SWIFT Assignment II: GenapSys Strategies and Risk Analysis

This assignment analyzes three potential business strategies for GenapSys, a company operating in the sequencing market: a traditional sales model, a razor and razor blade model, and a data analytics model. The analysis evaluates the market conditions, competitive landscape, and operational ...Read More

SWIFT Assignment II
Submitted To: Submitted By:
Prof. Banikanta Mishra Ritika Khurana (027)
Prerna Lall (025)
Akanshya Mohanty (039)
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What has to be true about the market, competitors, and company’s operating performance
for each to be successful?
1. Traditional Sales Model
Markets - The market's financial stability would be essential. Except for the most well-funded
research organisations, sequencers were prohibitively expensive, costing hundreds of thousands
of dollars on average. Grants and government support, even for well-funded research
organisations, can be unpredictable.
Competitors - The incumbents are directly challenged by this model. Genapsys' sequencers are
already identical to Life Technologies'. Apart from the four advantages described in the instance,
the corporation would need a more long-term competitive advantage.
Company’s Operating Performance - In order to compete with Genapsys' low-cost pricing,
competitors are likely to lower their rates. Genapsys will have to optimise its manufacturing and
distribution in this situation to allow for even further price decreases if necessary.
2. Razor & Razor Blade Model
Markets - Small businesses should not outsource this necessity because of management's
projection regarding pent-up demand for affordable sequencers.
Competitors - Because Genapsys intends to grow the pie rather than take a piece from its
competitors, there should be little cause for concern unless competitors follow suit.
Company’s Operating Performance - For such a scenario, a significant amount of capital is
already necessary. Before Genapysys to attain substantial sales volumes, the company needs to
have enough working cash to meet daily operational expenses.
3. Data Analytics
For Markets - The market is ready for tremendous potential; hospitals and government
institutions are excellent sources of high LTV consumers, and with the correct technology, retail
sales will be conceivable as well. The Network Effect will open up even more possibilities for
growth.
Competitors - In this space, having first mover advantage is really important. There is a lot of
room for profit and expansion; competitors should not take advantage of their advantages and
enter before us.
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For the Company's Operating Performance - Throughout the project, operating costs are 5%
higher than the other models, with a significant drop in FCF after the fifth year. Genapsys should
have a well-armed and well-funded partner by his side at all times.
What are the major risks of each?
Traditional Strategy
● Strategic Tension
○ GenapSys' conventional strategy is to undercut the market's major players in
terms of pricing and target the same consumer segment as them. In order to
maintain market share, competitors will most likely lower their own rates, as they
did previously in a similar situation.
○ Given that Genap Sys is a young company with limited resources compared to
established competitors, it may be forced to declare bankruptcy if it is unable to
obtain sufficient market share and maintain profits.
○ Many of their customers rely on grants and donations to help them make such
purchases. In terms of estimating demand, these sources of funds are
untrustworthy.
○ Genap Sys is mostly reliant on one-time machine purchases and regular cartridge
purchases by a small set of customers. It does not have a consistent and regular
customer base who are loyal to them.
● Financial Tension
○ It has a lower NPV than Data analytics model but slightly higher NPV than Razor
and Razorblade strategy
○ The model has a lower terminal value as compared to the other models
○ If the anticipated demand falls short then the company will struggle to scale
Razor and Razor Blade Strategy
● Strategic Tension
○ While this strategy seeks to target clients that are not in the same category as its
competitors, competitors may perceive it as a threat and retaliate. The corporation
will not be financially capable of dealing with such a situation.
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○ Before any other new firm with a similar value proposition enters the market, the
company will need to rapidly scale and earn market share. Given the high
anticipated demand, the capital expenditure required to prepare for it is
substantial, and it will be difficult to break even if demand does not reach
expectations.
● Financial Tension
○ The model has the lowest NPV among the three models
○ It has negative 1-10 years FCF and hence it will be even harder to convince an
investor to invest
Data Analytics
● Strategic Tension
○ When working with data, there is a slew of regulations to follow. For accessing,
storing, and processing the data collected, the company will need permission from
regulatory bodies as well as permission from individual customers and
institutions.
○ Genap Sys does not have a core strength in data analytics, so it will have to rely
on third-party corporations like Google and Amazon for assistance. Given that
data will become Genap Sys' most valuable resource, it will be critical to
protecting that data from others at the same time.
○ The revenue model will not work if the scale at which data is to be collected is not
attained.
● Financial Tension
○ The model has a very high negative FCF in the 1st 10 years which will make it
extremely difficult to find an investor
○ It requires very high capital expenditure to set everything and will take a really
long time before profits are realised and forecasting till that date may not be very
reliable.
For each of the strategies to work, what has to go right?
Traditional Sales Strategy:
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In this approach, the corporation would offer sequencers at a higher price to people who had
previously acquired sequencers, such as major research institutes and pharmaceutical companies,
while positioning its equipment as a speedier alternative to existing technologies. The device's
low cost would entice companies that couldn't afford typical, higher-priced sequencers in this
technique. Operate with a small sales and support team of fewer than ten people. Due to the low
cost design, only a few gadgets are sold, but each one earns a huge profit margin. On a traditional
strategy, the goal is to price the device and cartridges lower than the competition, but still high
enough to generate significant revenue in a short period of time.
What has to go right:
Furthermore, incumbents are immediately challenged by this strategy because their target
customers would be competitors' provided customers, and there is no way they would not be
retailed. Most research institutes relied on grants and government funding, which might be
unpredictable, for the financial stability of these market sequencers.
As a result, the value proposition for Genapsys must be spot on, as other players may retaliate
and price power will be lost. However, the GenapSys product would be better positioned with the
following advantages: cheap cost, compact size, ease of use, and speed (and the increased
productivity this enabled)
Razor and Razor Blade:
GenapSys would sell its sequencer at a lesser price but charge more for the cartridges required to
run a sample, with these cartridges serving as the company's principal source of revenue. This
method resulted in a profit margin of around 50%. National laboratory firms that did the
appropriate amounts of tests for hospitals and clinics would be targeted as well. To comprehend
complex plant genetics, target stakeholders who are new to sequencing, such as biofuels
companies and agricultural firms. Underserved markets and develop partnerships with biotech or
diagnostics firms centred on researching and better understanding certain diseases.
What has to go right:
The following are the hazards associated with this strategy:
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● Due to a lack of staff, we are unable to produce new products in response to client
demand.
● They tend to move to another company, which has a cheaper and faster machine and test
because they are unable to match the customer's criteria.
Data Analytics:
In the third model, GenapSys would sell its device at or near cost, but use the information
gathered from customers to construct a proprietary genetic data bank. Customers may pay a fee
to acquire access to the database for research, genetic testing, and other purposes.
What must go well:
A Data Analytic strategy has the disadvantage of requiring significant R&D investments and
resulting in high overhead expenses. The majority of the financial criteria would be prohibitively
expensive to invest in on a monthly basis. I believe that the data method will maximise the
founder's value. While it may start slowly, it has the potential to gain up speed as time goes on. I
also believe that if they price the equipment 10% over cost, they will be able to generate more
cash flow more quickly.
What can go wrong, and what would be their consequences?
Traditional Strategy: Because GenapSys intends to undercut the market's major players in
terms of price while targeting the same consumer niche, competitors will likely lower their own
pricing to maintain market share. Genapsys will suffer as a result of this, given it is a new
company with limited resources compared to established competitors. If it is unable to achieve
sufficient market share and maintain profitability, it may be forced to declare bankruptcy.
Razor and Razor Blade Model: Despite the fact that this strategy tries to attract clients from
unusual demographics, competitors may perceive it as a threat and retaliate. Genapsys will be
unable to take on such a case due to financial constraints. What could go wrong in this situation
is that a new company with a similar value proposition could enter the market and quickly
acquire market share. Another problem is that, due to the high expected demand, Genapsys'
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capital investment is quite expensive, and if demand does not reach expectations, it will be
difficult for the company to break even.
Data Analytics Model: Because data analytics is not a core strength of Genap Sys, and the
company relies on third-party organisations like Google and Amazon to assist with the task, it is
vital that Genap Sys secure data security. This is due to the fact that data will become Genap Sys'
most valuable resource. It will be bad to the firm if consumer data is disclosed. Another thing
that could go wrong is if the data collection scale is not reached, in which case the revenue
model will fail.
Which strategy would maximize the value realized by the founders?
The traditional model would deliver higher value in the short term, but because of the quick
appearance of new items at lower prices, it would have the lowest terminal value and a shorter
product lifecycle.
The Data Analytics Strategy establishes the brand and product in front of a large target segment
utilising a business model that large competitors will find difficult to replicate in such a short
period of time. While the company initially loses money and the capital expenditure to establish
the data centres is substantial, the long-term return on investment is relatively great. The project's
NPV will explode if the selling price, as well as the subscription fee, can be raised significantly
to earn some profit, and the investment timeline can be shortened. The project's net present value
(NPV) is already very high. This increases the worth of the founders because it will be extremely
valuable in the long run, regardless of whether the investors or equity shareholders change.
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