This framework will also help identify the ‘WHY’ behind such outperformance. For those who wish to own, run, or analyze any business, this 9 Important framework for Every Startup to guide their analysis without being overwhelmed by the volume of raw data presented.
Starting in any industry or venturing into an idea for investment requires thorough research to understand the variables of the business.
These 9 important framework helps to achieve this. They also help to understand the basic characteristics of the industry, its attractiveness, and the key success factors for firms within the industry. The framework constantly provides questions that help one think objectively about the industry.
Here’s the 9 important framework:
Value Proposition: The value proposition helps to understand the product-customer fit and the value created. This can relate to a specific industry based on what value the industry creates or a specific firm. Each firm can tweak its value proposition to create a source of differentiation. Each new idea should be understood based on the value it would create and the product-customer fit it would generate. For startups, this is no easy task, but understanding the product and customer helps define the value proposition.
Business Model: The business model refers to how money is earned and spent and the manner in which activities are carried out to create value. Business models evolve over time, usually as a result of a series of small decisions rather than one conscious decision. Some firms may deviate from the basic model and do things differently. Business models can include ads, subscriptions, pay-per-use, purchases, and so on.
Broad Industry Analysis: This stage focuses on the industry level and helps understand its attractiveness. It covers aspects such as the value chain, risks, demand-supply scenario, pricing power, competition within the industry, and so on.
Evolution of the Industry: Understanding the evolution of the industry and various businesses within it helps identify the key variables that impact the industry and establish precedents regarding how firms have generally succeeded in the past.
Trends and Practices in the Industry: Observing general trends in the industry helps understand possible changes and shifts. It also helps identify common practices within the industry. This provides opportunities to catch new trends and enter the industry accordingly.
Risks and Growth Potential: These relate to both industry-specific and company-specific risks. The risks and growth potential of any industry apply to most businesses within it. Additionally, as companies are differently placed with varying capabilities, they have specific risks and growth potential unique to them.
Competitive Positioning: Within any industry, some firms are at an advantage over others. This competitive positioning is the cumulative result of smaller decisions regarding differentiation over time. Competitive positioning is specific to firms rather than the industry.
Account Story: The numbers of a business say a lot about its quality, the people, and the changes provided the right questions are asked. This stage helps understand the business quantitatively.
Team: The team running the business is a crucial aspect of the framework. They influence all previous levels of the framework. Understanding the vision, motivation, and ability of the management running the firm is critical.
