COURSE 2: The economic and social role of Entrepreneurship

The dynamic role of Entrepreneurship

The measure of the entrepreneurial spirit is provided (within some limits) by a number of statistical
indicators, covering in particular:

 The number and structure of entrepreneurs;

 "Demography“ of the companies (the number of newly registered enterprises, their birth
rate, their mortality rate etc.);
 The number of newly created jobs.

The characteristics of the SME sector is a relatively fair reflection of the entrepreneurial activity in an
economy!!!

SMEs’ Definitions:

Micro-Enterprise:

 Nr. of Employees < 10

 Turnover ≤ 2 mil. Euro
 or Balance Sheet Total ≤ 2 mil. Euro

Small Enterprise:

 Nr. of Employees < 50

 Turnover ≤ 10 mil. Euro
 or Balance Sheet Total ≤ 10mil. Euro

Medium Enterprise:

 Nr. of Employees < 250

 Turnover ≤ 50 mil. Euro
 or Balance Sheet Total ≤ 43 mil. Euro

Types:

 Autonomous/ Independent Enterprise (owns<25%)

 Partnering Enterprise [owns 25-50%]
 Linked Enterprise (owns>50%)
Legal forms a business can take in Romania:

I. Authorized Physical Person PFA (1pers)/ Individual Enterprise II (1pers) / Family Enterprise IF (min. 2
pers.)/ OUG 44/2008

II. Trading Companies/ L 31/1990

 Limited Liability Firm / SRL/ max.50pers./ SC=200L

 Joint Stock Company/ Incorporated Company / SA / min.2p/ SC=90mii Lei
 General Partnership Company with Unlimited Liability of the Partners/ SNC / min.2p/ SC=?
 Limited partnership Company / SCS/ min.2p/ SC=?
 Limited by shares partnership company/ SCA/ min.2p/ SC=90miiL

III. Economic Interest Group – GIE/ asoc.min 2pers,/det. per.; European Economic Interest Group –
GEIE/ [2-20p.] from min.2 dif. states/ L 161/2003;

IV. Cooperative Companies: nr. Members> 5; L 161/2003

V. Agricultural Companies/ nr. of associates= unlimited & variable; SC = variable.

Coordinates of the SMEs sector in the EU28 (2016)

 There are 22.346 mil. SMEs, representing 99,8% out of all businesses;
  SMEs are employing 133.76 mil. people (FTE – Full Time Equivalent Employees) (67% of the
total);
 SMEs have contributed with 57.5% of the Gross Value Added (GVA), in all non-financial
industries.

SMEs sector

Density/ 1,000 inhabitants:

 EU an average of 42.7
 Romania an average of 21.3
 Czech Republic has the highest density, with 95.9
 Portugal -73.5
 Slovakia – 70.2

As area of activity , the SMEs in Romania:

 Trade (aprox.40%), while in the EU the average is 28%.

 reorientation towards IT sector

Nr. of Registrations:

2015: 113.167, out of which 64.417 = SRL, 31.789 = PFA. 

2016: 105.982 (6.35% compared with 2015); 2/3 = SRL

(2017/ first 2 months):

11.656 ( )

 Bucharest – 2.638
 Cluj - 941,
 Ilfov – 724,
 Timis – 700

Efforts to stimulate the SMEs sector are based on sound economic and social motivations… SMEs are:

1. Contributing to a competitive environment;

2. Generating new jobs and lowering the fluctuations in the labor market;
3. Proving a greater sensitivity to market needs, thus better matching of supply to demand;
4. Are creating opportunities for the appropriate technologies’ development and adaptation;
5. Harnessing market niches that are not profitable for large companies, often accompanied
by a more effective combination of the production factors;
6. Providing a better use of secondary resources, that would otherwise remain unused;
providing a more efficient use of local resources;
 7. Acting as a specialized supplier of spare parts, assemblies, and services for large enterprises
(generally through subcontracting), usually at lower prices, thus positively influencing the
profitability of large firms;
8. Encouraging investments having as main source the household savings (family, relatives,
friends), or other funds that would otherwise be unproductive;
9. Contributing to a better distribution of the power in society, in general, and economic
power (in particular) with positive long term effects on the social and political stability.

Entrepreneurship & SMEs Sector: the Statistics’ “Language”

 National Level Statistics:

o The National Trade Register Office/ Oficiul National al Registrul Comertului (ONRC)/
www.onrc.ro ;
o The National Institute of Statistics/ Institutul National de Statistica (INS)
o Ministry of Public Finance/ Ministerul Finantelor Publice (MFP)
o List of Romanian Companies: www.listafirme.ro
o Ministry of the Business Environment, Trade and Entrepreneurship (Ilan Laufer)/ Start
Up Nation (nonrefundable funds up to 200.000 lei/ SME)
o E.U. Level Statistics:
 Eurostat
 International Level Analyses:
o The Organization for Economic Cooperation and Development (OECD)
o World Bank

World Bank/ “Doing Business”

14th Annual Report (2017)
Doing Business presents quantitative indicators on business regulations and the protection of property
rights that can be compared across 190 economies —from Afghanistan to Zimbabwe—and over time.

• Doing Business measures regulations affecting 11 areas of the life of a business:

1. starting a business,
2. dealing with construction permits,
3. getting electricity,
4. registering property,
5. getting credit,
6. protecting minority investors,
7. paying taxes,
8. trading across borders,
9. enforcing contracts
10. resolving insolvency. 
WB/ Doing Business 2017 Report main findings:

 entrepreneurs in 137 economies saw improvements in their local regulatory framework last
year;
 283 business reforms reducing the complexity and cost of regulatory processes in the area
of starting a business were applied;
 BruneiDarussalam, Kazakhstan, Kenya, Belarus, Indonesia, Serbia, Georgia, Pakistan, the
United Arab Emirates, and Bahrain were the most improved economies in 2015/16 in areas
tracked by Doing Business.

OECD& EUROSTAT = launched in 2006“

Entrepreneurship Indicators Program (EIP)

“Entrepreneurship at a Glance” which includes key indicators on entrepreneurial performance and

determinant indicators of entrepreneurship.

According to the 2014 Edition of the Report (targeting 30 countries):

"Entrepreneurship and entrepreneurs constitute the most important sources of innovation, growth and
job creation"!

Global Entrepreneurship Monitor (G.E.M.)

Founded in 1997 by Babson College (Massachusetts, USA) & London Business School.

GEM develops, annually, the most extensive and complex longitudinal study on entrepreneurial activity
worldwide!

The 2015/2016 GEM Report :

 Is the result of data processing from 62 countries;

 It is based on a representative sample, (data gathered by national teams of experts).
 The analysis is based on the main geographic regions compared to the 3 group of countries:
o Factor-driven economies;
o Efficiency - driven economy / including Romania;
o Innovation - driven economy.

Conclusions of the 2015/ 2016 GEM Report:

The focus tends to move from Entrepreneurship, as a form of self-employment, towards the
entrepreneurial attitude! This can take many forms, including the intrapreneurship (= entrepreneurial
attitude as employee), or social entrepreneurship (to create social value).

According to this holistic approach:

“Entrepreneurship is an omnipresent aspect of human action, but that its manifestation depends upon
the institutional environment.”

GEM defines entrepreneurship as:

“any attempt at new business or new venture creation, such as self-employment, a new business
organization, or the expansion of an existing business, by an individual, a team of individuals, or an
established business” (Bosma, Wennekers and Amorós, 2012, p.9).

Promoting entrepreneurship (E) and entrepreneurial education (EE)

 The E & EE promotion has become a strategic objective of the public policies for growth and
employment in Europe;
 EE) is a determining factor in this process, having a positive impact on:
o the young generation entrepreneurial spirit’s enhancement,
o the attitude and willingness to promote private initiatives and, finally,
o the role played in the economy and society;
 E can transform ideas into action, involving creativity, innovation, risk taking, project
management potential and goals achievement;

European Commission (EC) adopted a series of measures to empower entrepreneurial culture,

entrepreneurial skills, especially among young people.
EU/EC Study: Effects and impact of entrepreneurship programmes in higher education

The study was conducted among graduates of European higher education institutions; the fundamental
conclusion was that:

"Entrepreneurship Education (EE) - has a positive impact on young people's mental setting, on their
entrepreneurial intentions, their chances of employment and finally their role in society and the
economy"!

• Entrepreneurship (E) refers to an individual's ability to transform ideas into practical actions!

EE must achieve the following objectives:

• Improving the entrepreneurship mental setting of youth, in order to enable them to become
more creative and self-confident, whether they will decide to decide to be self-employed,
employers or employees.
• Encouraging innovative start-ups;
• Increasing the role of youth in the society and the economy.

The Key Entrepreneurial components are:

• Entrepreneurial attitude (Initiative, Risk acceptance, Efficacy, Need for self-realization,

structured behavior);
• Entrepreneurial skills (Creativity; Analytic Skills; Motivation; Interrelatedness network /
networking, Adaptability);
• Knowledge (Understanding the role of entrepreneurs, Entrepreneurial knowledge / on
setting up a new business and manage it).

Creating S.M.A.R.T. Goals/ Objectives: Specific; Measurable; Attainable; Realistic; Timely.

Specific: A specific goal has a much greater chance of being accomplished than a general goal.

EXAMPLE:  A general goal would be, “Get in shape.” / “Join a health club and workout 3 days a week.”

• Who:      Who is involved?
• What:     What do I want to accomplish?
• Where:    Identify a location.
• When:     Establish a time frame.
• Which:    Identify requirements and constraints.
• Why:      Specific reasons, purpose or benefits of accomplishing the goal.
Measurable - Establish concrete criteria for measuring progress toward the attainment of each goal you
set.

• When you measure your progress, you stay on track, reach your target dates, and experience
the joy of achievement; to determine if your goal is measurable, ask questions such as……How
much? How many? How will I know when it is accomplished?

Attainable – When you identify goals that are most important to you, you begin to figure out ways you
can make them come true. You begin seeing previously overlooked opportunities to bring yourself closer
to the achievement of your goals. When you list your goals you build your self-image. You see yourself
as worthy of these goals, and develop the traits and personality that allow you to possess them.

Realistic- To be realistic, a goal must represent an objective toward which you are
both willing and able to work. A goal can be both high and realistic; you are the only one who can decide
just how high your goal should be. Your goal is probably realistic if you truly believe that it can be
accomplished.

Timely – A goal should be grounded within a time frame. With no time frame tied to it there’s no sense
of urgency.

• T can also stand for Tangible – A goal is tangible when you can experience it with one of the
senses, that is, taste, touch, smell, sight or hearing.

CANVAS Business Model (Alexander Osterwalder)

= extremely useful entrepreneurial tool to design the strategy of a company. It provides a holistic view
of the business!

Highlights by viewing on the "canvas" the connections between the 9 components related to a business:

1. Consumer segments;

= is an essential part of an organization’s business model and is key to ensuring that the product
features are aligned with the segments characteristics and needs.

• a company must first know its customers, both through their current and future needs. Then the
organization must list its customers in terms of priority, including a list of potential future
customers. Finally, the company should do a thorough assessment of its customers by
understanding their strengths and weaknesses and exploring other kinds of customers who may
benefit the company more if they are to focus on them.

Various customer segments are as below;

 Mass Market (no specific segmentation)

 Niche Market (based on specialized needs and characteristics of its clients)
 Segmented (additional segmentation based on age, education, income etc.)
 Diversified Market Segment (serves multiple customer segments with different
needs and characteristics).
  Multi-Sided Platform/ Market (serve mutually dependent customer segment).

2. Value Proposition;

= reflects previously identified unique value to the consumer in terms of:

a. Quantitative aspects:

 price, in exchange for which consumers can access proposed value;

 reduced costs;
 reduced risks - something of great importance to any consumer, as each seeks to
enhance comfort and minimize effort and the risks they are subject to;
 availability, in terms of place, time of use and other factors that influence positive
or negative consumer access to the proposed value of the company;
 ease of use;
 b. Qualitative aspects:
 novelty;
 performance of our products or services;
 personalized;
 higher utility
 improved design.

3. Customer Relationships

= sum of relationships in order to create financial success and sustainability.

 Customer Relationships can be categorized as follows;

 Personal Assistance (employee-customer interaction)
 Dedicated Personal Assistance;
 Self-Service (indirect interaction);
 Automated Services (more personalized/ Amazon);
 Communities of clients;
 Co-creation.

The value of the customer must be evaluated in terms of the frequency of his/her expenditure
on the firms product and services. Loyal customers are the type of relationships that the
company should aim to invest in, as they will yield steady revenue throughout the year.

4. Distribution channels
5. Key resources

= the fundamental assets needed to provides value to the targeted customers.

6. Key activities

= activities that are key to producing the company’s value proposition. An entrepreneur must
start by listing the key activities relevant to his/her business. These activities are the most
important processes that need to occur for the business model to be effective. Key activities will
coincide with revenue streams.

7. Key partnerships

= the network of suppliers and partners who complement each other in helping the company
create its value proposition.

Partnerships can be categorized as follows;

 Strategic alliance between competitors (also known as coo-petition),

 Joint ventures;
 Relationships between buyers and suppliers.

8. Revenues
 = is the methodology a company follows to get its customer segments to buy its product or
service.

Ways to create it:

 Asset Sale: the company sells the right of ownership over the good to the customer.
 Usage Fee: the company charges the customer for the use of its product or service.
 Subscription Fee: the company charges the customer for the regular and consistent use
of its product or service.
 Lending/ Leasing/ Renting: the customer pays to get exclusive access to the product for
a time-bound period.
 Licensing; the company charges for the use of its intellectual property.
 Brokerage Fees: companies or individuals that act as an intermediary between two
parties charge a brokerage fee for their services.
 Advertising; a company charges for others to advertise their products using their
mediums.

9. Cost structure
= the cost of running a business according to a particular model. Businesses can either be cost
driven i.e. focused on minimizing investment into the business, or value driven i.e. focused on
providing maximum value to the customer.

 Cost-Driven – the focus is on minimizing all costs (Low cost airlines)

 Value-Driven – Less concerned with cost, focus is on creating value for their products and
services. (Louis Vuitton, Rolex)
 Fixed Costs: costs that remain the same over a period of time.
 Variable Costs: as the name suggests, these costs vary according to a variance in production.

Economies of Scale: average cost/unit decrease as production increases.

COURSE 3: The ENTREPRENEUR

The Entrepreneur =
 • Exponent of the entrepreneurial process;
• “Hero” of the economy;
• New venture creator;
• His actions are stimulating not only the economies’ development but also our imagination;
• Trough Entrepreneur’s initiative, ideas and behaviour a valuable and rare resource is used;
• He/she is making a trip in the land of unknown and uncertainty.

The term "entrepreneur" derives from the French word - "Entreprendre"

The word "Entreprendre", is actually composed of 2 parts: "entre", meaning "between" and "prendre"
meaning "get“; it was originally used to describe the person who take the risk between the buyers and
the sellers, or take the responsibility of starting a new business.

the term “entrepreneur” was used for the first time, in an economic context, by Richard Cantillon
(1755); its original meaning was: agent who buys “inputs”, in order to combine them into products,
intended for sale on the market, while knowing the associated expenses, but not-knowing the revenues.

Behavioral characteristics of entrepreneurs and their psychological support:

• Innovator - need to achieve

• Leader - self-awareness
• Players (moderate risk) – self-confidence
• Independent - long-term involvement
• Creator - tolerance for uncertainty
• High Energy - full of initiative
• Tenacious - Learning Availability
• Original - Availability to combine resources
• Optimist - sensitivity to others
• Result Centered - offensive spirit, constructive aggressiveness;
• Flexible – tendency to trust people
• Materialist - money = a means to measure performance.

Managerial Features of an Entrepreneur:

• Independence in decision making and actions;

• Higher control over the whole company;
• Decision in condition of limited resources;
• High dependence on the business environment
• Closer relationships with consumers, customers, distributors;
• Higher potential to become owner of a system of activities
• Higher responsibilities than a manager;
• Superior complexity and diversity of activities;
 • Increased awareness of the interdependencies between the management of the firm and the
economic environment
• Broader scope of activities subject to change;
• Increased use of informal channels of communication;
• Higher and more intense individual exposure;
• Stronger engagement in social and family relations’ system.

The main MOTIVATIONS, that energize entrepreneurs:

(+) Positive Motivations:

• the desire to do more (money including) and to work for profit not for wages;
• the need for prestige and a new social position;
• the willingness to work for himself, to be his own manager / "master" ...;
• the freedom to make decisions in all respects;
• desire to capitalize own idea / invention / innovation;
• “exploitation" of identified business opportunities.

(-) Negative motivations:

• Low salary;
• Closing / reorganization of the employing company
• Dismissal;
• Unsatisfactory career.

Types of entrepreneurs:

• Cyber- Entrepreneur = an owner, founder or manager of an Internet based business undertaking

who makes money through risk and/or initiative.

Entrepreneurship in cyberspace 2 distinct manifestations:

– As a technological extension to a non-technological business (e.g. a restaurant launches an

online ordering system for take-away service or a traditional retailer launches an online shop);

– As a technology based business venture, where technology is the vehicle or enabler of the
whole venture (e.g. technology enabled clothing exchange).

• Ecopreneur…
• Male/ Female/ Women Entrepreneur Mompreneur;
• Serial Entrepreneur;
• Homepreneur;
• Copreneurs

Women entrepreneurs
Current situation of female entrepreneurs in the EU:

• women constitute 52% of the total European population but only 34.4% of the EU self-

employed and 30% of start-up entrepreneurs;
• female creativity and entrepreneurial potential are an under-exploited source of economic
growth and jobs that should be further developed.

Main challenges faced by female entrepreneurs

• access to finance
• access to information
• training
• access to networks for business purposes
• reconciling business and family concerns.

The Dark Side of Entrepreneurship

1. Confrontation with Risk:

• Financial Risk
• Career Risk
• Family and Social Risk
• Psychic Risk

2. Stress:
The main sources of stress are: Loneliness; Immersion in Business; People Problems; Need to
Achieve. Solutions: Networking; Getting Away from It All; Communicating with Employees;
Finding Satisfaction Outside the Company; Delegating.

3. Ego: An Overbearing Need for Control (Sense of Distrust; Overriding Desire for Success;
Unrealistic Optimism)

TOP 10 “fatal mistakes" an entrepreneur can make:

• Managerial incompetence;
• Lack of appropriate experience;
• Supporting an unsustainable business idea;
• An under-capitalized business;
• The liquidity crisis stemming from financial mismanagement;
• Lack of a strategic business management;
• Insufficient & Ineffective Marketing;
• Lack of appropriate business growth control;
• Inappropriate location;
• Lack of control over stock.
Myths about entrepreneurs (E)…:

• The entrepreneur must "love" the risk in order to be successful / FALSE;Focusing is dangerous
for an entrepreneur and in excess can lead to loss of opportunities / FALSE;Entrepreneur’s
charisma is decisive for his/her success / FALSE;
• Discussing a business idea with potential clients / consumers should be delayed as long as
possible in order not to disrupt the creative process / FALSE;
• When starting a business, an entrepreneur should launch his/ her products/ services on as
many markets as possible to succeed / FALSE;
• He/ She should target the largest possible market for his/ her idea. / FALSE;
• He/ She should first make the product and only then should test it./ FALSE;
• As innovator, He/ She must not pay attention to potential consumers’ preferences, given that
no one knows what the future will look like./ FALSE;
• He/ She tends to be disruptive; otherwise, discipline is counter-productive in chaotic
environment./ FALSE;
• Bill Gates and Mark Zuckerberg were Harvard students; it is obvious that a successful
entrepreneur must have solid academic background / FALSE.

COURSE 4: Innovation & Creativity in the Entrepreneurial Process

The role of Creativity

Creativity is the process of generating new ideas that lead to an improved efficiency and effectiveness of
a system.

• It is NOT necessarily a structured process!

• It is not necessarily logic!

• It is not a linear process!

• It is something spontaneous and often a random process!

• It shows no respect for time and deadlines!

The 4 stages of creativity (K):

1. Preparation = collect background information & focus on the problem or opportunity;

2. Incubation = reflect, review, process data & info;

3. Illumination = a sudden new idea is born in your mind… (Eureka!!!);

4. Implementation = develop a plan to test & implement the new idea.

The two hemispheres of the brain:

The right brain hemisphere helps an individual understand analogies, imagine things, and synthesize
information.

The left brain hemisphere helps the person analyze, verbalize, and use rational approaches to problem
solving.

PROCESSES associated with the 2 brain hemispheres:

Left Hemisphere

• Verbal
• Analytical
• Abstract
• Rational
• Logical
• Linear

Right Hemisphere

• Nonverbal
• Synthesizing
• Seeing Analogies
• Non-rational
 • Spatial
• Intuitive
• Imaginative

Myths about creativity (K):

• "It's a magical phenomenon"!

• "It is the result of divine intervention!"
• "It's about mental illness"!
• "You have to be genius to be creative!"
• "K is a trait you are born with"!
• “In order to be K ... you need a muse '!

Creativity is a skill that you can learn, practice and develop !!!

Phrases that can “kill” K:

• “Naah.”
• “Can’t” (said with a shake of the head and an air of finality)!
• “That’s the dumbest thing I’ve ever heard.”
• “Yeah, but if you did that . . .” (poses an extreme or unlikely disaster case)
• “We already tried that – years ago.”
• “We’ve done all right so far; why do we need that?”
• “I don’t see anything wrong with the way we’re doing it now.”
• “That doesn’t sound too practical.”
• “We’ve never done anything like that before.”
• “Let’s get back to reality.”
• “We’ve got deadlines to meet – we don’t have time to consider that.”
• It’s not in the budget.”
• “Are you kidding?”
• “Let’s not go off on a tangent.”
• Where do you get these weird ideas?”

Stimulating creativity:

You have to get used to think "differently", try to see things differently, to seek new relationships
between things and people!

Try to develop a functional perspective, or to watch how to meet the needs of others!
The 6 “thinking hats”- effective tool to substantiate the entrepreneur’s decisions (Edward de Bono)

This tool offers a "parallel or dissociated thinking“ according to 6 major approaches of the problem! It is
about seeking the best solution in a more productive way!!!

INnOVATion:

The Process by which entrepreneurs convert opportunities into marketable ides!

It is more than just… “a good idea”!!!

The Innovation Types:

• Invention – totally new product, service or process (light bulb/ T. Edison; Telephone/ A.G.
Bell etc.);
• Extension = new use or different application for an existing product, service or process
(McDonalds, Facebook etc.);
• Duplication = creative replication of an existing concept (Pizza Hut, Walmart etc.)
• Synthesis = combination of existing concepts and factors into a new formulation or use (Fed-
Ex; Starbucks etc.);

Sources of Innovation:
 • Unexpected Occurrences;
• Incongruities;
• Process Needs;
• Industry and Market Changes;
• Demographic Changes;
• Perceptual Changes;
• Knowledge-Based Concepts.

European Innovation Scoreboard (EIS) 2018

IUS distinguishes between 3 main types of categories (25 ind./8 dimensions):

• the enablers = the main drivers of innovation performance external to the firm (3 dimensions):
Human resources; Open, excellent and attractive research systems; Finance and support.
• firm activities = the innovation efforts at the firm’s level, in 3 dimensions: firm investments;
Linkages & entrepreneurship; Intellectual assets.
• outputs = the effects of firms’ innovation activities in 2 dimensions: innovators; economic
effects.

4 CATEGORIES:

• Innovation leaders: Denmark; Finland; Luxembourg; Netherlands Sweden (EU leader); UK;
• Strong Innovators: Austria, Belgium, France, Ireland; Germany; Slovenia;
• Moderate innovators: Croatia, Cyprus, Czech Republic, Estonia, Greece, Hungary, Italy, Latvia,
Lithuania, Malta, Poland, Portugal, Slovakia and Spain;
• Modest innovators: Bulgaria, Romania.

In a global context, South Korea, the US and Japan all have a performance lead over the EU. Among
European countries, Switzerland is the most innovative one.

3 Levels of Innovation:

• Incremental Innovation/ exp. Parking sensors) - is unlikely to provide a dramatic change in

business performance;
• Substantial Innovation/ exp. Remote engine diagnostics) - provide a competitive advantage to
the company developing them; requires considerable investment in the process and an effective
strategy for managing the innovation;
• Radical Innovation/ exp. Hybrid engine technology) - is frequently technology based - the result
of long R&D exercises .

There are 3 generic innovation strategies:

 • Pioneer: Focused on bringing new and industry leading or transformative technologies to the
market (Sony, 3M, Toyota);
• Fast Follower: Adept at improving existing technologies through incremental innovation in both
product and process technologies (Korean car companies and Chinese computer
manufacturers);
• Opportunistic: Makes some investment in substantial innovation but uses also innovation
sources from third parties and invests in adapting these for its identified markets (digital camera
and MP3 technology into mobile phones).

“Life Sciences Industry/ Sector/ Highly Innovative Companies”

= companies whose business targets are one or more of the following areas: biotechnology; pharmacy;
biomedical technology; technologies for life systems; nanotechnology; Nutraceuticals (Nutraceuticals),
or pharmaceuticals with a role in nutrition; "cosmeceuticals", etc. More briefly, companies with
concerns about organisms (humans, animals, plants)

Although start-up capital is usually very high, firms (often partnerships includ researchers, institutes,
etc.) in this sector are highly innovative and have growth as a key strategy (often targeting the global
market).

COURSE 5: Intellectual Property Rights (IPR)’ Protection

= a term referring to creations of the intellect for which a monopoly is assigned to designated owners by
law!

The stated objective of most intellectual property law (with the exception of trademarks) is: to
“promote progress!"

By exchanging limited exclusive rights for disclosure of inventions and creative works, society and the
patentee/copyright owner mutually benefit, and an incentive is created for inventors and authors to
create and disclose their work.

Types of intellectual property rights (IPR):

A. Copyrights – are protected by The Romanian Copyright Office

B. Industrial Intellectual Property Rights - are protected by The State Office of Inventions and
Trademarks:
B1. Industrial intellectual creations:
• Invention,
• Innovation,
• Know-how,
• Utility models,
• Drawings & industrial Models,
• Topographies of integrated circuits, etc.
B2. Distinguishing Marks of Industrial Activity:
• Brand (factory, trade and service);
• Geographical Indications (of origin)
• Trade name (company)
• Emblem/ mark/ sign.

The State Office of Inventions and Trademarks (OSIM) provides documentary research services in the
field of:

• Inventions
• Trademarks
• Industrial Design

International Organizations for the IPR protection:

• The European Union Intellectual Property office/ EUIPO (2016); former Office for Harmonization
for the Internal Market (OHIM)
• World Intellectual Property Organization (WIPO/ www.wipo.int/portal/en/index.html.

A. Copyrights:
= are designed to protect “works of authorship,” generally referring to works of literature, music, and art
that have been “tangibly expressed.”

= gives the creator of an original work, exclusive rights to use it and distribute it, usually for a limited
time.

Copyright may apply to a wide range of creative, intellectual, or artistic forms:

• scientific (ex. studies, scientific articles etc.)

• literary (ex. novels, poetry, literary criticism);
• artistic (musical works, choreographic art, photos, etc.).

Not the ideas are the ones protected but the forms they take!

Typically, the duration of a copyright spans the author's life plus 50 to 100 years (depending on the
jurisdiction).

B. Industrial Intellectual Property:

B1. Industrial intellectual creations

Industries protect their ideas through a variety of legal instruments such as patents, copyrights, designs,
models and trademarks. Without them, they may be less inclined to develop new ideas and products. 

Invention = is a unique or novel device method, composition or process.

• Some inventions can be patented. A patent legally protects the inventor and legally recognizes
that a claimed invention is actually an invention.
• The patents granted for inventions protect the technical and functional aspects of the products
and processes!

Innovation = is a new idea, a more effective device or process.

• The inventor/ innovator is legally entitled to capture the full social and economic value of
his/her work!
• The rules and requirements for registering a patent for an invention vary from country to
country, and the process of obtaining a patent is often expensive.

Know-how = a component in the transfer of technology in national and international environments, co-
existing with or separate from other IP rights such as patents, trademarks & copyright etc. It can be an
economic asset.

Utility models = an incremental/ “smaller” invention that can also be patented.

Industrial Design = is the creative act of determining the visual features of shape, configuration, pattern
or ornament applied to a finished article; it takes place in advance of the physical act of making a
product.
Integrated Circuits Topography = the three-dimensional configurations of electronic circuits embodied in
integrated circuit products or layout designs.

Patent Concession / Licensing/ License Agreement

A license may be granted by a party ("licensor") to another party ("licensee") as an element of an

agreement between those parties. A license is "an authorization (by the licensor) to use the licensed
material (by the licensee)."

The owner of a patent has the exclusive exploitation rights guaranteed by the law!

According to a License Agreement, the licensor, may grant a licensee (under intellectual property laws)

the right to use his/her patent (including the right to sublicense) under specific conditions (of time,
territory, renewal provisions or other limitations deemed vital to the licensor). It is generally a royalty
bearing contract.

The Exclusive/ Non-exclusive Patent License Agreement

The Concession Contract = giving up to the intellectual property rights in exchange to a certain amount
of money.

B. Industrial Intellectual Property:

B2. Distinguishing Marks of Industrial Activity:

Brand (factory, product, service) = A brand name identifies a specific product or name of a company. It
encompasses the visible elements, such as colors, design, logotype, name, symbol etc., that together
identify and distinguish products/ services in the consumers’ mind; when a brand name is doing its job,
it evokes positive images or emotions in consumers, which is why brand can be so valuable. Because of a
brand name's importance, many companies want to protect it through trademark. And in some cases,
the brand name becomes part of the everyday vocabulary (such as: Xerox, for a copy; Adidas for sports
shoes)

Trademark. A trademark is a registered brand or trade name. Registering a trademark gives one the
legal ownership and the sole right to use it nationwide. Although a trademark has no limited term of
existence (it can be always extended), the rights to use it may be lost, due to misuse or lack of use.

Geographical Indications (of origin) - A label identifying where a product was produced or grown, and
implying characteristics or quality particular to that location.

Counterfeiting:

The term counterfeiting refers to activities associated with non-genuine products which violate
intellectual property (IP) rights such as patents, technology, trademarks and copyrights.
In 2008, EU customs officials carried out 49,331 procedures and intercepted more than 178 million
counterfeited and pirated articles, almost double the amount recorded in 2007.

Counterfeiting and piracy are detrimental to innovation, directly affecting job creation and economic
growth.

Trademarks:

The protection afforded by a patent does not start until the actual grant of the patent.

Registered = ® 
Trade Mark = ™ 
Copyright = ©

Trademark counterfeiting refers to the manufacture and distribution of imitations of well-known

trademarked merchandise.

Counterfeiting is a deliberate intent to deceive buyers by copying and distributing goods bearing
trademarks without authorization from trademark owner.

Trademark Infringement (TI)

(TI) can strip the trademark of its value by causing "confusion among consumers" as to the identity the
product and its origin.

SMEs facing such damaging infringement may have a serious budgeting challenge. If the infringer
ignores the firm’s warning to cease, their clients will be forced to file suit to halt the infringement. To
succeed in the litigation, the trademark's owner will be required to prove, among other things, that the
infringer's use of a mark is likely to cause consumer confusion.

But the price of success may be prohibitively expensive. Absent evidence of actual confusion, an
aggrieved plaintiff will typically need to prove confusion with so-called consumer survey evidence. This
study’s cost, on top of legal fees, may be a too high barrier for an SME, leaving their intellectual property
vulnerable to misappropriation by more powerful infringers.

Trademark/ brand licensing:

A licensor may grant permission to a licensee to distribute products under a trademark/ brand. With
such a license, the licensee may use the trademark without fear of a claim of trademark infringement by
the licensor.

The assignment of a license often depends on specific contractual terms. The most common terms are,
that a license is only applicable for:

• a particular geographic region,

• just for a certain period of time,
 • or merely for a stage in the value chain.

Moreover, there are different types of fees within the trademark/ brand licensing:

• a fee independent of sales and profits;

• a fee is dependent on the productivity of the licensee.
COURSE 6: BUSINESS OPPORTUNITIES & THE ENTREPRENEUR

DIRECTION OF THE ENTREPRENEURIAL PROCESS:

A. THE EXISTENCE OF THE OPPORTUNITY

B. THE DISCOVERY OF AN OPPORTUNITY

C. THE DECISION TO EXPLOIT THE OPPORTUNITY

D. RESOURCE ACQUISITION

E. ENTREPRENEURIAL STRATEGY

F. ORGANIZING PROCESS

G. PERFORMANCE

THE ROLE OF OPPORTUNITIES

Entrepreneurial opportunity

= a situation in which a person can create a new means-ends framework for recombining resources that
the entrepreneur believes will yield a profit (S. Shane).

= a favorable set of circumstances that creates a need for a new product, service or business. (B.
Baringer; R. Ireland)

= a desired future situation, different from the present and a person’s believe (that of the entrepreneur)
that it can be achieved successfully. (H. Stevenson)

A. THE EXISTENCE OF THE OPPORTUNITY

Approaches concerning opportunities:

• Kirzner – considered that existence of opportunities requires only differential access to existing
information. People use information they possess to form beliefs about the efficient use of
resources. Lack of accuracy in the decision making process leads to errors (they can occur at any
time or in any place) that create shortages and surpluses. By responding to those, people can
obtain resources, recombine them and sell the output with the hope of making profit.
• Schumpeter – believed that new information (generated by changes in technology, political
forces, regulations, macro-economic factors and social trends) is important in explaining the
existence of entrepreneurial opportunities.
THE SORCES OF OPPORTUNITIES:
(linked to Schumpetarian’s type of opportunities)

Changes in technology – allow people to allocate resources in different and potentially more
productive ways; industries with closer ties to science have more entrepreneurial opportunities; larger
technological changes provide a greater source of O.

Economic changes
Changes in politics and regulations – make possible more productive recombination of resources;
people can reallocate resources to new uses in ways that are either more profitable or redistribute
wealth from one member of society to another; this is a source of O that does not affect directly
companies’ performances.

• The effects of political changes are indirectly visible mainly throughout the number of new
established firms;
• New regulations can lead to an increase in the number of new ventures; in excess can have an
opposite effect; sometimes government regulation is a source of O, because it provides
resources (that increase demand), or subsidies (that open access to resources for new consumer
categories);

Changes in social and demographic factors – important source of O because:

• they transfer information about ways for people to allocate resources in different and
potentially more productive ways;
• they create the potential for scale economies, necessary for certain O to exist;
• they generate additional demand.

There are 3 main categories of forces that can lead to O:

• urbanization:
o Facilitates the transfer of information from observation (due to high population
density);
o Offers a higher number of role models;
o Creates the potential for scale economies;
o Increases the level of entrepreneurial opportunity.
o This O source has a positive impact on firm’s performance (O exploited at a larger scale
are more profitable, people can learn about a greater variety of O and chose from a
larger pull; this increase the probability to choose better O, leading to better outcomes)
• population dynamic – through:
o Population size – if big, leads to scale economy;
o Population growth- generates demand growth;
o Population mobility – by moving, people carry information that makes O possible from a
location to another where it has not yet been recognized or exploited;
• educational infrastructure – facilitates new knowledge creation (based on scientific research) as
source of O and is an important mechanism to diffuse information.

THE FORMS OF OPPORTUNITY

(according to Schumpeter)

• New products and services;

• New geographical markets;
• New raw materials
 • New methods of production;
• New ways of organizing.

B. THE DISCOVERY OF AN ENTREPRENEURIAL O.

THE PRICE SYSTEM

Prices contain all the information (from all participants in the economy) needed to allocate resources
but they have several limits in providing the necessary information (making optimisation methods
unusable).

Prices do not provide information:

• on revenues and costs for future goods and services;

• about a way of producing or organising that requires a technology that does not yet exist;
• about the actions of competitors in response to entrepreneurial entry.

ENTREPRENEURIAL DECISION MAKING

Because prices do not contain the necessary information to make decisions about the value of
resources, people develop different beliefs about their value, develop new means-ends frameworks.
These can be triggered by:

• new information (Schumpeter), or

• by errors made by the other market participants, leading to shortages or surpluses (Kirzner).

A “means-ends” (ME) framework is a way of thinking about the relationship between actions and
outcomes

The creation of a new ME framework involve judgemental decision making! The believe (not shared by
others) that the value of resources must be higher than the costs of transforming them. To exercise
judgement by making different decisions from others, an entrepreneur must:

• either possess different information than others or

• Interpret the same info differently.

Entrepreneurs exercise judgemental decision making means using creativity to reduce environment’s
uncertainty! Consequently high uncertainty tolerance is required in order to achieve success!

Entrepreneurial profit is the reward that an entrepreneur earns for exercising judgement about a new
ME framework.

THE ROLE OF INDIVIDUALS IN THE DISCOVERY OF OPPORTUNITIES

The process of opportunity discovery is a cognitive act and is usually not a collective one. Therefore,
individuals, not groups or firms discover entrepreneurial opportunities for 2 reasons:

a. They have better access to information about the existence of the O;

b. They are better able to recognize O because of superior cognitive capabilities.
a. Better access to information is influenced by 3 important factors:

• Life experience – through:

o job function – can increase the exposure to new info and valuable knowledge (there are
jobs that provide privileged access;
o Variation in experience (professional, or life) – increases the likelihood to spot O.
• Information search – discovery process through deliberate search than through random
behaviour
• Social networks – the structure of a people’s social network influence the quantity, quality and
speed of the received information.

b. Opportunity recognition is influenced by 2 factors:

• Absorptive capacity (stock of info about the markets and knowledge about how to serve them
enhance absorptive capacity)
• Cognitive processes (intelligence, creativity, perceptive ability, not seeing risks).

Evaluating opportunities - criteria:

• Opportunity lifespan;
• Market size;
• Intellectual Property right protection
• The required investment;
• Associated risks;
• Originality of the product/ service P/S;
• Expected outcomes.

Opportunity assessement:

a. The Informal Method:

• genuine acceptance spontaneously (10 friends, 20 unknown persons);

• 10/1 Report - acceptance of a price 10 times higher than the cost of production;
• similarity test (a small market can not absorb two similar products);
• Banker test counselor;
• pre-testing of the prototype.

b. The Formal Method – using feasibility studies (financial, mk, mg etc.).

Opportunity assessement: common errors!

• High subjectivism;
• Superficial market research;
• Misunderstanding the appropriate market requirements
• Overly optimistic financial estimates;
• Ignoring the legal aspects.
C. THE DECISION TO EXPLOIT AN O (DEO): INDIVIDUAL DIFFERENCES

The entrepreneur is more likely to exploit an O, the greater is the value that he/she expects to receive.

Expected value is influenced by:

a. non- psychological factors (education, career experience (general/ functional/ industry/ start-up
experience), age, social position, opportunity cost (income/ unemployment))

b. psychological factors (personality and motives, core self-evaluation cognitive characteristics);

c. nature of opportunity (O), of industry and institutional environment.

a. NON-PSYCHOLOGICAL FACTORS

a1. Opportunity (O) Cost: those individuals with low opportunity costs should be more likely to exploit O
and vice versa; two factors are associated with low O cost: low incomes and unemployment. High
duration of unemployment is increasing the likelihood to exploit O.

a2. Marital Status: being married and having a working spouse increases the propensity to engage in
self-employment, by reducing uncertainty.

a3. Education = increases a person’s stock of information and skills, included those needed to pursue an
entrepreneurial O successfully; education reduces perception on the difficulty of starting a business;
education positively influences performance; founders of surviving firms are usually better educated
than those of non-surviving firms.

a4. Career Experience – through which people develop information and skills that facilitate
entrepreneurial strategy formulation, resource acquisition and organizing processes; it reduces
uncertainty about the value to be gained from O exploitation; it increases the entrepreneur’s expected
profit; the higher the career experience the higher is the will to exploit O.

General business experience = basic knowledge regarding a business (finance, sales, technology,
marketing, logistics, organization etc); it reduces the likelihood of new venture failure; it increases new
venture performance;

Functional experience = marketing/ management/ product development knowledge are more valuable
than those in finance or accounting, in the first stage of the venture; therefore, the propensity to exploit
O. of those with functional experience is higher;

Industry experience = knowledge in the field of activity has a + impact on the DEO; failure of the
business is less probable; growth is faster;

Start - up experience = achieved by doing not by learning; it is something that can be understood by
undertaking the start-up related activities; valuable because it incorporates the entrepreneur in a
network of suppliers and customers; it provides tacit knowledge; it is a lesson about the right questions
to ask and to gather; it builds up a + attitude toward firm formation; it has an impact on growth and
performance of the firm;
Vicarious learning = through observation of others (tacit knowledge).

a5. Age – has a curvilinear relationship with the likelihood to expl. O.; it incorporates the + effect of
experience and the negative effect of opportunity cost; with age the willingness to bear uncertainty
declines; studies show that performance of the firm tend to rise up to a certain level with age;

a6. Social Position = relationship to other members of the social community in which the person lives
and work; it refers to:

 Social status (S.S.) – high SS enforces the DEO despite uncertainty and information asymmetry;
persuading others about the O. and acquiring resources and organizing can be made easier;
 Social ties; their intensity is + correlated with direct and indirect access to resources and
information (on permits, mg. practices, appropriate investors, trustworthy suppliers); + impact
on performance;

b. PSYCHOLOGICAL FACTORS AND THE D.E.O.

Psychological characteristics are not sufficient conditions to exploit O.

Three categories have been identified:

b1. Aspects of personality and motives (largely stable in time) = fundamental characteristics that lead
them to act in a certain way.

Main dimensions:

• Extraversion– it makes a person more likely to generate enthusiasm and support among others;
he/she are better able to assemble resources and organize under uncertainty conditions and
information asymmetry; + impact on firm’s performance;
• Agreeableness - persons with high level are less likely to exploit O.
• Need for achievement – it is + correlated with DEO; it helps to solve ill-structured and new
entrepreneurial problems; has a + effect on performance;
• Risk taking propensity- it is tolerance for ambiguity or a person’s acceptance to take action
when outcomes are unknown;
• Independence – a person’s inclination to engage in independent action rather than involving
others.

b2. Core-self evaluation (largely stable in time);

Characteristics:

 locus of control = a person’s belief that he/she can influence the environment in which she is
found; a person with high internal locus of control will display a higher desire to exploit O.; this
is stronger among entrepreneurs than among managers; + correlation with performance;
 Self efficacy = the belief in one’s own ability to perform a given task; people having higher self
efficacy are more likely to exploit O.; this characteristic is more intense among entrepreneurs
than managers;
b3. Cognitive Characteristics (tend to vary significantly over time and are largely situation dependent) =
factors that influence how people think and make decisions; it is heavily influenced by a person’s
perception of a situation.

A person must make a decision about something that is largely unknown, under uncertainty and with
limited information, leaving room for biases and influencing decisions.

Cognitive Characteristics among entrepreneurs includ:

• Overconfidence – a too high the belief in the accuracy of own judgment, given actual data; it
encourages the DEO;
• Representativeness – reflects the willingness to generalize from small samples that do not
represent a population;
• Intuition – is a belief that something is true without actually gathering evidence to demonstrate
its veracity;

C. INDUSTRY DIFFERENCES THAT INFLUENCE O. EXPLOITATION

Knowledge Conditions (C1):

• R&D Intensity;
• Locus of innovations;
• Size of innovating entities;
• Uncertainty of the industry.

Demand Conditions (C2):

• Market size;
• Market growth;
• Market Segmentation.

Industry Life Cycles (C3):

• Industry age;
• Dominant design;
• Density of firms.

Appropriability Conditions (C4):

• Strengths of patents;
• Importance of complementary assets.

Industry Structure (C5) :

• Industry Profitability;
• Cost of inputs;
• Capital intensity of the industry;
• Advertising intensity;
• Average firm size.
The Best 2017 Small Businesses Opportunities

1. Software Engineering and Development

2. Children's Services

3. Bike Sales, Service and Rentals (Americans spend $81 billion on biking annually, generating 770,000
jobs).

4. Senior Care Services

5. Counseling and Therapy

6. Financial Advisor/Planner

7. Facilities Support Services Cleaning (Security, Building maintenance, Painting, Moving etc.)

8. Gourmet Coffee

9. Body Decoration Services (Piercing and Tattoos)

Green Business Ideas for Eco-minded entrepreneurs – pioneers of change & growth

• Organic catering;
• Eco-friendly beauty saloon;
• Organic or recycled fashion;
• Green apps developer;
• Eco-consulting;
• Recycling pick-up;
• Up-cycled furniture;
• Bios Urn.

Weird Business Ideas:

• Pet Rock;
• Reserve a Spot in Heaven;
• Snuggie Blanket;
• Sympathy Food Delivery;
• A Cheese Sculpting Business;
• The Anger Room/ The Smashing Place;
• Rent a Chicken.
COURSE 8: ENTREPRENEURIAL STRATEGIES

Strategies:

= are patterns of decisions that shape the venture’s internal resource configuration and deployment and
guide alignment with the environment.

There are 2 major implications:

 “patterns of decisions” means both strategy formulation and strategy implementation;

formulation includes planning and analysis; implementation is the execution and evaluation
of the activities that make up the strategy;
 the entrepreneur has to consider both internal factors, such as the firm’s resources and
capabilities, and external factors such as the market environment.

Enterprise-level strategies:

All new ventures employ one or more of 3 major entry strategies:

a. new product or service,

 This strategy is used to achieve a permanent leadership position either within an existing
industry, or by creating a new industry.
 It requires a concentrated effort at being comprehensive and innovative.
 Gives the firm a head start and possibly an insurmountable lead in market share, in low-cost
manufacture and supply, and in public awareness and recognition.
 It requires that the product or service be comprehensive.
 If it is missing something (service, warranty, delivery, or functional components that customers
require), the door is left open for competitors.
o This is the high-risk, high-reward entry strategy!!!

b. parallel competition,
 It is a “me too” strategy that introduces competitive duplications (parallel, not identical, to
existing products or services into the market); they represent an attempt to fill a niche, a small
hole in the market; it can be done with a small innovation or a variation in an already well
accepted and well-understood product line or service system;
 It is an entrepreneur’s attempt to conceive a way to better satisfy customers. Marginal firms
always risk being replaced by others that do basically the same things but do them better; most
retailing start-ups enter this way, proposing the same or similar products from the same
suppliers with minor variations in merchandising and marketing and are charging similar
markups to their competitors; this type of entry is fairly easy, because entry barriers are low;
firms of this type are low-sales, low-profit operations and can produce stable incomes and
profits over a long time if they possess some distinctive competence; are easy to replace by
another firm using the parallel strategy.
 However, if used with creativity and vision, the parallel strategy can lead to superior payoffs.
Drucker calls this form of the parallel strategy creative imitation!
 c. franchising.
= takes a proven formula for success and expands it by selling franchises.

• The franchisor is attempting to create something new and offer it to the market and then
expanding it by using other people’s (franchisees) money, time, and energy to sell the product
or service, in return for a franchise fee and royalties (usually based on sales);
• The franchisees gain the expertise, knowledge, support (training, marketing, operations), and
experience of the franchisor, which reduces their risk of failure;
• The key to franchising power is to expand geographically under a license/ franchise agreement;
it enables this system to saturate market, which gives the franchise the benefits of visibility and
recognition, logistical cost savings, volume buying power, lower employment and training costs,
and the ability to use the mass media for efficient advertising;
• the license agreement gives the franchise system a mechanism for standardizing its products
or services, incentives for growth, and barriers to entry; all 3 parties to the franchise system
(franchisor, franchisee, and customer) benefit, which explains why franchising has become the
most prevalent form of new business start-ups.

Functional and sub - functional strategies involve marketing, finance and accounting, and human
resource policies.

Creative imitation (P. Drucker)

= combines the common business configuration of the competition (the imitation part) with a new
twist or variation (the creative part).

= The strategy followed by some companies that imitate something already existing but adding value.

Two types:

 weak spots; firms may have the same resources as others but not employ them well; the new
venture, without different assets but knowing how to use the assets, does have an advantage;
 blind spots; some entrepreneurs may not see/ understand everything about the market, the
competition, or themselves—that make them vulnerable to creative imitation.

The “not invented here” syndrome; existing firms are sometimes slow to adopt innovations, or are
reluctant to change; this makes them easy to target for the new venture that is quick to adopt the new
standard (Polaroid & Kodak waited too long to adopt digital photography as their core technology);

The “skim-the-market” blind spot; existing firms that charge high prices and attempt to capture only the
most profitable businesses are vulnerable; other can operate under their price umbrella, gain market
share, and become close to their customers; the creative imitators learn how to add value by serving
the customers (Hertz the rental car business is the high-priced provider; dozens of car rental companies
are operating under its price umbrella and owe their very existence to Hertz’s reluctance to discount);
Technological “tunnel vision”; existing firms that emphasize product- and manufacturing-based quality
to the exclusion of user-based quality; they fail to notice minor changes in customer needs and
perceptions that are obvious to the imitator; the makers of cell phones offer too many features; Apple
offered the iPhone as a simpler and more integrated product).

The maximized complex; existing firms that try to do too much (serve all types of customers with all
types of products and services) are vulnerable because they may not serve any customers particularly
well. A parallel competitor who carves a niche to serve a specialized customer base can succeed here.

“Blue Ocean Strategy”

It is considered one of the most "powerful" tools related to business innovation (W. Chan Kim, Renée
Mauborgne);

It is aiming to create a profitable and rapidly developing company;

It has as main objective to create and / or capture new demand, by focusing on neglected consumer
segments (non-consumers), with an offer that represents a strategic leap by creating significant value,
both for customers and for the company.

Franchising system’s:

Strengths:

 The chance to exploit a prestigious brand already known and present in the public
consciousness, and to enter a competitive market using production, trading and marketing
techniques perfected over time and with a high degree of profitability;
 Management consulting, staff training, technical and commercial know-how, etc. are
offered;
 Relatively easy entry into the business, with low initial capital requirements;

Weaknesses:

 Relatively high costs in terms of the quality standards must be maintained at a high level.

Joint-Ventures

 is a formal / informal agreement between two or more partners that agree to contributing
to the creation of new business entities with a mutually beneficial purpose, for a specified
period (usually up to achieve the objective);
 It is frequent especially when entering a foreign markets by associating with native
companies.

Strengths:

 Members share together risks and costs / gains;

  May increase the potential for innovation through joint research and development;
 It offers opportunities to increase sales, especially by gaining access to new markets;
 Small businesses have the chance to work with large companies for development,
production and marketing of products.

Weaknesses:

 Risks related to faulty understanding of the responsibilities of each party.

The joint venture differs from the licensing format in 2 significant ways:

(1) Resources are combined when the joint venture is formed;

(2) Ownership rights in a joint venture require negotiation. These differences make the joint
venture more difficult to manage, but the benefits of having two (or more) organizational
parents can outweigh the cost.

Spin-offs

= a new firm created by a person or persons leaving an existing firm and starting a new firm in the same
industry.

The most frequent examples of spin-offs today are in high-tech businesses—biotechnology and life
sciences, semiconductors and computers, consulting, law, and medicine (and medical devices).

Acquisition – buying an existing company

 Advantages:
o The business model was already tested;
o There is a clientele that knows the location of the business;
o Distribution network is already formed;
o The existence of a staff that is familiar with the business’ specific requirements;
 Disadvantages:
o the risk of buying a declining business;
o the existence of strained relations with one or more categories stakeholders;
o The overvaluation risk.

Starting a company – formal steps:

SRL (limited liability company) - One of the most common and reliable forms of legal entities, which is
also the safest for shareholders (max.50). He/She might only lose the company’s assets and the initial
capital he/ she brought into the company.

SRL-D:

 advantages: free establishment, 10.000 Euros non-refundable grant, exemption from social

contributions for 4 employees, up to 80% state guarantee for a 100 000 credit;
 obligations: mandatory reinvestment of 50% of the profit, having at least 2 employees for a 3
year determined period.

The setting up of a SRL is regulated by Law 31/1990 and has 4 mandatory steps: 

 gathering the necessary documentation,

 submitting the file at the Trade Register  
 court hearing and
 retrieving the company documents.

However, before these stages, the applicant has to go through a few other steps: choosing the main
activity of the business (according to CAEN code classification),

 choosing a legal entity (SRL, SRL-D),

 checking availability and reserving the desired name,
 establishing a registered office,
 registering a bank deposit of minimum 200 Lei.

Gathering documentation

A number of mandatory documents for setting up a SRL are required. They must meet certain strict
conditions in order to avoid rejection or postponing of the file. It is highly recommended that some of
these documents be drafted by specialists.

 Copy of ID/ Passport of the sole shareholder/ shareholders;

 Copy of ID/ Passport of the administrator/ administrators;
 Documents for the registered office, in copy;
 Proof of the company name’s reservation;
 Bailment/ Lease contract granting the right to use the registered office space;
 An agreement signed by the Executive Committee of the Owners’ Association;
 The Constitutive Act;
 Authenticated declaration of shareholder/s;
 Specimen signature/ signatures of the sole shareholder/ shareholders;
 Proof of the initial capital;
 Establishment application;
 Annex concerning the tax registration certificate;
 Declaration to obtain permits.
Startup Company Name Generator

= there are several online tools to generate company names; you can use key words like: "business
name generator", "generator name " etc.).

 Use 2-3 Keywords

 Just enter your main keywords to quickly generate company names and check domain
availability.
 try - cool idea , app - maker , app* x, pay* p?? , live your dream
 With 20+ generators & Social availability check!
 On some websites you can check for name availability.
COURSE 9: THE BUSINESS PLAN (BP)

THE BUSINES PLAN (BP) is:

 an instrument of self measuring the viability and profitability of the spotted entrepreneurial
opportunity;
 basic tool to forecast the business;
 major financing instrument of the whole business;
 basis for the organization, coordination and control of the resulting processes;
 important educational tool;
 the most complete and effective management tool.
 The “value” of the BP: lies in the process of researching and thinking about your business in
a systematic way.
 The act of planning helps you to think things through thoroughly, study and research if you
are not sure of the facts, and look at your ideas critically.
 It takes time now, but avoids costly, perhaps disastrous, mistakes later.

Difference between business plan (BP) and business model (BM):

 The BM is the mechanism through which the company generates its profit, while the BP is a
document presenting the company's strategy and expected financial performance for the
years to come.
 The BM is at the center of the BP!
 The BM describes how the company is positioned within its industry's value chain, and how
it organizes its relations with its suppliers, clients, and partners in order to generate profits.
The BP translates this positioning in a series of strategic actions and quantifies their financial
impact.

Potential Purposes of a BP:

 To determine the profitability of the identified business opportunity;

 To establish the main guidelines of economic, financial, managerial, production and marketing
aspects of the business;
 To obtain financing from a bank
 To attract investment funds;
 To conclude strategic alliances with other companies;
 To obtain major purchasing contracts (particularly from large companies);
 To involve other individuals to enter the new business;
 To facilitate mergers with an other company;
  To buy another company (acquisition).

BP’s structure should reflect the business’:

 Goal
 Objectives - are true milestones on the road to achieving the purpose of the company;
 Limits; obstacles that hinder the achievement of objectives;
 Quantitative targets; expressed in concrete terms (usually financial) and easily measured;
 Options; ways of achieving the objectives
 Estimated consequences relating to each option;
 Risk analysis and assessment of their impact on the anticipated consequences;
 Proper strategy formulation.

BP content:

1. Executive Summary
 Write this section last!
 Make it 2 pages or fewer!
 Include everything that you would cover in a 5-minute interview!
 Make it enthusiastic, professional, complete, and concise!
 If applying for a loan, state clearly how much you want, precisely how you are going to
use it, and how the money will make your business more profitable, thereby ensuring
repayment!

2. Initiators’ Description
 Personal characteristics (with knowledge and skills) of each team member/ initiator,
compared with the ideal characteristics of a good entrepreneur; the focus should be on
the match between team members and the nature of the business;
 Overview of the team's capabilities: highlight of the initiators’ qualities to ensure the
success of the proposed project; include the weaknesses and the solutions to
compensate them; potential risks.

3. Product/ Service Description

 The project team must demonstrate sufficient technical knowledge in order to
understand key aspects of production and quality of the proposed product!

Internalisation versus Outsourcing (I vs. O):

Internalization – recommended especially for the activities related to the core of the
business!

(+)

 Offers the possibility to create professional teams;

  Provides control over time, nature and quality of employees’ activities;

Outsourcing:

(+)

 answers the need of highly specialized activities;

 meets seasonal staffing needs;

(-)

 identifying a reliable provider can take time;

 outsourcing cost / h can be raised.

4. Description of the market & competition

 This require market research (primary/secondary).

Key Questions:

 What is the market size? Trends?

 What are market segments (their size, dynamic etc.);
 What is the aimed market share?
 What are the differences between own product/ service and the competing
products (technical performance, features etc.)?
 What is the product’s relative position toward the price? What are the differences in
pricing policies?
 What would be the replacement cost for the customer (to adopt the new product
before giving up the old one)?
 What is the rate of innovation in the industry?
 How easy is to imitate the product/ service?
 What is the regime of the intellectual property?
 How will the competition react to the product’s entry? What are the
countermeasures?

5. Proposed marketing strategy

= Includes the arguments on policy options for all components of the marketing mix:
 Product Strategy,
 Price Strategy,
 Distribution Strategy,
 Promotion Strategy.

6. Mobilizing the Needed Resources

 Key Questions:
 Which are the needed resources (financial, material, human & information) and
through which channels will they be provided?
 What talents and knowledge are crucial for the business’ success?
 What financial resources are needed? What sources can be tapped in?
7. Management
Key Questions:
 Who will manage the business on a day-to-day basis?

 What experience does that person bring to the business? What special or distinctive
competencies (education, experience, knowledge etc.)? (Emphasize the weaknesses and
gaps clearing solutions).
 Is there an organizational chart (> 10 employees) showing the management hierarchy
and who is responsible for key functions?
 Is there a plan for continuation of the business if this person is lost or incapacitated?

8. Hypothesis & Risks

 The BP should explicitly underline the assumptions, analyzing the consistency and
plausibility of each;
 It will assess the main risks associated with the business (strategic, operational, financial
& hazard) and will state the surveillance and protection measures.

9. Financial plan

Personal Financial Statement

 Include personal financial statements for each owner, showing assets and liabilities held
outside the business and personal net worth.

Startup Expenses and Capitalization

The financial plan consists of:

 A 12-month profit and loss projection,

 A 4-year profit and loss projection (optional),
 A cash-flow projection,
 A projected balance sheet, and
 A break-even calculation.

10. The potential for development

 It is explored and argued on the basis of phenomena and trends in consumption plan and/
or the industry, the growth prospects of the proposed business.
 The expansion possibilities are considering innovative solutions/ upper range suggested by
the specific market penetration, developing new applications, entering other market
segments or geographic markets.
 Development perspectives will be measured (new investments, new units / locations,
increase staffing, increased turnover, profitability trend) and phase for up to 10 years
horizon.
Diffusion of Innovation Theory
(E.M. Rogers’ Model)

Rogers’ Model… explained!

 Innovators (2.5%):Primary motivation: to learn about new technologies for their own sake; Key
characteristics : strong aptitude for technical information; do whatever they can to help;
challenges – want ‘no-profit’ pricing – want unrestricted access to top technical people;
 Early adopters (13.5%): Primary motivation – competitive advantage through breakthrough
innovations • Key characteristics – great imaginations for strategic applications – attracted by
high-risk, high reward propositions – perceive massive gains- not price-sensitive • Challenges –
want rapid time to market – demand high degree of customization + support
 Early majority (34%); Primary motivation – gain sustainable productivity improvements via
evolutionary change • Key characteristics – focus on proven applications – like to go with the
market leader • Challenges – listen to good references from trusted colleagues – want to see
the solution in use at reference sites
 Late majority (34%); Primary motivation – Keep up with the competition • Key characteristics –
better with people than technology – risk averse – price sensitive • Challenges – need
completely pre-assembled solutions – would benefit from value-added services (without paying)
 Laggards (16%). Primary motivation – maintain the status quo • Key characteristics – like taking
a contrarian position – seek to block purchases of new technology • Challenges – not a customer
– can be formidable opposition to early adoption

VERSIONS OF BP:
  Confidential version – having the owner/ top manager/ a potential buyer etc. as recipient;
 Partial version - for lenders and investors;
 Specific version - to satisfy a particular information need (branch manager, region etc.) of a
specific recipient;
 General version - with shareholders, financial analysts, etc. as recipients.

Adapting the BP:

For Raising Capital

 For Bankers; they want assurance of orderly repayment. Focus on: amount of loan; how the
funds will be used; what will this accomplish; how will it make the business stronger?; requested
repayment terms (number of years to repay); interest rate; collateral offered, and a list of all
existing liens against collateral.
 For Investors; they are looking for dramatic growth, and they expect to share in the rewards.
Focus on: funds needed on short-term; funds needed in 2-5 years; how the company will use the
funds, and what this will accomplish for growth; estimated ROI; exit strategy for investors
(buyback, sale, or IPO); % of ownership that you will give up to investors; milestones or
conditions that you will accept; financial reporting to be provided; involvement of investors on
the board or in mg.
o Venture Capital Funds - targeting businesses with high margins (25-50%) and high
liquidity of the investment. Focus on: competence and experience of the entrepreneur;
mg. team; special nature of business (licenses, patents, trademarks); and particularly on
"exit" .
o Other potential investors (family, friends, angel investors) - from which funds are
obtained easier and faster; they have modest demands.

Anatomy on an “Elevator pitch”

 Always start with a bold statement of the problem and market opportunity (attention grabber);
 Our product is …(simple, non-technical description)
 That provides … (key benefit that solves a problem) for target customers;
 Who have/are … (their compelling reason to buy)
 Unlike … (objective analysis of competitor shortcomings)
 Our unique selling point is… (your main source of competitive advantage)
 We need to raise $… in order to… (why you need the money)
 Call to action (a way to engineer feedback and a follow up meeting).

Common mistake: Failure to grab the audience’s attention with their opening statement. The opening
statement must demonstrate a compelling unmet need and have a ‘wow’ factor!
Business Plan Templates:

Are generic models suitable for all types of businesses; they can be modified to suit each one’s particular
circumstances;

BP’s length?

 There is NO ideal length of a BP!

 It depends on business idea and also on main purpose of writing a BP!

BP in Summary - 10-20 pages and is drawn in case of:

 newly established companies (with no history or previous results);

 experienced companies proposing a new investment project for diversification;
 an experienced manager, who by his previous success, does not need to provide detailed
information;
 to renew a credit line of small value;
 for the development of an existing product.

Full BP - 20 -50 pages; it is designed to access important financial resources;

Detailed BP - has min. 50 pages; it is very complex; recommended for:

 the final stage of negotiation with an important investor;

 large-scale investment projects;
 high-tech projects.

TOP 10 business plan mistakes:

1. The plan is poorly written. 

2. The plan presentation is sloppy.   

3. The plan is incomplete.   

4. The plan is too vague.

5. The plan is too detailed. 

6. The plan makes unfounded or unrealistic assumptions. 

7. The plan includes inadequate research.

8. The claim there's no risk involved in your new venture.

9. The claim there is no competition. 

10. The BP is not a “roadmap” with milestones.

WHY is the entrepreneur, sometimes, reluctant to write a BP?

 A strong believe that writing a BP takes to long.

 Conviction that a BP is just a useless formality.
 Lack of appropriate training.
 Lack of basic knowledge on the form, content and design of a BP.
COURSE 10: Financing the business – a continuous challenge for the entrepreneur

Financing the business – main sources:

The financial needs of a business will vary according to the type and size of the business!

 Own sources:
o Personal savings or equity.
o Attracted capital:
o Partners contributions;
o Family & friends.
o Capital Market (Initial Public Offer/ IPO; business angels; venture capital etc.).
 Loans:
o According to their length in time: short/ medium/ long term;
o According to their legal form: civil, banking, commercial credit, leasing etc.);
o According to their size: micro-credit; small/ medium/ large credits;
o According to the financed objective: for investments; current financing; exceptional
financing;
o Subventions (grants):
o UE, Government, Local authorities.

Types and Sources of Financing for Start-up Businesses:

A. Equity Financing

= exchanging a portion of the ownership of the business for a financial investment in the
business. The ownership stake resulting from an equity investment allows the investor to share
in the company’s profits. Equity involves a permanent investment in a company and is not repaid
by the company at a later date.

The investment should be properly defined in a formally created business entity. An equity
stake in a company can be in the form of membership units, (limited liability company) or in the
form of common or preferred stock as in a corporation.

Companies may establish different classes of stock to control voting rights among shareholders.
(A1/1; B10/1; C0/1/ Alphabet)

B. Debt Financing

= borrowing funds from creditors with the stipulation of repaying them plus an interest at a
specified future time.
 Generally, short-term debt is used to finance current activities such as operations, while long-
term debt is used to finance assets, such as buildings and equipment.

Secured debt has collateral (a valuable asset which the lender can attach to satisfy the loan in
case of default by the borrower).

Unsecured debt does not have collateral and places the lender in a less secure position relative
to repayment in case of default.

 Friends and Relatives  may offer a debt capital at a low interest rate. It should be done with the
same formality as if it were borrowed from a commercial lender.
 Banks and Other Commercial Lenders require a solid business plan, positive track record, and
plenty of collateral. These are usually hard to come by for a start- up business.
 Commercial Finance Companies may be more willing to rely on the quality of the collateral to
repay the loan. Also, the cost of finance company money is usually higher than other
commercial lenders.
 Government Programs, usually take the form of a government guarantee of the repayment of a
loan from a conventional lender. The guarantee provides the lender repayment assurance for a
loan to a business that may have limited assets available for collateral.
 Bonds = the company specifies the interest rate that the company will pay back the principal
(not before the maturity date). The price paid for the bond at the time it is issued is the face
value. The risk for the investor is that the company will default or go bankrupt before the
maturity date. However, because bonds are a debt instrument, they are ahead of equity holders
for company assets, in case of bankruptcy.

Debt Financing/ Secured financing of a new venture that involves a payback of the funds plus a
fee (interest for the use of the money).
 Equity Financing/ Involves the sale (exchange) of some of the ownership interest in the venture
in return for an unsecured investment in the firm.

Business Incubators (BI) (> 9000 BI, worldwide/ 2017)

= are organizations geared toward speeding up the growth and success of a startup and early stage
companies.

BI are often a good path to capital from angel investors, state governments, economic-development
coalitions and other investors.

 BI vary in their strategies. Some are located in an actual physical space meant to foster
networking among entrepreneurs and their coaches. Others operate on a virtual basis.
 Many BI have potential capital to invest, or links to potential funding sources. The incubated
start-ups have access to services such as accountants and lawyers & invaluable coaching and
networking connections through the staff and other entrepreneurs at the incubator.

Business Accelerator (BA) versus Business Incubator (BI)

 BA provides support (money, intense training programs; office space; marketing, "mentorship",
networking, etc.), for short periods (3-4 months), for a rapid growth of the company, in return
for share capital (<10%); the first BA = "Y Combinator" / 2005); BI does not participate to the
incubated company’s capital;
 BA training is usually for teams (small) of entrepreneurs, often of several companies;
 BA is recruiting companies especially from highly innovative industries, using a very tough
selection process; BI is less selective and the hosts the firms for longer periods (2-5ani); BI are
covering only a small part of the demand;
 BI are mainly financed out of public money (80%), while BA are mainly private.

Top 10 Fintech Accelerators in Europe

Seedcamp. Founded in 2007, the British Venture Accelerator provides seed capital investments for
innovative European start-ups. During the eight years of existence Seedcamp has supported more than
200 companies, one of which was a unicorn, and 91% of them were able to attract further funding (>
350 mil. $).

Startupbootcamp - a European accelerator program is held annually in Amsterdam, Berlin, Copenhagen,

Dublin and Haifa. The acceleration program for startups in the area of financial technologies are held in
Singapore, New York and London.

In London, the program lasts for three months. The participants have the opportunity to work with
more than 400 mentors, partners and investors for the development of products as well as access to
major markets in Europe, the US and the Asia-Pacific region, € 15,000 in cash and services partner for
more than 450,000 €, access to over 200 business angels and venture capital funds.
Level39 is positioning itself as Europe’s largest accelerator for companies to develop technologies for
the finance, retail, cyber security and systems smart city.

Seed-money

= sintagm for the initial capital used to start a business.

The amount of money is usually relatively small because the business is still in the idea or conceptual
stage. Such a venture is generally at a pre-revenue stage and seed capital is needed for research &
development, to cover initial operating expenses, until a product or service can start generating re

enue, and to attract the attention of venture capitalists.

Seed capital often comes from:

 the company founders' personal assets;

 friends and family;
 business angels;
 crowd-funding etc.

Informal Credit & Micro-creditele

 Informal credit is the loan obtained by the entrepreneur from relatives, friends and various
others (who have not lending money as usual activity), based on civil lending contracts. Interest
may be agreed between the parties (capped by law at 1.3 * National Bank’s reference rate).
 Micro-credits are small amounts of money (EURO 5000-10000) which may be granted under
schemes of lending, by both banks and non-banking institutions (NGOs).

Crowd-sourcing generally covers 4 areas:

 Crowd Labor: Crowd-sourcing labor lets you seek freelancers to complete all or part of a project
online. You can either seek people to perform specific tasks at a set price. (exp. Fiverr – you can
post projects as contests or work for hire and have talented freelancers compete. Amazon
Mechanical Turk allows you to split projects that have a huge number of tasks (that cannot be
done by computer), such as classifying photos, and pay pennies per task.)
 Open Innovation/Crowd Creativity: These crowd-sourcing companies allow multiple people to
post on projects. (HitRECord is an art and video crowd-sourcing company that lets people post
and collaborate on artistic projects whose results have competed in film festivals. Chaordix uses
a similar approach but for product innovation).
 Access Distributed Knowledge or Experience: Wikipedia is the most common example of a
crowd-sourcing website used to access and share knowledge from multiple sources.
 Crowd-funding: Companies and solopreneurs are turning to the public for funding of ideas.
Crowdfunding

 It is made possible through the internet (social media, online networks, electronic payments)
and it is relatively accessible to any entrepreneur! The virtual environment tends to gradually
eliminate the psychological & logistical barriers, even legal ones.
 It is based on the principle “a little bit, from as many people as possible“, to finance profit or
non-profit initiatives/ companies.

Crowdfunding Platforms

“Crowdfunding” Models:

 Donations, sponsorships and philanthropy; donors expect nothing in return;

 Small Loans;
 Investments against capital participation / share of profits / participation to the distribution of
incomes.
 Crowd -funding Platforms are registering an unprecedented proliferation(>2800); among the
most well known: RocketHub, Kickstarter, PledgeMusic, Funding4Learning, Artist-Share,
FundRazr, Kiva etc.
 Raised funds, in 2015 > 34 bil. $.

Most websites are encouraging entrepreneurs (project developers) to:

 Reward their donors, in various forms (from postcards, popular on Twitter, claimed samples of
the product) and
 to regularly update their project information in attractive ways.

The Crowdfunding Accreditation for Platform Standards (CAPS) program is an initiative by

Crowdsourcing.org to promote the adoption of best practices for the operation of crowdfunding
platforms globally.

LAMPSTER, your Light Partner

(a successful example of Crowd -sourcing):

Two young Romanian entrepreneurs in San Francisco have created Lampster, an ingenious lamp that
can be controlled by mobile phone.

The whole design is built around old tractor headlights, as explained in their video by the creators and
the final product is a successful combination of vintage and high-tech.
Launched on Kickstarter funding campaign had over 1,300 donors and raised almost $ 300,000
(compared to the original budget of 30,000). In exchange for $ 150 you can have a Lampster just yours.

Venture Capital Funds (VCF)

 consists of venture investors (venture capitalists) working with the entrepreneur in order to
dissipate the risks associated with their investments in the capital of newly established
enterprises; participation (individual or group) are usually substantial (though <50%).
 If the supported new company fails, the VC loses the money invested, along with the
entrepreneur.
 VCF is aiming at highly innovative and dynamic enterprises, expected to grow at a fast pace in a
short period (<5 years) and to generate large gains.
 VCF is an important financing source for companies with short history, that have not yet tapped
the capital market.
 At the end of the contractual period, the entrepreneur can redeem the VCF share, or the VCF
will seek another way out of the business (eg. Will sell its stock on the capital market).
 In all cases, the existence of a functioning capital market is an important condition to provide
the necessary information on the fair value of the business.

Guarantees (G) for entrepreneurial firms

 G provide entrepreneurs access to common financial resources by covering (partially or fully)

the guarantees required by the credit institution.
 The guarantee letter issued by a Guarantee Fund is the basis of the entire mechanism.

National Credit Guarantee Fund for SMEs

(NCGFSMS)

 NCGFSMS (founded 2001) is a public owned institution that covers default risk on the loan
contracted by an SMS, up to 80% of its value. A guarantee replaces the SMS’ missing collateral
and enables the bank to grant the loan. In essence, the guarantee is a financial commitment of
the NCGFSMS to repay the loan to the financial institution, in case the SME customer should not
be able to honor his payments.
 NCGFSMS also facilitates access to EU funds (up to € 2.5 million. Euro).
 Types of financing guaranteed:
 Medium and long-term financing for investment loans (for: new buildings; new developing /
upgrading existing production capacities; equipment purchasing; machinery, installations, etc.).
 Short - term financing, such as lines of credit for working capital, overall operating loans, and
loans to finance inventories, export pre-financing loans etc.
Leasing

Leasing is used as a form of financing to acquire equipment (manufacturing & mining, vessels and
containers, construction & off-road eq., medical, agricultural eq., aircraft, rail cars, trucks office eq., IT
etc.) for use and purchase usually for a monthly compensation at a fixed rate.  

Leasing advantages:

 making lower monthly payments than you'd have with a loan;

 getting a fixed financing rate instead of a floating rate;
 benefiting from tax advantages;
 conserving working capital and avoiding cash-devouring down payments;
 and gaining immediate access to the most up-to-date business tools.
 The equipment also shows up on the income statement as a lease expense rather than a
purchase (when the balance sheet becomes less liquid).

Leasing disadvantages:

 over the long term the payment might be higher than the price;
 commits to retaining a piece of equipment for a certain time period.

The closed-end lease = there is no obligation to purchase the leased asset at the end of the agreement
and the equipment must be returned. Also called a "true lease", "walk-away lease" or "net lease".

The open-end lease, with a “balloon payment” at the end for the difference between the residual
and the fair market value of the asset.

Every lease decision is unique, so it's important to study the lease agreement carefully. Compare the
costs of leasing to the current interest rate, examining the terms to see if they're favorable!

Factoring

Factoring-ul = a financing method in which a business owner sells accounts receivable at a discount, to a
third-party funding source to raise capital .

In a typical factoring arrangement, your firm makes a sale, delivers the product or service and generates
an invoice. The factor (the funding source) buys the right to collect on that invoice by agreeing to pay
you the invoice's face value less a discount--typically 2 to 6 %. The factor pays 75 percent to 80 percent
of the face value immediately and forwards the remainder (less the discount) when your customer pays.

Factoring is the cash-management tool of choice for many companies. It is very common in certain
industries, such as the clothing industry, where long receivables are part of the business cycle.

Barriers to overcome in start-up financing (I):

A. Related to the business & the entrepreneur:

  Insufficient personal resources;
 Unclear/ inconsistent image of the required financial resources;
 Improper evaluation of the business feasibility & profitability;
 Entrepreneur’s lack of basic financial knowledge;
 Lack of awareness regarding the available financing sources, institutions, programs etc.;
 Entrepreneur’s low negotiation skills.

B. Related to the business environment:

 Financing offer lower than demand;

 Reluctance of many financial institutions to finance start-ups;
 Under development of an adequate financial institutions’ network (Investment banks., Hedge
funds, etc.
 Under-developed legal framework regarding modern financial tools (leasing, franchising,
factoring etc.);
 Modest development of guarantee and co-guarantees funds;
 Relatively high cost of financial consulting services;
 High co-financing own contribution required by commercial banks;
 High collaterals required by the financial institutions (>110%);
 Fluctuating interest rates for loans;
 Loans provided on too short terms;
COURSE 11: Managing the Venture’s Financial Resources

2 ways to raise capital:

 Debt Financing
o Secured financing of a new venture that involves a payback of the funds plus a fee
(interest for the use of the money).
 Equity Financing
o Involves the sale (exchange) of some of the ownership interest in the venture in return
for an unsecured investment in the firm.

There are 3 major financial statements (issued quarterly and/ or annually):

A. Cash Flow Statement

 B. Balance Sheet;

C. Profit and Loss Statement / Income Statement

A. CASH FLOW

= is the net amount of cash and cash-equivalents moving into and out of a business.

(+) Positive cash flow (cash inflow exceeds cash outflow) indicates that a company's liquid assets are
increasing, enabling it to settle debts, reinvest in its business, return money to shareholders, pay
expenses and provide a buffer against future financial challenges.

(-) Negative cash flow indicates that a company's liquid assets are decreasing.

Net cash flow is distinguished from net income, which includes accounts receivable and other items for
which payment has not actually been received. 

Cash flow is used to assess the quality of a company's income, that is, how liquid it is, which can indicate
whether the company is positioned to remain solvent.

Cash Flow Management

= is the process of monitoring, analyzing, and adjusting your business's cash flow!

 80% of business fail is due to poor management of cash flow. 

 If your business constantly spends more than it earns you have a cash flow problem!

For small businesses, the most important aspect of cash flow management is avoiding extended cash
shortages, caused by having a too great gap between cash inflows and outflows.

Cash Flow Planning

= allows you to know if and when you will face a cash flow shortage/ crunch and act accordingly in order
to keep the business solvent!

As a business owner you need to perform a cash flow analysis,  on a regular basis.

There are many online cash-flow management tools/ apps, like:

 Free Cash-Flow Projection Templates (exp.: Google Docs offers templates which can be shared
and edited with other members of your Google Apps account);
 QuickBooks’ Cash Flow Forecast Report (exp.: Intuit's QuickBooks);
 Budget's Online Expense Tracking and Planning Tools;
 Pulse's Cash-Flow Modeling Software;
 Master PlanGuru.
Cash Flow Categories:

 Operational Cash Flow refers to cash received or spent as a result of a company’s business
activity.
 Investment Cash Flow refer to cash received or spent through investing activities (buying and or
selling assets).
 Financing Cash Flow refers to cash received trough debt or paid out as debt repayments.

Cash Flow problems can be generated by:

Endogenous factors:

 Poor overall management and fin. mg. resulting in mismatches between cash inflows and
outflows;Expenses are too high relative to sales volume; question every expense, especially:
staffing, capital expenditures (e.g. equipment and plant) and office costs;
 Low price strategy (especially at the beginnings) with low gross profit margins;Over-sized
inventories, resulting in blocked funds;
 Improper offer structure;
 Undergoing rapid expansion, that generally involves higher costs for: new employees; rent for
additional space; advertising; capital investment for new facilities, equipment, etc. increased
levels of inventory;

Exogenous factors:

 Customer payment delays results in poor collection on receivables and extended credit to other
businesses; invoicing is normally done on 30 or 60 day terms and it is not uncommon for
customers to delay payment.
 Delays in money transfers from the banking system;
 Unofficial payments not included in the accounts;
 High taxes (payable prior to cashing some effective amounts);
 Sales are too low.

How to avoid Cash Flow Crisis:

 Carefully monitor your cash flow to stay one step ahead of any potential issues and develop a
strategy for dealing with a crisis before it happens;
 When cutting costs, make sure you do this carefully and start with the unessential costs. Cutting
employee pay should be the last thing to do…;
 Try to increase collections. Send invoices out quickly and find ways to encourage customers to
pay faster;
  Seek extensions on the timeframe of your payments to vendors and lenders;
 If you need to borrow more money consider the consequences and plan carefully how you will
make timely repayments.

B. The Balance Sheet

= is a statement of the financial position of a business which states the assets, liabilities, and owners'
equity at a particular point in time.

All accounts are categorized as an asset, a liability or equity. The relationship between them is expressed
in the equation:

Assets = Liabilities + Equity.

Assets:

1. Fixed Assets

 Intangible assets
 Tangible assets
 Financial assets

2. Current assets

 Stocks/ inventory
 Receivables
 Financial investment on short term
 Petty cash and bank accounts

3. Prepaid Expenses

The faster the business could make an asset liquid (convert it to cash), the higher the asset should be on
the balance sheet.

CASH - means the money you currently have on hand; it represents the bank or checking account
balance for the business; a cash equivalent is an asset that is liquid and can be converted to cash
immediately.

ACCOUNTS RECEIVABLE - how much money people are supposed to pay you, but that you have not
actually received yet; usually, this money is sales on credit, often from “B2B” sales, where your business
has invoiced a customer.

CURRENT ASSETS - are those that can be converted to cash within one year; Cash, accounts receivable,
and inventory are all current assets;

LONG-TERM ASSETS - referred to as “fixed assets”, include things that will have a long standing value,
such as land or equipment.
ACCUMULATED DEPRECIATION - reduces the value of assets over time.

TOTAL LONG-TERM ASSETS - term is sometimes used to describe long term assets + depreciation on a
balance sheet.

Liabilities

The sooner something needs to be paid, the higher up that line item goes.

ACCOUNTS PAYABLE= money that your business owes, the other side of the coin to “accounts
receivable; it is comprised of the regular bills that your business is expected to pay;

SHORT-TERM DEBT - is debt that you have to pay back within a year (usually any short-term loans). This
can also be referred to on a balance sheet as a line item called current liabilities or short-term loans.

TOTAL CURRENT LIABILITIES - the above numbers added together are considered the current liabilities of
a business, meaning that the business is responsible for paying them within one year.

LONG-TERM DEBT - are the financial obligations that it takes more than a year to pay back; this is often a
hefty number, and it doesn’t include interest.

TOTAL LIABILITIES - Everything listed above that you have to pay out or back compiled together.

Equity

PAID-IN CAPITAL = money paid into the company as investments; this is actual money paid into the
company as equity investments by owners.

RETAINED EARNINGS - earnings (or losses) that have been reinvested into the company, not paid out as
dividends to the owners. When retained earnings are negative, the company has accumulated losses.

NET EARNINGS – the higher it is, the more profitable your company is. This line item can also be called
income or net profit.

TOTAL OWNER’S EQUITY - Equity means business ownership, also called capital. Equity can be calculated
as the difference between assets and liabilities. This can also be referred to as “shareholder’s equity” or
“stockholder’s equity.”

TOTAL LIABILITIES AND EQUITY - this is that final equation I mentioned at the beginning of this post,
assets = liabilities + equity.
Yearly Balance Sheet’s Structure

C. Profit & Loss Statement (P&L)/ Income Statement

= shows business performance over a specific period of time, recording incomings and outgoings and
sales income generated, including estimates of work in progress but not yet invoiced.

P&L indicates how the revenues (money received from the sale of products and services before
expenses are taken out, also known as the “top line”) are transformed into the net income (the result
after all revenues and expenses have been accounted for, also known as “net profit” or the “bottom
line”).
Income statements should help investors and creditors determine the past financial performance of the
enterprise, predict future performance, and assess the capability of generating future cash flows
through report of the income and expenses.

It is important to compare income statements from different accounting periods, as the changes in
revenues, operating costs, research and development spending and net earnings over time are more
meaningful than the numbers themselves.

Profit and Loss Statement’ Structure:

 Sales
o Total sales
o Cost of goods sold
o Gross profit/ net sales (Calculate total sales minus cost of goods sold minus any other
expenses related to the production of a good or service)
 Expenses
o Accountant fees
o Advertising & marketing
o Bank fees & charges
o Bank interest
o Credit card fees
o Utilities (electricity, gas, water)
o Telephone
o Lease/loan payments
o Rent & rates
o Motor vehicle expenses
o Repairs & maintenance
o Stationery & printing
o Insurance
o Superannuation
o Income tax
o Wages (including PAYG)
 Total expenses (Total all of your expenses above)
 Net profit (Calculate Gross profit/net sales minus Total expenses)

The Romanian version of P&L Statement includes 3 explicit types of incomes, expenses and profits/ loss:

a. Operating (Operating Section) incomes/ expenses and profits/ loss;

b. Financial (Non-operating Section) incomes, expenses and profits/ loss;
c. Extraordinary (Irregular/ Discontinued Operations) incomes, expenses and profits/ loss:
Working Capital (WC)

is calculated as:

Working Capital = Current Assets - Current Liabilities

The working capital ratio = Current Assets/Current Liabilities

It indicates whether a company has enough short-term assets to cover its short-term debt.

Anything < 1 indicates negative WC (working capital). While anything > 2 means that the company is not
investing excess assets. A ratio between 1.2 and 2.0 is , usually considered sufficient.  Also known as "net
working capital".

It is a measure of both a company's efficiency and its short-term financial health.

In Romania, the major financial statements are:

 the Balance Sheet;

 the Income Statement;
 the Cash Flow Statement;
  the Statement of Stockholders´ Equity (reports changes in stockholders´ equity accounts during
the year);
 the Statement of Retained Earnings (reflects the beginning balance, additions to, deductions
from, and the ending balance of the retained earnings account);
 the Notes to the Financial Statements (explain some of the items presented in the main body of
the statements).

COURSE 12: ETHICS, SOCIAL RESPONSIBILITY, & ENTREPRENEURSHIP

Defining Ethics:

= provide the basic rules or parameters for conducting any activity in an “acceptable” manner.

Running a business should be about the Triple Bottom Line (TBL), or 3P approach:

People, Planet, Profit!!!

4 Main Themes of Ethical Dilemmas for Entrepreneurs:

Classifying Decisions Using a Conceptual Framework

Types of Morally Questionable Acts

Entrepreneurial possible rationalizations:

The four rationalizations are believing:

1. That the activity is not “really” illegal or immoral;

2. That it is in the individual’s or the corporation’s best interest;
3. That it will never be found out;
4. That because it helps the company, the company will condone it.

The essence of ethical problems consists of permanent conflict between:

 economic performance of the company (measured by costs, revenue, profits, dividends etc.) and
 its social performance, more difficult to quantify (obligations to employees, customers,
creditors, suppliers etc.); the nature of these obligations is obviously open to question!

Therefore, the entrepreneur should go through 3 “filters”:

 Economic analisys,
 Legal analisys,
 Ethical analisys.

Complexity of Ethical Decisions:

 they extended consequences

 business decisions involving ethical questions have multiple alternatives;
 ethical business often have mixed outcomes;
 most business decisions have uncertain ethical consequences;
 most ethical business decisions have personal implications.
The Social Responsibility Challenge

 social obligation - some firms simply react to social issues through obedience to the laws;
 social responsibility - others respond more actively, accepting responsibility for various
programs;
 social responsiveness - still others are highly proactive and are even willing to be evaluated by
the public for various activities.

Successful entrepreneurship:

 imagination, creativity, novelty, and sensibility – are systematically and theoretically crucial to
ethical decision-making, suggesting that ethics and entrepreneurship are closely aligned.
 requires moral imagination, in addition to an effective handling of the strategic dimensions of
starting a new venture.