Entrepreneurship Key Words CH.

1-7

CH.1 who is an Entrepreneur?

One who creates a new business in the face of risk and uncertainty for the purpose of achieving
profit and growth by identifying opportunities and assembling the necessary resources to
capitalize on them?

Entrepreneurship

• One characteristic of entrepreneurs stands out:

Diversity!

• Anyone – regardless of age, race, gender, color, national origin, or any other
characteristic – can become an entrepreneur (although not everyone should).

CH.3 Entrepreneurship

 Entrepreneurship – the result of a disciplined, systematic process of applying creativity

and innovation to the needs and opportunities in the marketplace.

 Entrepreneurs connect their creative ideas with the purposeful action and structure of
an enterprise.

Creativity and Innovation

 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.

Creative Process for idea set up

1. Preparation
Get your mind ready for creative thinking.
 Adopt the attitude of a lifelong student.
 Read … a lot … and not just in your field of expertise.
 Clip articles of interest to you and save them.
 Take time to discuss your ideas with other people.
 Join professional or trade associations and attend their meetings.
 Study other countries and their cultures.
 Travel to new places.
 Develop your listening skills.
 Eliminate creative distractions.
2. Investigation
Get your mind ready for creative thinking.
 Develop Solid understanding of the problem
 Study the problem and understand its basic components
  Who are you competitors? What makes you different? What are their
problems? What made them successful?
3. Transformation
 Involves viewing both the similarities and the differences among the information
collected.
 Two types of thinking are required:
a. Convergent – the ability to see the similarities and the connections among
various and often diverse data and events.
b. Divergent – the ability to see the differences among various data and events.
How can you transform information into purposeful ideas?
c. Grasp the “big picture” by looking for patterns that emerge.
d. Rearrange the elements of the situation.
e. Use synectics, taking two seeming nonsensical ideas and combining them.
f. Remember that several approaches can be successful. If one fails, jump to
another.
4. Incubation
Allow your subconscious to reflect on the information collected:
 Walk away from the situation.
 Take the time to daydream.
 Relax – and play – regularly.
 Dream about the problem or opportunity.
 Work on the problem in a different environment.
5. Illumination
 It may take place after 5 min or after 5 years …it’s when you feel it down in your
spinal cord …
 All previous stages come together to formulate an innovative

6. Verification
Validate the idea as accurate and useful.
 Is it really a better solution?
 Will it work?
 Is there a need for it?
 If so, what is the best application of this idea in the marketplace?
 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?

7. Implementation

Techniques for Improving the Creative Process

 Brainstorming
 The goal is to create a large quantity of novel and imaginative ideas.

 Mind-mapping
  A graphical technique that encourages thinking on both sides of the brain,
visually displays relationships among ideas, and improves the ability to see a
problem from many sides.
 Force Field Analysis
 A useful technique for evaluating the forces that support and oppose a
proposed change.
 Three columns:
 Center: Problem to be addressed
 Left: Driving forces
 Right: Restraining forces
 Score each force (-1 to +4) and add them.
 Protecting Your Ideas
 Patent – a Certificate from the Patent and Trademark Office 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.
 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.
 Service mark – the same as a trademark except that it identifies the source of a service
rather than a product.
 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 ©.

CH.4 Elements of a Feasibility Analysis

Field (Industry) and Market Feasibility Analysis

Two areas of focus:

1. Determining how attractive a Field is overall as a “home” for a new enterprise.

2. Identifying possible niches a small enterprises can occupy profitably.

3. Assess industry attractiveness using six macro forces:

 Sociocultural
 Technological

 Demographic

 Economic

 Political and legal

 Global

Product of service Feasibility Analysis

 Determines the degree to which a product or service idea appeals to potential

Beneficiary and identifies the resourced necessary to produce it.

 Two questions:

1. Are Beneficiaries willing to acquire our product or service?

2. Can we provide the product or service to customers at a profit?

 Primary research: Collect data firsthand and analyze it.

1. Customer surveys and questionnaires

2. Focus groups

 Secondary research: Gather data that already has been compiled and analyze it.

1. Prototypes

2. Small Network trials

Financial Feasibility

 Capital requirements –an estimate of how much start-up capital is required to launch
the business.

 Estimated earnings – forecasted income statements

 Return on investment – Combining the previous two estimates to determine how much
investors can expect their investments to return.

Five Forces Model

Five forces interact with one another to determine the setting in which Enterprises
compete and, hence, the attractiveness of the industry:

 Rivalry among Enterprises in the Field

 Bargaining power of suppliers

  Bargaining power of buyers

 Threat of new entrants

 Threat of substitute products or services

1. Rivalry among other Enterprises

 Strongest of the five forces
 Enterprise is more attractive when:
1. Number of competitors is large, or, at the other extreme, quite small
2. Competitors are not similar in size or capacity
3. Field is growing fast
4. Opportunity to offer a differentiated product or service exists
2. Bargaining Power of Suppliers
 The greater the leverage of suppliers, the less attractive the enterprise.
 Industry is more attractive when:
1. Substitutes are available
2. Switching risks are low
3. Safe exit plans with no with low financial losses
4. Public opinion is more aware by the problem
3. Bargaining Power of Buyers
 Buyers’ influence is high when number of customers is small and cost of switching to a
competitor’s low.
 A field is more attractive when:
1. Beneficiary switching costs are high
2. Number of potential beneficiaries is large
3. Beneficiaries want differentiated products
4. Beneficiaries find it difficult to collect information for comparing suppliers
4. Threat of New Entrants
 The larger the pool of potential new entrants, the less attractive an industry is.
 Industry is more attractive to new entrants when:
1. Advantages of economies of scale are absent.
2. Capital requirements to enter are low
3. Beneficiaries are not loyal to existing enterprises
4. Government does not restrict the entrance of new entrants
5. Threat of Substitutes
 Substitute products or services can turn an industry on its head.
 Industry is more attractive to new entrants when:
1. Quality substitutes are not readily available
2. Prices of substitute products are not significantly lower than those of the
industry’s products
3. Buyers’ switching costs are high

The Business Modeling Process/Technique

 The Business Model Canvas
Test the Value Proposition
 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?

Enterprise Prototyping

 Entrepreneurs test their Enterprise models on a small scale before committing serious
resources to launch a business that might not work.

Recognizes that an Enterprise idea is a hypothesis that needs to be tested before taking it full
scale

 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

 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

2. Customer pivot

3. Revenue model pivot

CH.5 Strategic Management Process

Step 1 Develop a vision and translate it into a mission statement

Step 2 Assess strengths and weaknesses

Step 3 Scan environment for opportunities and threats

Step 4 Identify key success factors

Step 5 Analyze competition

Step 6 Create goals & objectives

Step 7 Formulate strategies

Step 8 Translate plans into actions

Step 9 Establish accurate controls

CH.5 Types of Strategies:

Cost Leadership

 Goal:

To be the low-cost producer in the industry

(Or market segment).

 Low-cost leaders have advantages:

 Reaching buyers who buy on the basis of price

 The power to set the industry’s price floor.

 Cost Leadership works well when:

 Buyers are sensitive to price changes.

 Competing firms sell the same commodity products.

 A company can benefit from economies of scale.

Differentiation

 Company seeks to build customer loyalty by positioning its goods or services in a unique
or different fashion.

 Idea is to be special at something customers value.

 Key: Build basis for differentiation on a distinctive competence, something that the
small company is uniquely good at doing in comparison to its competitors.

 Examples: Siwa – Dahab

Focus

 Company selects one or more customer segments in a market, identifies customers’

special needs, wants, or interests, and then targets them with a product or service
designed specifically for them.

 Strategy builds on the differences among market segments.

 Rather than try to serve the total market, the company focuses on serving a niche (or
several niches) within that market.
CH.5 Types of Competitors:

 Direct competitors

 Offer the same products and services

 Customers often compare prices, features and deals among these competitors
when they shop

 Significant competitors

 Offer some of the same or similar products or services

 Product or service lines overlap but not completely

 Indirect competitors

 Offer same or similar products in only a small number of areas

CH.6 Types of Partners

 General partners

 Take an active role in managing a business.

 Have unlimited liability for the partnership’s debts.

 Every partnership must have at least one general partner.

 Limited partners

 Cannot participate in the day-to-day management of a company.

 Have limited liability for the partnership’s debts.

Advantages of the Sole Proprietorship

 Simple to create

 Least costly form to begin

 Profit incentive

 Total decision making authority

 No special legal restrictions

 Easy to discontinue

Disadvantages of the Sole Proprietorship

 Unlimited personal liability

 Limited skills and capabilities

 Feelings of isolation
  Limited access to capital

 High percentage of Lack of continuity of the business

Limited Partnership

 A partnership composed of at least one general partner and one or more limited
partners.

 A general partner in this partnership is treated exactly as in a general partnership.

 A limited partner has limited liability and is treated as an investor in the business.

Corporation

Types of corporations:

 Publicly held – a corporation that has a large number of shareholders and whose stock
usually is traded on one of the large stock exchanges.

 Closely held – a corporation in which shares are controlled by a relatively small number
of people, often family members, relatives, or friends.

 A separate legal entity from its owners.

 Types of corporations:

 Domestic – a corporation doing business in the state in which it is incorporated.

 Foreign – a corporation doing business in a state other than the state in which it
is incorporated.

 Alien – a corporation formed in another country but doing business in another

country.
Disadvantages of the Corporation

 Cost and time of incorporation process

 Potential for diminished managerial incentives

 Legal requirements and regulatory “red tape”

 Potential loss of control by founder(s)

Limited Liability Company (LLC)

 Resembles an S Corporation but is not subject to the same restrictions.

 Two documents required:

 Articles of organization

 Operating agreement

 An LLC cannot have more than two of these four corporate characteristics:

1. Limited liability

2. Continuity of life

3. Free transferability of interest

 4. Centralized management

Advantages of Buying a Business

 It may continue to be successful

 It may already have the best location

 Employees and suppliers are established

 Equipment is already installed

 Inventory is in place and trade credit is established

 New owners can “hit the ground running”

 New owners can use the previous owner’s experience

 Financing is easier to obtain

 It’s a bargain!

Disadvantages of Buying a Business

 It’s a “loser”

 Previous owner may have created ill will

 “Inherited” employees may be unsuitable

 The location may have become unsatisfactory

 Equipment and facilities may be obsolete or inefficient

 Change and innovation can be difficult to implement

 Inventory may be outdated or obsolete

 Accounts receivable may be worth less than face value

CH.6 the Acquisition Process:

 Study: 50 to 75% of all business sales that are initiated fall through.

 The right way:

 Analyze your skills, abilities, and interests.

 Prepare a list of potential candidates.

 Investigate and evaluate candidate businesses and select the best one.

 Explore financing options.

 Potential source: the seller

 Ensure a smooth transition.

 Communicate with employees

 Be honest

 Listen

 Consider asking the seller to serve as a consultant through the transition

 CH.7 Benefits/Advantages of Franchising

 A business system

 Management training and support

 Start-up

 Ongoing

 Brand name appeal

 “Cloning”

 Standardized quality of goods and services

 National advertising programs

 Franchisees contribute 1% to 5% of sales

 Financial assistance

 Only 20% of franchisors offer direct financial assistance to franchisees.

 Proven products and business formats

 Centralized buying power

 Site selection and territorial protection

 Important issue:
Territorial encroachment

 Greater chance for success

Drawbacks/Disadvantages of Franchising

 Franchise fees and ongoing royalties

 Average upfront franchise fee = $25,147

 Royalties range from 1% to 11% of franchisees’ sales

 Average royalty = 6.7% of sales

 Strict adherence to standardized operations

 Restrictions on purchasing

 Approved suppliers only

 Limited product line

 Contract terms and renewal

 Average term = 10.3 years

 Unsatisfactory training programs

 Market saturation

 Less freedom –

 “No independence”

 “Happy prisoners”