BA260 Entrepreneurship

How to prepare for growth

- appreciate nature of business growth - stay committed to core strategy - plan for growth

SBA guaranteed loan program

-An important source of funding for small businesses in general in which approximately 50 percent of the 9,000 banks in the United States participate eg. 7A Loan Guarantee Program

Product/Service feasibility analysis

-an assessment of the overall appeal of the product or service being proposed -product/service desirability -product/service demand

Strategic partners

-another source of capital for new ventures

Variable costs

-costs company incurs as it generates sales

Public relations

-efforts to establish and maintain a company' s image with the public -not paid for directly

Economic impact of entrepreneurial firms

-innovation -job creation

Business trends

-outsourcing -moving online

Product

-the good or service a firm offers to its target market

Value

-worth, importance, utility

Steps involved in putting together an advertisement

1. identify the purpose of the ad 2. determine the target audience 3. select a medium 4. create the ad 5. select a place and a time for the ad to appear 6. fulfill expecations

Vendor credit

Also known as trade credit, is when a vendor extends credit to a business in order to allow the business to buy its products and/or services up front but defer payment until later.

Level of fixed costs

Firms that have high fixed costs must sell a higher volume of their product to reach the break-even point than firms with low fixed costs.

Entrepreneurial firms' impact on larger firms

Many entrepreneurial firms have built their entire business models around producing products and services that help larger firms become more efficient and effective.

Window of opportunity

Metaphor describing the time period in which a venture can realistically enter a new market

Skills profile

a chart that depicts the most important skills that are needed and where skills gaps exist

Strong tie relationships

characterized by frequent interaction, such as ties between coworkers, friends, and spouses

Competitive intelligence

gaining information about one's competitors' activities so that you can anticipate their moves and react appropriately

Entrepreneurial services

generate new market, product, and service ideas

Exclusive distribution arrangements

give a retailer or other intermediary the exclusive rights to sell a company's products

Equity based crowdfunding

helps businesses raise money by tapping individuals who provide funding in exchange for equity in the business

Buyer group concentration

if the buyers are concentrated, meaning that there are only a few large buyers, and they buy from a large number of suppliers, they can pressure the suppliers to lower costs and thus affect the profitability of the industries from which they buy

Merchant cash advance

lender provides a business a lump sum of money in exchange for a share of future sales that covers the payment amount plus fees

Final prospectus

part of the final registration statement prepared by a company prior to an IPO that contains all the details of the offering, including the number of shares offered and the offer price

Freelancer

person who is in business for themselves, works on their own time with their own tools and equipment, and performs services for a number of different clients

Accredited investor

person who is permitted to invest in higher-risk investments such as business start-ups

Sweat equity

represents the value of the time and effort that a founder puts into a new venture

Productive opportunity set

set of opportunities the firm feels it's capable of pursuing

Single purpose loan

specific amount of money is borrowed that must be repaid in a fixed amount of time with interest

Switching costs

the fixed costs that buyers encounter when switching or changing from one supplier to another

Crowdfunding

the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.

Feasibility Analysis

the process of determining if a business idea is viable

Social plug ins

tools that websites can use to provide their users with personalized and social experiences

STTR Program

variation of SBIR for collaborative research projects that involve small businesses and research organizations, such as universities or federal laboratories

Managerial capacity problem

when a firm's managerial resources are insufficient to take advantage of its new product and service opportunities

Good Ideas

*anchored in a product, service or business that adds value for its customers -timely: window of opportunity -fit: with the entrepreneurs -solves a problem: fills an unmet need/pain -attractive: significant and durable profit potential

Sources of equity funding

- business angels - venture capital(ists) - initial public offering

Savvy entrepreneurial firm

- learn about emerging trends through effective use of social media -Facebook groups, LinkedIn groups, Twitter, blogs, Tumblr

Target market

- the limited portion of the industry that is goes after or to which it wants to appeal

Preliminary prospectus

-"red herring" -offering to general public

Conservative firms

-"wait and see" posture, less innovative, risk averse

Forbes - How to Craft a Job Search Elevator Pitch

-15-30 seconds -write a page of what you would want to tell a hiring manager and the cut down to a quarter page then down to three main points -practice in front of a mirror, video record -sound enthusiastic with passion -prepare more than one pitch for different audiences -have a pitch designed for a social setting and networking opportunity

Five Forces Model

-A model developed by Michael Porter that helps us understand the five competitive forces that determine the level of competition and profitability in an industry. -each force affects average rate of return for firms in an industry by applying pressure on industry profitability -threat of substitutes -threat of new entrants -rivalry among existing firms -bargaining power of suppliers -bargaining power of buyers

Global Entrepreneurship Monitor (GEM)

-An annual assessment of the national level of entrepreneurial activity across countries, started as a partnership between London Business School and Babson College -identifies early entrepreneurial activity: businesses that are just being started and businesses that have been in existence for less than three and half years -highest rates of entrepreneurial start up activities occur in low income countries where jobs are not plentiful -identifies if people are starting business to take advantage of an attractive opportunity or because of necessity to earn an income (majority of people in high income countries drawn to entrepreneurship to take advantage of attractive opportunities while those in low income countries are drawn because of necessity due to lack of career prospects)

Government and legal barriers

-Barrier to Entry -knowledge-intensive industries, patents, trademarks, and copyrights or something that requires the granting of a license by a public authority

Cost advantages independent of size

-Barrier to Entry -where entrenched competitors may have cost advantages not related to size that are not available to new entrants, grounded in history

Why people become entrepreneurs

-Be their own boss: have had a long time ambition to own their own firm or because they have become frustrated working in traditional jobs -Pursue their own ideas: some people naturally alert, when those ideas are recognized they have a desire to make them exist -Pursue financial rewards: secondary motivation, often fails to live up to its hype, average entrepreneur does not make more money than someone in a traditional job, money is a unifier, making profit and solidifying a goal, money = rarely primary reason behind a launch

What went wrong: Devver and Misuse of composition and management of new venture team

-Devver: software to help develops use cloud based services to test their code in a expedient manner -could not generate enough revenue to sustain company -would have been advantageous to add another co founder who loved the business side of running a startup -communication was a challenge (worked remotely) -should have spent more time on customer development and finding a minimum viable product , solicited more customer feedback about pricing, market size and technical challenges -learned market was too small and price point needed to be too low to sustain the company

What went wrong: Attention of VCs gained users and still failed

-DrawQuest: app to encourage creativity through daily drawing challenge -raised money from marquee investors -never figured out business side of venture -app was too expensive to develop and maintain -let down employees and venture capitalists

Global industries

-Industries that are experiencing significant international sales -strategies: multi domestic strategy (compete for market share on a country by country basis and vary product or service offerings to meet demands of the local market) and global strategy

Questions before pursuing a new firm

-Is the industry accessible? (Is it a realistic place for a new venture to enter?) -Does the industry contain markets that are ripe for innovation or are undeserved? -Are there positions in the industry that will avoid some of the negative attributes of the industry as a whole?

Influence, power and survivability

-Larger businesses usually have more influence and power than smaller firms -size can be an advantage

Venture capital

-Money that is invested in new or emerging companies that are perceived as having great profit potential -limited partners: investors who invest in venture capital funds -general partners: venture capitalists who manage the fund -carry: percentage of profits venture capitalist get -once a venture capitalist makes an investment in a firm, subsequent investments are made in rounds/stages referred to as follow on funding -due diligence process: process of investigating the merits of a potential venture and verifying the key claims made in the business plan

Savvy Entrepreneurial firm: Overcoming lack of business experience

-SBDC is a gvt agency that provides free management assistance and coaching to business owners (business assistance and advice) eg. support groups -participate in online forums and Q&A SITES -pick a type of business that minimizes the need for prior experience

Pure Fix Cycles

-Schau, Schau, Stoffes and Fisherman found void in market: market needed an affordable bike that was stylish and durable to withstand a daily commute -solution: build a fixed gear, single speed bike ("fixie") --> cheap to build and more reliable, although takes a little more effort to ride -four categories of Pure Fix Cycles: Original, Glow, FGFS, City line -won a business competition and now manufactured in China, sold all across U.S. via Internet

Price

-The amount of money exchanged for a good or service -produces revenue

Feasibility Analysis

-The process used to test a business concept -opportunity validation -approaches: primary and secondary research --> triangulation 1. market need validation (interview target customers about need/pain) 2. product/service desirability validation (interview target customers about solution) 3. product/service demand validation (survey, use primary research) 4. market size (use secondary research)

Need/Pain questions

-What is the job to be done?: customer needs = problems they want to solve -Are customers aware of their real need/pain/want? -How satisfied are your customers with your solution to their need? -Will the customers bye willing to accept switching costs to solve their need/problem?

Elevator pitch

-a brief, carefully constructed statement that outlines the merits of a business opportunity -one minute -describe opportunity or problem that needs to be solved -describe how product or service meets opportunity or solves problem -describe qualifications -describe market

SBIR Program

-a competitive grant program that provides over $2.5 billion per year to small businesses for early-stage and development projects -Phase 1: six month feasibility study to demonstrate technical feasibility or proposed innovation -Phase 2: awards up to $1 million for two years of successful Phase 1 companies -Phase 3: business must find private funding or financing to commercialize product or service

Barrier to entry

-a condition that creates a disincentive for a new firm to enter an industry -economies of scale, product differentiation, capital requirements, cost advantages independent of size, access to distribution channels and government and legal barriers

Competitor analysis

-a detailed analysis of a firm's competition -helps a firm understand the positions of its major competitors and the opportunities that are available

Advisory Board

-a panel of experts who are asked by a firm's managers to provide counsel and advice on an ongoing basis -provide guidance and lend legitimacy

Bug report

-a popular technique that is used in classrooms to teach brainstorming -list 50-70 conditions or things that bug them in everyday lives

Brainstorming

-a process for generating creative ideas and solutions through intensive and freewheeling group discussion

What is a brand?

-a promise to serve stakeholders' interests -a firm's guarantee of a level of performance -indicates the promises a firm makes to those it serves -expresses a firm's reputation -presents a firm's credentials -an indicator of trust and reduced risk -describes a company's nature -serves as a handshake between a firm and its customers

Organizational feasibility analysis

-a study conducted to determine whether a proposed business has sufficient management expertise, organizational competence, and resources to be successful -issues: management prowess and resource sufficiency

Idea

-a thought, an impression or a notion -may not meet criteria of an opportunity

Business model canvas

-a type of visual plan that depicts the business on one page by filling in nine blocks of a business model -makes explicit the underlying assumptions and what it might take to test them to get it into the market -serves as a communication tool (internal and external) -tool to understand if project is valuable enough and to justify investment of time, resources, and effort -captures dynamism over time (starting point and where the business is going)

Reasons passion is important

-ability to learn and iterate: solicit feedback, make changes, move forward -willingness to work hard for extended period of time: sometimes work longer hours than those in traditional jobs so need to be passionate to get through it -ability to overcome setbacks and "no's": need to energy to continue -ability to listen to feedback on limitations of organization and self: willing to listen to those with good intentions and brush aside those with bad intentions -perseverance and persistence when going gets tough: provides motivation to get through challenges

Partnering for success: Overcoming Liabilities of Newness

-accelerator programs: programs for promising startups that provide classes and funding in exchange for equity, provide mentorship, host a demo day, privately or publicly funded eg. YCombinator, TechStars -incubators: government funded and take no equity, focus on industry, do not have a set duration -benefits: network and connections made, brand recognition, opportunity to work side by side with other start ups, training and learning that takes place

Decline stage

-all businesses will be threatened by more relevant and innovative products -ability to avoid decline depends on strength of leadership and ability to appropriately respond -can enter this stage if it loses its sense of purpose or spreads itself too thin and no longer has a competitive advantage

Service

-an activity or benefit that is intangible and does not take on a physical from (usually nested under "product" when talking about marketing mix)

Industry/target market feasibility analysis

-an assessment of the overall appeal of the industry and the target market for the proposed business

Consultant

-an individual who gives professional or expert advice -paid consultant vs consultant who is made available for free or at a reduced rate through a nonprofit or government agency

Declining industries

-an industry or a part of an industry that is experiencing a reduction in demand -strategies during declining stage: leadership strategy (firm tries to become dominant player in industry), niche strategy (focuses on a narrow segment of industry that might be encouraged to grow through a product or process innovation), cost reducing strategy (achieving lower costs than industry incumbents through process improvements)

Mature industrires

-an industry that is experiencing slow or no increase in demand, has numerous repeat customers and limited product innovation -process and after sale service innovation

Investment Bank

-an institution that acts as an underwriter or agent for a firm issuing securities -acts as firm's advocate and advisor and walks it through process of becoming public

Characteristics of industry attractiveness

-are young rather than old -are early rather than late in life cycle -are fragmented rather than concentrated -are growing rather than shrinking -are selling products or services that customers "must have" rather than "want to have" -are not crowded -have high rather than low operating margins -are not highly dependent on historical low price of a key raw material to remain profitable

Managing growth

-as a business increases its sales, its pace of activity quickens, its resources needs increase, and founders find they are busier -company must actively and carefully manage its growth for it to expand in a healthy and profitable manner -as it grows, usually more opportunities but also more things that can go wrong

Entrepreneur

-assembles and integrates all resources needed (money, people, business model, strategy, risk bearing ability) to transform invention into a viable business

Sources of competitive intelligence

-attend conferences and trade shows -purchase competitors' products -study competitors' websites ad social media pages -set up google email alerts -read industry related books, magazines, websites and blogs -talk to customers about what motivated them to buy your product as opposed to your competitor's product

Qualities of an opportunity

-attractive -timely -durable -anchored in a product, service, or business that creates or ads value for its buyers or end user

Access to distribution channels

-barrier to entry -distribution channels are often hard to crack eg. crowded markets, such as the convenience store market.

Economies of scale

-barrier to entry -occur when mass producing a product results in lower average costs

Product differentiation

-barrier to entry -strong brands are difficult to break without spending heavily on advertising eg. Coca Cola

Capital requirements

-barrier to entry -the need to invest in large amounts of money to gain entrance to an industry -car industry

10 warning signs that a business is growing too fast

-borrowing money to pay for routine operating expenses -extremely tight profit margins -over stretched staff -declining product quality -email and text messages start going unanswered -customer complaints are up -employees dread going to work -productivity is falling -operating in a crisis mode becomes the norm rather than the exception -those working with the business's financial structure are starting to worry

Lean Startup

-build: iterate the product, agile teams, multi disciplinary skills, rapid development, continuous delivery -measure: test the product hypothesis, lightweight tests, usability, accessibility, real time monitoring -learn: develop customer knowledge, interview customers, understand what they want, develop product hypothesis, devise minimal lovable product

Networking

-building and maintaining relationships with people whose interests are similar or whose relationship could bring advantages to the firm

Lean Start up Model

-business idea feedback -market validation research -go to market plan feedback *pivot

Business model vs business plan

-business model: a firm's plan or recipe for his it creates delvers and captures value for its stakeholders -business plan: a written document that describes all aspects of a business venture in a concise manner

Threat of new entrants

-businesses are more attractive when the threat of entry is low (competitors cannot easily enter the industry and successfully copy what the industry incumbents are doing to generate profits) -techniques to keep away new entrants: barriers to entry (economies of scale, product differentiation, capital requirements, cost advantages independent of size, access to distribution channels and government and legal barriers) -must create barriers to entry to reduce threat of new entrants

Bargaining power of suppliers

-businesses more attractive when bargaining power of suppliers is low -factors that affect ability of suppliers to exert pressure on buyers and suppress the profitability of the industries they serve: supplier concentration switching costs, attractiveness of substitutes, threat of forward integration

Bootstrapping methods

-buy used instead of new equipment -coordinate purchases with other businesses -lease equipment instead of buying -obtain payments in advance from customers -minimize personal expenses -avoid unnecessary expenses, such as lavish office space or furniture -buy items cheaply, but prudently, through discount outlets or online auctions (eBay) rather than at a fill price -share office space with employees or with other businesses -hire interns

Environmental trends

-can shift in favor or against the products or services sold by firms in industry -economic trends, social trends, technological advances, political and regulatory changes

Reasons why most new ventures need funding

-cash flow challenges: inventory must be purchased, employees must be trained and paid, and advertising must be paid for before in cash is generated from sales -capital investments: the cost of buying real estate, building facilities, and purchasing equipment typically exceeds a firm's ability to provide funds for these needs on its own -legendary product development cycles: some products are under development for years before they generate earnings, the up front costs often exceed a firm's ability to fund these activities on its own

Liability of newness

-causes high failure rate of new ventures -companies often falter because the people who start them aren't able to adjust quickly enough to their new roles -firm lacks a "track record" with outside buyers and suppliers -overcome by attending entrepreneurial workshops , join a startup accelerator

Savvy entrepreneurial: Salesforce.com crosses chasm

-chasm between early adopters of a product and early majority -must dominate a niche of early adopters and expand from a position of strength -technology life cycle -

Fixed costs

-costs that a company insures whether it sells something or not

Technology life cycle

-crossing the chasm -some technology products reach mainstream markets and others don't -stages: innovators, early adopters, early majority, late majority, laggards -Salesforce.com introduced software as a service: built credibility and crossed chasm -by picking a single niche market and establishing sufficient credibility that early majority took notes --> able to cross chasm faster than if it created a more robust product initially and tried to appeal to a broader cross section of markets

Business model

-describes the rationale of how a company creates and captures value -everything it takes to make something: design, raw materials, manufacturing, labor, etc -everything it takes to sell: marketing, distribution, delivering a service, processing the sale -how and what the customer pays: pricing strategy, payment methods, payment timing, etc -strategic value drivers of a business model may become a source of competitive advantage and lead to higher profit -replication of existing business models may not necessarily lead to success

Competitive analysis

-detailed evaluation of a firm's competitors -must understand place in industry before entering market

Product/Service Demand

-determine if there is demand for the product or service -talking face to face with potential customers -utilizing online tools (Google Adwords, Landing pages), landing page (single web page that provides direct sales copy -library, internet and Gumshoe research

Core competencies

-determines a firm's core strategy (must do to prepare for growth): defines how it competes relative to its rivals` -what it does particularly well

Crafting a unique market position

-differentiate from its competitors -defined by its products or services -strategic call on part of company based on its mission, its overall approach to marketplace and its competitive landscape -need to develop product attribute map: illustrates a firm's positioning strategy relative to its major rivals -need to develop a tagline to reinforce position: catchy phrase used consistently in a company's literature, advertisements, stationary, etc

Identifying competitors

-direct competitors: businesses that offer products or services that are identical or highly similar to those of the firm completing the analysis -indirect competitors: businesses offering close substitute products -future competitors: businesses that are not yet direct or indirect competitors but could be at any time

Place

-distribution channel -route a firm takes from the place it is made to the customer who is the end user -sell directly vs selling through intermediaries

Questions to ask before accepting fudning from venture capital firm

-do the venture capitalists have experience in the industry? -do they take a highly active or passive management role? -are the personalities on both sides of the table compatible? -does the firm have deep enough pockets or sufficient contacts within the venture capital industry to provide follow on rounds of financing? -is the firm negotiating in good faith in regard to the percentage of the firm they want in exchange for their investment?

Trend analysis

-economic forces: state of the economic, level of disposable income, consumer spending patters -social forces: social and cultural trends, demographic changes, what people think is "in" -technological advances: new technologies, emerging technologies, new use of old technologies -political and regulatory changes: new change in political arena, new laws and regulations -business, product or service opportunity gap: difference between what's available and what's possible --> new business, product or service ideas

Reasons for growth

-economies of scale -economies of scope -market leadership -influence, power, survivability -need to accommodate the growth of key customers -ability to attract and retain talented employees

Design thinking

-empathize (with people you are designing for) -define (insights and opportunities) -ideate (with idea generation techniques) -prototype (the idea to make it tangible and to allow user testing) -test (the prototype with real users to validate its effectiveness)

Entrepreneurial firm's impact on society

-enhance productivity at work -improve health -entertain us -innovations can create moral and ethical issues eg. bioengineering food products

Incubator and Accelerator programs

-entrepreneurs apply to these programs and will surrender equity for funding -provide mentorship -meet potential co founders, business partners, investors eg. Y-Combinator and Tech Stars

Common myths about entrepreneurs

-entrepreneurs are born, not made: traits evolve over time and evolve from individual's social context -entrepreneurs are risk takers: usually moderate risk takers (entrepreneurs have a less structured job so face larger set of uncertainty) entrepreneurs are motivated primarily by money: pursuit of money can be distracting -entrepreneurs should be young and energetic: fairly evenly spread out over age ranges, majority of business owners have work experience prior to launching new one -entrepreneurs love the spotlight: most do not attract public attention, want to avoid public notice while working on product or service initially

Positive effects of entrepreneurship and entrepreneurial firms

-entrepreneurship has a strong impact on economy's strength and stability

Planning for growth

-establish growth related plans -involves thinking ahead and anticipating type and amount of growth it wants to achieve -business plans assist in developing growth related plans: detailed forecast of 3-5 years of sales, operations plan -what strategies to employ as means of pursing growth -owner should step back and measure the company's growth plans against his or her personal goals and aspirations (be careful what you wish for). --> tradeoffs

Corporate entrepreneurship

-established firms with an orientation toward acting entrepreneurially

Encouraging the development of new ideas

-establishing a focal point for ideas: idea bank (physical or digital repository for storing ideas) eg. intranet: password protected location for a firm only open to qualified employees -encouraging creativity at organizational level vs individual supervisory level

Overall Financial Attractiveness of the Proposed Venture

-evaluations based on new venture's projected sales and rate of return -projected return is a judgement call -the amount of capital invested -the risks assumed in launching a business -the alternatives for the money being invested -the existing alternatives for the entrepreneur's time and efforts

Where new ideas come from

-existing knowledge -likes and dislikes -new experiences -transitions

Entrepreneurship survival rate

-false to say that most starts ups fail (9/10)

Financial Feasibility Analysis

-final component of a comprehensive feasibility analysis -issues to consider: total start up cash needed, financial performance of similar businesses and overall financial attractiveness of proposed business

Types of costs

-fixed sorts: do not vary the volume of sales (annual rent, managers' salaries) -proportionate with value (production material costs, sales commissions) -non recurring: infrequent or irregular costs (equipment)

Economies of scale

-generated when increasing production lowers the average cost of each unit produced

Debt financing

-getting a loan -SBA loans

Sustained growth

-growth in both revenues and profits over a sustained period of time -relatively low number of firms generate sustained and outstanding profitable growth

Maturity stage

-growth slows -typically focuses more in efficiently managing products and services rather than expanding -continue to adapt and remain passionate -look for new acquisitions or partnerships for new breathe of life -focuses on next generation of products it sells rather than investing in new or related products

Ways lenders and investors add value to entrepreneurial value to a venture

-help identify and recruit key management personnel -provide insight into the industry and markets in which the venture intends to participate -help the venture fine tune its business model -serve as a sounding board for new ideas -provide introductions to additional sources of capital -recruit customers -help to arrange business partnerships -serve on the venture's board of directors or board of advisors -provide a sense of calm in the midst of the emotional roller coaster ride that many new venture teams experience

Founding team

-heterogenous members: diverse in terms of abilities and experiences -homogenous members: areas of expertise are very similar to one another

Early growth stage

-increasing sales and heightened complexity -focused on initial product but is trying to increase its market share and might have related products -initial formation of policies and procedures take place -owner must transition to more of a managerial role -increased formalization

Business angels

-individuals who invest their personal capital directly in start-ups

Bargaining power buyers

-industries more attractive when bargaining power of buyers I slow -factors that affect buyers' ability to exert pressure on suppliers and suppress profitability of industries from which they buy: buyer group concentration, buyer's costs, degree of standardization of supplier's products, threat of backward integration

Threat of substitures

-industries more attractive when threat of substitutes low (products or services from other industries cannot easily serve as substitutes for the products or services being made and sold in the focal firm's industry) -the size of the effect depends on the propensity for buyers to substitute alternatives

Encouraging development of creative ideas at individual supervisory level

-inhibitors: being pessimistic, judgmental, critical, punishing people for failed diets, insisting on precision and certainty early in creative process, being inattentive, acting distant, and remaining silent when employees want to discuss new ideas -facilitators: listening attentively for the purpose of openly acknowledging and supporting ideas in their development, treating employees as equals for the purpose of demonstrating that status isn't important, speculating, being open and building on each others' ideas, protecting people homage honest mistakes and commit to learning from them

Encouraging development of new ideas at organizations level

-inhibitors: fading to hire creative people, maintaining an organizational culture that stifles people, retaining people in same job for years which prevents them broad and deep experiences, promoting a mentality suggesting that the best solutions to all problems are known -facilitators: supporting and highlighting creativity's importance in all parts of firm, overly rewarding those demonstrating creativity in work, investing in resources for purpose of helping employees become more creative, hiring people with different skills and viewpoints compared to current employees

Pandora: Tenacity

-internet radio station -user able to provide positive or negative feedback to see different results -goal: provide use with precise type of music they want to hear -initially spend first few year broke until received additional investment and today now has over 250 million users

Organizational life cycle

-introduction -early growth -continuous growth -maturity -decline

Market life cycle

-introduction: few competitors, need creation (innovators) -growth: increasing competition, market split --> high competition, differentiation (early adopters and early majority) -maturity: established competitors, niche market (early majority and late majority) -decline: breakthrough or target a different market (laggards)

Product/Service desirability

-is it desirable and does it serve a need in the market place? -concept test: showing a preliminary description of a product or service or business idea called a concept statement to industry experts and prospective customers to solicit feedback (description, target market, benefits, position with competitors, description of management team)

Elements of founders

-key employees -board of directors -other professionals -lenders and investors -board of advisors -management team

Getting Personal - Roominate: Raising money carefully and deliberately

-lack of female engineering students -challenge: encouraging more girls to enter engineering -developed a toy to provide young girls development of spatial reasoning, hands on problem solving, self confidence -"get out of the building" -Kickstarter campaign -angel investors -in Toys R Us and Walmart

Fragmented Industries

-large number of firms of approximately equal size -consolidation in order to establish industry leadership as a result of doing so -geographic roll up strategy: one firms starts acquiring similar firms that are located in different geographic areas eg. Chipotle

Board of directors

-legally required if a corporation -panel of individuals who are elected by a corporation's shareholders to oversee the management of the firm -inside and outside directors -formal responsibilities: appoint firm's officers, declare dividends, oversee affairs of corporation, provide expert guidance, lend legitimacy (signaling)

Rivalry amongst firms

-major determinant of industry profitability = level of competition among firms already competing in industry -factors that determine nature and intensity of rivalry: number and balance of competitors, degree of difference between products, growth rate of an industry, level of fixed costs

Advertising

-make people aware of a product in hopes of persuading them to buy it -raise customer awareness -explain a product's comparative features and benefits -create associations between a product and certain lifestyle -weaknesses: low credibility, possibility that a high percentage of people who see the ad will not be interested, message clutter, relative costliness compared to other forms of promotions, perception that advertising is intrusive

Challenges with growth

-managerial capacity: framework for thinking about the overall challenge of growing a firm -day to day challenges: cash flow management, price stability, quality control, capital constraints

Company growth patterns

-might burst on the scene with years of expansion and then decelerate and decline -might grow in its fits and starts, possible in sync with the overall company -might enjoy a brief boom and then plateau -might achieve steady incremental growth repeated over time (healthiest pattern that leads to sustained growth)

Common characteristics of entrepreneurs

-moderate risk taker -persuasive -promoter -resource assembler/leverager -creative -self starter -tenacious -tolerant of ambiguity -visionary -optimistic disposition -a networker -achievement motivated -alert to opportunities -self confident -decisive -energetic -a strong work ethic -lengthy attention span

Selecting a target market

-must be sufficiently attractive and firm must be able to serve it well -usually start with a niche market: place within a market segment that represents a narrow group of customers with similar interests

Continuous growth stage

-need for structure and more formal relationships increase -pace of growth accelerates -resource requirements are a concern -may develop new products or start partnerships with other firms -expansion in areas related to its strengths and core capabilities -toughest decisions made (take the business even further?) -importance of developing policies and procedures increases -develop formal organizational structure to determine lines of delegation within firm

Emerging Industries

-new industry in which standard operations procedures have yet to be developed -recent changes in demand or technology -new industry standard operating procedures have yet to be developed -first move advantage: insurmountable advantage gained by the first company to establish significant position in new market

Partnering for success - Startup Weekend: A fertile place to meet business cofunders

-not for profit organization that organizes weekend events -small groups of people can conceive and start a business in 54 hours -organized by volunteers -take place from Friday - Sunday

Strategic value drivers of successful business models

-novelty: captures the degree of business model innovation that is embodied in the company's activity system -cost reductions: cost savings through the interconnections within the activity system -lock in: creates switching costs -complementarities: value enhancing effect of the interdependencies among business model activities

Market leadership

-occurs when a firm holds the number one or the number tow position in an industry or niche market in terms of sales volume -brand leader

Established firms

-often resist innovation so employees are left with good ideas that go unfulfilled -some employees leave firm to start their own business and develop their own ideas

Why the Lean Start up changes everything

-opportunity is a hypotheses -use a lean canvas as business model -"get out of the building" approach to test hypothesis -lean startups practice agile development, developing the product incrementally

Characteristics of successful entrepreneurs

-passion for the business: stems from entrepreneur's belief that business will positively influence people's lives -product/customer focus: good products with the capability to satisfy customers, ability to spot product opportunities and see them through completion -tenacity despite failure: setbacks and failures inevitably occur during process, must persevere, -execution intelligence: ability to fashion a solid idea into a viable business, the factor that determines whether a start up is successful or fails (develop a business model, ousting together a venture team, raising money, establishing partnerships, managing finances, leading and motivating employees), demands ability to translate thought, creativity, and imagination into action and measurable results

Sources of personal financing

-personal funds: involves both financial resources and sweat equity (represents the value of time and effort that a founder puts into a firm) -friends and family: often comes in forms of loans or investments, but can also involve outright gifts, foregone or delayed compensation or reduced or free rent -bootstrapping: finding ways to abide the need for external financing through creativity, ingenuity, thriftiness, cost cutting, obtaining grants or any other means

Common mistakes made in ousting together a new venture team

-placing unqualified friends or family meters in management positions -assuming previous success in other industries automatically translates into your industry -presenting a "one person team" philosophy -hiring top managers without sharing ownership in the firm -not disclosing or talking dismissively of management team skill or competency gaps -vague or unclear plans for filing the skills or competency gaps that clearly exist

Creating a new venture team

-play important role in shaping firm's business model -cannot get off the ground without leader and personnel to carry it out -success is not about the idea but rather about the ability of the initial fonder or founders to assemble a team that can execute the idea better than anyone else

Public relations techniques

-press release -traditional media coverage -social media coverage -articles in industry press and periodicals -blogging -monthly newsletter -civic, social and community involvement

Qualities of founders

-prior entrepreneriul experience: -relevant industry experience -high education level

Entrepreneurial firms

-proactive innovators that are not averse to taking calculated risks

iCracked: Recognizing opportunities and generating ideas

-problem: broken iPhone screens -solution: repair iPhones on campus (screens, LCDs, batteries, water damage) -customer put into contact with technician and plan time to meet -firm makes money by selling parts to iTechs who connect with customers -expanded all over university campuses in U.S.

Luminaid

-problem: design devastating earthquake in Haiti -problems: light is rare in emergency situations and billions of people around world lack access to reliable electricity -solution: "solar pillow," simple, affordable source of light that could be easily shipped to disaster locations -created a pouch containing a solar panel, three LEDs and rechargeable battery, when inflated bag becomes a diffuser for LED light --> Luminaid -now available via company's website, Amazon, LLBean, other outlets

What went wrong: Everprix

-problem: no good way to store and organize photos in a manner that would encourage people to go back and look at them -created Everpix: uploaded photos from desktop and organized them to highlight the best ones -founders spent too much tome and energy perfecting service at the expense of building the business

Creative destruction

-process where entrepreneurs develop new products and technologies that over time make current products and technologies obsolete -stimulates economic activity (may increase productivity of all elements of society) -initiated buy start up ventures that improve on what is currently available

Brand management

-program used to protect the image and value of an organization's brand in consumers' minds -used to monitor integrity of brands

Management prowess

-proposed business should evaluate the prowess or ability of its initial management team -requires individuals starting firm to bee honest and candid in self assessments -the passion the entrepreneur has for the idea -the extent to which the management team understands the market it is participating in -can reach out to others to plug knowledge and experience gaps eg. new venture team: group of founders, key employees and advisors that either manage or help manage a new business in its start up years

Importance of getting financing or funding

-raising money = balancing act -founders don't usually want to deal with people who don't understand or care about their long term goals -cannot just launch firm with internal funding

HBR - How to pitch a brilliant idea

-receiver gauges pitcher's creativity and proposal itself -showrunner (professionals), artist (quirky, unpolished), neophyte (inexperienced, naive) -impressions, stereotypes -ruin pitch: pushover, robot, used car salesman, charity case

Social entrepreneurship

-recognizes a social problem and uses entrepreneurial principles to organize, create and manage a venture to achieve social change eg. Grameen Bank

Appreciating the nature of business growth

-requires preparation, good management, appreciation for issues involved -not all businesses have potential to be aggressive growth firms (ones that grow the fastest solve a significant problem or have a major impact in customer productivity) -a business can grow too fast (can strain a company financially and emotionally drain owners) *growth must be handled carefully -business success doesn't always scale (can lose exclusivity or damage special appeal)

Types of start up firms

-salary substitute firms: provide their owner or owners a similar level of income to what they would be ale to earn in a conventional job (dry cleaners, restaurants, hair salon) -lifestyle firms: firms that provide their owner or owners the opportunity to pursue a particular lifestyle, making a living at it (personal trainers, gold pros, tour guides) -entrepreneurial firms: firms that bring new products and services to the market by creating and seizing opportunities regardless of the resources they control (DropBox, Facebook)

Stages/Rounds of venture capital funding

-seed funding -start up funding -first stage funding -second stage funding -mezzanine financing -buyout financing

Steps in selecting a market

-segmenting the market -selecting a target market -crafting a unique positioning strategy

Typical way most businesses evolve

-sell a product or service that is consistent with core strategy -increase sales by incrementally moving into areas that are different but related to their strengths and core capabilities eg. Zappos

Cost based pricing

-setting prices based on the costs of producing, distributing, and selling the product plus a fair rate of return for effort and risk -straightforward and easy to justify the price of a good or service

What went wrong: Wesabe

-site to help people manage personal finances -first to use Web 2.0 approach -automatically aggregated and stored all of its users' financial accounts and able to learn from data and make recommendations for better financial decisions -became second to Mint.com -failed due to choosing not to partner with Yodlee and misunderstood its users -combination of Mint's better data aggregation method and higher amount of worth that Wesabe made their customers do gave uses a better experience with Mint rather than Wesabe

ability to increase managerial capacity is constrained by

-socialization of new managers -managerial motivation -adverse selection -moral hazard

Savvy Entrepreneurial Firm: Learning from customers

-software program Knowledge Adventure -owner had employees travel to demo product in stores to receive feedback -created JumpStart PreSchool and JumpStart Kindergarten after receiving feedback -would never have discovered confusion that parents had in deterring if particular software products were age appropriate for their children with directly observing in stores

Employee

-someone who works for the business at the business's location or vitrualy -utilizes the business's tools and equipment according to its policies and procedures

Commercial banks

-source of financing for start up firms -banks look for customers who will reliably repay loans -historically been reluctant to lend money to startups -risk averse -have internal controls and regulatory restrictions prohibiting them from making high risk loans -lending to small firms is not as profitable as lending to large firms

Introduction stage

-start up phase where a business determines what its strengths and core capabilities are -starts selling initial product or service -hands on phase for founders -non-bureaucratic with no or few rules or procedures -main goal is to get off to a good start and try to gain momentum in marketplace -main challenges: make sure initial product is right and to start laying groundwork for building a larger organization -don't rush

Financial feasibility

-steady and rapid growth in sales during first 5-7 years in a clearly defined market niche -high percentage of recurring revenue -ability to forecast income and expenses with a reasonable degree of certainty -internally generated funds to finance and sustain growth -availability of an exit opportunity for investors to convert equity into cash

Attributes of effective boards of directors

-strong communication with CEO -customer focused point of view -complementary mix of talents -decisiveness -mutual respect and regard for each other and the firm's management team -ability and willingness to stand up to the CEO and top managers of the firm -strong ethics

Attributes of strong board members

-strong personal and professional networks -respected in their field -willingness to make personal introductions on behalf of the firm -strong interpersonal communication skills -pattern recognition skills -investment and or operating experience -ability and willingness to mentor the CEO and firm's top managers

Market segmentation

-study the industry in which the firm intends to compete and determine the different potential target markets in that industry -geography, demographic variables, psychographic variables , behavioral variables, product type -homogeneity of needs and wants appears within segment -heterogeneity of needs and wants exists between segments -differences within segment should be small compared to differences across segments -segment should be distinct enough so that its members can easily be identified -should be possible to determine the size of segment -segment should be large enough for firm to earn profits

Types of revenue models

-subscription/membership: customer pays a fixed amount regular intervals -volume/unit based: customers pay per unit of a product/service they receive -advertising based: end users usually do not pay -licensing: customers pay a one time license fee + royalties for using or selling the product -transaction fees: customers pay a fixed amount or a % of the total value of transaction to a broke or other facilitator -freemium: offer basic services for free but charge for upgraded or premium service

Entrepreneurial alterness

-the ability to notice things without engaging in deliberate search -sixth sense

Economies of scope

-the advantage a firm accrues through the scope (or range) of its operations rather than from the scale of its production

Initial public offering

-the first time a company issues stock that may be bought by the general public -secondary market offering: any later issuances of shares

Why entrepreneurship is important

-the force of change -about solving problems -creates new jobs -innovations -economic development -entrepreneurship = economic growth -teaches problem solving, empathy, creative thinking, evaluating risks

Entrepreneurial intensity

-the position of a firm on a conceptual continuum that ranges from highly conservative to highly entrepreneurial

Entrepreneurship

-the process by which individuals pursue opportunities without regard to resources they currently control for the purpose of exploiting future goods and services -art of turning an idea into a business -identifying an opportunity and putting useful ideas into practice

Innovation

-the process of creating something new, which is central to the entrepreneurial process -the introduction of something new -new idea, method, or device

Firm's pace of growth

-the rate at which it is growing on an annual basis -must adjust quickly or risk faltering -may experience unexpected competition and must grow to maintain its market value

Brand equity

-the set of assets and liabilities linked to a brand that add to or subtract from the value provided by the product or service -brand loyalty -name recognition -perceived quality (of a firm's products and services) -brand associations in addition to quality -other proprietary assets (patents, trademarks, high quality partnerships)

Strategy

-the set of key decisions and actions a company takes to achieve its goals -where do we compete? -what unique value do we bring to our arena? -what resources and capabilities do we use to deliver that value? -how do we sustain our ability to provide unique value?

Sales process

-the set of steps a salesperson goes through in a particular organization to sell a particular product or service 1. prospect for (or gather) sales leads 2. make the initial contact 3. qualify the lead 4. make the sales presentation 5. meet objections and concerns 6. close the sale 7. follow up

Market size validation

-total available market: total population -serviceable addressable market: potential number of people within the geographic area of business -serviceable available market: potential number of people within geographic area of business who are users of product/service -share of market: target market: number of people whom you expect to serve in 1-3 years after launching business

Industry trends

-use to assess attractiveness of an industry -environmental trends -business trends

Resource sufficiency

-used to determine whether new venture has or is capable of obtaining sufficient resources to move forward -identify non financial resources and assess their availability -ability to obtain intellectual property protection on key aspects

Prim: Lack of passion

-wanted to disrupt laundry industry -problem: laundry services are a hassle -how it worked: customer bagged laundry, chose pickup and delivery time, everything back the next day, everything paid through website -problems with Prim: verbal discount with third parties not reliable and lack of passion -didn't want to have to wash the laundry, they wanted to be the connector

Social media

-websites and applications that enable users to create and share content or to participate in social networking -connect with customers

Customers' decision to purchase a new product or service

-weigh switching costs and resistance to change vs perceived value added and satisfaction

Changing demographics of entrepreneurs

-women: organizations that promote this growth -minority: organizations that promote this growth -seniors: growth attributed to factories and corporate downsizing and worry to pay for future health care expenses, steady increase in life expectancy (living healthier, longer lives) -young: desire to pursue new ventures is high among young people, organizations exist to help young people, schools offering entrepreneurship focused courses

Techniques for generating ideas

1. Brainstorming: process of generating several ideas about a specific topic 2. Focus Groups: gathering of 5-10 people who are selected because of their relationship to the issue being discussed 3. Library and Internet Research: provides insight 4. Other techniques: customer advisory boards (meet regular to discuss needs, wants and problems that my lead to new ideas) and day in the life research (send teams of testers to homes of its users to see how it's working and to seek insights for new product ideas)

Entrepreneurial process

1. Deciding to become an entrepreneur: want to be their own boss, pursue own ideas, financial rewards, triggering event 2. Developing successful business ideas: opportunity recognition, feasibility analysis, business plan 3. Moving from an idea to an entrepreneurial firm: prepare ethical and legal foundation for a firm, selecting appropriate form of business ownership 4. Managing and growing the entrepreneurial firm: selecting appropriate target market and building brand to deal with competitors and sustain success

Preparing to raise debt or equity financing

1. Determine precisely how much money is needed 2. Determine the type of financing or funding that is the most appropriate 3. Develop a strategy for engaging potential investors or bankers

Steps to generating creative ideas

1. Preparation: background, experience, knowledge 2. Incubation: considering an idea or thinking about a problem 3. Insight: "eureka" experience 4. Evaluation: idea is subject to scrutiny and analyzed for its viability 5. Elaboration: creative idea is put into final form

Nontraditional barriers to entry

1. Strength of management team 2. First-mover advantage 3. Passion of the management team and employees 4. Unique business model 5. Internet domain name 6. Inventing new approach to an industry

Three Ways to Identify an Opportunity

1. observing trends 2. solving a problem 3. finding gaps in the marketplace

Ways to identify opportunities

1. observing trends 2. solving a problem 3. finding gaps in the marketplace

Personal Characteristics of the Entrepreneur

1. prior experience 2. cognitive factors 3. social networks 4. creativity

Sarbanes-Oxley Act

A law passed by Congress that requires the CEO and CFO to certify that their firm's financial statements are accurate.

Inside director

A person on the board of directors who is also an officer of the corporation.

Competitive analysis grid

A tool for organizing the information a firm collects about its competitors; helps a firm see where it stands

Lease

A written agreement under which the owner of an item or property allows its use for a specified period of time in exchange for a fee.

Trade show

An event at which goods and services in a specific industry are exhibited and demonstrated.

Price quality attribution

Consumers naturally assume that the higher-priced product is also the better-quality product

Attractiveness of substitutes

Supplier power is enhanced if there are no attractive substitutes for the product or services the supplier offers.

Target market attractiveness

The challenge in identifying an attractive target market is to find a market that's large enough for the proposed business but is yet small enough to avoid attracting larger competitors.

Growth rate of an industry

The competition among firms in a slow-growth industry is stronger than among those in fast-growth industries.

Degree of difference between products

The degree to which products differ from one product to another affects industry rivalry.

Buyer's costs

The greater the importance of an item is to a buyer, the more sensitive the buyer will be to the price it pays.

Number and balance of competitors

The more competitors there are, the more likely it is that one or more will try to gain customers by cutting its price.

Threat of forward integration

The power of a supplier is enhanced if there is a credible possibility that the supplier might enter the buyer's industry.

Threat of backward integration

The power of buyers is enhanced if there is a credible threat that the buyer might enter the supplier's industry.

Marketing mix

The set of controllable tactical marketing tools—product, price, place, and promotion—that the firm blends to produce the response it wants in the target market.

Supplier concentration

When there are only a few suppliers that supply a critical product to a large number of buyers, the supplier has an advantage.

Line of credit

a borrowing "cap" is established and borrowers can use the credit at their discretion; requires periodic interest payments

Opportunity

a favorable set of circumstances that creates a need for a new product, service, or business

Factoring

a financial transaction whereby a business sells its accounts receivable to a third party, called a factor, at a discount in exchange for cash

Press kit

a folder containing background info about that company and includes a list of its most recent accomplishments

Virtual assistant

a freelancer who provides administrative, technical, or creative assistance to clients remotely from a home office

Industry

a group of firms that produce similar goods or services

Guerilla marketing

a low budget approach to marketing that relies on ingenuity, cleverness, and surprise rather than traditional techniques

Outside director

a member of a board of directors who is not an officer of the corporation

Value based pricing

a method of setting prices based on customer perceptions of value

Intern

a person who works for a business as an apprentice or trainee for the purpose of obtaining practical experience

Corporate venture capital

a type of capital similar to traditional venture capital, except that the money comes from corporations that invest in new ventures related to their areas of interest

Road show

a whirlwind tour taken by the top management team of a firm wanting to go public; consists of meetings in key cities where the firm presents its business plan to groups of investors

Promotion

activities that communicate the merits of the product and persuade target customers to buy it

Managerial services

administer the routine functions of the firm and facilitate the profitable execution of new opportunities

Rewards based crowdfunding

allows entrepreneurs to raise money in exchange for some type of amenity or reward

Reference account

an early user of a firm's product who is willing to give a testimonial regarding his or her experience with the product

Liquidity event

an occurrence such as a new venture going public, finding a buyer, or being acquired by another company that converts some or all of a company's stock into cash

Moral hazard

as a firm grows and adds personnel, the new hires typically do not have same ownership incentives as original founders, so new ones may not be as motivated to work hard

Adverse selection

as the number of employees a form needs increases, it becomes increasingly difficult for it to find the right employees, place them in appropriate positions and provide adequate supervision

Industry analysis

business research that focuses on the potential of an industry

Weak tie relationsips

characterized by infrequent interaction, like ties between casual acquaintances

A firm's position

company level vs relative to its competitors

Private placement

direct sale of an issue of securities to a large institutional investor

Basic model of firm growth

entrepreneurial services (recognition of new market, product, service opportunities) requires increase in managerial services (administration of routine functions of firm and execution of new business opportunities) to accomplish firm growth (achieving growth as measured by outcomes such as larger sales revenues and greater profits)

Equity financing

exchanging partial ownership of a firm, usually in the form of stock, in return for funding

Viral marketing

facilitates and encourages people to pass along a marketing message about a particular product

Peer to peer lending

financial transaction that occurs directly between individuals or "peers"

Venture leasing firms

firms that act as brokers, bringing the parties involved in a lease together

Degree of standardization

the degree to which a supplier's product differs from its competitors' offerings the buyer's bargaining power

Disintermediation

the process of eliminating layers of intermediaries, such as distributors and retailers, to sell directly to customers

Burn rate

the rate at which a company is spending its capital until it reaches profitability

Brand

the set of attributes - positive or negative - that people associate with a company

Creativity

the tendency to generate or recognize ideas, alternatives, or possibilities that may be useful in solving problems, communicating with others, and entertaining ourselves and others -can be taught, practiced -helpful for generation of ideas, products, services, business models, target markets, problem solving, personal life, education, professional life

Solo entrepreneurs

those who identified their business ideas on their own

Network entrepreneurs

those who identified their ideas through social contacts