Business Creation and Growth PDF

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1. INTRODUCTION TO ENTREPRENEURSHIPEntrepreneur – is one who undertakes to organize, manage, and assume the risks of a business..Entrepreneurship: The dynamic process of creating incremental wealth This wealth is created by individuals who assume major risks in terms of equity, time and/or career co...

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1. INTRODUCTION TO ENTREPRENEURSHIP Entrepreneur – is one who undertakes to organize, manage, and assume the risks of a business. .! Entrepreneurship: • The dynamic process of creating incremental wealth! • This wealth is created by individuals who assume major risks in terms of equity, time and/or career commitment of providing value for a product or service. ! • The product or service itself may or may not be new or unique but the entrepreneur must somehow infuse value by securing and allocating the necessary skills and resources. ! Entrepreneurship essential ingredients include: • The willingness to take calculated risks—in terms of time, equity, or career. ! • The ability to formulate an effective venture team; the creative skill to marshal needed resources. ! • The fundamental skills of building a solid business plan. ! • The vision to recognize opportunity where others see chaos, contradiction, and confusion. !

The Entrepreneurship 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 etrepreneurial film.! Step 4: Managing and growing the entrepreneurial firm.! Corporate entrepreneurhip – is the conceptualization of entrepreneurship at the firm level:! All firms fall along a conceptual continuum that ranges from highly conservative to highly entrepreneurial → entrepreneurial intensity ! The position of a firm on this continuum is referred to as its entrepreneurial intensity. Entrepreneurial Firms

Conservative Firms

Proactive

Take a more “wait and see” posture

Innovative

Less Innovative

Risk Taking

Risk averse

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Entrepreneurs:

- Recognise opportunities where others see chaos, contradiction, or confusion ! - Are aggressive catalysts for change within the marketplace ! - Challange the unknown and continuously create breakthroughs for the future !

TYPES OF START-UP FIRMS SMALL BUSINESS OWNERS

ENTEPRENEURS

Mange their businesses by expecting stable sales, profits, and growth

Focus their efforts on innovation, profitability and sustainable growth

Usually don’t engage in new or innovative practices

Characterize by innovative strategic practices

Less aggressive

Seeking rapid growth and immediate profits

Owners → managers of small businesses

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Characteristics of a successful entrepreneurs: 1. Passion for the Business: • This passion typically stems from the entrepreneur’s belief that the business will positively influence people’s lives. ! 2. Product/ Customer Focus • An entrepreneur’s keen focus on products and customers typically stems from the fact that most entrepreneurs are, at heart, craftspeople. ! 3. Tenancy 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. ! 4. Execution Intelligence • The ability to fashion a solid business idea into a viable business is a key characteristic of successful entrepreneurs ! The Entrepreneurial Process Consists of Four Steps : Step 1: Deciding to become an entrepreneur.% Step 2: Developing successful business ideas.a% Step 3: Moving from an idea to an entrepreneurial firm. ! Step 4: Managing and growing the entrepreneurial firm !

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Howard Schultz’s business idea: a place where people could comfortably and quietly enjoy coffee ! How:! 1. Hired a managment team! 2. Build a premium roasting facility! 3. Build an effective organizational structure!

Entrepreneurship and society: 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. ! Job creation • Firms with 500 or fewer employees create 65% of new jobs on an annual basis. ! Entrepreneurship has strong impact on:! • Innovation! • Job creation! Entrepreneurs develop new products and technologies that make current ones obsolete → creative destruction (Schumpeter): • Stimulates economic activity (better products, higher demand) !

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• Increase productivity (better technologies)! Not only limited to new technologies and products! • New pricing strategies! • New distribution channels! • New retail formats!

New Evolutionary theories encourages economic growth through innovation: 1. Fosters competition! 2. mechanism for knowledge spillovers! 3. Generates diversity and variety among firms in a location! Facts: • It is often believed that majority of new business fail in its first year! • The truth is tat around 60% of new ventures survive the first 3 years in Europe.!

The Global Entrepreneurship Monitor (GEM): • Provides an annual assessment of the entrepreneurial environment of over 100 countries! • Topics: self-perceptions, activity, motivational index, entrepreneurship impact, gender equality, societal value about entrepreneurship!

2. Innovation, Creativity and Opportunities Opportunity – is a favorable set of circumstances that creates a need for a new product, service or business.! Essential qualities of an opportunity:&

Entrepreneur recognizes an opportunity gap and creates a business that address the gap/problem % To capitalize on an opportunity, its window of opportunity must be open (time when the firm can realisticaly enter the market)! Idea – is a notion, impression or thought. But may or may not fulfill the criteria of an opportunity. Often reason for failure of business.! Depicts the connection between an awareness of emerging trends and the personal characteristics of the entrepreneur.!

3 WAYS TO IDENTIFY AND OPPORTUNITY

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1. Observing trends: Economic forces. E.g. a weak economy favors start-ups that help consumers to obtain fast money ! Social forces – social trends alter how people and business behave and set their priorities. E.g. aging of the population, diversity of the workplace, participation in social networks, mobile devices.!

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2. Solving a problem:

- Notice a problem and finding a way to solve it! - 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!

- Sources: incongruities (expectations-reality gap), process needs, unexpected occurrences.! 3. Gaps in 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 !

Entrepreneurs’ personal characteristics: • Entrepreneurs use their existing knowledge base acquired through work, experience, and education, to hone ideas into actual opportunities ! • Entrepreneurs must be able to learn from their experiences as well ! • Characteristics that tend to make some people better at recognizing opportunities than others:& - Prior experiance! - Social networks!

- Cognitive factors! - Creativity& Prior industry experience. It helps entrepreneurs in recognizing business opportunities:! • - By working in an industry, an individual may spot a market niche that is underserved ! - 40% got the idea of a new business while working for a company in the same industry ! - 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 ! Cognitive factors:

- Sutdies have shown that opportunity recognition may % be an innate skill or cognitive process.!

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- 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.! 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 40%-50% of people who start a business got their idea via a social contact. %

Creativity:

- Creativity is the process of generating a novel or useful idea! - Opportunity recognition may be, at least in part, a creative process ! Characteristics of a Creative Climate:

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Innovation – is the process by which entrepreneurs convert opportunities (ideas) into marketable solutions. Also is a combination of the vision to create a good idea and the perseverance and dedication to remain with the concept through implementation.%

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Techniques to generate ideas Brainstorming

• Technique to generate a large number of ideas and solutions to problems quickly;! • Typically involves a group of people, and should be targeted to a specific topic.! Rules:! - No criticism! - Freewheeling is encouraged! - The session should move quickly! - Leap-frogging is encouraged

Focus Group

• Gathering of five to ten people, who have been selected based on their common characteristics relative to the issues being discussed. ! • These groups are led by a trained moderator, who uses the internal dynamics of the group environment to gain insight into why people feel the way they do about a particular issue

Library Research

Industry-specific magazines, trade journals and industry reports

Internet Research

• Typing “new business ideas” will produce links to newspapers and magazine articles about the “hottest” new business ideas. ! • If you have a specific topic in mind, setting up Google mail alerts

Customer Advisory Boards

Some companies set up customer advisory boards that meet regularly to discuss needs, wants, and problems that may lead to new ideas

Day-In-The-Life Research

A type of anthropological research, where the employees of a company spend a day with a customer

3. FEASIBILITY ANALYSIS Why new ventures fail?! Product/Market Prolems:

Financial Difficulties:

• Poor timing!

• Initial undercapitalization!

• Product design problems!

• Assuming debt too early!

• Unclear distribution strategy!

• Venture capital relationship!

• Unclear business definition!

• Assuming debt too early!

• Overreliance on the customer!

• Venture capital relationship problems &

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Managerial Problems: • Concept of a team approach! • Human resources problems%

How to avoid failure? Feasibility Analysis – is the process of determing whether a business idea is viable. Also it is the preliminary evaluation of a business idea, conducted for the purpose of determining whether the idea is worth pursuing ! Timing of Feasibility Analysis: • The proper time to conduct a feasibility analysis is early in thinking through the prospects for a new business ! • Screen ideas before a lot of resources are spent on them ! Feasibility analysis vs Business plan: • FA is investigative in nature and designed to critique the merits of a business ! • BP focus on planning and selling !

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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.! Components – product/service desirability/demand.! 2. Product/Services Desirability:% A) Determine the basic appeal of the P/S

- Does it make sense? Is it reasonable? Is it something consumers will get excited about? ! - Does it ake advantage of an environmental trend, solve a problem, or take advantage of a gap in the marketplace? !

- Is this a good time to introduce the product or service to the market? ! - Are there any fatal flaws in the product or service’s basic design or concept? ! B) Administer a concept test

- Concept statement is a one-page description of a business that is distributed to people who are asked to provide feedback on the potential of the business idea ! 3. Product/Service Demand • Gauge customer reaction to the general concept of what you want to sell, and tweak, revise, and improve on the idea based on the feedback (or abandon it!):! Step 1: Talking face-to-face with potential customers ! Step 2: Using online tools, such as Google Adwords and landing pages to assess demand ! • Utilize online tools to gauge reaction from potential customers ! • Purchase text ads on search engines that show up when a user is searching for a product that is close to their idea ! 4. Industry/Target Market Feasibility Purpose – is an assessment of the overall appeal of the industry and the target market for the proposed business. Also a firm’s target market is the limited portion of the industry it plans to go after. ! Components – industry attractiveness or target market attractiveness.! Industry – group of firms producing a similar product/service! Target MarkeT limited proportion of the industry a firm goes after.!

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Industry Attractiveness: Import – the degree to which environmental and business trends are moving in favor rather than against the industry:! • Young and early in their life cycle! • Are fragmented rather than concentrated ! • Are growing rather than shrinking ! • Are selling products and services that customers “must have” rather than “want to have”! • Have high rather than low operating margins! • Are not highly dependant on low price of key raw materials! Target Market Attractiveness: • The challenge in identifying an attractive target market is to find a market that’s large enough for the proposed business but is yet small enough to avoid attracting larger competitors ! • 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! Components – managment prowess and resource sufficiency! Managment prowess – evaluate whether the management has the requisite passion and expertise to launch the venture.! Important factors:

- 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 % ! %

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5. Financial Feasibility Purpose – is the final component of a comprehensive feasibility analysis and a preliminary financial assessment is sufficient ! Components – total start-up cash needed; financial performance of similar business; overall financial attractiveness of the propised venture ! Total start-up cash needed:! • 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 ! Overall financial attractiveness of the proposed investment Factors: % 1. Steady and rapid growth in sales during the first 5 to 7 years in a clearly defined market niche ! 2. High percentage of recurring revenue % 3. Ability to forecast income and expenses with a reasonable degree of certainty % 4. Internally generated funds to finance and sustain growth % 5. Availability ( of an exit opportunity for investors to convert equity to cash % !

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4. LEGAL FOUNDATIONS

1. Founders’ agreement – is a written document that deals with issues such as: ! • The relative split of the equity! • How individual founders will be compensated for the cash or the “sweat equity” they put into the firm ! • How long the ounders will have to remain with the firm for their shares to fully vest!

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2. Nondisclosure and Noncompete Agreements – legal agreements that many firms ask their employees to sign:! • a nondisclosure agreement binds an employee or other party (such as a supplier) to not disclose a company’s trade secrets. !

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• a noncompete agreement prevents an individual from competing against a former employer for a specific period of time.

Intellectual Property (IP) Law – is any product of human intellect that is intangible but has value in the marketplace. (Directly related to a firm’s competetive advantage)! Key forms of IP: patents, trademarks, copyrights, trade secrets.!

Patents – provides the owner with exclusive rights to hold, transfer, and license the production and sale of the product or process as an intellectual property right:! • intellectual property rights result of a unique discovery ! • What items qualify for patent protection? Processes, machines, products, plants, compositions of elements (chemical compounds), and improvements on already existing items ! Requirements for obtaining a patent:!

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Patent Infringment:! • Takes place when one party engages in the unauthorized use of another party’s patent! • Extremely costly to litigate → problem for entrepreneurs! !

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TRADEMARK – is any word, name or symbol, used to identify the source or origin of products or services and to distinguish those product or services from others:! • Current registrations are good for 10 years with the possibility for continuous renewal every 10 years ! • Cannot be be maintained if it is not use on a continuous commercial basis ! • Internet domains are questionable trademarks! COPYRIGHT – ® is a legal right which protects the overall visual appearance of a product! • Grants to the owner of a work of authorship the legal right to determine how the work is used and to obtain the economic benefits from the work:! • E.g.: literary works, musical compositions, computer software, choreography, sculpture work ! • Duration: life of the author plus 70 years! • The copyright owner has the rights to reproduce, perform, display and distribute the work ! • No need to register! • Protects the particularv way an idea is exspressed! TRADE SECRETS Business processes and information that cannot be patented, copyrighted, or trademarked but makes an individual company unique and has value to a competitor could be a trade secret (e.g: customer lists, strategic plans, R&D, pricing information, marketing and production techniques)! Information is considered a trade secret:! 1. If it is not known by the competition ! 2. If the business would lose its advantage if the competition were to obtain it ! 3. If the owner has taken reasonable steps to protect the secret from disclosure !

Issues to consider when choosing a form of business ownership:!

Types: Sole proprietorship, Partnerships, Limited liabilty companies (corporations)!

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LIMITED LIABILITY COMPANIES – Separate legal entity distinct from its owners, shareholders, directors and managers:! • It can enter into contracts and sue (or be sued) in its own right ! • Taxed separately! • Separation between managment and ownership ! • Liability of shareholders is limited to the capital they put in the business & Disadvantages Advantages Limited liability!

Activity restrictions !

Transfer of ownership!

Lack of representation!

Unlimited life!
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