Profitability

Market “X” Revenue Streams and Growth Opportunities

Goals: (i) Identify if this is market-wide trend or company-specific • Across the different segments (mix)…
(ii) inform growth strategy • Price (Customize to case!)
Current Revenue • Quantity (Customize to case!)
• Better understand the market and identify (i) what parts of
Streams • Trends
the market we currently play in and (ii) what parts of the
• Why has revenue changed? (Picture waterfall chart
Size / Segmentation market we don’t play in.
showing the reasons for increase and decreases.)
• Potential segmentation: Product, Channels, Geography,
Customers. • Price: (i) Increase if inelastic, (ii) decrease if elastic, (iii)
price differentiation/promotions, (iv) new pricing
Competitive • Who are the major competitors? How have market shares
structure.
Landscape changed? Growth in Core
• Quantity: (i) Marketing, (ii) Sales, (iii) Product
• Major Market Trend Examples: Big Data, Healthier Food, DTC, Customization, (iv) Changes in Production Capacity
Secular Trends
Virtual Work (COVID-19), IOT, Mobile, Geopolitical, etc.. (Demand), (v) Loyalty Program
• Compare growth across different segments. • New geography/product/channel (e.g. e-commerce)
Growth in Adjacencies
Market Growth • How does our growth compare to the market as a whole • M&A/Partnerships?
across different segments?

Cost Drivers and Cost Cutting Opportunities

• Across the value chain (Create, Transport, Sell, Service) (Customize to Case!)…
Variable Cost
• Raw Materials (COGS), transportation/packaging, etc.
• Across the value chain (Create, Transport, Sell, Service)(Customize to case!)…
Fixed Costs
• Labor (Unionized?), Facilities, SG&A, R&D, IT/HR
• Benchmark costs vs. industry averages.
Benchmark vs. Competitors
• May want to assume that you can match the industry average.
 Growth

Market “X” Revenue Streams

Goals: (i) Identify if this a market-wide trend or company-specific • Across the different segments (Mix)…
(ii) inform growth strategy Price • Examples: $/item, $/yearly contract (Customize to
Case!)
• Better understand the market and identify (i) what parts of
the market we currently play in and (ii) what parts of the • Across the different segments (Mix)…
market we don’t play in. • Examples: # of items, # of customers, # of subscriptions
Size / Segmentation Quantity
• Potential segmentation: Product, Channels, Geography, (Customize to Case!)
Customers. • Note: You may be asked to size the market.
• May be asked to size the market on own.
• Why has revenue changed? (Picture waterfall chart
Trends
Competitive • Who are the major competitors? How have market shares showing the reasons for increase and decreases.)
Landscape changed?
• Major Market Trend Examples: Big Data, Healthier Food, DTC,
Secular Trends
Virtual Work (COVID-19), IOT, Mobile, Geoploitical, etc..
• Compare growth across different segments.
Market Growth • How does our growth compare to the market as a whole
across different segments?

Growth Opportunities
• Price: (i) Increase if inelastic, (ii) decrease if elastic, (iii) price differentiation/promotions, (iv) new pricing structure
Growth in Core • Quantity: (i) Marketing, (ii) Sales, (iii) Product Customization, (iv) Changes in Capacity (Demand), (v) Loyalty Program
• Mix: Focus on higher margin products
• New geography/product/channel (e.g. e-commerce)
Growth in Adjacencies • M&A/Partnerships?

• Is a Growth Infrastructure in place to give us continued opportunities for growth (e.g. R&D Pipeline, Corporate Development Team,
Growth Infrastructure Test and Learn Team, etc.)?
 Cost Cutting

Identify Cost Drivers Benchmark Costs

• Across the value chain (Create, Transport, Sell, Service) • Benchmark costs vs. industry averages.
Benchmark vs.
Variable Cost (Customize to Case!)… • May want to assume that you can match the industry
Competitors
• Raw Materials (COGS), transportation/packaging, etc. average.
• Across the value chain (Create, Transport, Sell,
Fixed Costs Service)(Customize to case!)…
• Labor (Unionized?), Facilities, SG&A, R&D, IT/HR

Categorize Costs into (i) Non-Essential, (ii) Essential, and (iii) Differentiating
• Unimportant costs
Non-Essential Costs • These are the costs that we want to cut
• Essential “keep the lights on” costs
Essential Costs
• These costs are hard to cut
Differentiating • Costs that directly play into our competitive advantage.
Costs • These are the costs that we prefer not to cut given they are at the core of our strategy.
 Market Entry

Market “X” Projected Revenues

Goals: Is this an attractive market to enter? • Across the different segments (Mix)…
• Examples: $/item, $/yearly contract (Customize to Case!)
• Better understand the market and identify (i) what parts of Price • Note: May be asked to come up with pricing strategy (3
Size / Segmentation the market we currently play in and (ii) what parts of the methods: cost, competition, value)
market we don’t play in. • CANNIBALIZATION
Competitive • Who are the major competitors? How have market shares • Across the different segments (Mix)…
Landscape changed? • Examples: # of items, # of customers, # of subscriptions
Quantity
(Customize to Case!)
• Major Market Trend Examples: Big Data, Healthier Food, DTC,
Secular Trends • Note: You may be asked to size the market.
Virtual Work (COVID-19), IOT, Mobile, Geopolitical, etc..
Trends • Will there be a ramp-up period in your projections?
• Compare growth across different segments.
Market Growth
• Is this an attractive market to enter with a high growth rate?

Projected Costs Feasibility

• What is the initial investment required for market entry • Does this align with your core capabilities?
Investment Cost Alignment With
Core Capabilities
• What is the next best use of this money? • Can this be done in a reasonable timeline?
Opportunity Cost Timeline • Does management have time to focus on this?

• Across the value chain (Create, Transport, Sell, Service) • What risks are there?
Variable Cost (Customize to Case!)… Risks • Competitive response?
• Raw Materials (COGS), transportation/packaging, etc.
• Across the value chain (Create, Transport, Sell, • Could this be more easily carried out through M&A or a
Fixed Costs Service)(Customize to case!)… M&A/Partnership partnership?
• Labor (Unionized?), Facilities, SG&A, R&D, IT/HR
 Commercial Due Diligence

Market “X” Competitive Landscape

• Often will receive a Stacked-bar or Marimekko chart (made in • Segment competitors across market/differentiators.
Think-Cell or Mekko Graphics) segmented by Product, • What threat level do I think each competitor poses?
Segment and Size Channel, Geography, etc. Sometimes will be asked to size the Competitor Landscape • Are there any trends?
Market… market on your own. Mapping • Note: Unlikely to be a major part of the case.
• Isolate and double-click on largest segments. • The lack of superior/dominant competitors supports the
• A large market supports the hypothesis of a good investment. hypothesis of a good investment.
• Which segments have attractive growth? • PE Firms often prefer fragmented markets as it enables
Market Growth
• High growth supports the hypothesis of a good investment. a roll-up strategy.
Fragmentation
• A fragmented industry likely supports the hypothesis of
• Examples: Big Data, Healthier Food, Mobile, COVID-19.
a good investment
Major Market • What will happen to cash flows in a recessionary scenario?
Trends • Positive secular trends and stable cash flows support the • Do we have market share information on competitors
Market Shares
hypothesis of a good investment over time?

Customers Financials
Customer • How can we segment customers? • See Profitability Framework
Segmentation • How to their needs differ across segments? Revenue • Attractive financials supports the hypothesis of a good
investment
• May receive a dual-axis stacked-bar/line chart that shows (i)
KPCs (Key what are the customers KPCs, and (ii) how does the target Cost • See Profitability Framework
Performance perform on those KPCs.
Criteria) • To support the hypothesis of a good investment, the target • How capital intensive is the business?
should perform well on the customers most important KPCs. Capital Intensity • Low capital intensity supports the hypothesis of a good
investment
• Who is the decision maker in buying a product? What journey
do they go through (e.g. RFP in B2B)? Are there switching
costs?
Buying Journey
• Unlikely to be provided in case.
• High customer captivity/switching costs supports the
hypothesis of a good investment.
 M&A

Market Attractiveness Company Attractiveness

• Often will receive a Stacked-bar or Marimekko chart (made in • See Profitability Framework
Think-Cell or Mekko Graphics) segmented by Product, Revenue • Attractive financials supports the hypothesis of a good
Segment and Size Channel, Geography, etc. Sometimes will be asked to size the investment. Is it performing better than competitors?
Market… market on your own.
Cost • See Profitability Framework
• Isolate and double-click on largest segments.
• A large market supports the hypothesis of a good investment.
• Which segments have attractive growth?
Market Growth
• High growth supports the hypothesis of a good investment.
• Examples: Big Data, Healthier Food, Mobile, COVID-19.
Major Market • What will happen to cash flows in a recessionary scenario?
Trends • Positive secular trends and stable cash flows support the
hypothesis of a good investment

Synergies Feasibility of Integration

• More likely to be realized… Alignment with • Does this align with our core capabilities? Mergers outside of
• Removal of duplicative functions (e.g. IT/HR/Employees) Core the core tend to be less successful.
Cost
• Improved procurement due to scale
• Is the price affordable? What are the alternatives?
• Often don’t achieve full synergies for several years. Price
• Financing
• Less likely to be realized…
• Are the cultures compatible?
• Cross-selling to customers (e.g. bundling) Integration
Revenue • Geography/time zone
• Combined R&D/Innovation
• Increased channels • Board/investor approval
Legal
• Antitrust
• Capital Structure/Financial Engineering
Balance Sheet
• Tax optimization
 Non-Traditional #1

Quantify Problem Benchmark

What can we quantify in the case? (e.g. Test Scores, Poverty Levels, Disease Spread) Is there anything we can benchmark this number against? (If not, skip)

Identify Opportunities Evaluate Opportunities

What are our options to deal with the problem? Evaluate the different options (e.g. Financial, Non-Financial)
 Non-Traditional #2

Financial Non-Financial
Options
Revenue Cost Various

Option 1 (e.g. Build)

Option 2 (e.g. Outsource) Potential framework when comparing 3+ alternatives.

Option 3 (e.g. M&A)

 Example Brainstorming Frameworks

Brainstorm Matrices Ways to Grow

Short-Term Long-Term
P Q Mix
1 - -
Core - - -
2 - -
Adj - - -
3 - -

Financial Non-Fin.
1 - -
Miscellaneous
2 - -
Buckets
3 - -
Kellogg Core Classes Finance, Strategy, Operations, Marketing
Pros Cons Cultural, Operational, Financial, Regulatory
Business Categories
1 - -
4 Ps Product, Price, Place, Promotion
2 - -
Cs Customer, Competition, Company, Costs, etc.
3 - -
Formulas e.g. Rev is a function of P x Q x Mix;
Financial Non-Fin.
Quality!, Competitive Response, Time, Variability,
Other buckets
Short Term - - Innovation, Customer Journey, Wacky Ideas, etc.

Long Term - -