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Entrepreneurship

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  • 1. Entrepreneurship Mr. Mazen S. H. ElsayedPalestinian Community Assistance Program
  • 2. Principles of Entrepreneurship
  • 3. Contents 1 Introduction - What is Entrepreneurship? 2 What are Investors Looking For? The Three crucial components for a 3 successful new business Ingredients for a Successful New 4 Business
  • 4. Introduction (1/2)• After finishing your graduation you will be at the crossroads of life: – Career in your own business [YOB] “Entrepreneurship” – wage employment [JOB]
  • 5. Introduction (2/2)Difference between Wage Employment and Entrepreneurship
  • 6. What is Entrepreneurship??• The Entrepreneurial Process includes all the functions, activities, and actions that are part of perceiving opportunities and creating organizations to pursue them. – An Entrepreneur is someone who perceives an opportunity and creates an organization to pursue it.
  • 7. Critical Factors for Starting a New Enterprise What about having a QUIZ??
  • 8. A model of the entrepreneurial process
  • 9. Critical Factors for Starting a New Enterprise (1/3)1. Personal Attributes – A higher need for achievement. – A higher internal locus of control. – Independence – Financial success – Self-realization – Recognition – Innovation
  • 10. Critical Factors for Starting a New Enterprise (2/3)1. Environmental Factors: – Silicon Valley FEVER – Entrepreneur genetics !!
  • 11. Critical Factors for Starting a New Enterprise (3/3)1. Sociological Factors – Family Responsibilities. – Experience VS. Optimism and Energy
  • 12. Evaluating Opportunities for New Businesses• How should you evaluate the prospects of starting a new Business?? – USA: only 1 business in 10 will ever reach its 10th birthday.• This is because they are started as part-time pursuits and are never intended to become full-time businesses.
  • 13. The Three crucial components for a successful new business (1/8)
  • 14. The Three crucial components for a successful new business (2/8)• The crucial ingredients for entrepreneurial success are a superb-entrepreneur with a first-rate management team and an excellent market opportunity.• In entrepreneurship, as in any other profession, Luck is where preparation and opportunity meet.
  • 15. The Three crucial components for a successful new business (3/8)1. The Opportunity: – The biggest misconception about an idea for a new business is that it must be unique. • If you have a unique idea, you become super- secretive, reluctant to discuss it with anyone who doesn’t sign a nondisclosure agreement. • That makes it almost impossible to evaluate the idea.
  • 16. The Three crucial components for a successful new business (4/8)1. The Opportunity (Cont.): – The idea in itself is not what is important. – Developing the idea, implementing it, and building a successful business are the important things.
  • 17. The Three crucial components for a successful new business (5/8)• The Customer: – Would-be entrepreneurs who are unable to name a customer are not ready to start a business. – They have found an idea but have not yet identified a market need.
  • 18. The Three crucial components for a successful new business (6/8)• The Timing: – In some emerging industries, there is a definite window of opportunity that opens only once. – Most entrepreneurs should avoid these kind of opportunities • they will rush to open their business, lead to costly mistakes.
  • 19. The Three crucial components for a successful new business (7/8)1. The Entrepreneur and the Management Team: – Opportunity will not become a successful business without strong entrepreneurial and management skills. a. Experience in the same industry. b. management experience.
  • 20. The Three crucial components for a successful new business (8/8)1. Resources: – Entrepreneurial frugality requires: • Low overhead. • High productivity. • Minimal ownership of capital assets.
  • 21. Ingredients for a Successful New Business• Founders: Every startup company must have a first-class entrepreneur.• Focused: Entrepreneurial companies focus on niche markets.• Fast & Flexible: They make decisions quickly and implement them swiftly. They keep an open mind.• Forever-innovating: They are tireless innovators.• Flat: Entrepreneurial organizations have as few layers of management as possible.• Frugal: By keeping overhead low and productivity high.
  • 22. Opportunity Recognition
  • 23. Contents 1 How Do I Come Up with a Good Idea? 2 Is Your Idea an Opportunity?
  • 24. How Do I Come Up with a Good Idea? (1/2)• Finding your passion: – Launching an entrepreneurial venture takes a tremendous amount of time and energy, and you will have difficulty sustaining that level of energy if you aren’t passionate about the business. • about all the things that give you joy. • Ask your Friends (they know you better!!)
  • 25. How Do I Come Up with a Good Idea? (2/2)• Idea Multiplication – Moving from seed idea to something that is robust, exciting, and powerful. • cocktail-party entrepreneur is all talk and no action. 1.Gather Stimuli. 2.Multiply Stimuli: Brain-Writing. 3.Create Customer Concepts: build a simple mock- up of what the product will look like. 4.Optimize Practicality: identify those features that are unnecessary, impractical, or simply too expensive
  • 26. Is Your Idea an Opportunity? (1/5)• five major areas you need to fully understand prior to your launch:
  • 27. Is Your Idea an Opportunity? (2/5) • The Customer: – Who is your core customer? 1. Primary target audience (PTA): most likely to buy at a price that preserves your margins and with a frequency that reaches your target revenues. 2. Secondary target audience (STA): part of your growth strategy. 3. Tertiary target audience (TTA). – Trends: spot trends that are currently influencing customer buying behavior and that might influence it in the future.
  • 28. S-curve and Product Acceptance
  • 29. Is Your Idea an Opportunity? (3/5)• The Customer (Cont.): – Frequency and Price: how often our average customer buys our product or service and how much he or she is willing to pay. • Don’t use a penetration-pricing strategy. • Use cost-plus pricing.
  • 30. Cost-Pluss Pricing (1/2)• Converting markup to gross margin – Markup = 100% = 1 – Markup = 66.7% = 0.667
  • 31. Cost-Pluss Pricing (2/2)• Converting gross margin to markup – Gross margin = 50% = 0.5 – Gross margin = 40% = 0.4
  • 32. Is Your Idea an Opportunity? (4/5)• The Competition: – How is the customer currently fulfilling the need or want you intend to fill? • Direct competitors. • Indirect competitors. • Substitutes. – The good news is that many times strong competitors won’t bother with new startups. – How to know your competitors: • Ask suppliers. • Professional investors.
  • 33. Is Your Idea an Opportunity? (5/5)• Suppliers and vendors: – suppliers can have tremendous power, and that will directly affect your margins.• The Government: – Tax – Time for registering a new business.• The Global Environment.
  • 34. Introduction to business models• A business model describes the rationale of how an organization creates, delivers, and captures value.• Consists of two components: – The Revenue Model: breaks down all the sources of revenue that your business will generate. – The Cost Model: identifies how you are spending your resources to make money
  • 35. The Revenue Model• Breaking down the revenue sources into categories.• Different revenue categories often require variations on the firm’s central strategy to achieve the highest possible outcomes – influenced by ‘‘drivers’’ that are directly correlated with the level of revenues the company earns. – If you don’t fully understand your revenue drivers, you won’t achieve the greatest success.
  • 36. The Cost Model• A firm needs to spend money to influence the revenue drivers.• Includes two primary categories: – Cost of goods sold (COGS): represents costs directly associated with the revenue source. – Operating costs: like advertisements, Rapid delivery.• Until having a full understanding of the business model required, it is difficult to move on to tactics to implement that strategy.
  • 37. The First-Mover Myth• To capture a first-mover advantage: 1. You have to be first (or very early) into the market. 2. You need to capture a large percentage of the market quickly (fast growth). 3. You need to create switching costs so the customer will stick with you.
  • 38. Formulating a Winning Strategy   Exercise  
  • 39. Business Model Canvas
  • 40. Contents 1 Definition of Business Model 2 The 9 Building Blocks
  • 41. Business Model DefinitionA Business Model describes the rationaleof how an organization creates, delivers,and captures Value.
  • 42. The 9 Building BlocksWe believe a business model can best be described through nine basic building blocks that show the logic of how a company intends to make money.They cover the four main areas of a business: (1) Customers (2) Offer (3) Infrastructure (4) Financial Viability.
  • 43. The 9 Building Blocks
  • 44. 1- Customer Segments (1/3)It defines the different groups ofpeople or organizations anenterprise aims to reach andserve.  For whom are we creating value?  Who are our most important customers?
  • 45. 1- Customer Segments (2/3)Customer groups represent separate segments if:  Their needs require and justify a distinct offer.  They are reached through different Distribution Channels.  They require different types of relationships.  They have substantially different profitabilities.  They are willing to pay for different aspects of the offer.
  • 46. 1- Customer Segments (3/3)There are different types of Customer Segments:  Mass market  Niche market  Segmented  Diversified  Multi-sided platforms (or multi-sided markets)
  • 47. 2- Value Propositions (1/2)It describes the bundle of products and servicesthat create value for a specific CustomerSegment  What value do we deliver to the customer?  Which one of our customer’s problems are we helping to solve?  Which customer needs are we satisfying?  What bundles of products and services are we offering to each Customer Segment?
  • 48. 2- Value Propositions (2/2)Elements from the following non-exhaustive listcan contribute to customer value creation:* Newness * Performance* Customization * Accessibility* Design * Brand/status* Price * Cost reduction* Risk reduction * “Getting the job done”* Convenience/usability
  • 49. 3- ChannelsIt describes how a company communicates withand reaches its Customer Segments to deliver aValue Proposition.
  • 50. 4- Customer Relationships (1/2)It describes the types of relationships a company establishes with specific Customer Segments.Customer relationships may be driven by the following motivations:  Customer acquisition  Customer retention  Boosting sales (upselling)
  • 51. 4- Customer Relationships (2/2)We can distinguish between several categoriesof Customer Relationships:  Personal assistance  Dedicated personal assistance  Self-service  Automated services  Communities  Co-creation
  • 52. 5- Revenue Streams (1/3)It represents the cash a company generates from each Customer Segment (costs must be subtracted from revenues to create earnings).A business model can involve two different types of Revenue Streams: 1.Transaction revenues resulting from one-time customer payments 2. Recurring revenues resulting from ongoing payments to either deliver a Value Proposition to customers or provide post-purchase customer support.
  • 53. 5- Revenue Streams (2/3)There are several ways to generate RevenueStreams:  Asset sale  Usage fee  Subscription fees  Lending/Renting/Leasing  Licensing  Brokerage fees  Advertising
  • 54. 5- Revenue Streams (3/3)
  • 55. 6- Key ResourcesIt describes the most important assets required to make a business model work.Key Resources can be categorized as follows:  Physical  Intellectual  Human  Financial
  • 56. 7- Key ActivitiesIt describes the most important things a company must do to make its business model work.Key Activities can be categorized as follows:  Production  Problem solving  Platform/ network
  • 57. 8- Key Partnerships (1/2)It describes the network of suppliersand partners that make the businessmodel work.It can be useful to distinguish betweenthree motivations for creatingpartnerships:  Optimization and economy of scale  Reduction of risk and uncertainty  Acquisition of particular resources and activities
  • 58. 8- Key Partnerships (2/2)We can distinguish between four different typesof partnerships: 1. Strategic alliances between non-competitors 2. Strategic partnerships between competitors 3. Joint ventures to develop new businesses 4. Buyer-supplier relationships
  • 59. 9- Cost Structure (1/2)It describes all costs incurred to operate a business model.It can be useful to distinguish between two broad classes of business model Cost Structures:  Cost-driven  Value-driven
  • 60. 9- Cost Structure (2/2)Cost Structures can have the followingcharacteristics:  Fixed costs  Variable costs  Economies of scale  Economies of scope
  • 61. The 9 Building Blocks
  • 62. Apple iPod/iTunes Business Model
  • 63. QUESTIONS