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CHAPTER 1 The Foundations of Entrepreneurship The World of the Entrepreneur  Every year U.S.

entrepreneurs launch 550,000 new businesses.  Entrepreneurial spirit - the most significant economic development in recent history.  GEM study: 18.7% of adult population in the U.S. is actively involved in trying to start a new business.  Global Entrepreneurship Monitor (GEM) study reports:  Men are twice as likely to start a business as women.  Most entrepreneurs turn to family members and friends for capital.  Entrepreneurs are most likely to launch businesses when they are between the ages of 25 and 44. What is an Entrepreneur? One who creates a new business in the face of risk and uncertainty for the purpose of achieving profit and growth by identifying opportunities and assembling the necessary resources to capitalize on them. Characteristics of Entrepreneurs  Desire for responsibility  Preference for moderate levels of risk risk eliminators  Confidence in their ability to succeed  Desire for immediate feedback  High level of energy  Future orientation serial entrepreneurs  Skilled at organizing  Value achievement over money Entrepreneurship  One characteristic of entrepreneurs stands out: Diversity!  Anyone regardless of age, race, gender, color, national origin, or any other characteristic can become an entrepreneur (although not everyone should). Benefits of Entrepreneurship The opportunity to:  Create your own destiny  Make a difference  Reach your full potential  Reap impressive profits  Contribute to society and to be recognized for your efforts  Do what you enjoy and to have fun at it Drawbacks of Entrepreneurship  Uncertainty of income  Risk of losing your entire investment  Long hours and hard work  Lower quality of life until the business gets established  High levels of stress  Complete responsibility  Discouragement

Feeding the Entrepreneurial Fire  Entrepreneurs as heroes  Entrepreneurial education  Demographic and economic factors  Shift to a service economy  Technology advancements  Independent lifestyle  E-commerce and the Internet  Entrepreneurs as heroes  Entrepreneurial education  Demographic and economic factors  Shift to a service economy  Technology advancements  Independent lifestyles  E-commerce and the Internet  International opportunities The Cultural Diversity of Entrepreneurship  Young entrepreneurs  Women entrepreneurs

         

Minority-owned enterprises Immigrant entrepreneurs Part-time entrepreneurs Home-based businesses Family businesses Copreneurs Corporate castoffs Corporate dropouts Social entrepreneurs Retiring Baby Boomers

Small Businesses ...  Make up 99.7% of the 30.14 million businesses in the U.S.  Employ 51% of the nation s private sector workforce.  Create more jobs than big businesses.  60% to 80% of net new jobs over the last decade  Are leaders in offering training and advancement opportunities to workers.  Produce 51% of the nation s private GDP.  Account for 47% of business sales.  Create 13 times more patents per employees than large companies.  ipper, light bulb, FM radio, laser, air conditioning, escalator, personal computer, automatic transmission, and many more! Small Business by Industry Service 51.3% Other 16.9% Construction 12.4% Retail 10.3% Finance 3.8% Wholesale 2.8% Manufacturing 2.3% Ten Deadly Mistakes of Entrepreneurship 1. Management mistakes 2. Lack of experience 3. Poor financial control 4. Weak marketing efforts 5. Failure to develop a strategic plan 6. Uncontrolled growth 7. Poor location 8. Improper inventory control 9. Incorrect pricing 10. Inability to make the entrepreneurial transition Putting Failure Into Perspective  Entrepreneurs are not paralyzed by the prospect of failure.  Failure a natural part of the creative process.  Successful entrepreneurs learn to fail intelligently. Avoiding the Pitfalls of Small Business Failure  Know your business in depth  Develop a solid business plan  Manage financial resources  Understand financial statements  Learn to manage people effectively  Set your business apart from the competition  Maintain a positive attitude Conclusion Entrepreneurs:  Are an important part of the free enterprise system  Are a diverse and talented group of people  Represent a cross-section of society as a whole  Are able to enhance the profitability of their businesses through acquiring additional knowledge and experience

What is Ahead? Section 1: The Challenge of Entrepreneurship Section 2: Building a Business Plan: Beginning Considerations Section 3: Building a Business Plan: Marketing Considerations Section 4: Building a Business Plan: Financial Matters Section 5: Putting the Business Plan to Work: Making the New Venture a Success CHAPTER 2 Inside the Entrepreneurial Mind: From Ideas to Reality Creativity and Innovation  Creativity the ability to develop new ideas and to discover new ways of looking at problems and opportunities; thinking new things  Innovation the ability to apply creative solutions to problems or opportunities to enhance or to enrich people s lives; doing new things. Entrepreneurship  Entrepreneurship the result of a disciplined, systematic process of applying creativity and innovation to the needs and opportunities in the marketplace.  Entrepreneurs connect their creative ideas with the purposeful action and structure of a business. Failure: Part of the Creative Process!  For every 3,000 new product ideas:  Four make it to the development stage.  Two are actually launched.  One becomes a success in the market.  On average, new products account for 40% of companies sales!!  Creativity is an important source of building a competitive advantage. Can We Learn to Be Creative? YES! By overcoming paradigms and by suspending conventional thinking long enough to consider new and different alternatives! Right-Brained, Creative Thinkers  Always ask: Is there a better way?  Challenge custom, routine, and tradition.  Are reflective.  Are prolific thinkers.  Play mental games.  Realize that there may be more than one right answer.  Know that mistakes are pit stops on the way to success.  Recognize that problems are springboards for new ideas.  Understand that failure is a natural part of the creative process.  Relate seemingly unrelated ideas to a problem.  Have helicopter skills. Left-Brained or Right-Brained? Entrepreneurship requires both left-and right-brained thinking.

 Right-brained thinking draws on divergent reasoning, the ability to create a multitude of original, diverse ideas.  Left-brained thinking counts on convergent reasoning, the ability to evaluate multiple ideas and to choose the best solution to a problem. Barriers to Creativity  Searching for the one right answer  Focusing on being logical  Blindly following the rules  Constantly being practical  Viewing play as frivolous  Becoming overly specialized  Avoiding ambiguity  Fearing looking foolish  Fearing mistakes and failure  Believing that I m not creative Questions to Spur the Imagination  Is there a new way to do it?  Can you borrow or adapt it?  Can you give it a new twist?  Do you merely need more of the same?  Do you need less of the same?  Is there a substitute?  Can you rearrange the parts?  What if you do just the opposite?  Can you combine ideas?  Can you put it to other uses?  What else could you make from this?  Are there other markets for it?  Can you reverse it?  Can you eliminate it?  Can you put it to another use?  What idea seems impossible, but if executed, would revolutionize your business? Tips for Enhancing Organizational Creativity  Include creativity as a core company value  Embrace diversity  Expect creativity  Expect and tolerate failure  Create an organizational structure that nourishes creativity  Encourage curiosity  Create a change of scenery periodically  View problems as opportunities  Provide creativity training  Provide support  Develop a procedure for capturing ideas  Talk and interact with customers  Look for uses for your company s products or services in other markets  Reward creativity  Model creative behavior  Keep a journal to record your thoughts and ideas  Listen to other people

       

Listen to customers Talk to a child Do something ordinary in an unusual way Keep a toy box in your office Do not throw away seeming bad ideas Read books on stimulating creativity or take a class on creativity Take some time off Be persistent

The Creative Process

Preparation Get your mind ready for creative thinking.  Adopt the attitude of a lifelong student.  Read a lot and not just in your field of expertise.  Clip articles of interest to you and save them.  Take time to discuss your ideas with other people.  Join professional or trade associations and attend their meetings.  Study other countries and their cultures.  Travel to new places.  Develop your listening skills.  Eliminate creative distractions. Transformation  Involves viewing both the similarities and the differences among the information collected.  Two types of thinking are required:  Convergent the ability to see the similarities and the connections among various and often diverse data and events.  Divergent the ability to see the differences among various data and events.  How can you transform information into purposeful ideas?  Grasp the big picture by looking for patterns that emerge.  Rearrange the elements of the situation.  Use synectics, taking two seeming nonsensical ideas and combining them.  Remember that several approaches can be successful. If one fails, jump to another.

Incubation  Allow your subconscious to reflect on the information collected.  Walk away from the situation.  Take the time to daydream.  Relax and play regularly.  Dream about the problem or opportunity.  Work on the problem in a different environment. Verification  Validate the idea as accurate and useful.  Is it really a better solution?  Will it work?  Is there a need for it?  If so, what is the best application of this idea in the marketplace?  Does this product or service fit into our core competencies?  How much will it cost to produce or to provide?  Can we sell it at a reasonable price that will produce a profit? Techniques for Improving the Creative Process  Brainstorming: The goal is to create a large quantity of novel and imaginative ideas. Brainstorming Guidelines  Keep the group small Two pizza rule.  Make the group as diverse as possible.  Emphasize that company rank is irrelevant.  Have a well-defined problem, but don t reveal it ahead of time.  Limit the session to 40 to 60 minutes.  Take a field trip.  Appoint a recorder.  Use a seating pattern that encourages interaction.  Throw logic out the window.  Encourage all ideas from the team.  Shoot for quantity of ideas over quality of ideas.  Forbid criticism.  Encourage idea hitch-hiking.  Dare to imagine the unreasonable.  Mind-mapping  A graphical technique that encourages thinking on both sides of the brain, visually displays relationships among ideas, and improves the ability to see a problem from many sides.  Force Field Analysis  A useful technique for evaluating the forces that support and oppose a proposed change.  Three columns:  Center: Problem to be addressed  Left: Driving forces  Right: Restraining forces  Score each force (-1 to +4) and add them.  TRIZ  A systematic approach designed to solve any technical problem.  Relies on 40 principles and left-brained thinking to solve problems.

 Rapid Prototyping  Transforming an idea into an actual model that will point out flaws and lead to design improvements. Protecting Your Ideas  Patent a grant from the Patent and Trademark Office to the inventor of product, giving the exclusive right to make, use, or sell the invention for 20 years from the date of filing the patent application.

 Trademark any distinctive word, symbol, design, name, logo, slogan, or trade dress a company uses to identify the origin of a product or to distinguish it from other goods on the market.  Servicemark the same as a trademark except that it identifies the source of a service rather than a product.  Copyright an exclusive right that protects the creators of original works of authorship such as literary, dramatic, musical, and artistic works.  Copyrighted material is denoted by the symbol .

    

Conclusion The creative process is a tenant of the entrepreneurial experience. Success, and even survival itself, requires entrepreneurs to tap their creativity. The seven steps of the creative process transform an idea into a business reality. Creativity results in value, and value provides a competitive advantage. Entrepreneurs protect their creative ideas with patents, trademarks, servicemarks, and copyrights to sustain a competitive edge.

CHAPTER 3 Designing a Competitive Business Model and Building a Solid Strategic Plan A Major Shift . . . From financial capital to intellectual capital  Human  Structural  Customer Strategic Management  Is crucial to building a successful business.  Involves developing a game plan to guide a company as it strives to accomplish its mission, goals, and objectives, and to keep it on its desired course. Strategic Management and Competitive Advantage  Developing a strategic plan is crucial to creating a sustainable competitive advantage, the aggregation of factors that sets a company apart from its competitors and gives it a unique position in the market that is superior to its competition.  Example: Shiftwise temporary nursing

Building a Competitive Advantage  Consider four aspects of a small company: 1. Products they sell 2. Service they provide 3. Pricing they offer 4. Way they sell Key: Core Competencies  Unique set of capabilities a company develops in key areas, such as superior quality, customer service, innovation, team-building, flexibility, responsiveness, and others that allow it to vault past competitors.  They are what a company does best.  Best to rely on a natural advantage (often linked to a company s smallness ).  Examples: Jobster and Advanced Composite Materials

Strategic Management Process Step 1 Develop a vision and translate it into a mission statement Step 2 Assess strengths and weaknesses Step 3 Scan environment for opportunities and threats Step 4 Identify key success factors Step 5 Analyze competition Step 6 Create goals & objectives Step 7 Formulate strategies Step 8 Translate plans into actions Step 9 Establish accurate controls Step 1: Develop a Vision and Create a Mission Statement  Vision the result of an entrepreneur s dream of something that does not exist yet and the ability to paint a compelling picture of that dream for everyone to see.  A clearly defined vision:  Provides direction  Determines decisions  Motivates people

 Allows for perseverance in the face of adversity  Addresses question: What business are we in?  The mission is a written expression of how the company will reflect an entrepreneur s values, beliefs, and vision more than just making money.  Serves as a strategic compass.  Example: Chick-fil-A  Elements of a mission statement:  Purpose of the company: What are we in business to accomplish?  Business we are in: How are we going to accomplish that purpose?  Values of the company: What principles and beliefs form the foundation of the way we do business? Step 2: Assess Company Strengths and Weaknesses  Strengths  Positive internal factors a company can draw on to accomplish its mission, goals, and objectives.  Weaknesses  Negative internal factors that inhibit a company s ability to accomplish its mission, goals, and objectives. Step 3: Scan for Opportunities and Threats  Opportunities  Positive external factors the company can exploit to accomplish its mission, goals, and objectives.  Threats  Negative external factors that inhibit the firm's ability to accomplish its mission, goals, and objectives. The Power of External Market Forces Technological, Economic, Competitive, Political and Regulatory, Social and Demographic Step 4: Identify Key Success Factors  Key success factors (KSFs): factors that determine the relative success of market participants.  The keys to unlocking the secrets of competing successfully in a particular market segment.  Example: John H. Daniel Company Step 5: Analyze Competitors  NFIB study: Small business owners believe they operate in a highly competitive environment and the level of competition is increasing.  Yet, 97 percent of all U.S. businesses do not systematically track the progress of their key competitors. Competitor Analysis  Direct competitors  Offer the same products and services  Customers often compare prices, features and deals among these competitors when they shop  Significant competitors  Offer some of the same or similar products or services  Product or service lines overlap but not completely  Indirect competitors  Offer same or similar products in only a small number of areas

Analyzing key competitors allows an entrepreneur to:  Avoid surprises from existing competitors new strategies and tactics.  Identify potential new competitors and the threats they pose.  Improve reaction time to competitors actions.  Anticipate rivals next strategic moves. Techniques do not require unethical behavior:  Monitor industry and trade publications.  Talk to customers and suppliers.  Debrief employees, especially sales representatives and purchasing agents.  Attend trade shows and conferences and study competitors sales literature.  Watch for competitor s employment ads.  Conduct patent searches for patents competitors have filed.  Get EPA reports for the factories of competing manufacturers.  Learn about the kinds of equipment and raw materials competitors are importing from the Journal of Commerce Port Import Export Reporting Service.  Buy competitors products and benchmark them.  Get competitors credit reports.  Check out the reports publicly-held competitors must file with the SEC.  Investigate UCC reports.  Check out the resources in your local library.  Use the Internet to learn more about competitors.  Visit competing businesses to observe their operations. Step 6: Create Company Goals and Objectives  Goals: Broad, long-range attributes to be accomplished.  BHAGs  Objectives: More detailed, specific targets of performance that are S.M.A.R.T.  Specific  Measurable  Assignable  Realistic (yet challenging)  Timely Step 7: Formulate Strategies Strategy - a road map of the actions an entrepreneur draws up to achieve a company s mission, goals, and objectives. It is the company s game plan for gaining a competitive advantage. Cost Leadership  Goal: to be the low-cost producer in the industry (or market segment).  Low-cost leaders have advantages:  Reaching buyers who buy on the basis of price  The power to set the industry s price floor.  Cost Leadership works well when:  Buyers are sensitive to price changes.  Competing firms sell the same commodity products.  A company can benefit from economies of scale.  Example: Anytime Fitness Differentiation  Company seeks to build customer loyalty by positioning its goods or services in a unique or different fashion.  Idea is to be special at something customers value.  Key: Build basis for differentiation on a distinctive competence, something that the small company is uniquely good at doing in comparison to its competitors.  Examples: Vosges-Haut Chocolate, Ice Hotel, and Indigenous Designs

Focus  Company selects one or more customer segments in a market, identifies customers special needs, wants, or interests, and then targets them with a product or service designed specifically for them.  Strategy builds on the differences among market segments.  Rather than try to serve the total market, the company focuses on serving a niche (or several niches) within that market.  Example: American Plume and Fancy Feather Step 8: Translate Strategies into Action Plans  Survey of senior executives: Companies achieved only 63% of the results in their strategic plans.  Create projects by defining:  Purpose  Scope  Contribution  Resource requirements  Timing Step 9: Establish Accurate Controls  Plan establishes the standards against which actual performance is measured.  Entrepreneur must:  Identify and track key performance indicators.  Take corrective action. Balanced Scorecards  A set of measurements unique to a company that includes both financial and operational measures  Gives managers a quick, yet comprehensive, picture of a company s overall performance. Five Perspectives: 1. Customer: How do customers see us? 2. Internal Business: At what must we excel? 3. Innovation and Learning: Can we continue to improve and create value? 4. Financial: How do we look to shareholders? 5. Corporate Citizenship: Do we meet our responsibility to society as a whole, the environment, the community, and other external stakeholders? Conclusion The strategic planning process:  Begins with the nine steps.  Becomes more efficient each time.  Teaches entrepreneurial discipline for a higher chance of survival. CHAPTER 4 Conducting a Feasibility Analysis and Crafting a Winning Business Plan Feasibility Analysis  Entrepreneurs do not lack creative ideas, but  Is a particular idea a viable foundation for creating a successful business?  Feasibility study addresses the question: Should we proceed with this business idea? A feasibility study:  Is not the same as a business plan.

 Serves as a filter, screening out ideas that lack the potential for building a successful business before an entrepreneur commits the necessary resources to building a business plan.  Is an investigative tool. Elements of a Feasibility Analysis Industry and market Feasibility Product or Service Feasibility Financial Feasibility Industry and Market Feasibility Analysis Two areas of focus: 1. Determining how attractive an industry is overall as a home for a new business. 2. Identifying possible niches a small business can occupy profitably. Five Forces Model Five forces interact with one another to determine the setting in which companies compete and, hence, the attractiveness of the industry: 1. Rivalry among companies in the industry 2. Bargaining power of suppliers 3. Bargaining power of buyers 4. Threat of new entrants 5. Threat of substitute products or services Rivalry Among Companies  Strongest of the five forces  Industry is more attractive when:  Number of competitors is large, or, at the other extreme, quite small  Competitors are not similar in size or capacity  Industry is growing fast  Opportunity to sell a differentiated product or service exists Bargaining Power of Suppliers  The greater the leverage of suppliers, the less attractive the industry.  Industry is more attractive when:  Many suppliers sell a commodity product  Substitutes are available  Switching costs are low  Items account for a small portion of the cost of finished products Bargaining Power of Buyers  Buyers influence is high when number of customers is small and cost of switching to a competitor s product is low.  Industry is more attractive when:  Customers switching costs are high  Number of buyers is large  Customers want differentiated products  Customers find it difficult to collect information for comparing suppliers  Items account for a small portion of customers finished products Threat of New Entrants  The larger the pool of potential new entrants, the less attractive an industry is.  Industry is more attractive to new entrants when:  Advantages of economies of scale are absent.  Capital requirements to enter are low  Cost advantages are not related to company size  Buyers are not loyal to existing brands

 Government does not restrict the entrance of new companies Threat of Substitutes  Substitute products or services can turn an industry on its head.  Industry is more attractive to new entrants when:  Quality substitutes are not readily available  Prices of substitute products are not significantly lower than those of the industry s products  Buyers switching costs are high Business Prototyping  Entrepreneurs test their business models on a small scale before committing serious resources to launch a business that might not work.  Recognizes that a business idea is a hypothesis that needs to be tested before taking it full scale. Product or Service Feasibility Analysis  Determines the degree to which a product or service idea appeals to potential customers and identifies the resourced necessary to produce it.  Two questions: 1. Are customers willing to purchase our product or service? 2. Can we provide the product or service to customers at a profit?  Primary research: Collect data firsthand and analyze it. 1. Customer surveys and questionnaires 2. Focus groups  Secondary research: Gather data that already has been compiled and analyze it.  Prototypes  In-home trials Financial Feasibility Analysis  Capital requirements an estimate of how much start-up capital is required to launch the business.  Estimated earnings forecasted income statements  Return on investment Combining the previous two estimates to determine how much investors can expect their investments to return. The Business Plan  A written summary of:  An entrepreneur s proposed business venture  The operational and financial details  The marketing opportunities and strategy  The managers skills and abilities.  A business plan is the best insurance against launching a business destined to fail or mismanaging a potentially successful company. The Business Plan: Two Essential Functions 1. Guiding the company by charting its future course and defining its strategy for following it. 2. Attracting lenders and investors who will provide needed capital. A Plan Must Pass Three Tests 1. The Reality Test proving that :  A market really does exist for your product or service.  You can actually build or provide it for the cost estimates in the plan. 2. The Competitive Test evaluates:  A company s position relative to its competitors.

 Management s ability to create a company that will gain an edge over its rivals. 3. The Value Test proving that:  A venture offers investors or lenders an attractive rate of return or a high probability of repayment. Why Take the Time to Build a Business Plan?  Although building a plan does not guarantee success, it does increase your chances of succeeding in business.  A plan is like a road map that serves as a guide on a journey through unfamiliar, harsh, and dangerous territory. Don t attempt the trip without a map! Key Elements of a Business Plan  Title Page and Table of Contents  Executive Summary  Vision and Mission Statement  Company History  Business and Industry Profile  Business Strategy  Description of Products/Services  Marketing Strategy  Document market claims  Show customer interest  Competitor Analysis  Description of Management Team  Plan of Operation  Projected Financial Statements  Loan or Investment Proposal Features vs. Benefits  Feature a descriptive fact about a product or service: an ergonomically designed, more comfortable handle  Benefit what a customer gains from the product or service feature: fewer problems with carpal tunnel syndrome and increased productivity Guidelines for Preparing a Business Plan  Remember: No one can create your plan for you.  Potential lenders want to see financial projections, but they are more interested in the strategies for reaching those projections.  Show how you plan to set your business apart from competitors; don t fall into the me too trap.  Identify your target market and offer evidence that customers for your product or service exist. Tips on Preparing a Business Plan  Make sure your plan has an attractive cover. (First impressions are crucial.)  Rid your plan of all spelling and grammatical errors.  Make your plan visually appealing.  Include a table of contents to allow readers to navigate your plan easily.  Make it interesting.

 Your plan must prove that the business will make money (not necessarily immediately, but eventually).  Use spreadsheets to generate financial forecasts.  Always include cash flow projections.  Keep your plan crisp between 25 and 40 pages long.  Tell the truth always. The 5 Cs of Credit  Capital  Capacity  Collateral  Character  Conditions Presenting the Plan  Demonstrate enthusiasm, but don t be overemotional.  Know your audience thoroughly.  Hook investors quickly with an up-front explanation of the venture, its opportunities, and its benefits to them.  Hit the highlights; focus on the details later.  Keep your presentation simple 2 or 3 major points.  Avoid overloading your audience with technological jargon.  Use visual aids.  Close by reinforcing the nature of the opportunity.  Be prepared (with details) for potential investors questions.  Follow up with every investor to whom you make your presentation. Conclusion  There are no guarantees for success.  Creating a business plan will be valuable primarily because of the process itself.  The business planning process may provide insight to increase the chances for success.  The business plan: Entrepreneurs benefit; lenders and investors demand it!