Slides

Section 1: The Challenge of Entrepreneurship
Inside the
Entrepreneurial Mind:
From Ideas to Reality
Copyright © 2016 Pearson Education, Inc. 3-1

Explain the differences among creativity, innovation,
and entrepreneurship.
Describe why creativity and innovation are such an
integral part of entrepreneurship.
Understand how the two hemispheres of the human
brain function and what role they play in creativity.
Explain the 10 “metal locks” that limit individual
creativity.

Understand how entrepreneurs can enhance the
creativity of their employees as well as their own
creativity.
Describe the steps in the creative process.
Discuss techniques for improving the creative
process.
Describe the protection of intellectual property
through patents, trademarks, and copyrights.

 Creativity: the ability to develop new ideas
and to discover new ways of looking at
problems and opportunities; thinking new
things.
 Innovation: the ability to apply creative
solutions to problems or opportunities to
enhance or to enrich people’s lives; doing
new things.

Entrepreneurs succeed by thinking and doing
new things or old things in new ways:
 Some create innovations reactively in

response to customer feedback or changing
market conditions
others create innovations proactively,
spotting opportunities on which to capitalize

Innovation is evolutionary, developing
market-sustaining ideas that elaborate on
exiting products, processes, and service

Some entrepreneurs stumble onto their
ideas by accident, but are clever enough to
spot the business opportunity they offer
More often, creative ideas arise when

entrepreneurs look at something old and
think something new or different

Entrepreneurship: the result of a disciplined,
systematic process of applying creativity and
innovation to the needs and opportunities in
the marketplace.
It involves applying focused strategies to new
ideas and new insights to create a product or a
service that satisfies customers’ needs or
solve their problems

Successful entrepreneurship is a constant
process that relies on creativity, innovation, and
application in the marketplace

Most ideas don’t work and most innovations fail
For every 5,000 to 10,000 new drug discoveries:
 250 get to preclinical trials
5 make it to clinical trials
1 or 2 are reviewed by the FDA
Only 1 gets to market
Failure is part of the creative process
Copyright © 2016 Pearson Education, Inc. 3 - 10

Entrepreneurship requires business owners to
be:
 bold enough to try their new ideas,
 flexible enough to throw aside those that do
not work,
 and wise enough to learn what will work
based on their observations of what did not

 Creativity is an important source of building a
competitive advantage, which is:
is the leverage that a business has over its competitors.
This can be gained by offering clients better and
greater value.
 Creativity is a necessity for survival

 When developing creative solutions to modern
problems, entrepreneurs must go beyond
merely relying on what has worked in the
past
 Companies that fail to become engines of

innovation are more likely to lose ground to
their more creative competitors and ultimately
become irrelevant and close their doors.

 Entrepreneurs must always be on guard against
traditional assumptions and perspectives about
things ought to be because they are certain
killer of creativity
 Can we learn to be creative? Yes!

 By overcoming paradigms and by suspending
conventional thinking long enough to consider
new and different alternatives

Inside the

Do you recognize these?

(continued)
Do you recognize these?

Creative thinking:
Creative thinking, or lateral thinking, is a
thought process that involves looking at a situation
or object in new ways.
Research on the operation of human brain shows

that each hemisphere of the brain processes
information differently and that one side of the
brain tends to be dominant over the other

The human brain develops asymmetrically, and
each hemisphere tends to specialize in certain
functions:
The left brain is guided by linear, vertical
thinking (from one logical conclusion to the
next)
The right brain relies on kaleidoscopic,

lateral thinking ( considering a problem from
all sides and jumping into it at different points)
The left brain handles language, logic, and
symbols
The right brain takes care of the body’s emotional,

intuitive, and spatial functions
The left brain processes information in a step-by-

step fashion, but the right brain processes it
intuitively –all at once, relying heavily on images.

Left-brain vertical thinking is narrowly focused
and systematic, proceeding in a highly logical
fashion from one point to the next
Right-brain lateral thinking is somewhat

unconventional, unsystematic, and
unstructured, like the image of a kaleidoscope,
whirling around to form one pattern after
another

It is this right-brain driven, lateral thinking that
lies at the heart of the creative process

Those who have learned to develop their right–
brained thinking skills tend to:
Always ask: “Is there a better way?”
Challenge custom, routine, and tradition.
Are reflective.
Are prolific thinkers:
Generating lots of ideas increases the likelihood of
coming up with a few highly creative ideas

Realize that there may be more than one
“right” answer.
Know that mistakes are pit stops on the way to
success.
Recognize that problems are springboards for
new ideas.

Play mental games, trying to see an issue from
different perspectives
Understand that failure is a natural part of the
creative process.
Have “helicopter skills.” the ability to rise above
the daily routine to see an issue from a broader
perspective and then swoop back down to focus on
an area in need of change
Relate seemingly unrelated ideas to a
problem.
 Entrepreneurship requires both left-and
right-brained thinking.
Right-brained thinking draws on divergent
reasoning, the ability to create a multitude
of original, diverse ideas.
Left-brained thinking counts on convergent
reasoning, the ability to evaluate multiple
ideas and to choose the best solution to a
problem.

3
Inside the

There are limitless barriers to creativity:
1) Searching for the one “right” answer
2) Focusing on “being logical”
3) Blindly following the rules
4) Constantly being practical

5) Viewing play as frivolous.
 A playful attitude is fundamental to creative
thinking
 There a close relationship between the “haha”
of humor and the “aha” of discovery
 Play gives us the opportunity to reinvent
reality and to reformulate established ways of
doing things

Children learn when they play, and so
entrepreneurs
Watch children playing , and you will see them

invent new games, create new ways at looking
at old things, and learn what works and what
does not work in their games

6) Becoming overly specialized. Myopic
thinking is a common killer of creativity; being
narrowly focused and limited by the status quo.
 Because experts are so immersed in what they
know, they often are victims of myopic thinking
 That is why creative companies include non-
experts in creative problems solving or idea
generation sessions

They (non-experts) are free to ask questions
and offer ideas that challenge the status
quo and traditional solutions
Creative thinker tend to be explorers,

searching for idea outside their areas of
specialty

7) Avoiding ambiguity
 Ambiguous situations force us to stretch our
minds beyond their normal boundaries and to
consider creative options we might otherwise
ignore

8) Fearing looking foolish
Creative thinking is no place for conformity
New ideas rarely are born in a conforming
environment
People tend toward conformity because they do
not want to look foolish
The fool’s job is to whack (overcome) at the
habits and rules that keep us thinking in the
same old ways
9) Fearing mistakes and failure
Creative people realize that trying something
new often leads to failure
But do not see failure as end
It represents a learning experience on the way
to success
It signals entrepreneurs when to change their
course of action

Many entrepreneurs failed numerous times
before finally succeeding
10) Believing that “I’m not creative”

Some people limit themselves because they
believe that creativity belongs Einstein and
Beethoven of world

Some people who are considered as geniuses,
visionaries, and inventors actually are no smarter
and have no innate (‫ )فطري‬creative ability than the
average person
However, they have learned to think creatively and
are persistent enough to keep trying until they
succeed.
Successful entrepreneurs recognize that “I am not
creative” is merely an excuse for inaction

By avoiding these metal locks, entrepreneurs
can unleash their own creativity and the
creativity of those around them as well
Successful entrepreneurs are willing to take

some risks, explore new ideas, play little, ask
what if?,

3
Inside the

Questions to Spur the Imagination include:
Is there a new way to do it?
Can you borrow or adapt it?
Can you give it a new twist?
Do you merely need more of the same?
Do you need less of the same?

(continued)
Is there a substitute?

Can you rearrange the parts?
What if you do just the opposite?
Can you combine ideas?
Can you put it to other uses?
What else could you make from this?

(continued)
Are there other markets for it?

Can you reverse it?
Can you eliminate it?
Can you put it to another use?
What idea seems impossible, but if
executed, would revolutionize your
business?

Entrepreneurs can stimulate their own
creativity and encourage it among workers by:
Include creativity as a core company value,
and make it an integral part of the company’s
culture; part of the mission statement
Hire for creativity.

(continued)
Hire for
creativity
Factors That Contribute to Companies’ Ability to Innovate

(continued from 3-20)
Include creativity as a core company value.

Hire for creativity.
Create an organizational structure that nourishes
creativity.
Embrace diversity.
Expect creativity.
Expect and tolerate failure.

(continued)
Incorporate fun into the work environment.

Encourage curiosity.
Design a work space that encourages creativity.
View problems as opportunities.
Provide creativity training.
Provide support.
Develop a procedure for capturing ideas.

(continued)
Talk and interact with customers.
Reward creativity.
Model creative behavior.
Monitor emerging trends and identify ways your
company can capitalize on them.
Look for uses for your product or service in
other markets.
Don’t forget about business model innovation.

3
Inside the

You can enhance individual creativity by using the
following techniques:
Allow yourself to be creative.
Forget the “rules.”
Give your mind fresh input every day: listen to a
new radio station, take a walk through a park
or shopping center

Take up a hobby: provide an avenue to escape
your regular routine, give the mind fresh input
that can be a source of creative ideas.
Travel and observe: visiting other countries is a

creativity stimulant.
Travelers see new concepts and engage in new
experiences that can spark creative ideas
Observe the products and services of other
companies, especially those in completely
different markets.
(continued)
Recognize the creative power of mistakes.

Notice what is missing.
Look for ways to turn trash into treasure.
Keep a journal handy to record your
thoughts and ideas.
Listen to other people.
Listen to customers.
Get adequate sleep. Sleep restores both our
bodies and brains
(continued)
Watch a movie.
Talk to a child.
Do something ordinary in an unusual way.
Keep a toy box in your office.
Take note of your “pain” points. Entrepreneurs
often create innovations to solve problems they
themselves face
Observing pain points that result from missing
products or services or flaws can be a source of
business idea
(continued)
Do not throw away seemingly “bad” ideas.
Impractical, too costly, or too silly to work
Collaborate with others. Two or more people usually
are more creative than one person working alone
Read books on stimulating creativity or take a class
on creativity.
Doodle.
Take some time off.
Be persistent.

Inside the

Although new ideas may appear to strike like a
bolt of lightning, they are actually the result
of the creative process.
The creative process involves seven steps:

preparation, investigation, transformation,
incubation, illumination, verification,
implementation

Preparation Investigation Transformation
Incubation Illumination Verification
Implementation
Copyright © 2016 Pearson Education, Inc. 3- 3

 To get your mind ready for creative thinking:
 Adopt the attitude of a lifelong student. Look at
every situation you encounter as an
opportunity to learn
 Read … a lot … and not just in your field of
expertise. Reading books, magazines, and
papers covering a variety of subject matter is a
great way to stimulate our creativity

 Clip articles of interest to you and save them.
Over time, you will build a customized
encyclopedia of information from which to
draw ideas and inspiration
 Develop your listening skills.

Join professional or trade associations and
attend their meetings.
There, you have the chance to interact with
others who have similar interests; learning how
other people solved a particular problems
Eliminate creative distractions. Interruptions
from cell phones, emails, and visitors can crush
creativity.
Take time to discuss your ideas with other
people.
Implementation

This requires one to develop a solid
understanding of the problem or a
situation

Inside the

Implementation

Involves viewing both the similarities and the
differences among the information collected.
Two types of thinking are required:
Convergent: the ability to see the similarities and
the connections among various and often diverse
data and events.
Many innovations come from connecting things
where other people do not make connections
Divergent: the ability to see the differences among
various data and events.
(continued)
How can you transform information into
purposeful ideas?
Evaluate the parts of the situation several times,
trying to understand the “big picture” by looking
for patterns that emerge.
Rearrange the elements of the situation. By
looking at the components of an issue in a
different order or from a different perspective,
you may be able to see the similarities and the
differences among them more readily
Remember that several approaches can be
successful. If one fails, jump to another.

Implementation

Allow your subconscious to reflect on the
information collected.
Refers to the need to have time to reflect on the

information collected, and may include:
 Walking away from the situation: in the car,
in bed, on walk
 Daydreaming

 Relaxing and playing, regularly
 Dreaming during sleep
 Working on the problem in a different

environment. Somewhere other than the
office

Implementation

It occurs at some point during the incubation
stage when the spontaneous breakthrough
causes the light bulb to go on
It comes without warning

In this stage, all the previous stages come
together to produce the creative idea

Implementation

Validate the idea as accurate and useful. The goal
is to subject the idea to the test of cold, hard reality.
 Is it really a better solution to a particular

problem or opportunity?
 Will it work?
 Is there a need for it?
 If so, what is the best application of this idea in
the marketplace?

(continued)
Does this product or service fit into our

core competencies?
How much will it cost to produce or to
provide?
Can we sell it at a reasonable price that will
produce a profit?
Will people buy it?

Implementation

To transform the idea into reality

 Teams of people working together usually can
generate more and more creative ideas
 Five techniques that are especially useful for

improving the quality of creative ideas from
teams:
Brainstorming, mind mapping, force-field

analysis, TRIZ, and rapid prototyping

 Brainstorming is a process in which a small
group of people interact with very little structure.
The goal is to create a large quantity of
novel and imaginative ideas.
 The goal is to create an open, uninhibited

atmosphere that allows members of the
group to freewheel ideas
 Participants should suggest any ideas that

come to mind without evaluating or
criticizing them
As group members interact, each idea sparks the
thinking of others, and the spawning of ideas
becomes contagious

Keep the group small- Just five to eight-
members– “Two pizza rule: if a brainstorming
group can eat two pizzas, it is too big.”
Make the group as diverse as possible.
Do aerobic exercise before the session, such as

walking, bicycling, swimming, running

Emphasize that company rank is irrelevant.
Every member of the brainstorming team is on
equal ground
Have a well-defined problem: why, how, what.
Provide relevant background material about the
problem to be solved.
Limit the session to 40 to 60 minutes.
Take a field trip.

(continued)
Appoint a recorder to write every idea on a flip
chart or board so everyone can see it.
Throw logic out the window.
Encourage all ideas from the team.
Shoot for quantity of ideas over quality of ideas.
Use a circular or U-shaped seating pattern.
Forbid criticism.
Encourage idea “hitch-hiking.” – building new ideas
on those already suggested
Dare to imagine the unreasonable.
Inside the

Once entrepreneurs come up with innovative ideas
for a particular product or service that has market
potential, their immediate concern should be to
protect them from unauthorized use
Counterfeit goods pose a real threat to businesses

that have created intellectual property and their
customers who use the product based on that
intellectual property

The World Trade Organization estimates that
between 5 and 7 percent of all goods traded globally
are counterfeit

 Patent:
A grant from the Patent and Trademark
Office (US) to the inventor of
product, giving the exclusive right to
make, use, or sell the invention for
20 years from the date of filing the
patent application.

Most patents are granted for new product
inventions (called utility patent)
Design patent, extending for 14 years

beyond the date the patent is issued, are given to
inventors who make new, original, and
ornamental changes in the design of existing
products that enhance their sales

6. File the patent application
5. Complete the patent application

4. Study search results
3. Search existing patents
2. Document the device
1. Establish the invention’s novelty

1- Establish the invention novelty
An invention is not patentable if it is known or

has been used in the US or has been described
in a printed publication

2- Document the device
To protect their patent claims, inventors should be
able to verify the date on which they first
conceived the idea for their inventions
Inventors should document a device by keeping

dated records (including drawings) of their
progress on the invention and having
knowledgeable friends witness these records

3- Search existing patents
To verify that the invention truly is new, not

obvious, and useful, an inventor must conduct a
search of existing patents on similar products
The purpose of the search is to determine whether

the inventor has a chance of getting a patent

4- Study search results
Once the patent search is finished, inventors must

study the results to determine their chances of
getting a patent
To be patentable, a device must be sufficiently
different from what has been used or described
before and must not be obvious to a person having
ordinary skill in the area of technology related to
the invention

5- Complete a patent application
If an inventor decides to seek a patent, she or he

must file an application describing the invention
The patent application must include specific claims,

which describes the invention- what it does and how
it works- and any drawings that are necessary to
support the claims

6- File the patent application
Before issuing a patent, an examiner studies the

application to determine whether the invention
warrants a patent (27.5 months)

Trademark: any distinctive word, symbol, design,
name, logo, slogan, or trade dress a company uses to
identify the origin of a product or to distinguish it
from other goods on the market.
 A trademark serves as a company signature in
the marketplace
A trademark can be more that just a company’s
logo, slogan, or brand name; it can also include
symbols, shapes, colors, smells, or sounds.
Components of a product’s identity are part of
its trade dress:
the unique combination of elements that
a company uses to create a product’s
image and to promote it, such as color
schemes, décor, design
For product, it may be the packaging,

For a service, it may be the decor or
environment in which a service is
provided 3 - 15
Service mark: the same as a trademark except
that it identifies the source of a service rather
than a product.

(continued)
Copyright: an exclusive right that

protects the creators of original works of
authorship such as literary, dramatic,
musical, and artistic works.
Copyrighted material is denoted by the
symbol ©.

The primary weapon an entrepreneur has to
protect patents, trademarks, and copyrights is
the legal system.
Before engaging in a legal battle consider:
Can the opponent afford to pay if you win?
Do you expect to win enough to cover your
legal costs?
Can you afford the loss of time, money, and
privacy involved?

The creative process is a tenant of the
entrepreneurial experience.
Success, and even survival itself, requires
entrepreneurs to tap their creativity.
The seven steps of the creative process transform
an idea into a business reality.
Creativity results in value, and value provides a
competitive advantage.
Entrepreneurs protect their creative ideas with
patents, trademarks, service marks, and
copyrights to sustain a competitive edge.

Section 2: The Entrepreneurial Journey Begins
4
Conducting a Feasibility
Analysis and Designing a
Business Model

1. Describe the process of conducting an idea
assessment.
2. Explain the elements of a feasibility
analysis.
3. Describe the six forces in the macro
environment of an industry.
4. Understand how Porter’s Five Forces
Model assesses the competitive
environment.
Copyright © 2016 Pearson Education, Inc 4-2
(continued)
5. Describe the various methods of
conducting primary and secondary market
research.
6. Understand the four major elements of a
financial feasibility analysis.
7. Describe the process assessing
entrepreneur feasibility.
8. Describe the nine elements of a business
model.
For many entrepreneurs, the easiest part of
launching a business is coming up with an idea for
a new business concept or approach
However, business success requires much more

than just a great new idea
Ch. 4: Feasibility Analysis & Business Plan 4-4

In addition to coming up with a business idea and
launching a business , five critical steps guide the
process of going from idea generation to growing a
successful business
Following these steps increases the entrepreneur’s

chances for launching a successful and sustainable
business

Once entrepreneurs develop ideas for new
business, the next step is to assess these ideas
An idea assessment is the process of

examining a need in the market, developing a
solution for that need, and determining the
entrepreneur’s ability to successfully turn the
idea into a business

The best business ideas start with a group of
customers with a common problem or need
Entrepreneurs often identify multiple possible

business ideas for any given market need
The idea assessment process helps an

entrepreneur more efficiently and effectively
examine multiple ideas to identify the solution
with the most potential
Examining multiple business ideas ensures that
the entrepreneur does not lock in one and
overlook others that have an even greater chance
for success

After identifying the most promising idea using
the idea assessment process, the entrepreneur
subjects it to feasibility analysis to determine
whether they can transform the idea into a viable
business
A feasibility analysis is the process of

determining whether an entrepreneur’s idea is a
viable foundation for creating a successful
business
Ch. 4: Feasibility Analysis & Business Plan 4 - 10
A feasibility study answers the question: should we
proceed with this business idea?
Its role is to serve as a filter, screening out ideas that

lack the potential for building a successful business,
before an entrepreneur commits the necessary
resources to develop and test a business model or to
build a business plan

If the idea passes the feasibility analysis, the
entrepreneur moves on to next step of the new
business planning process
If the idea fails to pass muster, the entrepreneur

drops it and moves on to the next idea

The business model answers the question:
How would we proceed with this business idea?
 Developing a business model helps the

entrepreneur to fully understand all that will
be required to launch and build the business

It is the step in the planning process in which the
entrepreneur tests the concept and uses what it
learned from the real customers to refine the
business model before the entrepreneur commits
the resources to grow the business to its full
potential

Chapter 3
Business Model
Lecture 2

 Idea assessment:
The process of examining a particular need

in the market, developing a solution for
that need, and determining the
entrepreneur’s ability to successfully
turn the idea into a business.

Successful entrepreneurs understand that the
process of going from ideas to the launch of a
new business venture is like a funnel. How?
When an entrepreneur observes a need in the

market, using the creative process generates
many business ideas that might address this
need

Each step in the new business planning
process narrows down the number of ideas
until the entrepreneur is ready to launch a
business that he or she carefully researched
and tested

Use an idea sketch pad to ask key

questions addressing:
1.Customers
2.Offering
3.Value proposition
4.Core competencies
5.People

Impact=C*VP, 9*9=81
Feasibility=OCC*P,
9*8=72

Customers:
Start with a group of customers who have a clear

need that is not being addressed
This may be a need that no business is currently

addressing, or it may be a need that no business
is fully or adequately meeting for these
customers

Offering:
Describe your idea for a product or service to offer
the customers
Are you offering a product, a service, and
experience, or a combination of one or more of
these?
What are its key features?
Describe it in detail and sketch out an image of it
if you can

Value proposition:
Why your product or service will be important to

the customers
Why would your offering be valuable to the
user/buyer
How does it address the need these customers
currently have that is not being met?

Core competencies
Does your offering include any technologies or

unique features that will help differentiate it
from competitors?
Is it based on intellectual property that you can

protect?

People:
Identify the key people on the team who will
launch this business
Who are the founding entrepreneurs of this
venture?
Do they have the skills and knowledge needed to

successfully turn the idea into a start-up
venture?

By placing answers to these questions on the
sketch pad, entrepreneurs can clearly visualize
gaps or weaknesses in their ideas
If the idea shows promise based on the idea

sketch pad, they move ahead to the next step of
conducting a feasibility analysis

Chapter 3
Business Model
Lecture 3

After conducting the idea assessment, an
entrepreneur scrutinizes the idea further through a
feasibility analysis (FA)
FA consists of four interrelated components:
1. An industry and market FA
2. A product or service FA
3. A financial FA
4. An entrepreneur FA

When evaluating the feasibility of a business idea,
an analysis of the industry and targeted market
segment serves as the starting point for the
remaining three components
The focus in this phase is two-fold:

1) To determine how attractive an industry is
overall as a home for a new business
2) To evaluate the possible niches a small business
can occupy profitably
The first step in assessing industry
attractiveness is to paint a picture of the industry
in broad strokes, assessing it from a macro level

 Assess industry attractiveness using
six macro forces:
1. Sociocultural
2. Technological
3. Demographic
4. Economic
5. Political and legal
6. Global

1- Sociocultural factors
Social and cultural change can lead to dramatic
changes that can create whole new industries
and fundamentally transform existing industries
Example:
In the 1970s and 1980s, women began entering
the workforce at much higher rates than had
been the case previously; this led to:

a. Dramatic increase in the size of the American
workforce
b. Women competed for jobs that previously had
been dominated by male workers
c. Daycare industry
d. Women’s business attire
e. Restaurant industry
f. Growth in auto industry

2- Technological factors
Technological breakthroughs lead to the
development of new products and entirely new
industries
Example: internet changed how people consume

information. News became available online, there
was a dramatic decrease in the number of people
reading print newspaper

3- Demographic factors
4- Economic factors
Many companies struggle during economic
downturns, some businesses are able to grow

Example:
Business in the e-learning industry thrived during
the great recession
Web-based learning provides customers with
opportunities to improve their education and skills
at an affordable price
5-Global factors
Open global markets allow business to seek
customers and suppliers from all corners of the
world
 Entrepreneurs should ask the following questions to
evaluate the six foundational macro trends to
determine the attractiveness of an industry:
 How large is the industry?
 How fast is it growing?
 Is the industry as a whole profitable?
 Is the industry characterized by high profit
margins or razor-thin margins?
 How essential are its products or services to
customers?
Copyright © 2016 Pearson Education, Inc 4 - 14
 What trends are shaping the industry’s future?
 What threats does the industry face?
 What opportunities does the industry face?
 How crowded is the industry?
 How intense is the level of competition in the
industry?
 Is the industry young, mature, or somewhere in
between?

Chapter 3
Business Model
Lecture 4

After evaluating the macro environment, the
entrepreneur changes focus to the more
immediate competitive environment
A useful too for analyzing a specific industry’

attractiveness within the competitive
environment is the Five Forces Model
developed by Michael Porter

 The five forces interact with one another to
determine the setting in which companies
compete and, hence, the attractiveness of the
industry:
1. Rivalry (‫ )منافسة‬among companies in the industry
2. Bargaining (‫ )مساومة‬power of suppliers
3. Bargaining power of buyers
4. Threat of new entrants
5. Threat of substitute products or services

The strongest of the five forces
Industry is more attractive when:
 Number of competitors is large, or, at the
other extreme, quite small (< 5)
 Competitors are not similar in size or
capacity
 Industry is growing fast
 Opportunity to sell a differentiated product
or service exists


The greater the leverage of suppliers of key raw
material or components, the less attractive the
industry.
 Many suppliers sell a commodity product
 Substitutes are available

 Companies find it easy to switch from one
supplier to another or substitute product
(Switching costs are low)
 Items account for a small portion of the

cost of finished products


Buyers’ influence is high when number of
customers is small and cost of switching to a
competitor’s product is low.
 Customers’ switching costs to competitors’

products are high
 Number of buyers is large

 Customers want differentiated products
rather than purchase commodity products
they can obtain from any supplier
 Customers find it difficult to collect

information on suppliers’ costs, prices,
and product features (for comparison)
 Items companies sell to the industry

account for a small portion of customers’
finished products

Chapter 3
Business Model
Lecture 5

(continued from4-21)

The larger the pool of potential new entrants, the
less attractive an industry is.
Industry is more attractive to new entrants when:
 Advantages of economies of scale are
absent
Economies of scale exist when companies in an
industry achieve low average costs by producing
huge volume of items (e.g., computer chips)

Economies of scale is the cost advantage that
arises with increased output of a product
Economies of scale occur whenever a firm's
marginal costs of production decrease. They can
result from changes on a macroeconomic level,
such as reduced borrowing costs or new
infrastructure, or from improvements on a
business-specific level

 Capital requirements to enter are low
 Cost advantages are not related to company size
 Buyers are not loyal to existing brands
 Government does not restrict the entrance of
new companies, through their regulatory and
international trade policies


Substitute products or services can turn an
industry on its head.
For example, many makers of glass
bottles have closed their doors in recent
years. Why?
Another example: printed newspaper

readership rate decline. Why?

Industry is more attractive to new entrants
when:
 Quality substitutes are not readily
available
 Prices of substitute products are not
significantly lower than those of the
industry’s products
 Buyers’ switching costs are high

After surveying the power of these five forces exert
on an industry, entrepreneurs can evaluate the
potential for their companies to generate reasonable
sales and profits in particular is industry
They can answer the question:
Is this industry a good home for my business?

The following table provides a matrix that allow
entrepreneurs to assign quantitative scores to
the five forces influencing industry
attractiveness

Chapter 3
Business Model
Lecture 6

A product or service feasibility analysis
determines the degree to which a product or
service idea appeals to potential customers and
identifies the resources necessary to produce it.
Two questions are addressed:
1. Are customers willing to purchase our
product or service?
2. Can we provide the product or
service to customers at a profit?

1- Are customers willing to purchase our product
or service?
To answer this question, entrepreneurs need
feedback from potential customers. Conduct:
 Primary research:
 Collect data firsthand and analyze it.
 Secondary research:
 Gather data that already has been
compiled and analyze it.
 Primary research tools include:
 Customer surveys and questionnaires
 Focus groups
 Prototypes
 In-home trials
 “Windshield” research (driving around and
observing the competition)

Trade associations and business
directories
Industry databases
Demographic data
Forecasts
Articles
Local data
Internet
Customer surveys and questionnaires:
Buy, would not buy
Small people; use the Web
Focus group:
Involves enlisting a small number of potential
customers (8 to 12) to give feedback on specific
issues about your product or service.
Listen carefully for what focus group members like
and do not like about your product or service: name
packaging, ….
 Use the Web
Prototypes:
is an original, function model of a new
product that entrepreneurs can put into the
hands of potential customers so that they can
see it, test it, and use it.
Prototypes point out potential problems in a

product design, giving inventors the
opportunity to fix them even before they put
it into customer hands
For example, makers of computer software
frequently put prototypes of new products into
customers hands as they develop new products
or improve existing ones
In-home trials:
Involves sending researchers into customers
homes to observe them as they use the company
product or service; expensive

Windshield research:
Involves driving around and observing

customers interacting with similar kinds of
businesses and learning what customers like and
do not like about those businesses

Chapter 3
Business Model
Lecture 7


A broad financial analysis that examines
the basic economic feasibility is sufficient
This component of feasibility analysis answers

the question:
Can this business generate adequate

profits?

The four major elements to be included:
1. Initial capital requirements: an
estimate of how much start-up capital
is required to launch the business.
2. Estimated earnings (net income,
profit):
Entrepreneurs should forecast the earning
potential of the proposed business

3. Time out of cash: the total cash it will take
to sustain the business until the business
achieves break-even cash flow.
4. Return on investment:
This aspect combines the estimated earnings
and the capital requirements to determine the
rate of return the venture is expected to
produce.

1- Initial capital requirements:
An entrepreneur needs capital to start a business
Some businesses need large amounts of capital, but
others do not
Service business require less capital to launch

than do manufacturing or retail businesses

Start-up companies often need capital to:
 purchase equipment, buildings, technology, and
other tangible assets
hire and train employees
 promote their product and services
establish presence in the market

2- Estimated earning:
Forecasting the earning potential of the proposed
business
The amount of money that it is possible for a

business to make after expenses have been paid or:
a company’s total revenue less its operating
expenses, interest paid, depreciation and taxes

Example:
 Suppose that a product manufacturer makes
$1000000 in total revenue
 The product costs $200000 to make
 Administrative and payroll expenses are
$250000
 $50000 depreciation on manufacturing
equipment
$200000 taxes

What is his earning?= $300000

3- Time out of cash:
A common cause (main reason) of business
failure is running out of cash before the
business breaks even and can support itself
through the cash flow from operations.
Cash flow break-even point:
The point at which sales revenue equals
fixed and variable costs and cash flow is
neither positive nor negative

The entrepreneur should estimate the total cash
it will take to sustain the business until it
achieves break-even cash flow

4- Return on investment:
Combining the estimated earnings and the
capital requirements to determine the rate of
return the venture is expected to produce
Return on investment:
The benefit (profitability measure) to an
investor resulting from an investment of
some resource

One simple measure is the rate of return on
the capital invested, which is calculated by:
Dividing estimated earnings the business yields

by the amount of capital invested in the business

Return on investment = Net income /
Investment
Where: Net income = gross profit − expenses
Gross profit=company’s total revenue (total sale) –

costs of goods sold

or
Return on investment = (gain from
investment – cost of investment) / cost of
investment
or
Return on investment = (revenue − cost of
goods sold) / cost of goods sold


Is this idea right for me?
 Assess entrepreneurial readiness:
knowledge, experience, and skills
necessary for entrepreneurs to be
successful.
 Entrepreneurs can gain the knowledge and
skills they need from:
Previous jobs, formal education,
interests and hobbies
Another way to ensure the necessary knowledge
and skills are in place is through:
building a team
Performing an entrepreneurial self-assessment

can help evaluate entrepreneurial readiness.
Assess whether the business will be able to

generate enough profit to support everyone’s
income needs.
Chapter 3
Business Model
Lecture 8

The business model answers the question:
How would we proceed with this business idea?
 Developing a business model helps the

entrepreneur to fully understand all that
will be required to launch and build
the business

It is the step in the planning process in which the
entrepreneur tests the concept and uses what
it learned from the real customers to refine
the business model before the entrepreneur
commits the resources to grow the business to its
full potential

When building a business model, the entrepreneur
addresses a series of key questions:
1. What value does the business offer customers?
2. Who is my target market?
3. What do they expect of me as my customers?
4. How do I get information to them, and how do they
want to get the product?
5. What are the key activities to make all this come
together, and what will they cost?
6. What resources do I need to make this happen,
including money?
7. Who are the key partners I will need to attract to be
successful?
Phase 1: Business Model Canvas
The canvas consists of nine elements:
1-Customer segments 8-Revenue stream
2-Value proposition 9-Cost structure
3-Customer relationships
4-Channels
5-Key activities
6-Key resources
7-Key partners

1-Customer segments
A good business model always starts with the
customer
The entrepreneur’s first step is to identify a segment
of customers who have a clearly defined need
Narrowing the target market enables a small
company to focus its limited resources on serving the
needs of a specific group of customers rather than
attempting to satisfy the desires of the mass market

Creating a successful business depends on an
entrepreneur’s ability to attract real
customers who are willing and able to spend
real money to buy its products or services
A big mistake is: everything to everybody
Small companies usually are much more successful
focusing on a specific market niche or niches where
they can excel at meeting customers’ special needs
or wants

Who is it specifically?
It may be a market niche, mass market,
segmented market based on age, gender,
geography

2-Value proposition
The value proposition is the collection of

products and/or services the business will offer
to meet the needs of the customers
It is all the things that will set the business apart
from its competitors, such as pricing, quality,
features, product availability

Most value propositions for new businesses
come from fundamental macro trends within the
economy, demographics, technology, or
sociocultural as discussed earlier
Listen to customers

3-Customer relationships
Not every business provides the same type of
customer service
For example, several business models provide meals
to customers
The vending business offers quick, convenient, and
impersonal service
At the other extreme, fine dining restaurant works
closely and personally with customers to ensure they
get exactly what they want

4-Channels
Refer to both communication channels
(promotion) and distribution channels (product
placement)
Communication channels define how the

customers seek out information about this type of
product: Web sites, social networks, blogs,
advertisements

Distribution channels define the most effective
way to get products to the customers for this
type of business:
Through web sites such as Amazon (ordering
online from the comfort of their living room)
Others may want to see the product, touch it

Chapter 3
Business Model
Lecture 9

5-Key activities
To build a basic checklist of what need to be done
to open the business and what activities are
necessary to ensure its long-term success.
6-Key resources
What are the human, capital, and intellectual
resources needed for the business to be successful?
Checklist

7-Key partners
Include suppliers, key outsourcing partners,
investors, industry partners, advisers, and all
other external businesses or entities that are
critical to make the business model work
Entrepreneurs cannot expect to become

successful all by themselves

8-Revenue stream
The entrepreneur must determine how the value

proposition will generate revenue

9-Cost Structure
The entrepreneur must identify the fixed and
variable costs necessary to make the business
model work.


The second phase is to test the problem that the
entrepreneur thinks is being solved by the
business through its core value proposition
using primary research data

Ask customers:
Do we really understand the customer
problem the business model is trying to
address?
Do these customers care enough about this
problem to spend their hard-earned money
on our product?
Do these customers care enough about our
product to help us by telling others through
word-of-mouth?

The third phase is to test your solution to the
problem in the market
 One technique involves business

prototyping, in which entrepreneurs test their
business models on a small scale before
committing serious resources to launch a
business that might not work

Entrepreneurs test their business models
on a small scale before committing
serious resources to launch a business
that might not work.
Recognizes that a business idea is a
hypothesis that needs to be tested before
taking it full scale.

(continued)
Test early versions of a product or service

using a lean start-up: a process of rapidly
developing simple prototypes to test key
assumptions by engaging real customers
Begin the lean start-up process using a
minimal viable product: the simplest
version of a product or service with which
an entrepreneur can create a sustainable
business

Pivots: the process of making changes and
adjustments in the business model on the
basis of the feedback a company receives
from customers.
1. Product pivot: changes to the product to enable
it to better meet the needs and wants of the
customer

2. Customer pivot: changes in the target
customer description
3. Revenue model pivot:changes in the way the

firm generates revenue

The best business ideas start with a common
problem or need.
The ideas assessment process helps an
entrepreneur more efficiently and effectively
examine multiple ideas to identify the
solution with the most potential.
A feasibility analysis helps the entrepreneur
determine whether an idea can be
transformed into a viable business.

(continued)
Developing a business model helps the
entrepreneur better understand all that will
be required to launch and build a business.
Once the entrepreneur completes the idea
assessment, feasibility study, and business
model, he or she is ready to develop the
business plan.

Chapter 4
Crafting a Business
Plan and Building a
Solid Strategic Plan
Lecture 1

1. Explain the benefits of an effective business plan.
2. Describe the elements of a solid business plan.
3. Explain the “five Cs of credit” and why they are
important to potential lenders and investors
reviewing business plans.
4. Understand the keys to making an effective
business plan presentation.

(continued)
5. Understand the importance of strategic

management to a small business.
6. Explain why and how a small business must
create a competitive advantage in the market.
7. Develop a strategic plan for a business using
the nine steps in the strategic management
process.

❖It is a planning tool that builds on the foundation
of the idea assessment, feasibility analysis,
and business model.
❖It provides a more comprehensive and detailed

analysis than the first three steps in the new
business planning process
❖It describes in greater detail how to turn the

model into a successful business
Ch. 3: Business Model and Strategic Plan 3-5
❖The primary goals of a business plan are:
1. To guide entrepreneurs as they launch

their businesses
2. To help them acquiring the necessary

financing to launch

❖Business plan:
❖A written summary of:
✓An entrepreneur’s proposed business
venture
✓The operational and financial details
✓The marketing opportunities and
strategy
✓The managers’ skills and abilities

❖The business plan serves as an
entrepreneur’s road map on the journey
toward building a successful business
❖It describes which direction the

company is taking, what its goals are,
where it wants to be, and how it intends
to get there

❖A business plan is the best insurance against
launching a business destined to fail or
mismanaging a potentially successful company.

A business plan serves two essential functions:
1. Guiding the company by charting its future
course and defining its strategy for
following it.
2. Attracting lenders and investors who will
provide needed capital.

1. Guiding the company by charting its future
course and defining its strategy for following it.
It provides a battery of tools:

A mission statement
Goals, objectives, budgets, financial forecasts
Target markets, and entry strategies
Ch. 3: Business Model and Strategic Plan 3 - 11

2. Attracting lenders and investors who will
provide needed capital.
A business plan must prove to potential lenders

and investors that a venture will be able to repay
loans and produce an attractive rate of return

To get external financing, the plan must pass three test
with potential lenders and investors:
1. The Reality Test: proving that:

❖A market really does exist for your product or service.
❖You can actually build or provide it for the cost
estimates in the plan.
2. The Competitive Test: evaluates:
❖A company’s position relative to its competitors.
❖Management’s ability to create a company that will gain
an edge over its rivals.
3. The Value Test: proving that:
❖A venture offers investors or lenders an attractive rate
of return or a high probability of repayment.

1. The Reality Test
There two components of the reality test:
A. External component
B. Internal component
❖ The external component involves providing that a market for the

product or service really does exist. It focuses on industry
attractiveness , market niches, potential customers, market size,
degree of competition
✓ The internal component of the reality test focuses on the product

or service itself: it is truly different from what competitors are
already selling? Does it offer customers something of value?

2. The Competitive Test
➢ It has two components: external and internal
➢The external component evaluates the company’s
relative position to its key competitors
✓How do the company’s strengths and weaknesses
match up with those of the competition
✓Do these reactions threaten the new company’s
success and survival
✓A value proposition that is properly constructed
answers the following questions:
 Who is our target market?
 What current options exist for this market?
 What do/will we offer the target market
 What is the key problem it solves?
 Why is it better than other options the target market has to choose from?
➢ The internal component focuses on management’s ability to create a

company that will gain an edge over existing rivals. The plan must prove the
quality, skill, an experience of the venture’s management team

3. The Value Test
▪ To convince the lenders and investors to put
their money into the venture, a business plan
must prove to them that it offers a high
probability of repayment or an attractive rate of
return

Section 2: The Entrepreneurial Journey Begins
5
Crafting a Business
Plan and Building a
Solid Strategic Plan

❖Although building a plan does not guarantee
success, it does increase your chances of
succeeding in business.
❖A plan is like a road map that serves as a guide
on a journey through unfamiliar, harsh, and
dangerous territory. Don’t attempt the trip
without a map!

❖ Title Page and Table of
Contents ❖ Marketing Strategy
❖ Entrepreneurs’ and
❖ Executive Summary
Managers’ Resumes
❖ Mission and Vision ❖ Plan of Operation
Statement ❖ Pro Forma (Projected)
❖ Description of a Firm’s Financial Statements
Product or Service ❖ The Loan or
❖ Business and Industry Investment Proposal
Profile
❖ Competitor Analysis

Title Page and Table of Contents
▪ A business plan should contain a title page with the
company’s name, logo, and address as well as the names
and contact information of the company founders
▪ The date on which the plan was issued can be included
on the title page
▪ Business plan readers appreciate a table of contents that
includes page numbers so that they can locate the
particular sections of the plan in which they are
interested
Executive Summary
✓To summarize the presentation to each potential financial
institution or investors, the entrepreneur should write an
executive summary
✓The executive summary should be concise-a maximum of one page
✓It should summarize all of the relevant points of the proposed deal
✓After reading the executive summary, anyone should be able to
understand the entire business concept, the attributes that
differentiate the company from competition, and the financing that
is being required

Executive Summary
✓executive summary is a written version of “the
elevator pitch”: imagine yourself on an
elevator with a potential lender or investor
❖A good elevator pitch provides:
1. Context: what does your company do in
easy-to-understand words?
2.Benefit: what benefit or advantage does
your company offer customers?

Executive Summary
3. Target customers
4. Point of differentiation: how is your company
different from other companies that provide similar
products, services, or solutions?
5. Clincher: can you leave the listener or reader with a
memorable, bottom-line sound bite about your
company?
❖Note: The executive summary should be the
last section written? Why?
3-7
Mission and Vision Statement
➢ A mission statement expresses an entrepreneur’s vision for what his
or her company is and what it is to become
➢ It is the broadest expression of a company’s purpose and defines the
direction in which it will move
➢ Every good plan captures an entrepreneur’s passion and vision for
the business, and the mission statement is the ideal place to express
them
➢ It should clearly state the product or service sells, its target market,
and the basic nature of the business (manufacturing, consulting,
service)
➢ Mission statement should be limited to no more 25 words

Product or Service Description
• Describe the benefits customers get from the product or
service
• A feature is a descriptive fact about a product or service
(e.g. ergonomically designed, more comfortable handle).
• A benefit is what the customer gains from the product or
service feature (e.g. lower energy bills, faster access to the
internet)

Business and Industry Profile
▪ The entrepreneur should inform lenders and
investors about the industry in which a company
competes
▪ This section should provide readers with an
overview of the industry or market segment in
which the new venture will operate
▪ Industry data such as key trends, market size and
its growth or decline

Competitor Analysis
❖Who are the company’s key competitors?
❖What are there strengths and weaknesses?
❖What are their strategies?
❖How successful are they?
❖What distinguishes the entrepreneur’s product or
service from others already in the market, and how will
these differences produce a competitive edge?
❖Note: firsthand competitor research is particularly
valuable
Marketing Strategy
❖Providing that a profitable market exists involves two
steps:
1. Show customer interest
Proves that target customers actually need or want the
product or service.
2. Document market claims
Supports market size and growth rates with facts.
Note: both steps should have been part of the
business modeling process and should be part of
the business plan
Marketing Strategy
❖It should address:
➢Target market
➢Advertising and promotion
➢Market size and trends
➢Location
➢Pricing
➢Distribution

Plan of Operation
❖To complete the description of the business, an
entrepreneur should construct an organization chart
identifying the business’s key positions and the people who
occupy them
❖Describes how the business operates, including space
requirements, inventory management, staffing plans, and
accounting processes and policies
❖Description of ownership

Pro Forma (projected) Financial Statement
➢An outline of the proposed company’s financial
statements of the proposes venture
➢Preparation of projected financial statements for

the operation for the next year using operating data
(if available), published statistics, and research

The Loan or Investment Proposal
➢It should state the purpose of the financing, the amount
requested, and the plans for repayment, or, in case of
investors, an attractive exit strategy (such as the option to
cash out through an acquisition or a public offering).
➢All sources of funding for the business from all intended

sources including money the entrepreneur is investing into
the business schedule

The Loan or Investment Proposal
➢The repayment or exit strategy
➢ realistic timetable for implementing the proposed
plan
➢An assessment of the risks facing the new venture,

and to describe the plans to avoid them

❖First impressions count! Use an attractive cover.
❖Checks for errors.
❖Make it visually appealing.
❖Include a table of contents with page numbers.
❖Make it interesting!
❖Show that it will make money.
❖Use spreadsheets for realistic financial forecasts.
❖Include cash flow projections.
❖Keep the plan “crisp,” long enough to say what it
should
❖Tell the truth.
❖ The “5 Cs” of Credit
1. Capital
2. Capacity
3. Collateral
4. Character
5. Conditions

1. Capital
✓A small business must have a stable capital base before
any lender will grant a loan
✓The most common reasons banks give for rejecting small

business loan applications are undercapitalization
(insufficient funding or capital) or too much
debt
✓Investors want to make sure entrepreneurs have invested
enough of their money into the business to survive the
start-up period

2. Capacity (cash flow)
▪ Lenders and investors must be convinced of a
company’s ability to meet its regular financial
obligations and to repay the bank loan, and that
takes cash
3. Collateral
Include any assets an entrepreneur pledges to a
lender as a security for repayment of the loan

4. Character
• Lenders and investors must be satisfied with the
entrepreneur character
• An evaluation of character frequently based on intangible
factors such as honesty, competence, polish, determination,
knowledge, experience, and ability.

5. Conditions
❖The conditions surrounding a loan request
affect the owner’s chance of receiving funds.
❖Factors such as potential growth in the market,
competition, location, form of ownership, and
loan purpose.

❖ The time allotted for presenting is usually less
than 20 minutes, so it’s important to rehearse and
be prepared.
❖ A basic presentation should cover:
❖ Your company and its products and services.
❖ The problem to be solved.
❖ A description of your solution to the problem.
❖ Your company’s business model.
❖ Your company’s competitive edge.
❖ Prepare
❖ Practice your delivery and then practice some more.
❖ Demonstrate enthusiasm about the business but don’t
be overly emotional.
❖ Focus on communicating the dynamic opportunity
your idea offers and how you plan to capitalize on it.
❖ Hook investors quickly with an up-front explanation
of the new venture, its opportunities, and the
anticipated benefits to them.

(continued)
❖ Use visual aids.
❖ Follow the 10/20/30 rule for PowerPoint
presentations.
❖ Explain how your company’s products or services
solve some problems and emphasize the factors
that make your company unique.
❖ Offer proof.
❖ Hit the highlights.
❖ Keep the presentation “crisp.”

(continued)
❖ Avoid the use of technical terms that will be above
most of the audience.
❖ Remember to tell lenders and investors how they will
benefit.
❖ Be prepared for questions.
❖ Anticipate questions and prepare for them in
advance.
❖ Focus your answers on what’s important to lenders
and investors.
❖ Follow up with every lender and investor to whom
you make a presentation.

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Section 1: The Challenge of Entrepreneurship

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 Some create innovations reactively in

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More often, creative ideas arise when

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 Creativity is a necessity for survival

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 Companies that fail to become engines of

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 Can we learn to be creative? Yes!

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Do you recognize these?

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Research on the operation of human brain shows

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The right brain relies on kaleidoscopic,

The right brain takes care of the body’s emotional,

The left brain processes information in a step-by-

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Right-brain lateral thinking is somewhat

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Watch children playing , and you will see them

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Creative thinker tend to be explorers,

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10) Believing that “I’m not creative”

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Successful entrepreneurs are willing to take

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Is there a substitute?

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Are there other markets for it?

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Hire for creativity.

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Factors That Contribute to Companies’ Ability to Innovate

Include creativity as a core company value.

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Incorporate fun into the work environment.

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