ENT 320

stakeholders

A person with an interest in the business

tacit knowledge

Knowledge that is difficult to transfer to another person by writing it down such as intuition and leadership skills.

Intellectual capital

Tacit knowledge that is not codified in any formal way.

Bootstraping

Techniques for getting by on as few resources as possible and using other people's resources where possible.

Business model canvas

a type of visual plan that depicts the business on one page by filling in nine blocks of a business model

entrepreneurship

The process by which individuals-either on their own or inside organizations-pursue opportunities without regard to the resources they currently control

Artificial Intelligence (AI)

The simulation of human intelligence by machines.

gazelles

These are high-impact businesses whose sales typically double over a four-year period.

secondary sources

These are information sources that originate from others such as journals, reports, and studies.

Registering trademark Here are some important steps to follow:

1. Conduct a search of existing trademarks. You can find the Trademark Electronic Search System (TESS) at the USPTO.gov site. This database covers only federally registered marks. Other sources you can check are the Internet and business name databases. 2. Pick a mark that is not common or closely descriptive of your product or service. While that approach may run counter to the common notion that your brand ought to be related to what you're selling, these types of marks are relatively weak and costly to protect. Today companies often go for fanciful or arbitrary marks because they are distinctive and easier to protect. Think Google® or Uber®. 3. Test the translation of your mark in the languages of the countries where you want to protect that mark. A classic example of a poor mark happened when Kentucky Fried Chicken (now branded as KFC) expanded into China and wanted to use its trademarked phrase "Finger Lickin' Good." Unfortunately, that phrase translated into Chinese as "Eat your fingers off," which certainly provided a much less appealing image. 4. Choose the categories of products and services where you want to protect your mark. That means you should have developed a roadmap for the kinds of products and services you will add as your company grows. You will pay a fee for each category you choose, so it's important to have a plan.

For the tax year _____, the IRS reported just over 25 million nonfarm sole proprietorships, approximately 70 percent of all tax-paying entities.

2015

buy-sell agreement

A binding contract that states who is entitled to purchase a departing partner's share of the busines, what events can trigger a buyout,a dn what price will be paid the partner's interest.

wholly owned or closely held corporation

A business in which the entrepreneur or founders own all the stock.

continuity of life

A characteristic of a corporation, which is a legal entity that can surve the death of the owners.

The Antidilution Provision

A clause in a term sheet that insures that subsequent issues of stock at a lower price will not decrease the economic value of the VC's investment.

Forfeiture Provision.

A clause in a term sheet that requires founders to give up some of their stock to the VC as a penalty for not achieving projected performance goals.

Crowdfunding

A collective effort by consumers who network and pool their money together via the Internet to invest in and support efforts initiated by entrepreneurs.

channel intermediary

A company in the value chain of an industry.

system integrators

A company that aggregates all the resources and companies needed to produce a solution.

The patent application contains:

A complete description of the invention, what it does, how it is uniquely different from anything currently existing (including prior art), and its scope. Detailed drawings, explanations, and engineering specifications such that a person of ordinary skill in the same field could build the invention from the information provided. The claims section of the application specifies the novel parts of the invention on which the inventor wants patents and must include at least one claim that attests to its novelty, utility, and nonobviousness. The claim serves to define the scope of patent protection; whether the USPTO grants the patent is largely determined by the wording of the claims.

diluted

A decrease in the percentage of ownership in a company caused by new investment

Statement of cash flows

A financial statement that provides information on changes in the company's cash account through inflows and outflows of cash and cash equivalents.

S corporation

A financial vehicle that passes profits and losses to the shareholders

limited liability companies

A hybrid form of organization that combines the characteristics of a corporation and a partnership.

mezzanine financing or bridge financing

A hybrid of debt and equity financing that gives the lender ownership rights in the event of a default and after senior loan and equity holders have been paid.

nonprofit corporation

A legal entity formed for charitable, public, religious or mutual benefit purposes. It may or may not be tax exempt

Technology Readiness Level

A measurement system to assess the maturity level of a technology.

Advantages of a Nonprofit

A nonprofit with tax-exempt status is attractive to corporate donors, who can deduct their donations as a business expense. A nonprofit can seek cash and in-kind contributions of equipment, supplies, and personnel. A nonprofit can apply for grants from government agencies and private foundations. A nonprofit may qualify for tax-exempt status, which means that it is free from paying taxes on income generated from nonprofit activities.

trade secret

A novel formula, device, idea, process, pattern, or compilation of information that gives the owner a competitive advantage in the marketplace and is kept in a reasonably confidential state

feasibility analysis

A process of testing, evaluating, and validating a proposed business model for a new venture

Every business, no matter how small, has intellectual property rights associated with it. Some examples include:

A trademark on the name of the business or a product brand Copyrights on advertising design Patents on a device the entrepreneur has invented Trade secrets such as the company's customer list

beta version

A version of software that is made available for testing outside the company.

secret partners

Active partners who are not publicly known.

equity

An ownership share in a business.

doctrine of ostensible authority

All partners are bound by the terms of a contract signed by one partner in the name of the partnership.

general partnership

All the partners assume unlimited personal liability and responsibility for the business.

Partnership Agreement

Although the law does not require it, it is wise for a partnership to draw up a written partnership agreement, based on the Uniform Partnership Act, which spells out business responsibilities, profit sharing, and transfer of interest. This is advisable because partnerships are inherently fraught with problems that arise from the different personalities and goals of the people involved. A written document executed at the beginning of the partnership will mitigate eventual disagreements and provide for an orderly dissolution should irreconcilable differences arise. Many partnerships have minimized conflict by assigning specific responsibilities to each of the partners and detailing them in the partnership agreement. Additional issues arise when one or more of the partners in a partnership leaves, either voluntarily or through death. To protect the remaining partners, the partnership should have in place a buy-sell agreement and "key-person" life insurance.

Book value

An accounting measure of value that reflects the difference between total assets and total liability.

Strategic alliances

An agreement between two parties to collaborate on an objective while remaining independent companies.

tombstone

An announcement of a public offering in the financial press.

a vertical architecture

An industry structure where the entrepreneur produces only part of a solution and has to acquire the other parts from different companies.

closely held corporation

An organization where the stock is owned privately by a few individuals and not traded publicly.

They do, however, have several definable characteristics.

Angels normally invest between $25,000 and $100,000 individually, or join forces to collectively invest between $250,000 and $1 million for about 20 to 40 percent of the equity. Angels seek a return of approximately 20-30 times the original amount of the investment over a period of about five years. Angels usually focus on first-stage financing—that is, startup funding or funding of firms younger than five years. Angels are generally well educated, are often entrepreneurs themselves, and tend to invest within a relatively short distance from home because they like to be actively involved in their investments. Angels tend to prefer technology ventures, manufacturing, energy and resources, and service businesses. Retail ventures are less desirable because of their inordinately high rate of failure, but angels with restaurant experience can often be found. Angels typically look to reap the rewards of their investment within three to seven years. Angels find their deals principally through referrals from business associates and tend to make investment decisions more quickly than other sources of capital. Angels' requirements in terms of documentation, business plan, and due diligence may be lower than venture capitalists, but they are still onerous.

first sale doctrine

Anyone who knowingly purchases a copyrighted work can sell, display, or dispose of the work but not make new copies without infringing the copyright.

Marks that cannot be trademarked include:

Anything immoral or deceptive Anything that uses official symbols of the United States or any state or municipality, such as the flag Anything that uses a person's name or likeness without permission

valuation divergence

As the value of a venture increases, the value of its share does not always achieve a corresponding increase.

CHAPTER 2

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Chapter 10

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Chapter 13

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Chapter 16

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Chapter 5

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Chapter 6

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Chapter 7

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Chapter 8

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Porter's Five Forces section

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Research has found four approaches that entrepreneurs typically take in the early stages of the company that are not effective when the company is larger and more complex.

Blind loyalty to the founding team that came through the challenges of startup together. Where their talents were valued in a scrappy entrepreneurial environment, some of the team may not have the professional skills to lead a larger organization. Dedicated focus on a task, which at startup is essential to get the company off the ground quickly. But entrepreneurial leaders need to be able to see the big picture to stay on a growth target, and many are unable to move away from micro-managing the organization to do that. Sticking to a single-minded purpose without having a plan to get there. Effective entrepreneurs who can scale know how to create a simple, achievable strategy, set some targets, and then regularly revisit the strategy to make sure they're still on track or to change direction should circumstances call for it. Focusing solely on the technology. Even after the company is in the market with its product, the entrepreneur often still cares more about the technology than anything else and is vulnerable to being blindsided by external forces that threaten the business, forces that she could have foreseen had she been paying attention to expanding the business.

Before beginning a hunt for capital, ask yourself the following questions:

Can you take time away from the business to spend on fund raising? Is your business on a firm footing through its own resources? What have you accomplished on your own? What have you invested in the business in terms of money, time, and resources? Do you have a validated business model—one that you have tested in the market with real customers? Do you have a financial plan for growth? Do you understand the milestones you will need to hit and how much funding will be required to get you there? Have you put together a compelling story that investors will buy?

Physical prototypes, whether they are three dimensional, a mockup of a mobile app, or a storyboard of a process, are helpful to:

Communicate the form, fit, and function of the solution to customers Provide an example to a vendor for quotation Facilitate quick changes in a design

An effective executive summary and its associated pitch, which may be in the form of a PowerPoint deck or Prezi presentation, will do the following:

Convey the compelling story quickly and memorably. Highlight the critical elements of the business that provide a competitive advantage. Highlight the various proofs of concept that have been achieved. Present a coherent path to profitability and success that makes sense. Demonstrate that the team can successfully execute the plan.

Doctrine of Fair Use

Copying of copyrighted material for a "limited and transformative" purpose such as criticism, parody, and education

Disadvantages of a C-Corporation

Corporations are certainly more complex to organize, are subject to more governmental regulation, and cost more to create than sole proprietorships or partnerships. You should seek the assistance of an attorney. In too many cases, businesses have failed or endured significant financial hardship because they did not incorporate properly at the start of the business or did not maintain the corporation according to the legal requirements. The corporation is literally a person for tax purposes. Consequently, if it makes a profit, it must pay a tax, whether or not those profits were distributed as dividends to the shareholders. Shareholders of C-corporations do not receive the pass-through benefit of losses (the S-corporation does enjoy these benefits). In a C-corporation, if losses can't be applied in the year they are incurred, they must be saved and applied against future corporate profits. C-corporations pay taxes on the profits they earn, and their owners (shareholders) pay taxes on the dividends they receive; hence, the drawback of "double taxation." However, if you draw a salary from your corporation, that salary is expensed by the corporation, effectively reducing the company's net income subject to taxes. You will then be taxed at your personal income tax rate. By creating a corporation and issuing stock, you are giving up a measure of control to a board of directors. Realistically however, in privately held corporations, the entrepreneur largely determines who will be on the board and will certainly seek people who support his or her vision. Entrepreneurs who seek outside venture funding in the very early stages of their venture where the risk is highest may find that they have to give up the majority of the stock to the investors. The choice is either to hang on to the equity and watch the business stall because funding can't be secured or to give up control so that you can own a smaller piece of something successful. It is not always necessary, however, that the founder retains 51 percent of the stock to maintain effective control. As long as the founder's skills and vision are vital to the success of the venture, and as long as the shareholders share that vision, the founder will have effective control of the organization, no matter how much stock she or he has given up. In fact, if you own a tech company, by the time you go public, you will own a very small percentage because you likely have taken a lot of investor capital.

The eight tasks are grouped into three main categories and we will discuss each in more detail next:

Customer Identification or Discovery. Who is the primary customer and what are their needs? Customer Validation and Design. How can we design, develop, and test the product, market, and business model? Business Creation. What should the launch strategy be?

empathy

Deep understanding

Revenue model

Describes the various ways an entrepreneur plans to make money.

ergonomic

Designed for efficiency and comfort.

The National Council of Nonprofits (a nonprofit itself!) suggests these questions.

Do you have a clear idea of what you want to do and have you considered whether it's feasible? Even nonprofits need to operate like businesses, so it's important to have a plan. Who will you involve in your nonprofit? Do you know people who can help you or who can serve on your board and connect you to the resources you need? Do you know what paperwork you need to file and when and where it needs to be filed? You will have paperwork for filing as a nonprofit corporation at the state level and paperwork at the federal level to apply for tax-exempt status. Do you know where to get help in filing the required documents? Is forming a new organization the best way to accomplish your mission? Nonprofits have lots of competition for resources. If you can accomplish your goal in three years or less, it might make more sense to operate under the auspices of another nonprofit. In this approach, your sponsoring nonprofit would be the recipient and administrator of donations for your organization.

Prior to making the decision on which type of legal form to choose, you should ask yourself seven very important questions.

Does the founding team have all the skills needed to operate this venture? Do the founders have the capital required to start the business alone or must they raise it through equity capital or debt? Will the founders be able to run the business and cover living expenses for the first year? Are the founders willing and able to assume personal liability for any claims against the business? Do the founders wish to have complete control over the operations of the business? Do the founders expect to have initial losses or will the business be profitable almost from the beginning? Do the founders expect to sell the business some day?

Answering positively to the following questions may suggest a need for patents because the time and cost involved in bringing this type of invention to market means that you will need a temporary monopoly to recoup those costs and a patent may provide that:

Does the invention solve a significant problem and change the way things are done? Does the invention fall under FDA regulations? Will the invention achieve revenues that exceed the potential cost of patent enforcement? Is there a plan to license the invention to a third party?

It also turns out that communication patterns can predict who will receive funding and which team will likely win a competition. The MIT study also found several characteristics of communication that seem to define effective teams:

Each team member spends about the same amount of time talking and listening. No one dominates, and no one drones on and on. The conversations take place face to face and tend to be energetic and alive. Conversations occur among all the members, not just from the members to the leader. Back-channel or sidebar conversations are typical. Team members often go outside the team to seek information and bring it back to share with the team.

four actions entrepreneurs can take to think about where those white spaces might lie.

Eliminate something that the industry has traditionally done. Reduce something below the industry standard. Raise something above the industry standard. Create something the industry has never done.

Value-driven mode

Entrepreneurs want to create premium experiences for their customers that typically involve personalized service and luxury facilities and products. Customers for this model are value conscious.

clinical trials

Experiments done in a clinical setting to answer questions about specific interventions or treatments. The U.S. FDA requires clinical trials for drugs, vaccines, and some medical devices, among other treatments.

Nascent

First-time or beginning entrepreneur

Here are some things to think about before making the decision to take on a family member or close friend as a partner in a new venture:

Friends or family members should possess real skills and expertise that the business needs to be successful. They should have the same work ethic as the entrepreneur. If you are a workaholic and love it and a family member is a slacker, there will be problems. When there are disagreements (and there will be), consider using a trusted third party to referee. If there are family members on the startup team, there should be outsiders on the advisory board and/or board of directors so that the company will have the benefit of objective input to the business. The relationship with family and friends should be treated as a business relationship. The responsibilities and duties of all should be clearly spelled out in writing, and everyone should understand how disagreements will be settled. As much as possible, the activities of the business should not be brought home at night.

There are other challenges to being a public company.

Going public is enormously time-consuming. Entrepreneurs report that they spend the better part of every week over a four- to six-month period on issues related to the offering. You can mitigate some of the pressure by spending the year prior to the offering learning the process and beginning to run your company like a public company. A public offering means that everything the company does or owns becomes public information subject to the scrutiny of anyone interested in the company. A shift in company control makes the CEO of a public company responsible primarily to the shareholders and only secondarily to anyone else. The entrepreneur/CEO, who before the offering probably owned the lion's share of the stock, may no longer have a controlling portion of the outstanding stock. Macroeconomic conditions, such as world events and domestic economic policy, can adversely (or positively) affect a company's stock, regardless of what the company does. Public companies are also subject to the stringent disclosure rules under the Sarbanes-Oxley Act (SOX). SOX covers such issues as establishing a public company accounting oversight board, auditor independence, corporate responsibility, and enhanced financial disclosure. A public company faces intense pressure to perform in the short term. An entrepreneur in a wholly owned corporation can afford the luxury of long-term goals and controlled growth, but the CEO of a public company is pressured by shareholders and analysts to show gains in revenues and earnings per share on a quarterly basis that will translate into higher stock prices and dividends to the stockholders.

Intellectual assets

Knowledge documented in a physical form and that is easy to communicate and share.

five factors that are significant in team composition:

Homophily (similarity) Functionality (skill diversity) Status expectations (cultural bias) Network constraints (social contacts) Ecological constraints (geographic distribution)

Refer back to Figure 16.2, which depicts the three major stages during which entrepreneurs receive funding.

Identification and validation of the first customer and the business model stage. This is the riskiest stage because uncertainty is at its highest with many questions about the business model and the market remaining unanswered. VCs rarely invest at this stage even though the returns generally will be higher because the probability of not achieving those returns is also at its highest. The early growth stage. The business is in operation, having proven the business model in the market, so a significant amount of risk has been reduced. VCs will enter at this stage if the potential to move into rapid growth is imminent. Rapid growth stage. This is where most VCs invest because this stage is more likely to bring them to the liquidity event they need in three to five years to make the investment worthwhile. Most of the critical questions have been answered, the team has been proven, and now it's a matter of funding rapid growth and preparing the venture for an IPO, acquisition, or other liquidity event.

The following tasks are a guide to the founding team in preparing to write the business plan.

Identify who is responsible for what. Updating information about the industry, the market, the customer, and costs is an ongoing process and should always be current. Make a list of everything that must be collected and how it needs to be collected (secondary research, talking to customers, etc.). Decide who will do what and by what date it must be accomplished. Develop a timeline based on tasks identified. It is important to be realistic about how much time it will take to complete all the tasks associated with the business plan. Determine whether all of the tasks are critical to the business plan. Prune any that are not essential to conveying a convincing argument. Hold the team to the timeline and work diligently to get the plan done. Get a trusted third party to review the plan to catch anything the team may have missed. Plan to review the business plan at least once a year to make sure it's still conveying the right story.

Porter's Five Forces

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We are currently seeing a number of trends in the U.S. venture capital industry. Here are a few*:

In 2017, more than $84 billion was invested in 8,035 startups, which is the highest annual amount of capital invested since 2000. Average late-stage funding amounted to more than $30 million. For the first time, early-stage investment accounted for more than $10 billion in the fourth quarter of 2017. Record-level unicorn (startups valued at more than $1 billion) activity occurred. Unicorns raise $19.2 billion in capital. Exits for VCs (liquidity events) were flat in 2017 after a three-year decline. The exit numbers were bolstered by 13 unicorn exits.

Infringement

Infringement of patent rights occurs when someone other than the inventor makes and sells a product that contains every one of the elements of a claim.

If you successfully prosecute someone who has misappropriated your trade secrets, you're entitled to several remedies:

Injunctive Relief. This means that the court will order that the defendant stop violating your trade secret rights. Damages. The court can order that the defendant pay damages to you for any economic harm you may have suffered. You can receive punitive damages if the court decides that the damage done was willful. Punitive damages can amount to twice actual damages. Attorney's fees. If the defendant is found to have acted maliciously or willfully, the court may order the defendant to pay the plaintiff's attorney fees. Similarly, if the plaintiff loses the case, the court could determine that the plaintiff acted in "bad faith" when filing the lawsuit; therefore, the plaintiff might have to pay the defendant's attorney fees.

Advantages of a Sole Proprietorship

It is easy and inexpensive to create. It gives the owner 100 percent of the company and 100 percent of the profits and responsibility for the losses. The owner has complete authority to make decisions about the direction of the business. The income from the business is taxed only once, at the owner's personal income tax rate. There are no major reporting requirements such as those imposed on corporations.

Disadvantages of the LLC

It is probably not a good form to choose if there will be a large number of members, because it will be difficult to reach consensus among the owners, who might also be the managers of the LLC. It is not a separate tax-paying entity. Earnings and losses are passed through to the members to be taxed at their individual tax rate, so members must make quarterly estimated tax payments to the IRS. If all the members do not elect to actively manage the LLC, the LLC ownership interests may be treated like securities by the state and the Securities and Exchange Commission (SEC). This means that if the company does not qualify for an exemption (most small LLCs do), it must register the sale of its member interests with the SEC.

There are a number of important advantages to becoming a public company.

It provides the offering company with a tremendous source of interest-free capital for growth and expansion, paying off debt or product development. The company acquires the future option of additional offerings once it is well known and has a positive track record. A public company has more prestige and clout in the marketplace, so it becomes easier to form alliances and negotiate deals with suppliers, customers, and creditors. Restricted stock and stock options can be used to attract new employees and reward existing employees. It is also easier for the founders to harvest the rewards of their efforts by selling off a portion of their stock or borrowing against it.

Threat of entrants key point

It's the threat of entry, NOT the entry itself

What you cannot patent are:

Laws and phenomena of nature Naturally occurring substances Abstract mathematical formulas Ideas

From a business perspective, you need to determine the means by which you will commercialize your technology or product:

License the technology to another company to develop it into applications Start a business to make and distribute the product Sell the technology Joint venture with another company that has the resources you need

cross-licensing agreements

Licensing is like leasing a technology for a specific period of time. In cross-licensing both parties lease from each other.

Under the Internal Revenue Code, an LLC exhibits all four characteristics of a corporation:

Limited liability Continuity of life Centralized management Free transferability of interests

Advantages of a C-Corporation

Limited liability in that its owners are liable for its debts and obligations only to the limit of their investment. The only exception to this protection is payroll taxes that may have been withheld from employees' paychecks but not paid to the Internal Revenue Service. Capital can be raised through the sale of stock up to the amount authorized in the corporate charter. A corporation can create different classes of stock to meet the various needs of its investors. For example, it may issue nonvoting preferred stock to conservative investors who, in the event that the corporation must liquidate its assets, will be first in line to recoup their investment. Common stockholders are entitled to vote at shareholders' meetings and to divide the profits remaining after the preferred holders are paid their dividends, assuming that these profits are not retained by the corporation to fund growth. Startups and early-stage companies rarely pay dividends; rather, they retain that capital pay for growth. Ownership in a corporation is easily transferred. However, most entrepreneurs restrict the sale of their stock so that they can control who holds an ownership interest in the company. Corporations typically enjoy more status and deference in business circles than do other legal forms. Corporations can also take advantage of the benefits of offering retirement funds, Keogh and defined-contribution plans, profit-sharing arrangements, and stock option plans for their employees. These fringe benefits are deductible to the corporation as expenses and not taxable to the employee. You as a shareholder can hold certain assets (such as real estate) in your own name, lease the use of the assets to the corporation, and collect a lease fee.

Some examples of trademarked items include:

Logo: FedEx (www.fedex.com) Slogan: L'Oreal: "Because you're worth it." (www.loreal.com) Container shape: Coca-Cola's classic beverage bottle (www.coca-cola.com)

The invention must fit into one of four statutory classes established by Congress or constitute a new use of one of the four classes:

Machine or something with moving parts or circuitry (fax, rocket, photocopier, laser, electronic circuit) Process or method for producing a useful and tangible result (chemical reaction, method for producing products, business method) Article of manufacture (furniture, transistor, diskette, toy) Composition of matter (gasoline, food additive, drug, genetically altered life form) You can also file for a new use or improvement for one of the above that does not infringe on the patents associated with the original invention. This is a critical distinction as frequently inventors do not foresee all the potential ways their invention could be used.

impact investing

Major insurance companies and pension funds make equity investments and cash deposits into community banks that then lend to social ventures to help them grow.

Depending on the type of business, the cost structure may take on one of the following forms:

Marketing or advertising cost structure. The primary costs of the business come from customer acquisition and maintaining relationships with customers. Inventory cost structure. Here the biggest costs come from the maintenance of inventory, either goods for sale or raw materials. Office or retail space cost structure. In this type of business, the primary cost driver is the cost per square foot of the space required to conduct business. Support center cost structure. Here the business has high fixed costs in personnel required to support the activities of the business. Direct cost structure. These businesses' costs are driven by the direct costs of producing the product or service.

There are two distinct hurdles that you must overcome if you want to operate as a nonprofit corporation and enjoy tax-exempt status so that your donors can benefit from tax-deductible donations:

Meet the state requirements for being designated a nonprofit corporation and operating as such in a given state. Meet the federal and state requirements for exemption from paying taxes [IRS 501(c)(3)] by forming a corporation that falls within the IRS's narrowly defined categories.

convertible debt

Normally used in the seed round of financing, convertible debt is a short-term note that converts to equity at a later date.

A good patent attorney can help reduce the number of times you have to interact with the patent office and increase your chances of eventually securing a patent. Here's what the process looks like:

Once the USPTO has received the application, it will conduct a search of its patent records for prior art. The Patent Office then contacts the inventor to either accept or deny the application claims and, in the case of denial, gives the inventor a period of time to appeal or modify the claim. It is not uncommon for the original claims to be rejected in their entirety by the USPTO, usually due to the existence of prior art, but often because of lack of non obviousness. It will then be the job of the inventor's attorney to rewrite the claims and resubmit the revised application for another review. If and when the Patent Office accepts the modified claims, it issues a notice of allowance. Then all the inventor has to do is pay the required fees and wait for the patent to be issued. The inventor may market and sell the product during this period but must clearly label it "patent pending."

Disadvantages of the Partnership

Partners are personally liable for all business debts and obligations of the partnership, even when individual partners bind the partnership to a contract or other business deal. Unless otherwise stated in the partnership agreement, the partnership dissolves when a partner either leaves or dies. Individual partners can be sued for the full amount of any partnership debt. If that happens, the partner who is sued, and loses, must then sue the other partners to recover their shares of the debt. It is important to understand that partnership litigation is expensive and time-consuming, so having a solid partnership agreement that calls for arbitration may be the preferred way to go.

dormant partners

Partners who are generally not know publicly and are not active, but still share in the profits and losses of the partnership

silent partners

Partners who provide capital but do not actively participate in the management of the business.

Advantages of the Partnership

Partnerships have all the advantages of sole proprietorships plus the added advantage of sharing the risk of doing business as well as ideas, expertise, and decision making. Financially, partnerships enjoy pass-through earnings and losses to the individual partners, to be taxed at their personal tax rates.

Small businesses find out about these grants by checking the published solicitations by the agencies to see whether they can qualify by providing what the agency needs. Grants have three phases.

Phase I is the concept stage and feasibility phase, which provides up to $150,000 for an initial feasibility study to determine the scientific and technical merit of your proposed idea. This amount is made available for six months. If results are promising, your company is eligible for Phase II funding. Phase II provides up to an additional $1 million for two years for the firm to pursue the innovation and develop a well-defined product or process. Phase III requires you to access private sector funds to commercialize the new technology but may also include government contracts for products, processes, or services that might be used by the U.S. government.

As illustrated in Figure 6.1, a lack of resources focused on new product development (NPD) results in five common problems.*

Poor execution. The critical due diligence and market analysis required to ensure a successful product launch are often shortened or bypassed in favor of speed. Approximately 75 percent of NPD projects don't include vital market research.* Time-to-market increases. When a new venture lacks sufficient resources, bottlenecks and backups tend to occur because there aren't enough people doing the work. When the work is completed, it must often be redone because it was done in haste. First-to-market opportunities are missed. Poor execution results in missed opportunities to enter the market at a quiet time without immediate competition. Projects are made simpler so that more can be done with less. The dumbing down of projects is another consequence of resource scarcity. Where resources are limited, product features and customer benefits are often sacrificed in order to get more products out at a lower cost. Team morale declines. The combination of a lack of resources and increasing time pressure causes morale problems on product development teams and a sense that the team must accomplish the impossible.* Although members of the team are often willing to get the job done, more frequently the stressful environment saps their morale.

We will discuss some of those factors here, but let's begin by defining some important terms.

Post-money valuation. This is quite simply the amount being invested divided by the investor's ownership percentage. So if you are receiving $50,000 in investment for 20 percent of the company, the company is currently valued at $250,000. Pre-money valuation. This is the value of your company prior to the investment; so in this case, we subtract the amount of investment from the post-money valuation ($250,000 - $50,000) making the pre-money valuation at $200,000. Fully diluted shares. This is the total number of shares outstanding after accounting for all possible conversions such as stock options or convertible bonds that could be exercised at some point in the future. Investors' initial percentage of ownership. This is the percentage of fully diluted shares that investors own at the time of investment. Liquidation preferences. This defines the distribution of preferred and common stock after company obligations have been satisfied.

angels

Private investors who provide informal risk capital.

The entrepreneurs network

Professional advisors, consultants, personal advisors, sales support, manufacturing support, governmental agencies

Disadvantages of a Nonprofit

Profits earned by the nonprofit corporation cannot be distributed as dividends, and corporate money cannot be contributed to political campaigns or used to engage in lobbying. The entrepreneur gives up proprietary interest in the corporation and dedicates all the assets and resources of the corporation to tax-exempt activities. If a nonprofit corporation is ever dissolved, its assets must be distributed to another tax-exempt organization. The nonprofit form is not suitable for ventures that need to access the capital markets either public or private. A nonprofit cannot make substantial profits from unrelated activities, and it must pay taxes on the profits it does make from those activities.

Digital Millennium Copyright Act (DMCA)

Prohibits the falsification, alteration, or removal of copyright management data on digital copies. It is a crime to circumvent and encrypted work without authorization.

Balance Sheet

Provides a snapshot of the health of the business at a specific point in time.

Income Statement

Provides information about the projected profit or loss status of the business for a specific period of time.

What are some of the weaknesses that founding teams exhibit that can slow or derail startup and early growth processes?

Putting formal hierarchical structure on the startup before it's time. In the early stages of a venture, an entrepreneurial team should operate as a team so that it maintains flexibility until the team knows which kind of organizational structure is appropriate to accomplish their mission. Pretending there are sales from beta customers. While it's true that entrepreneurs often need to secure customers who try the product in its earliest stage at no cost, you should not confuse these customers, who are known as "beta" customers, with actual customers. For beta customers, the value is "free." These individuals or companies enjoy trying new things and typically like to be the first to have the latest and greatest of anything they buy. However, that value proposition is not going to build a company. The only bona fide customers are those who pay for your products and services at a market price to solve a real problem they have. Suffocating under opportunity overload. Entrepreneurs rarely suffer from a lack of opportunities. In fact, quite the opposite is generally true: They typically have more opportunities than their resources can support. That's why you must focus efforts and stick to your strategy for growth so that the opportunities you do take advantage of are aligned with those goals and have a greater chance for success. Believing that engineers can do marketing. Engineering and science entrepreneurs must bring in critical business skills as early as possible to avoid slowing progress for lack of expertise. It takes both technical people and business people to successfully ramp up a startup, and it's rare to find an entrepreneur who is equally effective at both skills.

Here are three important facts:

Raising capital will take at least twice as long as expected before the money is actually in your company's bank account. Consider the task of raising a substantial amount of money—$500,000, for instance. It can take several months to find the financing, several more months for the potential investor or lender to do "due diligence" and say yes, and then up to six more months to receive the money. In other words, if you don't look for funding until it's needed, it will be too late. The search for capital will take you away from the activities of your business just when you're needed most. Therefore, it is helpful to use financial advisers who have experience in raising money, and it is vital to have a good management team in place to insure the business continues to operate smoothly. Your chosen funding source may not materialize, even after months of courting and negotiations. It's essential, therefore, to continue to look for additional investors in case the original investor backs out.

Anyone investing in a new venture has four principal concerns:

Rate of growth. Investors want to know how fast the business is projected to grow, when that growth will take place, and what will ensure that the growth actually occurs as predicted. For this reason, investors tend to look for market-driven companies where there is a high probability of rapid growth. Return on investment. Investors are naturally concerned about when and how the principal portion of their investment will be repaid and how much gain on that investment will accrue over the time they are invested in the company. Degree of risk. Investors want to understand thoroughly the risks they face in investing in the new venture. Protection. Investors want to know how their original equity will be protected and how you will mitigate any challenges your business will face.

Factoring

Receivables financing where the lender takes ownership of a receivable at a discount and then collects against it.

Sole Proprietorship

Refers to the sole owner of a business and is not actually a legal entity

Researcher Noam Wasserman grouped these challenges or dilemmas into three big buckets:

Relationships—who is on the team Roles—what their responsibilities are Rewards—why they want to be on the team

The First Sale Doctrine [Section 106 of the 1976 Copyright Act] grants a copyright owner six rights:

Reproduction Preparation of derivative works Distribution Public performance Public display Digital transmission performance.

Direct competition

Rivalry between or among businesses that offer similar types of goods or services

Investment value

The worth of the business to an investor based on individual requirements in terms of risk, return, tax benefits, etc.

Some of the important things to remember when you consider doing a crowdfunding campaign are the following:

Set a realistic goal for the amount of money you need. Have a plan in place for manufacturing before you start the campaign. Keep the timeframe for the campaign short to avoid attracting more backers than you can serve. Have a real business in place before you market your product.

complementary products

Similar products

Every business is different, but in general, each will reach certain milestones that suggest the time has come to grow to the next level and that will require an infusion of capital. Figure 16.2 indicates the typical funding stages and we discuss them here.

Stage One: Business Model Development and Testing. Here you will likely require seed funding, an initial investment typically by the founders and other sources of "friendly money." In general, these "investors" are individuals who believe in you and want to support the earliest stages of startup. Stage Two: Transition. Your business is requiring capital to grow on the basis of a proven business model. In fact, customer demand may require that your company grow, but internal cash flows at the time may not be sufficient to fund that growth. Therefore, you may require outside capital from a private investor, early-stage venture capitalist (VC), or debt source. Taking on formal investment capital means that you must also plan for some type of liquidity event so that investors can cash out of the business and receive a return on their investment at some defined point in the future. That liquidity event may be in the form of an initial public offering (IPO) or an acquisition. Fortunately, at this stage, you have more types of capital to access than at startup because your venture has survived and appears to be growing. Stage Three: Rapid Growth. If your new venture has been successful moving through the first two stages, it is likely that it will begin to experience rapid growth that calls for larger sums of capital and perhaps a different type of money, termed mezzanine financing or bridge financing , if you decide to do an initial public offering. This phase of rapid growth can come relatively early in a startup's life cycle or very late depending on the type of business and the industry in which your company operates. For some businesses, particularly lifestyle businesses, rapid growth may never be part of their evolution. They may instead enjoy slow, steady, organic growth for many years. Stage Four: Maturity. If your business thrives over the long term, it will probably reach a relatively mature phase in which it ideally maintains a stable revenue stream with a loyal customer base. In today's dynamic environment, however, stability is rarely an enduring state. To continue to be profitable, a mature business must disrupt its equilibrium with new products and services and new markets so that it can remain competitive.

The Idea

Strategy is about understanding and coping with competition Competition is more complex than direct competition (three or four additional forces at work) The configuration of these forces defines the industry structure. Industry structure drives both profitability and competition within industry and they affect all industries

revenue model categories

Subscription or membership. Customers pay a fixed amount to belong or subscribe, generally monthly or annually. Volume or unit-based. Customers pay a fixed amount per unit and receive a discount for volume purchases. Licensing and syndication. Customers pay to use or resell, typically a product, technology, or brand. Transaction fee. Customers pay for services, generally hourly or on a project basis. Advertising. In this model, the customer is the advertiser, not the end user of the product or service. Many Internet businesses have advertising as one of their revenue models.

Some of the key rules for election of the S-corporation option include the following:

The S-corporation may have no more than 100 shareholders. Shareholders must be U.S. citizens or residents (partnerships and corporations cannot be shareholders). Profits and losses must be allocated in proportion to each shareholder's interest. A shareholder may not deduct losses in an amount greater than the original investment.

Any investment deal consists of four components:

The amount of money to be invested The timing and use of the investment moneys The return on investment to investors The level of risk involved

Advantages of an S-Corporation

The businesses that benefit most from an S-corporation structure are those that don't have a need to retain earnings. In an S-corporation, if you decide to retain, say, $100,000 of profit to later invest in new equipment, your company must still pay taxes on that profit as though it had been distributed. The S-corporation is a valuable financial tool when personal tax rates are significantly lower than corporate rates. However, when top personal rates increase, a C-corporation might be preferable at higher profit levels. Ventures that typically benefit from S-corporation status include service businesses with low capital asset requirements, real estate investment firms during times when property values are increasing, and startups that are projecting a loss in the early years.

Going-concern value

The current financial status of the business as measured by financial statements, debt load, and economic enviornmental facts that could affect long-term continuation.

counterfeiting

The deliberate copying of something

Cost-driven model

The emphasis is on keeping costs as low as possible because margins are narrow. Entrepreneurs using this model are price conscious.

terminal value

The expected return in the harvest year (the year of a liquidity event)

limited partnership

The general partners have unlimited liability and run the business. Limited partnership are liable to the extent of their investment and have no say in the management of the business.

A growing body of research supports a team approach to startup for a variety of reasons.*

The intense effort required of a startup can be shared. Should any one team member leave, it is less likely to result in the abandonment of the startup. With a founding team whose expertise covers major functional areas—marketing, finance, operations—the new venture can proceed further before it will need to hire additional personnel. A skilled founding team lends legitimacy to the new venture in the eyes of lenders, investors, and others. The entrepreneur's ability to analyze information and make decisions is improved because he or she benefits from the diverse expertise of the team, and ideas may be viewed and analyzed from several perspectives.

When considering a business plan and an entrepreneur for a loan, lenders have a few additional concerns:

The kind of positive impact the loan will have on the business. Lenders typically do not lend to pay off old debt or to pay salaries, but rather to improve the business's financial position. The kinds of assets the business has for collateral that can be pledged as security for the loan. Lenders prefer standard equipment and facilities that can easily be repurposed. How the lender will be protected if the business doesn't meet its projections. Lenders want to know that you have a contingency plan for situations where major assumptions prove to be wrong. The entrepreneur's stake in the business. Like investors, lenders feel more confident about lending to a business in which the entrepreneur has a substantial monetary investment.

Although there are no perfect founding teams and no fail-safe rules for forming a team, effective founding teams tend to display the following characteristics:

The lead entrepreneur and the team share the same vision for the new venture. The team members are passionate about the business concept and will work as hard as the lead entrepreneur to make it happen. One or more members of the founding team have experience in the industry in which the venture is being launched. The team has solid industry contacts with sources of capital. The team's expertise covers the key functional areas of the business: finance, marketing, and operations. The team members have good credit ratings; this will be important when the team seeks financing. The team is free to spend the time a startup demands and can endure the financial constraints of a typical startup.

CRITICAL ISSUES ABOUT PARTNERSHIPS TO ADDRESS WITH AN ATTORNEY PRESENT

The legal name of the partnership The nature of the business The duration of the partnership Contributions of the partners Sales, loans, and leases to the partnership Withdrawals and salaries Responsibility and authority of the partners Dissolution of the partnership Arbitration

proofs of concept

Validation that the business is viable.

distribution channel

The method by which an entrepreneur reaches a customer.

C Corporation

The most common type of corporation, which is a legal business entity that offers limited liability to all of its owners, who are called stockholders

Intrinsic value

The perceived value arrived at by interpreting balance sheet and income statements through the use of ratios, discounting cash flow projections, and calculating liquidated asset value.

product life cycle

The period from the birth of the product to the point at which it is obsolete or has no further value.

Fair market value

The price at which a willing seller would sell and a willing buyer would buy in an arm's-length transaction.

doctrine of equivalents

The rule by which the patent office protects inventors from infringers who would violate a patent by making small, insignificant changes in the claims.

Disadvantages of Sole Proprietorships

The sole proprietor has unlimited liability for all claims against the business; that is, any debts or court judgments must be paid from the owner's assets such as a home or bank accounts. To help mitigate the risk of lawsuits, a sole proprietor should obtain business liability insurance, including "errors and omissions coverage," which protects against unintentional negligence such as disseminating incorrect information in a company advertisement. It is more difficult for sole proprietors to raise debt capital, because very often the owner's financial statement does not qualify for the amount needed. Sole proprietors are not attractive candidates for investor capital for the obvious reason that they control 100 percent of the business. To take investment capital, they would have to change their legal form. The business's ability to survive is dependent on the owner; therefore, the death or incapacitation of the owner can be catastrophic for the business if the owner did not transfer ownership through a will.

Industry architecture

The structure of an industry and how it works.

valley of death

The time from idea generation through product development, market testing, and product launch. So named for the high rate of railure.

information asymmetry

The two sides in a deal do not have the same information.

Choosing the legal structure of the new venture is one of the most important decisions you can make, because it affects the tax strategy of your company for years to come. The correct selection depends on:

The type of venture you are starting The profits the venture generates Your personal tax bracket The assets used by the business The risk factors in the business Its potential for growth State laws.

users

The ultimate beneficiaries of a purchase.

Founders who wish to go it alone usually do so for several reasons:

They want total control of the startup effort. They have the resources they need to launch the venture. The startup is not expected to grow large enough to support more than one founder. The founder may simply want to avoid the difficulties associated with founding teams.

B-corporation

This is a benefit corporation, a for-profit entity with a social mission

red herring

This is the registration statement or propsectus that discusses all the potential risks of investing in the IPO.

outsource

To hire other companies to perform functions that the entrepreneur doesn't want to do in-house.

freemium model

Users of the website can take advantage of the basic functionality for free and pay a subscription fee for enhanced features.

patent types

Utility patents: Utility patents are the most common type of patent. They protect the functional part of machines or processes. Some examples are toys, film processing, protective coatings, tools, and genetically modified organisms. Software qualifies for patent protection if it produces a useful and tangible result. For example, the USPTO will not issue a utility patent on a mathematical formula used in space navigation, but it may on software that translates equations and makes a rocket take off.* (Copyrights, discussed previously, are commonly used for software programs that don't qualify for a patent.) A utility patent is valid for 20 years from the date of application. Design patents: Design patents protect new, original ornamental designs for manufactured articles. A design patent protects only the appearance of an article, not its structure or utilitarian features. The design must be nonfunctional and part of the tangible item for which it is designed. It cannot be hidden or offensive or simulate a well-known or naturally occurring object or person. Some examples of items that can receive design patents are gilding, an item of apparel, and jewelry. Inventors should be aware that although design patents are relatively easy to obtain, they are very hard to protect. It is not difficult to modify a design patent without infringing on the original patent. Design patents are valid for 14 years from the date of issuance. Plant Patents: This patent is granted to someone who invents or asexually reproduces a new variety of plant. Recall that plants occurring naturally cannot be patented. A plant patent expires 20 years from the filing date of the application.

Teams that experience the fewest problems consider the following four questions before negotiations begin:

What did each founder bring to the table? The idea for the business? Seed funding? A patent? What did each founder give up to work on this venture? Leave a job? Mortgage a house? When did each founder come on board? Did the team start together or did someone join the team later? What is each founder expected to contribute in the future? Needed connections to money? Product development?

There are a number of ways to effectively "pitch" the essence of your business in 15 seconds. In addition to the example above, another simple approach is to answer three questions:

What do you do? (What problem are you solving and how are you solving it?) Why should we care? (Why is this a compelling idea?) How will you win? (What's your competitive advantage?)

Peter Drucker said entrepreneurs and corporate CEOs alike to answer five important questions about their business model:

What is our mission? Who is our customer? What does our customer value? What are our results? What is our plan?*

In looking at potential solutions, you will consider:

Whether your solution currently exists in some form Whether the solution is a way to actually solve the problem Whether your solution can be produced Whether it can be protected How much the solution will cost to produce How much time it will take to bring it to market

A buy-sell agreement is a binding contract between the partners. It contains three primary clauses that govern the following issues:

Who is entitled to purchase a departing partner's share of the business? May only another partner do so, or is an outsider permitted to buy in? What events can trigger a buyout? Typically, those events include a death, disability, or other form of incapacity; a divorce; or an offer from the outside to buy the partner out. What price will be paid for the partner's interest?

In the world of patents, research has found that there are three major patent strategies that align well with particular business models: proprietary, defensive, and leveraging strategies.

With a proprietary strategy, your principal goal is to defend your market position by acquiring the patents you need to cover the opportunity and be able to defend your rights. This is an expensive strategy because it requires owning all the proprietary technology around a solution and defending it. A defensive strategy gives you the freedom to design around existing patents or develop a portfolio of patents to employ as bargaining chips with other companies in cross-licensing agreements . A leveraging strategy is useful when you don't seek freedom to operate (freedom from infringement on others, usually outside the geographical jurisdiction of an existing patent) or when having proprietary protections are not critical. In this case, patents are typically licensed for cash or to extract needed concessions from other companies.

Demonstrating proof of concept with a prototype has a number of important benefits:

You develop a clear understanding of customer needs when you put the prototype in their hands and watch how they use it. Changes in the prototype can be made early in the process when changes are less costly. Doing a prototype reduces the risk of failure.

Disadvantages of an S-Corporation

You should probably not elect the S-corporation option if you want to retain earnings for expansion or diversification, or if there are significant passive losses from investments such as real estate. This is because unless the business has regular positive cash flow, it could face a situation in which profit is passed through to the owners to be taxed at their personal rate, but the firm has generated insufficient cash to pay those taxes, so they must come out of the pockets of the shareholders. Furthermore, although most deductions and expenses are allowed, S-corporations cannot take advantage of deductions based on medical reimbursements or health insurance plans.

venture-backed

a business financed by venture (investment) capital

When suppliers are more ____________ than the industry, they have more power (basically it being only one place to buy something, not many options)

concentrated

Some empirical research has even provided evidence that firms founded by ___________ teams are generally more successful than those founded by individuals.

heterogeneous

Factors outside the control of the entrepreneur also impact the business model:

industry factors and trends, market factors and trends, and global economic factors.

If the forces are ________, almost no company earns attractive return on investment (commercial aircraft manufacturers) If forces are ____, profitability and ROI are improved (soft drinks, fast-moving consumer goods)

intense weak

Intellectual property (IP)

is the highest form of protection and the most valuable. It carries exclusive legal rights that offer remedies through the courts for the protection of intangible assets. It is these intellectual property rights that are the focus of this chapter.

Significant Factors for Founding Team Composition

picture

The most _______ difference between IP and other types of physical property is that IP is intangible; that is, it is not described by a physical form

striking

Liquidation value

the amount that could be recovered by selling off all the company's assets

Value proposition

the benefit that the customer derives from the product or service you are offering; in other words, the reason the customer will buy. It is "the unique mix of product, price, service, relationship, and image that a company offers to a group of targeted clients. It must explain what the company thinks it is capable of doing for its clients better or differently from its competitors."

dilution

the reduction in value of something

economic life

the time during which a product can generate revenue.

indirect competition

threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products/services

fuzzy front end

the activities undertaken at this point are often unclear and subject to change as more information is obtained. The fuzzy front end has been modeled in economic terms. Simply put, the amount of investment an individual is willing to make in a new product—or, in this case, in a new venture—is a function of the probability of its success, the value of that success, and the cost of failure [ Inv = f ( PS + VS + CF ) ]

There are several reasons for new business failure:

1. Entrepreneurs often start businesses with a solution looking for a problem. In other words, they haven't identified a real need in the market with customers willing to pay for a solution, 2. The solution is not necessarily unique or compelling. In other words, it is often a "me-too" solution that does not offer anything different from what is already in the market. Furthermore, entrepreneurs often do not communicate the value proposition effectively to the customer, and/or 3. Entrepreneurs often haven't identified and tested a business model that actually works.

There are two important reasons to study the industry in which your business will operate.

1. It represents the business's external environment, and no business operates independent of its external environment. 2. You need to understand whether you can make a profit in the industry and if that profit will be significant enough to make the effort to start the business worthwhile.

There are generally three types of competitors for a product or service:

1. direct, 2. indirect or substitute, and 3. emerging or potential.

Remember that for a new company, the goals of market research are to

1. identify and profile the first customer; 2. estimate potential demand from that customer; and 3. identify subsequent customer segments that can be tapped later on to grow the company.

incubators

A company that helps startups get going by providing guidance and some resources.

platform technology

A core technology on which new applications are built.

Digital Twins.

A digital twin is exactly what you might think it is—a digital replica of a human or real-world entity. Using connected sensors and endpoints, we can now conduct advanced simulations, operations, and analysis via a digital twin.

industry

A grouping businesses that interact in a common environment as part of a value chain that delivers a particular good.

market

A grouping of customers for a particular good or service.

In the 1930s, economist Joseph Schumpeter identified five categories of innovation that are still relevant today:

A new product or substantial change in an existing product A new process A new market New sources of supply Changes in industrial organization*

breakthrough

A new technology that makes previous technologies obsolete.

business model

A plan for how the business will create value and make money.

design thinking

A process and approach that looks at the world from the customer's perspective.

Value proposition

A statement that summarizes why a customer should buy your product or service. In other words, what's in it for the customer.

ethnography

A way to explore the social culture of groups.

Advocate Model:

An advocate company acts like an evangelist, assigning ownership of a project or new business creation and providing modest seed funding to test it. DuPont, a global conglomerate, uses this approach to generate new sources of growth for the company.

virtual reality

An artificial, computer generated simulation of life. The user is immersed in the experience and it feels like he or she is experiencing the experience first hand.

synthetic biology

An emerging field that involves applying engineering principles to the components of biology as in the design and contruction of new biological parts, organisms or devices.

opportunity

An opportunity is an idea with commercial potential.

keystoning

Any item selling at twice the price it was bought for or cost. 100% markup

economies of scale

As a company's product volumes increase, the cost to produce declines relative to the price of their goods and services.

intellectual property

Creations of the mind (inventions) for which specific legal rights are granted to give the owner a temporary monopoly in the market.

Chapter 1

BELOW

Chapter 3

BELOW

Chapter 4

BELOW

A more recent and very insightful view of the creative process comes from photographer and documentary film producer Norman Seeff, who identified seven stages that individuals or teams go through as they move from the beginnings of an idea to the fulfillment or final outcome

Below

Next, we'll briefly summarize some excellent exercises that you should consider using to get your creative juices flowing and generate great ideas.

Brainwriting Visualization Journey Mapping

Bad competition:

Companies that are doing everything right. Their customers are happy; they add value; and they're prosperous.

Good competition:

Companies that are doing what they do very badly; in other words, they aren't making customers happy.

Potential or emerging competitors

Companies that are not currently serving the same customer needs but have the resources to quickly move into your space and compete.

indirect competitors

Companies that serve the same customer needs but with different resources as in substitute products, services, or distribution channels.

In its most simplistic definition, design thinking uses techniques and tools to:

Define a problem Create and consider multiple options Refine those options through iteration, and Settle on a winning solution.

Factor-driven economies

Economies that rely on unskilled labor and the extraction of natural resources for growth. Businesses are created out of necessity.

A number of characteristics are associated with design thinkers.

Empathy Integrative thinking Optimism Experimentation Collaboration

Corporate ventures

Entrepreneurial ventures inside a large corporation.

Challenges to creativity

Environmental Personal

Enabler Model:

Google is an example of an enabler model company that sprinkles resources throughout the organization to encourage innovation and entrepreneurship at all levels while establishing clear criteria for the selection of opportunities to pursue.

cognitive

How you learn versus how others learn

incremental innovations

Incremental innovations are built on existing technology and typically represent small improvements.

gross margins

Indicates how much money is left to pay overhead and make a profit. It is found by dividing gross profit by sales.

gatekeepers

Individuals or companies that hold the key to reaching particular customers by controlling the flow of information.

Entrepreneurs typically choose the startup process when:

Industry entry barriers are low. When there is a lot of uncertainty in the job market. When investment capital is plentiful. The opportunity they seek to exploit involves a breakthrough or disruptive technology that will make previous technology obsolete.

disruptive or radical innovations

Innovations that make obsolete previous technology or ways of doing things.

In general, high-impact entrepreneurial ventures have three primary characteristics. They are:

Innovative—the venture brings something new to the marketplace. Value-creating—the venture creates new jobs that don't draw from existing businesses and serve customer needs that are currently unserved. Growth-oriented—the entrepreneur sees the business growing to a regional, national, or global level.

value chain

It consists of all of the companies that contribute to the development and distribution of products and servicse starting from raw materials to distributors and retailers. Each contributes value to the product and marks up the price accordingly.

Entrepreneurs also regularly have to weigh options in complex situations.

Making decisions Embracing uncertainty and ambiguity The devil is in the details Storytelling Leadership

Immersive experiences

Mixed realities that include augmented reality and virtual reality will blur the lines between the real world and the digital.

Opportunistic Model:

Most companies start their efforts to be more entrepreneurial with an opportunistic model. They wait for project champions to emerge and suggest new business opportunities. Then they decide if they want to move forward and provide some support.

Technological change happens when an entrepreneur identifies:

New customer segments that appear to be emerging New customer needs Existing customer needs that have not been satisfied New ways of manufacturing and distributing products and services.

Stage Three

Stage Three is reached when an individual has reconciled the major fears associated with the idea and has addressed enough of the unknowns to feel comfortable moving forward.

Discovery theory

Opportunities come from external factors in the market or industry such as changes in customer preferences.

deciders

People who make the final decisions about purchases.

influencers

People who want to affect the purchase decision and whose approval is required.

hypotheses

Possible explanations for a phenomenon, assumptions

One of the earliest descriptions of the creative process came from Wallas, who had studied famous artists and scientists and from that identified four stages in the creative process:

Preparation: looking at a problem from a variety of perspectives; Incubation: letting the problem lie in the subconscious for a time; Illumination: the discovery of a solution; and Verification: bringing the idea to an outcome*

the innovation and commercialization process, the associated tasks, and the relationship of the various components. As you can see, it is a complex process with lots of moving parts. Let's break it down a bit so you can understand the flow.

Research Outcomes Execution

Stage Seven

Seeff's process also has a Stage Seven, which represents the emotional fulfillment of the original dream at Stage One. If Seeff's process is overlaid on the entrepreneurial process of identifying an opportunity and starting a business, typically a team effort, it is clear that Stage Seven is a demonstration of the full emotional commitment of the team to each other as individuals and to the new venture as a whole.

affirmative judgment

Seek the strengths or positive aspects of a problem first.

Here are three important actions you can take to increase your confidence as a creative individual.

Set manageable goals that create small wins when they're achieved. Spend time learning everything you can about your new business idea to reduce some of the risk of entrepreneurship and build confidence. Learn when to stop improving on an idea or planning a business and start moving into action mode.

economic core

Small businesses such as shops, restarants, and professional service businesses.

Producer Model:

Some companies like IBM and Cargill establish formal organizations with dedicated funds and significant autonomy. This approach used to be called a skunkworks , dubbed so by Lockheed Martin when it originated the idea years ago to develop its stealth fighter jet.

Stage Five

Stage Five represents the implementation of the action plan to turn the idea into reality.

Stage Four

Stage Four, the turning point, is when the individual or team either makes the commitment to move forward despite not having all the answers or gives up on the dream.

Stage One

Stage One is the honeymoon phase. The new idea is born and it brings with it all the possibilities for what it can become. The idea is usually an "aha" moment; in other words, the idea suddenly appears as if out of nowhere.

Stage Six

Stage Six is the outcome of the creative effort in the form of a new product, a new business, or whatever outcome has been defined.

Visualization

The ability to paint a picture of what you're seeing through graphics and words.

creativity

The ability to use your imagination to come up wi original ideas.

Return on investment (ROI)

The measurement of the gain or loss to the entrepreneur from investing in the business. ROI = ( Net Profit / Cost of Investment ) × 100

Knowledge economy

The period beginning in 2000 where the primary resource was knowledge raither than raw materials and physical labor.

Stage Two

The possibility stage is often followed by Stage Two, fear and resistance, which normally arises from an individual's previous experience with failure. It is common for people who have experienced failure—and who haven't—to consider what might go wrong this time.

accelerators

This is a form of school for startups that is supposed to speed up the entrepreneurial process.

primary field data

This is data you gather through direct interviews or research studies that you conduct.

Information age

This was the term applied to the decade of the 1990s during which the commercial Internet emerged.

primary market

Those customers who have the most need for what is being offered.

purchasers

Those who have the authority to buy.

augmented reality

Touch, sound, and graphics superimposed on the real world to provide enhanced information.

Then you need to think about each attribute individually. Some questions to ask might include:

What can we add or take-away from an attribute? In our example, we might add outerwear to our clothing line. Can we combine an attribute with something else? In our example, when we acquire a new customer, can we get enough information to enable us to customize their experience in our store? What if we reverse the problem statement? In our example, a reverse statement might be how do we make our apparel company just like everyone else? Sometimes identifying all the ways you are alike points up some areas where you can differentiate.

information asymmetries

What you know that others do not know.

genomics

Within the field of molecular biology, genomics is the study of the genome, which is the complete set of DNA within a single cell of a living organism.

creation theory

You create opportunities by your actions, reactions and experiments.

The SBA reports that about half of all new businesses will survive five years or more, and approximately one-third will survive 10 years or more. Therefore, it appears that survivability tends to increase with age.* But wait, maybe not. Statistic Brain, a research institute, found that 50 percent of all U.S. companies fail after five years and 70 percent after 10 years.* So perhaps survivability isn't about longevity. In any case, it's important to learn why failure happens.

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Efficiency-driven economies

are those growing and in need of improving their production processes and quality of goods produced. Examples are Argentina, Egypt, Croatia, and South Africa, although the highest entrepreneurial activity rates were found in Ecuador at 33 percent.

weak ties

are your acquaintances and business contacts

strong ties

are your close friends and family members whom you know well

Commercialization

is the process that moves an innovation from the laboratory to the market by executing on a business strategy

Research has uncovered six factors that serve as barriers to people becoming self-employed as entrepreneurs:

lack of confidence, financial needs, startup logistics, personal or family issues, time constraints, and lack of skills.*

Innovation-driven economies

which are the most advanced, are where businesses compete based on innovation and entrepreneurship. Examples are the United Kingdom, Singapore, Israel, and the United States. The highest levels of entrepreneurial activity are found in Australia, Estonia, the United States, and Canada at about 17 percent.