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Window of Opportunity

"A short period of time during which an opportunity must be acted upon or missed" -The optimal time period For introducing of a New Product/ Service -Too Early/Too Late -First-Mover Advantages -Innovation Curve -Identifying Innovators and Early Adopters -Short time requires moving fast

Step 1 of Phase 1- Preparation

-deliberate unintended -The base of experience and knowledge that precedes the creative journey -Personal background, prior knowledge, skills base -Your life and experiences to this point

Market Segmentation

-the process of dividing a market into distinct subsets (segments) that behave similarly / have similar needs. -Identifying distinct buying groups and developing marketing strategies to fit each group. oDefine your market and sectors oHow will you approach your desired segment? oDemographics of desired segment oGeography Prioritize your segments *

Phase 1 - Opportunity Discovery

In the Discovery phase, opportunities are identified -The discovery process draws on a person's personal background and experience. -It may occur either spontaneously or as a result of deliberate effort.

Who created the The 5 Competitive Forces that Shape Strategy?

Michael Porter

Eventually, with additional sales growth, many/most "fixed" costs will...

need to rise. Maybe even in relation to sales.

Total (potential) market size

number of potential customers in segment

Market size measured in...

people, dollars, and units

Operations Model

refer to image

Liquidity

the availability of cash or cash equivalents to meet short-term operating needs

Business Plan

the comprehensive framework addressing all elements of venture startup and initial growth, resource requirements and sources

There is only one boss.... who is it????

the customer!!!

Risk measures

the difference between expected outcomes and actual outcomes.

Design and Development- PROPRIETARY ISSUES:

this is where you discuss Intellectual Property. How will you secure it? legal issues and costs

Business Model

translates the product and concept into a viable business entity, includes firm strategy, firm architecture, and how it will make money

Chain Ratio Analysis- How many people will try new organic pasta?

§ Step 1: Number of households in the US- 77.4 Million households § Step 2: Awareness adjustments suggests that 25% will be aware · 77.4M * 25% = 19.35 Million will know of it after marketing effort § Step 3: Purchase intent suggests that 34.5% will try product if available · 19.35MM * 25% = 5.8 Million will try if product is available § Step 4: Distribution adjustment suggests that national roll out will obtain distribution to 50% of retailers · 5.8 Million * 50% = 2.9 Million households will try product

Financial Statements - Balance Sheet

-A statement detailing what a company owns (assets) and claims against the company (liabilities and owners' equity) on a specific date -AKA statement of financial condition -Snapshot of the Company's financial health - Some analysts say -Assets -> Left side -Claims -> Right side -Other Characteristics of Balance sheet --->Balancing --->Order of listing o Cash first o Arranged in order of liquidity --->Liquidity refers to the availability of cash or cash equivalents to meet short-term operating needs --->Valuing of items THE BALANCE SHEET IS A SNAPSHOT IN TIME!!! -The balance sheet is taken at a specific date in time -Photograph (not a film) -Calendar year- the actual calendar (jan 1-Dec 31st) -Fiscal year- can start when your company wants to start · Most retailers do not want anything to do w calendar year o They may choose to have their fiscal year to end on feb 28 · Kens business ends on June 30 because accountant is more free then

What is red ocean strategy?

-All the industries in existence today - the known market space. In red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. -Here, companies try to outperform their rivals to grab a greater share of existing demand. As the market space gets crowded, profits and growth are reduced. -Products become commodities, leading to cutthroat or 'bloody' competition. Hence the term red oceans.

New Venture - Risks (Money Related)

-Amount of capital required is high -Payback period is long -Investment in fixed assets is high

Chain Ratio Analysis

-An estimation method to come up with a "size" estimate of your target market. -Involves multiplying the base value by a series of percentages to arrive at the target market size -"A method to refine a seemingly large source of data into a relevant level of specificity" -By using realistic estimates and adjustments -An estimation method used by multiplying a base number by a chain of related percentages

1st Cash Flow Category: Operating Activities

-CORE BUSINESS OPERATIONS -Net cash provided (or used) by operating activities - First Key Number -A company generates cash just from operating its business -It is a total of some of the following items in the statement of earnings --->Net Earnings - Showing the company's profit (or loss) --->Depreciation Expense (non-cash expense) Net Cash also includes changes in some items from the statement of financial position -Example 1: Inventory changes (Increases in inventories use cash & reductions provide cash) -Example 2: Changes in Accounts Receivable - The sales the company has not yet been paid for. (Again, increases use cash and decreases provide cash) -Example 3: Changes in Accounts Payable - The cash a company owes its vendors and suppliers. (In this area, increases provide cash and decreases use cash)

Ownership- Treasury Stock

-Companies normally initially issue less than the authorized amount of shares -The companies normally retain some authorized shares in the company for future issuance. o Own 100% of the shares issuedS

Demographics

-Core Characteristics -Age -Gender -Ethnicity, race

Fixed Cost

-Costs that don't vary in relation to sales (everything except variable cost) -Ex: start-up costs, equipment, mortgage, rent, general & administrative expenses, salaries, depreciation, advertising, insurance, property taxes, etc.

Variable cost

-Costs that vary in relation to sales -Sales go up variable costs go up -Ex: gas, direct labor, direct materials, packaging, transportation, sales force commissions, materials, shipping,

Operating Leverage

-Deals with the comparative existence of fixed costs as a proportion of total costs in a company's cost structure ▪ HIGH percentage of fixed costs -> HIGH O/L ▪ Very FEW fixed costs -> LOW O/Lo Variable cost -The extent to which a business uses Fixed, rather than Variable Costs in its operations

Market Research Section III-----Your Section should address these issues. Use Nuts & Bolts as a good guide, each BP should incorporate these.

-Define Market -Customer Overview -Market Dynamics -Buyer Behavior -Market Segmentation and Targeting -Competition - Your Advantage -Estimated Market Share -Market Future This section of the BP is the longest at 3-4 pages

Who is your Customer?

-Define/Identify -Demographics (who, how many) -Are they presently served? -How will they value your offering? -How many are there? * -Market Segments?Niches?

Opportunity Identification

-Deliberate or active search -Everyday discovery -Own experiences (business, hobby, friends) -Social networks · Professional- work and school · Industry- associations · Personal- clubs, sports, religious, sorority/fraternity · Family (Parents, Aunts/Uncles, Cousins)

Secondary Source Examples

-Demographic Data -Bureau of Economic Analysis -Merchandise Line Sales -Print sources and digital resources (Syracuse University Library)

What is blue ocean strategy?

-Denote all the industries not in existence today - the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. -There is ample opportunity for growth that is both profitable and rapid. -In blue oceans, competition is irrelevant because the rules of the game are waiting to be set. NEW- no competition because it is new

Market Analysis and Research Purpose

-Earn credibility for your idea by establishing customer validation o Shows that you meet a real need in a well-defined customer segment.

For Your Business Plans...

-Ensure strong market orientation -Exploit your unfair advantage! -How to position your product? -Diagram your product delivery channels -PLEASE show innovation and creativity

Why Entrepreneurship Matters?

-Entrepreneurship is vital for economic development -Business entrepreneur contribute to productivity by: driving and shaping innovation, speeding up structural changes in the economy, introducing new competition -social entrepreneurs fill the gaps in Social Needs that are left unfilled or poorly addressed by both businesses and governments

Market Share or Sales

-Estimate your position in the market. -Who will be your biggest customers? -Will your growth track or exceed the market's expected performance? -How will you stay abreast of market dynamics? -Window of Opportunity? *

Step 3 of Phase 1- Insight

-Eureka Experience -Problem Solved -Idea Shared -The "eureka" or "Aha" experience - A moment of recognition -A moment of "sudden convergence" (de Koning, 1999) -WaterPort example (tweaking a construction site water source into a world changing water-filtration system)

Ownership- Authorized Stock

-Every company must decide the total number of shares it would like to authorize when the company is formed -Thereafter, the company is not allowed to issue more than the authorized number of shares (without additional legal work) -You can pick how many shares you want your company to have · That number is the number of shares you have authorized for your business · Literally pull number out of thin air · Ex: 1,000 shares

Adjacent Spaces

-Expand Along The Value Chain -Grow New Products/Services -Use New Distribution Channels -Enter New Geographies -Address New Customer Segments -Move into "White Space"

Buyer Utility Map

-Frameworks to evaluate opportunities -graphic representation of where an industry is currently focusing its efforts in providing value across the complete buyer experience.

Operations Model- Identify Your Process

-Identify Inputs -Key steps or stages -Identify outputs -Any bottlenecks? -Timeframe for product delivery -Quality assurance -Seasonality complications? How do you get from order > delivery? Who are you dependent upon? Are they reliable? Is your industry stable enough to predict this Process in detail? Airline example equipment delays/repairs/maintenance ground support Gate delays air traffic control weather ALL at both ends of the product delivery "How much does the airline control?" How will you ensure consistent, superior quality? Is your demand seasonal or cyclical?

Design and Development- What goes into this section?

-Identify your unique competence or expertise What will product development cost? -Roll-out Schedule of R&D -Identify Complications & Risks -Follow-on Products? Future Development? -Proprietary Issues

Concept of the dotted line between steps 2 and 3 of the entrepreneurial process

-In steps 1 and 2 you are a dreamer -Once you get passed the dotted line you are actually doing it ---->Action oriented ----->Separates doers from the dreamers (doers are below the dotted line) •The first two stages are dreaming (imagining) •The last four stages are doing (implementing) ---- we need more "doers" --->The "idea" is only the start - - if the idea is not converted into something (i.e. "brought to market") it is not entrepreneurship. ---->We have lots of dreamers, but we need more doers. ************** --->Failure can often be tied to shortcomings in a particular stage.

Primary Research Examples

-Interviews - experts, suppliers, customers, etc. -Surveys - mostly customers -Trade shows -Product demonstrations - let customers experience -Focus groups -Observation -Google email alerts ... the point is TALK TO PEOPLE...

Primary Research - Interviews

-Interviews with Experts 1.Supplier managers 2.Trade company managers 3.Trade Assoc. managers 4.Consultants 5.Salespeople Potential customers -Personal Observation * (least important) 1.Customers 2.Competitors 3.Other influences -Focus groups 1.Representative sample of potential customers

How is Guerilla Marketing different from Traditional Marketing?

-Invest time, energy, imagination - not money -Use science of psychology & laws of human behavior - not guesswork -Use profit as yardstick - not traffic, responses or gross sales -Fervent devotion to customer follow-up - not ignore customers after sale -Is geared to small business - not companies with limitless bank accounts -Removes the mystique from the entire marketing process - not intimidate -Preaches gospel of cooperation - not compete at all cost -Dedicated to establishing relationships - not trying to make sales -Use combinations of marketing tactics - not sole marketing weapon

Need for Entrepreneurial Accounting

-Key to E's success/failure -Key to success of all business professionals -My experience -Your future investments and analysis

High Operating Leverage --->

-Larger increase in Sales -Larger increase in Profits -Larger the increase of loss as sales fall High operating leverage generally favors high volumes & such operations like manufacturing

Psychographics

-Lifestyle -Values, Attitudes Examples: o Outgoing or introverted o Family-oriented o Traditional vs. Alternative o Athletic o Party-loving o Scholarly Online: Used in segmentation; delves into how consumers describe themselves; allows people to describe themselves using those characteristics that help them choose how they occupy their time (behavior) and what underlying psychological reasons determine those choices.

Common Causes of Failure

-Managerial incompetence -Lack of experience -Poor financial control -Failure to plan -Inappropriate location -Lack of inventory control -Improper attitudes -Inability to make the entrepreneurial transition

Fatal Flaws

-Managerial incompetence -Lack of experience -Poor financial control -Failure to plan -Inappropriate location -Lack of inventory control -Improper attitudes -Inability to make the entrepreneurial transition

Market Dynamics

-Market Size (dollars/units) -Trends -Historical Growth Rates -Projected Growth rates -Slice/Dice based upon geography, etc. -Socioeconomic trends?

Guerilla Marketing

-Marketing that is unconventional, non-traditional, creative, low cost, not by-the-book and extremely flexible. -Rely on network of personal relationships from previous employment and life experiences -Sales to friends, acquaintances, personal circle/network -Six degrees of separation - Your network reaches farther than you think -Jay Levinson coined "Guerilla Marketing"

3rd Cash Flow Category: Financing Activities (Third Key Number)

-Net cash provided (or used) by Financing Activities o Did you borrow/raise funds? o Did you pay any back? -Banking, loans, fund raising... and paying it back. Not reflected on the Income Statement The sources & uses of cash for financing activities, including what a company raises by: -Selling Stocks & Bonds -Borrowing From Banks -Buying Back Stock From Stockholders/Members -Paying Dividends To Share Profits With Stockholders/Members -Repaying Borrowed Cash

Breakeven Point

-Number of units where where total revenues equals total expenses (No Profit or Loss) (or) -The volume of sales in dollars or units needed for a business to operate at (or reach) zero profit

Operations Model- Legal Issues

-Permits -OSHA -Facilities build out -Contract development Employees, partners, lease/ownership Lease/ownership of plant Distribution agreements Outsource program agreements Key Ops staff employment Warranty development Now more than ever. Bureaucrats promulgate ~9,000 rules per year at the Federal level. Virtually everything requires approval This may have an impact upon where you locate (entrepreneurial environment) There are legal costs virtually everywhere. Lawyers are ingrained in the corporate model.

Major Problems and Risks- External

-Potential price cuts by competitors -Any potential unfavorable industry-wide trends -Difficulties or long lead times encountered in the procurement of parts or raw materials -Difficulties encountered in obtaining needed bank credit

New Venture - Risks (Product Related)

-Product is totally new -Product is the only product produced by the venture -There are no alternative uses of the product -Product can be easily copied

PSA: Business Plan Section Development

-Proper English composition -Write in "3rd person" oLike a newspaper reporter oNever use "I", "we", "us", "Our" oUse company name or of you don't yet have one, use a placeholder like "Newco"

Design and Development

-R&D is expensive -R&D will take you no longer than 6 months -We want to assume by month 7 we will start to generate revenue o Patents last 20 years, coca cola has a trademark rather than patent probably for this reason of a patent expiring -At the end of 20 years anyone can do it o One of the questions for capstone will be how are you going to protect yourself? -Patent, trademark, trade secret, etc. Almost always underestimated for cost and time. Important for teams creating a non-existent product. 1-2 pages

Managing Risk- How do we manage it?

-Rent or lease rather than owning equipment & facilities -Outsourcing Options -Contractors vs. Employees -Using multiple sources of financing -Building an entrepreneurial team whose members have different but compatible skills "Complementary"

Financial Statements - Statement of Cash Flows

-Reports the company's sources and uses of cash and the beginning and ending values for cash and cash equivalents for the reporting period -Includes (near the bottom of the statement) the combined total change in cash and cash equivalents from all sources and uses of cash Cash pays bills -AKA Cashflows, Cashflow Statement -'Video' (looks at a period of time) -Only cares about what cash comes in and what cash goes out -Measures cash in cash out -You can tell if business is making money through this

Guerrilla Marketing (compared to traditional)

-Requires energy & imagination -Small companies - big dreams -Measured by profits -Based on psychology/human behavior -Effective marketing is free -Aims messages at individuals/small groups

Traditional Marketing (compared to Guerrilla)

-Requires money -Big companies - big budgets -Measured by sales -Based on experience/guesswork -Effective marketing is costly -Aims messages at large groups

Implications of Porter's 5 Forces

-Right strategy and market position Aligned with the 5 Competitive forces Earns unusually good profits -Strategy must cope with Competitive Pressures Build a strong market position based on specific competitive advantages -Mitigate risks -Exploit unfair advantage -> Panera did.

Major Problems and Risks- Internal

-Running out of cash before orders are secured -Design or manufacturing costs in excess of estimates -Sales projections not achieved -Larger-than-expected innovation and development costs -Running out of cash after orders pour in

Ownership- Outstanding Stock

-Shares outstanding are all the shares of a corporation or entity that have been authorized, and issued to owners and are presently held by them. Percentage of ownership is based upon issued shares. -If I want to sell later I have to have shares to do that...

Financial Statements - Income Statement

-Shows a firm's revenues and expenses, and taxes associated with those expenses for a defined financial period. This is a 'video'. -Also known as Profit & Loss Statement and "P&L" -Income statement shows how much money the company will make after all expenses are accounted for -Remember that an Income Statement does not reveal hidden problems like insufficient cash flow -Income statements are read from top to bottom and represent earnings and expenses over a period -Shows how much money the company will make after all expenses are accounted for -Profit (loss) for a specific period -Revenues result from the entity's operating activities (ex: selling merchandise) -Costs and expenses are incurred in generating revenues and operating the entity -Net income is tied up in Accounts Receivable before it gets to the company -Examine a company's profitability · Example 1: Analysts look at trends in revenue, operating income, etc. -Examine return on assets, return on equity

Examples of Socio-economic trends

-The Increasing Use of Technology in Day-to-Day Life -The Rise of the Sharing Economy

Competition- Market Segmentation

-There always is... (even as NBA) -What are their strengths and weaknesses? -How can you beat them? Their achilles? -Likely response to your presence. -How do you stack up? -Know thy competition, and know they are SMART! *

Key Activities (8th Element of the BMC)

-What are the most important things the company must do to make the business model work? -Production, problem solving -What's Most Important for the Business? a. Resources are the assets the company needs. Activities are the key things the company must do with those resources to make the business model work. b. Activities: 3 "P's": Production, Problem-solving, Platform/network maintenance and innovation c. Should strive for excellence: what do we need to/can we be the very best at - in order to create customer value?

Operating Leverage - "O/L" - Implication

-What could you do (operationally) to lower the operating leverage ratio? Fewer fixed costs and more variable costs -What common technique is available to you to solve this dilemma? Outsourcing: Examples: Customer Support, Accounting, Manufacturing, Web Design, etc.

Phase 2- Elaboration

-Where the entrepreneur engages in: •Actualizing the creative insights •Capturing value from the creative act - Kao, 1989 •Planning activities to reduce uncertainty -Selecting options, finalizing choices and organizing resources - Csikszentmihalyi, 1996 -Building out the plan to launch

Buyer Behavior

-Who? What? Where? When? How? -Decision makers? Buying cycles? -Does this vary based upon segments? -Receptivity to marketing? -80/20 Rule -What will you be displacing from their present alternatives?

Geography- Market Segmentation

-Zip code -Area in nation -Density ourban - large, medium, small suburban; rural

80/20 Rule

-a concept that suggests 80 percent of a firm's sales are obtained from 20 percent of its customers -Majority of income is going to come from a minority of your customers

Risk 1- the sinking boat

-doing something stupid, doing something that sinks the company · You can reduce this risk by planning · This risk goes down over time oSteadily declines as you add more planning time oHowever, missing the boat risk rises as you add more planning time "What if I pursue an entrepreneurial concept and fail" pursuing the venture and failing

Q=Social characteristics

-income level -education -Occupation -lifecycle: single; married; family; empty-nest; alternative...

Forecasting

-method for predicting how variables will change the future -A small error in forecasting sales, can be magnified in large errors in cash flow projections, as fixed costs will remain high while sales are dropping

Consider primary and secondary demand segment(s) Define this concept:

1) Primary "That sounds interesting to me" You need to EDUCATE! 2) Secondary "I know what I want" You need to compare against other competitors.

Successful Operations Plan

1. Identify your process 2. Describe your strategy 3. Consider Geography, Facilities and Equipment needed 4. Identify legal issues and related costs ---->Legal costs and regulations are everywhere- you cannot escape them

Surveying - Quick Tips

1.Collect Demographic Information 2.Do not use Yes/No Questions. Use Likert Scale Examples: Q : How satisfied are you with your cable provider? A : Not satisfied at all 1 2 3 4 5 Extremely satisfied Q : I am extremely satisfied with my cable provider A : Strongly disagree 1 2 3 4 5 Strongly agree Q : My cable TV service, overall, is: A : Poor Fair Good Very good Excellent 3.Make sure to ask about importance of select benefits/features Example: Q : How important are the following criteria to your satisfaction with your cable provider? A : Not important at all 1 2 3 4 5 Extremely important Always ask about willingness to pay a specific price (Then heavily discount responses!)

Survey Basics

1.Confirm Need 2.Clarify proposed Features 3.Disclose proposed Price 4.Measure intent to purchase -Definitely' will buy x .80 -Probably' will buy x .30 -Maybe' or less x .00 5.Go large for sample size 6.Avoid convenience sampling!

Powerful Supplier Traits

1.More concentrated than industry it sells to - Microsoft 2.Can obtain revenue from different industries 3.Industry participants face switching costs 4.Offer differentiated products 5.No substitute 6.Can integrate forward into industry

Improve your odds! Build barriers to entry!, Sources of industry advantage you may exploit

1.Supply-side economies of scale 2.Demand-side benefits of scale 3.Capital requirements 4.Switching costs for buyer 5.Access to distribution channels 6.Incumbency advantages independent of size 7.Government regulations

What is a concept?

A business concept is a vehicle for capitalizing on the potential - ex, new products or services

Value Curve

A graphical depiction of how a firm and major groups of its competitors are competing across its industry's factors of completion

Another Ownership Example

A new investor wants to invest in the company and wants 30% ownership of the company Since we have Treasury Stock, we can issue the new investor shares from there Investor's Ownership % = 30% Other's Ownership % = 70% (aggregate) Per Co-founder's ownership = 70/5 = 14% "500 shares is 70% of what number? (500 )/(70%) = 714.3 total shares So, we need to issue 214.3 shares from the Treasury Stock to the New Investor Don't make the mistake of giving the investor 300 shares (thinking that is 30% of 1,000 authorized shares). Collectively, if management has 500 shares, and the investor has 300, then she has way more than 30% of the company...

The "C" customer drives...

ALL structural decisions.

Look through the lens of your customer.

ALWAYS

Step 4 of the entrepreneurial process

Acquire the needed resources - Execute on assessment. Money is not normally the biggest determinant for success. Creative leverage. -Physical - buildings, equipment, etc -Relational - Customers, distributors, networks -Organizational - Structures, systems -Financial - Cash, debt, capacity -Intellectual/Human - Sales Talent, R&D skills -Technological - Patents, licenses, access to technology ACRONYM: P-R-O-F-I-T

Business Plans need to...

Always be a living and breathing, ever changing document.

What is Pro Forma?

An income statement where certain amounts are hypothetical, such as the anticipation of lease income under certain circumstances or if certain events occur.

What is an opportunity?

An opportunity is the market conditions for value creation and captured through entrepreneurship. Opportunities represent potential.

Step 3 of the entrepreneurial process

Assess the necessary resources - Need for staff, physical plant, licensing, execution, money needs & strategies to acquire same

The Accounting Equation for Balance Sheets

Assets = Liabilities + Owner's equity

BAIL=

Banker, Accountant, Insurance person, Lawyer

Why are the Porter's 5 Forces important?

Because Section II (Industry) and Section III (Market) are looming & will benefit from this analysis

Josef Schumpeter

Believed to be the first scholar to introduce the world to the concept of entrepreneurship. He came up with the German word Unternehmergeist, meaning entrepreneur-spirit, adding that these individuals controlled the economy because they are responsible for delivering innovation and technological change.

High operating leverage= smaller or bigger margins?

Bigger Margins

Your estimated Market Value

Buying behavior -Based on similar existing products -units per customer per year Benchmark Price per unit Value = (Your Estimated Market) * (units/year) * (price)

Fiscal Year

Can start when your company wants to start · Most retailers do not want anything to do w calendar year o They may choose to have their fiscal year to end on feb 28 · Kens business ends on June 30 because accountant is more free then

Why did Cirque du Solieil create blue ocean?

Cirque du Soleil succeeded because it realized that to win in the future, companies must stop competing in red oceans. Instead they should create blue oceans of uncontested market space and make the competition irrelevant.

Does Coca Cola have a patent or trademark and why??

Coca cola has a trademark rather than patent probably for this reason of a patent expiring -At the end of 20 years of a patent, anyone can do it

Ownership - Example

Consider This Situation: •5 people formed a company with equal ownership •They declared total number of Authorized shares as 1000 Everyone owned 100 shares each ( Equal Ownership) •Authorized Shares = 1000 •Outstanding Shares = 100 * 5 = 500 # Treasury Shares = Authorized Shares - Outstanding Shares •# Treasury Shares = 1000 - 500 = 500 shares

Current Ratio=

Current assets/current liabilities

The CUSTOMER - Center of a Marketing Strategy 4 C's versus 4 P's

Customer needs and wants instead of the product Customer communication instead of promotion Customer cost instead of price -U.S. Postal Service Customer convenience instead of place

Primary Research

DO PRIMARY RESEARCH ALWAYS -This is research that is original and collected by the entrepreneur -Involves the entrepreneur talking to potential customers and industry participants -Helps determine attractiveness of opportunity -Involves talking to people (customers, experts)

Step 2 of the entrepreneurial process

Develop Business Concept - develop product/service, distribution method or pricing approach

Place=

Distribution Channels

Definition of Porter's 5 Forces

Environmental forces that impact a company's ability to compete in a market

Section XI

Financials

"Sunk Costs" like initial marketing, website, product development, company formation Fixed or Variable?

Fixed

PPE and management salaries (most salaries) Fixed or Variable?

Fixed

Operating Leverage Equation

Fixed Costs/Total Costs

The Economic Model of Business - Operating Leverage

For Operating Leverage remember the word "HIGH". HIGH Operating Leverage means HIGH fixed costs as a proportion to total costs HIGH(er) risk since those fixed costs need to be paid for too. HIGH break even, since you can't reach profitability until you cover those fixed costs too. HIGH long term profits because once you pass B/E, very little of your sale price is gobbled up by variable costs, so the bulk of your sale price comprises profits. Airline example

High Fixed Cost means

High Operating Leverage

2 Types of Financial Statements

Historical and Pro Forma

Mapping the Consumption Chain

Identifying all the steps through which customers pass, from the time they first become aware of your product to the time when they finally have to dispose of it or discontinue using it.

Effect of Operating Leverage on Profit

If high fixed costs are combined with low variable costs (as in example only) then profits soar after covering fixed costs (Not always the case)

Importance of Treasury Shares

If the firm has no more Treasury Shares... -If the company desires additional investment capital - the shareholders need to sell their own stock -IRS will need the seller to pay taxes on the selling price of the stock even though the seller did not make any 'profit'. You WON'T Like this!!! -Hence, companies should authorize more shares than what they plan to issue when they form a company This is a BAD tax strategy since the seller of shares must declare a 'gain' on the difference between their cost-basis for those shares, and their sale price to an investor. Big trouble for the seller! PERSONAL tax liability!

Financial Statements - Balance Sheet (Assets)

Items are arranged in the order of liquidity

Cash Flow Categories

Key numbers in the Cash Flow Statement show results of transactions in three categories that are sources and uses of cash 1) Net Cash Operating Activities 2) Net Cash Investing Activities (aka "Did you buy or sell stuff?) 3) Net Cash Financing Activities All company actions fall in to one of these 3 categories!!!

Lower Fixed Cost or High Variable Cost means

Low Operating Leverage

Step 6 of the entrepreneurial process

Manage & Harvest: Run/grow the business to properly exploit opportunities presented. Harvest through sale or alternative means.

Section 8 of the Business Plan

Management Schedule and Risk

Corporations

Must have two or more owners. Formally created under state law. All of the owners have limited liability for the business's debts. Usually more costly than LLC to create and maintain. Subject to many formal statutory rules ("corporate formalities") regarding officers and directors, meeting and recordkeeping requirements. A regular corporation, termed a "C corporation," is a separate taxpaying entity, which may result in higher taxes and requires the filing of a separate tax return. When the corporation elects to be treated as a "conduit" for tax purposes, so that its income and loss flow to the owners, it is termed a 'sub chapter "S" corporation. Note that this is merely a federal income tax election made by filing a form with the IRS. The corporation is formed in the normal manner under state law, and the subchapter S election has no other effect on the character of the corporation, except for the different tax scheme. o Owned by individuals that own shares in the business, have stock in the company, corporations have to have annual meetings with shareholders, board of directors hire and fire management accordingly o Board of directors runs the corporation o 1 person corporation wears all 3 hats

Financial Statements

Necessary sources of information about companies for a wide variety of users -Company management teams -Investors -Creditors -Governmental oversight agencies

Return on Investment=

Net Income/Owner's Equity

LLC (Limited Liability Company)

Newer business form. May have one or more owners. Formally created under state law. All of the owners have limited liability for the business's debts. Usually less costly than a corporation to create and maintain. Relaxed, less burdensome rules governing operation compared to a corporation. Not a separate taxpaying entity: Income is reported on the owner's personal tax returns, which may result in lower taxes, and does not require the filing of a separate tax return when there is only one owner. The LLC combines into one form the best elements from the corporation (limited liability for all the owners) and the general partnership (absence of formalities, low costs, tax benefits). o Combines elements of a corporation and a sole proprietorship or partnership o State regulated. Need articles of incorporations, and tax numbers o Taxation: Taxed once (personal tax return) o Personal liability: limited to corporate assets unless a personal guarantee is signed o Transfer of ownership: yes o Low cost formation, few formalities. Limited life in many states o 99 years tends to be end cap o Originally created to bring commonality to marketplace o Need to change language -Can't use terms stock or shareholders · Replace with units of ownership o Unitholder (outside person but has ownership position), member (employee/owner of company), managing member (management role within business) o Have up to 1,000 owners -Owners can be nonpersons o Can only be 1 type of ownership o Same tax treatment as a partnership -Everyone pays taxes on their ownership o Problem that arises: -File tax returns in each state the company operates in because we generated income in their domain o Companies are formed at the state level o Usually create LLC in the state you are working in

Section 1 of the Business Plan

Nuts & Bolts

Example of Bargaining power of suppliers

PANERA BREAD The Supplier's Bargaining Power at Panera is a weak force because: oMany suppliers in industry oLess control over price of goods oHard to differentiate oLow switching costs oConstrained to regional markets due to goods transportation

Example of Threat of Substitutes

PANERA BREAD oHigh threat of substitutes for Panera Bread oMany other fast-casual restaurants oNo switching costs for customers oEconomic downturns reduce disposable income, customers may be forced to eat at fast-food restaurants (ex. McDonald's) or cook at home oPanera must continue to differentiate themselves through superior dining experiences, high-quality meals, and unique menu offerings

Example of Threat of New Entrants

PANERA BREAD oPanera Bread can fight against new entrants by üSetting low prices to compete with new entrants that still yield a profit üOffering deals to loyal customers, üCreating ads that appeal to new customers üAdding new and exciting food options to their menu that consumers would want oNew Entrants are a threat as they üOffer lower prices on their goods üProvide deals to lure customers from Panera Bread

Operations Model- Geography, Facilities & Equipment

PPT: -Does geography matter? Why? -Facilities - any economies of scale? -How/when will you acquire your facilities? -Facilities - leased/owned? How much? -Scalable? How will growth be accommodated? There is no right answer. Owning vs. Leasing Match costs to term of use. Own appreciating assets, lease depreciating assets. Notes: ▪ Equipment ownership Rule of Thumb: Asset appreciation --->Own appreciating assets, lease depreciating assets

Limited Partnership

PPT: Must have two or more owners. Formally created under state law. At least one owner must be a general partner who has unlimited, personal liability in all the same ways as in a general partnership. At least one owner must be a limited partner (frequently all the other owners will be limited partners) who has limited liability, similar to owners of a corporation or limited liability company (LLC). However, unlike those owners, limited partners are prohibited from participating in the management of the business. This form has been used mostly for tax planning purposes (tax shelters) and estate planning purposes (transfer of discounted ownership shares to children). In addition, an LP can register to become an LLLP, which gives the general partner limited liability. Notes: o Always run by a general partner (has to be at least 1 general partner) -General partner Has full authority to run business how he wants and has full liability · Don't necessarily own the whole business o Limited partner- has no personal liability, and can only lose the $ you invested o Must have two or more owners. o Formally created under state law. o Not at risk like general partners are

Sole Proprietorship

PPT: One owner. Simplest business form. No formal requirements to create or operate this form. Owner has unlimited, personal liability for all the business's debts. Owner personally hires all employees, and thus the owner has unlimited, personal liability for the acts of employees. For these reasons, this form should usually be avoided. Not a separate taxpaying entity: Income is reported on the owner's personal tax return, which may result in lower taxes, and does not require the filing of a separate tax return. Notes: o One owner o One man show o Simplest business form o No formal requirements to create or operate this form o Owner has unlimited, personal liability for all the business' debts. o Owner personally hires all employees, and thus the owner has unlimited, personal liability for the acts of employees. o For these reasons, this form should usually be avoided. o Nursery school of company formation o Not a separate taxpaying entity: income Is reported on the owner's personal tax return. Which may result in lower taxes and does not require the filing of a separate tax return. o Owned and operated by individual and no distinction between business and owner o Taxation: profits from the company are taxed once. Taxes pass to individual o Personal liability: unlimited o Transfer of ownership: no o Easy to form. Hard to raise money / get loans; not for growth-oriented ventures Not Recommended. Unlimited personal liability.

Operations Model- Strategy

PPT: -Describe management of manufacturing or outsourcing -Identify subcontractors or outsource partners -Inventory methods ----> JIT vs. deep inventory - pros/cons? Identify how you will create product. Developed in-house or outsourced? Who will you partner with? What are their qualifications? How will you manage inventory? Does your model allow for JIT, or do you need to stock deep inventory? Q:What are the cost implications of either choice? Pros/Cons of JIT? Notes:

General Partnership

PPT: Must have two or more owners. No formal requirements to create or operate this form. All owners have unlimited, personal liability for all of the businesses debts. All owners personally hire all employees, and thus all the owners have unlimited, personal liability for the acts of employees. In addition, each owner has unlimited, personal liability for the acts of all the other owners. Exposure to liability is so great in this form that, simply put, it should not be used. Not a separate taxpaying entity: Income is reported on the owners' personal tax returns, which may result in lower taxes, and the business files only an information return with the IRS. Relatively simple business form to create and operate-basically a sole proprietorship with two or more owners. Notes: o Must have two or more owners o no formal requirements to create or operate this form o a partner can be a corporate entity. Does not need to be an individual -Ex: Syracuse University o all owners have unlimited, personal liability for all of the business's debts. All owners personally hire all employees, and thus all the owners have unlimited, personal liability for the acts of employees. o In addition, each owner has unlimited, personal liability for the acts of all other owners. Exposure to liability is so great in this form that, simply put, it should not be used. Same liability as Sole Proprietorships. Not normally recommended.

Ideation

Pain points / ERRC framework

Example of Bargaining Power of Buyers

Panera- Cafe Style Chipotle- Mexican Au Bon Pain- Bakery Starbucks- Coffee -Not very price sensitive - does not have a large effect on their other costs, but is usually a first option when trimming purchasing costs -There are few switching costs and the buyer can cook at home...so overall there is a Medium Risk ~There are many buyers and they do not buy in volume~

One of the questions for capstone will be how are you going to protect yourself?

Patent, trademark, trade secret, etc.

Bargaining power of suppliers

RISK LEVEL= WEAK o Refers to the pressure suppliers can exert on business by raising prices, lowering quality, or reducing availability of their products o Based on competitiveness of supplier industry, availability of substitute inputs, etc. o Consider partnership strategies to mitigate supplier power ▪ "Value proposition" to the supplier oPowerful suppliers... can squeeze profitability out of an industry that is unable to pass on cost increases in its own prices

Threat of Substitutes

RISK LEVEL=HIGH -A substitute performs the same or a similar function as an industry's product by a different means o Threat of substitutes high if they offer highly efficient/low-cost 'solution' to the customer's problem o Take a broad view of substitutes Substitutes can be: oEasy to overlook or ignore oOffer price/performance trade-offs oImpact profitability within an industry Switching costs Impact how threatening a substitute is within an industry Technological Advancements create new substitutes

Bargaining Power of Buyers

RISK LEVEL=MEDIUM o Emerges from buyer expectations for better price/quality/service/etc. o Higher in price-sensitive industries o Determinants of buyer power ▪ Few, large-volume buyers (telecommunications equipment) ---------->Extreme case: "monopsony" (e.g., DOD and NHS in UK) ▪ Commodity-like products ▪ Buyer has multiple options, low opportunity cost/switching costs oPowerful customers can capture more value by ▪Forcing down prices ▪Demanding better quality / more service ▪Play industry participants off one another oAffects industry profitability & drives up costs oA buyer is powerful if they are: •Price sensitive - Pressure price reductions •Have negotiation leverage ---->Few buyers ---->Large volume buyers ---->Standardized/undifferentiated industry ---->Few switching costs ---->Buyers can produce the industry product themselves

Threat of New Entrants

RISK LEVEL=MEDIUM o Threat of entry determinants: ▪ Regulatory barriers ▪ Economies of scale ▪ Access to distribution channels o Contestability: ease of entry / "low-rivalry" industries disciplined by potential entrants oNew entrants into a market steal some of the profit that already existing companies would get oThreat of new entrants is determined by the market's Barriers to Entry ØThe higher the barrier --> the harder it is to enter that market ØIndustries with high barriers benefit existing companies oNew entrants threaten existing companies by: -Lower Pricing -Reducing Costs -Enticing Deals

Entrepreneurial risk has 2 parts

Risk 1: the sinking Boat Risk 2: the missing Boat

Section 9 of the Business Plan

Rollout Schedule

Figure out what your customer wants!!!!!!!!

SUPER IMPORTANT

Management Team- Management Compensation and Ownership

Salaries; equity investment; stock options

Three alternative product/service types

Same form different form, same function different form and function, same objective

Return on Investment

Shows earnings on the investment in the business during the accounting period oA high ROI means the investment's gains compare favorably to its cost o oAs a performance measure, ROI is used to evaluate the efficiency of an investment or to compare the efficiencies of several different investments

Current Ratio

Shows the ability of a business to generate cash to meet short-term obligations oA decline in this ratio can be attributable to an increase in short-term debt, a decrease in current assets, or a combination of both oRegardless of the reasons, a decline in this ratio means a reduced ability to generate cash

The old SIC code

Standard Industrial Classification

Quick Ratio

Subtracts inventory from current assets and compares the resulting figure to current liabilities in the same formula format as the current ratio oInventory can be turned to cash only through sales oQuick ratio shows the ability to meet short-term obligations regardless of sales levels oOver time, a stable current ratio with a declining quick ratio may indicate that you've built up too much inventory

Which sources of industry were used by Panera?

Supply-side: Where fixed costs can be spread among higher sales volume (Intel, Scott's Fertilizer) Demand-side: Name recognition, reputation. (Won't ever get fired for choosing to buy from IBM). Capital Requirements: Unrecoverable costs to enter (up-front R&D, licensing) Switching Costs: Embedded hassles to move (SAP ERP software) Distribution Channels: Unequal access (slotting fees in supermarkets, new airlines - need for gates) Incumbency advantages: first-mover benefits (brand identity, experience, geographic locales) Government Regs:works both ways - benefits/hassles (alternative energy tax credits)

Marketing Plan- Example •Tiffany's •Kay Jewelers •Harry Winston's •Jared's •Local

The 4-C's: Carots, Clarity, Cut, color Unique Position Strategy THE TIFFANY® SETTING Celebrated the world over, The Tiffany Setting lifts the diamond into the light for superlative brilliance that can be seen across a crowded room. Harry Winston's From setting a budget to buying the right ring, learn how to ensure a flawless proposal. Kay Every kiss begins with Kay Jared's He got it at Jared's! Local If you don't know jewelry, know your jeweler!

How do you make money if you sell a commodity

The buyer of a futures contract makes money if the future market price of the commodity exceeds the market price of the commodity at the time of purchase. A seller of a futures contract makes money if the future market price is less than the market price of the commodity at the time of sale.

High Operating Leverage means

The greater the potential dangers arise from the risks of forecasting

Market Analysis and Research

The most involved, longest, critical section of your Business Plan

The Innovation or Adoption Curve

The rate of adoption of an innovation and follows a normal curve.

"Kaleidoscope Thinking"

Thinking across boundaries, creating new categories. --->Take an existing company and change it and make it better

Purpose of the Porter's 5 Forces

To diagnose the principal competitive pressures in a market and assess how strong and important each one is

A small error in forecasting sales, can be magnified in large errors in cash flow projections, as fixed costs will remain high while sales are dropping True or False?

True

HIGH FC means HIGH O/L, which means HIGH B/E, and HIGH risk, HIGH reward, HIGH forecasting errors True or False?

True

Planning is required to start a business and is required for Business Success True or False?

True

Risky for a new venture to have high O/L....??? True or False????

True

• It is important to make sure that there is an opportunity. True or False?

True

Better to get an imperfect product in the market rather than continue working on something for a year to make It perfect True or False?

True...whatever product you start with, will not be the last.

Ideas won't work....

Unless 'You' do!

manufacturing, marketing, sales comp, etc. Fixed or Variable?

Variable

The most focused retailer

Walmart

Business Concepts represent

Ways to capitalize on that potential oWith new products and services oWith new processes

How do we handle risk?

We mitigate it.

Method 2: Breakeven Point Calculation (in Dollars)

We need to know the following to Calculate the Breakeven Point (in Dollars) 1.Total Fixed Cost 2.Selling Price 3.Variable Cost Steps for Method 2: · Step 1: calculate the contribution margin o contribution margin =Selling price-variable cost · Step 2: Calculate the contribution margin ratio o CMR= Contribution margin per unit ($)/selling price · Step 3: Calculate the breakeven point (in dollars) Breakeven Point (BEP)= Total Fixed Costs ($)/Contribution Margin Ratio

Method 1: Breakeven Point Calculation (in Units)

We need to know the following to Calculate the Breakeven Point (in units) 1.Total Fixed Cost 2.Selling Price 3.Variable Cost (per unit) UNITS- Everyone does this!!! Steps for Method 1: Step 1: Calculate the contribution margin · contribution margin =Selling price-variable cost Step 2: Calculate the breakeven point (in units) · BEP= Total fixed costs/Contribution margin per unit

Claims on Assets- Liabilities

What a company owes, such as notes payable, trade accounts payable & bonds

Assets

What a company owns, such as equipment, buildings & inventory

Risk 2- the missing boat

What is the risk of not pursuing a course of action that would have been profitable oOften caused by not pursuing the venture until it is too late oLost revenue and Lost opportunity Almost an opportunity cost · What is the risk of not pursuing a course of action that would have been profitable · Someone else taking the opportunity rather than you going for it · Longer I consider, the linger I don't do something, the longer I sit back, the higher the risk is that you will miss the boat · Risk goes up over time Not pursuing the venture until it is too late

Entrepreneurial Accounting

Your Admission Ticket to Success...!

The best management has...

complementary skills.

Switching Costs

costs that make customers reluctant to switch to another product or service

No money =

creativity TWO DEGREES BARS!

Working capital=

current assets-current liabilities

Step 1 of the entrepreneurial process

identify an opportunity- define market, need for product/service, sense of profitability, length of market need, market surveys

Design and Development-PRODUCT DEVELOPMENT COST:

identify challenges that remain from technology. Any remaining hurdles with cost implications?

Design and Development-ROLL-OUT SCHEDULE:

identify reasons for possible delays contingency plans?

Mentally take the magnitude of risk in each area times the probability of loss in each area and sum them together. Remember it is not "high" risk - it is "calculated" risk.

important quote

S-Corp

limit of 100 shareholders, 1 class of stock, no foreign national shareholders

Design and Development- IDENTIFY COMPLICATIONS:

makes you look smart & aware you have steely-eyed awareness

The Economic Model of Business - Volumes

number of units that a business sells for each of its products

Operations Plan

o 80% of your expenses o 80% of your employees o 80% of your time o 80% of your worries! Entrepreneurs must find a way to fight through micromanagement of operations to remain guardians of strategic direction. Big Problem: Ops can engulf the Entrepreneur -1-3 pages -Logistics, physical plant, service/product delivery, consulting, after sales service, capital needs, labor requirements, internal processes.

Minimum Viable Product (MVP)

o A product with only a basic set of features enough to capture the attention of early adopters and make your solution unique. o "An MVP is a down payment on a larger vision." o MVP is beyond a prototype, beyond proof of concept. It's a product that is viable to solve the problem (or a mini-version of the problem) your eventual product will solve. o Way to engage "product evangelists" in product development/design.

Risk Assessment

o Expected vs. Actual Outcomes o Risk= Magnitude of Loss X Probability of Loss o Ex: homeless guy trying to sell u a rolex for $50 -Magnitude is $50 -Probability it isn't a rolex is 100% o New venture has multiple areas/sources of risk- "Risk Areas" o Once risks are identified, they should be assessed. Conceptually, risk assessment o Reward= magnitude of profit x probability of profit

Market definition- The center of the wheel Everything revolves around your market. All further assumptions are interdependent around the Market

o Growth plans o Marketing approaches o Competition o Financials o Valuations o Product development

Step-by-step guide to opportunity Recognition

o Ideation: Pain points o Use ERRC framework: what factors would you eliminate, reduce, raise and create to address pain points? o Buyer Utility Map: What kinds of utility are you offering with your idea? o What are the differentiating points? o Does the business model make sense?

Why do an industry analysis?

o Identifying the environmental challenges and opportunities that affect your business concept's viability o Recognizing barriers to entry: factors that raise the cost of entering a given industry ▪ Barriers to entry insulate incumbent firms from entrant competition - be it diversifying firms or new entrants (like yours!). ▪ Resources make your firm special relative to competitors; Barriers to entry make your industry special relative to competitors.

Design and Development Plan

o Important for ventures that: ▪ Require R&D ▪ Develop a non-existent product ▪ Seek patent or copyright protection o Key considerations: ▪ Nature/extent of design and development needed ▪ Time and money required to get to market

Entrepreneurial strategy Compass= 4 key choices

o Intellectual property § Licensing, royalties with existing market entrants- Bose o Disruption § Directly compete and introduce change- Rent the Runway o Value chain § "Quietly improve the world for consumers Work with partners- Peapod Internet Grocer o Architectural § Tear down the old, build out the new. Control all aspects of the new- Open Table

Market Analysis and Research Includes

o Market Definition and Customer Overview o Market Dynamics - Size and Trends o Buyer Behavior o Market Segmentation and Targeting o Competition - Your Advantage o Estimated Market Share and Sales o Market Future

Sell benefits not features

o Mistake! -Positioning products or services on features over benefits -Positioning based on Technical Merits...NO - Positioning on What the Product Can Do...YES Deal only in facts Sell the prospect results What the product will do--not what it is!

Rivalry amongst existing competitors

o Most managers see other companies in the industry as "direct competition," directing attention to industry rivalry. o Common competitive actions within-industry: ▪ Advertising ▪ Price discounting ▪ Product innovations ▪ Service improvements o Determinants/indicators of industry rivalry: ▪ Number of incumbents - many similar-sized companies vs. fewer size-varying companies ▪ Maturity of the industry - established / regulated vs. emergent / dynamic ▪ Switching costs - low-cost, easy switching vs. customer lock-in ▪ Product differentiation - commodity-like vs. diverse product lines Ex: Special eateries such as Starbucks and dunking vs. fast casual like Panera or chipotle

Industry Definition: NAICS Codes

o North American Industry Classification System (NAICS) is the U.S. Census' Bureau's standardized system for business classification into industries. o Designed as "code hierarchies" with increasing specificity

Operations as a strategic weapon

o Operations become strategic when you understand what your venture needs to be good at o - and what it does not need to be good at! o The Venture Value Curve: mapping operations to the customer's values (adaptation of ERRC Framework)

Key pieces of Design, Development, and Operation

o Outline status of development & path to introduction ▪ Convey steps, costs, and time to product testing ▪ Customer engagement in product development o Difficulties and risks ▪ What are the "known unknowns"? o Product improvement and product line expansion ▪ What continued design/development work will help you remain competitive/grow into new segments? o Costs ▪ Budget—labor, materials, consulting fees. ▪ Plan to go over in time and money! Contingency and cash flow o Intellectual Property ▪ Copyright - For "original works of authorship" - books, songs, plays, etc. ▪ Trademark -Word/name/symbols used to identify a company/product ▪ Trade Secrets -Valuable information, not publicly available, that the firm has kept secret ▪ Patents -For processes, products, use, and design features/improvements

Risk Mitigation

o Outsourcing o Contractors vs. employees o Renting/leasing vs. owning o Diversifying sources of financing o Building entrepreneurial team with complementary skills o Building Boards with connected / experienced individuals o Building partnerships with key suppliers o Do your homework! Translate unknowns 🡪 knowns.

The Marketing Mix

o PRODUCT- Product strategy o PRICE- Pricing Strategy o PLACE- Distribution strategy (place),--- work on this early o PROMOTION- Promotional Strategy

Critical decisions of marketing

o Product -Quality of components or materials, style, features, options, brand name o Price -Quality image, list price, quantity, discounts, quick payments credit o Place -Use of wholesaler and/or retailers, type of wholesaler or retailers, # -Are you going to limit retailers, online, multichannel, etc. o Promotion -Media alternatives, message, media, budget, role of personal selling WHERE is it to be done? WHAT is to be done? HOW will it be done? WHEN will it be done? WHO will do it?

Corporation (C-Corp)

o Separate legal entity with legal rights and liabilities that are different from shareholders (owners) o State regulated. Need articles of incorporations, bylaws and tax numbers o Taxation: profits from the company are taxed. Then, dividends to owners are taxed again (Double taxation) o Personal liability: limited to corporate assets unless a personal guarantee is signed o Transfer of ownership: yes o More expensive to form and maintain Beware of double taxation for C-Corps! have unlimited number of shareholders, can be anyone, multiple classes of stock. o A separate taxpaying entity, which may result in higher taxes and requires the filing of a sep tax return o Separate legal entity o Breach of liability o You are not personally liable for owner for actions of corp. o Break in liability chain o Can have an unlimited # of shareholders o Usually buy stock at C-Corporations o Unlimited number of types of securities § Preferred stock, etc. o Handles its own personal tax returns o Plan to have at least 4-5K to start a corp. o File taxes on company's behalf o Ken had C-Corporation and operated in Delaware § 85% of these are incorporated in Delaware because of director liability protection § If you try to sue, then you have to go to Delaware and pay money to get help, etc. § So companies will create Delaware companies even though they may not work there o Many investors will only work with this type of corp.

S-Corporation

o Separate legal entity with legal rights and liabilities that are different from shareholders (owners) but that offers tax advantages by the IRS o State regulated. Need articles of incorporations, bylaws and tax numbers o Taxation: profits/loss from the company is "pass-through" to owners o Personal liability: limited to corporate assets unless a personal guarantee is signed o Transfer of ownership: yes o Same as C-Corp except for federal tax status (filed with IRS) o Corporate entity o Same legal protections as C o Major diff: taxing can be done differently o We can opt to choose to be taxed like a partnership -Everyone pays taxes on their part o You can have no more than 100 shareholders o Shareholders can only be US citizens o Can only be individuals o Can only be 1 type of class of common stock o Board of directors can make decisions o Board of advisors is free and provides counsel -Can be informal -Can be group of people that you eat with and talk about business -Can be formal where you pay for them or give them interest in business

How to Use NAICS-level data

o TRENDS. Is the industry growing? What does the future look like? o INVESTMENT/TECHNOLOGY. What is the status of new technology? How much is spent on R&D? #1 disrupts innovation o DYNAMISM. Are there major competitors that dominate? Are there successful young firms? o THREATS. Are substitute innovations on the horizon? (e.g., driverless cars, drones) o BENCHMARKS. Typical margins in the industry (profit / sales)?

How 5 Forces shape competition within an industry

o The stronger that each of these five forces is, the more limited is the ability of established companies to raise prices and earn greater profits within their industry o A strong competitive force may be viewed as a threat as it depresses industry profits o A weak competitive force may be an opportunity as it allows company to earn greater profits o Strength of forces may change as industry conditions change

Chain Ratio Analysis- How many TVs are in the US?

o There are the roughly 300 million people in the US (This is the base number). o There are roughly 4 people per household: 300,000,000/4 = 75,000,000 households. o There are roughly 2 TVs per household: 75,000,000 * 2 = 150,000,000 ● Answer: 150 million TVs. -CRA allows you to offer a logical/credible response to the question "how did you get that target market size / those sales projections / etc.?" -So when a reader asks you how you determined your market size and subsequent sales, you have a credible response.

The Five Forces

o Threat of new entrants o Bargaining power of suppliers o Bargaining power of buyers o Threat of substitutes o Rivalry among existing competitors

Cost, price and value trade-offs

o What do my customers value most? o What would it take to reliably give them those things? o What would we need to give up in return?!

Questions for our business plan

o What is the "lay of the land?" Is our target industry attractive? How will you exploit industry change? o How will you position your company relative to the industry? ▪ Does the industry underserve customer segments? ▪ Can incumbents easily "copy" our business model? o What is the marketplace potential for your business? ▪ Can we avoid industry problems (e.g., macro-sensitivity, S&D trends)? o Will your business model alter industry structure? oDo you deliver innovation that is Creatively Destructive?

Tactics to Reaching Your Target Customers

oAdvertising (Print/Radio/TV) oBrochures oCirculars oClassified Ads oCommunity Service oContests oCoupons oDirect Mail oEvents oFlyers oFree Samples oFrequent Buyer Programs oGiveaways (T-shirts/Pens, Etc.) oIn-store Signage/Displays oNetworking oNewsletters oOutdoor Signage / Billboards oPersonal Letters oProduct Packaging oPoint-of-purchase Displays oPremiums oPublic Relations oPublicity oYellow Pages oPersonal Selling oSeminars oSponsorships oTelemarketing oTrade Shows

Powerful suppliers can capture more value for themselves by...

oCharging higher prices oLimiting quality or services oShifting costs to industry participants

Analysis of the Statement of Cashflow

oDetermines how effectively a company generates and manages cash oExample 1: The cash from operating activities for evaluating a company's potential for long-term success - This can show how efficiently the company can produce and sell its primary product or service Cash losses from operating activities, accompanied by cash gains from investing activities or financing activities could indicate trouble. Analysts also evaluate cash flows in relation to earnings figures (from the statement of earnings). For example, in some cases, a company can report positive earnings on the statement of earnings and still report a negative net cash flow on the statement of cash flows. This situation may occur when a company is unable to meet the current demand for its products and consequently invests its profits, or even borrows additional money, to expand its manufacturing capability (for example, by purchasing equipment or new facilities). When such a situation occurs, analysts try to determine if the prospective demand for the company's product is great enough to justify the expenditures and new debt.

Analysis of the Balance Sheet

oExamine a company's liquidity and to gain insight into the state of the company's debt and inventory oThe relationship of Balance Sheet with the Income Statement oExample 1: The relationships of accounts receivable with sales oExample 2: Inventory with the cost of sales oFinancial analysts also watch collection of accounts receivable closely oExample: If customers take long to pay for goods and services, accounts receivable may become large, forcing the company to borrow money (and pay interest) to finance these receivables. The longer it takes to collect accounts receivable the more costly to the Company, the smaller the margins and so forth Item #2... be sure your BPs don't assume immediate receipt of cash. Make reasonable assumptions of A/R turn

Analysis of the Income Statement

oExamine a company's profitability oExample 1: Analysts look at trends in revenue, operating income and gross profit rates (or margins) oExample 2: Calculation of return on assets and return on equity or return on investment

Financial Statements - Balance Sheet (Liabilities)

oLiquidity in Liability refers to how fast the claim/ debt against the company matures oShort-term or current liabilities mature quickly Intermediate & long-term liabilities listed next oWhen long-term liabilities mature, the portion that matures is moved into current liabilities

Financial Statements - Balance Sheet (Owner's Equity)

oThe owners' claim to company assets after all the liabilities have been paid off oFor a corporation, the preferred stock accounts would be listed before common equity accounts oThe last claimants on a company's assets are the common stockholders

Remember that growth is by the...

permission of the market

Pro forma is the same as...

projections

Creativity-Based Model of Opportunity Recognition

refer to chart

Business Legal Structure

refer to image

Creating New Market Space

refer to image

Opportunity Attractiveness Assessment Tool (DWI)

refer to image

Gantt Chart Sample

refer to the image.

One of the big fears companies have at being focused...

that they are afraid they wont get large enough

Total Risk

the combination of "Sinking the Boat Risk" and "Missing the Boat Risk" TOTAL RISK= Risk (missing the boat) + Risk (sinking the boat)

Rollout Schedule

· 1-page narrative · Graphic report · Use Gantt Chart or Graph o Shows what will happen in the future · Very detailed for 0-6 months · Less detailed for 6-12 months · Fewer details for years 2-5 · Come up with 15-20 things you will track that you can put on a Gantt Chart and then write 1 page · Teams forget to edit chart with new info · Lots of teams trip up here oReference fund raising, facility rentals, commencement of manufacturing, key hires, product roll out & A/R receipts Discuss how/why schedule might slip, and what actions you can employ to minimize or eliminate them.

New Venture - Risks

· Financial Risk · Market Risk · Technological Risk · Regulatory Risk · Environmental Risk · Career Risk · Family Risk

How do these commodities survive?

· Their markets aren't exactly attractive due to competition, right?

2nd Cash Flow Category: Investing Activities (Second Key Number)

·AKA ("Did you buy or sell stuff?") o Did they buy equipment, sell buildings, etc. ? -Net cash provided (or used) by investing activities -Equipment machines, Trucks, Computer and Telephone systems. -Investments in property (land), Plant (factories and plants) *****Investing in such assets is a use of cash... Selling them is a source of cash...***** - Capital expenditures including capital assets -Example 1: Overhauling trucks to extend their years of use -Example 2: Renovating factories & assembly plants to be more highly productive

Step 2 of Phase 1- Incubation

•"Mulling things over" (Wallas, 1926) |"Simmering" of pre-recognition stew •Non-linear | non-intentional | Subconscious •Where "ideas churn around below the threshold of consciousness" (Csikszentmihalyi, 1996) •Have it working in the mental background. Might take minutes, might take months/years.

What stage is your chosen industry in?

•Carrying capacity ØDegree of growth the industry can sustain •Uncertainty ØLevel of stability and ambiguity of the industry •Complexity ØNumber and diversity of inputs/outputs to industry •Industry stage of evolution ØBirth ØGrowth/Adaptation ØDifferentiation/Competition ØShakeout ØMaturity and Decline

How to choose a "Good Industry"?

•Don't confuse temporary or cyclical changes from structural ones •Understand the relationship of competition to profit ---->Ex: PC computers •Remember that industry structure defines the gap between revenues and costs •Assess how changing 1 'Force' will affect profits •Expect retaliation and its consequences

Marketing Advantages Of Entrepreneurial Venture

•Employee loyalty •Personalized product/service •Flexibility •Better/quick delivery •Quicker decision-making •Personal touch and more personal contact •Direct access to top decision-makers More intimate knowledge of customer You won't always be small and have these advantages. Emphasize the paradox.

Adjacent Spaces: Netflix

•Expand Along The Value Chain - SW that predicts user tastes •Grow New Products/Services - Streaming •Use New Distribution Channels - Partnering with HBO for packaging •Enter New Geographies - International sales •Address New Customer Segments - Just for Kids •Move into "White Space" - House of Cards, etc.

NAICS codes

•First two digits -> Economic Sector •Third digit -> Economic subsector •Fourth digit -> Industry group •Fifth digit -> Particular industries -The first two digits designate the largest business sector, the third digit designates the subsector, the fourth digit designates the industry group, and the fifth digit designates particular industries.

It is ALL about data & proving your assumptions!

•How many prospective users did you speak to? •How many industry contacts? •Did they support your assumptions for price and market entry? •Did they support your volume assumptions? •Did they confirm the need for your product?

Do you know your own Business? (what questions should you ask yourself?

•How much does an additional hour of operations drive expenses? •How much does an additional employee drive expenses? •How sensitive to a $1 change in the cost of raw materials are total expenses? •How much does an additional customer drive expenses? How sensitive to a $1 change in the cost other inputs (e.g. fuel prices) are total expenses? Sensitivity Analysis

Step 5 of the entrepreneurial process

•Implement: Initiate operations and adjust/fine-tune as circumstances and markets warrant

Rogers Adoption / Innovation Curve (why people don't readily accept innovation)

•Innovators: Brave people, pulling the change •Early Adopters: Respectable people, opinion leaders, try out new ideas but are careful •Early Majority: Thoughtful people, careful but accept change more quickly than the average •Late Majority: Skeptic people, will use new ideas/products only when the majority use it •Laggards: Traditional people, caring for the "old ways", are critical of new ideas, will accept if it becomes mainstream

Questions to ask Yourself!

•Is the industry accessible? •Does the industry contain markets that are underserved or ripe for innovation? •Can our firm do a better job than most in avoiding industry problems? •Are there positions in the industry that are immune from industry challenges? •Can we develop a superior business model that industry incumbents can't easily copy?

Understanding your Industry

•Is the industry growing? •Where are the opportunities? •What is the status of new technology? •How much is spent on R&D? •Major competitors that dominate? •Are there successful young firms? •What does future look like? •Threats to the industry? •Typical margins in the industry? (profit / sales) •Industry Benchmarks

Primary Research - Surveys

•Mail surveys -Questionnaire content and distribution development -Sampling -Response rate and follow-ups •Phone surveys •Internet surveys

Sometimes a better product at a better price with product availability and better customer service means nothing, if:

•The market is too small •The market is unwilling to change •Competitors are completely entrenched •Your product is viewed as a commodity

Why are the Essential Qualities of Opportunities important? Don't all business fail because of lack of hard work or bad concept?

•The reality is that many businesses fail •Not because the entrepreneur did not work hard •Not because of the concept itself •Because there was no opportunity [REMEMBER: WHEN DOING BUSINESS PLAN]

Phase 2- Evaluation

•Where insights are evaluated for their viability and the business concept is refined •Answers questions: •Is the concept workable? •Does the creator have the skills necessary to accomplish it? •Is the insight truly novel enough to pursue? From my notes: · Is this thing really worthy? · Is this concept workable? · Does the creator have the skills necessary to accomplish it? · Is the insight truly novel enough to pursue?

Supporting Professional Advisors

▪ BAIL team (Banker, accountant, insurance and lawyer)

The Economic Model of Business - Margins

▪ Contribution Margin- a product's price minus all associated variable costs, resulting in the incremental profit earned for each unit sold o Contribution Margin=Price per unit - Variable costs per unit o Percentage Calculation=Margin per unit/Price per unit*100 o Breakeven Analysis ▪ Method 1 (Unit Sales): Breakeven Volume (BEV)=Fixed costs/contribution margin ▪ Method 2 (Dollar Sales): Breakeven in Dollars (BED)=Fixed costs/contribution margin ratio

How to Reduce O/L

▪ Fewer fixed costs and more variable costs ▪ What common technique is available to you to solve this dilemma? -Outsourcing, partnership, resource sharing, etc. -Examples: customer Support, accounting, manufacturing, web design, office space etc.

Possible market segmentation criteria?

▪ Geography (city, state, country) ▪ Demographic variables (age, gender, family size, income) ▪ Psychographic variables (personality, lifestyle, values) ▪ Behavioral variables (benefits sought, product usage rate, brand loyalty)

Management Team-Board of Directors / Board of Advisors

▪ Insider and outsider directors; often 5 - 7 directors. Different purposes/rights for directors and advisors. Board seat as part of the offer?

The Economic Model of Business - Revenue Drivers

▪ Major ways in which the company makes money o Advertisement, subscription, web sales, direct sales, retail sales, free product/service fee, freemium Flexible pricing: group, seasonal, promotional, etc. o Different products that we sell o This is the way we make our dollars o Everyone will have more than 1 revenue driver o Starbucks - Branded merchandise -Food -Beans -Sell in grocery stores -Mints and gum

Goal of BMC

▪ Match Opportunity to Concept ▪ Provide Customer With a Product or Service ▪ Charge More Than Expenses ▪ Distinguish From Competitors ▪ Acceptable Return on Investment ▪ Sustainable - poised to handle growth and change, built to last

Management Team- Organization

▪ Outline the key management roles - the "C-suite." Consider Organizational Chart (CEO, CMO, CTO, COO, CFO)

Management Team-Key Management Personnel

▪ Sell yourselves! What is each member's duties, and how have their experiences prepared them to fulfill these duties?

Proper Market Segments are:

▪ Well-defined. Members should share similar needs/wants/behaviors. ▪ Identifiable. Members should be identifiable/reachable. ▪ Distinct. Within-segment differences should be small relative to between-segment differences. ▪ Measurable. It should be possible to estimate the size of the segment (# of people, $ amount/units purchased, etc.). ▪ Sizeable. Large enough for your company to be profitable!

Implications- High Operating Leverage

● higher return for the same increase in sales ● suitable for stable environment / larger operations to reduce cost ● longer to get to breakeven ● less flexible for changes in business ● greater sensitivity toward forecasting error ● greater risk for startups

3 Steps of Phase 1 - Opportunity Discovery

1. Preparation 2. Incubation 3. Insight

What are Pros/Cons of Surveys?

Pros: Cheap, maybe fast Cons: May not be completely objective, doesn't anticipate moves from your competition

Quick Ratio=

(Current Assets-Inventory)/Current Liabilities

Your estimated Market Size

(Market size) x percent market you intend to capture

Phase 2- Opportunity Formation Methods

- Feasibility Analysis -Market Testing -Operations and Logistics Planning

Opportunity is

-A favorable set of circumstances creating a need for a new business concept -A situation where something can be improved -The existence of "pain" that can be removed -Solving something that is unsatisfactory -An unserved or underserved market

Secondary Research

-This is research that probes data that already exists. -This may come from library sources, government reports, industry analysts, or industry associations. -Uses existing data sources -Helps with analyzing industry, market, trends -Available from web, publications, databases

Convenience- Market Segmentation

-Travel to location? -Types of transportation; ease; weather issues?

Benefits of a C-Corporation

-Unlimited stock -Shareholders can be anything or anyone located around the world -Company does own tax returns -No personal liability

How long do patents last for?

20 years

Customer-Centric Marketing Mix

4 P's explained

Liquidity Ratios

Called 'working capital ratios' because they measure the working capital in essence

Section IV of Business Plan

Economics

2 Parts of Phase 2- Opportunity Formation

Evaluation and Elaboration

Business Plans can help mitigate...

FAILURE.

Examples of Opportunity

FedEx Wireless printers HD TV Plastic wine corks Twist cap wine bottles

****Important to remember - no cost remains fixed indefinitely

IMPORTANT

Section 2 of the Business Plan

Industry Analysis

REWARD =

Magnitude of Profit X Probability of Profit

Opportunities represent

Potential oPotential customers and users oPotential revenue and cost savings

Claims on Assets- Owner's Equity

The claims of owners against the business

Customers only need your product to resolve a problem. You must know your customer to solve their 'pain'. True or False?

True

Effective and efficient segmentation strategies produced significant differences in return on invested dollars True or False?

True

Entrepreneurs are not necessarily inventors True or False?

True

From my experience as a finals round judge, the best EEE457 BPs do the most primary market research to prove demand for their product. True or False?

True

Market definition is ABSOLUTELY KEY TO SUCCESS True or False?

True

Design and Development- FOLLOW-ON PRODUCTS

are you a one-trick pony? A one-hit wonder? o Next versions o Ex: IPhone 4, iPhone X, etc.

Types of Financial Statements

balance sheet, income statement, statement of cash flows

Design and Development- UNIQUE COMPETENCE:

describe any issues that remain before product is offered for sale how can you achieve what others haven't?

C-Corps

have unlimited number of shareholders, can be anyone, multiple classes of stock.

Airline= high or low operating leverage?

high operating leverage

Entrepreneurship

the process of creating value by bringing together a unique combination of resources to exploit an opportunity

Commodity Product

-A product with no product differentiation, so that raising prices above that of competitors results in no demand at all. -a product that is the same as other products of the same type from other producers or manufacturers: Sugar is a commodity product and no one company has more chance of controlling its supply and price level than any of its rivals

•Industry Experience •Several studies have shown that prior experience in an industry helps an entrepreneur recognize business opportunities. Q:Why?

-By working in an industry, an individual may spot a market niche that is underserved. -It is also possible that by working in an industry, an individual builds a network of social contacts who provide insights that lead to new opportunities.

How did Cirque du Solieil create blue ocean?

-Circuses in the 1980s were dominated by Ringling Bros. and Barnum & Bailey. They featured three-ring circuses, clowns, and animal acts, and their customers were children and families. -However, competition was strong. Circuses competed to secure more famous entertainers and exotic animal acts, raising costs without dramatically changing buyer value. Buyers had appealing substitutes for entertainment in television and video games. Furthermore, there was increasing public outcry about confinement and harsh training of animals. -A former street performer, Guy Laliberté decided to escape the red ocean of circuses to create a blue ocean of theatrical entertainment: Cirque du Soleil. Its shows combine the circus with adult theater, showing incredible acrobatics and physical feats set to a storyline and original music. -Cirque du Soleil's blue ocean strategy distinguished itself from traditional circuses, leading to distinctly different operational forces: -Cirque du Soleil changed the nature of the show and thus decreased significant costscommon to the industry.They removed animal acts and their associated care, training, transportation, and housing.Instead of three rings, their shows feature one stage, reducing the number of performers needed.Instead of featuring star clowns and lion tamers, they anonymize the performers, thus preventing performers from gaining leverage and starting a bidding war with competitors.

Ways to Spot Opportunities

-Industry experience -Social networks -Cognitive factors · Studies have shown that opportunity recognition may be an innate skill or cognitive process · Some believe that entrepreneurs have a "sixth sense" that allows them to see opportunities that others miss -Creativity · Creativity is the process of generating a novel or useful data · Opportunity recognition may be, at least in part, a creative process

To improve their chances an entrepreneur must...

-Specify exactly what the opportunity consists of -Quantify the size and scope of the opportunity -Determine if it is a oNew market segment oA demographic change oAn opening from deregulation oOther factors

Business Concept

-a vehicle for capitalizing on the potential with new products or services -the firm's value proposition, goes beyond product/service, focus on customer need, pricing, packaging, distribution, other sources of value

9 Elements of the Business Model Canvas

1) Value propositions 2) Customer segments 3) Channels 4) Customer relationships 5) Revenue streams 6) Key resources 7) Key partners 8) Key activities 9) Cost structure

Opportunity Discovery Methods

1. Creative Thinking 2. Brainstorming 3. Problem Solving Techniques

Good opportunities must....

Create Value The benefits of the new product or service must surpass the costs by a large enough margin to yield a profit -There must be a strong value proposition

Revenue Streams (5th Element of the BMC)

How do you make money??????????? · How does the company make money from each customer segment? · What value is the customer paying for? · Revenue models (ex: direct sales) are the strategy. · Pricing is the tactics. (Ex: fees, subscriptions, etc.) How do you Make Money? Car Dealer example... a. the sources of revenue the firm generates. b. Important to align revenue stream and value proposition c. Revenue streams inform investor pitch—when will they get paid? d. Note: revenue "streams," not "ponds" - a flow concept! i. Few businesses survive solely off of single purchase customers. a. Structuring the revenue stream i. Transaction vs. Recurring revenue streams (e.g., one-time vs. subscription) ii. Fixed vs. Dynamic pricing models (e.g., one price for all vs. discounted group price) iii. Revenue generation methods 1. Asset sale, usage fees, subscription, lending/renting/leasing, licensing, brokerage fee, advertising b. Forecasting market trends helps "fill in the numbers" i. A core part of the "economics" of the business plan and the investor pitch

Phase 2- Opportunity Formation

In the Formation phase, opportunities are molded -The formation process first requires that potential opportunities be evaluated for feasibility -Strong opportunities are then shaped into viable business ventures -This is where we take the idea from the mental drawing board into the real-life world for some testing -Opportunities are molded

•Social Networks •The extent and depth of an individual's social network affects opportunity recognition. •People who build a substantial network of social and professional contacts will be exposed to more opportunities and ideas than people with sparse networks. •In one survey of 65 start-ups, half the founders reported that they got their business idea through social contacts •Q: As an entrepreneur, what can you do to establish networking relationships?

Industry trade association meetings. Can this lead to sharing important information?

Entrepreneurial journey in EEE 457

Opportunity -> Concept -> Business Model ->Business Plan

The Factoring Concept

Refer to chart

Any one opportunity could conceivably be capitalized upon with a variety of different concepts! True or False?

True

Commodities can only compete on price. True or False?

True

Channels (3rd Element of the BMC)

a. Channels speak to the ways we deliver on our value proposition to specific customer segments. i. Retail, online, through distributors, company stores -· How does the product get from our company to the customer? -What do we do to interface with our customers? How does your Product get to Customers? Web? Brick-n-Mortar? Wholesale? Direct?

Opportunity recognition

The process of identifying and selecting viable opportunities and evaluating their business feasibility o A creativity-based model of opportunity recognition o A way to systematize the opportunity recognition process o Two stages: opportunity discovery and opportunity formation

Key Resources (6th Element of the BMC)

What are your most important Assets? People? IP? Core competency? a. specific assets upon which the success and distinctiveness of the business model depends. b. Key resources are critical assets in inelastic supply - the "hard to replace" people and things that others cannot easily imitate. i. Talent (personality and/or technical aptitude), Technology, Customer knowledge, Production/distribution/customer service infrastructures, Intellectual property (patents, etc.), Financing (lines of credit, investments) c. Resources may well be part of the opportunity discovery process - their value is imputed from what customers value! -What are your most important Assets? People? IP? Core competency? -What are the most important assets required to make the business model work? · Finance · Physical · Intellectual · Human · What do we do that is special? · What are our core competencies?

Value Propositions (1st Element of the BMC)

What void in the market will you fill? Who will benefit? a. the value you offer to the consumer b. Identifies and solves a customer need/needs i. What is the pain? How do we fix it? c. Must be unique - indicative of what makes your company stand out d. Important—it's not about your product or idea! i. Technology is only part of the value proposition. e. Value proposition must be customer- and problem-focused. What are you building and for whom?

Customer segments (2nd Element of the BMC)

Who are your customers? What do they look like? What's in it for them? Do they need you? -Your customers do not exist to buy. You exist for them. -a. Customer segments: demographic/regional characteristics of expected customer base b. For whom are we creating value? c. Increasing levels of specificity (e.g., EduKate) i. Households 1. Households with children a. Households with children with disposable income i. Etc. d. List out and explore multiple segments to identify largest/most attractive target customers e. Both industry and market research can help with this

Key Partners (7th Element of the BMC)

a. Partners here refer to other businesses (not "business partners" within your team) b. Partnership benefits - risk reduction, efficiency (cost/capital savings, economies of scale), resource-preservation c. Four common types: i. Suppliers - where do our key inputs/resources come from? ii. Strategic alliances - non-competitor firms iii. Co-opetition - competing firms iv. Joint ventures - e.g., two incumbents venturing into new market / product d. Often, you'll have little leverage/bargaining power over big, established suppliers. Be creative and intentional in aligning incentives! (e.g., motivating salespeople). -Who are your Partners and Suppliers? How do you relate to/with them? · Who are the key partners and suppliers needed to make the business model work? · What key resources are we acquiring from them? · What key activities do they perform?

Customer Relationships (4th Element of the BMC)

a. the nature of your connection to the buyer. b. How to "get" customers? How to "grow" customer base? How to "keep" customers? i. Are customer purchases one-time or recurring? Is there lock-in to exploit? Will your product generate switching costs? ii. What makes them "come back" often determines the long-term viability of your business concept... -How do you Get, Keep and Grow Customers? Relational? Transactional? -Relational customer will provide us with better long-term profit -Multiple customers to capture relational and transactional customers

Business Model Canvas

o A one-page visualization of key features of the Business Plan. o Forces your team to think through and "spell out" nine necessary elements of business success. A planning tool that answers "How"? o Think of this as part of the "evaluation" step of the opportunity recognition process. ▪ How do we make money? Is the concept feasible in the real world? What don't we know? o Suggests direction as you search for data

Essential Qualities of Opportunities

o Attractive: in the marketplace · Valuable proposition is understandable · Good opportunities are attractive in the marketplace · There must be market demand for the new service o Durable: in the length of time the opportunity exists · The length of time available to develop and sell the product or service must be long enough to make it worthwhile · There must be a sufficient window of opp o Achievable: in the physical/technological world we are in · They must be physically possible and realistic · Round-trip vacations to the moon might sell really well. But unrealistic with current technology. o Anchored: in a product or service that creates value for the end user

Business Model Canvas - Framers

o Created by Alex Osterwalder o Steve Blank and Bob Dorf

Typical "E" Progression

o Define opportunity o Imagine product/service -the unique offerings of the firm o Clarify the business concept o Grow into the formal business plan o Conduct a feasibility analysis o Grow into the formal business model

A Viable Business Model must...

o Match opportunity to concept o Distinguish from competitors o Charge more than expenses o Provide customer with a product/service o Acceptable return on investment oSustainable

Why might something not be a good opportunity?

o No market need (better mousetrap) o Customers not dissatisfied o Customer loyalty very strong o Customer real/imagined "switching costs" o Customers hard to reach o Intense competition o Easy for people to enter after you o Customers too demanding for what they'll pay o The "Window of Opportunity" not yet open/already closed...

Identifying opportunities: art or science?

o Short answer: both! o Related to the famous (ongoing) debate on opportunity discovery vs. creation: Do we discover opportunities - like $20 bills on the sidewalk - or do we create and "will them into existence"? o Tools, strategy, data are critical... But creativity, drive, and focus are, too!

Adoption Hurdles

o Un-strategic price - may be infeasible even with aggressive cost-saving efforts o Employee backlash - principal-agent problems within the firm ▪ Note—maybe a boon rather than bane for nascent firms like yours? o Business partners - may see innovation as a threat (substitute vs. complement framing) o General public - risk aversion / fear of change may reduce consumer willingness to pay and create other challenges (i.e., social and regulatory challenges)

Tom Lumpkin Model- Discovery Phase

refer to image

Tom Lumpkin Model - Formation Phase

refer to the image

Tom Lumpkin Model- Creativity-Based Model of Opportunity Recognition

refer to the image

Cost Structure (9th Element of the BMC)

· What are the costs to operate the business model? · Fixed costs? Variable costs? -What are the Costs and Expenses? How do they inter-relate? a. Critical to anticipate costs / understand cost structure upfront! i. "Get out of the building" and follow the money! 1. Includes partners' costs, customers' costs, cost of key resources. b. Investigation should be qualitative 🡪 quantitative. i. "What do you spend money on?" Then "how much do you spend?" c. Understanding costs helps identify the burn rate - rate of use of capital i. Constrains timeline needed to generate and build revenue streams d. KEY QUESTION: R>C? i. The entrepreneur's fundamental equation: PROFIT = REVENUE - COSTS. ii. So, is REVENUE > COST? If not, when will it be? 1. Breakeven point is a common target for investors iii. Distinguish Fixed and Variable costs 1. Cost sensitivity: can costs be adjusted to revenue fluctuations? iv. Don't forget the cost associated with growth 1. Educating the market, hiring and training a growing team, product refinement

Creativity

•Creativity is the process of generating a novel or useful idea. Opportunity recognition may be, at least in part, a creative process.

Q: How/Why is the Innovation or Adoption Curve useful in the context of opportunity?

•Remember that trying to quickly and massively convince the masses of new a idea is useless •Therefore, convince innovators and early adopters first •The percentages are useful to estimate target groups for communication purposes •Can't move the market all at once.

Cognitive Factors

•Studies have shown that opportunity recognition may be an innate skill or cognitive process. •Some believe that entrepreneurs have a "sixth sense" that allows them to see opportunities that others miss.

Price Corridor

▪ For many businesses today, volume is key. Why? ● Network externalities: MS Words vs. Apple Pages ▪ Strategic pricing is increasingly critical ● Attract and retain customers in bulk ▪ The Price Corridor of the Mass helps locate strategic price On the graph: ● Step 1: identify the price corridor of the mass ● Step 2: specify a price level within the price corridor

Entrepreneurship- Unique Combination

◼ "Kaleidoscope Thinking" - thinking across boundaries, creating new categories. ◼ We are all surrounded by the same things, but entrepreneurs piece them together in a different way. ◼ The unique combination could include new products or services, new markets, new production processes, new raw materials, new distribution methods, new packaging, new ways of organizing existing technologies, and more! -Bring innovation to a marketplace

Entrepreneurship- creating value

◼ Entrepreneurs create value where there was none before. ◼ The key is to move beyond invention (and entrepreneurs often ≠ inventors!) to a business concept that is market-centered and creates new sources or forms of value. -Not mom and pop companies -Whats of interest to us is those companies that add value -Entrepreneurs are not creators -You can partner up with an inventor

Entrepreneurship- process

◼ Entrepreneurship is a process—a chain of events that take place over time. ◼ The "idea" is only the start! An idea not converted into something (i.e. "brought to market") is not entrepreneurship. ◼ As a process, it can be broken into steps or stages - it can be managed. ◼ The process is ongoing and it applies in organizations of all types and sizes. ◼ The process can be learned. -Sequential process

The Entrepreneurial Process (a systematic approach)

◼ Identify an Opportunity -do this through ideation ◼ Develop a Business Concept -Need to do this to exploit the opportunity -Can be more than 1 concept ------------------------------------------------- 🡨 Action that connects mind and market ◼ Assess the Necessary Resources -· What do you need (finance ppl, accountants, etc.) ◼ Acquire the Necessary Resources ◼ Implement -· Large part of entrepreneurship is action ◼ Manage and Harvest -· Harvest could be leaving it to the next generation o Selling stock back to partner, etc.

Entrepreneurship- Opportunity

◼ Opportunities have the potential to generate economic value and are viewed as desirable in the society in which they occur. ◼ Entrepreneurship is opportunity driven behavior, as opposed to resource constrained behavior. ◼ We are all surrounded by opportunities, but we often do not see or act on them. -Lies at the center of all things -Opportunity driven group of people -We do entrepreneurship because we see opportunity -We see an opportunity and commercially exploit that

◼ The Start-Up of You

◼ This is "Not your grandma's job market"! ◼ Only 27% of employed college graduates work in a job directly related to their major (Federal Reserve Bank of NY 2013) ◼ Many employers moving away from skill requirements, looking for people ◼ Employers are looking for "people who not only have the critical thinking skills to do the value-adding jobs that technology can't, but also people who can invent, adapt and reinvent their jobs every day, in a market that changes faster than ever." ◼ "You should approach career strategy the same way an entrepreneur approaches starting a business... always experimenting and adapting based on what you learn... finding the growth opportunities... strengthening the muscles of resilience"