward transcendence (new invention, or better craftsmanship level). The latter can use the new technology to gain the cost and performance advantage, which is often the forerunner in the introduction of the product does not have.

3 by the pioneer customers to cultivate the downwind car. In the early stages of a new market, the investment in nurturing and educating potential clients cannot be underestimated, and the forerunners may find themselves nurturing potential customers at a cost of 100%, while giving the latter a better return, and those who are not obligated to share the costs.

4 Avoid the wrong position of the forerunner. In a new market, the forerunners often face the uncertainty of the user's needs. At this point they want to constantly change and adjust the business model. If an enterprise changes the problem dramatically, it is possible to destroy the goodwill established on the original users, resulting in the loss of customers. The latter can learn from the lessons of the pioneers and avoid many mistakes.

Overall, the latter advantage is more obvious. Usually one of the industry's largest leaders, often not the first to eat crabs, but a large number of lean entrepreneurial combat projects, the general will highlight their first advantage and market gaps. But countless histories have proved this, and if entrepreneurs are ecstatic about declaring their "unique" to investors, 99% will be cannon fodder. This is also a large sample of statistics found that lean entrepreneurial failure rate is the same high reason. Ridiculous is a lot of lean entrepreneurial society and universities, have invited these experts to teach and guide students, and then the experts themselves to do a mess, teaching pull members have earned a lot of money! There are many itinerant "internet thinking" speakers, their own continuous bankruptcy of several enterprises, by advocating "millet mode is good", and shake the body into a "successful tutor"!

In fact, Google is not the first to do search engines, Apple is not the first smartphone, Ali is not China's first to do the electricity business, Tencent is not the first to do instant messaging products, such examples are countless. In fact, when the successor found that the pioneer in the unknown market lost direction, is the perfect opportunity to surpass, so we should pay special attention to industry analysis and competitive enterprise analysis. Information collection and deep excavation, has become a commercial competition in the "fourth" strength, often even decisive!