Victor Cheng

Question 1

Victor Cheng: Items to dive into on revenues

Answer 1

• unit revenue
• # units sold (note that a decline in units sold is a trigger to compare to competitors)
• look into:
  
  • product types
  • distribution channels
  • regions
  • customer type
  • industries

drill numerically until you find a problem, then approach qualitatively to explain

Question 2

Victor Cheng:

Items to dive into on costs

Answer 2

• fixed and variable
• # of units

Dig into costs by:

• component
• value chain (raw input, labor, distribution)

Drill numerically until you find a problem, then qualitatively explain

Question 3

Victor Cheng:
Business situation framework

4 buckets

Answer 3

(1) customer
(2) nature of the product
(3) company
(4) competition

Question 4

Victor Cheng business situation framework:

Customer

Answer 4

• who is the customer: segments & numbers, %, growth
• what do they want?
• what is their price sensitivity
• what are distribution channel preferences for each?
• customer concentration and power

Question 5

Victor Cheng business situation framework:

Product

Answer 5

• Nature of the product (talk out loud - what are benefits? Why do people buy it?)
• commodity good or differentiated?
• identify complimentary goods (can we piggy back off their growth?)
• identify substitutes (vulnerability)
• product lifecycle (new vs almost obsolete)
• packaging & bundling (optional)

Question 6

Victor Cheng business situation framework:

Company

Answer 6

• capabilities and expertise
• distribution channels
• cost structure (high fixed or high variable)
• intangibles
• financial situation
• org structure (e.g., think of a Fortune 500 company that would rather work with one sales person with broad knowledge than 5 with segmented knowledge)

Question 7

Victor Cheng business situation framework:

Competition

Answer 7

• competitor concentration & structure
• competitor behavior (target segments, pricing, brand loyalty)
• barriers to entry
• supplier concentration (optional)
• life cycle of industry
• regulatory environment

Question 8

Victor Cheng:

Profitability framework

Answer 8

Profitability =

Revenue: divided into (1) units sold and (2) revenue per unit) - note that you want to isolate by product type, distribution channel, region, customer type, etc. as possible. Identify wherever cost or volume is moving and in which segments

Cost: break into fixed and variable costs per unit and number of units sold. Like revenue, understand which lever is moving (cost or units) and for which pieces (e.g., component, value chain)

Question 9

Victor Cheng: should we enter a new product market?

Answer 9

(1) customer
(2) competition
(3) company
(4) return on investment

If hypothesis is should enter:

(1) customer: future size of market is large
(2) competition: no competitor exists
(3) company - we have a unique advantage in this space
(4) return on investment: the potential sales will outweigh the upfront investment

If all proved true, we will invest

Question 10

Victor Cheng: asking for segmentation data

Answer 10

I’d like to segment units sold into component parts. Do we have any data on the components that drive units sold?

Question 11

Investigating capabilities and expertise

Answer 11

Ask:

(1) what does this company excel at/ do well?
(5) what does this company do better than its competitors?

Question 12

Elements of labor costs

Answer 12

(1) wages per hour

(2) time spent on each unit