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Chapter 1

Introduction to Entrepreneurship
Bruce R. Barringer
R. Duane Ireland
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Chapter Objectives
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1. Explain entrepreneurship and discuss its importance. 2. Describe corporate entrepreneurship and its use in established firms. 3. Discuss three main reasons people decide to become entrepreneurs. 4. Identify four main characteristics of successful entrepreneurs. 5. Explain five common myths regarding entrepreneurship.

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Chapter Objectives
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6. Explain how entrepreneurial firms differ from salary-substitute and lifestyle firms. 7. Discuss the changing demographics of entrepreneurs. 8. Discuss the impact of entrepreneurial firms on economies and societies. 9. Identify ways in which large firms benefit from the presence of smaller entrepreneurial firms. 10. Explain the entrepreneurial process.
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Introduction to Entrepreneurship
There is tremendous interest in entrepreneurship around the world. Books
Amazon.com lists over 33,000 books dealing with entrepreneurship and over 60,000 focused on small business.

College Courses
More and more business schools from Romania have courses dealing with entrepreneurship and small business.
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Introduction to Entrepreneurship
General Entrepreneurship Monitor
One important indicator: TEA (early-stage entrepreneurial activity)

Romania:
Low perceived opportunities or capabilities Fear of failure quite high Quite high perceived status Low media attention

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What is Entrepreneurship?

Academic Definitions
Entrepreneurship is the process by which individuals pursue opportunities without regard to resources they currently control. (Stevenson & Jarillo) Entrepreneurship has also been described as a process that involves inputs: an opportunity; one or more proactive individuals; an organizational context; risk; innovation; and resources. It can produce the following outcomes: a new venture or enterprise; value; new products or processes; profit or personal benefit; and growth. (Peggy A. Lambing and Charles R. Kuehl)

Venture Capitalist (Fred Wilson)


Entrepreneurship is the art of turning an idea into a business.

Explanation of What Entrepreneurs Do

Entrepreneurs assemble and then integrate all the resources needed the money, the people, the business model, the strategyneeded to transform an invention or an idea into a viable business.

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Corporate Entrepreneurship
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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.

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Corporate Entrepreneurship
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Entrepreneurial Firms
Proactive Innovative Risk taking

Conservative Firms
Take a more wait and see posture Less innovative Risk adverse

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Why Become an Entrepreneur?


The three primary reasons that people become entrepreneurs and start their own firms Desire to be their own boss Desire to pursue their own ideas Financial rewards

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Characteristics of Successful Entrepreneurs


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Four Primary Characteristics

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Characteristics of Successful Entrepreneurs


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Passion for the Business


The number one characteristic shared by successful entrepreneurs is a passion for the business. This passion typically stems from the entrepreneurs belief that the business will positively influence peoples lives.

Product/Customer Focus
A second defining characteristic of successful entrepreneurs is a product/customer focus. An entrepreneurs keen focus on products and customers typically stems from the fact that most entrepreneurs are, at heart, craftspeople.
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Characteristics of Successful Entrepreneurs


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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.

Execution Intelligence
The ability to fashion a solid business idea into a viable business is a key characteristic of successful entrepreneurs.

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Common Myths About Entrepreneurs


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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 doesnt become an entrepreneur, is a function of the environment, life experiences, and personal choices.

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Common Myths About Entrepreneurs


2 of 5 Although no one is born to be an entrepreneur, there are common traits and characteristics of successful entrepreneurs Achievement motivated Alert to opportunities Creative Decisive Energetic Has a strong work ethic Is a moderate risk taker Is a networker Lengthy attention span
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Optimistic disposition Persuasive Promoter Resource assembler/leverager Self-confident Self-starter Tenacious Tolerant of ambiguity Visionary
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Common Myths About Entrepreneurs


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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.

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Common Myths About Entrepreneurs


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Myth 3: Entrepreneurs Are Motivated Primarily by Money.


While it is nave to think that entrepreneurs dont 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.

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Common Myths About Entrepreneurs


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Myth 4: Entrepreneurs Should Be Young and Energetic.


The most active age for business ownership is 35 to 45 years old. While it is important to be energetic, investors often cite the strength of the entrepreneur as their most important criteria 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.
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Types of Start-Up Firms

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Changing Demographics of Entrepreneurs


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Women Entrepreneurs
In Romania, recent findings reveal that such gender stereotype of women as main householder is still strong. Nevertheless the businesswomen phenomenon is rising continuously Source: Mariana Dragusin National and Regional Women Entrepreneurs Networks
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Changing Demographics of Entrepreneurs


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almost 40% of the total active SMEs were lead by women entrepreneurs in 2005. There are important regional differences as far as the weight of their enterprises in the total: higher in the North-West Region (42, 0%) The South Region has the lowest weight (29%) of enterprises run by women.

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Changing Demographics of Entrepreneurs


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Young Entrepreneurs
Interest among young people in entrepreneurial careers is growing. college courses Associations to support young entrepreneurs Governmental initiatives

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Economic Impact of Entrepreneurial Firms


Innovation
Is the process of creating something new, which is central to the entrepreneurial process. Small firms are twice as innovative per employee as large firms.

Job Creation
In the past two decades, economic activity has moved in the direction of smaller entrepreneurial firms, which may be due to their unique ability to innovate and focus on specialized tasks.
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Entrepreneurial Firms Impact on Society and Larger Firms


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 in new ways.

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.
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The Entrepreneurial Process


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.

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Steps in the Entrepreneurial Process


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Step 1

Step 2
Developing Successful Business Ideas

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Steps in the Entrepreneurial Process


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Step 3

Step 4

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Chapter 2
Recognizing Opportunities and Generating Ideas
Bruce R. Barringer R. Duane Ireland
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Chapter Objectives
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1. Explain why its important to start a new firm when its window of opportunity is open. 2. Explain the difference between an opportunity and an idea. 3. Describe the three general approaches entrepreneurs use to identify opportunities. 4. Identify the four environmental trends that are most instrumental in creating business opportunities. 5. List the personal characteristics that make some people better at recognizing business opportunities than others.
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Chapter Objectives
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6. Identify the five steps in the creative process. 7. Describe the purpose of brainstorming and its use as an idea generator. 8. Describe how to use library and Internet research to generate new business ideas. 9. Explain the purpose of maintaining an idea bank. 10. Describe three steps for protecting ideas from being lost or stolen.

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What is An Opportunity?
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Opportunity Defined

An opportunity is a favorable set of circumstances that creates a need for a new product, service or business.

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What is an Opportunity?
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An opportunity has four essential qualities

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Three Ways to Identify an Opportunity

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First Approach: Observing Trends


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Observing Trends
Trends create opportunities for entrepreneurs to pursue. The most important trends are: Economic forces. Social forces. Technological advances. Political action and regulatory change. Its important to be aware of changes in these areas.

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First Approach: Observing Trends


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Environmental Trends Suggesting Business or Product Opportunity Gaps

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Trend 1: Economic Forces

Economic trends help determine areas that are ripe for new startups and areas that startups should avoid.

Individual sectors of the economy have a direct impact on consumer buying patterns (Ex. Banking industry-interests loans) A week economy favors those business that help people or businesses save money (Ex. Nistevo).
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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 Family and work patterns The increasing diversity of the workplace. Increasing interest in health, fitness, and wellness. Emphasis on alternative forms of energy. New forms of music and other types of entertainment.
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Trend 3: Technological Advances


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Advances in technology frequently create business opportunities. They are usually correlated with economic and social changes. Ex: Walkman, iPod, cell phones
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Examples of Entire Industries that Have Been Created as the Results of Technological Advances Computer industry Internet Biotechnology Digital photography

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Trend 3: Technological Advances


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Example: H20Audio

Once a technology is created, products often emerge to advance it Or help users better use it.

An example is H20Audio, a company started by four former San Diego State University students, that makes waterproof housings for the Apple iPod.

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Trend 4: Political Action and Regulatory Changes


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General Example

Political action and regulatory changes also provide the basis for opportunities.

Laws to protect the environment have created opportunities for entrepreneurs to start firms that help other firms comply with environmental laws and regulations.

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Trend 4: Political Action and Regulatory Changes


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Specific Example

Company created to help other companies comply with a specific law.

Consultancy companies providing help to other companies in order to implement specific quality management regulations (ISO, HACCP etc.) Or accessing European funds.

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Second Approach: Solving a Problem


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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.

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Second Approach: Solving a Problem


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A problem facing the U.S. and other countries is finding alternatives to fossil fuels. A large number of entrepreneurial firms, like this wind farm, are being launched to solve this problem.

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Solving a Problem

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Third Approach: Finding Gaps in the Marketplace


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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 doesnt represent a large enough market to be of interest to mainstream retailers or manufacturers.

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Third Approach: Finding Gaps in the Marketplace


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Specific Example

Product gaps in the marketplace represent potentially viable business opportunities.

Opening case Gabriela Man Gary Cavin Curves International

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Personal Characteristics of the Entrepreneur


Characteristics that tend to make some people better at recognizing opportunities than others

Prior Experience

Cognitive Factors

Social Networks

Creativity

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Prior Experience
Prior Industry Experience
Several 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. Corridor principle

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Cognitive Factors
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.

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Social Networks
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Social Networks

The extent and depth of an individuals 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. All of us have relationships with other people that are called ties. (See next slide.)
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Strong Tie Vs. Weak Tie Relationships

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Social Networks
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Nature of Strong-Tie Vs. Weak Tie Relationships


Strong-tie relationship 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. (See next slide.)
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Social Networks
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Why weak-tie relationships lead to more new business ideas than strong-tie relationships Strong-Tie Relationships These relationships, which typically form between like minded individuals, tend to reinforce insights and ideas that people already have. Weak-Tie Relationships These relationships, which form between casual acquaintances, are not as apt to be between likeminded individuals, so one person may say something to another that sparks a completely new idea.
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Creativity
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Creativity
Creativity is the process of generating a novel or useful idea. Opportunity recognition may be, at least in part, a creative process.

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Full View of the Opportunity Recognition Process


Depicts the connection between an awareness of emerging trends and the personal characteristics of the entrepreneur

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Techniques For Generating Ideas

Brainstorming

Focus Groups

Library and Internet Research

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Brainstorming
Brainstorming
Is a technique used to generate a large number of ideas and solutions to problems quickly. A brainstorming session typically involves a group of people, and should be targeted to a specific topic. Rules for a brainstorming session:
No criticism. Freewheeling is encouraged. The session should move quickly. Leap-frogging is encouraged.

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Focus Groups
Focus Group
A focus group is a 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 they way they do about a particular issue. Although focus groups are used for a variety of purposes, they can be used to help generate new business ideas.
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Library and Internet Research


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Library Research
Libraries are an often underutilized source of information for generating new business ideas. The best approach is to talk to a reference librarian, who can point out useful resources, such as industry-specific magazines, trade journals, and industry reports. Simply browsing through several issues of a trade journal or an industry report on a topic can spark new ideas.

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Libraries and Internet Research


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Large public and university libraries typically have access to search engines and industry reports that would cost thousands of dollars to access on your own.

Examples of Useful Search Engines and Industry Reports Lexis-Nexis Academic ProQuest IBISWorld Mintel Standard & Poors Net Advantage

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Library and Internet Research


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Internet Research
If you are starting from scratch, simply typing new business ideas into a search engine 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 or Yahoo! e-mail alerts will provide you to links to a constant stream of newspaper articles, blog posts, and news releases about the topic. Targeted searches are also useful.
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Other Techniques
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.

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Chapter 3
Feasibility Analysis
Bruce R. Barringer R. Duane Ireland

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Chapter Objectives
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1. Explain what a feasibility analysis is and why its important. 2. Discuss the proper time to complete a feasibility analysis when developing an entrepreneurial venture. 3. Describe the purpose of a product/service feasibility analysis and the two primary issues that a proposed business should consider in this area. 4. Explain a concept statement and its components. 5. Describe the purpose of a buying intentions survey and how its administered.
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Chapter Objectives
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6. Explain the importance of library, Internet, and gumshoe research. 7. Describe the purpose of industry/market feasibility analysis and the two primary issues to consider in this area. 8. Discuss the characteristics of an attractive industry. 9. Describe the purpose of organizational feasibility analysis and list the two primary issues to consider in this area.
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Chapter Objectives
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10. Explain the importance of financial feasibility analysis and list the most critical issues to consider in this area.

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What Is 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.

Feasibility Analysis

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When To Conduct a Feasibility Analysis


Timing of Feasibility Analysis
The proper time to conduct a feasibility analysis is early in thinking through the prospects for a new business. The thought is to screen ideas before a lot of resources are spent on them Primary research and secondary research Ex: Jim Clark (Silicon Graphics and Netscape).

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The reason so few companies are a success in that most people do not have a lot of common sense about what will sell and what wont. You need to be very pragmatic about whether people will pay for a product based on your great idea. This should be great and I am sure the world will beat a path to my door. Once you have an idea for a product or service, you need to test the market. Talk to potential customers about what they want. And dont try to make the product do everything for everyone. Engineers often make mistakes. Its the Swiss Army knife mentality. They want to put everything in. Dont. Go out and talk to customers as quickly as you can and put a copy of the product in front of them to get their feedback. When we went out to sell our first product at Silicon Graphics people came back and said. We dont want to do this. We (after making adjustments) sold them what they wanted.
JIM CLARK

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Feasibility Analysis
Role of feasibility analysis in developing business ideas.

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Forms of Feasibility Analysis

Product/Service Feasibility

Industry/Target Market Feasibility

Organizational Feasibility

Financial Feasibility

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Outline for a Comprehensive Feasibility Analysis

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Product/Service Feasibility Analysis


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Purpose

Product/Service Feasibility Analysis

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.

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Product/Service Feasibility Analysis


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Components of product/service feasibility analysis


Product/Service Desirability Product/Service Demand

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Product/Service Desirability
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First, ask the following questions to determine the basic appeal of the product or service. Does it make sense? Is it reasonable? Is it something consumers will get excited about? Does it take 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 services basic design or concept?
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Product/Service Desirability
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Second, Administer a Concept Test


A concept statement should be developed. A 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. The feedback will hopefully provide the entrepreneur
A sense of the viability or the product or service idea. Suggestions for how the idea can be strengthened or tweaked before proceeding further.

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Product/Service Desirability
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New Venture Fitness Drinks Concept Statement

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Product/Service Demand
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Product/Service Demand
Their are two steps to assessing product/service demand. Step 1: Administer a Buying Intentions Survey Step 2: Conduct library, Internet, and Gumshoe research

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Product/Service Demand
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Buying Intentions Survey


Is an instrument that is used to gauge customer interest in a product or service. It consists of a concept statement or a similar description of a product or survey with a short survey attached to gauge customer interest. Internet sites like SurveyMonkey make administering a buying intentions survey easy and affordable.

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Product/Service Demand
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Product/Service Demand
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Library, Internet, and Gumshoe Research


The second way to assess the demand for a product or service is by conducting library, Internet, and gumshoe research. Reference librarians can often point you towards resources to help you investigate a business idea, such as industryspecific trade journal and industry reports. Internet searches can often yield important information about the potentially viability of a product or service idea.

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Product/Service Demand
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Explanation A gumshoe is a detective or an investigator that scrounges around for information or clues wherever they can be found. Be a gumshoe. Ask people what they think about your product or service idea. If your idea is to sell educational toys, spend a week volunteering at a day care center and watch how children interact with toys.
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Gumshoe Research

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Product/Service Demand
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One of the most effective things an entrepreneur can do to conduct a thorough product/service feasibility analysis is to hit the streets and talk to potential customers. This potential entrepreneur is administering a survey about a new product idea.

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Industry/Target Market Feasibility Analysis


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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 firms target market is the limited portion of the industry it plans to go after.
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Industry/Target Market Feasibility Analysis

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Industry/Target Market Feasibility Analysis


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Components of industry/target market feasibility analysis


Target Market Attractiveness

Industry Attractiveness

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Industry Attractiveness
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Industry Attractiveness
Industries vary in terms of their overall attractiveness. In general, the most attractive industries have the characteristics depicted on the next slide. Particularly importantthe degree to which environmental and business trends are moving in favor rather than against the industry .

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Industry Attractiveness
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Target Market Attractiveness


Target Market Attractiveness
The challenge in identifying an attractive target market is to find a market thats large enough for the proposed business but is yet small enough to avoid attracting larger competitors. Assessing the attractiveness of a target market is tougher than an entire industry. Often, considerably ingenuity must be employed to finding information to assess the attractiveness of a specific target market.
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Organizational Feasibility Analysis


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Purpose

Organizational Feasibility Analysis

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.

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Organizational Feasibility Analysis


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Components of organizational feasibility analysis

Management Prowess

Resource Sufficiency

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Management Prowess
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Management Prowess

A firm 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 solo entrepreneur or the founding team has for the business idea. The extent to which sole entrepreneur or the founding team understands the markets in which the firm will participate.

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Management Prowess
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An indication of passion is the willingness of a new venture team to complete a comprehensive feasibility analysis.

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Resource Sufficiency
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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 nonfinancial 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.

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Resource Sufficiency
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Examples of nonfinancial resources that may be critical to the successful launch of a new business
Availability of

affordable office or lab space.

Likelihood of local and state government support of the business.

Quality of the labor pool available.


Proximity to key suppliers and customers. Willingness of high quality employees to join the firm.

Likelihood of establishing favorable strategic partnerships.


Proximity to similar firms for the purpose of sharing knowledge. Possibility of obtaining intellectual property protection in key areas.
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Financial Feasibility Analysis


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Purpose

Financial Feasibility Analysis

Is the final component of a comprehensive feasibility analysis. A preliminary financial assessment is sufficient.

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Financial Feasibility Analysis


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Components of financial feasibility analysis


Total Start-Up Cash Needed Financial Performance of Similar Businesses

Overall Financial Attractiveness of the Proposed Venture

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Total Start-Up Cash Needed


Total Start-Up Cash Needed
The first issues refers to the 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.

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Financial Performance of Similar Businesses


Financial Performance of Similar Businesses
Estimate the proposed start-ups financial performance by comparing it to similar, already established businesses. There are several ways to doing this, all of which involve a little ethical detective work.
First, there are many reports available, some for free and some that require a fee, offering detailed industry trend analysis and reports on thousands of individual firms. Second, simple observational research may be needed. For example, the owners of New Venture Fitness Drinks could estimate their sales by tracking the number of people who patronize similar restaurants and estimating the average amount each customer spends.
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Overall Financial Attractiveness of the Proposed Venture


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Overall Financial Attractiveness of the Proposed Investment


A number of other financial factors are associated with promising business startups. 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 table on the next slide lists the factors that pertain to the overall attractiveness of the financial feasibility of the business idea.
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Overall Financial Attractiveness of the Proposed Venture


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Financial Factors Associated With Promising Business Opportunities


Steady and rapid growth in sales during the first 5 to 7 years in a clearly

defined market niche. High percentage of recurring revenuemeaning that once a firm wins a client, the client will provide recurring sources of revenue. Ability to forecast income and expenses with a reasonable degree of certainty. Internally generated funds to finance and sustain growth. Availability of an exit opportunity for investors to convert equity to cash.

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First Screen
First Screen
Shown in Appendix 3.1, is a template for completing a feasibility analysis. Its called First Screen because its a tool that can be used in the initial pass at determining the feasibility of a business idea. If a business idea cuts muster at this stage, the next step is to complete a business plan.

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Chapter 4
Writing a Business Plan
Bruce R. Barringer R. Duane Ireland

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Chapter Objectives
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1. Explain the purpose of a business plan. 2. Discuss the two primary reasons for writing a business plan. 3. Describe who reads a business plan and what theyre looking for. 4. Explain the difference between a summary business plan, a full business plan, and an operational business plan. 5. Explain why the executive summary may be the most important section of a business plan.
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Chapter Objectives
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6. Describe a milestone and how milestones are used in business plans. 7. Explain why its important to include separate sections on a firms industry and its target market in a business plan. 8. Explain why the Management Team and Company Structure section of a business plan is particularly important. 9. Describe the purposes of a sources and uses of funds statement and an assumptions sheet.
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Chapter Objectives
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10. Detail the parts of an oral presentation of a business plan.

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What Is a Business Plan?


Business Plan
A business plan is a written narrative, typically 25 to 35 pages long, that describes what a new business plans to accomplish. For most new ventures, the business plan is a dual-purpose document used both inside and outside the firm.

Dual-Use Document

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Why Reads the Business PlanAnd What Are They Looking For?
There are two primary audience for a firms business plan
Audience A Firms Employees What They are Looking For

A clearly written business plan helps the employees of a firm operate in sync and move forward in a consistent and purposeful manner.
A firms business plan must make the case that the firm is a good use of an investors funds or the attention of others.

Investors and other external stakeholders

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Guidelines for Writing a Business Plan


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Structure of the Business Plan


To make the best impression a business plan should follow a conventional structure, such as the outline for the business plan shown in the chapter. Although some entrepreneurs want to demonstrate creativity, departing from the basic structure of the conventional business plan is usually a mistake. Typically, investors are busy people and want a plan where they can easily find critical information.

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Guidelines for Writing a Business Plan


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Structure of the Business Plan (continued)


Software Packages
There are many software packages available that employ an interactive, menu-driven approach to assist in the writing of a business plan. Some of these programs are very helpful. However, entrepreneurs should avoid a boilerplate plan that looks as though it came from a canned source.

Sense of Excitement
Along with facts and figures, a business plan needs to project a sense of anticipation and excitement about the possibilities that surround a new venture.
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Guidelines for Writing a Business Plan


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Content of the Business Plan


The business plan should give clear and concise information on all the important aspects of the proposed venture. It must be long enough to provide sufficient information yet short enough to maintain reader interest. For most plans, 25 to 35 pages is sufficient.

Types of Business Plans


There are three types of business plans, which are shown on the next slide.
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Guidelines for Writing a Business Plan


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Types of Business Plans

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Guidelines for Writing a Business Plan


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Recognizing the Elements of the Plan May Change


Its important to recognize that the plan will usually change while written. New insights invariably emerge when an entrepreneur or a team of entrepreneurs immerse themselves in writing the plan and start getting feedback from others.

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Outline of Business Plan


Outline of Business Plan
A suggested outline of a business plan is shown on the next several slides. Most business plans do not include all the elements introduced in the sample plan; we include them here for the purpose of completeness. Each entrepreneur must decided which elements to include in his or her plan.

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Section 1: Executive Summary


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Executive Summary

The executive summary is a short overview of the entire business plan It provides a busy reader with everything that needs to be known about the new ventures distinctive nature. An executive summary shouldnt exceed two single-space pages.

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Section 1: Executive Summary


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Key Insights In many instances an investor will ask for a copy of a firms executive summary and will ask for a copy of the entire plan only if the executive summary is sufficiently convincing. The executive summary, then, is arguably the most important section of a business plan.

Executive Summary

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Section 2: Company Description


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Company Description

The main body of the business plan beings with a general description of the company. Items to include in this section:
Company description. Company history. Mission statement. Products and services. Current status. Legal status and ownership. Key partnerships (if any).

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Section 2: Company Description


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Key Insights While at first glance this section may seem less important than the others, it is extremely important. It demonstrates to your reader that you know how to translate an idea into a business.

Company Description

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Section 3: Industry Analysis


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Industry Analysis

This section should being by describing the industry the business will enter in terms of its size, growth rate, and sales projections. Items to include in this section:
Industry size, growth rate, and sales projections. Industry structure. Nature of participants. Key success factors. Industry trends. Long-term prospects.

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Section 3: Industry Analysis


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Key Insights Before a business selects a target market it should have a good grasp of its industryincluding where its promising areas are and where its points of vulnerability are. The industry that a company participates in largely defines the playing field that a firm will participate in.

Industry Analysis

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Section 4: Market Analysis


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Market Analysis

The market analysis breaks the industry into segments and zeros in on the specific segment (or target market) to which the firm will try to appeal. Items to include in this section:
Market segmentation and target market selection. Buyer behavior. Competitor analysis.

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Section 3: Market Analysis


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Key Insights Most startups do not service their entire industry. Instead, they focus on servicing a specific (target) market within the industry. Its important to include a section in the market analysis that deals with the behavior of the consumers in the market. The more a startup knows about the consumers in its target market, the more it can tailor its products or service appropriately.
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Market Analysis

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Section 4: Marketing Plan


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Marketing Plan

The marketing plan focuses on how the business will market and sell its product or service. Items to include in this section:
Overall marketing strategy. Product, price, promotions, and distribution.

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Section 4: Marketing Plan


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Key Insights The best way to describe a startups marketing plan is to start by articulating its marketing strategy, positioning, and points of differentiation, and then talk about how these overall aspects of the plan will be supported by price, promotional mix, and distribution strategy.

Marketing Plan

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Section 5: Management Team and Company Structure


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Management Team and Company Structure

The management team of a new venture typically consists of the founder or founders and a handful of key management personnel. Items to include in this section:
Management team. Board of directors. Board of advisers. Company structure.

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Section 5: Management Team and Company Structure


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Key Insights This is a critical section of a business plan. Many investors and others who read the business plan look first at the executive summary and then go directly to the management team section to assess the strength of the people starting the firm.

Management Team and Company Structure

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Section 6: Operations Plan


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Operations Plan

Outlines how your business will be run and how your product or service will be produced. A useful way to illustrate how your business will be run is to describe it in terms of back stage (unseen to the customer) and front stage (seen by the customer) activities. Items to include in this section:
General approach to operations. Business location. Facilities and equipment.

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Section 6: Operations Plan


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Key Insights Your have to strike a careful balance between adequately describing this topic and providing too much detail. As a result, it is best to keep this section short and crisp.

Operations Plan

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Section 7: Product (or Service) Design and Development Plan


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Product (or Service) Design and Development Plan

If youre developing a completely new product or service, you need to include a section that focuses on the status of your development efforts. Items to include in this section:
Development status and tasks. Challenges and risks. Intellectual property.

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Section 7: Product (or Service) Design and Development Plan


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Key Insights Many seemingly promising startups never get off the ground because their product development efforts stall or turn out to be more difficult than expected. Its important to convince the reader of your plan that this wont happen to you.

Product (or Service) Design and Development Plan

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Section 8: Financial Projections


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Financial Projections

The final section of a business plan presents a firms pro forma (or projected) financial projections. Items to include in this section:
Sources and uses of funds statement. Assumptions sheet. Pro forma income statements. Pro forma balance sheets. Pro forma cash flows. Ratio analysis.

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Section 8: Financial Projections


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Key Insights Having completed the earlier sections of the plan, its easy to see why the financial projections come last. They take the plans youve developed and express them in financial terms.

Financial Projections

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Presenting the Business Plan to Investors


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The Oral Presentation


The first rule in making an oral presentation is to follow directions. If youre told you have 15 minutes, dont talk for more than the allotted time. The presentation should be smooth and well-rehearsed. The slides should be sharp and not cluttered.

Questions and Feedback to Expect from Investors


The smart entrepreneur has a good idea of the questions that will be asked, and will be prepared for those queries.

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Presenting the Business Plan to Investors


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Twelve PowerPoint Slides to Include in an Investor Presentation 1. Title Slide 2. Problem 3. Solution 4. Opportunity and target market 5. Technology 6. Competition 7. Marketing and sales 8. Management team 9. Financial projections 10. Current status 11. Financing sought 12. Summary

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Presenting the Business Plan to Investors


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Its also important to look sharp when presenting a business plan. This new venture team is going over its PowerPoint slides one last time before an investor presentation.

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Chapter 5
Industry and Competitor Analysis
Bruce R. Barringer
R. Duane Ireland

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Chapter Objectives
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1. Explain the purpose of an industry analysis. 2. Identify the five competitive forces that determine industry profitability. 3. Explain the role of barriers to entry in creating disincentives for firms to enter an industry. 4. Identify the nontraditional barriers to entry that are especially associated with entrepreneurial firms. 5. List the four industry-related questions to ask before pursuing the idea for a firm.
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Chapter Objectives
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6. Identify the five primary industry types and the opportunities they offer. 7. Explain the purpose of a competitor analysis. 8. Identify the three groups of competitors a new firm will face. 9. Describe ways a firm can ethically obtain information about its competitors. 10. Describe the reasons for completing a competitive analysis grid.
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What is Industry Analysis?


Industry
An industry is a group of firms producing a similar product or service, such as airlines, fitness drinks, furniture, or electronic games.

Industry Analysis
Is business research that focuses on the potential of an industry.

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What is Industry Analysis Important?


Importance 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 niche market it identified during feasibility analysis is favorable for a new firm.
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Industry Analysis

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Three Key Questions


When studying an industry, an entrepreneur must answer three questions before pursuing the idea of starting a firm.
Question 1 Is the industry accessiblein other words, is it is realistic place for a new venture to enter? Question 2 Does the industry contain markets that are ripe for innovation or are underserved? Question 3 Are there positions in the industry that avoid some of the negative attributes of the industry as a whole?

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How Industry and Firm-Level Factors Affect Performance


Firm Level Factors
Include a firms assets, products, culture, teamwork among its employees, reputation, and other resources.

Industry Level Factors


Include threat of new entrants, rivalry among existing firms, bargaining power of buyers, and related factors.

Conclusion
In various studies, researchers have found that from 8% to 30% of the variation in firm profitability is directly attributable to the industry in which a firm competes.
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Techniques Available to Assess Industry Attractiveness


Assessing Industry Attractiveness
Study Environmental and Business Trends The Five Competitive Forces Model

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Studying Industry Trends


Environmental Trends
Include economic trends, social trends, technological advances, and political and regulatory changes. For example, industries that sell products to seniors are benefiting by the aging of the population.

Business Trends
Other trends that impact an industry. For example, are profit margins in the industry increasing or falling? Is innovation accelerating or waning? Are input costs going up or down?
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The Five Competitive Forces Model


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Explanation of the Five Forces Model


The five competitive forces model is a framework for understanding the structure of an industry. The model is composed of the forces that determine industry profitability. They help determine the average rate of return for the firms in an industry.

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The Five Competitive Forces Model


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Explanation of the Five Forces Model (continued)


Each of the five-forces impacts the average rate of return for the firms in an industry by applying pressure on industry profitability. Well managed firms try to position their firms in a way that avoids or diminishes these forcesin an attempt to beat the average rate of return of the industry.

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The Five Competitive Forces Model


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Threat of Substitutes
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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.

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Threat of Substitutes
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Threat of Substitutes (continued)


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.

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Threat of Substitutes
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A customer could easily get a cup of coffee cheaper at one of Starbucks competitors. To decrease the likelihood of this, Starbucks offers highquality fresh coffee, good service, and a pleasant atmosphere. Starbucks has therefore reduced the threat of substitutes.
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Threat of New Entrants


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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.

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Threat of New Entrants


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Barriers to Entry
Barrier to Entry Economies of Scale Explanation Industries that are characterized by large economies of scale are difficult for new firms to enter, unless they are willing to accept a cost disadvantage. Industries such as the soft drink industry that are characterized by firms with strong brands are difficult to break into without spending heavily on advertising.

Product differentiation

Capital requirements

The need to invest large amounts of money to gain entrance to an industry is another barrier to entry.

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Threat of New Entrants


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Barriers to Entry (continued)


Barrier to Entry Cost advantages independent of size Explanation Existing firm may have cost advantages not related to size. For example, the existing firms in an industry may have purchased land when it was less expensive than it is today. Distribution channels are often hard to crack. This is particularly true in crowded markets, such as the convenience store market. Some industries, such as broadcasting, require the granting of a license by a public authority to compete.

Access to distribution channels

Government and legal barriers

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Threat of New Entrants


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Non Traditional Barriers to Entry


It is difficult for start-ups to execute barriers to entry that are expensive, such as economies of scale, because money is usually tight. Start-ups have to rely on nontraditional barriers to entry to discourage new entrants, such as assembling a world-class management team that would be difficult for another company to replicate.

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Threat of New Entrants


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Nontraditional Barriers to Entry


Barrier to Entry Strength of management team Explanation If a start-up puts together a world-class management team, it may give potential rivals pause in taking on the start-up in its chosen industry. If a start-up pioneers an industry or a new concept within an industry, the name recognition the start-up establishes may create a barrier to entry. If the employees of a start-up are motivated by the unique culture of a start-up, and anticipate large financial reward, this is a combination that cannot be replicated by larger firms.
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First-mover advantage

Passion of the management team and employees


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Threat of New Entrants


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Nontraditional Barriers to Entry (continued)


Barrier to Entry Unique Business Model Explanation If a start-up is able to construct a unique business model and establish a network of relationships that makes the business model work, this set of advantages creates a barrier to entry. Some Internet domain names are so spot-on that they give a start-up a meaningful leg up in terms of ecommerce opportunities. If a start-up invents a new approach to an industry and executes it in an exemplary fashion, these factors create a barrier to entry for potential imitators.

Internet Domain Name Inventing a new approach to an industry


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Rivalry Among Existing Firms


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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 industrywide losses occur. In other industries, competition is much less intense and price competition is subdued.

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Rivalry Among Existing Firms


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Factors that determine the intensity of the rivalry among existing firms in an industry.

Number and balance of competitors

The more competitors there are, the more likely it is that one or more will try to gain customers by cutting its price.

Degree of difference between products

The degree to which products differ from one product to another affects industry rivalry.

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Rivalry Among Existing Firms


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Factors that determine the intensity of the rivalry among existing firms in an industry (continued)

Growth rate of an industry

The competition among firms in a slow-growth industry is stronger than among those in fastgrowth industries.

Level of fixed costs

Firms that have high fixed costs must sell a higher volume of their product to reach the break-even point than firms with low fixed costs.

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Bargaining Power of Suppliers


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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.

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Bargaining Power of Suppliers


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Factors that have an impact on the ability of suppliers to exert pressure on buyers

Supplier concentration

When they are only a few suppliers that supply a critical product to a large number of buyers, the supplier has an advantage.

Switching costs

Switching costs are the fixed costs that buyers encounter when switching or changing from one supplier to another. If switching costs are high, a buyer will be less likely to switch suppliers.

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Bargaining Power of Suppliers


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Factors that have an impact on the ability of suppliers to exert pressure on buyers (continued)

Attractiveness of substitutes

Supplier power is enhanced if there are no attractive substitutes for the product or services the supplier offers.

Threat of forward integration

The power of a supplier is enhanced if there is a credible possibility that the supplier might enter the buyers industry.

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Bargaining Power of Buyers


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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.

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Bargaining Power of Buyers


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Factors that have an impact on the ability of suppliers to exert pressure on buyers
If there are only a few large buyers, and they buy from a large number of suppliers, they can pressure the suppliers to lower costs and thus affect the profitability of the industries from which they buy.

Buyer group concentration

Buyers costs

The greater the importance of an item is to a buyer, the more sensitive the buyer will be to the price it pays.

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Bargaining Power of Buyers


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Factors that have an impact on the ability of buyers to exert pressure on suppliers (continued)
Degree of standardization of suppliers products The degree to which a suppliers product differs from its competitors affect the buyers bargaining power.

Threat of backward integration

The power of buyers is enhanced if there is a credible threat that the buyer might enter the suppliers industry.

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First Application of the Five Forces Model


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First Application of the Model


The five forces model can be used to assess the attractiveness of an industry by determining the level of threat to industry profitability for each of the forces. If a firm fills out the form shown on the next slide and several of the threats to industry profitability are high, the firm may want to reconsider entering the industry or think carefully about the position it would occupy.

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First Application of the Five Forced Model


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Assessing Industry Attractiveness Using the Five Forces Model

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Second Application of the Five Forces Model


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Second Application of the Model


The second way a new firm can apply the five forces model to help determine whether it should enter an industry is by using the model to answer several key questions. The questions are shown in the figure on the next slide, and help a firm project the potential success of a new venture in a particular industry.

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Second Application of the Five Forced Model


2 of 2 Using the Five Forces Model to Pose Questions to Determine the Potential Success of a New Venture in an Industry

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Industry Types and the Opportunities They Offer


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Emerging Industries
Industries in which standard operating procedures have yet to be developed.
Opportunity: First-mover advantage.

Fragmented Industries
Industries that are characterized by a large number of firms of approximately equal size.
Opportunity: Consolidation.

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Industry Types and the Opportunities They Offer


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Mature Industries
Industries that are experiencing slow or no increase in demand.
Opportunities: Process innovation and after-sale service innovation.

Declining Industries
Industries that are experiencing a reduction in demand.
Opportunities: Leadership, establishing a niche market, and pursuing a cost reduction strategy.

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Industry Types and the Opportunities They Offer


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Global Industries
Industries that are experiencing significant international sales.
Opportunities: Multidomestic and global strategies.

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Competitor Analysis
What is a Competitor Analysis?
A competitor analysis is a detailed analysis of a firms 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.

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Identifying Competitors
Types of Competitors New Ventures Face

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Sources of Competitive Intelligence


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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.

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Sources of Competitive Intelligence


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Ethical ways to obtain information about competitors


Attend conferences and trade shows. Purchase competitors products. Study competitors Web sites. Set up Google and Yahoo! e-mail alerts. Read industry-related books, magazines, and Web sites. Talk to customers about what motivated them to buy your product as opposed to your competitors product.

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Sources of Competitive Intelligence


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Many companies attend trade shows to not only display their products, but to see what their competitors are up to. This is a photo of the the 2008 Consumer Electronics Trade Show in Las Vegas.

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Completing a Competitive Analysis Grid


Competitive Analysis Grid
A tool for organizing the information a firm collects about its competitors A competitive analysis grid can help a firm see how it stakes up against its competitors, provide ideas for markets to pursue, and identify its primary sources of competitive advantage.

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Competitive a Analysis Grid for Expresso Fitness

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Chapter 6
Developing an Effective Business Model
Bruce R. Barringer R. Duane Ireland
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Chapter Objectives
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1. Describe a business model. 2. Explain business model innovation. 3. Discuss the importance of having a clearly articulated business model. 4. Discuss the concept of the value chain. 5. Identify a business models two potential fatal flaws.

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Chapter Objectives
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6. Identify a business models four major components. 7. Explain the meaning of the term business concept blind spot. 8. Define the term core competency and describe its importance. 9. Explain the concept of supply chain management. 10. Explain the concept of fulfillment and support.

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What is a Business Model?


Model
A model is a plan or diagram thats used to make or describe something.

Business Model
A firms business model is its plan or diagram for how it competes, uses its resources, structures its relationships, interfaces with customers, and creates value to sustain itself on the basis of the profits it generates. The term business model is used to include all the activities that define how a firm competes in the marketplace.
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Dells Business Model


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Its important to understand that a firms business model takes it beyond its own boundaries. Almost all firms partner with others to make their business models work. In Dells case, it needs the cooperation of its suppliers, customers, and many others to make its business model possible.
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Dells Business Model


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Dells Approach to Selling PCs versus Traditional Manufacturers

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The Importance of Business Models


Having a clearly articulated business model is important because it does the following: Serves as an ongoing extension of feasibility analysis. A business model continually asks the question, Does this business make sense? Focuses attention on how all the elements of a business fit together and constitute a working whole. Describes why the network of participants needed to make a business idea viable are willing to work together. Articulates a companys core logic to all stakeholders, including all employees.
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Diversity of Business Models


There is no standard business model for an industry or for a target market within an industry. However, over time, the most successful business models in an industry predominate. There are always opportunities for business model innovation.

Diversity or Variety in Business Models

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Business Model Innovation

Netflix is an example of a business model innovator.

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Business model Innovators


Solar Energy seems like an ideal alternative to fossil fuels. However, the reality is that purchasing and installing a solar energy system is simply too expensive given the potential cost savings in most instances. Installing a solar energy system also requires a consumer or business to make a substantial capital outlay for future cost savings. Although there are obvious environmental benefits to consider, how would you like to pay your next five years of electric bills in advance? Theres also the issue of maintenance. Once you buy a solar energy system you own it and are responsible for upkeep and repairs. So how can solar energy be affordable alternative business model, pioneered by Sun Edison, is to make solar energy a service rather than a product. The company, which was started by Jigar Shah, a former British Petroleum executive, purchases, installs, and maintains the solar panels placed on its customerss roofs in exchange for service contracts that provide SunEdison a steady stream of revenue to fund its operators.
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Business Model Innovators


In 1991, a student at the University of Helsinki named Linus Torvarlds posted his Linux operating system on the Internet to compete with the Microsoft Windows operating system. Torvalds, a believer in free software, invited other programmers to try to improve it-for free. The only caveat is that if an individual or company downloads the source code and improved upon it, they must then make the upgraded version freely available to everyone else. Linux quickly developed a global following among programmers and business. Many companies, like Google or Amazon.com use Linux rather than a system from Microsoft to cut their technology costs. The problem with Linux is that even though is free, it takes some expertise to download and properly implement it. To solve this problem, Red Hat introduced an innovative business model to complement Linux software. RedHat didnt sell Linux, that is not allowed. But it started supporting and customizing Linux for clients and developed applications to make Linux run smoother.
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How Business Models Emerge


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The Value Chain


The value chain is the string of activities that moves a product from the raw material stage, through manufacturing and distribution, and ultimately to the end user. By studying a products or services value chain, an organization can identify ways to create additional value and assess whether it has the means to do so. Value chain analysis is also helpful in identifying opportunities for new businesses and in understanding how business models emerge.
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How Business Models Emerge


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The Value Chain

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How Business Models Emerge


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The Value Chain (continued)


Entrepreneurs look at the value chain of a product or a service to pinpoint where the value chain can be made more effective or to spot where additional value can be added. This type of analysis may focus on:
A single primary activity such as marketing and sales. The interface between one stage of the value chain and another, such as the interface between operations and outgoing logistics. One of the support activities, such as human resource management.

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Potential Fatal Flaws in Business Models


Fatal Flaws
Two fatal flaws can render a business model untenable from the beginning:
A complete misread of the customer. Utterly unsound economics.

Pets.com sported an unsound business model, and failed.


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Components of a Business Model


Four Components of a Business Model

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Core Strategy
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Core Strategy
The first component of a business model is the core strategy, which describes how a firm competes relative to its competitors.

Primary Elements of Core Strategy


Mission statement. Product/market scope. Basis for differentiation.

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Core Strategy
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Primary Elements of Core Strategy


A firms mission, or mission statement, describes why it exists and what its business model is suppose to accomplish.

Mission Statement

Product/Market Scope

A companys product/market scope defines the products and markets on which it will concentrate.

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Core Strategy
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Primary Elements of Core Strategy

Basis of Differentiation

It is important that a new venture differentiate itself from its competitors in some way that is important to its customers. If a new firms products or services arent different from those of its competitors, why should anyone try them?

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Strategic Resources
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Strategic Resources
A firm is not able to implement a strategy without resources, so the resources a firm has affects its business model substantially.
For a new venture, its strategic resources may initially be limited to the competencies of its founders, the opportunity they have identified, and the unique way they plan to serve their market.

The two most important strategic resources are:


A firms core competencies. Strategic assets.

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Strategic Resources
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Primary Elements of Strategic Resources


A core competency is a resource or capability that serves as a source of a firms competitive advantage. Examples include Sonys competence in miniaturization and Dells competence in supply chain management. Strategic assets are anything rare and valuable that a firm owns. They include plant and equipment, location, brands, patents, customer data, a highly qualified staff, and distinctive partnerships.

Core Competencies

Strategic Assets

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Strategic Resources
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Importance of Strategic Resources


New ventures ultimately try to combine their core competencies and strategic assets to create a sustainable competitive advantage. This factor is one that investors pay close attention when evaluating a business. A sustainable competitive advantage is achieved by implementing a value-creating strategy that is unique and not easy to imitate. This type of advantage is achievable when a firm has strategic resources and the ability to use them.
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Partnership Network
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Partnership Network
A firms partnership network is the third component of a business model. New ventures, in particular, typically do not have the resources to perform key roles. In most cases, a business does not want to do everything itself because the majority of tasks needed to build a product or deliver a service are not core to a companys competitive advantage. A firms partnership network includes:
Suppliers. Other key relationships.
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Partnership Network
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Primary Elements of Partnership Network


A supplier is a company that provides parts or services to another company. Intel is Dells primary suppler for computer chips, for example.

Suppliers

Other Key Relationships

Firms partner with other companies to make their business models work. An entrepreneurs ability to launch a firm that achieves a competitive advantage may hinge as much on the skills of the partners as on the skills within the firm itself.

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Customer Interface
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Customer Interface
The way a firm interacts with its customer hinges on how it chooses to compete.
For example, Amazon.com sells books over the Internet while Barnes & Noble sells through its traditional bookstores and online.

The three elements of a companys customer interface are:


Target customer. Fulfillment and support. Pricing model.

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Customer Interface
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Primary Elements of Customer Interface

Target Market

A firms target market is the limited group of individuals or businesses that it goes after or tries to appeal to.

Fulfillment and Support

Fulfillment and support describes the way a firms product or service reaches it customers. It also refers to the channels a company uses and what level of customer support it provides.

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Customer Interface
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Primary Elements of Customer Interface

Pricing Structure

The third element of a companys customer interface is its pricing structure. Pricing models vary, depending on a firms target market and its pricing philosophy.

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Recap: The Importance of Business Models


Business Models
It is very useful for a new venture to look at itself in a holistic manner and understand that it must construct an effective business model to be successful. Everyone that does business with a firm, from its customers to its partners, does so on a voluntary basis. As a result, a firm must motivate its customers and its partners to play along. Close attention to each of the primary elements of a firms business model is essential for a new ventures success.
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