Entrepreneurship Exam 2 - Younger
Loss Leader
A product or service that is sold at a non-operating loss (I.e., the price only accounts for the actual cost of the product) to simply get customers in the store
Salary
A set amount of compensation for a given time period
Strip Shopping Center
A small retail center located typically along a major road. The center has only small businesses and the center itself occupies only a small strip of land along the major street
Production Management System (Chapter 12)
Defines the steps that are involved in moving from your product or service offering to the point where you actually receive money - The 2 most important elements to *[TERM]* as they relate to entrepreneurial business are PRODUCT CHARTING and QUALITY
Velocity ("What the CEO Wants You to Know")
Describes the idea of speed, turnover, or movement - Think of raw materials moving through a factory and becoming finished products and then those finished products moving off the shelf to the customer - The "Idea" of *[TERM]* = Things must move through a business to the customer...the faster, the better
Job Description
Document that described the job that is to be filled. Should include... - Job title - Salary - Benefits - Vacation - Sick days - Description - Duties and responsibilities - Skills - Location - Qualification requirements (education level, past work experience, etc.) - Contact info - Company info - What you will be evaluated on (goals at the end of year 1)
Unemployment Compensation
Financial assistance for some period of time to those people who lose their jobs through no fault of their own; provided in every state by law
Market Potential and Customer Demand
What are the 2 methods of *Forecasting Sales*? (Not numbered)
Managing Promotions, Transfers, Discipling, and Dismissals
What are the guidelines for handling each of these tricky tasks?
Legal Requirements and Other Considerations
What aspects of the law do we need to be aware of? What are some principle issues to be aware of when dealing with the relationship between employees and managers? Compensation aspects or issues
Pricing Models
What can the market bear? What is the market willing to pay? - All things you have to take into account when deciding *[TERM]* - Often want to try to make it "multi-pronged" - Types: -> Pricing Floor -> Loss Leader -> Cost Plus Pricing -> Hybrid Compensation System -> Profit Sharing
Return on Assets (ROA) ("What the CEO Wants You to Know")
What money is being retuned to you (as an investor) through the use of assets (are you making enough of a [financial] return on those assets?) - Profit Margin *x* Asset Velocity *=* *[TERM]* - If this does not exceed the cost of capital (which is usually 10% or more) there will be a problem among the investors because management is destroying shareholder wealth
Lower Your Costs or Sell More Complementary Products
What to do if you can't sell much (Low Velocity)? (2 things, not numbered)
Items That Can Help a New Business Establish Legitimacy (Chapter 12)
*1.* A business checking account with the firm's name printed on the checks *2.* A business credit card *3.* A bank line of credit *4.* Professional business cards *5.* Professional letterhead, billing slips, envelopes, and so on *6.* Professional advertising material *7.* The prestige of the business address *8.* Job titles *9.* Telephone answering support *10.* A high-quality Web page *11.* A board of advisors and/or directors with excellent community visibility *12.* Endorsements from well-recognized and respected individuals
Issues That Need To Be Considered Under Sales Management
*1.* How many contact points will the business have with each customer? *2.* How will each customer be greeted? *3.* What is the process for managing a customer once an order has been placed? *4.* What look will the sales force present? *5.* What controls are in place to ensure the quality of the product delivery? *6.* How much information will be collected on each customer? *7.* What will the business do with the information collected?
Target Population Questions (Chapter 11)
*1.* How many of these individuals exist within your market area? *2.* What percentage of these individuals do you believe is reasonable for you to attract as customers? *3.* What is the percentage in the general population of people that belong to a gym (example)? *4.* Do these numbers match your cash flow projections? *5.* What do you need to change if they don't?
Distribution Channels (Chapter 11)
*1.* Independent Sales Agents *2.* Contract Sales Force *3.* Web Pages *4.* Mail-Order Catalogs
Factors Determining Timing (Chapter 12)
*1.* The general environment *2.* Competitor moves *3.* Cycles in purchasing/supply patterns *4.* Lifestyle issues
Baremetrics Case Questions
*1.* Why did Baremetrics start a free plan? - They wanted to grow to hopefully make more money *2.* What seemed to work with this? What didn't? - Gained attention and they learned from their mistakes - It overloaded them *3.* What are some analogs for Baremetrics? - LinkedIn - Grammarly
Time Management Steps (Chapter 12)
*1.* Write down what has to be accomplished in all parts of the business formation *2.* Prioritize which tasks are critical and which would be helpful *3.* Segment items in terms of the time frame they need to be accomplished (short term and long term) *4.* Allocate time that is strictly for dealing with operational issues *5.* Write tasks down and mark them off when you accomplish them
Benefits
*Are just as much of an incentive as the compensation a firm offers.* Some potential *[TERM]* a company can offer include: - Paid vacation time - 401k plans - Paid holidays - Medical insurance - Retirement plans - Sick leave - Life insurance
Critical Path Chart
*Chart that demonstrates how the activities necessary to start the firm fit together and build on each other. This chart allows you to understand which activities can occur concurrently and which must already be in place before the next activity can occur* - As a result, owners can complete other tasks in the meantime so that they use their time effectively - Purpose of the plan is to help founders visualize what needs to take place and in what order so that they are not slowed down by some unforeseen activities that must take place
Job Advertising
*Intended to attract the largest pool of applicants for the job possible* - Variety of ways this can be done: *1.* Online job postings (Indeed, Ziprecruiter, etc.) *2.* LinkedIn Job listings - It should ask the applicant to submit a resume and list of references - Important to use nondiscriminatory language in the *[TERM]* -> Avoid using terms such as salesman, handyman, counter girl, etc. -> You must give everyone an equal opportunity to be considered for the position
Scientific Method of Quality
*Make changes to the business only one thing at a time, and measure the impact of that change* - This will allow the firm to know whether or not it's moving in the right direction - As well as allows them to understand the true impact of each change
Marketing Plan
*The plan developed by the entrepreneurial business to specify who the customers are and how they will be attracted to the company (businesses need to establish a case as to why individuals need to use their product or service)* *1.* Identify Your Market *2.* Target Customer *3.* Developing a Pricing Model *4.* Promotion Methods *5.* Sales Management *6.* Distribution Channels
False
*True or False:* A small change in margin requires a small change in velocity.
True
*True or False:* Fit (of the job for the employee) has a considerable impact on job performance.
True
*True or False:* Individual consumers are generally unwilling to change the suppliers of their goods and services
Tangible (and) Fixed ("What the CEO Wants You to Know")
*______* Assets = The things you can see and touch *______* Assets = The big items that are not expected to be sold
Human Resources (Main Points)
- *[TERM]* functions are entrenched in all other aspects of the organization: strategy, leadership, culture, structure, etc. - *[TERM]* decisions are complicated and may have unintended consequences - Understanding of good *[TERM]* practices is integral to an organization's ability to recruit and regain employees, develop and maintain a healthy culture, and successfully grow - Early *[TERM]* decisions can have an outsized impact on other aspects of the organization (1 bad apple out of 5 has a much stronger impact than one out of 1,000)
Positive, Negative, (and) Developmental (Crucial Conversations)
- *_______*: Lead with what has been working well - *_______*: Define what has not been working with specific examples whenever possible - *_______*: Give specific ways in which the employee can improve, how they can do so, and how that will be evaluated
Quality
- Can be used as a competitive tool - Needs to be constantly and consistently improved - The organization should set goals for *[TERM]* but these goals should not drive the business's every action (if a firm focuses only on these goals, the firm might make short term decisions that can harm the overall direction of the company
Making Money (The Basics)
- Cash Generation (Investors and Sales) - Return on Assets (Margin and Velocity; how fast you need to move products to keep them relevant to your customers) - Growth
Beginning Operations (Chapter 12)
- Critical Path Chart - Location - Financing Considerations - Legitimacy - Production Management - Production Charting - Quality - Equipment - Timing - Time Management
Establishing a Critical Path (Chapter 11 - Bringing It All Together)
- Dependencies are not only common but also prevalent for all organizations, especially startups - New ventures can particularly suffer from incomplete or inaccurate assumptions, poor planning, and a focus on short-term, urgent tasks without accounting for long-term, important tasks - Bottlenecks can occur in any number of different ways, be especially on guard against them with HUMAN resources - Pay special attention to the planning vs. action continuum and manage it closely
Total Product Offering
- Develop the offering, not the product - Offering: Bundle of satisfaction offered to the customer (aka the total product)
Growth Can Void The Business Model
- Growing for the sake of growing can cause service to customers you didn't intend to serve - Diminishing marginal returns as size increases - Fixed costs increase - *Rapid growth can lead to long-term no profit zones*
Growth Is Hard To Manage
- Growth increases size - Size Increases complexity - Complexity decreases control - *Rapid growth is hard to manage effectively*
Hiring Best Practices
- Know and explicitly define what you are needing to hire for - Hire good employees - Train them well - Give them responsibilities - Consider a trial period and/or ramping up responsibilities - Hire employees who share your core values (core values need to flow through an organization so it's important to hire someone who shares the organization's core values) - Empower employees to make meaningful decisions
When Relationships Are At Their Best
- Long-term success depends on recreating positive results - Systems are created to run the business and employees are hired to run the systems - Employee/employer relationship equals an exchange of time and effort for compensation AND social compensation
Hiring The Right People
- Most entrepreneurs have little, if any, experience or expertise in hiring, motivating, or firing employees, so they need to understand how to be better employees and/or how to be better hire-ers - Understand employees' motivators (intrinsic and extrinsic) - Be realistic about what types of jobs need to be done: -> Repetitive tasks -> Accuracy -> Dependency -> Predictable or unpredictable problems -> Following directions -> Creativity -> Making decisions on the fly (quick responses, unique solutions, independence, etc.)
Firing Employees
- Must have legit, well-documented reasons for *[TERM]* -> Must keep detailed records of a poorly performing employee -> Must be honest with the employee about their performance and document the time they are not performing as desired - The key is to specify what is expected of the employee and then document the times when they are not performing to your expectations -> This will allow you to prove it happened for a legit reason - If the employee feels like this happened for any reason NOT related to their job performance, and you don't have their poor performance documented, they may sue
Establishing Legitimacy
- New ventures need to balance being perceived as legitimate in a new market and different from competition - Who a startup chooses as its primary perceived competition is significant and can affect resource acquisition down the line - Perceptions of competition and real competition shape how startups see themselves and communicate that image to others -- customers, other organizations, investors, etc.
Location (Chapter 12)
- One of the most important steps in the Critical Path Chart will be the identification and purchase or lease of a *[TERM]* for the new business - Can be graded by the type and amount of traffic that the particular *[TERM]* draws - One of the things that provide a business with legitimacy - If you have a *[TERM]* and maintain it for some period of time, then you are more accepted and acceptable with potential clients and suppliers because your business appears to be more stable
Marketing Basics
- Pricing Models - Advertising and Promotion - Sales Strategies
Advertising and Promotion
- Pure - Mixed-Model - Virtually Free - Bootstrap Marketing
Hybrid Compensation System
A compensation system where there is a salary along with commission
Managing Growth (Bringing It All Together - PowerPoint Day 14)
- Run scenarios before making what seem like small or short-term decisions for your company - Growing the RIGHT way means measuring data, consistently reviewing and responding to metrics, and pivoting quickly as needed - Business decisions often equate to trade-offs - Be wary of broad, sweeping prescriptions for your business (e.g., growth is good) - Constant monitoring is key to getting ahead of issues before they become problems
Sales Strategies
- Sales Management - Forecasting (Market Potential and Customer Demand) - Distribution Channels (Independent Sales Agents, Contract Sales Force, Web Pages, and Mail-Order Catalogs)
Growth Magnifies Risk
- Sales drive assets - Assets drive investment - Investment drives risk - *Rapid growth magnifies risk* --> You can make money faster; you can lose money faster
Forms of Pure Promotions
- Signs - Flyers - Web Page and Internet Promotion - Newspapers - Radio and TV - Trade Shows
Baremetrics Case What They Did
- Stopped freemium model after 11 weeks - Free 14 day trial -> Prompt customers to pick a plan after that date or stop processing their data -> Puts a hard limit on resource hogging and prevents compounding performance issues - Infrastructure improvements
Total Product Offering Summary
- The entrepreneurial idea is paramount to the endeavor's success. Often, that idea is iterated time and time and time again before it becomes the "final" product - Understanding how to evaluate the idea, the market, and the broader industry and identifying opportunities to add value is the beginnings of entrepreneurship - These evaluative efforts cannot be void of action
Market Potential
- These methods take a MACRO look at the market and estimate potential sales for the firm based on the number of potential customers in the target area - This data is then modified by a likely percentage of those potential consumers that will be attracted to the specific business - This can be estimated by looking at the direct competitors in the area or looking at close competitors in another, similar area
Customer Demand
- This method takes a MICRO look at the market and estimates how many customers the business can handle given its location, staffing, and other details - The founder then estimates how many individuals it will take to break even, make X profit, and so on
Cost-Plus (Establishing Pricing) (Chapter 11)
- Typically, a business starting out will need to offer an even greater value for the money charged to build a customer base - Once the business has developed a positive reputation, the value offered to the customer can be changed to provide a bit more financial benefit to the company - As the business grows, the entrepreneur can shift from a *________* type of pricing to one that is based more upon what the market will allow
Davi Guest Speaker
- When he 1st started new venture Gabe had to learn all avenues (How is a shoe made? What goes into it? How can we outsource?) - C Corp (filed in Delaware because of Statutory Law that provides best protections for businesses) --> Eventually wants to be an IPO - 46 parts to make the product --> 23 suppliers (all over the world) - Went to material shows to educate himself on the process and help guide him to suppliers - Successful kickstarter campaign --> He chose this avenue because BIGGEST threat to a business = INVENTORY - Crowdsourcing campaign, how was it successful? "Just want to win thing city 1st, not globally" (grassroots) - *Competitive Advantages* = No one else is doing athletic footwear in Ft. Worth (or even in Texas); 4-5 months to make the shoes vs. big companies it takes about 24 months; brand story and experience; as markets grow, niche markets and specialization markets open up - *Barriers to Entry* = Set-Up Costs - *Total Product* = Shoes + the social component - *Pricing Model* = Competitive landscape (for products) then strategy to gain marketshare in order for growth - *Target Customer* = 23-28 years old, just out of school, hippie-is with a minimalist style (high quality but not flashy)
Production Chart
A chart that provides a detailed understanding of a firm's production process - Takes you step by step through the production process necessary to provide the customer with the finished product - Starts with the order being received and finishes with the final delivery to the customer
Web Pages (Distribution Channels)
A company *[TERM]* should display the product/service, provide a means to ask questions, and even allow the customer to purchase
Bootstrap Marketing
Also known as Virtually Free Promotions; marketing efforts that require little capital
Profit Sharing
An example of a hybrid compensation system. The firm may set some relatively low level of salary but offer to share a percentage of the profits at the end of the year or some other period of time with the employees
Product
Anything that is offered to the market to satisfy customer wants, need, or demands; goods (tangible) and services (intangible)
Performance Appraisal and Compensation
Are employee assessments accurately evaluating what we want to evaluate? How are we compensating our employees to align employee motivation with organizational goals?
Recruitment and Selection
Are the right people in the right jobs?
Human Resources
As defined in economics, the quantity and quality of human effort direct toward producing goods and services
Intrinsic (Understand Employees' Motivators)
Autonomy, belonging, learning, mastery, curiosity, meaning
The Occupational Safety and Health Administration (OSHA)
Charged with protecting the health of workers
Extrinsic (Understand Employees' Motivators)
Competition, money, rewards, fear of failure or punishment, points, accolades (certificates, awards, gold stars, badges)
Gross Margin ("What the CEO Wants You to Know")
From which net profit margin is derived from; critical to understanding the fundamental anatomy of the business - Total Sales for the company or a product line *-* Costs directly associated with making or buying the product or service (AKA cost of goods sold) *=* *[TERM]*
Orientation, Training, and Development
How are we ensuring that employees know what to do and are doing what they're supposed to?
Inventory Turns (or Inventory Velocity) ("What the CEO Wants You to Know")
How many times does the inventory turnover in a year? - Total Sales for the year (or whatever period of time) */* Divided by Total Inventories = *[TERM]*
Return on Equity (ROE) ("What the CEO Wants You to Know")
How much money are you making with the money shareholders have invested in the company?
Return on Investment (ROI) ("What the CEO Wants You to Know")
How much money are you making with your investments?
Motivates
In order to inspire employees, the employee needs to know what *_______* them and the employer needs to know what *_______(same word)* the employee too
Discrimination
In the workplace, hiring, dismissal, level of pay, or promotions based on race, color, gender, religious beliefs, or national origin of the employee. Such actions are prohibited by federal and state laws
Contract Sales Force (Distribution Channels)
Independent salespeople with a wide variety of experiences and contacts hired by a firm to sell its products/services for a given period of time
Workers' Compensation
Laws designed so that employees who are disabled or injured while on the job are provided with some type of compensation
Mail-Order Catalogs (Distribution Channels)
Mailing these to people's homes that display a set of products/services and a means to order those products/services -- typically over the phone
Anchor Stores
Major retail stores, such as department stores in a mall. They serves as the anchor for the retail establishment
Commission
Payment by the entrepreneur of some percentage of sales representatives
Cost-Plus Pricing
Pricing in which the entrepreneur initially determines her cost structure and then determines what profit margin is desired and adds that to the cost - The pricing model new businesses should use initially
Pure Promotions
Promotions that are strictly financial arrangements in which you pay for some outputs, such as radio advertisements
Mixed-Model Promotions
Promotions that cost something but also have an element of community support
Virtually Free Promotions
Promotions that have very limited financial cost but have time-commitment requirements from individuals in the firm
Independent Representatives (Independent Sales Agents)
Representatives for a variety of products for a number of companies in a given domain who try to sell those products
Independent Sales Agents (Distribution Channels)
Representatives from a variety of companies for a number of products in a given domain who attempt to sell those products
Performance Review
Review by the entrepreneurial business owner of the employees' goals and outcomes on those goals over some given period - Is the employee doing well and adding value to the organization? - The business owner should praise the employee when necessary and also not be afraid to criticize the employee on areas where they need to perform better - Important to take notes of the employee's work record and provide accurate *[TERM]*
Shareholder Value Added (SVA) ("What the CEO Wants You to Know")
Shorthand for judging how well the business is performing overall (Is it or is it not meeting the basic requirements of investors?)
Bonus
Similar to profit sharing, a reward offered to the employees based on their performance. Typically, *[TERM]* systems are not as well defined as profit sharing; instead, the level of reward is left to the discretion of the entrepreneur
Augmented Product (Total Product Approach)
The Core Product plus features that differentiate it from the competition
Legitimacy
The acceptance by key stakeholders such as customers and suppliers that you are a genuine business that will still be in operation next year
Fair Labor Standards Act (FLSA)
The act that established a minimum wage for workers
Equal Pay Act
The act that mandates that employers do not discriminate in pay to men and women who perform the same job
Hourly Wage
The amount paid per hour for work performed
Core Product (Total Product Approach)
The basic definition of the product
Investment Capital ("What the CEO Wants You to Know")
The borrowed money or personal savings that represent your investment in the business
Pricing Floor
The break-even point, or the lowest amount that can be charged for a product or service while still making a minimal profit
Cost of Capital ("What the CEO Wants You to Know")
The cost of using your own and other people's (bankers' and shareholders') money
Total Product (Total Product Approach)
The entire bundle of satisfaction offered to the customer (including Augmented Product plus extras like warranty, delivery, financing, after-sale service, training, etc.); what the product means to the customer - Doesn't have to be perfect, just better than the alternatives
Strategic Alliances
The joining together of firms to form long-term, mutually beneficial relationships
Promotion
The means by which a business advances its product or service
Sales Management
The methods employed to, and the individuals who build and maintain relationships with customers
Equity ("What the CEO Wants You to Know")
The money shareholders have invested in the business
Net Profit Margin (Margin) ("What the CEO Wants You to Know")
The money the company earns after paying all its expenses, interest payments, and taxes
Initial Payments (Chapter 12)
The new organization has to be in a position to make *[TERM]* for... - Security deposits - Utility setup fees - Purchase or lease of initial equipment and installation - All licenses and inspections - All initial supplies (this is a significant and often overlooked expense) - Hiring and training of initial staff - Initial advertising expenses - Bank setup fees
Equity Theory
The theory that we all judge how we are treated relative to how we see others being treated - Employees want to feel that their compensation given their level of performance is equitable relative to that of others in the firm or in similar job positions
Assets ("What the CEO Wants You to Know")
The things you have invested in
Adjancies ("What the CEO Wants You to Know")
The word used to describe market segments that are different from but closely related to the core business (Ex. Nike's selling of athletic apparel along with its core business of selling athletic shoes)
Asset Velocity ("What the CEO Wants You to Know")
Total Sales for the year (or whatever period of time) */* Total Assets *=* *[TERM]*
