Posts Tagged ‘mba’

Recommendations to maximise Internet company value

Thursday, October 18th, 2012

The following recommendations have been drawn from the research targeting a range of stakeholder groups who are involved with publically listed companies.

Management looking to maximise valuation should concentrate on growing revenues not cutting costs.

While cost cutting may have some effect on market value, the data point to revenue as the dominant driver of market value for Internet businesses as a group.
Generating revenue for Internet companies takes time and many firms are heavily loss making until they find ways to monetise their traffic or assets. However by the time a company IPOs it needs to have successfully developed its financial metrics or it will be pressured by the financial markets to do so.

Know your business model and understand its specific drivers.

Whilst revenue is the dominant driver of value across the aggregated population I found that not all business models have the same drivers. With this in mind it is essential that managers understand those value drivers that most impact their business model.

Be aware that drivers change based on the maturity of the company.

The Value Driver Maturity Model suggests that value drivers move from being dominated by non-financial when a company is young, towards financial drivers as the company matures.
As a business reaches its strategic milestones it must assess whether it has moved along the maturity curve. If it has then it needs to change it focus and this should be reflected in its management-reporting dashboard. If a company fails to recognise that it is now being judged more on financial metrics this may negatively impact its share price.

B2B and Ecommerce companies should concentrate on financials.

B2B companies should concentrate on revenue to drive their market value. The data showed the market value of B2B companies is not driven by traffic at all. This is perhaps because the B2B market is smaller and transactions are typically of lower frequency and higher value.
Ecommerce companies are driven by earnings and to a lesser extent revenue, like B2B companies their value drivers are purely financial. Ecommerce companies should focus on improving their profit margins, either through increasing scale or by backward integration along the value chain.

B2C companies should focus on traffic with the long-term focus on revenue.

B2C companies are primarily driven by traffic. Therefore the mentality for new companies in these categories is to grow traffic at the expense of earnings. This means a higher degree of external investment will be required to fund the growth phase. This approach implies that breakeven may be later than for traditional businesses, as a revenue model may not be developed until a critical mass of users is established.

Low barriers to entry mean new businesses should be confident about entering the market.

I found no relationship between market value and age, which dispels the notion of the ‘first mover advantage’ producing long-lasting competitive advantages for Internet companies. The data shows that there is a good chance that new entrants are able to overcome industry barriers to entry. This is perhaps due to the fast pace of change or because customer switching costs are low.

Venture Capitalists (VCs) should look for ‘home runs’ in the Community, Content and Marketplace categories.

Business models vary in their attractiveness with some categories achieving higher median valuations. Most notably Community, Content and Marketplace have the most attractive market values. VC returns have been dominated by a small number of very large winners (Fraser-Sampson, 2010); these home runs can make or break a fund. Therefore VC funds should concentrate on funding companies with the highest-ranking business model to give them the best chance of achieving home runs. However it could be argued that focusing on the most successful categories could potentially mean competing with the most successful companies.

Investors should consider looking at traffic data when analysing opportunities.

Investors who invest in Internet companies should consider trends in traffic data especially for Content and Community categories. Especially in early-stage companies the traffic growth trajectory can be indicative of future revenue, assuming that management have a proven revenue model to convert the traffic into profit. Finding appropriate databases of Internet traffic is not easy and each database has its own advantages and disadvantages. However the benefits of utilising traffic data could give investors an edge in picking the best performing stocks.

Non-US firms might reconsider listing on a US stock exchange.

The data weakly concluded that non-US firms are not priced as favourably when compared with their US counterparts. This loosely suggests that non-US companies might be better off listing in another geography (such as Europe). However there may be other attractions to listing on the US exchanges that are not factored into the price, such as access to capital, the credibility gained from listing in the US or access to lobby or special interest groups.

Internet value driver maturity model

Tuesday, October 16th, 2012

Maturity models seem to be all the rage at the moment and as I did not want to be left out I have developed my own maturity model to model the relevance of different value drivers as Internet companies mature.

The evidence for this model come from the following trends from my research:

  • Internet companies are becoming more profitable over time.
  • For young business models (e.g. Community); non-financial drivers play disproportionate role in valuation in the absence of earnings.
  • Mature companies (public companies) are judged by whether they meet revenue and earnings targets.
From this evidence I infer that Internet companies go through phases with varying emphasis on value drivers.

Internet Value Driver Maturity Model (Harbott, 2012)

The Internet value driver maturity model shows that younger companies are judged more on traffic, whereas more mature companies are primarily judged on financial metrics.

This suggests why pre-IPO companies can command large valuations without established revenue and furthermore why post-IPO their share price falls if earnings and revenue targets are not met. Post-IPO the market has moved the company along the maturity model and thus changed the criteria on which they are judged.

For example, take Facebook whose IPO market value was high relative to its revenue figures. Since its IPO Facebook’s share price has tumbled around 50% after missing revenue targets. Perhaps becoming a public company is a game-changer in so much as the company is now being judged on its financial performance i.e. it has moved along the Value Driver Maturity Model.

Value drivers for Internet business models

Wednesday, October 10th, 2012

Analysing listed Internet companies as one homogenous group there is no doubt that revenue is the strongest predictor for Internet market value. In fact my research showed that the regression between revenue and market value had an R2 as high as 0.93.

However an analysis at the disaggregated business model level reveals another story. In fact almost every Internet business model has a variety of different drivers.

Descriptive statistics summary and interpretation

These results also highlight the usefulness of both financial and non-financial measures in explaining market valuation between different business model categories.

Interestingly some business models have very clear value drivers and others do not.

Categories with a higher proportion of B2C companies focus more on traffic than B2B companies, which seems logical. B2B firms are more transaction orientated and the quality and type of traffic is more important than the volume. In B2B firms the financial metrics were much more important than traffic.


Building a new Internet business model classification framework

Wednesday, October 3rd, 2012

After researching the current literature I found no universally accepted method of classifying Internet business models. It was also noted that classification frameworks were out of date and did not accommodate newer business models.

Therefore I developed a new classification with the following criteria:

  1. It needed to accommodate new businesses such as Facebook and cloud services. Many of the classifications were written before these innovations were developed.
  2. It should flexible enough to accommodate emerging business models in the fast moving Internet sector.

In the end I decided to combine and extend Laudon & Traver (2008) with Wirtz et al. (2010) because these were the most up-to-date classifications found.

New Internet business model classifications

The first table shows the new classification that I created with corresponding category traits and common revenue models.

Improved business model classification with characteristics

Classification rationale

The second figure hows how the categories were combined or renamed. Two additional categories, infrastructure and software, were added as they were not listed in the classifications.

Business model classification framework rationale

Classifying Internet business models

Thursday, September 27th, 2012

There are many business model classifications ranging from observed lists with no consistent classification criteria (e.g. Kotzberg 2001; Applegate 2001b; Eisenmann 2002; Laudon and Traver 2003; Rappa 2006), to a more systematic approach which classifies models using as few as two variables (Timmers 1998; Linder and Cantrell 2000) and as many as four variables (Weill and Vitale 2001; Afuah and Tucci 2003) (Lambert, 2006b).

Pateli & Giaglis (2003) stated that business models in the same category usually shared common characteristics, such as pricing or the customer relationship model. They found that category frameworks of business models are based on:

Lambert (2006b) believed that existing business model typologies could be consolidated to create a more comprehensive typology. However creating a ‘master’ typology would require considerable subjective judgment and it may lose its potential to simplify reality.

Lambert (2006a) finds that there is no taxonomy of business models largely because there is no widely agreed upon concept of a business model.  This view is echoed by Osterwalder & Pigneur (2005) and Weill et al. (2005) who find no accepted taxonomy of business models.

Hawkins (2002) goes further to say “Attempts to create taxonomies of business models mostly amount to no more than random, unrelated lists of business activities that just happen to occur on Internet platforms”.

Many of the models discussed are simply extensions of a traditional model such as e-shops, where as some of the models have been created because of the openness and connectivity of the Internet (see Table 2 below).  In addition early classifications are out of date or do not include newer models such as social networking or cloud services.

For my thesis I reviewed the following classifications and summarised them below.

Summary of business model classifications literature

MBA Thesis – What drives Internet company valuation?

Tuesday, September 25th, 2012

After many months of hard work I have submitted my thesis and can now reflect on the work I have done. My thesis titled What drives Internet company valuation? A business model approach to Internet value drivers was a combination of my passions of business strategy, business models and Internet companies.

I will be publishing key parts of the thesis in an upcoming blog post series.


With modest financials Facebook’s IPO market value was greater than industry stalwarts Yahoo, eBay and Dell. Why do some Internet companies have seemingly high market valuations relative to their financial performance?

This research aims to determine what drives market valuations for Internet companies and to discover whether value drivers vary across the different types of business models.

Given the ubiquity of the Internet and the huge growth in online businesses one would assume a large body of research on Internet value drivers. However the literature review found that this is the first study of business model value drivers since 2001 and reinforces the value of this research.

The objectives of the research were threefold:

  1. To identify the value drivers for Internet companies.
  2. To create a collectively exhaustive categorisation of Internet business models.
  3. To determine whether different business models have varying value drivers.

Existing Internet business model classifications were identified from the literature. The most promising classifications were extended to create a new classification of seven Internet business models: Community, Content, Ecommerce, Infrastructure, Marketplace, Service Provider, and Software.

Accepted best practice is to use financial metrics to value companies. However for Internet companies it is also important to include non-financial website traffic variables.

The literature review identified six value drivers for market value divided into two categories:

  1. Non-financial traffic metrics (reach, pageviews, traffic rank)
  2. Financial metrics (revenue, EPS, Price-to-Sales).

Data were collected on the 71 firms in the Nasdaq QNET Internet index and were analysed via descriptive statistics and regression models to determine value drivers.

The aggregated results found revenue is the dominant driver of Internet market value; having the highest correlation with market value and the highest R2 (0.93).

However when the sample was disaggregated into business model categories the results showed that each category had unique value drivers, which were a combination of financial and non-financial drivers.

The data also highlighted that Internet markets seem to go through different phases with traffic drivers playing a disproportionate role in the early stages followed by the progressive importance of financial drivers as the market matures.

The key recommendation is that management should focus on building revenue, not cutting costs, if they want to maximise market value. In addition, management should be aware that each business model has unique drivers and these should be identified, tracked, measured closely.

Keywords: business models, Internet, value drivers, business model classification.


Download the full document: What drives Internet company valuation? A business model approach to Internet value drivers.

The report covers:

  • Introduction
  • Literature Review
  • Research Methodology
  • Data Analysis
  • Data Discussion and Interpretation
  • Conclusions
  • Recommendations
  • References
  • Appendices

Reflections on my final year MBA at Cass business school

Wednesday, September 12th, 2012

Last year I wrote a summary post of the first year of my MBA and all too quickly I have completed my final year at Cass Business School. I had my final elective last month and then an amazing trip to China to learn about their culture and approach to business.  China was a fitting end to my MBA experience; and like so much of the MBA it was a voyage into the unknown.

First, the good news

The second year of the MBA was no where near as intense at the first year but it did pose different challenges and experiences.  The first year was very structured, lectures twice a week, 12 exams and 14 core electives plus the emerging markets consultancy report, a huge volume of teaching.

The second year had seven electives (most running over a long weekend) and a 15,000 word thesis.  Even the content and format of the teaching was different, it was very much about application and consolidating knowledge rather than trying to cram in a huge amount of content like the first year. However only having ad hoc weekend lectures made the periods between lectures harder to carve out time for coursework and preparation for the next elective.

The first year felt like a memory test where as the second year was more about thinking and applying what you have learned.

The content of the two years of MBA

Here is how the course broke down over the two years:

  • Leadership weekend
  • 14 core electives
  • 12 exams
  • 10 day consultancy trip to Brazil
  • Emerging markets consultancy report (from Brazil)
  • 8 days of professional development (media training, presentation skills etc)
  • 7 electives
  • 15,000 word thesis

The dreaded thesis

For the last couple of months I have been working on my thesis (which I handed in last week), although a very gruelling process in a funny sort of way I really enjoyed it and I genuinely learnt a lot.  The thesis is the culmination of y0ur learning and is a superb way to structure your arguments and research.

Although 15,000 words sounds like a lot it really isn’t and it is very easy to get to 15,000 words. However getting to 15,000 quality words is a whole different matter and takes a lot of crafting.

Here are some of the things I learned from writing my thesis:

  1. Chose a topic you enjoy! You are going to be spending a 100 hours on this project so they might as well be enjoyable.
  2. Pick an advisor that you know and like. My advisor was superb and spent a lot of time with me, other people were not so lucky. I chose one of my lecturers from one of my previous electives so I already had a working relationship with them.
  3. Start early. It is much better to get an early draft that you can hone over time.
  4. Use naive reviewers. My Dad kindly read my thesis for me and it was great to get the perspective of someone who had no context of my paper. If he could understand it then people with knowledge of my topic would too.
  5. Use graphics and design.  There is nothing worse than 15,000 words in a row, make sure you use a good designer to add colour or add graphics and images to make it interesting.
  6. Use layered story-telling. The flow of the document should be like an onion as the reader reads more they should uncover more detail at each level.
  7. You are in charge. Don’t rely on others to drive your project it is yours and you are responsible for the output and timings.

I will be posting my whole thesis in a blog post soon.

What I have learned

This is a hard question as it is difficult to be objective about yourself but overall I have learned a process for investigation, research and gaining knowledge.

I have obviously gained a huge amount of knowledge but the experience has given me a superb lesson is how to debate my views, how to communicate my ideas and a structured way to gain and retain knowledge.

Would I do it again?

There were times where I had my doubts but I would definitely do it again if I had the chance.  The knowledge I have gained, the skills I have learned and the friends I have made were well worth the investment.

Is it worth the huge financial and emotional cost?

I think it is. I have grown a huge amount in the last two years both intellectually and emotionally.  More importantly I was able to secure an amazing job as a direct result of the MBA (see my previous post explaining the  job application for Lloyds Future Executives Programme).

If you are thinking about doing an MBA and have any questions at all please send me a note and I will reply to you as best I can.

Thanks Cass Business School and thanks to all the friends I have made and to all the people who have helped me along the way.


My experience of The Future Executives Programme application for LLoyds Banking Group

Wednesday, September 5th, 2012

Earlier this year I applied to the Lloyds Banking Group’s Future Executives Programme which is open to MBA graduates. When I first saw the programme it really excited me as you get the opportunity to work in two rotational placements in the first two years which then prepares you for a leadership role in the group. The programme is looking to find the leaders of tomorrow so they are looking for future leaders with ambition, people who like dealing with complexity and are able to deliver within a large scale business. This is the first time they have run this programme and you can read more about it here:

I was not really looking for a job at the time but I decided to put in an application anyway.

1. Application

In order to apply you need to have completed your MBA or have completed your MBA by October 2012.  I graduate in September so that was the first stage passed.   You also need to have 230 UCAS points from your A-Levels. The application form is fairly straight forward with no surprises.

2. Numerical Reasoning Test

Within a week I received an email telling me that my profile was a fit and that I had one week to complete a numerical reasoning test. The test was administered online by SHL. You can find some example tests here: I would recommend you do a lot of prep for this even if you are good at Maths. There is a lot of time pressure and it is a like the GMAT, once you get a feel for the questions it is a lot easier.

3. Critical Reasoning Test

The next stage was an online critical reasoning test and again I had a week to compete the test. The test was a Watson Glazer critical reasoning test and again once you understand how it works it was fine.

4. Competency Based Interview

There was a little wait until I heard whether I had got to the next stage.  Then I received an email saying I had made it to the interview stage. I had a 90 minute competency based interview with a lovely interviewer at the LLoyds office near Barbican.

It was a very relaxed interview (although highly structured) and it was fairly typical of other competency interviews I have had. Make sure you have lots of examples planned in advance and make sure you understand the banking industry and about the LLoyds brands.

Also try to map your personal examples onto the  qualities LLoyds are looking for (leadership, ambition, complexity, delivery). Ask lots of questions as the knowledge you gain will help you in the final round.

5. Half Day Assessment Centre

About a week after my interview I was sent an email asking to book the final stage which was a half day assessment centre.

The assessment centre lasted for about five hours and there were 12 people along with me. Again the day was fairly relaxed and all of the interviewers and assessors were very relaxed and very bright.  Interestingly none of the tasks were in groups all were individual which is different to other assessment centres I have had.

The day started with brief introductions and was followed by three tasks: The first task was a short interview which lasted about 30 minutes.  The questions were around my strengths and areas for improvement, there were also some questions around my ambitions and hobbies.  Towards the end of the interview I was asked some in-depth questions about LLoyds e.g. how do some of the brands differentiate themselves and should Lloyds operate a multibrand or single brand such as Santander.

The second task was a stakeholder meeting and I had 30 minutes to prepare.  I had a stack of emails and reports to review before the meeting.  The role-play meeting was closely watched by a assessor and was between myself and a trained role player.  I played the part of a general manger on their first day at work and I had 30 minutes to cover four areas such as the details of a contract, department operational issues and a staff performance review.  The time pressure is immense so manage your time and make sure you keep on time and move on if necessary.

The third task was strategy presentation.  I had an hour and a half to prepare with hundreds of pages of information to review, some important and some not.  There was a lot of pressure due to the volume of information.  The presentation lasted 15 minutes and had to include the key department issues with a plan for tackling the largest issue.  There was then 15 minutes of very in-depth, probing cross examination by the assessor.  The questions posed were very insightful and I really enjoyed the process of defending and debating my strategy.

6. Final Decision

After a tense couple of weeks of waiting I finally I received a phone call telling me that the impression of me throughout the process was very positive and that they would be making me an offer.  I was on a huge high for several days afterwards!

I will be starting on the programme on the 1st October 2012!

ECCO A/S – Global value chain management case study

Wednesday, August 31st, 2011

My operations management coursework was based on the ECCO A/S – Global Value Chain Management case study which is an interesting paper on ECCO A/S (ECCO) who have been very successful in the footwear industry by focusing on production technology and assuring quality by maintaining full control of the entire value chain from “cow to shoe.”.

ECCO follow a differentiation business strategy producing the highest quality shoes and they use their operations as one of their main points of competitive advantage.

ECCO’s operations strategy is top-down (i.e. formed in pursuit of its business strategy) and operations-led (i.e. based on the resources and capabilities within its operations). They prioritise quality and reliability; the supply chain is configured to produce in accordance with specification and without error.

ECCO has a very atypical operations strategy compared with their industry peers. Unlike their “branded marketer” competitors they produce their own materials and manufacture 80% of their own products in factories around the world. Owning and controlling the entire value chain gives them huge flexibility and allows them to maintain the highest levels of quality.

Leong et al. (1990) state that operation strategy consists of the key decision areas concerned with the structure and infrastructure of operations…

Download the full report: Operations Management Coursework – ECCO Shoes Global Value Chain

The report covers:

  • ECCO’s operations strategy
    • Structure
    • Infrastructure
    • Global vertical integration
    • Further operational execution examples
      • Manufacturing facilities
      • Training centres
      • Faster lead times
      • Production cycle
  • ECCO’s global supply chain
    • Tanneries
    • Manufacturing
    • Distribution
    • Drivers and trends in the industry
  • Supply chain risks and mitigation strategies
    • Intellectual property breaches
    • Inventory problems with changes in demand
    • Delays in material flows

Download the full report: Operations Management Coursework – ECCO Shoes Global Value Chain

Reflections on my MBA first year at Cass business school

Thursday, August 4th, 2011

My friend Richard has an excellent blog called Cass Reflections if you have not read it, you should, he has an excellent writing style that draws you in. His blog inspired me to write a reflection of the first year of my executive MBA at Cass business school.

What I have learned about an MBA

An MBA is much, much more work than you expect, after the first month I thought it was going to be easy but then suddenly it all ramped up and there were more and more courseworks due at the same time.  Mentally it is also quite draining to work all day and then have to be in class in the evenings or be constantly reading academic and business papers. Once the MBA is over I am going to enjoy reading the pile of fiction books that have been piling up on my bookshelf!

Managing group work is essential, our working groups are assigned to us and we have no control over the selection. What this means is that ever few months you have to work with a new group of people and hit the ground running. Changing groups has the advantage of allowing you to meet new people but it means that you have to create a team spirit quickly and learn the strengths and weaknesses of the group members very quickly. As it is outside of a professional work environment there is no hierarchy and those people used to managing a lot of people and being the boss may need to adapt a more democratic style.

It is obvious but time management is essential, you need to make sure that you have all of your readings done before and after lectures, your coursework in on time and any preparations for exams done in good time.

Most people learn pretty quickly that it is impossible to read everything so being selective in your reading and/ or skim reading is essential. My strategy is to read all the required papers and books and then skim read the additional reading as and when it supports my learning or coursework. You really need to learn to read faster or skim read as there is simply not the time to read slowly and take everything in.

I am very pleased that the first year’s mandatory courses are over, in the second year you get a lot more choice in your electives to follow the subjects that you want to.

What I liked

First and foremost I have met some incredible people who have taught me a lot and inspired me to think differently. I think the people who are in your cohort define your MBA experience so it is essential that you find a good fit for your personality.

An MBA is a generalist degree, you do not get in-depth knowledge of any one subject but you do get sufficient knowledge in all major management disciplines.  This is the most exciting part for me as it allowed me to find out which subjects I really enjoyed the most and where I needed to focus my learning and career path. I have finished my first year with the clear path that strategy, change management and technology are my key areas.

I like the structured learning, you could do a distance MBA and learn just from books but having to be in class at a certain time and having the coursework deadlines give you added incentive to learn and be accountable for your time.

The leadership weekend at the start of the course was a high point as was the consultancy trip to Brazil (which I just returned from and will blog about soon).

What I didn’t like

I would have liked more control over the selection of the working groups and perhaps every other group change should have been self-slecting so we could work with the people we had more rapport with.

Even though there were not that many, the weekend lectures and weekend professional courses were a really chore and had an impact on family life.

Last minute changes in schedule although inevitable, really mess up your timetable and put added stress on your life.

Would I do it again if I had the choice

Absolutely! I have had so much fun challenging myself, pushing my brain to the limit and I have met some incredible people. What I underestimated was the network of great people I would meet and after the knowledge has passed hopefully the relationships I have built over the last year will still be there.

The second year which starts in September is for electives and for your thesis so it is a very different year ahead!