EntreFinalExam
private placement memorandum
a specialized legal form of business plan crafted by lawyers for the purpose of soliciting formal investments.
blue ocean strategy
a strategy based on creating a new product or service which has no competitors
differentiation strategy
a type of generic strategy aimed at clarifying how one product is unlike another in mass market.
boom
a type of life cycle growth stage marked by a very rapid increase in sales in a relatively short time.
shake-out
a type of life cycle stage following a boom in which there is a rapid decrease in the number of firms in an industry.
vision statement
a very simple 5-10 word sentence or tagline that expresses the fundamental idea or goal of the firm.
screening plan
also called a mini-plan, gives the basic overview of the firm and a detailed look at the financials.
proof-of-concept website
an Internet based type of business plan providing information or demonstration of a product or service designed to solicit information on customer interest.
business format franchising
an agreement that provides a complete business format, including trade name, operational procedures, marketing, and products or services to sell
conversion franchising
an agreement that provides an organization through which independent businesses may combine resources
product distribution franchising
an agreement that provides specific brand name products which are resold by the franchisee in a specified territory
parallel competition
an imitative business that competes locally with others in the same industry
Growth stage
an industry life cycle stage in which customer purchases increase at a dramatic rate.
goal
an intended outcome for your business
operational plan
business plans designed to be used internally for management purposes.
discounted cash flows
cash flows that have been reduced in value because they are to be received in the future
industry dynamics
changes in competitors, sales and profits in an industry over time
strategic actions
competitive responses requiring a major commitment of resources.
tactical actions
competitive responses with low resource requirements
business plan
document designed to detail the major characteristics of a firm- its product, industry, market, manner of operating, and its financial outcomes with an emphasis on the firm's present and future
key employee/ partner plan
provides information on the company, product/service, market, and critical risks to prospective business or marketing partners or to prospective key employees.
takeover
seizing of control of a business by purchasing its stock to be able to select the board of directors
test marketing
selling your product or service in a limited area, for a limited time
asset
something the business owns that is expected to have economic value in the future
cash flows
the actual receipt and spending of cash by a business
net realizable value
the amount for which an asset will sell, less the costs of selling
net profit
the amount of money left after operating expenses are deducted from the business
profit before taxes
the amount of profit earned by a business before calculating the amount of income tax owed
market
the business term for the population of costumers for your product or service
replacement value
the cost to acquire an essentially identical asset
book value
the difference between the original acquisition cost and the amount of accumulated depreciation
buy-in
the purchase of substantially less than 100 percent of a business
earnings multiple
the ratio of the value of a firm to its annual earnings
focus strategy
a generic strategy that targets a portion of the market, called a segment or niche.
mission statement
a paragraph that describes the firm's goals and competitive advantages.
entry wedge
an opportunity that makes it possible for a new business to gain a foothold in a market.
Competitor
any other business in the same industry as yours
degree of similarity
the extent to which a product or service is like another
internal understanding
the extent to which employees, investors, and family members involved in the business know the business's purposes and operations.
risks
the parts of a business or business plan that expose the firm to any kind of loss- profits, sales, reputation, customers, and so on
Due diligence
the process of investigating a business to determine its value
maturity stage
the third life cycle stage, marked by a stabilization of demand, with firms in the industry moving to stabilize or improve profits through cost strategies.
generic strategies
the widely applicable classic strategies for businesses of all types- differentiation, cost, and focus
spin-off
a business that is created by separating part of an operating business into a separate entity
scale
a characteristic of a market that describes the size of the market- a mass market or a niche market
heuristic
a common-sense rule, a rule-of-thumb
mass market
a costumer group that involves large portions of the population
revolving credit
a credit agreement that allows the borrower to pay all or part of the balance at any time; as the loan balance is paid off, it becomes available to be borrowed again
new entrant business
a firm whose product or service is established elsewhere, but is new to this market.
cost strategy
a generic strategy aimed at mass markets in which a firm offers a combination of cost benefits that appeals to the customer.
perceptual mapping
a graphic display which positions products, services, brands, or companies according to their scores on important strategic dimensions
franchise
a legal agreement that allows a business to be operated using the name and business procedures of another firm
decline stage
a life cycle stage in which sales and profits of the firms in the industry begin a falling trend.
niche market
a narrowly defined segment of the population that is likely to share interests or concerns
Magic number
a post-tax income the entrepreneur personally seeks from the business.
retrenchment
an organizational life cycle stage in which established firms must find new approaches to improve the business and its chances for survival.
imitative strategy
an overall approach in which the entrepreneur does more or less what others are already doing
incremental innovation
an overall strategic approach in which a firm patterns itself on other firms, with the expectation of one or two key areas
innovative strategy
an overall strategic approach in which a firm seeks to do something that is very different from what others in the industry are doing
intangibles
assets, such as patents or trademarks, and liabilities such as accounts payable, that have no physical existence
tagline
(also known as slogan) memorable catchphrase that captures the key idea of a business, its service, product, or customer
Benefits that win over costumers
-2 types: value and cost -value benefits displays characteristics related to the nature of the product itself, quality, fashion, and reputation are some elements that give a product value in costumers eyes - cost benefits refer to ways by which a firm can keep costs low for the costumer; scale and scope savings
Imitative vs. innovative business
-Imitation is the classic strategy of small businesses. -An imitative approach lets you build on existing products, services, and markets. -An innovative approach lets you build a business in your own unique way.
Disadvantages of buying an existing business
-finding a successful business that is for sale and appropriate for your skills, experience and education is difficult and time-consuming -it's difficult to determine what a small business is worth; value can never be known with certainty; must rely on analysis, comparisons, and estimates -existing managers and workers may resist change; may be difficult to convince others to adapt to new methods, procedures, and processes that can provide increased profit -the reputation of the business may be a hindrance to future success; sellers are reluctant to tell you about problems business has had, especially past disputes and lawsuits with costumers and vendors -the business may be declining because of changes in technology -Facilities and equipment may be obsolete or in need of major repair
Disadvantages of Start-Ups
-no initial recognition; an existing business has invested in developing its market -will require significant time to become established and provide positive cash flows; established businesses have built in costumers to provide cash inflow -can be very difficult to finance; existing businesses can provide immediate assets, sales, and cash inflow to obtaining financing of the business - usually cannot easily gain revolving credit from suppliers and financial institutions; existing business has lines of credit that transfer with the business - may not have experienced managers and workers; established business provide experienced workforce, training, and management support
4 decisions needed to build a foundation for strategic planning
1- the major goals you set for your firm 2- the types of costumers you seek and what benefits you plan to offer them 3- the strategy and trend of your industry 4- the specific generic and supra strategies you choose to pursue
Issues with inheriting a family-owned business
Issue for the founder: finding the right family members, family have common but still differences in values ideas and goals; sometimes founders find it difficult to give up authority to family members, must learn to "let go" Issues for the successor: It is important to not let the business become fossilized- a monument to the founder- or to present yourself in a way that you are perceived as an "upstart"-determined to erase all signs of the founder
elevator pitch
a 30 second (100 word or less) action-oriented description of a business designed to sell the idea of the business to another.
invention plan
a business plan that provides information to potential licensees. Invention plans focus on the details of an invention, including intellectual property rights.
synergy
a combination in which the whole is greater than the sum of its component parts
gross profit
funds left over after deducting the costs of goods sold
informational plans
gives potential customers or suppliers information about the company and its product or service.
preselling
involves introducing your product to potential customers and taking orders for later delivery.
caveat emptor
latin: let the buyer beware
founder
people who create or start a new business
How to sustain competitive advantage
-Competitive advantage is your firm's edge in meeting and beating competition. -Operating business deal with competition through a combination of strategic and tactical action -strategic action- competitive responses requiring a major commitment to resources, more time, money, and expertise -tactical actions- competitive responses with low resource requirements, so its more often your first response while strategic is building in the background
Disadvantages of a Franchising
-Little control of business marketing and operations -success is determined to a large extent by the success of the franchisor
why and when to develop a business plan
-Plans are done for external legitimacy and/or internal understanding. -Plans are sometimes essential, and are often linked to improve firm survival. -Different audiences seek different goals when reading business plans.
The business plan story
-The business plan is a story you write about your firm. -The story get told in different ways and lengths, from vision statement, to mission statements, to elevator pitches, to executive summaries, to full business plans. -The one-page business plan can be used to help organize the classic business plan. -path to business plan pyramid(from top): vision (10 words), mission (20-50 words), elevator pitch (60-100 words), executive summary (250-500 words), business plan (40 pages)
5 ways to get into small business management
-You may start a new business -You may buy an existing business -You may franchise a business -You may inherit a business -You may be hired to be the professional manager of a small business
Advantages of buying a franchise
-benefit of a proven successful business model, comes with a complete business system -training and management support -less risk than starting a new business or requiring an operating business.
pioneering business
a firm whose product or service is new to the industry or is itself creating a new industry.
Advantages of Start-Ups (starting a new business rather than franchising, buying, being an employee)
-begins with a clean slate; no existing employee problems, debts, contracts, etc that need to be satisfied -provides opportunity to use the most up-to-date technology; nothing to hamper productivity -can provide new, unique products/services that are not available with existing business or franchise; existing businesses or franchise exist because of their success in providing proven products/services -can be kept small deliberately to limit the magnitude of possible losses; a bought business requires immediate, constant cash flows to meet ongoing obligations
Advantages of buying an existing business
-established costumers provide immediate sales and cash inflows; an already successful business proves there is sufficient demand for the product and it can operate profitably -business processes are already in place in an existing. operating business; don't need to hire employees, find vendors, set up accounting systems, and establish production processes -purchasing a business often requires less cash outlay than does creating a start-up; seller often provides financing to make purchasing the business possible
the major strategies of business
Differentiation- aimed at clarifying how one product is unlike another in a mass market Cost- aimed at mass markets in which a firm offers a combination of cost benefits that appeals to the costumer Focus- strategy that targets a portion of the market- a segment or niche -Most small businesses use a focus strategy, targeting a niche by combining cost or differentiation approaches. -Particular combinations or benefits are called supra-strategies.
ESOP
Employee Stock Option Plan; a method for employees to purchase the business for which they work
external legitimacy
the extent to which a small business is taken for granted, accepted, or treated as viable by organizations or people outside the small business or the owner's family.
Industry
the general name for the line of product or service being sold, or the firms in that line of business
introduction stage
the life cycle stage in which the product or service is being invented and initially developed
research and development (R&D)
the part of a business (and a business plan) that is focused on creating new products or services and preparing new technologies, ideas, products, or services for the firm's market
competitive advantage
the particular way a firm implements costumer benefits that keeps the firm ahead of other firms in the industry
proprietary technology
a product or service or an aspect of one that is kept as a trade secret or is protected legally using patent, copyright, trademark, or service mark.
point of indifference
the price at which a buyer is indifferent about buying or not buying the business
scope
a characteristic of a market that defines the geographic range covered by the market- from local to global
cover letter
a one page document on business stationary (also called letterhead) that introduces the business planan d the business owner to the recipient and indicates why the recipient is being asked to read the plan
executive summary
a one to two page overview (250-500 words) of the business, its model, market, expectations, and immediate goals. It is typically put at the start of a business plan and is the most popular summary form for a business plan
industry analysis (IA)
a research process that provides the entrepreneur with key information about the industry, such as its current situation and trends.
pure innovation
the process of creating new products or services, which results in a previously unseen product or service
4 methods for purchasing an existing business
1-you may BUYOUT the seller's interest in the business; are restricted to businesses that have a formal legal form of organization, including corporations, LLC's, and partnerships. 2-you may BUY IN, by acquiring some,but not all of the ownership 3-you can do a Key Resource Acquisition or Bulk Asset Purchase, where you buy only key assets of a business such as inventory or equipment and not the business itself- the only way a sole-proprietorship can be purchased. 4-you may TAKE OVER a public business by buying a controlling interests of its stock; purchasing enough of the target businesses stock to gain control of the board of directors of the business.
trade name franchising
an agreement that provides to the franchisee only the rights to use the franchisor's trade name and/or trademarks
