Introduction to Entrepreneurship, Keith Lawrence Miller
Entrepreneurship Keith Miller
What is an Entrepreneur?An Entrepreneur is someone whoorganizes a business ventureThis business introduction willprovide you with the tools you needfor Entrepreneurial Success!
Business Strategy*Goals – Vision – Mission – Planning – Measurement*Goals (What we want to achieve):Examples: Provide a valuable service to help thecommunity, make a respectable income, provideemployment, develop beneficial products, provideclient solution services, etc.Vision (destination):Where do I see myself and the business in… 1 year, 5 years, 10 years?
Business Strategy*Goals – Vision – Mission – Planning – Measurement*Mission (Direction or Business Model):Statement concerning how we will meet the visionExample Mission Statement: "In order to realize our Vision, our Mission must be toexceed the expectations of our customers, whom we define asguests, partners, and fellow employees. We will accomplishthis by committing to our shared values and by achieving thehighest levels of customer satisfaction, with extraordinaryemphasis on the creation of value. In this way we will ensurethat our profit, quality and growth goals are met.“ – Westin
Business Strategy*Goals – Vision – Mission – Planning – Measurement*Planning (process and implementation):The strategy!Measurements (outcomes):What we are doing – is it Working? Continuous updating is necessary because conditions are continuously changing
Main Purpose of BusinessProfit Rule:The main purpose of a business is to… Make a ProfitThere is no business without a Profit…The bottom line of all business is to:Create - Measure – Maximize – Sustain…
Why should I start a business? Business is Simple: Money in (– minus) Money out = What is left over!! Tax incentives: Earn more, spend more, and pay fewer taxes!! Being your own business provides more job security (Multiple Clients) - If a client stops using your services then you can depend on income from other clients Working for an organization provides one client (The Organization) - If you are laid off then you do not have an income and need to find another company
What Business Plan should I have?For ProfitFor profit sends money back to (owner, investors)Creates innovative productsNot-for-Profit (non-profit)Spends all money on resources, salaries, etc. and comes to a zero balance at the end of the yearNot-for-profit companies use surplus revenues to achieve its goals rather than distributing them as profit. Profits must be retained by the organization for its self-preservation, expansion, or plans.
What is a Business Structure?**Business Structures provide… *Personal protection from lawsuits & business debt* Limited Liability Companies (LLC), Limited Liability Partnerships, and other specific types of business organization protect their owners from business failure by doing business under a separate legal entity with certain legal protections In contrast, unincorporated businesses or persons working on their own are not similarly protected
Types of Business Structures Sole ProprietorshipA Sole Proprietorship is one individual or married couple in business alone for profit and the most common form of business structureThis type of business is simple to form and operate, and may enjoy greater flexibility of management, fewer legal controls, and taxesHowever, be forewarned, the business owner has unlimited liability for all debts incurred by the business
Types of Business Structures CorporationA Corporation is a more complex business structure that has a separate legal personality from its membersA Corporation has certain rights, privileges, and liabilities beyond those of an individualCorporations may be formed for profit or non- profit purposes and can be privately or publically held
Types of Business Structures S CorporationTo meet S Corporation standards, a business has to file written agreements with the state and have losses in the tax yearS corporations do not pay any federal income taxes. Instead, the corporations income or losses are divided among and passed through to its shareholdersThe shareholders must then report the income or loss on their own individual income tax returns
Types of Business Structures Non-profit Corporation A Non-profit Corporation is a legal entity and is typically run to further an ideal or goal rather than in the interests of profit Many non-profits serve the public interest, but some engage in private sector activities
Types of Business Structures Limited Liability Company (LLC)A Limited Liability Company (LLC) is formed through a special written agreement that is relatively easy to completeLLCs are permitted to engage in any lawful, for- profit business or activity other than banking or insuranceFiling with your local state is necessary and the costs are minimal in most states
Types of Business Structures General PartnershipA General Partnership is owned by 2 or more persons (usually not a married couple) who agree to contribute money, labor, or skill to a businessEach partner shares the profits, losses, and management of the business and each partner is personally and equally liable for debts of the partnershipFormal terms of the partnership are usually contained in a written partnership agreement
Types of Business Structures Limited Liability Partnership (LLP)A Limited Liability Partnership (LLP) is similar to a General Partnership except that normally a partner does not have personal liability for the negligence of another partnerThis business structure is used most by professionals, such as accountants and lawyers
What is a Business Tax ID?Corporations Need a Federal Business Tax IDAn Employer Identification Number (EIN), also known as a Federal Tax Identification NumberUsed to identify a business entity and creates an identity for the business which is essentially a Social Security Number for a person which is necessary to complete the process of having your business become a separate entity
Risk ManagementPlanning, Prevention, & being ProactiveThere is always a risk in everything we do and we need to identify potential problems for protection which is the basis for Risk Management Where does risk come from?Uncertainty in financial marketsProject failures (at any phase in design, development, production, or service)Legal liabilities: Being sued!
Risk ManagementPlanning, Prevention, & being Proactive Where does risk come from?Credit risk: Unable to pay back too much Debt!Accidents: The unexpected happens!Natural causes and Disasters: External factors! Focus on protection from risks by focusing on the issue with the greatest loss and greatest probability of occurring first and focus on the following potential problems in order
How much should I Invest? **As Little as Possible**How do I start a business with minimal investment? Leveraging a bank loan to make a business profit is low risk Debt is only good if it is invested to make a greater financial return This is the concept of using other people’s money to make money You need a business plan to obtain a bank loan
What is Bad Debt?Any money borrowed to make purchases that do not return a profit above the interest level of the loanFor example: Credit cards are bad debt when used to buy goods that cannot be resold for a greater value and which depreciate with timeLoans and Grants Search Tool http://www.sba.gov/content/search-business-loan
What is Intellectual Property?Businesses often have important "intellectual property" that needs protection from competitors for the company to stay profitable. This could require patents, copyrights, and/or trademarks.Most businesses have names, logos and similar branding techniques that could benefit from trademarks.Patents and copyrights in the United States are largely governed by federal lawTrademarks are mostly a matter of state law
Retirement Investing IRA and 401k Retirement Plans These retirement plans are tax deductable (except Roth IRA) meaning that the amount invested in these financial instruments are not taxed and the amount invested is deducted from business income which reduces the initial tax burden and invested money compounds (grows) over time
What is an IRA?Traditional IRA – contributions are often tax- deductible “money is deposited before tax” all transactions and earnings within the IRA have no tax impact, and withdrawals at retirement are taxed as income.Roth IRA – contributions are made with after-tax assets, all transactions within the IRA have no tax impact, and withdrawals are usually tax-free.SEP IRA – a provision that allows a small business or self-employed individual to make retirement plan contributions into a Traditional IRA
What is a 401k?A 401(k) is a type of retirement savings account with annual contributions limited (currently to $17,500)Any withdrawal that is permitted before the age of 59½ is subject to an excise tax equal to 10% of the amount distributed (on top of the ordinary income tax that has to be paid) Individual 401k in 2012, allows businesses with only one full-time employee (owner) to contribute up to $50,000 to the plan ($55,500 for those 50 and older)
Product StrategyLogo: presents a memorable image of the companyMake your product unique and different This increases perception in clients’ minds Adds value to your goods or servicesWhat does a Customer NEED… Something that cost less than doing it themselves i.e. Car Wash: Time, Energy, Soap, Water vs. $5 A Business provides something for a cost higher than they pay which produces a profit
Product Strategy: Client NEEDSFocus on clients’ Needs, Wants, and Desires…Questions to ask when starting a business: What to produce? How to produce? For whom to produce?Find the client need and provide the serviceGoal To provide services Cheaper, Better, Faster… than Competitors!
Opportunity Costs There is always an Opportunity Cost!What is an opportunity cost? The opportunity you would have chosen…You have two choices and can only choose one… The one not chosen is your Opportunity Cost The cost of choosing an opportunity is not taking advantage of the other opportunity
Cost Benefit Analysis Conduct a Cost Benefit AnalysisThe benefit must meet or exceed the cost to the customer or eventually you will go out of businessPrice must exceed the cost of providing the service or you will lose profitYou need to know your cost in providing the product or service to correctly price your product
Comparative Advantage What is Comparative Advantage?Developing and focusing on strength and trading excess with someone who provides a stronger service in your area of weakness which creates greater wealth for both partiesThis is the miracle of exchange and what is behind the growth of Nations
Comparative AdvantageExample of Comparative Advantage You make Butter and MilkYou are better at producing Butter If you dedicate all your time to only making Butter then you will have a greater abundance of Butter Partner with someone who produces Milk at a faster rate and trade Butter for MilkYou will acquire more Milk and Butter than you would have had if you produced both Milk and Butter only by yourself
Be Like Water! “Be like water making its way through cracks. Do not be assertive, but adjust to the object, and you shall find a way around or through it. If nothing within you stays rigid, outward things will disclose themselves. Empty your mind, be formless. Shapeless, like water. If you put water into a cup, it becomes the cup. You put water into a bottle and it becomes the bottle. You put it in a teapot, it becomes the teapot. Now, water can flow or it can crash. Be water, my friend.” ― Bruce Lee The market runs like a river and will always find the path of least resistance
Valuable Business Tips! When and if the business ever runs dry, even if you have this incredible love for your original idea, you need to pivot or regroup and form a new vision that is profitable because without a profit there is no business.Package your products into groups This allows you to charge higher fees
Valuable Business Tips!Time is a Limited Resource Treat time with Respect!Charge by the project or product, not by Time This gives you flexibility with your time and allows you to charge more (if necessary) for your time If you could provide a better product in less time than your competitor then why should you charge by time?
Valuable Business Tips!Identify a niche client population Detail your Services to Target their NeedsSeek out Mentors… That specialize in your intended area of focus Everyone has a need to be filled and entrepreneurs are skilled at finding ways to satisfy needs that produce income
Valuable Business Tips!Use Google apps – They are FREE!Build an Elevator Pitch with Harvard Business School for FREE! http://www.alumni.hbs.edu/careers/pitch/ Start a FREE Wordpress blog… and a FREE Facebook Business page… Tell everyone about you and your business!!