Entrepreneurship test 1
Business Model
-A business model is a firm's plan or recipe for how it creates, delivers, and captures value for its stakeholders. -The proper time to develop a business model is following the feasibility analysis stage and prior to fleshing out the operational details of the company. -A firm's business model is integral to its ability to succeed both in the short and long term.
Business Mission
-A business's mission or mission statement describes why it exists and what its business model is supposed to accomplish. -If carefully written and used properly, a mission statement can articulate a business's overarching priorities and act as its financial and moral compass. -A well-written mission statement is something that a business can continually refer back to as it makes important decisions in other elements of its business model.
Product/Market Scope
-A company's product/market scope defines the products and markets on which it will concentrate. -Most firms start with a narrow (or limited) product/market scope, and pursue adjacent product and market opportunities as the company grows and becomes more financially secure. -In completing the business model template, a company should be very clear about its initial product/market scope and project 3-5 years in the future in terms of anticipated expansion.
What is a Competitor Analysis?
-A competitor analysis is a detailed analysis of a firm's competition. -It helps a firm understand the positions of its major competitors and the opportunities that are available. -A competitive analysis grid is a tool for organizing the information a firm collects about its competitors.
Trend 1: Economic Forces
-Economic trends help determine areas that are ripe for new start-ups and areas that start-ups should avoid. -Example of Economic Trend Creating a Favorable Opportunity: -A weak economy favors start-ups that help consumers save money. -An example is GasBuddy.com, a company started to help consumers save money on gas.
concept statement
-A concept statement is a one-page description of a product or service idea that is distributed to people who are asked to provide feedback on the potential of the idea. -The feedback will hopefully provide the entrepreneur: -A sense of the viability of the product or service idea. -Suggestions for how the idea can be strengthened or "tweaked" before proceeding further.
Core Competencies
-A core competency is a specific factor or capability that supports a firm's business model and sets it apart from rivals. -A core competency can take on various forms, such as technical know-how, an efficient process, a trusting relationship with customers, expertise in product design, and so forth. -Most start-ups will list two to three core competencies in their business model template.
Overall Financial Attractiveness of the Proposed Investment
-A number of other financial factors are associated with promising business start-ups. -In the feasibility analysis stage, the extent to which a business opportunity is positive relative to each factor is based on an estimate rather than actual performance. -The information on the next slide lists the factors that pertain to the overall attractiveness of the financial feasibility of the business idea.
Management Prowess
-A proposed business should candidly evaluate the prowess, or ability, of its management team to satisfy itself that management has the requisite passion and expertise to launch the venture. -Two of the most important factors in this area are: -The passion that the sole entrepreneur or the founding team has for the business idea. -The extent to which the sole entrepreneur or the founding team understands the markets in which the firm will participate.
Product/Customer Focus
-A second defining characteristic of successful entrepreneurs is a product/customer focus. -An entrepreneur's keen focus on products and customers typically stems from the fact that most entrepreneurs are, at heart, craftspeople.
Third Approach: Finding Gaps in the Marketplace
-A third approach to identifying opportunities is to find a gap in the marketplace. -A gap in the marketplace is often created when a product or service is needed by a specific group of people but doesn't represent a large enough market to be of interest to mainstream retailers or manufacturers. -Product gaps in the marketplace represent potentially viable business opportunities.
Trend 3: Technological Advances
-Advances in technology frequently create business opportunities. -Examples of Entire Industries that Have Been Created as the Result of Technological Advances: -Computer industry -Internet -Biotechnology -Digital photography
Barringer/Ireland Business Model Template
-Although not everyone agrees precisely on the components of a business model, many agree that a successful business model has a common set of attributes. -These attributes can be laid out in a visual framework or template so it is easy to see the individual parts and their interrelationships.
Figure 2.1 Four Essential Qualities of an Opportunity
-Attractive -Timely -durable -Anchored in a product, service, or business that creates or adds value for its buyer or end user
Tenacity Despite Failure
-Because entrepreneurs are typically trying something new, the failure rate is naturally high. -A defining characteristic for successful entrepreneurs is their ability to persevere through setbacks and failures.
Techniques for Generating Ideas
-Brainstorming -Focus Groups -Library and Internet Research
Bargaining Power of Buyers
-Buyers can suppress the profitability of the industries from which they purchase by demanding price concessions or increases in quality. -For example, the automobile industry is dominated by a handful of large companies that buy products from thousands of suppliers in different industries. This allows the automakers to suppress the profitability of the industries from which they buy by demanding price reductions.
Creativity
-Creativity is the process of generating a novel or useful idea. -Opportunity recognition may be, at least in part, a creative process. -For an individual, the creative process can be broken down into five stages, as shown on the next slide.
Trend 2: Social Forces
-Social trends alter how people and businesses behave and set their priorities. These trends provide opportunities for new businesses to accommodate the changes. -Examples of Social Trends: -Aging of the population. -The increasing diversity of the population. -Millennials entering the workforce. -Growth in the use of mobile devices. -An increasing focus on health and wellness.
Second Approach: Solving a Problem
-Sometimes identifying opportunities simply involves noticing a problem and finding a way to solve it. -These problems can be pinpointed through observing trends and through more simple means, such as intuition, serendipity, or chance. -Many companies have been started by people who have experienced a problem in their own lives, and then realized that the solution to the problem represented a business opportunity.
Cognitive Factors
-Studies have shown that opportunity recognition may be an innate skill or cognitive process. -Some people believe that entrepreneurs have a "sixth sense" that allows them to see opportunities that others miss. -This "sixth sense" is called entrepreneurial alertness, which is formally defined as the ability to notice things without engaging in deliberate search.
Prior Industry Experience
-Studies have shown that prior experience in an industry helps an entrepreneur recognize business opportunities. -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 recognizing new opportunities. -It is also important to note that anecdotal evidence suggests that people outside an industry can sometimes enter it with a new set of eyes, and as a result innovate in ways that people with prior experience might find difficult.
Bargaining Power of Suppliers
-Suppliers can suppress the profitability of the industries to which they sell by raising prices or reducing the quality of the components they provide. -If a supplier reduces the quality of the components it supplies, the quality of the finished product will suffer, and the manufacturer will eventually have to lower its price. -If the suppliers are powerful relative to the firms in the industry to which they sell, industry profitability can suffer.
Execution Intelligence
-The ability to fashion a solid business idea into a viable business is a key characteristic of successful entrepreneurs.
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. -Research results suggest that between 40% and 50% of people who start a business got their idea via a social contact. -Strong-Tie Vs. Weak-Tie Relationships -All of us have relationships with other people that are called "ties." -Nature of Strong-Tie Vs. Weak-Tie Relationship -Strong-tie relationships are characterized by frequent interaction and form between coworkers, friends, and spouses. -Weak-tie relationships are characterized by infrequent interaction and form between casual acquaintances. -Result -It is more likely that an entrepreneur will get new business ideas through weak-tie rather than strong-tie relationships.
Operations
-The final quadrant in a firm's business model focuses on operations. -Operations are both integral to a firm's overall business model and represent the day-to-day heartbeat of a firm.
Standard Business Models
-The first category is standard business models. -Standard business models depict existing plans or recipes firms can use to determine how they will create, deliver, and capture value. -There are a number of standard or common business models, which are shown on the next two slides.
Core Strategy
-The first component of the business model is core strategy. -A core strategy describes how the firm plans to compete relative to its competitors. -The primary elements of core strategy are: -Business Mission -Basis of Differentiation -Target Market -Product/Market Scope
Total Start-Up Cash Needed
-The first issue refers to the total cash needed to prepare the business to make its first sale. -An actual budget should be prepared that lists all the anticipated capital purchases and operating expenses needed to generate the first $1 in revenues. -The point of this exercise is to determine if the proposed venture is realistic given the total start-up cash needed.
Target Market
-The identification of the target market in which the firm will compete is extremely important. -A target market is a place within a larger market segment that represents a narrow group of customers with similar interests. -A firm's target market should be made explicit in the business model template.
Entrepreneurial impact on Society
-The innovations of entrepreneurial firms have a dramatic impact on society. -Think of all the new products and services that make our lives easier, enhance our productivity at work, improve our health, and entertain us.
Passion for the Business
-The number one characteristic shared by successful entrepreneurs is a passion for the business. -This passion typically stems from the entrepreneur's belief that the business will positively influence people's lives.
Competitive Intelligence
Collecting Competitive Intelligence: -To complete a competitive analysis grid, a firm must first understand the strategies and behaviors of its competitors. -The information that is gathered by a firm to learn about its competitors is referred to as competitive intelligence. -A new venture should take care that it collects competitive intelligence in a professional and ethical manner.
2. A willingness to work hard for an extended period of time
Commonly, entrepreneurs work longer hours than people with traditional jobs. You can only do that on a sustained basis if you're passionate about what you're doing.
Entrepreneurship
Entrepreneurship is the process by which individuals pursue opportunities without regard to resources they currently control. Explanation of what they do: Entrepreneurs assemble and then integrate all the resources needed - the money, the people, the business model, the strategy - to transform an invention or an idea into a viable business.
Financial Performance of Similar Businesses
Estimate the proposed start-up's financial performance by comparing it to similar, already established businesses.
Salary-substitute firms
Firms that basically provide their owner or owners a similar level of income to what they would be able to earn in a conventional job
lifestyle firms
Firms that provide their owner or owners the opportunity to pursue a particular lifestyle, and make a living at it
1. The ability to learn and iterate
Founders don't have all the answers. It takes passion and drive to solicit feedback, make necessary changes, and move forward. Needed changes won't always be obvious. Passion makes the search for the right answers invigorating and fun.
Innovation
Is the process of creating something new, which is central to the entrepreneurial process. -Small innovative firms are 16 times more productive than larger innovative firms in terms of patents per employee.
3. Ability to overcome setbacks and "no's"
It's rare that an entrepreneur doesn't experience setbacks and hear many "no's" from potential customers, investors, and others while building an entrepreneurial business or a social enterprise. The energy to continue comes from passion for an idea.
Entrepreneurial Impact on Larger Firms
Many entrepreneurial firms have built their entire business models around producing products and services that help larger firms become more efficient and effective.
5. Perseverance and persistence when the going gets tough
Perseverance and persistence come from passion. As an entrepreneur, you'll have down days. Building an entrepreneurial organization is fraught with challenges. Passion is what provides an entrepreneur the motivation to get through tough times.
creative destruction
Schumpeter argued that entrepreneurs develop new products and technologies that over time make current products and technolo-gies obsolete. Schumpeter called this process creative destruction. Because new products and technologies are typically better than those they replace and the availability of improved products and technologies increases consumer demand, creative destruction stimulates economic activity.
Job Creation
Small businesses create a substantial number of net new jobs in the United States. -Firms with 500 or fewer employees created two million of the roughly three million private sector jobs in 2014.
The Entrepreneurial Process Consists of Four Steps
Step 1: Deciding to become an entrepreneur. Step 2: Developing successful business ideas. Step 3: Moving from an idea to an entrepreneurial firm Step 4: Managing and growing the entrepreneurial firm
There are three steps to assessing product/service demand.
Step 1: Talking Face-to-Face with Potential Customers Step 2: Using Online Tools Step 3: Library, Internet and Gumshoe Research
Myth 4: Entrepreneurs Should Be Young and Energetic
-Entrepreneurial activity is fairly evenly spread out over age ranges. -While it is important to be energetic, investors often cite the strength of the entrepreneur as their most important criterion in making investment decisions. -What makes an entrepreneur "strong" in the eyes of an investor is experience, maturity, a solid reputation, and a track record of success. -These criteria favor older rather than younger entrepreneurs.
Feasibility Analysis
-Feasibility analysis is the process of determining whether a business idea is viable. -It is the preliminary evaluation of a business idea, conducted for the purpose of determining whether the idea is worth pursuing.
Threat of New Entrants
-If the firms in an industry are highly profitable, the industry becomes a magnet to new entrants. -Unless something is done to stop this, the competition in the industry will increase, and average industry profitability will decline. -Firms in an industry try to keep the number of new entrants low by erecting barriers to entry. -A barrier to entry is a condition that creates a disincentive for a new firm to enter an industry.
Rivalry Among Existing Firms
-In most industries, the major determinant of industry profitability is the level of competition among existing firms. -Some industries are fiercely competitive, to the point where prices are pushed below the level of costs, and industry-wide losses occur. -In other industries, competition is much less intense and price competition is subdued.
What is Industry Analysis?
-Industry -An industry is a group of firms producing a similar product or service, such as music, Pilates and Yoga studios, and solar panels. -Industry Analysis -Is business research that focuses on the potential of an industry.
Industry/Target Market Feasibility Analysis: purpose
-Is an assessment of the overall appeal of the industry and the target market for the proposed business. -An industry is a group of firms producing a similar product or service. -A firm's target market is the limited portion of the industry it plans to go after.
Product/Service Feasibility Analysis: purpose
-Is an assessment of the overall appeal of the product or service being proposed. -Before a prospective firm rushes a new product or service into development, it should be sure that the product or service is what prospective customers want.
Organizational Feasibility Analysis: purpose
-Is conducted to determine whether a proposed business has sufficient management expertise, organizational competence, and resources to successfully launch a business. -Focuses on non-financial resources (financial resources are considered later)
Corporate Entrepreneurship
-Is the conceptualization of entrepreneurship at the firm level. -All firms fall along a conceptual continuum that ranges from highly conservative to highly entrepreneurial. -The position of a firm on this continuum is referred to as its entrepreneurial intensity.
Financial Feasibility Analysis : purpose
-Is the final component of a comprehensive feasibility analysis. -A preliminary financial assessment is sufficient.
Basis of Differentiation
-It's important that a business clearly articulate the points that differentiate its product or service from competitors. -A company's basis of differentiation is what causes consumers to pick one company's products over another's. -It is what solves a problem or satisfies a customer need. -It is best to limit a company's basis of differentiation to two to three key points. -Make sure that your points of differentiation refer to benefits rather than features.
Components of organizational feasibility analysis
-Management Prowess -Resource Sufficiency
Myth 2: Entrepreneurs Are Gamblers
-Most entrepreneurs are moderate risk takers. -The idea that entrepreneurs are gamblers originates from two sources: -Entrepreneurs typically have jobs that are less structured, and so they face a more uncertain set of possibilities than people in traditional jobs. -Many entrepreneurs have a strong need to achieve and set challenging goals, a behavior that is often equated with risk taking.
Trend 3: Technological Advances
-Once a technology is created, products often emerge to advance it. -Example: Rokit Boost -An example is Rokit Boost, a high-end mobile accessories company that makes smartphone cases, headphones, portable USB device chargers, and Bluetooth speakers. Rokit Boost wouldn't exist if it weren't for the advent of the smartphone.
Why Is Industry Analysis Important?
-Once it is determined that a new venture is feasible in regard to the industry and market in which it will compete, a more in-depth analysis is needed to learn the ins and outs of the industry. -The analysis helps a firm determine if the target market it identified during feasibility analysis is favorable for a new firm.
1.1 Four Primary Characteristics of Successful Entrepreneurs
-Passion for the Business -Product/Customer Focus -Tenacity Despite Failure -Execution Intelligence
Trend 4: Political Action and Regulatory Changes
-Political and regulatory changes also provide the basis for opportunities. -General example: -This happened with the passage of the Affordable Care Act in 2010. The provisions of the act yielded opportunities for entrepreneurs to launch electronic records start-ups, apps to help patients monitor their medication, and similar companies. -Political change also engenders new business and product opportunities. For example, global political instability and the threat of terrorism have resulted in many firms becoming more security-conscious. -Specific examples: -Evolv Technology is a start-up that has assembled a multidisciplinary team of experts to identify, invent, and apply new technologies to meet current terrorism-related threats.
Personal Characteristics of the Entrepreneur
-Prior Industry Experience -Cognitive Factors -Social Networks -Creativity
Forms of Feasibility Analysis
-Product/Service Feasibility -Industry/Target Market Feasibility -Organizational Feasibility -Financial Feasibility
Types of Start-Up Firms
-Salary-substitute firms -lifestyle firms -entrepreneurial firms
Threat of Substitutes
-The price that consumers are willing to pay for a product depends in part on the availability of substitute products. -For example, there are few, if any, substitutes for prescription medicines, which is one of the reasons the pharmaceutical industry is so profitable. -in contrast, when close substitutes for a product exist, industry profitability is suppressed, because consumers will opt out if the price gets too high. -The extent to which substitutes suppress the profitability of an industry depends on the propensity for buyers to substitute between alternatives. -This is why firms in an industry often offer their customers amenities to reduce the likelihood that they will switch to a substitute product, even in light of a price increase.
Disruptive Business Models
-The second category is disruptive business models. -Disruptive business models, which are rare, are ones that do not fit the profile of a standard business model. -They are impactful enough that they disrupt or change the way business is conducted in an industry or an important niche within an industry. -The next slides depict four business models that were disruptive when they were introduced.
Resources
-The second component of a business model is resources. -Resources are the inputs a firm uses to produce, sell, distribute, and service a product or service. -A firm's most important resources, both tangible and intangible, must be both difficult to imitate and hard to find a substitute for. -This stipulation is necessary for an individual company's business model to be competitive over the long term.
Financials
-The third component of a firm's business model focuses on its financials. -This is the only section of a firm's business model that describes how it earns money—thus, it is extremely important. -For most businesses, the manner in which it makes money is one of the most fundamental aspects of its business model.
Myth 1: Entrepreneurs Are Born, Not Made
-This myth is based on the mistaken belief that some people are genetically predisposed to be entrepreneurs. -The consensus of many studies is that no one is "born" to be an entrepreneur; everyone has the potential to become one -Whether someone does or doesn't become an entrepreneur is a function of their environment, life experiences, and personal choices. -Although no one is "born" to be an entrepreneur, there are common traits and characteristics of successful entrepreneurs
Components of financial feasibility analysis
-Total Start-Up Cash Needed -Financial Performance of Similar Businesses -Overall Financial Attractiveness of the Proposed Venture
First Approach: Observing Trends
-Trends create opportunities for entrepreneurs to pursue. -The most important trends are: -1.Economic forces -2.Social forces -3.Technological advances -4.Political and regulatory changes -It's important to be aware of changes in these areas.
Myth 3: Entrepreneurs Are Motivated Primarily by Money
-While it is naïve to think that entrepreneurs don't seek financial rewards, money is rarely the reason entrepreneurs start new firms. -In fact, some entrepreneurs warn that the pursuit of money can be distracting.
Myth 5: Entrepreneurs Love the Spotlight
-While some entrepreneurs are flamboyant, the vast majority of them do not attract public attention. -As evidence of this, consider the following question: "How many entrepreneurs could you name?" -Most of us could come up with Jeff Bezos of Amazon.com, Mark Zuckerberg of Facebook, Larry Page and Sergey Brin of Google or maybe Elon Musk of Tesla and SpaceX. -But few could name the founders of Netflix, YouTube, or DIRECTV, even though we frequently use those firms' services.
Three Ways to Identify an Opportunity
-observing trends -solving a problem -finding gaps in the marketplace
5 primary reasons passion is important for the launch of a successful entrepreneurial organization
1. The ability to learn and iterate 2. A willingness to work hard for an extended period of time 3. Ability to overcome setbacks and "no's" 4. The ability to listen to feedback on the limitations of your organization and yourself 5. Perseverance and persistence when the going gets tough
The Five Competitive Forces Model
1. Threat of substitutes 2. Threat of new entrants 3. Rivalry among existing firms 4. Bargaining power of suppliers 5. Bargaining power of buyers
Resource Sufficiency
=This topic pertains to an assessment of whether an entrepreneur has sufficient resources to launch the proposed venture. -To test resource sufficiency, a firm should list the 6 to 12 most critical non-financial resources that will be needed to move the business idea forward successfully. -If critical resources are not available in certain areas, it may be impractical to proceed with the business idea.
What is an Opportunity?
An opportunity is a favorable set of circumstances that creates a need for a new product, service, or business.
4. The ability to listen to feedback on the limitations of your organization and yourself
You'll meet plenty of people along the way—some with good intentions and some without—who will tell you how to improve your organization and how to improve yourself. You have to be willing to listen to the people with good intentions and make changes if it helps. But you also have to be able to brush aside feedback from people with bad intentions without letting them get you down
Entrepreneurial Firms
firms that bring new products and services to the market by creating and seizing opportunities regardless of the resources they currently control
