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Q1. Explain the different circumstances under which a suitable growth strategy should be selected by any company to improve its performance (i.e., intensive, integrative or diversification growth). You may select an example of your choice to substantiate your views (10 marks). Ans: Strategies to Improve Sales There are three alternatives to improve the sales performance of a business unit, to fill the gap between actual sales and targeted sales: a) Intensive growth b) Integrative growth c) Diversification growth a) Intensive Growth: It refers to the process of identifying opportunities to achieve further growth within the company’s current businesses. To achieve intensive growth, the management should first evaluate the available opportunities to improve the performance of its existing current businesses. It may find three options: · To penetrate into existing markets · To develop new markets · To develop new products At times, it may be possible to gain more market share with the current products in their current markets through a market penetration strategy. For instance, SONY introduced TV sets with Trinitron picture tubes into the market in 1996 priced at a premium of Rs.10,000 and above over the market through a niche market capture strategy. They gradually lowered the prices to market levels. However, it also simultaneously launched higher-end products (high-technology products) to maintain its global image as a technology leader. By lowering the prices of TVs with Trinitron picture tubes, the company could successfully penetrate into the markets to add new customers to its customer base. Market Development Strategy is to explore the possibility to find or develop new markets for its current products (from the northern region to the eastern region etc.). Most multinational companies have been entering Indian markets with this strategy, to develop markets globally. However, care should be taken to ensure that these new markets are not low density or saturated markets, which could lead to price pressures. Product Development Strategy involves consideration of new products of potential interest to its current markets (e.g. Gramaphone Records to Musical Productions to CDs)– as part of a Diversification strategy.
SOMA PATHAK 510911706 Study the following example to understand what Product Development Strategy is. MICROSOFT’s New Strategy It is called PC-plus. It has three elements: a) Providing computer power to the most commonly used devices such as cell phone, personal computer, toaster oven, dishwasher, refrigerator, washing machines and so on. b) Developing software to allow these devices to communicate. c) Investing heavily to help build wireless and high-speed internet access throughout the world to link it all together. Microsoft envisions a home where everyday appliances and electronics are smart. According to Bill Gates, ‘In the near future, PC-based networks will help us control many of our domestic matters with devices that cost no more than $ 100 each ‘. It is also said at Microsoft that VCRs can be programmed via e-mail, laundry washers can be designed to send an instant message to the home computer when the load is done and refrigerators can be made to send an e-mail when there’s no more milk. Microsoft plans to give these appliances ‘brains‘ and provide them the means to talk to each other through their Windows CE Operating System. b) Integrative Growth: It refers to the process of identifying opportunities to develop or acquire businesses that are related to the company’s current businesses. More often, the business processes have to be integrated for linear growth in the profits. The corporate plan may be designed to undertake backward, forward or horizontal integration within the industry. If a company operating in music systems takes over the manufacturing business of its plastic material supplier, it would be able to gain more control over the market or generate more profit. (Backward Integration) Alternatively, if this company acquires some of its most profitably operating intermediaries such as wholesalers or retailers, it is forward integration. If the company legally takes over or acquires the business of any of its leading competitors, it is called horizontal integration (however, if this competitor is weak, it might be counter-productive due to dilution of brand image). c) Diversification Growth: It refers to the process of identifying opportunities to develop or acquire businesses that are not related to the company’s current businesses. This makes sense when such opportunities outside the present businesses are identified with attractive returns and that industry has business strengths to be successful. In most cases, this is planned with new products that have technological or marketing synergies with existing businesses to cater to a different group of customers (Concentric Diversification). A printing press might shift over to offset printing with computerised content generation to appeal to higher-end customers and also add new application areas ( Horizontal Diversification ) – or even sell stationery. Alternatively, the company might choose new businesses that have nothing to do with the current technology, products or markets (Conglomerate Diversification). The classic examples for this would be engineering and textile firms setting up software development centres or Call Centres with new service clients. Situation Analysis Sales Improvement Strategies:
SOMA PATHAK 510911706 a) A supplier of computer stationery invests in a computer stationery manufacturing unit. b) A vendor supplying engine boxes to Maruti decides to supply the same with modifications to Hyundai. c) A company dealing in computer floppies plans to set up a Software Technology Park. Q2. What are the components of a good Business Plan and briefly explain the importance of each. (10 marks). Ans. The format of a Business Plan is something that has been developed and refined over the years and is something that should not be changed. Like a good recipe, a business plan needs to include certain ingredients to make it work. When you create a business plan, don't attempt to recreate its format. Those reviewing this type of document have expectations you must meet. If they do not see those crucial decision-making components, they'll see no reason to precede with their review of your business plan, no matter how great your business idea. Executive Summary Section Every business plan must begin with an Executive Summary section. A well-written Executive Summary is critical to the success of the rest of the document. Here is where you need to capture the attention of your audience so that they will be compelled to read on. Remember, it's a summary, so each and every word must be carefully selected and presented. Use the Executive Summary section of your business plan to accurately describe the nature of your business venture including the need that you plan to fill. Show the reasons why people need your product or service. Show this by including a brief analysis of the characteristics of your potential market. Describe the organization of your business including your management team. Also, briefly describe your sales and marketing plan or approach. Finally include the numbers that those reviewing your business plan want to see - the amount of capital you seek, the carefully calculated sales projections and your plan to repay the loan. If you've captured your audience so far they'll read on. Otherwise, they'll close the document and add your business plan to the heap of other rejected ideas. Devote the balance of your business plan to providing details of the items outlined in the Executive Summary. The Business Section Be sure to include the legal name, physical address and detailed description of the nature of your business. It's important to keep the description easy to read using common terminology. Never assume that those reading your business plan have the same level of technical knowledge that you do. Describe how you plan to better serve your market than your competition is currently doing. Market Analysis Section An analysis of the market shows that you have done your homework. This section is basically a summary of your Marketing Plan. It needs to show the demand for your product or service, the
or conducting surveys. a break-even worksheet. By now you're probably thinking that you don't need Business Plan just yet. corporation or limited liability corporation. This idea usually involves the invention of a new product. As part of the initial research process. Know the tax laws governing your business. projected cash flow statements and a balance sheet. Well you do. Use one today and produce a professional-quality Business Plan . a description of your pricing plan and packaging and a description of your company policies. and how successful the marketer has been. you as a business builder must refine this idea into a money-making reality. We will see here in the following paragraphs different stages of achieving the same goal. Financing Section The Financing section must show that you are as committed to your business venture as you expect those reading your business plan to be. examine the legal ramifications of your business. You wish to start a new venture to manufacture auto components. 1. Include the legal structure of your business whether it is a partnership. After this. Also. Here as the main goal is to start a company that manufactures the auto components. Here in this case supposing we are to start a new venture of manufacturing auto components and also to market them. their existence and also how successful they are. you are attempting to find what the level of interest is in the products (or services) you wish to market. we are to make a research on all the auto companies which are procuring the spares from the outside vendors. You can accomplish this by a Google search on the Internet. If insurance is a requirement. Every business starts out as an idea. Management Section Outline your organizational structure and management team here. prepare to budget for it. Idea Researching In this stage. Also. Also include the amount of capital you need and your plan to repay this debt. Include resumes and biographies of key players on your management team.including all critical components . (10 marks). Explain different stages in the process of starting this new business. it is important to consider the legal requirements of selling your product or service. Hence 4 . And also the competitors who are all marketing that. and there is business plan building software that can help you through this immense project. The object of your research is to find out who is marketing the same product or service in your area. as business adviser Mike Pendrith points out. According to the Biz Ed website. trends within the industry. These software packages are easy to use and affordable. Include all pertinent financial worksheets in this section: annual income projections. you are researching your idea. Show the amount of personal funds you are contributing and their source. or revolves around a better way of making and marketing an existing one. Ans. launching a test-marketing campaign. be aware of any safety laws governing you as an employer. While many would argue that the idea stage is not a stage at all.SOMA PATHAK 510911706 proposed market. Show staffing projection data for the next few years.tomorrow! Q3. it is actually a turning point.
Make up business cards with your logo on it. you should consider such issues as the costs of running the business. Utilizing print. The employees apart. Pendrith advises. your name and the name of your business.SOMA PATHAK 510911706 we are also to make a research on the feasible area where we can start our organization and licenses that we need to take keeping in mind the environmental factors as well. 2. Hence sign boards is the feasible solution and also pamphlets circulated across the pioneers. such as a small business loan or grant. Advertising Campaign Decide how you will market your product. radio or TV is also wise. of course. Make sure that they are of the most professional quality. Then begin requesting resumes and setting up interviews. Here in this case more than TV. the size of your advertising budget. considering. They need to have real time experience in the shop floor activities. As TV is useful only to reach the common man and he is not our target customer. the Internet. According to the Biz Ed website. this is crucial if you want funding. or if you wish to lease a building. Financial Planning Financial planning involves thinking about the financial costs of starting and maintaining your business. and how you wish to set up financial reserves in case of an emergency or an event causing significant loss to the business. As Pendrith points out. This includes the planning of whether to take any loans or make personal investments in the company. 5. This apart personal marketing is much more suggested. Preparing for Launch Advertise for employees. cash flow control. Think about what you look for in an employee. In the business plan you typically include following heads: i) ii) iii) iv) v) vi) vii) viii) Executive Summary Company and Product Description Market Description Equipment and Materials Operations Management and Ownership Financial Information and Start-Up Timeline Risks and Their Mitigation 3. Consider your budget and your target audience. This also requires adequate planning. Business Plan Formulation You must write a business plan. At this stage. 5 . the newspaper. 4. a better advertising media will be road side sign boards placed close to the auto companies for getting the deals to manufacture their spares. you need to consult with an attorney or business adviser for assistance. making hiring decisions based on the standards you have set. Be specific about the requisite skills and experience you are seeking. one needs to plan on the plant and machinery as well. In this case we will be looking for a few candidates in managerial position who must be good in managing things apart from minimal technical knowledge. Lower level people at the shopfloor people. the prices you wish to charge your customers.
These may include: · Checks on external records. The process of assessing the viability. to buy a share of patent rights. they will need to satisfy themselves that it is a viable proposition. due diligence will involve assessing the overall commercial operations. as these may also affect the commercial partner’s interests in the technology. or key trade secrets or copyright material (such as manuals or software) – may also need to be identified or located. If you are involved in licensing technology or seeking commercial support for your research you are likely to hear of ‘due diligence. including foreign patents. if a potential partner seems not to be interested in this kind of issues. So in a due diligence process. Due diligence may also involve searching for information about the full range of IP rights that might impact on the relevant technology – for instance. Explain the process of due Diligence and why it is necessary. It may transpire that a student. Even a serious level of uncertainty or doubt could be enough to deter a potential partner. they may be unwilling to take out a license for your patent without getting access to the software you have developed for a related process.’ Indeed.(10 marks). or was about to be involved in difficult litigation. Generally. Ans.SOMA PATHAK 510911706 Thus these are all the stages that I would consider performing if incase I plan to start a manufacturing unit producing automobile components.’ When a future partner is considering whether or not to license technology. · Independent advice from patent attorneys on issues such as patent ownership. that may limit the value of their investment in the original technology. assets and liabilities of a business that is being purchased or otherwise financially supported. · Searches of patent databases for conflicting technology. They may want the right to use your trade mark in association with the patented technology. or to find that there is prior art available that calls into question its validity. For instance. it may actually raise questions about their commitment to the project or the credibility of their business plan. a contractor or a visiting researcher could actually be legally entitled to some or all of the patent rights. your commercial partner will need some reassurance about the quality of the offer you are making to them. your commercial partner may undertake a range of checks and need various forms of information. a potential commercial partner would not want to invest in patented technology only to find out that patent renewal fees have not been paid and the patent has lapsed. For example. The same applies to a potential investment involving intellectual property. or to find out that the patent was being opposed by another company. patent validity and scope of patent claims. cash flow. Q4. 6 . or to support your research. to check whether you have later filed patent applications on improvements to the original patented technology. such as patent registers and patent databases. Other intellectual property rights – such as related trade mark or design registrations. particularly if the relationship assumes some degree of risk and investment on their part. Due diligence Of course. You would think twice about purchasing a business if you found that it was burdened with debts. risk. or if there were doubts about whether it really owned its assets. especially if they have run into this kind of difficulty before. potential liabilities and commercial prospects of a project is known as ‘due diligence.
also known as corporate responsibility. responsible business. business would embrace responsibility for the impact of its activities on the environment. · Surveys of the activity of competitors and owners of competing technology. consumers. Furthermore. and the way the proceedings were resolved. and you will be in a stronger negotiating position in negotiating license terms. pressure is applied on industry to improve business 7 . and possibilities of conflict. If you can anticipate and provide comprehensive answers to these questions. CSR-focused businesses would proactively promote the public interest by encouraging community growth and development. profit. Proponents argue that there is a strong business case for CSR. planet. and contracts with other parties that may interfere with the exercise of IP rights. it essentially is titled to aid to an organization's mission as well as a guide to what the company stands for and will uphold to its consumers. Q5. you should consider in advance these kind of due diligence issues. Development business ethics is one of the forms of applied ethics that examines ethical principles and moral or ethical problems that can arise in a business environment. Simultaneously. corporate citizenship. others argue that it is nothing more than superficial window-dressing. · Details of the patent prosecution such as examiners’ reports and other opinions. The practice of CSR is much debated and criticized. Is Corporate Social Responsibility necessary and how does it benefit a company and its shareholders? (10 marks).SOMA PATHAK 510911706 · Checks on employment contracts. Essentially. Critics argue that CSR distracts from the fundamental economic role of businesses. you will be able more effectively to reassure your commercial partner. Ideally. and international norms. others yet argue that it is an attempt to pre-empt the role of governments as a watchdog over powerful multinational corporations. communities. the demand for more ethical business processes and actions (known as ethicism) is increasing. Corporate social responsibility (CSR). Corporate Social Responsibility has been redefined throughout the years. Ans. and · Analysis of freedom to operate issues. · Details of any legal challenges to the patent. ethical standards. CSR is the deliberate inclusion of public interest into corporate decision-making. employees. regardless of legality. CSR policy would function as a built-in. confidentiality arrangements. shortterm profits. is a form of corporate selfregulation integrated into a business model. stakeholders and all other members of the public sphere. In preparing to license your technology. self-regulating mechanism whereby business would monitor and ensure its support to law. Consequently. or corporate social performance. and voluntarily eliminating practices that harm the public sphere. and ultimately the commercialization of your intellectual property. It should also speed up the licensing negotiations. in that corporations benefit in multiple ways by operating with a perspective broader and longer than their own immediate. and the honoring of a triple bottom line: people. In the increasingly conscience-focused marketplaces of the 21st century. · Checks on laboratory notebooks in the event that the validity of US patents is of concern to the commercial partner (this also provides reassurance as to claims of ownership of the patent). However. sustainable responsible business (SRB).
whereby CSR can also be driven by employees' personal values. The business case for CSR within a company will likely rest on one or more of these arguments: Human resources A CSR program can be an aid to recruitment and retention. Potential business benefits The scale and nature of the benefits of CSR for an organization can vary depending on the nature of the enterprise. Schmidt. Public sector organizations (the United Nations for example) adhere to the triple bottom line (TBL). Business ethics can be both a normative and a descriptive discipline. was used to describe corporate owners beyond shareholders as a result of an influential book by R Freeman in 1984.g. balanced scorecards). The term "CSR" came in to common use in the early 1970s. fundraising activities or community volunteering. CSR can also help improve the perception of a company among its staff. the field is primarily normative. and are difficult to quantify. social responsibility charters). As a corporate practice and a career specialization. Historically. Deming's Fourteen Points. higher UK road tax for higheremission vehicles). descriptive approaches are also taken. businesses may not be looking at short-run financial returns when developing their CSR strategy.g. See also Corporate Social Entrepreneurship. though there is a large body of literature exhorting business to adopt measures beyond financial ones (e. and having a comprehensive policy can give an advantage. meaning those on whom an organization's activities have an impact.g. particularly within the competitive graduate student market. In academia. after many multinational corporations formed. The range and quantity of business ethical issues reflects the degree to which business is perceived to be at odds with noneconomic social values. BP's "beyond petroleum" environmental tilt).g. Risk management 8 . In some cases. corporations have re-branded their core values in the light of business ethical considerations (e. and Rynes found a correlation between social/environmental performance and financial performance. Orlitzky. today most major corporate websites lay emphasis on commitment to promoting non-economic social values under a variety of headings (e. particularly when staff can become involved through payroll giving. although it was seldom abbreviated. Potential recruits often ask about a firm's CSR policy during an interview. The term stakeholder. interest in business ethics accelerated dramatically during the 1980s and 1990s. The definition of CSR used within an organization can vary from the strict "stakeholder impacts" definition used by many CSR advocates and will often include charitable efforts and volunteering. However. both within major corporations and within academia. or may be given a separate unit reporting to the CEO or in some cases directly to the board. The UN has developed the Principles for Responsible Investment as guidelines for investing entities.SOMA PATHAK 510911706 ethics through new public initiatives and laws (e. in addition to the more obvious economic and governmental drivers.. ISO 26000 is the recognized international standard for CSR (currently a Draft International Standard). ethics codes. CSR may be based within the human resources. It is widely accepted that CSR adheres to similar principles but with no formal act of legislation. Some companies may implement CSR-type values without a clearly defined team or program. For example. business development or public relations departments of an organization.
Investors of all colors sought to safeguard their investment by taking over as many management functions as they could. and so on). Building a genuine culture of 'doing the right thing' within a corporation can offset these risks. An investor was expected to excel in obtaining high yields on his capital – not in industrial management or in marketing. Several major brands. there was little difference between financial and strategic investors. courts. separate businesses of money making and business management emerged. Key external stakeholders include customers. two classes of investors emerged. technology. 9 . Distinguish between a Financial Investor and a Strategic Investor explaining the role they play in a Company. A single investor (or a small group of investors) could no longer accommodate the needs even of a single firm. management skills. not to be capable of personally tackling the various and varying tasks of the business that he managed. The Body Shop and American Apparel are built on ethical values. The other type supplied them with know-how. investments were small and shareholders few. Q6. the scales of industrial production (and of service provision) expanded. increased retention. One type supplied firms with capital. Brand differentiation In crowded marketplaces. diversity. Thus. higher productivity. and the media. People invested in industries they were acquainted with first hand. more loyalty. companies strive for a unique selling proposition that can separate them from the competition in the minds of consumers. These can also draw unwanted attention from regulators. Understanding what causes are important to employees is usually the first priority because of the many interrelated business benefits that can be derived from increased employee engagement (i. Additionally. Ans. As knowledge increased and specialization ensued – it was no longer feasible or possible to micro-manage a firm one invested in. they can persuade governments and the wider public that they are taking issues such as health and safety. Reputations that take decades to build up can be ruined in hours through incidents such as corruption scandals or environmental accidents. License to operate Corporations are keen to avoid interference in their business through taxation or regulations. Business service organizations can benefit too from building a reputation for integrity and best practice. regulators. academics. In the not so distant past. A firm resembled a household and the number of people involved – in ownership and in management – was correspondingly limited. As markets grew. communities in the areas where the corporation operates its facilities. such as The Co-operative Group. By taking substantive voluntary steps. or the environment seriously as good corporate citizens with respect to labour standards and impacts on the environment Stakeholder priorities Increasingly. (10 marks). improved recruitment. investors (particularly institutional investors). consumers. governments and media. CSR can play a role in building customer loyalty based on distinctive ethical values. corporations are motivated to become more socially responsible because their most important stakeholders expect them to understand and address the social and community issues that are relevant to them. Actually.SOMA PATHAK 510911706 Managing risk is a central part of many corporate strategies.e. A manager was expected to manage.
so is macromanagement. 1. more and more. The quality of management. Micro-management is left to others . Venture capital and risk capital funds. But his interpretation of the rolls and functions of "good management" are very different to that offered by the strategic investor.all depend on the strategic investor. The financial investor is always on the lookout. a sense of direction. regularly and duly prepare and present to the Board of Directors financial statements and reports as required by all pertinent laws and 10 . The financial investor represents the past. But. the strategic investor also provided the necessary funding. To regulate. gradually. as financial management is implemented. in many cases. Indeed. the financial investor has no interest. for instance. his money buys for him not only a good product and a good market. which directly deal with the finances of the firm. it is the strategic investor that has the greater influence on the value of the company's shares. This is usually achieved both during a Due Diligence process and later. People understand that money is abundant and what is in short supply is good management. searching for willing buyers for his stake. These are the functions normally reserved to financial investors: Financial Management The financial investor is expected to take over the financial management of the firm and to directly appoint the senior management and. its flow of funds. to a growing extent. full and accurate set of accounting books of the firm reflecting all its activities in a manner commensurate with the relevant legislation and regulation in the territories of operations of the firm and with internal guidelines set from time to time by the Board of Directors of the firm. The strategic investor. Given the ability to create a brand. This is "bottom line" short termism which also characterizes operators in the capital markets.SOMA PATHAK 510911706 marketing techniques. the rate of the introduction of new products. Its money is the result of past . represents the real long term accumulator of value. the success or failure of marketing strategies. The price of his shares is the most important indication of success. Optimally. So are. The stock exchange is a popular exit strategy. That there is a strong relationship between the quality and decisions of the strategic investor and the share price is small wonder.decisions. 3. 2. to issue new products and to acquire new clients . In many cases. nor the resources to get seriously involved in any one of them. the balance between financial investors and strategic investors is shifting in favour of the latter. The financial investor has little interest in the company's management. a separation was maintained. clientele and a vision. the income. The financial investor is satisfied with a management team which maximizes value. the expenditures. but also a good management. the level of customer satisfaction. For "exit strategy" read quick profits. the management echelons. The strategic investor represents a discounted future in the same manner that shares do. to generate profits. The financial investor participates in quarterly or annual general shareholders meetings. on the other hand.money is abundant. This is the extent of its involvement. supervise and implement a timely.but. the adherence to the budget. the education of the workforce .right and wrong . Its orientation is short term: an "exit strategy" is sought as soon as feasible. intellectual property. Paradoxically. are purely financial investors. especially. investment banks and other financial institutions. To implement continuous financial audit and control systems to monitor the performance of the firm. the cost of sales and other budgetary items. To timely. Invested in so many ventures and companies.
feasibility studies. 6. To coordinate an educational campaign to ensure the voluntary collaboration of the clients. To alert the Board of Directors and to warn it regarding any irregularity. usually. financial consultants. financial institutions and capital markets with the aim of securing the funds necessary for the operations of the firm. 3. the budgets and any other matter of a financial nature or which could or does have a financial implication. including accountants. 9. underwriters and brokers. the audits. the attainment of its development plans and its investments. conducive to the financial health. 5. distributors and other debtors in the timely and orderly payment of their dues. 7. the financial operations. To comply with all reporting. To collaborate and coordinate the activities of outside suppliers of financial services hired or contracted by the firm. To improve the collection methods in order to reduce the amounts of arrears and overdue payments. data gathering methods and venues in order to properly evaluate and predict the credit risk rating of a client. To fully computerize all the above activities in a combined hardware-software and communications system which will integrate into the systems of other members of the group of companies. 4. 8. 10. quantitative methods. investment memoranda and all other financial and business documents as may be required from time to time by the Board of Directors of the Firm. or supplier. whether financial or of other nature. lacunas and problems whether actual or potential concerning the financial systems.SOMA PATHAK 510911706 regulations in the territories of the operations of the firm and as deemed necessary and demanded from time to time by the Board of Directors of the Firm. To maintain a working relationship and to develop additional relationships with banks. regularity. To prepare and present for the approval of the Board of Directors an annual budget. arrears and overdue payments and other collectibles. The strategic investor is. law enforcement agencies and private collection firms in assuring the timely flow and payment of all due payments. other budgets. the accounting. etc. 4. the financing plans. nonpayment and non-performance events. distributor. To collaborate with legal institutions. auditors. 2. business plans. Collection and Credit Assessment 1. the banking system and other financial venues. To analyse receivables and collectibles on a regular and timely basis. the growth prospects and the fulfillment of investment plans of the firm to the best of his ability and with the appropriate dedication of the time and efforts required. 5. or the average period of such arrears and overdue payments. accounting and audit requirements imposed by the capital markets or regulatory bodies of capital markets in which the securities of the firm are traded or are about to be traded or otherwise listed. financial plans. questionnaires. 6. to initiate and engage in all manner of activities. lack of adherence. put in charge of the following: Project Planning and Project Management 11 .Otherwise. To construct and implement credit risk assessment tools. – in order to determine the changes in the credit risk rating of said factors. lack of compliance. To constantly monitor and analyse the payment morale.
etc. a franchising network. image. it accumulated years of marketing and sales promotion ideas which crystallized into a new conception of the business. This is an important asset. solving issues of compatibility (hardware and software. distributors. articles.).. profiles of potential social and economic categories of clients. The provision of corporate guarantees and letters of comfort to suppliers. computer network connections. The planning and erecting of the various sites. sales promotion methods. The strategic investor usually organizes a distribution and dealership network. co-branding. buildings. new market niches. its recognition and market awareness. if properly used. Project planning. Minimizing the costs of infrastructure by deploying proprietary components and planning. structures. pecuniary and quality supervision. public relations and other media campaigns. The strategic investor is usually possessed of a brandname recognized in many countries. The enhancement of the brandname. The dissemination of the product as a preferred choice among vendors. It has numerous off the shelf marketing plans and drawer sales promotion campaigns. 4. 12 . 4. raw materials. sponsorships. sounds. It owns libraries of material.SOMA PATHAK 510911706 The strategic investor is uniquely positioned to plan the technical side of the project and to implement it.. etc. etc. 7. which. advertising. The selection of infrastructure. points. The strategic investor typically brings to the firm valuable experience in marketing and sales. The strategic investor is also in charge of "vision thinking": new methods of operation. pricing. therefore. 5. local marketing and sales promotion and other network management functions. He is. factories. 2. The planning and implementation of line connections. market penetration. Above all. network control. collaboration with businesses. advertising and sales promotion drives best suited for it. industrial processes. protocols. put in charge of: 1. vouchers).. can attract users. 5. The presentation to the Board an annual plan of sales and marketing including: market penetration targets. etc. new marketing ploys. implementation and supervision. or a sales network (retail chains) including: training. images. The strategic investor also implements these plans or supervises their implementation. 7. Special events. reliably. premises.g. Marketing and Sales 1. predicting the future trends and market needs. It is the market leaders in certain territories. collaboration with other suppliers – are all the responsibilities of the strategic investor. 6. inventory and accounting controls. PR and image materials. The planning and implementation of incentive systems (e. It developed software and personnel capable of analysing any market into effective niches and of creating the right media (image and PR). 2. market analyses and research. 6. Negotiations and agreements with providers and suppliers. 3. It has built large databases with multi-year profiles of the purchasing patterns and demographic data related to thousands of clients in many countries. paper clippings. individual users and businesses in the territory. equipment. and proprietary trademarks and brand names. 3. advertising campaigns. It has been providing goods and services to users for a long period of time.
vendors. This is why entrepreneurs find it very hard to cohabitate with investors of any kind. in collaboration with other suppliers or market technological leaders. This is where nine out of ten entrepreneurs fail . These things antagonize the entrepreneurs. They are more interested in business results than in dreams. implement and supervise all the stages of the technological side of the business. communication. Education and Training The strategic investor is responsible to train all the personnel in the firm: operators. sales personnel. The training is conducted at its sole expense and includes tours of its facilities abroad. 13 . To secure the unobstructed flow of relevant information and the protection of confidential organization. technological solutions to the needs of the firm. its clients and suppliers. The strategic partner's engineers are available to plan. And – being well acquainted with entrepreneurs – they insist on having unmitigated control of the business. The entrepreneurs – who sought to introduce the two types of investors.SOMA PATHAK 510911706 Technology 1. 3. 4. To structure the firm in an optimal manner. The planning and implementation of a fully operative computer system (hardware. The planning and implementation of new technological systems up to their fully operational phase. The planning and the execution of an integration program with new technologies in the field. But the very personality traits which qualify them to become entrepreneurs – also hinder the future development of their firms. 2. They feel that they are losing their creation to cold-hearted.in knowing when to let go. for fear of losing all their money. Entrepreneurs are excellent at identifying the needs of the market and at introducing technological or service solutions to satisfy such needs. representations and negotiations with other firms. intranet) to deal with all the aspects of the structure and the operation of the firm. To run the day to day business of the firm. The encouragement of the development of in-house. The strategic investor puts at the disposal of the firm proprietary software developed by it and specifically tailored to the needs of companies operating in the firm's market. 2. or persons. They may be less visionary – but also more experienced. 3. most conducive to the conduct of its business and to present the new structure for the Board's approval within 30 days from the date of the GM's appointment. software. mean spirited. They rebel and prefer to remain small or even to close shop than to give up their cherished freedoms. customer services. To represent the firm in its contacts. To oversee the personnel of the firm and to resolve all the personnel issues. authorities. 4. 5. Outside investors are not emotionally involved. corporate predators. Only the introduction of outside investors can resolve the dilemma. proprietary. in the first place – are usually left with the following functions: Administration and Control 1. distributors.
What is the purpose of a Business Plan? Explain the features of the component of the Plan dealing with the Company and its product description.(10 marks) Ans. A good business plan will help attract necessary financing by demonstrating the feasibility of your venture and the level of thought and professionalism you bring to the task. Answer all the questions. 1. You can establish these goals in a number of ways.Strategic management & Business Policy Assignment Set-2 Note: Each question carries 10 Marks. because these goals will influence the direction of the organization and require the allocation 14 . The first step in planning a new business venture is to establish goals that you seek to achieve with the business. but an inclusive and ordered process like an organizational strategic planning session or a comprehensive neighborhood planning process may be best. The board of directors of your organization should review and approve the goals.SOMA PATHAK 510911706 Master of Business Administration-MBA Semester 4 MB0036.
They also establish clear criteria to evaluate the success of the business venture. activities or services provided by your organization. you might take several approaches to identify potential business opportunities. attract additional businesses to the area and fill a gap in existing retail services. Perhaps an entrepreneurial member of the board of directors or a community resident has approached your organization with an idea for a new business.000 of net income or profit within three years”. “to employ at least 15 community residents within two years in new permanent jobs at a livable wage”. Local Market Study: Whether your goal is to revitalize or fill space in a neighborhood commercial district or to rehabilitate vacant housing stock.SOMA PATHAK 510911706 of valuable staff and financial resources. Whenever possible.” Clearly defined and quantifiable goals provide objective measurements to screen potential business opportunities. Your goals will serve as a filter to screen a wide range of possible business opportunities. or a neighborhood business has closed or moved out of the area. your organization may spend substantial time and resources pursuing potential business ventures that may be financially viable but do not serve the mission of your organization in other important ways. A bad or insufficient market study could encourage your organization to pursue a business destined to fail. but fails to accomplish important goals or to meet the mission of your organization. A liquor store on the corner may be a clear money-maker. Many organizations may find themselves starting at this point in the process. goals should have quantifiable outcomes such as “to generate a minimum of $50. The following are examples of goals you may seek to achieve through the creation of a new business venture: Revenue Generation – Your organization may hope to create a business that will generate sufficient net income or profit to finance other programs. You may need to find a use for a vacant commercial property that blights a strategic area of your neighborhood. Establish Goals Once you have identified goals for a new business venture. Business opportunities may have been dropped at your doorstep. and assess the capacity of the area to support existing and additional commercial or home-ownership activity. it may not be the retail to assist your community desires. If you fail to establish clear goals early in the process. with potentially disastrous results for the organization as a whole. Through a market study you will be able to identify gaps in existing products and 15 . Depending on the goals you have set. Or your business might focus on the rehabilitation of dilapidated single family homes in the community. or “to rehabilitate 50 single-family houses over three years. however. we recommend that you take a step back and set goals. taking jobs and leaving a vacant facility behind. Neighborhood Development Strategy – A new business venture might serve as an anchor to a deteriorating neighborhood commercial area. the next step in the business planning process is to identify and select the right business.000 square feet of neighborhood commercial space”. “to occupy and support a minimum of 10. you should conduct a local market study. This assessment is based on the shopping and traffic patterns of the area and the demographic and socio-economic characteristics of the community. A good market study will measure the level of existing goods and services provided in the area. Even if this is the case. Failing to do so could result in a waste of valuable time and resources pursuing an idea that may seem feasible. Employment Creation – A new business venture may create job opportunities for community residents or the constituency served by your organization.
As a non-profit corporation. You will still need to conduct a complete market study to determine the demand for this product or service beyond your internal needs or the needs of your partners or affiliates. If your organization does not have staff capacity to conduct a market study. catering services. In addition to qualified legal counsel. Perhaps a local retail or small light manufacturing business that has been an anchor to the local retail area or a muchneeded source of jobs in the neighborhood is for sale. have a qualified attorney advise you on the proper corporate structure for your new venture. If you decide to pursue this option. Internal Purchasing Needs / Collaborative Procurement: Perhaps. may need to remain with the business. Identify Business Opportunities Buying an Existing Business: Rather than starting a new business. these are just a few important areas to research in assessing the business you plan to purchase: Be sure to conduct a thorough review of the financial statements for the past three to five years to determine the current fiscal status and recent financial trends. Are all the required licenses and permits in place and can they be transferred to a new owner? Also look at the quality of key employees who. before moving ahead. you may wish to consider purchasing an existing business. If nearby affiliate organizations also use this service or product. the validity of the accounts receivable and the status of the accounts payable. because of their expertise. this may present a business opportunity. you still need to go through the steps of creating a business plan. metropolitan area or region. engaging in incomegenerating activities not related to your mission may affect your tax-exempt status. customers and other businesses in the area to learn more about the reputation of the business. Inspect the facilities and talk to suppliers. Your organization may wish to draw upon this internal expertise in selecting potential business opportunities. seek the expertise of an 16 . and other products. property management services. You may also wish to protect your organization from any liability issues connected with the proposed business activity. Its closure would mean the loss of jobs and services for your neighborhood. At this early stage of your planning process. You may be able to identify which business or industrial sectors are growing or declining in your city. travel services. After you have decided on a particular business activity. Conducting a solid and thorough market study up front will provide essential information for your final business plan. However. office supplies. Another area to evaluate is the perception or image of the business.SOMA PATHAK 510911706 services and unsatisfied demand for additional or expanded products and services. your organization frequently purchases a particular service or product. transportation services. be sure to consult an attorney experienced in corporation law. Your organization might consider purchasing and taking over the enterprise instead of starting a new business. Internal Capacity: The board. Analysis of Local and Regional Industry Trends: Another method of investigating potential business opportunities is to research local and regional business and industry trends. staff or membership of your organization may possess knowledge and skills in a particular business sector or industry. The regional or metropolitan area planning agency for your area is a good source of data on industry trends. you might hire a consultant or solicit the assistance of business administration students from a local college or university. Examples of such products or services include printing or copying services. You will also need to assess the customer or client base and determine whether its members will remain loyal to the business after it changes hands.
Your business plan should contain the following sections: · Executive summary · Company and product description · Market description · Operations · Management and ownership · Financial information and timeline · Risks and their mitigation A solid business plan will clearly explain the business concept. describe the market for your product or service.SOMA PATHAK 510911706 experienced professional in that particular industry. The first step in writing your business plan is to identify your target audience. Creating One’s Own Business Plan It is also important to establish a timeline for completing the plan. Now you are ready to test the feasibility of the venture and to present your business concept to the world. He or she will bring valuable knowledge and insights regarding the industry that will prove extremely useful during the business planning process. A solid business plan will clearly explain the business concept. You might consider a combination of the options. you are ready to begin assembling the elements of the plan. experience with planning and research. Will this be an internal plan the board will use to assess the feasibility and appropriateness of the business? Or will this plan be distributed to a larger external audience such as funding sources. Advisory You have decided on a business opportunity that meets the goals of your organization. 17 . Now that you have decided who will put together your business plan and have set a timeline for its completion. and the group’s facilitation needs. volunteers. attract investment. consultants and a board committee may lengthen or shorten the process depending on skill level. A committee will probably need much more time. available time. describe the market for your product or service. and establish operating goals and guidelines. The following table lists the advantages and disadvantages of several options for getting the work done. Combinations of staff. commercial lenders or the community to gain financial backing and political support for the proposed venture? The content and emphasis of the plan will shift according to the audience. and establish operating goals and guidelines. A business plan can be completed by one staff member working full time in as little as a week. although a thorough market analysis will add several days at least. attract investment. You will also need to decide who will conduct the necessary research and write the plan.
Whenever possible. and discuss the rationale behind that price. You should discuss why you are creating this new venture. Other readers will look to the executive summary as a sample of the quality and professionalism of the overall plan. Provide as much detail as necessary to inform the reader about the particular characteristics of your product that distinguish it from its competition – many nonprofits.SOMA PATHAK 510911706 1 Executive Summary In this section of your business plan. Price Provide a realistic estimate of the price for your product or service. the role it has played in developing this new venture and the ongoing role. Give the reader a brief overview of the industry. An unrealistic price estimate may undermine the credibility of your plan and raise concerns that your product or service may not be of sufficient quality or that you will not be able to maintain profitability in the long 18 . describe the products or services you plan to provide. expect to produce higher-quality housing than otherwise exists in the area. Sell your concept! The executive summary may be the first and only section of your business plan that most of your audience will read. Mention any distinctive elements in the manufacture of the product. Some readers will look at this section to determine whether or not they want to learn more about a business. describing historic and current growth trends. manufacturing or service) and the legal structure (corporation or partnership). referencing the goals you set at the beginning of the business planning process. Tell the audience why the business is a great idea. if any. The executive summary should be no more than one to three pages long and should answer the following questions: · Who are you? (describe your organization) · What are you planning? (describe the service or product) · Why are you planning it? (discuss the demand and market for the service or product) · How will you operate your business? · When will you be in operation? (overview of timeline) · What is your expected net profit? (discuss your projected sales and costs) Although the executive summary is the first part of your business plan. 2 Company and Product Description In describing your company be sure to include what type of business you are planning (homeownership development. you should write it after you have written the other sections of the plan in order to include the most important points of each section. Also include a description of your nonprofit organization.” If you are providing a service. and the product or service you plan to offer. wholesale. such as being “hand-made by a particular people from a specific area. it will play in operations. explain the steps you will take to provide a service that is better than your competition. Discuss what will attract consumers to your product or service. for example. provide a description of your company. research journals or other publications. Focus on what distinguishes your product or service from the rest of the market. retail. Product or Service After describing your company and its industry context. the industry you will be competing in. Include these references in the attachments of your business plan. provide documentation or references supporting your trend analysis such as articles from business-oriented newspapers and magazines.
Include any relevant information regarding the growth potential for your target market if your business is expected to rely on growth. the characteristics of your customers and the share of the market you will gain over your competition. neighborhood surveys and group or individual interviews. Competition Discuss how people identified in your target market currently meet their need for your product or service. Your estimate should be based on the size of your market. Customers In this section of your business plan. race. what are the local markets for purchase and rental? How much are people currently paying for similar products or services? Briefly describe what differentiates your proposed venture from these existing businesses and discuss why you are entering this market. Be sure to list the sources for your data. The initial year should be broken down in monthly or quarterly increments. for a housing business. · Geography – Measures based on location. Discuss the advantages of the location. In addition to providing a detailed description of your customer base. discuss the 19 .SOMA PATHAK 510911706 run. Sources for this information may include recent data from the Bureau of Statistics. Project how many units you will sell at a specified price over several years. state or local census data. What other businesses exist in your area that are similar to your proposed venture? For example. you will describe how you plan to operate the business. Depending on your anticipated customer base. such as its accessibility. Cite any research forecasting population increases in your target market or other trends and factors that may increase the demand for your product or service. as this will further validate your market assumptions. Provide statistical data to describe the size of your target market. you will also need to describe your competition (other local developers or nearby businesses providing a similar service to your potential customer base). Place Describe the location where you will produce or distribute your product or provide your service. surrounding amenities and other characteristics that may enhance your business. Account for initial presentation and market penetration of your product and any seasonal variations in sales. low end or in the middle of the existing range of prices for a similar product or service. such as membership lists. religion and family size. describe the staff required to operate and manage the business. Sales Projections Present an estimate of how many people you expect will purchase your product or service. or information gathered by your organization. In other sections of the plan you will discuss the target market for your product or service and also provide additional details on how the price of your product fits into the overall financial projections for the enterprise. accessibility to your location via public transportation could affect the marketability of your product or service. gender. if appropriate. You will present information on how you plan to create your product or provide your service. 3 Market Description In this section. Describe where this price positions you in the marketplace: at the high end. you will describe the customer base or market for your product or service. · Socioeconomic Status – Measures based on individual or household annual income. Who will purchase your product or use your service? How large is your customer base? Define the characteristics of your target market in terms of its: · Demographics – Measures of age.
Staffing Describe the staff required to operate your business: discuss how many people you will need. informing or educating customers about your product or service and convincing them to purchase it. so you must describe how you will inform your target market about your product or service and how you will convince customers to purchase it. describe the process of service deliver (such as the initial interview. for instance. or directly distribute your product through a delivery service such as United Parcel Service. or other approaches. electronic media (television.SOMA PATHAK 510911706 equipment and materials necessary. Prepare a chart outlining the salaries and benefits you will provide to your workforce. and define the site or facility requirements. so avoid using industry jargon to describe the production process. packaged and ready for distribution and sale. describe its features. such as print media (advertisements in newspapers. Provide information on how you will recruit staff and provide initial and ongoing training of employees. you need to demonstrate that you will have adequate space for administrative functions and other activities related to the service you plan to provide . A key component of the operation of your business will be your sales and marketing strategy. Will you use sales agents or existing retail outlets. Indicate the amount of building space you will need for production and administration. copiers. If you plan to provide a service. Also discuss any building features required for the production process such as high ceilings. describe the tasks they will carry out. Also detail how you will distribute and sell your product or service. specialized ventilation and heating systems. including any office equipment such as computers. magazines or trade journals). research and design. Federal Express or independent trucking company? 5 Operations 20 . radio and the Internet). fixtures and telephone systems. individual sales agents or representatives. Provide a description of any subcontractors or external services you plan to use in the production process. The reader of the plan may be unfamiliar with the industry. Even if you are planning to provide a service instead of manufacturing a product. Market Description Describe your strategy for locating your target market. from the raw material or initial stage to the finished product. assessment. If you have already identified a location and a facility that meets your requirements. Facility Describe the type of facility in which you will house your business. Discuss the product’s or service’s features you plan to emphasize to gain the attention of your target market. telemarketing. Provide details on the methods you will use to advertise your product. Also discuss the types of materials you will use in the production process and describe the source and cost of those materials. furniture. sanitized laboratory space or vehicular accessibility. and final presentation. if any. what type of equipment will you need? Describe any machinery and vehicles necessary in the production. and the skills they will need. 4 Equipment and Materials To manufacture your product or provide your service. Production Description Describe the steps for creating your product. if you are offering consulting services). direct mail. packaging and distribution of your product.
interest. equipment and vehicle purchase or rental. Start-up Budget Describe the initial expenses you will incur to get your business up and running. production labor). At a minimum. and any industry-specific services such as suppliers and distributors. and initial material or supply purchase. investors and other sources of capital. supplies. This schedule should indicate how much money your business will have or need and when you will need it. Itemize your projected expenses. insurance. legal and accounting services. Be sure to provide a complete job description of any vacancies in your management team. You should describe your sources of income and capital. Describe the responsibilities. equipment. detailing your projected sales revenue and indicating your own or investor equity contribution. Success is often due to one’s contacts. insurance. marketing. marketing and administration of similar businesses or within the selected industry and attach the resumes of each member to the plan. Cash Flow Projection This statement presents a month-to-month schedule of the estimated cash inflows and outflows of your business for the first year. lenders. and building repair or renovation expenses). their background and their responsibilities in the business. You can use Worksheet B as a sample format for preparing your start-up budget. furniture. the background required and the steps you plan to take to fill that key position. account for a gradual increase in sales from initial product introduction and any expected seasonal fluctuations in revenue projections. fees and other ongoing operating expenses) and capital expenditures (land and buildings. describe the senior managers responsible for overseeing the start-up and operation of your business. overhead expenses (rent. 6 Management and Ownership In this section you will describe the financial feasibility of your planned venture and provide several financial reports and statements to document why your business will be a viable enterprise and a sound investment. taxes. Income Statement 21 . so fully describe your business relationships with attorneys. you should provide a brief descriptive narrative for each of the following financial statements and include a copy in the attachments to your plan: · Start-up budget · Cash flow projection · Income statement · Balance sheet In preparing these statements. Be sure to highlight your management team’s experience in managing the production. the skills. In preparing this statement. utilities. vehicles. distinguishing between the cost of goods sold (materials. Ownership What is its relationship to your existing organization? Who is on the board of directors / board of advisors of the new business and what are their backgrounds and areas of expertise? Potential investors or lenders will be interested in the ownership stake of the board of directors and also in what portion of the company’s equity is available. maintenance. you may want to seek the advice of a certified public accountant (CPA).SOMA PATHAK 510911706 In this section of your business plan. accountants and advertising or public relations agencies. administrative costs and salaries. legal incorporation and licensing expenses. facility purchase or rental. Some items you might include in your start-up budget research and product design and development expenses.
also submit an income statement for at least three prior consecutive years. This statement should indicate to the reader the potential of your business to generate cash and its profitability over time. expenses. describe what they will receive in return for their capital. such as venture capitalists. Are you looking for debt from a lender or equity from an investor? Refer to your start up budget and cash flow statement presented earlier.SOMA PATHAK 510911706 Prepare a multiyear (three. Provide a copy of the balance sheet of the business’s sponsoring organization or individual. And make sure you research the investment market carefully. building improvements. Be prepared to negotiate. Also describe any commitments or investments that you may have already secured. Discuss how and when you will draw on these funds and how they will affect the bottom line. The following is a list of some of the steps you may wish to include: · Filing legal incorporation documents · Identifying and securing suitable space · Designing and developing the product · Obtaining required licenses or permits · Securing necessary financing · Leasing or purchasing equipment · Hiring key staff 22 . The asset being purchased is usually pledged as security for the loan. Equity investors are looking for rates of return higher than rates offered by banks or other business lenders. several socially minded investment pools exist and more are in development. For an existing business. · Fixed Asset Financing – Longer-term financing for property. provide supporting documentation such as growth patterns of similar companies or studies that forecast an industry-wide growth rate. Describe in your narrative any assets that will be allocated to the start-up of the business. The level of risk in your business and industry will help to determine the actual market rate. 7 Financial Information and Start up Timeline Capital Requirements Describe the amount and type of financing you are seeking for your business. Check with other businesses (although not direct competitors) to see what return on investment their investors demanded. describe the type of financing you are seeking: · Seed Capital – Short-term financing to cover start-up costs. Initial Start-up Timeline Provide a timeline of tasks and events necessary to get your business operational. Lenders may look at this statement to determine whether your business can support the additional debt you are requesting. What is the repayment period and the expected return on investment? Also discuss the nature of their ownership share and how it may change with future investments.to five – year) statement of projected revenue. If you make assumptions about the growth of your business. Balance Sheet A start-up business probably will not have any assets or liabilities at the time you are drafting the business plan. Set realistic deadlines according to your capacity to complete these tasks. Include deadlines for task completion. capital expenditures and cost of goods sold. as will the availability of equity dollars. equipment or vehicles. Be sure to describe the current stage you are in and what steps you have taken to date. or lenders. · Working Capital – Short-term financing to cover operating expenses and to bridge gaps in cash flow. If you are seeking investors.
A well-organized plan will assist you in communicating the most important elements of your business plan to the reader. Sales Projections Present an estimate of how many people you expect will purchase your product or service. the characteristics of your customers and the share of the market you will gain over your competition. Review the Executive Summary section of this manual for more tips on this critical introduction to your business. you should focus its presentation. Your estimate should be based on the size of your market. Project how many units you will sell at a specified price over several years. if you have already written the executive summary. Write short notes on : a) sales projections (10 marks). Step I: 23 . Steps for Developing Sales Projections Your business plan is not just a funding tool. After you have completed all of the elements of your business plan. Q2. and a persuasive plan will help you to convince the reader to invest in your business. Ans. The following are steps for developing sales projections. Executive Summary As mentioned earlier. review it to make sure it embodies the following characteristics. additional regulations or population changes For each potential problem. the executive summary should provide an overview of the plan and entice the reader to read the whole plan or to agree to meet with you. this section should be written last. The initial year should be broken down in monthly or quarterly increments. The executive summary should be no more than three pages and should briefly describe the most important elements of the plan. Potential problems could include: · Insufficient public subsidy available to new home owners or residents · The competition drops its prices · Not enough customers · Production costs exceed estimates · Difficulty in finding qualified employees · Environmental or governmental changes such as tax increases. Because it is the first and possibly the only section of the plan that many readers may see. discuss its likelihood and describe possible solutions or actions you might undertake to mitigate the problem. but also a blueprint for how your business should operate. Risks and their Mitigation Although it is impossible to know exactly what will go wrong in starting and running your business.SOMA PATHAK 510911706 · Hiring and training of production or support staff · Purchasing materials and production supplies · Beginning marketing activities · Opening Although it is impossible to know exactly what will go wrong in starting and running your business. if appropriate. Account for initial presentation and market penetration of your product and any seasonal variations in sales. However. thinking about different challenges will strengthen your plan. thinking about different challenges will strengthen your plan.
You will use these numbers to project your equipment. supply and staffing needs. (PT Sec. as well as income. or you can base your estimates on your knowledge of the market. Seasonal variations may affect your business as well. · Materials & Supplies · Personnel · Key Employees · Contract Labour/Temps · Training Expenses · Marketing Expenses · Advertisements · Brochures/Literature/Other · Insurance Premiums · Distributor Contracts · Contingency (5%) Expenses: Costs of Goods Sold · Materials/Supplies · Labor · Rent · Utilities · Insurance · Admin. Using the totals for a week. For the first few months.) · Legal & Accounting · Marketing · Equipment Maintenance/Supplies · Facility Maintenance · Fees/Miscellaneous Debt / Equity Investment: · Equipment Loan · Building Rehabilitation Loan 24 . keep in mind that business will start off slowly before people become more aware of your business. make projections for each month.SOMA PATHAK 510911706 Estimate For each product or service. Step 2: Use a Calendar Estimate your sales and number of customers served during one week. Exp. estimate the number of people who are likely to buy and when they will buy it. Cost Account Heads: · Organizational Start up Costs · Product Design/Development · Research & Development · Legal/Licensing Expenses · Property & Facilities · Land/Building Purchase · Initial Lease Deposit · Building Repairs/Improvements · Equipment/Machinery · Production-related · Administrative/Office Equip. Use will most likely increase as people learn about your products and services. You can get this information from asking your likely customers about their possible use of your business.
25 . · To ensure that the data available through the NETWORK are of known quality. It also has the potential for engaging more partners in the NETWORK. i. The drivers are: · Processes – This driver relates to facilitated targeted action on the ground through providing knowledge of resource location. Working with the wider public E. a lead partner approach for each project will be retained. national and international levels. Co-ordination and promotion i) In addition. the partners will contribute to the overall realisation of the objectives through work that they initiate on their own account. · To promote knowledge. data quality and gaps. i) The objectives have cross-cutting themes which are: A. use and awareness of the NETWORK. Data standards and tools C. pattern of distribution. ii) A series of assumptions have been made in formulating the Business Priorities and their associated work programme. extent. · To ensure all holders of Business information are able to participate. · To ensure that the NETWORK Gateway gives access to data on Location and species used to inform decisions affecting Business at local. · To enhance the skills base and expertise needed to support and develop the NETWORK. These are: · It is assumed that the present way of working. Capacity building D. but which does not necessarily fall under the focused objectives for the Network. · The plan is not intended to represent all the work that could be undertaken. a series of principle drivers have been recognized.e. Infrastructure development B.SOMA PATHAK 510911706 · Grants · Owner Equity Expenses · Cost of Goods Sold · Wages & Benefits · Materials · Supplies Overhead Expenses: · Rent · Utilities · Building Maintenance/Security · Marketing · Accounting · Legal · Administrative Expense · Interest Expense · Depreciation The Business Priorities are based upon six top-level objectives. · It is anticipated that other work towards the principal aim of adding content and providing a fully functional gateway will be adopted by the NETWORK as part of its programme. regional. To give additional focus to the challenging nature of the task that the NETWORK is setting itself. these are: · To make Business data available both to decision-makers and as much as possible available in the public domain. but this work would have to be prioritized against this core activity and separately resourced.
The plan also acknowledges the need to co-ordinate activity between the members of the NETWORK and their partners. Brainstorming Don’t tell people that their ideas are bad. They spend most of their creative energy telling manufacturers that they…aren’t creative! Salespeople Are Creative – They are natural born story-tellers. Accountants are creative. b) importance of creativity in Business Ans. Get your ideas on paper (Let someone else edit it. Some of most creative people are in manufacturing. · Ensuring that the benefits already secured through the earlier work are maintained. Your life. 2 A Simple Creative Exercise… Simplify everything. These lead naturally to three broad areas of work: · Developing the recording network. 26 . · Generic enhancement – This driver encompasses capacity building and Recording Schemes and other contributing organizations and user groups. especially if you don’t have a better one. and to communicate the progress and successes of the work programme. · Data contributor engagement – This driver is concerned with accessing sources of data for the NETWORK enabling the assessment of actions and continual improvement in the targeting of actions from the two previous drivers. your processes. Everything. Fixing Problems is Creative. your office.…until you’ve taken a class called “How to Tell Stories and Connect with Your Audience”. your home. extent.) Go retro: Carry a notebook. in order to ensure the continued and enhanced supply and use of information. procedures. your desk. They actually CREATE products that change the world. pattern and quality of Business. Technology Last. Creativity Everyone in business is creative. · Operational use – This relates to the use of the NETWORK within the day to day business of agencies as a source of data relevant to local reporting or casework. Don’t let spelling and grammar issues or relentless self-editing stop you. Some of the least creative people perhaps are in advertising. vision. policy.SOMA PATHAK 510911706 · Environmental Impact Assessment (EIA) and Strategic Environmental Assessment – This driver is concerned with providing ready access to data on location. and calendar into your meetings. You have a ton every day. But most of the time. pen. Don’t invest in a presentation class called “How to Use PowerPoint”…. not to complain. you can’t remember them by the day’s end. Your job is to fix problems. Look up at people. Story First. It’s only your life’s work. Best Creative Exercise Ever Write down your ideas. · Enhancing the Internet Gateway in terms of its functionality and the data it accesses.
Facts and observations Giga-investments made in the paper and pulp industry. The energy sector faces growing competition with lower prices and cyclic variations of demand. · Don’t just provide data. …. today face scenarios of slow growth (2-3 % p. Another Lame Excuse… Designers should put more of their passion into designing great work. not once in a while. read your audience. These lessons show that investments in buildings. profitability and productivity. as its owners are offered other opportunities and the capital will move (often quite fast) to capture these opportunities.” Everyone in Sales Knows… · Tell stories. So do cooks. How about a Show? Try “giving a performance” instead of merely “giving a presentation. “It’s not my job to be creative. Leave the office building at least once a day.SOMA PATHAK 510911706 Never say. Master carpenters use fewer tools than novices. It’s not rare.the fewer tools you will use. Creativity takes place every day.) in their key markets and a growing over-capacity in Europe. or else you will never get any real creative work done.a . · Instead. Avoid Meetings. It’s just been mystified – Own your creativity. which point to the importance of immaterial investments. · Do not read your speech or presentation. either. i. which has brought (often quite short-term) shareholder return to the forefront as a key indicator of success.” You can’t let a machine take credit for your creativity.e. production technology and supporting technology will be enhanced with 27 . Productivity improvements in these industries have slowed down to 1-2 % p. The capital markets have learned “the American way”. Get Fresh Ideas.” How to Lose an Audience… · Show your audience slides with columns of numbers. Create something every day. Creativity: Use it or Lose it. Global financial markets make sure that capital cannot be used non-productively. Don’t Blame the Tool! The more you become a master of your particular creative form…. Use what works. in the heavy metal industry and in other base industries. there is a shareholder dominance among the actors. There are lessons learned from the Japanese industry. · Refuse to tell them a story about the meaning of the numbers. instead of endless (boring) discussions about the superiority of the Macintosh over the PC! The Lame Excuse … “I can’t [write/design/create] because I don’t have the latest [software/hardware/ upgrade]…. Do not attend more than two meetings a day.a. And you can’t blame a machine for your creative failures.
A new technology will redefine the CSF:s for the market. This means that a solution to both problems (accuracy and flexibility) is a real option model using fuzzy sets. The proposition that we can describe future cash flows as stochastic processes is no longer valid. e-commerce. Risk-free interest rate Risk of the project. Time value of money. the secrets of Complex System evolution offer us a basis on which to reflect on the management of our businesses. neither can the impact be expected to be covered through the stock market. with gradually more advanced maintenance and financial add-on services. Giga-investments are large enough to have an impact on the market for which they are positioned: A 3. The people involved in manufacturing actually create products that change the world. evolving telecommunications and internet. Customer needs are adjusting to the new possibilities of the giga-investment.00. 28 . σ Standard deviation of returns on stock Fuzzy numbers (fuzzy sets) are a way to express the cash flow estimates in a more realistic way. Self Assessment Questions I State whether the following statements are True or False: 1. Exercise price Time to expiry.SOMA PATHAK 510911706 immaterial investments. The core products and services produced by giga-investments are enhanced with life-time service. Investment costs Length of time the decision may be deferred. VARIABLE S X t rf CALL OPTION Stock price.000 ton paper mill will change the relative competitive positions. 2. In the rapidly changing world of global markets. Technology providers are involved throughout the life cycle of a giga-investment. and that these are even more important for re-investments and for gradually growing maintenance investments. New technology and enhanced technological innovations will change the life cycle of a giga-investment. Types of options · Option to Defer · Time-to-Build Option · Option to Expand · Growth Options · Option to Contract · Option to Shut Down/Produce · Option to Abandon · Option to Alter Input/Output Mix Table of Equivalences: INVESTMENT OPPORTUNITY Present value of a project’s operating cash flows. smaller units are no longer cost effective.
if possible. · Provide regular updates and let audiences know when the next update will be issued. Procedures to ensure that communications can be distributed at short notice should also be established. 4. · Give bad news all at once – do not sugarcoat it. In some situations. Complex Systems thinking informs us how to achieve a high rate of delivery of new products and services and rapid adaptation to changing conditions. It should be stressed that personnel should be informed quickly regarding where to refer calls from the media and that only authorized company spokespeople are authorized to speak to the media. The creativity and imagination of a business will come from the dynamic interaction of diverse individuals. · To the extent possible. What factors are to be taken into account in a crisis communications strategy?(10 marks). scripts. · Treat audiences as you would like to be treated. Preplanning for communications is critical. · Communicate in a manner appropriate to circumstances: – Face-to-face meetings (individual and group) – News conferences – Voice mail/email – Company Intranet and Internet sites – Toll-free hotline – Special newsletter – Announcements using local/national media. · Communications should provide objective and subjective assessments. 29 .SOMA PATHAK 510911706 3. Drafts of message templates. The following items should be taken into account in the crisis communications strategy: · Communications should be timely and honest. 5. an appropriately trained site spokesperson may also be necessary. particularly when using resources such as Intranet and Internet sites and toll-free hotlines. an audience should hear news from the organization first. · Provide opportunity for audiences to ask questions. All information should be funneled through a single source to assure that the messages being delivered are consistent. · All employees should be informed at approximately the same time. Q3. This individual should be trained in media relations prior to a crisis. with back-ups identified. Ans. who will manage/disseminate crisis communications to the media and others. Official Spokesperson The organization should designate a single primary spokesperson. Efficiency of execution must precede imagination and creativity. and statements can be crafted in advance for threats identified in the Risk Assessment.
The Process of Due Diligence A business which wants to attract foreign investments must present a business plan. it is very similar to an audit. answers questions. But a business plan is the equivalent of a visit card. First Rule: The firm must appoint ONE due diligence coordinator. more onerous and more tedious process commences: Due Diligence. The Marketing Plan Must include the following elements: · A brief history of the business (to show its track performance and growth) · Points regarding the political. Marketing. Second Rule: Brief your workers. "Due Diligence" is a legal term (borrowed from the securities industry). Technical. The introduction is very important – but. What elements should be included in a Marketing Plan under Due Diligence while seeking investment in for your Company? (10 marks). Controls. The firm must have ONE VOICE. He collects all the materials requested and oversees all the activities which make up the due diligence process. a second. lawyers and accountants descends on the firm to analyze it. makes presentations and serves as a coordinator when the DD teams wish to interview people connected to the firm. Only one person represents the company. the clients and the competitors · Planned market research · A sales forecast by product group · The pricing strategy (how is pricing decided) 30 . more serious. Financial. how will the future of the firm (and their personal future) look if the investor comes in. All the documents of the firm are assembled and reviewed. guarantees and after-sales service · Development of new products or services · A general overview of the market and market segmentation · Is the market rising or falling (the trend: past and future) · What customer needs do the products / services satisfy · Which markets segments do we concentrate on and why · What factors are important in the customer’s decision to buy (or not to buy) · A list of the direct competitors and a short description of each · The strengths and weaknesses of the competitors relative to the firm · Missing information regarding the markets. essentially. Give them the big picture. legal (licenses) and competitive environment · A vision of the business in the future · Products and services and their uses · Comparison of the firm’s products and services to those of the competitors · Warranties. who are the investors. the management is interviewed and a team of financial experts. Why is the company raising funds. It is confined both in time and in subjects: Legal. once the foreign investor has expressed interest. They must know the DD coordinator and the company’s spokesman in the DD process. They must be instructed not to lie. Ans. It means. The DD is a process which is more structured than the preparation of a Business Plan. Both employees and management must realize that this is a top priority. This person interfaces with all outside due diligence teams. In some respects. to make sure that all the facts regarding the firm are available and have been independently verified.SOMA PATHAK 510911706 Q4.
support. communications. upgrades. invoicing. etc. maintenance. Legal Details · Full name of the firm · Ownership of the firm · Court registration documents · Copies of all protocols of the Board of Directors and the General Assembly of Shareholders · Signatory rights backed by the appropriate decisions · The charter (statute) of the firm and other incorporation documents · Copies of licenses granted to the firm · A legal opinion regarding the above licenses · A list of lawsuit that were filed against the firm and that the firm filed against third parties (litigation) plus a list of disputes which are likely to reach the courts · Legal opinions regarding the possible outcomes of all the lawsuits and disputes including their potential influence on the firm Financial Due Diligence · Last 3 years income statements of the firm or of constituents of the firm. collections of debts and ageing of receivables · Introduction of international accounting standards · Monitoring of sales · Monitoring of orders and shipments · Keeping of records. telemarketing and sales support). if the firm is the result of a merger. sales targets.) · Customer loyalty (example: churn rate and how is it monitored and controlled). if the firm is looking to raise money in the USA. dealerships. · Customer after-sales service (hotline. filing. references. archives · Cost accounting system · Budgeting and budget monitoring and controls · Internal audits (frequency and procedures) · External audits (frequency and procedures) · The banks that the firm is working with: history. training of the sales personnel. other) 31 . complaints. balances Technical Plan · Description of manufacturing processes (hardware.SOMA PATHAK 510911706 · Promotion of the sales of the products (including a description of the sales force. · Marketing and advertising campaigns (including cost estimates) – broken by market and by media · Distribution of the products · A flow chart describing the receipt of orders. Attach a flow chart of the purchasing process from the moment that the client is approached by the sales force until he buys the product. or. software. The statements have to include: · Balance Sheets · Income Statements · Cash Flow statements · Audit reports (preferably done according to the International Accounting Standards. special offers. shipping. in accordance with FASB) · Cash Flow Projections and the assumptions underlying them Controls · Accounting systems used · Methods to price products and services · Payment terms. sales-related incentives.
etc. The license can therefore cover the use of the patented invention in many different ways. You can. Ans. and in maintaining and enforcing the underlying IP right.) A successful due diligence is the key to an eventual investment. selling or importing the patented product. etc. in principle. if a patent owner granted an exclusive license to Company A to make and sell the invention in Malaysia.) · Transport and communications (example: satellites. 32 . You can grant different exclusive licenses for different territories at the same time. water. or sell or assign the rights to another person. special arrangements · Integration of new operations into existing ones (protocols. Distinguish between Joint Ventures and Licensing. For instance. If you are based in Malaysia.(10 marks). services (including offers) · Manpower (skilled and unskilled) · Infrastructure (power. A license is a grant of permission made by the patent owner to another to exercise any specified rights as agreed. software. or to keep your IP rights and license them to others to use. This is a process much more serious and important than the preparation of the Business Plan. technical specification · Environmental issues and how they are addressed · Leases. Q5. However. In contrast. If a patent owner grants a non-exclusive license to Company A to make and sell their patented invention in Malaysia. technological transfer and licensing required · Suppliers of equipment. For example. Licensing and Assigning IP rights One basic choice is whether you should actively exploit your IP rights yourself. they would not be able to give a license to anyone else in Malaysia while the license with Company A remained in force. lines. Licenses are normally confined to a particular geographical area – typically. grant a license a Canadian company to use the invention in North America. you could in theory decide to exploit your patent yourself in the East Asian region. and similar rights concerning patented processes. a patent owner can grant an exclusive license to make and sell their patented invention in Malaysia for the term of the patent. of course. and grant a separate exclusive license to manufacture and sell their patented invention in India for the term of the patent. transmitters) · Raw materials: sources. receivers. it normally requires the owner of the invention to invest time and resources in monitoring the licensed use. explaining the relative advantages and disadvantages of each. the patent owner would still be able to also grant Company B another non-exclusive for the same rights and the same time period in Malaysia. the jurisdiction in which particular IP rights have effect. licenses can be exclusive or non-exclusive. from that use. The patent right normally includes the right to exclude others from making. such as financial royalties. and sell or assign the rights in Europe to a Danish company – whether or not this is the best approach in practice is a different matter. using. make different choices in different countries for exploiting IP rights for the same underlying invention.SOMA PATHAK 510911706 · Need for know-how. Licensing is a good way for an owner to benefit from their work as they retain ownership of the patented invention while granting permission to others to use it and gaining benefits. cost and quality · Relations with suppliers and support industries · Import restrictions or licensing (where applicable) · Sites.
It should be remembered that the person who makes an invention can be different to the person who owns the patent rights in that invention. and the patent holder retains ownership and control of the basic patent. Typically this 33 . For example. they could assign (or sell) these patents to five different owners in each of those countries. If an inventor assigns their patent rights to someone else they no longer own those rights. or a share of the patent. If you assign your rights. a patent owner could exclusively license only their importation right to a company for the territory of Indonesia for 12 months. a separate exclusive license to another company to use it for relief of cold symptoms. tried and true • Fair and Balanced • Product Exclusivity • Inventions of interest to you • You are free to view our inventions • An informed business decision • A production head start • We are vitally committed to your success • A resource for future projects Joint Venture Agreements and Start-up Companies Rather than simply exploit your IP rights by licensing or assignment. Licenses are often limited to specific rights. she could grant an exclusive license to one company to use the technology for an arthritis drug. If an inventor owns patents on the same invention in five different countries. Indeed. the new owner of the assigned patent might want to get access to your subsequent improvements on the invention. Patent licenses and assignments of patent rights do not have to cover all patent rights together. and a further exclusive license to a third company to use it for veterinary pharmaceuticals. they can be in infringement of the patent right if they continue to use it. For instance.SOMA PATHAK 510911706 Separate licenses can be granted for different ways of using the same technology. When assigning the rights. the amount you charge for an assignment is usually considerably higher than the royalty fee you would charge for a patent license. you might choose to set up a new legal mechanism to exploit your technology. Therefore. you might seek to negotiate a license from the new owner to ensure that you can continue to use your invention. A license is merely the grant of permission to undertake some of the actions covered by intellectual property rights. Equally. if an inventor creates a new form of pharmaceutical delivery. you normally lose any possibility of further licensing or commercially exploiting your intellectual property rights. territories and time periods. you might choose to sell a half-share to a commercial partner. An assignment of intellectual property rights is the sale of a patent right. you might negotiate an arrangement that gives you license to use the patented invention in the event that you come up with an improvement on your original invention and this falls within the scope of the assigned patent. For example. Licensing Advantages • An Inventive Incentive • "Licensing". Portions of a patent right can also be assigned – so that in order to finance your invention.
If a company is defined as a limited liability company. The laws governing partnerships and companies differ considerably from one country to another.SOMA PATHAK 510911706 can be a partnership expressed through a joint venture agreement or a new corporation. the partners or investors normally cannot lose more than their investment in the company (but officeholders in the company might be personally responsible for their actions in the way they manage the company). But this kind of partnership isn’t normally able in itself to enter legal commitments. The company is normally owned through shares (its ‘equity’). This could be a desirable choice in cases where: – you want to keep your institute’s research activities separate from the development and commercialization of technology. A spin-off company is an independent company created from an existing legal body – for example. a company or a specific institution doesn’t really separately exist as a legal entity. if a research institute decided to turn its licensing division or a particular laboratory into a separate company. This separate legal identity means that a start-up company can be a useful way of developing and commercializing a new technology based on original research. while keeping the main research effort of an institute focused on broader scientific and public objectives. to commercialize a specific new technology) and for a limited duration. as well as the risks and liabilities. In other words. which is one way of bringing in new financial resources to support the development of the technology – in exchange. For instance. and insulated from the commercial risks and pressures of the commercialization process. Before entering into a joint venture agreement. you need to check out possible commercial partners and make sure that the objectives of your potential commercial partners are consistent with your objectives. or – you need to attract financial support from those prepared to take a risk with an unproven technology (‘angel investors’ or ‘venture capitalists’). legally binding commitment between two or more partners to work together on a shared enterprise. It is normally created for a specific purpose (for example. a company is a new legal entity (a ‘legal person’ recognized by the law as having its own legal identity) which can own and license IP and enter into legal commitments in its own right. you might sign a partnership agreement with a manufacturing company to develop and market a product based on your invention. thus strengthening the institute’s capacity to do scientific research. These options require much more work on your part than licensing or assigning your intellectual property rights. A joint venture agreement involves a formal. These effectively represent a portion of the assets and entitlement to profits of the company. through receiving its share of the profits and growth in assets of the spin-off company. the investors stand to benefit from the growth in the company’s worth. preferably one with experience in technology and commercialization in your jurisdiction. the partners typically agree to share the benefits. By contrast. In working out the right vehicle for your technology. especially when your institute has a public interest focus or an educational role. as their shares 34 . the research institute can benefit from the commercialization of its research. A startup company is a general term for a new company in its early stages of development. At the same time. such as a start-up or spin-off company. so that the partners remain directly legally responsible for any losses or other liabilities that the partnership’s operations create. Investors can purchase shares in the company. in a specified way. and they will only take on a long-term risk if they can get a share of future profits of the technology. you will normally need specific legal advice from a commercial lawyer. and this discussion is only intended to give a general flavor of the various options. or own IP in its own right. In the joint venture agreement. a partnership which is not a corporation.
What factors would you weigh in choosing an appropriate course? (10 marks).SOMA PATHAK 510911706 proportionately rise in value. One basic consideration is to what extent you. commensurate with the number of shares they own. Properly managed. Advantages of Joint ventures: • Provide companies with the opportunity to gain new capacity and expertise • Allow companies to enter related businesses or new geographic markets or gain new technological knowledge • access to greater resources. Ans. • Companies can gradually separate a business from the rest of the organization. • In the era of divestiture and consolidation. as originator of the technology. You need to make good commercial decisions to benefit financially from your intellectual property rights. including specialized staff and technology • sharing of risks with a venture partner • Joint ventures can be flexible. You wish to commercialize your invention. An initial public offering is when the shares in a start up company are first made available to the public to purchase. and eventually. and to receive a portion of any profits produced by the company’s operations. If it is a public company. management skills and substantial capital to draw on for factory premises. Which model of commercialization is best for you? Each new technology and associated package of IP rights is potentially difference. wish to be involved and to invest in the subsequent development of the technology. sell it to the other parent company. the higher the degree of control you can secure over exploitation of the technology invention. which can improve access to the necessary resources and expertise. JV’s offer a creative way for companies to exit from non-core businesses. intellectual property rights should not be a burden but should yield a return from your hard work in creating an invention. and the higher the financial return to your institution may be. Q6. Remember that IPRs alone do not guarantee you a financial return on your invention. Licensing and Assignment . it is always a good idea to seek commercial or legal advice. There are many possible variations on each of these general models. But it also can offer a mechanism for attracting financial backing for research. Roughly 80% of all joint ventures end in a sale by one partner to the other. A private company’s shares. and in practice they can overlap. Generally speaking. by contrast. shares in the company can be bought and sold on the open stock market. The option of starting up your own company to manufacture and market your patented invention requires you to have business skills. hiring staff and so on. development and marketing. Following are the ways to commercialize my invention. a joint venture can have a limited life span and only cover part of what you do.Defined 35 . the higher degree of risk and commitment of finance and resources you can invest. In deciding which model of commercialization is best for you. thus limiting both your commitment and the business' exposure. You will need to compare the advantages and disadvantages of each model of commercialization. are not traded on the open market (but can still be bought and sold). and the mechanism you choose for commercialization should take into account the particular features of the technology. marketing skills. For example.
Having an invention commercialized can give an inventor a substantial head start in attracting interest in his additional inventions.” Instead of selling. At that point. you will typically lose control of it. This is a hard point to argue against. for example. A company that is savvy with licensing negotiations will state that the more money they pay the inventor up front. On the other hand. you retain the title to the house and give someone permission to use it for a limited period of time. yearly or other basis. prototyping and research. This may eventually be worth more to an inventor than the initial cash he would receive from his first commercialized invention. the inventor wins and the company loses. At this point. these are expenses the company would have normally paid if they had developed such a product on their own. they pay you on a monthly. Although you may have cash in hand from the sale of your invention. selling house. You. When you assign (sell) your invention. except that the process is called “assigning” rather than selling. particularly if you’re interested in the long-range commercial success of your invention. Bear in mind that all negotiations are unique and this is just an example. the scenario is the same. The terms of this lease are entirely up to you and the person leasing your house. though. Inventors have often already incurred substantial initial expenses for patenting. and promotional expenses. marketing. When you license an invention. if the estimates are low. Generally. when a company makes a commitment to manufacture and promote an invention. If the value is estimated high. Should I Sell or License? You will generally have a better chance of licensing your invention instead of assigning (selling) your rights for two reasons: First. manufacturing setup. Should I Go It Alone? 36 . In some cases it is just as important to the inventor to see his invention commercialized as it is to receive the cash from it. you may choose to rent out your house. engineering expenses. they are already anticipating a substantial financial commitment for tooling. You’re offering a manufacturer. making someone else in charge of and liable for the house from that point on. This will almost invariably result in a win/lose situation.” It is up to the parties to negotiate the terms of the license within the boundaries of antitrust laws and other regulations that would affect licenses and similar business arrangements. In this case you are the “licensor” and the company is the “licensee. the fewer resources they will have available to put into the promotion. the inventor loses out. the company may very well come back to the table and agree to reimburse you for such initial expenses. However. Therefore. When you sell your invention. you transfer your title. it’s nearly the same as leasing. the inventor can argue that the potential licensees should at least reimburse them for these out-of-pocket expenses. companies don’t like to pay cash up front unless they absolutely have to. the company has the prerogative to ditch your technology and simply “sit on it” unless you’ve made other arrangements. the inventor would be the “assignor” and the person receiving the title or ownership of the patent would be the “assignee. they may want to make it an advance against future royalties. In this case.SOMA PATHAK 510911706 The difference between licensing and selling your invention is comparable to leasing vs. When you sell your house. Second. and in consideration for this they pay you on a quarterly basis. it is initially hard to ascertain what the eventual value of an invention will be. advance purchases of raw materials. It is up to you to negotiate within the boundaries of the law. and need to be reimbursed as soon as possible. In consideration for this. the right to manufacture and sell your invention for a period of time. After all.
which brings many new products to market. the market. It is easy to get ‘upside down’ financially with invention projects. the management. it’s important to seriously investigate the distinct advantages of having your invention introduced by an existing company with experience in your field can promote your product effectively and already has a skilled sales force with an existing client base. your chance of success is obviously much slimmer than an existing company already in the field with experience and knowledge in a similar product line. Unless you have greater resources. If you’ve attempted the licensing route and no manufacturer is interested in your invention at its current stage of development. If you start with a new company under new management with a new product. This is why the introduction of a new invention to retailers by a new company is particularly challenging. These factors can greatly reduce the amount of time it takes to introduce your invention to the marketplace. and the marketing team. There are several different elements at play during the commercialization of an invention: the company. Licensing also has advantages over starting your own company because few products have an unlimited life cycle. the greater the risk of failure. and the personal energy you’ll need for future successes. Companies need new products to survive. It will save you time. the technology. Buyers (or purchasing agents) for the big outlets want to reduce the number of bills they get and the number of vendors they see each week. 37 . What will your company sell then? Most single-item companies that are still around after five years have done so by introducing new products and expanding their product line. What you lose in control when you license can be gained tenfold from a timing standpoint. Inventors always take a risk when they spend time and money on an idea and if they’re lucky. There are too many sad stories of inventors pouring money into inventions that can never provide a return on their investment. money. In time. you may pique the interest of a potential licensee who can take your invention to the next step. The more variables you introduce. Even when you look at an experienced company like 3-M.SOMA PATHAK 510911706 Some inventors prefer to keep their inventions close and go into business for themselves. Large retail outlets prefer to deal with companies where they can do one-stop shopping. Sometimes starting your own company is the only way to go. If you find that you must make a substantial investment to actually manufacture an invention to prove its commercial viability and to interest potential licensees. which comes with its own set of risks and rewards. 3-M’s success rate is said to be only 30%. Licensing offers another strong advantage when it is time to sell your manufactured invention to customers. and in reducing your risk. The lesson is to minimize your risks so you can bail out or put the project on hold if warranted. This is especially true since inventors have a tendency to overestimate the ultimate value of their inventions. you may need to do a small market test with a limited production run to prove your invention has sales potential. With all its resources. Get some realistic market research as early in the game as possible. you’ll find that the company’s new products fail often. your success rate may be even less. your invention may be replaced by new technology. Each of these is a variable. it’ll pay off quite well. Then if your sales results are positive. keep careful track of your expenses and constantly weigh these expenses against any royalty potential that may result. Manufacturers who introduce only one invention or a very small product line often have a hard time selling to large accounts. Because there are significant startup risks.
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