ENTP 250 Midterm Exam
Mission Statement
A paragraph that describes the firm's goals and competitive advantages
Royalty
A payment to a licensor based on the number or value of licensed items sold
Heterogeneity
A quality of a service in which each time it is provided it will be slightly different from the previous time
Inseparability
A quality of a service in which the service being done cannot be disconnected from the provider of the service
Perishability
A service exhibits perishability in that if it is not used when offered, it cannot be saved for later use
Tagline
Memorable catchphrase that captures the key idea of a business, its service, product, or customer (also known as a slogan)
Steve Blank's Get, Keep, and Grow Funnel
More inclusive approach for the customer development process. In their approach there are 3 major goals: 1. Get customers 2. Keep customers 3. Grow customers - This builds on the idea that finding new customers can cost 5, 10, even 25 times as much as getting sales from an existing customer, depending on your industry and sales model - Funnel focuses on ways to grow sales from existing customers
The 4ps
Product, Price, Place, Promotion
Core Product
The basic description of what a product is - a bar of soap, a housecleaning service, and so on
Breakeven point
The point at which total costs equal gross revenue
Product Development Process
The procedure to organize and pursue the creation of new goods or services - The focus is on the product itself, whether it is new or just the newest iteration of an existing product
Customer Development Process
The procedure to organize and pursue the finding, obtaining, and keeping of new customers - The focus is on the customer, specifically on meeting the need of the customer, hopefully in a way that leads to a new product or service for the firm
Market Segmentation
The process of dividing the market into groups that have somewhat homogeneous needs for a product or service
Segmentation
The process of dividing the market into smaller portions of people who have common characteristics
Due Diligence
The process of investigating a business to determine its value and potential for investment
Customer Relationship Management (CRM)
The process of tracking the customer's different contacts with the firm, and using these data to help improve sales as well as the customer's experience - Focuses on the longer-term monitoring and promotion of customer interest and loyalty
Marketing Funnel
The rule of thumb in marketing that it takes a large number of people to be made aware of your product in order to find a purchaser (the typical ratio is 1,000 to 1) - Impression: what it is called when someone notices a promotional effort - Sales leads: people who receive a promotional impression and who give some thought to buying the product - Prospects: sales leads who actually make some sort of effort to learn more about the product, service, or business in anticipation of a possible purchase
Target Market
The segment or segments you select on which to concentrate your marketing efforts
Accounting equation
The statement that assets equal liabilities plus owners' equity (Assets = Liabilities + Owners' Equity)
Retained earnings
The sum of all profits and losses, less all dividends paid since the beginning of the business
Customer Job
The term given to what a potential customer is trying to do - perform or complete some sort of task, solve some problem, or try to achieve some outcome. The target of the job is often the key to what a proposed product or service is intended to help
Serviceable Obtainable Market (SOM)
This is also called your target market and represents the customers that you think would be interested in your particular product or service. This is almost always first based on the pains they are suffering or the gains they aspire to acquire, but it can also be refined by other demographic, attitudinal, or behavioral qualities like their income, their fashion sense, their participation in particular activities, or even being close by
Variable costs
Those costs that change with each unit produced, for example, raw materials
Fixed costs
Those costs that remain constant regardless of quantity of output, for example, rent
Pivot
Typically, a term describing a change of direction in the thinking of an entrepreneur or a firm, often based on new data or other findings
Accounting is important to small business for 5 reasons
- It proves what your business did financially - It shows how much your business is worth - Banks, creditors, development agencies, and investors require it - It provides easy-to-understand plans for business operations - You can't know how your business is doing without it
SCAMPER
- Set of cues that trigger new ideas for your business - Substitute: What opportunities can you think of that come as a result of substituting or replacing something that already exists? - Combine: What separate products, services, or whole businesses can you put together to create another distinct business? - Adapt: What could you adapt from 2 other industries or fields to your business? - Magnify or modify: What could I make more noticeable or dramatic, or different in some way from my competitors? It need not be in the product itself, but it could be in the way you advertise or treat the customer - Put to other uses: What other uses might there be? - Eliminate: What could I get rid of or reduce that would eliminate something my customer has to do, and as a result give the customer more than he or she expected? - Rearrange: What can you rearrange or reorder in the way your product or service appears, or the way businesses in your industry usually look or are decorated or located?
Sources of new business ideas
- Work and personal experience: Frustrations or unfulfilled wishes from your life working or being a consumer - A similar business: Seeing something new to you or your area, and thinking about importing or copying it - Chance: "Being in the right place at the right time" - Family and friends: Someone else has a great idea - Education or expertise: Applying what you've learned in school or developed on your own - Idea sites: Try ideaswatch.com, coolbusinessideas.com, or search online for "idea sites"
Business Plan Outline
1. Cover Letter 2. Title page and table of contents 3. Executive summary 4. The Company, Product/Service, and industry - Company description, vision statement, company background - Product/service and industry, product/service description and value propositions, industry description 5. The Market Market and target customers, competition and competitive advantage, marketing strategy 6. The organization -Legal and organizational structures and IP and locations, key personnel, key partners and advisers, key activities and operations 7. Financial summary: sales, profits, "the ask and deal" 8. The appendixes -Financial statements, product or service pictures, owner 1-paragraph biographies
Industry Life Cycle
1. Introduction The life cycle in which the product or service is being invented and initially developed ---> starts with only a few firms 2. Growth - 2 possibilities (1) Products and services tend to grow at a regular rate, one at which the growth in the number of firms more or less meets customer demand (2) Products or services turn out to be extremely popular or "hot" and grow very rapidly, original firms are unable to keep up with consumer demand - Other firms jump in to take advantage of the growth and this stage is called the boom ---> firms begin to compete on features and price 3. Shake-out A type of of life cycle following a boom in which there is a rapid decrease in the number of firms in an industry 4. Maturity The third life cycle stage, marked by a stabilization of demand, with firms in the industry moving to stabilize or improve profits through cost strategies 5. Decline Life cycle stage in which sales and profits of the firm begin a falling trend 6. Death or retrenchment Established firms must find new approaches to improve the business and its chances of survival
The Small Business Strategy Process
1. The major goals you set for your firm Reviewing and confirming the goals that define your firm and knowing your magic number 2. The types of customers you seek and what benefits you plan to offer them - Where you consider your customers and the benefits you want to offer them and plot these out in a procedure called perceptual mapping 3. The stage and trend of your chosen industry - To study the dynamic and trends of your industry using a technique called industry analysis in order to identify the best way and time to enter business - Industry analysis: A research process that provides the entrepreneur with key information about the industry, such as its current situation and trends 4. The specific generic and supra-strategies you choose to pursue - Building on the prior three steps to determine the best strategic direction and strategy for the firm 5. Post Start-Up Tactics: Aims to refine your firm's strategies and tactics in order to maintain a competitive advantage
Generic Strategies
3 widely applicable classic strategies for businesses of all types - differentiation, cost, and focus (1) Differentiation strategy: Aimed at clarifying how one product is unlike another in a mass market (2) Cost strategy: Aimed at mass markets in which a firm offers a combination of cost benefits that appeals to the customer (3) Focus strategies: Targets a portion of the market, called a segment or niche
Elevator Pitch
A 30-second (100 words or less) action-oriented description of a business designed to sell the idea of the business to another
Scope
A characteristic of a market that defines the geographic range covered by the market - from local to global - It can be local (like a neighborhood or a city), or global (meaning everywhere) - Helps you decide where to focus your sales and advertising efforts - Helps you determine which potential competitors you need to worry about most, namely those also in your market scope
Scale
A characteristic of a market that describes the size of the market - a mass market or a niche market
Mass Market
A customer group that involves large portions of the population - all men, all women, all teens, all elderly, all families, all manufacturers, etc
Expense
A decrease in owners equity caused by consuming your product or service
Business Plan
A document designed to detail the major characteristics of a firm - its product or service, its industry, its market, its manner of operating (production, marketing, management), and its financial outcomes on the firm's present and future
Feasibility Study
A feasibility study evaluates the potential of a business opportunity by studying five primary areas in depth: the overall business idea, the product/service, the industry and market, financial projections (profitability), and the plan for future action Within each of these areas you will examine the strengths and weaknesses (advantages and disadvantages) of your business opportunity: - Describe your business idea concisely, including the experience you wish to sell to potential customers, as well as details about your product or service - List the unique benefits and limitations of your product or service, at what stage of development it is now (idea or prototype), and proprietary restrictions and obligations, insurance needs, product or service trends, and any production costs - Describe your industry, including its size and trends. Provide the market potential for your product or service, the strengths and weaknesses of your competition, who your customers are, what their needs and preferences are, and how they will find you - Computer financial projections, Provide sales revenues, cost forecasts, gross profits, operating expenses, and net profit - Write a future action plan. Determine the start-up capital you need and where you can raise it. Consider any further information you need, and begin writing a business plan. Decide where you can find additional support such as from attorneys, accountants and other business advisers
Financial Accounting
A formal, rule-based set of accounting principles and procedures intended for use by outside owners, investors, banks, and regulators
Perceptual Map
A graphic display that positions products, services, brands, or companies for according to their scores on important strategic dimensions - Very often cost is one of the dimensions of your perceptual map - The other dimension can be what you think you or your customer will think is important
License
A legal agreement granting you rights to use a particular piece of intellectual property
Liability
A legal obligation to pay some amount (or to give up product or services) at a time in the future
Target Market
A marketing term (also called serviceable obtainable market, or SOM) that refers to the group of customers in the area you plan to serve who would be likely interested in your product, or those of competitors. Target markets can refer to individuals or market groups called segments
Niche Market
A narrowly defined segment of the population that is likely to share interests or concerns - 25 to 34 year-old women, families with twins, Italian restaurants, etc
Cash flow statement
A statement of the sources and uses of cash in a business for a specific period of time Items reported: - Operating activities: Activities involved in producing and selling goods and services - Investing activities: The purchase and sale of land, buildings, equipment, and securities - Financing activities: Activities through which cash is obtained from and paid to lenders, owners, and investors
Balance Sheet
A statement of what a business owns (assets), what it owes to others (liabilities), and how much value the owners have invested in it (equity)
Income Statement
A statement that lists revenues and expenses and shows the amount of profit a business makers for a specified period of time
Vision Statement
A very simple 5- to 10- word sentence or tagline that expresses the fundamental idea or goal of the firm
Managerial Accounting
Accounting methods that are specifically intended to be used by managers for planning, directing, and controlling a business
Public Relations
Activities used to establish and promote a favorable opinion by the public
Advertising
Advertising is often used to support the corporate identity and value propositions that are established through public relations efforts (advertising outlets include newspapers, magazines, billboards, television, and internet banner ads)
Tax Accounting
An accounting approach based on specific accounting requirements set by governmental taxing agencies
Primary Market Research
An approach to researching based on the gathering of new information, using techniques such as interviewing, surveying, observation, and focus groups - Primary data is specific to the problem you are solving ---≥ can be expensive to gather and takes time - Focus groups: a form of data gathering from a small group led by a moderator
Second Market Research
An approach to researching based on the use of existing information, often from government, commercial, or academic databases and research efforts - Every Google search you do in an example of secondary research - Often free and quick
Revenue
An increase in owners equity caused by selling your product or service
Tangibility
An item's capability of being touched, seen, tasted, or felt
Innovative strategy
An overall strategic approach in which a firm seeks to do something that is very different from what others in the industry are doing
Benefits
Benefits are characteristics of a product or service that the target customers would consider worthwhile, such as low cost or high quality - Benefits are usually characterized as value benefits or cost benefits
Gains
Can be any sort of outcome (a product, service, outcome, or situation) customers or potential customers would like to encounter or be able to depend on. It is one of two driving forces of creating new products or services, with the other driving force being pain
Pains
Can be any sort of problem, annoyance, source of aggravation, shortcoming, or suboptimal situation customers or potential customers face. It is one of two driving forces of creating new products or services, with the other driving force being gain
Industry Dynamics
Changes in competitors, sales, and profits in an industry over time
Value benefits
Characteristics related to the nature of the product or service itself. Things like: - Quality: offering a quality level others do not - Style: items that are beautiful, fashionable, popular - Delivery: quick delivery - Service: personalized - Technology: state-of-the-art equipment - Shopping ease: one-stop shopping - Personalization -Place: being conveniently local is one example - Brand/reputation (Can help you charge a premium price and make higher profits, since people are willing to pay for value-based benefits they desire)
Augmented Product
Core product plus features that tend to differentiate it from the competition
AIDA
Entrepreneurs can use the AIDA (attention, interest, desire, and action) formula to write press releases well: - Attention: Get their attention with a catchy headline - Interest: While the title should start to pique their interest, the opening paragraph should really capture them - Desire: Details that tell us more about the opening information and increase our interest - Action: At then end you put contact information
Business Plan Audiences
Family and friend investors, silent partners/angel investors, joint venture partners, bankers, government agencies and institutions, potential customers, key employees
Promotional Mix
How much of each message conveyance you will use to sell your products as well as your objective in using each one
Penetrated Market (PM)
If your business is operating, your actual number of customers divided by the target market tells us how much of the market you have attained so far, and how many people are available to be sold to
Publicity
Information about your company and its activities that is disseminated to the public in order to gain their good opinion
Gross Margin
Is a company's net sales revenue minus its cost of goods sold
Gross Profit Margin
Is a measure of profitability that shows the percentage of revenue that exceeds the cost of goods sold
Gross Profit
Is the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services
Entrepreneurial alertness
Means that entrepreneurs have a special set of observational and thinking skills that help them identify good opportunities
Key Performance Indicators (KPIs)
Measures or metric that identify the outcomes that are most important to the success of a company. While outcomes like sales or products produced by KPIs, events leading up to these are also usually considered key, like customers coming to your store or website for sales, or number of products started
RBI Screen
RBI stands for "Really Big Idea" and is a fast technique for making initial assessments (called screens) of prospective business ideas based on 5 questions: 1. People: Who are you? What is your (or your team's) relevant experience or knowledge? 2. Offering: What are you offering? What is the product or service or experience? 3. Customer: Whom are you offering it to? Who is your customer? Who makes the buying decision? How many buyers are there? 4. Value proposition: Why do they care? Why will it be important to the buyers/users? Why will they be happier with your offering than their current substitutes or alternatives? 5. Distinctive competencies: Do you have any key or core science/technology or feature? Does your idea have something special compared to competitors that is valuable to your customers or buyers (e.g., better technology, better quality, easier to buy or use, better support, new/better features, costs less, gives your firm an advantage over competitors, rate, costly for others to imitate, etc.)?
Cost Benefits
Refer to the ways by which a firm can keep costs low for the customer. These include scale and scope savings. - Lower costs: operating from home - Scale savings: buying in volume - Scope savings: example a multifunction printer (printer, scanner, and a fax machine) - Learning: more experience, fewer mistakes, greater efficiencies, thereby lowering costs (Can help increase profits by lowering your cost of doing business)
Depreciation
Regular and systematic reduction in income that transfers asset value to expense over time
Radical innovation strategy
Reject existing ideas and present a way to do things differently
Serviceable Available Market (SAM)
Represents customers within your geographic reach. If you depend on local traffic, it might be your neighborhood, city, or region. If you're online, it could be as large as your TAM
Total Available Market (TAM)
Represents everyone who might consider the product or service you're offering
Net Profit
Represents the number of sales dollars remaining after all operating expenses, interest, taxes and preferred stock dividends have been deducted from a company's total revenue
Opportunity recognition
Searching and capturing new ideas that lead to business opportunities
Value Proposition
Small business owners' unique selling points (also known as benefits) that customers can expect from your goods or service, including benefits that differentiate your offering from those of the competition
Value proposition
Small business owners' unique selling points (also known as benefits) that customers can expect from your goods or services, including benefits that differentiate your offering from those of the competition
Assets
Something the business owns that is expected to have economic value in the future
Strategy in the Small Business
Strategy: is the idea and actions that explain how a firm will make its profit - Strategy defines you, your customers, and your competition, how your business operates - Good strategy leads to greater chances for survival and higher profits for a small business
Incremental strategy
Take an idea and offer a way to do something better than it is done now
Imitative strategy
Take an idea that somebody else has already discovered and build a business around that idea
Search Engine Optimization (SEO)
Techniques applied to web pages in order to obtain favorable placement on Internet search page results
Customer retention (CR)
Techniques that focus on efforts to promote satisfaction with and interest in the firm
Business Model Canvas
The business model canvas builds on an RBI screen to generate a more in-depth look at the elements of the business and how they fit together The goal of a canvas is to identify an opportunity that would appeal to customers, compete well, and generate a profit Steps to build an Business Model Canvas: 1. Customer segments: A group or subgroup of potential purchasers that can be approached in a coherent manner 2. Problem: What problem (also called a pain) is faced by customers that you are seeking to solve? A variant of pain is your customers' dreams of better ways or things, which we call a gain 3. Solution: Here is where your offering goes- how you plan to handle the problem-solving pains or create gains for your customers 4. Value proposition: Small business owners' unique selling points (also known as benefits) that customers can expect from your goods or services, including benefits that differentiate your offering from those of the competition. What will make your solution the best available fit to what the customer wants or needs? 5. Channels: How will you get your product or service to the customer? 6. Customer Relationships: How will you take the best care of your most important resource - your customer? 7. Revenues: How do you make money solving the problem and selling to your customers? 8. Key Resources: What great thing do your or your firm have that no one else does? 9. Key Activities: What will be the most important activities in your business - the ones most central to your doing the job right and making the firm successful? 10. Key Partners: Ask which individuals and organizations can help you make successful 11. Costs: What are the costs?
Business entity concept
The concept that a business has an existence separate from that of its owners - Legal forms of establishing your business: corporations, limited partnerships, and limited liability companies
Owners' Equity
The difference between assets and liabilities of a business
Total Product
The entire bundle of products, services, and meanings of your offering; includes extras like service, warranty, or delivery, as well as what the product means to the customer
External Legitimacy
The extent to which a small business is taken for granted, accepted, or treated as viable by organizations or people outside the small business or the owner's family
Internal Understanding
The extent to which employees, investors, and family members involved in the business know the business's purposes and operations
Brand promise
The gains provided (i.e., the benefits) or the help given (i.e., the pains removed) by the product or service your firm offers
Pitch Deck
The name of a slideshow presentation that summarizes a business or more often a business plan Pitch deck slide categories: 1. Introductory slide: this slide has your firm's name and the names of the owners and presenters 2. Company purpose slide: the purpose of the business 3. Problem slide: what is the problem customers face or what is missing from their experiences 4. Solution slide: how your product or service solves the problem or provides a much-needed benefit 5. Product Slide: detail on your product or service - how it works or its details 6. Why now slide: what makes this point in time the right one for your business idea? 7. Market size slide 8. Business model slide: how you will market, distribute, and get sales made 9. Competition slide: identifies the major competing firms or products/services and shows how you compare to them 10. Team slide: key people with the one or two skills they have that are most persuasive in proving their expertise or their contributions to the business 11. Financials slide: give the sales, breakeven, and profit projections for the firm 12. The ask and deal slide: "ask" can be funding, partnership, mentoring, feedback. Also, the "deal" is what is offered in return, stock in the firm? 13. Closing slide: says thanks and asks for questions
Competitive Advantage
The particular way a firm implements customer benefits that keeps the firm ahead of other firms in the industry
Causal model of entrepreneurship
You want to create a particular product or service that does not yet exist, and to achieve that end, you have to cause the product or service to exist. This can mean you will have to learn new skills, or find others to help you achieve your end 4 Step Process: - Feel: Decide you have a great idea and want to go into business to make it happen - Check: Assess your ability to understand it and create it yourself. Get help if needed. Then assess the technical feasibility of the idea - Plan: If the idea is feasible, plan for making and selling it, checking with potential customers to make sure they will buy it. If you get enough interest, keep going. If not, go back to check - Do: Make the product or service and the company to sell it and get it into the market
