Wall Inc.

Hi Elisey,

I would personally not recommend to use a single framework for all the so-called business situations (M&A, Entry, New product, Operations etc). Although this would help to more easily remember the framework, it would make more difficult to present a customized structure when the interviewer asks the initial question. Moreover, since every business situations has some peculiar key elements (eg how to enter in a market-entry case, price valuation in M&A, etc), this could lead to completely miss one core bucket.

Based on my experience, it thus make sense to make the extra effort to learn 3-4 different structures for business situations (potentially with some elements in common), and be able to present from the beginning something ad hoc when needed.

Moving to the framework per se, using as an example market entry, this is how I would structure it:

1) Goal clarification. It is always good to start with the end in mind – thus what is the specific reason why you want to enter the market? Is it revenues, profits or specific synergies?

2) Industry. There are two macrovariables here.

• Key industry numbers/facts. This includes for the market and potential subsegments the following
  • Growth
  • Size
  • Barriers to entry
• Key industry players. This includes:
  • Customers segmentation
  • Competition
  • Occasionally for some cases: suppliers and substitutes.

You should present this area connecting with the goal, and not purely listing the elements to analyse as if it was a laundry list. The best way to do so is explain how a certain variable will help you to achieve you goal. Eg, if your goal is to increase revenues, don’t simply say “I want to look at growth, size and barriers”, rather “I want to look at growth and size – this will tell me if the market has the potential to provide enough revenues for our client. I would also like to check the barriers, to understand which are the obstacles in entering such a market and thus increase revenues”.

3) Company - Target objective feasibility. Here you want to check the fit between the client and the selected industries.

• Can our specific client reach its objective in the selected market (eg profits, revenues, market share, etc)?
• Are there positive or negative synergies in such industry?

In the first point, you will probably have to go through a profitability/revenue/cost framework, to calculate the effective result.

4) Best way to enter. Once you know the industry is attractive and you can reach you goal, you should consider the entry options.

• Which are the possible ways to enter the market? Usually you should consider (i) starting from scratch; (ii) M&A; (iii) Joint Venture or licencing
• Which option meets better our capabilities to enter the market? Each specific way to enter will require some different capabilities. If you start from scratch you may need skilled people in all the phases of the value chain; if you buy another company you may need less people, but more upfront capital, etc.

5) Risks and next steps. What are the major elements that we should further analyse based on the previous points (eg regulator decision, unexpected competitor reactions, potential wrong pricing in the new market, etc)?

This would include all important market metrics, presenting barriers to entry into the industry. I would not consider the price or the product in the first or second level for a market entry, but rather as a possible third level once reached step 3, when we have to understand if/how we can meet the client's goal.

Hope this helps,

Francesco

Hi,

The general framework for pricing is: Cost base - Value based - Competitor based - pricing strategy

1. Cost based - you actually check what are the costs and apply standard industry / target markup

2. Value based pricing can be done in 2 ways:

• For existing products you compare the value proposition and features of your product vs. the VP of your competitors. If you have a significant difference in value prop - you have to define how much value you propose to the customer in $ terms.
• For new products you have to calculate the value of the closest alternatives and think how much additional value we provide by replacing them. Think of the discount airlines compared to trains or buses

3. Competitor based pricing - basically it's benchmarking against competitors. Make sure you take into account the segment (i.e. in premium higher price may be the proxy for quality)

4. Pricing strategy - here you define how you will price the product taking into account 1,2,3 and your company strategy. Maybe you decide to have a zero margin if you can crossell other services. Or maybe you would like to subsidize to win the competition. Also think of price differentiation and having different pricing tiers (e.g. basic, premium or even fremium) and how it helps to drive price perception and fulfill strategic goals

Good luck!

Hi,

Before I frame, just want to point out that this case is a PERFECT example of why it's so important to be well-read. If you've been following the news, you'll know that the Marriott has recently announced it's response to Airbnb:

https://www.cntraveler.com/story/marriott-will-now-rent-out-homes-and-apartments

However, while it's good to note and leverage, don't let it limit your thinking.

There's a few ways to frame this question, and it ultimately comes down to preference, but the main focus (which is worth clarifying to be sure of the objective) is: Is AirBnB a threat, and if so, how do I stop it from poaching my existing customers?

Option 1 - Benchmarking, competitor comparison

1) AirBnB

• What is their value-offering?
• What is their demographic of customers (young, old, rich poor, leisure, business) - note, we have hypotheses here from both our knowledge and the case i.e. they're grabbing leisure travellers who have higher price elasticity
• What is the demographic trend (not just current state but growth areas)
• How does the value-offering match the customers?
• What are they doing well/right?

2) Our company

• What is our value-offering
• What is our demographic
• What is the demographic trend (not just current state but growth areas)
• How does our value-offering match our customers
• What are we doing well?
• What are we doing wrong?
• Speficially, what customers are leaving and do we know why? (What is value mismatch)

For this, I'd try and see if we have any exit surveys, data from comparison and review sites, etc.

The objective is to look at the value offering mismatch and see where we can match AirBnB's (either through enhancing existing services or creating new ones. We also need to consider cost).

Option 2 - Internal review. Focus: Rate of change of demographics

1) Customers leaving

• What demographics are leaving? Are they leaving quickly and/or at an accelerating rate or is it manageable? (Case says some leisure travelers...is some acceptable?)
• Do we know why they're leaving?
• Are they are large part of our profit? If so, we need to fix this. If not, maybe we can afford to focus efforts elsewhere.
• Can we make adjustments to our offering to stem/reverse this trend? If so, are these adjustments worth the cost?

2) Customers steady/growing

• What demographics are steady/growing?
• Do we know why?
• Are they a large part of our profit?
• Can we accelarate this growth? Is it worth the cost?

3) No customers

• Have we overlooked a major segment?
• Can we take customers from AirBnB that we never had?
• Is this worth it? Would there be larger margins? Can we counter-act the loss of other demographics?

Ultimately, we want to know 1) Are we losing an important part of our business (i.e. a large % of customers AND/OR a high margin base)?

a) If yes, can we stop/mitigate this? What can we offer that counteracts AirBnB's offering? Can we also counteract this with growth elsewhere?

b) If no, perhaps minimal action required - let's focus efforts on growing where we operate best.

Hope this helps!

Broadly agree with Jonathan. A couple extra suggestions:

1) Subscribe to Finimize: They will send you daily updates with recent business/finance news, and explain what is happening (and why) in Layman terms. It's an excellent way to both stay up to date with most recent events in a couple of minutes (e.g. on the commute to work) and also improve your business acumen.

2) Read up on some basic business/microeconomics: Any decent first year of University or even advanced highschool economics should do - to get the basics and understand some key terms (e.g. economies of scale, breakeven point, etc.)

3) Also read through cases to further improve if you run out of cases to watch/listen to

Hope this helps!

Hi,

There are two ways to use the hypothesis:

First - presenting a structure using the hypothesis. For example, if you are having a PE (private equity) case, you should do the following:

1) Make classic structure (market, company, competitors, feasibility of exit)

2) Make subpoints (e.g. in market: size, growth rates, profitability, segmentation, etc)

3) Present your 1st level Hypothesis:

• - "In order to understand whether we should invest in Company A, I would like to check that the Market is Attractive, the Company is Attractive, the competition is favorable and we have good opportunities for of exit"

4) Present the main 2nd level Hypothesis:

• "In the market, I would like to make sure that the market is big enough and growing;
• In the company I would like to find additional opportunities for growth;
• In competition I would like to check that the market is fragmented enough;
• Finally, I would like to check if we have potential buyers and can achieve desired exit multiples"

Another way to use hypothesis is using the hypothesis to prioritize your analysis:

1) Make a structure: "Problem in sales may be related to Sales Motivation, Sales Strategy, Sales Coverage, and Sales Process:

2) Prioritize a part of the structure based on your knowledge / common sense / available data: "Taking into account that motivation is the core problem of the sales organization, I would like to prioritize this part of the analysis"

Good luck!h