ENT3003 Final Exam

Micro Strategy for Proof of Concept.

(1) outcomes, which are the near-term goals that the entrepreneur is attempting to achieve; (2) assets, which are the human, social, physical, and financial assets needed to achieve the outcomes desired; (3) actions, which are the tasks the entrepreneur must undertake to achieve the necessary outcomes.

Barriers to Entry Threat from Substitutes Threat from Buyers' Bargaining Power Threat from Suppliers' Bargaining Power Competitive Rivalry Among Existing Firms

Porter's Five Forces

-Starts with a high price to capture uniqueness and competitive advantage. Then as new competitors enter the market, drops the price to stay ahead of competition.

Price skimming

Partnership Agreement

Although the law does not require it, it is extremely wise for a partnership to draw up a written partnership agreement, based on the Uniform Partner-ship Act, that 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 in- volved. 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.

S-Corporation

An S-corporation, unlike the C-corporation, is not a tax-paying entity. It is merely a financial vehicle that passes the profits and losses of the corporation to the shareholders. It is treated much like a sole proprietorship or a partnership in the sense that if the business earns a profit, that profit becomes the income of the owners/shareholders, and it is the owners who pay the tax on that profit at their individual tax rates.

Knowing what a pricing strategy is supposed to accomplish in advance of setting a price will ensure compatibility with company goals, both the entre-preneur's company and the customer's company. Table 8.1 presents the most common pricing strategies. For entrepreneurs, a combination of cost-based pricing and demand-based pricing with consideration for a premium based on the novelty of what is being offered can work well. Premium Pricing -Uses a high price to reflect a unique product/service and a significant competitive advantage. Price Skimming -Starts with a high price to capture uniqueness and competitive advantage. Then as new competitors enter the market, drops the price to stay ahead of competition. Demand-based Pricing -Find out what customers are willing to pay for the product and price it accordingly. Captive Product Pricing -Where the entrepreneur's product has complements, charge a low price for source product (i.e., a printer) and a premium for consumables (i.e., ink cartridges). Psychological Pricing -To create a complex pricing structure by combining multiple products and services into one package. Product Bundle Pricing -In a channel with many intermediaries (distributors, retailers), the final price to the consumer or end-user must be tolerable, given all the markups along the value chain. Compare what the market will bear with the cost of getting a product to market. Geographical Pricing -Used where there are price variations in different geographical locations where the product is sold.

Approaches to pricing

Bankers' and Lenders' Interests

Bankers and lenders are primarily interested in the company's margins and cash flow projections, because they are concerned about how their loans or credit lines to the business will be repaid. The margins indicate how much room there is for error between the cost to produce the product (or deliver the service) and the selling price. The amount of money the entrepreneur needs The kind of positive impact the loan will have on the business The kinds of assets the business has for collateral How the business will repay the loan How the bank will be protected if the business doesn't meet its projections The entrepreneur's stake in the business

Because they tend to be fairly expensive, consultants are best used for critical one-time advising or problem-solving assignments. In that capacity, they are typically more cost-effective than employees because they are accustomed to working quickly within the constraints of a fixed budget. Consultants are generally paid in one of

Consultants? When and why?

Copyrights protect original works of au-thors, composers, screenwriters, and computer programmers. A copyright does not protect the idea itself but only the form in which it appears, which cannot be copied without the express permission of the copyright holder.

Copyright

a copyright lasts for the life of the holder plus 70 years, after which the copyrighted material goes into public domain

Copyright Extension Act

Value proposition

Customer analysis

Every business—large or small, product or service—is involved in product/service design and development at every stage of its life cycle. Each time a new product or service or an improvement on an existing product or service is introduced, it will have gone through a complex design and develop-ment process. The goal of the product development process is to bring new products to market at the right time and for the right cost so that customers will pay a price that reflects value to them.

Design and development process for products

New Venture Action Plan

Develop a micro strategy approach to achieving proof of concept. Identify the stakeholders in the business and their interests. Create a compelling executive summary and pitch. Plan the development of a full business plan.

Many industries have achieved economies of scale in mar-keting, production, and distribution. This means that their costs to produce have declined relative to the price of their goods and services. Typically, econo-mies of scale are found in more mature industries. A new venture cannot eas-ily achieve these same economies, so it is forced into a "Catch-22" situation. If it enters the industry on a large scale, it risks retaliation from those established firms in the industry. If it enters on a small scale, which is the more common strategy, it may not be able to compete because its costs are high relative to everyone else's.

Economies of scale

Industry Analysis

External environment vs. Internal environment

Types of Partnerships

General partnerships & Limited partnerships

THE FULL BUSINESS PLAN: STRATEGY AND STRUCTURE

Identify who is responsible for what Develop a timeline based on tasks identified Hold the team to the timeline and work diligently to get the plan done

FINAL THOUGHTS ON BUSINESS PLANS

If the business idea has been researched thoroughly and the entrepreneur has proven the business model in the market, the chances of starting a successful venture are enhanced. Entrepreneurs should understand, however, that micro-strategy business plans are not just for those starting new businesses, but for growing companies as well that are moving into new areas. A well-conceived plan enables the bench-marking of progress toward the company's goals. It establishes the purpose, values, and goals of the company that will guide its decision making through-out its life. No entrepreneur plans to fail, but many fail to plan and thus end up reacting spontaneously to situations in the business environment instead of proactively dealing with changes.

Inductive reasoning is learning from observation. It has the goal of understanding the nature of the customer and the customer's needs in a way that does not intrude on customers in their natural habit.

Induction

Developing a new product creates an asset that must be protected. If the prod-uct is a unique device, a novel process or service, or other type of proprietary item, it may qualify for intellectual-property rights. These are the group of legal rights associated with patents, trademarks, copyrights, and trade secrets. Every business, no matter how small, has intellectual-property rights associated with it: a trademark on the name of the business or a product brand, copyrights on advertising design, patents on a device the entrepreneur has invented, or trade secrets such as the company's customer list.

Intellectual-property rights

Daniel Kahneman

Intuition For example, when entrepreneurs are pressured by time, as occurs when there is a brief window of opportunity to launch, they may need to follow their intuition. This is particularly true where they have been able to create a clear and simple story around the business that gives them a high degree of confidence in their intuition whether or not that story is based in reality. Intuition also works when a situation is defined by a certain structure or predictability; (less reliable)

Investor Interests

Investors are generally betting that the value of their ownership interest in the business will increase over time at a rate greater than that of another type of investment or of a bank account. They want to know how fast the business is projected to grow, when that growth will take place, and what will ensure that the growth actu-ally occurs as predicted. For this reason, they tend to look for market-driven companies rather than product- or technology-driven companies. They expect that predictions will be based on solid evidence in the marketplace and on thorough knowledge of the target market.

The Nonprofit Corporation

It is not outside the realm of possibility for a nonprofit corporation to be a high-growth, world-class company; however, it is not generally started with that goal in mind. A nonprofit corporation is a corporation established for charitable, public (scientific, literary, or educational), or religious purposes, or for mutual benefit (such as trade associations, tennis clubs), as recognized by federal and state laws. Some additional examples of nonprofits are child-care centers, schools, religious organizations, hospitals, museums, shelters, and community health care facilities. Like the C-corporation, the nonprofit corporation is a legal entity and offers its shareholders and officers the benefit of limited liability.

Guidelines for Executive Summaries and Pitch Decks

Keep the executive summary to no more than 3 to 5 pages, single spaced ■ with white space and headers for easy reading.Read each sentence multiple times to prune unnecessary words and to make ■ sure that the summary is focusing on the critical points. Each sentence should be clear and compelling. Include recognizable names if there is an established relationship. ■ Avoid puff words and phrases such as "no one else is doing this" or "our ■ financial projections are conservative." These types of words suggest that the entrepreneur hasn't done his or her homework. Avoid jargon and acronyms that might be foreign to the reader or listener. ■ Explain the business, no matter how technical or complex, in words that ■ anyone can understand.Use analogies if they help the reader or listener to quickly understand your ■ business. For example, "we are the eBay for the auto parts industry."Keep the pitch deck to about 10 slides that contain only the key points. ■ Graphics and high quality photos are generally more effective than text.

High demand, low prices Low demand, high prices

Levels of demand, how it effects pricing

•(1) identify and profile the first customer; (2) estimate potential demand from that customer; and (3) identify subsequent customer segments and needs to grow the company.

Market research

•

Mistakes (common) of startup team

Sole Proprietorship

More than 76 percent of all businesses in the United States are sole proprietor-ships, probably because the sole proprietorship is the easiest form to create. For the tax year 2006, the most current year for which numbers are reported, there were just over 22 million tax returns that reported sole proprietor income that was nonfarm in nature. In a sole proprietorship, the owner is the only person responsible for the activities of the business and, therefore, is the only one to enjoy the profits and suffer the losses.

North American Industry Classification System

NAICS - what is it?

CORPORATE FORMS

Only about 25 percent of all U.S. businesses are corporations, but they account for about 67 percent of all business receipts. A corporation is different from the preceding two forms in that it is a legal entity in and of itself. The U.S. Supreme Court has defined the corporation as "an artificial being, invisible, intangible, and existing only in contemplation of the law." It is chartered or registered by a state and can survive the death of the owner(s) or the owner's separation from the business. Therefore, it can sue, be sued, acquire and sell real property, and lend money. The owners of the corporation are its sharehold-ers, who invest capital in the corporation in exchange for shares of ownership. Like limited partners, shareholders are not liable for the debts of the corporation and can lose only the money they have invested.

Components of the Business Plan

Operations Plan Organization Plan Marketing Plan Financial Plan - cashflow statement -income statement -balance sheet -ratios Growth Plan Contingency Plan and Harvest Strategy Timeline to Launch

Outsourcing provides a young firm with a network of expertise that it couldn't afford to hire in-house. Some of the areas of product development that require engineering analysis, design, and expertise and are suitable for outsourcing are component design, materials specifications, machinery to process, ergonomic design, packaging design, assembly drawings and specifications, parts and material sourcing (suppliers), and operator's and owner's manuals.

Outsourcing

Political - Government, Regulatory, and Legal Economic - Cost of capital, Inflation, Customer purchasing power, Employment rate Sociocultural - Demographics and cultural Technological - R&D, Rate of change

PEST

The Supreme Court of the United States has stated that "anything under the sun that is made by man" falls into the statutory subject matter ( Diamond v. Chakrabarty, 1980). 18 With this definition, it may appear that anything can receive a patent, but in fact, there are some exclusions. Laws and phenomena of nature, naturally occurring substances, abstract mathematical formulas, and mere ideas are not eligible to be patented. However, alterations to something found in nature, such as genetically enhanced corn, can be considered for a patent.

Patents - what is eligible

It's generally wise to begin any research by looking at secondary sources of information to gather background data. Today, Google search engine (or Ya-hoo!, MSN, and others) and Wikipedia.com are great places to get an introduction to an industry and pick up on some trends by noting what is being talked about. Customers have most access to secondary information

Primary vs. Secondary information about the industry - when do you use secondary?

MAKING THE DECISION ABOUT LEGAL FORM

Prior to making the decision on which type of legal form to choose, seven very important questions should be asked. 1. Does the founding team have all the skills needed to run this venture? 2. Do the founders have the capital required to start the business alone or must they raise it through cash or credit? 3. Will the founders be able to run the business and cover living expenses for the first year? 4. Are the founders willing and able to assume personal liability for any claims against the business? 5. Do the founders wish to have complete control over the operations of the business? 6. Do the founders expect to have initial losses or will the business be profitable almost from the beginning? 7. Do the founders expect to sell the business some day?

This is best accomplished by creating a process map that details how information flows through the business. Having such a map on hand makes it much easier to define the operations, information flow, and resource require-ments of the business. To create a process map, take a virtual tour of the busi-ness during a single day, listing all the functions, people, equipment, supplies, and space required to run the business. Figuratively, begin at the front door of the business and ask the following questions

Process map

1 Discovery -Customer Identification -Business Creation -Customer Validation -Invention -Innovation 2 -Opportunity -Recognition -Invention disclosure -Concept development -Rework Concept -Refine and Redesign 3 Feasibility -Technology feasibility -Market feasibility -Initial financial metrics 4 IntellectualProperty and Regulatory Requirement -Provisional patent decision -Non-provisional patent filing -Other intellectual property Regulatory requirements 5 Prototype Development -Platform -Design -Applications -Testing 6 Market/ Customer 7 LaunchStrategy -License -Start a business -Sell or joint venture 8 Execution Plan -Launch -Execution -strategyDevelop operations plan -Develop marketing plan -Secure needed managementIdentify funding needs and sources

Product development cycle (components)

Mistakes in Developing the Business Plan

Rapid Growth That Requires Capabilities Beyond Those of the Founding Team One Ringleader in a Three-Ring Circus Performance That Exceeds Industry Averages Price as a Market Strategy Not Investing Capital in Their Own Businesses

potential professional adviser to your business.

Reasons for Entrepreneur's having a banker, accountant, insurance agent & lawyer

Another significant cause of new product failure is technical problems. The path from laboratory to production is fraught with challenges and obstacles, often because the company has moved too rapidly through the design and early prototyping phase. Some recent research suggests that one overlooked cause of new product failure is the human factor

Reasons for new product failure

Failure Points in Decision Making

Relying to heavily on previous experience Being too optimistic

Maintaining quiet time on a regular basis trains the mind to shift quickly into the creative mode. It also helps make creative thinking a habit.

contemplation

Professional Corporations

Some state laws permit certain professionals, such as healthcare professionals, engineers, accountants, and lawyers, to form corporations called professional service corporations. Anyone who holds shares in the corporation must be li-censed to provide the service it offers.

1 hearing the call 2 Fear and Resistance 3 Resolution 4 Turning Point 5 Creation 6 Manifestation 7 Fulfillment

Stages of the Creative Process

SUCCESSFULLY PITCHING THE BUSINESS

Stand without using a podium. This enables a better command of the situation, enhances rapport with the audience, and makes it easier to use gestures and visual aids. Move around (but no pacing), because moving helps reduce stress and livens up the presentation. Maintain eye contact with everyone and talk to the audience. Do not talk over their heads to the back of the room—that technique only works in large auditoriums. Visual aids, such as colorful PowerPoint slides with high-resolution photos and minimal text keep the pitch on track and focused on key points. Entrepreneurs should avoid using too many slides and complex animations, or listeners may find themselves more interested in the rhythm of the slides' motion than in what the entrepreneur is attempting to convey. Slides should be kept simple (no more than three lines per slide), be big enough to read from a distance, and be professional-looking. If there is a service or product involved, a live demonstration helps to generate excitement about the business, but ensure in advance that the demon-stration is flawless

C-Corporation

The C-corporation offers several important advantages. It enjoys 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; however, the sale of stock is heavily regulated by federal and state governments.

"The entrepreneurial mystique, it's not magic, it's not mysterious, and it has nothing to do with the genes. It is a discipline. And, like any discipline, it can be learned." 11 Scholarly research over a number of years has supported that claim. 12 In fact, a recent twin study by Nicolaou and Shane using 870 pairs of identical twins and 857 pairs of same-sex fraternal twins to study entrepreneurial activity, found that entrepreneurs are about 40 percent born and 60 percent made. The born part was not deterministic but rather explanatory;

The entrepreneurial mystique

Premortem

The premortem has the entrepreneurial team as-suming the new venture fails and then identifying all the reasons the business failed. This exercise is not designed to kill a new venture but to force the team to modify its thinking so as to avoid potential failure points. Gary Klein

A trade secret consists of a formula, device, idea, process, pattern, or compilation of information that gives the owner a competitive advantage in the marketplace, is novel in the sense that it is not common knowledge, and is kept in a confidential state.

Trade secret

Trademarks have become nearly as popular as patents as intellectual-property assets. A trademark is a symbol, logo, word, sound, color, design, or other device that is used to identify a business or a product in commerce. The term trademark is regularly used to refer to both trademarks and service marks, which identify services or intangible activities "performed by one person for the benefit of a person or persons other than himself, either for pay or other- wise."

Trademarks

Technical and Market Feasibility Analysis: Feasibility analysis is simply conducting preliminary research to determine whether the product or service idea currently exists, whether there is a potential application to solve a problem in a market, whether the product can be produced, whether it can be protected, how much it will cost to produce the product, and how much time it will take to produce it. This stage, known as customer validation, also involves consider-ing some preliminary financial metrics based on the market research conducted.

Understand costs to produce a product

Birth Growth and Adaptation Differentiation and Competition Shakeout Maturity and Decline

Understand industry lifecycles - what happens during each stage

to form a target market

Understand why you need a good definition of the customer

Markups

Value chain's impact on pricing

Startup resources include (1) people, such as the founding team, employees, advisors, and independent contractors; (2) physical assets, such as equipment, inventory, and office or plant space; and (3) financial resources, such as cash, equity, and debt. At startup the goal is to create a mix of resources that will enable the new venture to start and operate until sales of the product or service produce a positive cash flow, that is, enough cash to cover all the cash outflows without investment capital.

What are the main startup resource?

pro forma cash flow statements for the business are used and a forecast period is determined. (Refer to Chapter 8 for a discussion of pro forma cash flows and methods for forecasting sales and expenses.) The length and na-ture of business cycles in the industry must be understood to decide whether the forecast period goes from trough to trough or from peak to peak. In other words, the forecast period must include at least one complete business cycle in order to give a fair representation of the effect of that cycle on cash flow.

What is a pro-forma...when & why is used?

or contingency factor. The safety margin is an amount of cash that is often based on the sales and collection cycle of the business. If, for example, customers typically pay on a 60-day cycle, it will be important to be able to cover at least 60 days of fixed costs. The business used in this example is typical of most startup businesses in that it takes time to generate enough sales and other sources of cash to cover the costs of doing business, but it is important to calculate how much money is needed to start and operate the business to a positive cash flow, meaning the business is self sustaining, so that the entrepreneur can make a wise assessment of how much capital to raise.

What is a safety margin, as it relates to the startup

sees opportunity arising from shifts in external factors in the market or industry, such as regulation, technological changes, and changes in customer preferences. These opportunities are out there waiting for entrepreneurs to discover them, so they require a more systematic approach to scanning the environment.

What is discovery theory

Professional Advisors Attorneys, Accountants, Bankers, Insurance TheEntrepreneur's Network Sales Support Manufacturer reps, Sales agencies, Distributors, Foreign reps Manufacturing Support Subcontractors, Design engineers, Manufacturers Governmental Agencies Grants, Regulatory Consultants Management, Sales, Market research, Training Personal Advisors Board of directors, Board of advisors, Mentors

What is meant by an entrepreneur's extended network

is the term often applied to the minimizing of resources required to start and operate a business. It simply means that entrepreneurs beg, borrow, or lease resources whenever they can so they can keep their overhead, or fixed costs, as low as possible. To succeed, entrepreneurs must create innovative combinations of resources that will generate a competitive advantage and lead to the creation of wealth.

What is meant by bootstrapping?

•

What is meant by shared vision

Who is the first customer? Who is in the most pain? has to do with whose problem are you solving

What is the most important data an entrepreneur can collect on potential customers?

Answering Questions

When the founding team has successfully made it through the pitch, it has cleared the first hurdle. The second hurdle, however, is harder: answering ques-tions from investors. One thing to remember about investors is that they generally like to ask questions to which they already know the answers; this is a test to see if the entrepreneur actually knows what he is talking about

Partnership

When two or more people agree to share the assets, liabilities, and profits of a business, the legal structure is termed a partnership. The partnership form is an improvement over the sole proprietorship from the standpoint that the business can draw on the skills, knowledge, and financial resources of more than one person. This is an advantage not only in operating the business but also in seek-ing bank loans. Like the sole proprietorship, however, the partnership requires a DBA when the last names of the partners are not used in naming the business. Professionals such as lawyers, doctors, and accountants frequently employ this legal structure.

The product or service the entrepreneur offers at startup is really a solution to a problem the customer is facing, and that is how it should be positioned. Today, most businesses produce both products and services, even if one category dominates. Doing so provides multiple revenue streams, which gives the company a distinct competitive advantage. At startup, it's normal to focus on the lead product or service, but even at launch, entrepreneurs need to show that the company has potential for growth. Growth comes from a plan to add new products and services and enter new markets.

Why have multiple revenue streams

Proof of Concept Scale

Working Prototype Letter of Intent for Beta Test Final Product PurchaseOrder CustomerSales

Unlike discov-ery theory, there is no single coherent theory, but rather a number of assump-tions about contexts and behaviors that don't fall within the realm of discovery theory. In creation theory, entrepreneurs are the actors; that is, entrepreneurs create opportunities via their actions, reactions, and experiments around new products, services, and business models. 4 This means that opportunities do not necessarily emerge out of existing industries or markets; therefore, search is not associated with creation theory.

creation theory

New Venture Action Plan Identify the NAICS codes for the industry in which the new venture will operate. ■ Collect secondary data on the industry. ■ Conduct field research by interviewing suppliers, distributors, customers, and others. ■ Develop an industry profile that will indicate whether the industry is growing, who the major ■ competitors are, and what the profit potential is.Define the target market and first customer for the product or service. ■ Gather primary data on the target market to generate a customer profile and evidence of demand. ■ Gather competitive intelligence and determine the impact on the new venture launch strategy

action plan

•This approach is often used to make sure that everyone on the team feels comfortable offering up ideas. There are a number of ways the exercise can be accomplished, but essentially it's about getting ideas down on paper and then organizing the ideas and creating themes. Each person is given a stack of Post-It ® notes. Each individual writes three ideas, one on each of three Post-Its. As everyone finishes, they place their Post-Its in the center of the table. Then each one takes three Post-Its they didn't create, looks at the ideas and once again writes three new ideas on each of three new Post-Its. This continues for three to four rounds. Then all the Post-Its are placed on a white board or flip chart and the process of finding common themes and combining ideas begins.

brainwriting

enables entrepreneurs to differentiate their businesses from competitors so that customers will notice them. Creativity is the basis for invention, which is discov-ering something that did not exist previously, and innovation, which is finding a new way to do something or improving on an existing product or service. Creativity is also fundamental to problem solving.

creativity

1980

decade of entrepreneurship

outcome of feasibility analysis is the determination of whether the business model appears feasible, that is, it would work given the conditions defined. Feasibility analysis can be a simple or a very complex process depend-ing on the requirements of the business under consideration and the nature of the environment (industry) in which the business will operate.

feasibility analysis

activities undertaken at this point are often unclear and subject to change as more information is obtained.

fuzzy front end

sector. Consumers generally want to save on the costs of energy consumption and con-sume less of everything. They're willing to buy green if they don't have to pay a premium for it, and some consumers will pay for brands that give them status as eco consumers. For instance, eco-iconic marketing is about developing a product and brand that makes it possible for consumers who buy it to be instantly recognized as having eco status.

green power

Value Chain

industry analysis

this phenomenon is now regularly studied by the research community. 21 Increasingly, large or-ganizations are finding it necessary to provide for entrepreneurial activity to remain competitive. Corporate ventures, those entrepreneurial-like ventures in-side large companies, are distinct from other types of projects that these firms take on. For one thing, they involve activities that are typically new to the com-pany so the risk of failure is high. There is also a high degree of uncertainty around such projects, so they are often managed separately from the core busi-ness activities. Recognizing that it is nearly impossible to re-engineer and rede-sign an entire organization, many companies have chosen from several options to simulate the entrepreneurial environment required for innovation to occur: the skunk works, intrapreneurship, and acquisition.The "skunk works ® " route (named for Lockheed's unit that developed the Stealth fighter jet)

intrapreneurship

Proof of concept (POC)

is simply evidence that a technology, product, business model, or idea is feasible. Entrepreneurs typically face two types of POC: the technology or product POC, and the business model POC

The knowledge economy of the 2000s is also described by low-cost compe-tition from Asia and Central and Eastern Europe that came about when trans-fer costs were driven down in the telecommunications and computer sectors, making it easier and less expensive to move capital and information. 45 Con-sequently, most routine tasks in production and manufacturing are now more efficiently accomplished in low-cost locations. The new millennium ushered in what many refer to as the knowledge econ- omy , brought about by increased globalization and the competitive shift to more "knowledge-based economic activity." 42 In the new economy, the primary resource is knowledge rather than raw materials and physical labor.

knowledge economy

Proof of Concept with a Website

looks professional & is cheap As with every promotional or informational piece about the business, differentiation is critical. It is not within the scope of this text to discuss website development; however, information on building an effective website is ubiquitous on the Internet and in every bookstore.

nascent entrepreneur uses the time spent in the fuzzy front end to calculate the probability of success as an entrepreneur, what that success will mean in terms of return on his or her investment of time, money, and effort, and what the risk or cost of failure might be. Those probability esti-mates are highly subjective; however, if the nascent entrepreneur uses the time in the fuzzy front end to gather information about the industry and market, test the business concept through feasibility analysis, and determine the conditions under which he or she is willing to move forward and start the business, much of the subjectivity will be eliminated. Moreover, the risk of startup will be reduced, and the probability associated with the three outcomes will be more accurate.

nascent entrepreneur

char-acterized by four stages and three transitions or decision points. The first transi-tion point occurs when an individual, acting independently or as an employee of a firm, decides to start a business. A nascent entrepreneur is an individual who intends to start an independent business; a nascent corporate venturer (or nascent intrapreneur) is someone who intends to start entrepreneurial ventures inside a large corporation. The second transition point comes about during the gestation of a new venture and includes all the startup processes that lead to the birth of a firm and to the resulting infant firm. These startup processes include feasibility analysis, business planning, and resource gathering, among other activities. Once the new venture survives startup, it typically does one of three things: (1) It may grow at a rate higher than normal, (2) it may persist or survive to move into the adolescent (fourth) stage, or (3) it may be abandoned by its founders. Figure 1.4 also depicts three question marks that represent as-pects of the entrepreneurial process about which very little is known. The label "?a" stands for the number of nascents that actually complete the process and launch; label "?b" stands for the number that never complete the process; and label "?c" stands for the tasks and times to completion.

new venture formation

gives the entrepreneur a level of confidence about the ability to actually produce and protect the product or service being offered. The first conclusion to be drawn centers on the issue of whether it is possible

product/ service analysis

sional patent is a way for inventors to undertake a first patent filing in the United States at a lower cost than a formal patent application. Legally, it permits the inventor to use the term patent pending , and is designed to pro-tect small inventors while they speak with manufacturers about producing the invention. A provisional patent also puts U.S. applicants on par with interna-tional applicants under the General Agreement on Tariffs and Trade (GATT) Uruguay Round Agreements (see the discussion in the section on international patents). The provisional patent does not, however, take the place of a formal patent application, which is discussed next.

provisional patent

Solve a problem Fulfill a market need

reasons for starting a business

describes the various ways that entrepreneurs plan to make money. In general, the following categories of revenue models comprise the most common ways to monetize a product or service. ■ 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 often 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.

revenue model

After answering these questions, entrepreneurs can (1) identify the potential risks associated with their venture, (2) calculate the probability that those identified risks will in fact occur, (3) assign a level of importance to the losses, and (4) calculate the overall loss risk. In the next section we consider some of the major categories of risk that entrepreneurs face. Figure 18.1 summarizes the process for addressing risk. It is extremely difficult to calculate the probability that a given risk will occur with any degree of accuracy. Consequently, any cost-benefit analysis conducted will probably contain flaws and may even cause the company to decide that the cost of protecting itself is nearly equal to the cost of the loss. 13 Nonethe-less, it is important to gauge, based on industry and customer knowledge, the chance that a particular risk will occur and what the impact of that occurrence will be on the company. For example, an entrepreneur might want to know how many widgets to order for the summer season. He knows he can sell 50 in a day and that he makes a profit of $10 each. The average number of days in the season is 95. Thus he multiplies 4,750 widgets times $10 to get the average profit for the season. He has just committed a common error that has been called the "flaw of averages." 14 The problem with averages is that they mask risk.

risk

The thrill of starting a business keeps them going; they prefer to leave the management issues to someone else. An entrepreneur who starts one business and then moves on to start another is called a

serial entrepreneur

Micro Strategies Logan and Fischer-Wright have

startups that can move and adapt quickly as they implement smaller strategies to accomplish near-term outcomes on the path to bigger, longer-term goals.

Traditionally, entrepreneurs were advised to establish themselves in the domestic market before taking on the enormous challenge of a global market. Increas-ingly, however, we are seeing more and more firms going international from startup. And these international startups are generally being founded by teams. Research indicates that whether these small firms succeed in the international market depends on the skills and knowledge of the entrepreneurial team. The characteristics found to predict success in international ventures include the extent to which members of the founding team have traveled and/or worked abroad and the number of languages spoken.

traditional entrepreneur

personal, problem solving, environmental.

types of roadblocks

The value chain consists of all of the companies that contribute to the development and distribution of a good. If, for example, the entrepreneur's company is a supplier or producer of raw materials, it will generally be at the top of the value chain and upstream from manufacturers. Intermediaries, such as distributors and retailers, will be downstream from manufacturers and assemblers. Where a company is located in the value chain normally reflects the entrepreneur's capabilities and risk-taking propensity.

value chain

is the benefit that the customer derives from the product or service the entrepreneur is offering; in other words, the reason the customer will buy—the value for the customer. To understand what the customer values, entrepreneurs need to identify a need or "pain" that customers are experienc-ing. When entrepreneurs first conceive of the concept for their business, they typically start with the value they believe customers will recognize and pay for. However, it is not until they do some actual market research and learn what customers value from their own words, that they can be confident that there will

value proposition

It is fairly commonplace for women to have financial power in developed countries, but it's the last thing you might expect to find in a develop-ing country like Bangladesh. Copyright | CENGAGE Learning | New Venture Creation | Edition 6 | [email protected] | Printed from www.chegg.com

women entrepreneurs

Critical Issues 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

CREATING A COMPELLING STORY IN AN EXECUTIVE SUMMARY

■ Convey the compelling story quickly and memorably ■ Highlight the critical elements of the business that provide a competitive ■ advantageHighlight 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

Proof of Concept with a Prototype

■The entrepreneur develops a clear understanding of customer needs ■Changes can be made early in the process when they are less costly ■The prototype reduces the risk of failure