Chapter 4: Entrepreneurship and Lecture
CEO vs President vs Chairman
-CEO top of the house- External face of the company President is that internal chief performance officer- internal face of the company -If you are both than it means you have more power -In a public company, if you are the chairman or chairwoman, that means you lead the board of directors, giving you more powers. -It is these people that are ultimately defining the business strategy and that balanced scorecard that we talked about earlier in class.
Fiduciary responsibility to shareholders via:
-Duty of care You have to have the shareholders( investors) best interest in mind Maximize shareholder return without ignoring additional stakeholders: community and environment, the other people impacted by our organization. -Duty of loyalty You cannot be on the board for both ford and GM that would be a conflict of interest
Limited partnership
1. As you try to grow that business, you might need additional investors and some investors don't want to incur full liability. In those situations you might form a limited partnership. 2. Limited partners invest in the business and have only their invested capital at risk. Example: you need $1 million in order to grow your business, you might be looking for 10 limited partners who will give you $100,000. In that scenario, they're not actually employees working for your organization. They are just limited partners. So you take their cash, invest it into the organization and as limited partners they are only liable for that $100,000 they invested. 3. Useful for raising capital since they permit investors to participate financially in the business without incurring personal liability. 4. Single taxation (file earnings or losses on personal tax returns). A limited partner, also known as a silent partner, is an investor and not a day-to-day manager of the business. The limited partner's liability cannot exceed the amount that they have invested in the business. A limited partnership (LP), by definition, has at least one general partner and one limited partner. Limited partner is not LIABLE only for the original investment A limited partner is NOT considered an employee- they are an investor
Marketing and Sales Strategies 1. Branding and Positioning: 2. Marketing Channels and Promotion: 3. Sales Techniques:
1. Branding and Positioning: Creating a unique brand identity and positioning the business effectively in the market. 2. Marketing Channels and Promotion: Utilizing various marketing channels, such as digital marketing, social media, and traditional advertising, to reach the target audience. 3. Sales Techniques: Developing effective sales strategies, building customer relationships, and closing deals.
Execution and Operations 1. Building a Team: 2. Operations and Execution:
1. Building a Team: Recruiting, hiring, and retaining talented individuals who share the entrepreneurial vision and possess the necessary skills and expertise. 2. Operations and Execution: Implementing effective operational processes, establishing quality control measures, and ensuring efficient delivery of products or services.
Some important skills to help development the entrepreneurial mindset are: (3) 1. Continuous Learning 2. Networking and Relationship Building 3. Embracing Failure and Learning from mistakes
1. Continuous Learning: Entrepreneurs are lifelong learners, constantly seeking knowledge and skills to improve their understanding of business and industry trends. 2. Networking and Relationship Building: Building a strong network of contacts, mentors, and advisors can provide valuable guidance, support, and opportunities. 3. Embracing Failure and Learning from Mistakes: Entrepreneurs view failure as a learning opportunity and are not discouraged by setbacks. They analyze mistakes, adapt their strategies, and move forward.
Continuous Innovation and Adaptation 1. Embracing Technology and Trends 2. Agility and Flexibility
1. Embracing Technology and Trends: Staying abreast of technological advancements and industry trends to identify opportunities for innovation and differentiation. 2. Agility and Flexibility: Being nimble and adaptive to changing market conditions and customer demands
Cons of entrepreneurship(5): 1. Financial Uncertainty 2. Long Working Hours 3. Stress and Pressure 4. Limited Resources 5. Uncertain Path to Success
1. Financial Uncertainty: Entrepreneurship is inherently risky, and there is no guarantee of financial stability or success. Many startups fail to generate sufficient revenue or secure funding, leading to financial difficulties and potential losses. 2. Long Working Hours: Entrepreneurs often work long hours, including evenings and weekends, especially in the early stages of their ventures. The demands of starting and running a business can result in a lack of work-life balance and personal time. 3. Stress and Pressure: The responsibility of managing a business, making critical decisions, and shouldering the success or failure of the venture can lead to high levels of stress and pressure. Entrepreneurs face constant challenges and uncertainties, which can take a toll on their mental and emotional well-being. 4. Limited Resources: Startups typically face resource constraints, such as limited capital, manpower, and infrastructure. Entrepreneurs must be resourceful and find creative solutions to overcome these limitations. 5. Uncertain Path to Success: The path to entrepreneurial success is often unpredictable and requires perseverance. Entrepreneurs must be prepared to navigate through failures, setbacks, and obstacles along the way. t is important to note that the pros and cons of entrepreneurship can vary depending on individual circumstances, industry, and market conditions.
Financing and Resource Acquisition 1. Funding Options: 2. Resource Management:
1. Funding Options: An overview of various funding sources for startups, including bootstrapping, angel investors, venture capital, crowdfunding, and loans. 2. Resource Management: Efficiently managing financial, human, and technological resources to ensure the smooth operation and growth of the business.
Ideation and Opportunity Assessment 1. Generating Business Ideas 2. Evaluating Opportunities
1. Generating Business Ideas: Techniques for brainstorming and identifying potential business ideas, considering personal interests, market needs, and emerging trends. 2. Evaluating Opportunities: Assessing the feasibility and viability of business ideas through market research, competitive analysis, and financial projections.
The entrepreneurial process
1. Ideation and Opportunity Assessment 2.Business Planning and Strategy Development 3. Financing and Resource Acquisition 4. Execution and Operations
Pros of entrepreneurship (5): 1. Independence and Autonomy 2. Unlimited Income potential 3. Personal and Professional Growth 4. Making a difference 5. Creative Freedom
1. Independence and Autonomy: Entrepreneurs have the freedom to make their own decisions, set their own schedules, and pursue their passions. They are not bound by the constraints of traditional employment and have the ability to shape their own destiny. 2. Unlimited Income Potential: Successful entrepreneurs have the opportunity to earn unlimited income. They are not limited by fixed salaries or wage structures and can directly benefit from the success and growth of their ventures. 3. Personal and Professional Growth: Entrepreneurship provides a platform for continuous learning and personal development. It challenges individuals to expand their skills, knowledge, and abilities, fostering personal growth and self-improvement. 4. Making a Difference: Entrepreneurs have the ability to make a positive impact on society by creating innovative products, services, and solutions. They can address societal challenges, create jobs, and contribute to economic growth and development. 5. Creative Freedom: Entrepreneurs have the freedom to unleash their creativity and pursue innovative ideas. They can bring their visions to life, disrupt existing industries, and introduce new ways of doing things.
Corporation © ( C corporation)
1. Independent legal entity owned by shareholders. 2. Most common form among larger companies. 3. Corporation, not shareholders, is liable for its actions and debts. 4. Shares are easily transferable. 5. Management need not be owners. 6. One of the biggest disadvantages of being a C Corp is that they are taxed twice. They are taxed on their profits and investors are taxed on their investment in the organization in terms of stock called capital gains taxes. 1. Corporation pays taxes on its income 2. Capital gains taxes on sale of stock SO, why become a C corp if you are going to be taxed twice? To limit your liability. In a C Corporation, investors aren't liable for anything other than the investment that they've made. Additionally, employees aren't liable for their entire livelihoods outside of work. So their home, car, and any assets they have aren't liable for any mistakes they have made. BIGGEST ADVANTAGE OF BEING A C CORP: gain access to capital markets, investors. We see companies go public all the time to gain access to these investors and that is going to accelerate their growth trajectory.
Common Causes of Entrepreneurial failure.: (10) 1. Lack of Market Demand: 2. Inadequate Planning and Strategy 3. Insufficient Financial Management 4. Lack of Experience and Skills 5. Ineffective Marketing and Sales 6. Poor Execution and Operational Management 7. Lack of Adaptability and Innovation 8. Issues with Team and Leadership 9. External Factors and Economic Conditions 10. Emotional and Mental Challenges
1. Lack of Market Demand: One of the primary reasons for business failure is a lack of market demand for the product or service. 2. Inadequate Planning and Strategy: Poor planning and a lack of a clear business strategy can lead to failure. Entrepreneurs must develop a comprehensive business plan. 3. Insufficient Financial Management: Poor financial management, including inaccurate financial projections, inadequate cash flow management, or improper budgeting, can quickly lead to financial difficulties and business failure. 4. Lack of Experience and Skills: Insufficient experience and expertise in the industry or business management can increase the risk of failure. Entrepreneurs should have a solid understanding of their industry, possess relevant skills, and surround themselves with a capable team or advisors. 5. Ineffective Marketing and Sales: Failure to effectively market and sell products or services can result in limited customer acquisition and revenue generation. 6. Poor Execution and Operational Management: Challenges in executing business operations, including supply chain management, production issues, inadequate quality control, or inefficient processes, can hinder growth and impact the success of the venture. 7. Lack of Adaptability and Innovation: Inability to adapt to changing market conditions, consumer preferences, or emerging technologies can lead to obsolescence and failure. 8. Issues with Team and Leadership: A dysfunctional team, lack of leadership skills, or inability to attract and retain talented employees can undermine the success of a business. 9. External Factors and Economic Conditions: External factors beyond an entrepreneur's control, such as changes in government regulations, economic downturns, disruptive technologies, or unexpected market shifts, can significantly impact business viability. 10. Emotional and Mental Challenges: The entrepreneurial journey can be emotionally and mentally demanding. Stress, burnout, self-doubt, and the inability to cope with failures and setbacks can hinder decision-making and lead to business failure.
General Partnership:
1. Limited resources and feeling like you don't have enough time to do everything you would like to do. Decide to bring in a partner and make a partnership agreement. A lot of the items it's a 50/50 contract where the partners are splitting right down the middle, but it doesn't have to be. 2. A written agreement should exist, known as THE ARTICLES OF PARTNERSHIP 3. single taxation (file earnings or losses on personal tax returns) 4. Partners are both FULLY liable. One partner makes a mistake, but both partners are liable. Disadvantage of a general partnership. YOU ARE FULLY LIABLE FOR YOU AND YOUR PARTNER
Key factors for Entrepreneurial Success: 1. Market Research and Customer Validation 2. Marketing and Sales Strategies 3. Continuous Innovation and Adaptation
1. Market Research and Customer Validation 2. Marketing and Sales Strategies 3. Continuous Innovation and Adaptation
Entrepreneurial mindset: Countless studies have been conducted on successful entrepreneurs and the research shows quite a bit of variation across the group. However, there are some common characteristics: (5) 1. Passion and Vision 2. Resilience and Perseverance 3. Risk taking and opportunity recognition 4. Flexibility and Adaptability 5. Self-confidence and Leadership
1. Passion and Vision: Entrepreneurs are driven by a strong passion for their ideas and possess a clear vision of what they want to achieve. 2. Resilience and Perseverance: The journey of an entrepreneur is filled with challenges and setbacks, requiring resilience and the ability to persevere in the face of adversity. 3. Risk-taking and Opportunity Recognition: Entrepreneurs are willing to take calculated risks and have a knack for identifying and capitalizing on opportunities. 4. Flexibility and Adaptability: They are open to change, adaptable to new circumstances, and able to pivot their strategies when necessary. 5. Self-confidence and Leadership: Entrepreneurs have confidence in their abilities and possess strong leadership skills to inspire and motivate their teams.
Here are some different kinds of business ventures entrepreneurs can consider: (8) 1. Product-Based Businesses 2. Service-Based Businesses 3. Retail and E-commerce 4. Technology Startups 5. Food and Beverage Industry 6. Franchises 7. Social Enterprise 8. Online and digital businesses
1. Product-Based Businesses: These businesses involve the creation, manufacturing, and sale of physical products. Entrepreneurs can develop and sell consumer goods, electronics, fashion apparel, home goods, or any other tangible product. 2. Service-Based Businesses: Service-oriented businesses focus on providing specialized services to customers. This can include industries such as consulting, marketing, accounting, healthcare, education, event planning, and various professional services. 3. Retail and E-commerce: Entrepreneurs can establish retail businesses, including brick-and-mortar stores or online e-commerce platforms. They can sell a wide range of products, such as clothing, electronics, home decor, or niche items catering to specific customer needs. 4. Technology Startups: With the rapid advancement of technology, entrepreneurs can venture into tech startups. This includes developing software applications, mobile apps, software-as-a-service (SaaS) solutions, artificial intelligence (AI), Internet of Things (IoT) devices, or other technology-driven innovations. 5. Food and Beverage Industry: This sector encompasses restaurants, cafes, food trucks, catering services, and food product manufacturing. Entrepreneurs can explore opportunities in areas such as fast food, fine dining, specialized cuisine, or health-conscious food options. 6. Franchises: As discussed earlier in this book, entrepreneurs can invest in established franchise businesses that offer a proven business model, brand recognition, and support from the franchisor. Franchises can be found in sectors like fast food, retail, hospitality, fitness, and more. 7. Social Enterprises: Social entrepreneurship focuses on addressing social or environmental challenges while generating revenue. These businesses aim to make a positive impact by addressing issues like poverty, education, healthcare, sustainability, or community development. We will discuss social enterprises in more detail later in this book. 8. Online and Digital Businesses: The digital landscape offers opportunities for entrepreneurs to start online businesses. This can include creating and monetizing content through blogging, vlogging, podcasting, affiliate marketing, online cour
The primary differences of profit oriented business deal with: (3)
1. Single or double taxation: 2. Liability sharing: are they fully liable or partially liable for their actions 3. Paperwork & Legal costs: depending on the route you go when you're forming a business some cost more than others and some take a lot more time than others.
Board of directors overview and responsibilities
1. The management of a company reports to the board of directors 2. The leader of the board is called the Chairman of the board Board responsibilities: 1. Company oversight of rules and governance 2.Represent Shareholders 3. Hire/coach/ replace CEO 4. Approve compensation for executive officers 5. Approve other actions as designated in Charter (e.g. large investments, mergers/acquisitions)
3 components of developing a strategy and describe each:
1. The objective: Keeping the end in mind for the strategy statement (ex: be the largest player in the industry vs being the most profitable player) 2. Scope: Three dimensions (who is the customer or what is the offering, geographic location, and integration) Integration: Horizontal integration and Vertical Integration- Shell oil = vertically integrated meaning they owned and controlled their entire supply chain (drilling for oil all the way down to refining the product (pumping gas in car) Horizontally integrated- only have control of different segments of the supply chain-example: ford motor company known for manufacturing cars, but if you buy a ford truck from a dealership, that dealership is likely franchised out. Those are not actually Ford employees. If we look further down in the supply chain, ford has many suppliers giving them raw materials that they use to manufacture the cars that aren't ford owned companies or ford employees. Advantages horizontal vs vertical- a lot of trade offs and there is not an exact answer and companies need to evaluate these trade offs on a case by case basis. 3. Advantage: Means (statement of customer value proposition + unique activities allowing that firm alone to deliver on that value proposition) How are you going to compete in the marketplace? What is your value proposition? What are the unique opportunities allowing that firm alone to deliver on that value proposition? When thinking about these 3 items in a strategy, an organization needs to make trade offs and consider all three of them in order to be successful.
Market Research and Customer Validation 1. Understanding the Target Market 2. Iterative Product Development
1. Understanding the Target Market: Through identifying its needs, and preferences through thorough market research and customer feedback. 2. Iterative Product Development: Continuously refining products or services based on customer input to ensure market fit and customer satisfaction.
Business Planning and Strategy Development 1. Writing a Business Plan 2. Strategic Decision Making
1. Writing a Business Plan: The importance of a comprehensive business plan in outlining the vision, goals, target market, marketing strategies, and financial projections of the venture. 2. Strategic Decision Making: Developing a strategic roadmap for the business, considering factors such as market positioning, competitive advantage, and scalability.
Story of Uber
2008: Snowy evening in Paris, 2 friends just had dinner and wanted to get back to the hotel because cold evening and they were trying to hail a cab- they weren't having any success- this frustration born an idea in them, why can't we take our smart phone, click a button and have a car show up to take us to our desired location? The technology exists, we just need to put it together. The friends go back to San Francisco and Uber was born. Today, as of September 2020, Uber is valued at over $58 billion dollars. This is because 2 friends saw a pain point in the market and fixed it.
American Landscape of Business entities:
Although C corps make up small percentages of total business in the United States, they are the organizations making the vast majority of the money. Order of prevalence in the US from just a how many are there standpoint: 1. Sole proprietorship 2. S Corporations 3. C Corporations 4. LLC 5. General partnerships 6. Limited Partnerships Other entities that we will look at later in semester: Gov organizations Non profits Social enterprises
People go into limited partnership or LLC to...
Avoid full liability
Entrepreneur vs "Wantreprenuer"
Entrepreneurship is all about transforming an idea into reality. Within the business context, it sometimes involves the audacity to challenge the status quo and see the world anew. There are several "wantrepreneurs" out there who constantly have ideas but never take the first step forward to act on it, see illustration below: Essentially: an entrepreneur comes up with an idea and then 6 months later the business/plan has been made A wantreprenuer has one idea and then six months later a different idea. THERE IS NO IMPLEMENTATION
What is entrepreneurship?
Entrepreneurship is the driving force behind innovation, economic growth, and societal development. It is the art of identifying opportunities, taking calculated risks, and creating value through the establishment and management of a new venture.
Fisher Strategy Model (should be on cheat sheet)
Fisher purpose: Create ideas, encourage scholars and develop leaders who positively impact their community and the world. Fisher values: Trust: we honor commitments and act ethically, Innovation: we believe that ideas create value, Lifelong learning: we never stop thinking, Collaboration: we proactively support one another, Inclusiveness: we value diversity as a strength. Differentiation (how are we distinct): a research an experiential focus, a culture of dignity and inclusiveness, an opportunity to try things, an ability to solve real problems Balanced scorecard: This is when we start to get into the details of how we measure results Fisher has multiple categories to look at: Relevant Impact, Continuous Innovation, Educational Excellence
Balanced scorecard
How organizations actually measure and deliver results- goes with the saying, "What's not measured is not going to be delivered"
Other examples of entrepreneurial companies:
Look at Facebook (IPOed in 2012 for $16 billion), Snapchat in 2017, $433 billion. Massive opportunity. BlockBuster: highlight for me growing up, going to the brick and mortar store picking out a movie or a video game to play. Blockbusters don't exist anymore. In 2000 a small company wanted to sell themselves to Blockbuster for $50 million. Blockbuster laughed those executives out of the room. Netflix was that company, today Netflix is valued at over $230 billion. Blockbuster had to file for bankruptcy.
Sole proprietorship
Most common form of a business in the US and the simplest (compromise over 70% of the nations businesses) Owned and managed by one person Can have full or part time employees Often home-based Sole proprietors own all assets and profits (or losses)/ assume complete responsibility for business liabilities and debts. (one major trade off for being a sole proprietorship) Single taxation (when you go to file your taxes as a sole proprietor you'll fill out a schedule C and you're taxed on that individual rate.)
3 primary structures (profited oriented businesses)
Sole propritership, Parternship, corporation
How to grow a business: 3 ways to grow a business and 2 types of growth:
The two types of growth are organic growth and inorganic growth: 1. Organic: Growing market share- think of this as a pizza pie and you have a certain slice (say 10%) or percentage of the current market. Through marketing you might be able to grow your market share from 10% to 15%. That is one way to grow organically. Amazon accounts for 43% of US online retail sales and they are continually trying to grow that number 2. Organic: Increase total available market. Amazon did this with E-commerce, 10 years ago no one really shopping online and today everybody is doing regular online shopping. The total size of the pie has been able to continue to grow. 3. Inorganic: growth through mergers and acquisitions. Quickest growth Most costly As you go through inorganic growth you have to think of the cultural elements tied in with that? How do you bring it to one SOLID team? Amazon is growing fast because of inorganic growth. Buying companies at a premium. A lot of times it's because they don't have the in-house expertise to build that product or service on their own, but they do have a lot of cash and capital, so they can just acquire the organization. They've acquired Whole Foods and Ring to name a few. Difference between organic and inorganic: Inorganic growth is growth from buying other businesses or opening new locations. Meanwhile, organic growth is internal growth the company sees from its operations, often measured by same-store or comparable sales
Why do organizations bring outsiders into boards? and describe a board of directors position:
This is in order to bring in a diversity of thought. It's also to gain access to different markets, new ideas, and these groups generally meet every quarter in person. Board members are on different committees and have calls throughout the year. They are PAID positions. A lot of these positions are actually pretty lucrative. So you could attend a few meetings a year and make upwards of a million dollars in stock options. (Different from a non-profit where the board of directors is unpaid) . Paid positions (cash and/or stock) Full liability, thus director and officer liability insurance---------A lot of liability associated with being on a board and a lot of attorneys involved in developing those contracts, so that these outsiders can be involved and privy to information that nobody else within the organization or external to the organization would have. -Example: pending merger or acquisition Inside director is one of 3: 1. Employee (current or recent member of management) 2. Major shareholder 3. Has a meaningful connection to the organization Board of directors public company: a lot of times 1 or maybe 2 members that are working for the company and everybody else is an outsider.
Business Strategy Pyramid:
Top of the pyramid- 1. Mission 2. Values 3. Vision 4. Strategy 5. Balanced Scorecard Bottom of the pyramid
Taxation personal and corporate
Under the old system (pre Trump tax changes)- Marginal tax system: the more money they make the higher percentage taxes you'll pay. Post-transition with Trump's tax proposal, we have seen on the whole taxes go down for the common American. SO, overall taxes changed and went down for the common American and we see that in this chart. Income barriers and the percentage of income taxed was changed with Trump's new strategy. Corporate taxes: rate was lowered from 35% all the way down to 21%. What are corporations going to do with this extra cash on their hands? (pay employees more, donate, or reinvest in the company) only time will tell.
Customer profiles
Very important for organizations to understand the demographics of their customer base and a lot of times we can categorize these fold into different places. 1. Apostles: customers that absolutely love our product/service and not only do they continue to come to us and buy more but they're going to go out and tell all their friends about it. Number one customer we could obtain. In a perfect world all of our customers would be Apostles. 2. Loyalist: 2nd best customer. A loyalist is someone that continues to come back, but they don't quite take it as far as an Apostle, because they are not sharing all of that information with their friends. 3. Mercenary: Most common customer. In terms of going to the grocery store. Example: you are at Kroger shopping for a jar of peanut butter. Looking at the shelves and seeing multiple different options. Are you privy to the price, where you'll pick the lowest price everytime. Or are you looking at quality or a combination? Most customers it is a combination and they will vary from product to product. Peanut butter is peanut butter and they don't buy the same product every time. 4. Hostage: Think of cable companies when it comes to hostages. Cable companies are brutal. Once we are assigned to them and paying the monthly bill, the cost to change is very high. They make it hard to change- handcuffing us to that organization. Two negative types of customers: 5. Defectors: former customers that used to have a positive brand experience, but then they had a negative experience. They washed their hands of the product and they'll never come back to our product again. 6. Trash talkers: Worst customers we could have. Not only are these people defectors, but they are the ones that are going to post on social media about how "bad" our product is and why the world should never shop at our store. We see this a lot with airlines, making a post on social media saying: " this was my experience on this airline and it was absolutely horrible, I am never going back and you shouldn't either". Understanding the profile of our customers and moving them up the scale to become an apostle has got to be an important part of our business strategy in growing the organization.
Values:
What we believe in and how we will behave Ubers values: we build globally, we live locally we are customer obsessed, we celebrate differences, we do the right thing, we act like owners, we persevere, we values ideas over hierarchy, we make bold bets. Disney: Imagination and wholesomeness P&G: product excellence Nordstrom:service to the customer and never being satisfied Shell: honesty, integrity, and respect for people There is no universally right set of core values, 3-5 is a recommended number because generally all employees can remember those.
Strategy
What we want our competitive game plan to be Elements include: Objective, Scope, Advantage
Vision
What we want to be Where the company is headed long term Southwest airlines: become the most profitable, efficient, and loved airline in the world.
Mission
Why we exist Ubers mission: To bring transportation for everyone, everywhere Mission statement examples: "At Microsoft our mission is to enable people and businesses throughout the world to realize their full potential" -Microsoft and Microsoft just acquired LinkedIn. Does LinkedIn and its mission fit into the mission of Microsoft? Yes, there is a lot of synergy that can be realized there. "To bring inspiration and innovation to every athlete in the world" -Nike " To provide the best customer service possible" -very generic statement and this was Zappos owned by Amazon which Jeff Bezos would say "Amazon is the most customer centric organization in the entire world." So these mission statements are used to drive results of the organization and used as a rallying call for employees, a way to get them excited to come to work everyday.
