Ent 396 Ch 10,12-15

Uncontrollable Failure

-caused by external factors and is the most difficult to prepare for or deal with -resource limitations, strategic direction, and market changes

Key factors during growth stage

-control -responsibility -tolerance of failure -change

Virtual Goods Model

-uses pay for virtual goods such as upgrades, points, or gifts on a website or in a game -margins are high because of low cost

Demand Oriented Pricing

following a flexible strategy that bases pricing decisions on the level of consumer demand *maturity stage

Nepotism

hiring friends and family or giving them special treatment because they are friends/family

Entrepreneurial Strategy Mix

innovation vs risk

Partial Sale

recapitalization

shortcomings of closely held ventures

-Lack of management depth ➢ -Undercapitalization -Insufficient controls -Divergent goals

Harvest Strategy/Plan

Defines how and when the owners and investors will realize an actual cash return on their investment

Primary Data

New information that is gathered specifically for the research at hand -surveys -observations -experimentation

Secondary Data

Information that has already been compiled -less expensive and available -outdated, lacks specificity, questionable validity, may not fit

Growth Stage

Leadership transitions from an entrepreneurial one-person focus to a managerial team-orientation to cope the growth of the venture

Two Way Communication

Social media creates an ongoing interactive conversation between the firm and the customer

Consumer Pricing

combining penetration and competitive pricing to gain market share; depends on consumer's perceived value of product *growth stage

Skimming

deliberately setting a high price to maximize short-term profits *unique product

Exit Strategy (liquidity events)

entrepreneurs consider selling their venture for numerous reasons -boredom and burnout -lack of operating and growth capital -no heirs to leave the business -desire for liquidity -aging and health problems -desire to pursuer other interests

Start Up Activities

Creating a formal business plan, searching for capital, carrying out marketing activities, and developing the entrepreneurial team

Marketing Segment (III)

-Convince investors that sales projections and competition can be met. -Use and disclose market studies. -Identify target market, market position, and market share. -Evaluate all competition and specifically cover why and how you will be better than your competitors. -Identify all market sources and assistance used for this segment. -Demonstrate pricing strategy. Your price must penetrate and maintain a market share to produce profits; thus, the lowest price is not necessarily the best price. -Identify your advertising plans with cost estimates to validate proposed strategy.

Elements of Marketing Plan

-Current marketing research -Current sales analysis -Marketing information system -Sales forecasting

Benefits of business plan for investors

-Details the market potential and plans for securing a share of that market. -Shows how the venture's intends to service debt or provide an adequate return on equity. -Identifies critical risks and crucial events with a discussion of contingency plans. -Contains the necessary information for a thorough business and financial evaluation.

Components of Entrepreneurial Leadership

-Determining the firm's purpose or vision. -Exploiting and maintaining the core competencies. -Developing human capital. -Sustaining an effective organizational culture. -Emphasizing ethical practices. -Establishing balanced organizational controls

Business Model

-Discovery and Validation

Market

-A group of consumers (potential customers) who have purchasing power and unsatisfied needs -new venture will only survive if market exists for product or service

Impediments to Transition

-A highly centralized decision-making system -An overdependence on one or two key individuals -An inadequate managerial skills and training -A paternalistic atmosphere

Strategic Positioning

-Are often not obvious, and finding them requires creativity and insight. -Are unique positions that have been available but sometimes overlooked by established competitors. -Can help entrepreneurial ventures prosper by occupying a position that a competitor once held but has ceded.

Factors in Choosing a Marketing Philosophy

-Competitive pressure -entrepreneur's background -short term focus

Discounting cash flows method

-Expected cash flow is estimated. -An appropriate discount rate is determined. -A reasonable life expectancy of the firm is determined. -The firm's value is determined by discounting the estimated cash flow by the appropriate discount rate over the expected life of the busines.

Suggestions for presentation

-Focus on the pain for which you offer the solution. -Demonstrate the reachable market. -Explain the business model. -Tout the management team. -Explain your metrics. -Motivate the audience. -Why you and why now?

Major Questions in succession

-Inside or outside successor? -Which entry strategy will be implemented? -How will power be transferred? -Can the successor to gain credibility with the firm's employees?

Early Entry Strategy

-Intimate familiarity with the nature of the business and employees is acquired. -Skills specifically required by the business are developed. -Exposure to others in the business facilitates acceptance and the achievement of credibility. -Strong relationships with constituents are readily established. -Conflict results when the owner has difficulty with teaching or relinquishing control to the successor. -Normal mistakes tend to be viewed as incompetence in the successor. -Knowledge of the environment is limited, and risks of inbreeding are incurred.

Quantitative Research

-Involves empirical assessments that work from numerical measurements and analytical approaches to compare the results. -The researcher is an uninvolved observer so that the results are "objective." -Requires larger samples to be able to perform the statistical analyses.

Management Succession

-Is the transition of managerial decision-making -Is one of the greatest challenges confronting owners and entrepreneurs in privately held businesses.

New Venture Development

Activities associated with the initial formulation of the new venture's general philosophy, mission, scope, and direction

Oakland Scavenger Company

Almost any small business can be sued by an employee of a different ethnic origin than the owner, based upon not being accorded the same treatment of a son or daughter.

Benefits of business plan for outside evaluators

The business plan provides a tool for use in communications with outside investors, and distributors and customers.

Loss Leader Pricing

pricing the product below cost in an attempt to attract customers to other products *decline stage

Penetration

setting prices at such a low level that products are sold at a loss *non unique product

Steps for selling a business

➢ Step 1: Prepare a financial analysis ➢ Step 2: Segregate assets ➢ Step 3: Value the business ➢ Step 4: Identify the appropriate timing ➢ Step 5: Publicize the offer to sell ➢ Step 6: Finalize the prospective buyers ➢ Step 7: Remain involved through the closing ➢ Step 8: Communicate after the sale

Initial Public Offering (IPO)

*rare, uncommon, expensive, need big company *key document is a prospectus

Due Diligence

-"trust but verify"

Term Sheet

-Outlines the material terms and conditions of a venture agreement and guides legal counsel in the preparation of a proposed final agreement. -Are very similar to letters of intent (LOI) in that they are both preliminary, mostly nonbinding documents meant to record two or more parties' intentions to enter into a future agreement based on specified (but incomplete or preliminary) terms

Terms in typical venture investment

-Price/Valuation -Fully Diluted Ownership Type of -Security Liquidation Preference -Dividend Preference -Redemption Preferred -Conversion Rights -Anti-dilution Protection -Voting Rights -Right of First Refusal -Co-Sale Right -Registration Rights -Vesting on Founders' Stock

4Ps to 4Cs

-Product-->cocreated -Promotion-->Communities -Price-->Customizable -Place-->choice

Qualitative Research

-Requires smaller sample size as it involves the researcher into the process and is able to delve deeper into the questions with the respondents. -Relies less on analytical testing, and the researcher is engaged in the process, the results are considered "subjective."

Lean Canvas

-Structured tool for entrepreneurs to use to discover and validate a sustainable Business Model. -Nine critical areas to define: 1. Problem 2. Customer Segments 3. Value Proposition 4. Solution 5. Channels 6. Revenue Streams 7. Cost Structure 8. Key Metrics 9. Unfair Advantage

Key factors in succession

-Succession in a privately held business is a highly charged emotional issue that generally requires structural and cultural changes. -Succession includes the transfer of ethics, values, and traditions, along with the actual business itself. -The "family business" and the "business family" are two distinct components that must be dealt with and disentangled. *forcing events:happenings that cause the replacement of the owner-manager (death, illness) *pressures and interests inside and outside the firm: family members, non family employees, non family elements

Discounted Earnings Method

-The firm's discounted cash flows are dollars earned in the future (based on projections) that worth less than dollars earned today (due to the loss of purchasing power). -"Timing" of projected income or cash flows is a critical factor

Strategic Planning

-The formulation of long-range plans for the effective management of market opportunities and threats in light of a venture's strengths and weaknesses. -includes Defining the venture's mission, Developing strategies, Specifying achievable objectives, and Setting policy guidelines *The "best" plan will be influenced by the entrepreneur's abilities, the complexity of the venture, and the nature of the industry.

Drawbacks of price/earnings ratio method

-The stock of a private company is not publicly traded. -The stated net income of a private company may not truly reflect its actual earning power. -The sale of a large controlling block of stock of closely held business can command a premium. -It is very difficult to find a truly comparable publicly held company, even in the same industry

Delayed Entry Strategy

-The successor's skills are judged with greater objectivity. -The development of self-confidence and growth independent of familial influence are achieved. -Outside success establishes credibility and serves as a basis for accepting the successor as a competent executive. -Perspective of the business environment is broadened. -Specific expertise and understanding of the organization's key success factors and culture may be lacking. -Set patterns of outside activity may conflict with those prevailing in the family firm. -Resentment may result when successors are advanced ahead of long-term employees

Reasons for harvesting

-To maintain managerial control and succession for successful continued operations. -Create a "liquidity event" that will generate a return to the investors. -An IPO (initial public offering) has become a reality. -An attractive opportunity presents to sell the business

Price/Earnings Ratio (P/E)

-Useful in valuing publicly held corporations. -Valuation is determined by dividing the market price of the common stock by the earnings per share.

Managerial Point of View

-What resources do I control? -What structure determines our organization's relationship to its market? -How can I minimize the impact of others on my ability to perform? -What opportunity is appropriate?

Entrepreneur's Point of View

-Where is the opportunity? -How do I capitalize on it? -What resources do I need? -How do I gain control over them? -What structure is best?

Moral Failure

-a violation of internal trust -violation is a serious failure that can result in negative consequences

Advertising Model

-advertisements are sold against the traffic of the site -the more traffic on the site, the more you can charge for ads *How do we maintain and increase the value proposition?

Production Driven Philosophy

-based on philosophy that one must produce efficiently and worry about sales later -production is main emphasis

Blog Monitoring

-blog sites have produced new source of market research insights -website that includes user generated content typically on focused topic

Personal Failure

-brought about by lack of skill or application -usually shared by firm and individual -usually an attempt made to remedy the situation

Affiliate Model

-business makes money by driving traffic, leads, or sales to another affiliated company's website -businesses that sell a product meanwhile rely on affiliates to send them traffic *How do we trust our reader and what is proper targeting?

Strategic Planning Categories

-category 1: no written plan -category 2: moderate -category 3: sophisticated

Strategic Planning Process

-develop mission and vision -identify and engage stakeholders -conduct swot analysis and environmental scan -synthesize data -develop and approve draft directions -research best practices -develop implementation and tracking plans

Sales Driven Philosophy

-focuses on personal selling and advertising to persuade customers to buy the company's output -appears when overabundance of supply

Guerilla Marketing

-forces entrepreneur to specify 7 important marketing issues that face company -A form of marketing which uses unconventional methods of promotion to engage audiences

Mobile Social Media Strategy Four I's

-integrate -initiate -individualize -involve

Reasons for Acquisition

-new products -new customers -distribution channels - -customer service -financial engineering -_____ utilization -______ Integration -inventory management -cost reduction

Freemium Model

-offers basic service for free while charging a premium service with advanced features to paying members *flickr, linkedin *how much should they give away for free?

Elevator Pitch

-part of business plan portfolio -short, 1-2 mins

Consumer-Driven Philosophy

-relies on research to discover consumer preferences, desires, and needs before production actually begins -most effective but not used often

Subscription Model

-requires you to pay a fee to access a product or service -good for creating long term relationship *How do we keep the customer coming back every month?

Market Research Subject Areas

-sales -distribution -markets -advertising -products (solutions) -customers (wants, needs, attitude)

Market Plan Steps

1. Appraise marketing strengths and weaknesses, emphasizing "competitive edge" factors. 2. Develop marketing objectives, along with short- and intermediate-range sales goals. 3. Develop product/service strategies. 4. Develop marketing strategies to achieve intermediate- and long-range sales goals and long-term marketing objectives. 5. Determine a pricing structure

Factors Affecting Value of System

1. Data reliability 2. Data usefulness or understandability 3. Reportingsystemtimeliness 4. Data relevancy 5. System cost

Basic Steps in Strategic Planning

1. Examine the internal and external environments of the venture (SWOT—strengths, weaknesses, opportunities, threats). 2. Formulate the venture's long-range and short-range strategies (mission, objectives, strategies, policies). 3. Implement the strategic plan (programs, budgets, procedures). 4. Evaluate the performance of the strategy. 5. Take follow-up action through continuous feedback.

Steps in carrying out succession plan

1. Identify a successor 2. Groom an heir 3. Agree on a plan 4. Consider outside help

Types of succession strategies

1. The owner controls the management continuity strategy entirely. 2. The owner consults with selected family members. 3. The owner works with professional advisors. 4. The owner works with family involvement. 5. The owner formulates buy/sell agreements at the outset of the firm, or soon thereafter, and whenever a major change occurs. 6. The owner considers employee stock ownership plans (ESOPs). 7. The owner sells or liquidates the business when losing enthusiasm for it but is still physically able to go on. 8. The owner sells or liquidates after discovering a terminal illness but still has time for the orderly transfer of management or ownership.

Lack of Strategic Planning Reasons

1. Time scarcity 2. Lack of knowledge 3. Lack of expertise 4. Lack of trust and openness 5. Perception of high cost 6. belief a plan is not needed 7. venture too uncertain

Pitfalls to avoid in venture planning

1. no ____ goals 2. failure to anticipate roadblocks 3. no commitment or dedication 4. lack of ____ ______ (business or technical) 5. no market niche (segment)

Stabilization Stage

A "swing" stage that precedes the period when the firm either swings toward greater profitability or toward decline and failure

Marketing Information System

Compiles and organizes data relating to cost, revenue, and profit from the customer base for monitoring the strategies, decisions, and programs concerned with marketing

Business Plan

Provides a specific and detailed explanation of the venture's objectives, resources, markets, and operations with a clear path to success

Control Factor

The degree of control an owner legally has over the firm can affect its valuation; more control, more value

Marketing Research

The gathering of information about a particular market, followed by analysis of that information

Marketing Plan

The process of determining a clear, comprehensive approach to the creation of customers

Market Segmentation

The process of identifying a specific set of characteristics that differentiate one group of consumers from the rest -demographic variables -benefit variables

Sales Forecasting

The process of projecting future sales through historical sales figures and the application of statistical techniques

Benefits of business plan for entrepreneurs

The time, effort, research, and discipline required to create a formal business plan forces the entrepreneur to view operating strategies and expected results critically and objectively; and communicate that internally.

Social Media Marketing

The use of social networks, online communities, blogs, wikis, and other online collaborative media tools for marketing purposes.

Entrepreneurial Leadership

an entrepreneur's ability to anticipate, envision, maintain flexibility, think strategically and work with others to initiate changes that will create a viable future for the organization

Business valuation

essential when: ➢ Buying or selling a business, division, or major asset ➢ Raising growth capital ➢ Determining inheritance tax liability (potential estate tax liability) ➢ Giving a gift of stock to family members ➢ Structuring a buy/sell agreement with stockholders ➢ Attempting to buy out a partner ➢ Establishing an employee stock option plan (ESOP) or profit-sharing plan for employees ➢ Going public with the firm or privately placing the stock

Innovation or Decline Stage

the firm either continues its success by acquiring other innovative firms and develops new product/services or it goes into decline

Milestone Schedule

timetable for the activities to be accomplished

Outright Sale

venture sold to others -Family members -Managers -Employees -Outside (external) buyers (Financial, Strategic)